Pollard v Pollard
[2015] NZHC 1140
•26 May 2015
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2014-419-000390 [2015] NZHC 1140
BETWEEN DOUGLAS JOHN POLLARD AND
GURNELL HARRISON TRUSTEE COMPANY LIMITED AS TRUSTEES OF THE POLLARD FAMILY TRUST Plaintiffs
AND
MARK IAN POLLARD, KAZIA
DIANNE POLLARD, BAILEY INGHAM TRUSTEES LIMITED AS TRUSTEES
OF THE PRESENT AND FUTURE TRUST
First Defendants
SAMUEL ANTHONY LAUBSCHER Second Defendant
LAMB BAIN LAUBSCHER LAWYERS Third Defendant
Hearing: 16 April 2015 Appearances:
V A Whitfield and M J Meier for Plaintiffs
G H J Brant and C Grenfell for DefendantsJudgment:
26 May 2015
JUDGMENT OF VENNING J
This judgment was delivered by me on 26 May 2015 at 4.15 pm, pursuant to Rule 11.5 of the High
Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Whitfield Braun Limited, Hamilton
Edmonds Judd, Te Awamutu
Jones Fee, Auckland
Stace Hammond, Hamilton
POLLARD & ANOR v POLLARD & ORS [2015] NZHC 1140 [26 May 2015]
Introduction
[1] This application for summary judgment arises out of a family transaction involving the transfer of the family farm of Doug Pollard and his wife (owned through the Pollard Family Trust) to their son, Mark Pollard and his wife Kazia by means of a transfer by the Pollard Family Trust to the Present and Future Trust (Mark’s Trust).
[2] Following settlement of the sale a substantial sum of money remained owing by Mark’s Trust to the Pollard Family Trust. Relations between the parties have broken down. The Pollard Family Trust has called up the moneys recorded as owing by Mark’s Trust. The Pollard Family Trust seeks summary judgment for the full amount or, in the alternative, summary judgment for such lesser amount the Court might find is indisputably due and owing by Mark’s Trust.
Background
[3] The Pollard family have lived and farmed on land at Te Rahu Road, Te Awamutu for a number of generations. The land was initially farmed by John Pollard and his wife Nancy, then by his son Doug and his wife Lesley, and now in turn by Doug’s son, Mark and his wife Kazia.
[4] Doug and his wife Lesley (now deceased) had four children. Mark is the oldest. After a period working away from the farm Mark returned to the farm in about 1996. None of the other children had an interest in farming. In 2001 Mark and Kazia purchased an adjoining five hectare block which was farmed in conjunction with the Pollard Family Trust land.
[5] In 2005 Doug and Lesley discussed the future of the farm with Mark and Kazia. Ultimately it was decided the farm should be auctioned. If a good price was achieved at auction a larger property which could provide sufficient income for all could be purchased. The land auctioned included the five hectares owned by Mark and Kazia as well as most of the land that Doug and Lesley wanted to reserve as a lifestyle block. There is a dispute as to the highest bid achieved at the auction, but in any event, it did not sell. Doug did not attend the auction but says he understood the
highest bid was $4.8 million including stock. Mark says the highest bid was $4.2 million (which included his land) but accepts that there was an offer from the neighbour for $4.45 million, also including stock.
[6] The parties then pursued the possibility of Mark’s Trust purchasing the
existing land and other farming assets owned by the Pollard Family Trust.
[7] It was also intended the family farm would be subdivided but the subdivision had not been completed by the time of the sale. It was agreed that the property to be purchased by Mark’s Trust would not include an area of land which was to be subdivided off and added to a lifestyle block separately owned by Doug and Lesley. Nor would it include a further small area which was to receive a new title and on which one of Mark’s siblings, Marika, had a home.
[8] The parties attended a meeting with accountants from Bailey Ingham and Mark’s lawyer Sam Laubscher on 3 August 2005 to discuss the practicalities of Mark’s Trust purchasing the farm.
[9] On 15 August 2005 the Pollard Family Trust and Mark’s Trust entered an agreement for sale and purchase pursuant to which the Pollard Family Trust agreed to sell the family farm to Mark’s Trust for $3,710,000 plus stock. Mark’s Trust claims that the purchase price was calculated by reference to the best market value of the farm ($4.45 million) less the value of Mark and Kazia’s Land ($370,000) and less the value of the land being retained by Doug and Lesley for their dream house (also $370,000). The agreement provided, inter alia, that payment of the purchase price would be effected as follows:
1.Payment of $370,000.00 will occur by the purchaser transferring to the vendor all their interest in the land contained and described in Certificate of Title 72C/288 (South Auckland Registry).
2. By the purchaser paying to the vendor $1,323,000.00.
3.By the purchaser executing an acknowledgement of debt in favour of the vendor, carrying no interest, but being repayable upon demand, for the balance of the purchase price, including the stock and GST, then remaining.
[10] The agreement also recorded the proposed subdivisions were to be carried out
and completed at the Pollard Family Trust’s cost.
[11] Subsequently, on 22 December 2005, the Pollard Family Trust and Mark’s Trust entered a written Deed of Acknowledgement of Debt which recorded, inter alia:
a) the sum of $2,240,000 will be a debt payable by Mark’s Trust to the
Pollard Family Trust on demand; and
b)the Pollard Family Trust may at any time demand repayment of part or the whole of the debt; and
[12] The Deed of Acknowledgment also provided for the payment of interest in the event interest was demanded.
[13] The $2,240,000 recorded in the deed of acknowledgement of debt appears to have been calculated as follows:
Purchase Price Farm $3,710,000
Stock $223,000
Payment on account $370,000 (transfer of 5 ha block)
$3,933,000
Payment – bank advance $1,323,000 $1,793,000
$2,240,000
[14] Instead of transferring its interest in its five ha block to the Pollard Family Trust, Mark’s Trust sold the block itself and transferred the sale price of $395,000 plus GST to the Pollard Family Trust.
[15] The subdivision of the farm land proceeded and was completed. In the event Mark’s Trust says the Pollard Family Trust received 1.840m² more than the original survey plans contemplated.
[16] In 2008 Mark’s Trust purchased a separate run-off block (which had formerly been operated as part of the farm) from the Pollard Family Trust for $750,000. Mark’s Trust borrowed further to pay the Pollard Family Trust $650,000 on settlement. The parties agreed the balance of $100,000 would be a debt owed by Mark’s Trust to the plaintiffs. A Deed of Acknowledgement of Debt relating to that
$100,000 was entered on 17 November 2008 in similar terms to the original Deed of
Acknowledgement of Debt.
[17] Other issues arose between the parties. Doug Pollard was indebted to John and Nancy following his purchase of the farm from them. Doug had agreed to pay
$400 a month to Nancy after John’s death on the understanding the debt would be written off in her will. Following settlement of the farm sale Mark’s Trust took over that obligation and made regular payments of $400 a month to satisfy Doug’s indebtedness to Nancy until her death. The payments totalled $22,800.
[18] In addition Mark’s Trust paid $50,000 to Doug and Lesley in 2007.
[19] Finally, the parties agree that Mark’s Trust repaid $104,000 to the Pollard
Family Trust during 2013 in reduction of the debt.
These proceedings
[20] As noted, the relationship between Doug and Mark’s siblings on one side and Mark and Kazia on the other has regrettably broken down entirely. The Pollard Family Trust has now made a demand for repayment of the amounts under the acknowledgements of debt less the $104,000 already paid by Mark’s Trust. For the purposes of the summary judgment application, the plaintiffs concede the payments made to Nancy Pollard of $22,800 and the GST component on the sale of Mark’s Trust’s land can also be deducted.
[21] In response to the demand Mark’s Trust says that, despite the agreement for sale and purchase and written acknowledgement of debt it was always understood and agreed that no more than an additional $500,000 (over and above the $1,323,000 paid on settlement) would be payable by Mark’s Trust to the Pollard Family Trust for the purchase of the family farm. Mark’s Trust acknowledges the further debt for
$100,000 for the balance of the run off land is payable and so says the total claimable by the Pollard Family Trust is $600,000 less the credits conceded by the plaintiffs, and less further credits Mark’s Trust claims for issues relating to the subdivision, the $50,000 paid to Doug and Lesley in 2007 and the value of the stock, which Mark says was double counted. This raises two distinct issues: whether there is a $500,000 limit on the amount that can be called up by Doug during his life time and second, which deductions from the debt owing immediately should be made on summary judgment.
Summary judgment principles
[22] The principles to apply on an application for summary judgment were summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd:1
Summary judgment principles
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987)
1 PRNZ 84 (CA).
The approach and issues in this case
[23] The plaintiffs’ position in the present case is that the indebtedness of Mark’s Family Trust is clear. It arises from the written agreement for sale and purchase and is recorded in the acknowledgements of debt relating to the balance of the purchase price payable under the agreement for sale and purchase ($2.24 million) and the balance $100,000 owing on the purchase of the run-off farm. Subject to the credits
they concede may be deducted, the Pollard Family Trust says with some force, that
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
given those written instruments their claim is clear and there can be no arguable defence to it.
[24] The question for the Court is whether, having regard to the material put before the Court by Mark’s Trust, the plaintiff can be said to have satisfied the onus on it that Mark’s Trust has no defence to the claim (or part claim) and there is no real question to be tried.
[25] The defence raised by Mark’s Trust is that the Pollard Family Trust is estopped from demanding any sum greater than $600,000. It acknowledges the debt of $100,000 due for the purchase of the run-off farm. The focus is on its argument that it was agreed the maximum amount that the Pollard Family Trust would seek to recover from Mark’s Trust would, despite the wording of the acknowledgement of debt, be limited to $500,000.
[26] The defence raised by Mark’s Trust raises the following issues on this
application for summary judgment:
(a) Is it reasonably arguable an estoppel arises in this case?
(b)If there is evidence that would support an estoppel based on Doug (and Lesley’s) representations, is the Pollard Family Trust (which has three trustees) bound by those representations? And
(c) What further adjustments in quantum (if any) are necessary bearing in mind this is a summary judgment application?
A defence of estoppel
[27] For a defence of estoppel to defeat summary judgment in the present case it must be arguable that:2
2 Burbery Mortgage Finance and Savings Ltd (in rec) v Hindsbank Holdings Ltd [1989] 1 NZLR
356 (CA) at 361; Gold Star Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 (CA) at 86; and Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].
(a) the Pollard Family Trust by its words or conduct has created or encouraged a belief or expectation by Mark’s Trust that, despite the money owing under the agreement for sale and purchase, (acknowledged by the deed of acknowledgement of debt), Mark’s Trust would only be required to repay a further $500,000 for the purchase of the farm (either during Doug and Lesley’s life or at any time);
(b)in this case such representation was clearly and unequivocally expressed;
(c) Mark’s Trust has reasonably relied on such a representation;
(d) Mark’s Trust suffered detriment by relying on the representation; and
(e) it would be unconscionable for the Pollard Family Trust to depart
from the belief or expectation it had created in Mark’s Trust.
Has the Pollard Family Trust created or encouraged a belief or expectation by Mark’s Trust that only $500,000 would be called up? Was the representation clear and unequivocal?
[28] The first two issues can be considered together in this case. The background to the ultimate decision to transfer the farm to Mark’s Trust and the relationship between the parties is important. Mark says that he understood the arrangement that led to the sale of the farm to his trust as:
(a) Mark and Kazia were to take ownership of the entire farm and livestock;
(b)Doug and Lesley were to retain the rental property on the farm and sufficient land to build their dream home;
(c) Mark and Kazia would sell the five hectare block and Doug and Lesley would receive the cash for that (or Mark and Kazia would transfer the block to them to sell);
(d)Doug and Lesley would use the cash from the sale of the five hectare block to build their dream home;
(e) Mark and Kazia would borrow as much as possible from the bank to enable Doug and Lesley to clear debts and any remaining funds would go to the construction of their dream home;
(f) Doug would retain and continue to operate the run-off block essentially as a part-time job.
[29] Mr Brant argued that the Pollard Family Trust had created an expectation by Mark’s Trust that only $500,000 would be called up as that was expressly agreed between the parties. The evidence relied on by Mark’s Trust that he believed only
$500,000 would be called up is primarily that of Mark and his former banker Mr
Palairet’s evidence.
[30] Mark says there were at least two meetings in August 2005 before the agreement for sale and purchase was completed. Mark says that at one meeting:
… David Bailey [the accountant and subsequently a director of the third trustee of the Pollard Family Trust] spoke with Doug and Lesley separately and then we came into the meeting with Doug, Lesley and David. David then suggested that Doug and Lesley might need further funds in their retirement and asked if we would be agreeable for $500,000 in addition to the cash being paid on settlement to be made available in their retirement years.
[31] As at that stage Doug was in his mid fifties, Mark considered he would have at least 10 years before the Trust would need to provide any further cash to Doug and Lesley so they agreed. Ms Whitfield makes the point the $500,000 issue was, on Mark’s evidence, raised by Mr Bailey and there was no express reference to the
$500,000 being all that would be payable. As to the first point, Mark says it was raised after Mr Bailey had spoken with Doug and Lesley. For present purposes it may be that Doug and Lesley raised it with Mr Bailey who then advanced it on their behalf. Further evidence on that is required. As to the second point, this was the first reference to $500,000. On Mark’s evidence there were further references to it as being all that was payable.
[32] For example Mark also says that at a meeting that Doug attended with their bank manager, Mr Palairet, Doug explained to Mr Palairet the proposal that had been discussed at Bailey Ingham namely that, following the purchase, a maximum of
$500,000 was to remain payable to Doug and Lesley.
[33] Importantly Mark’s evidence on the $500,000 limit is supported by the evidence of Mr Palairet. Mr Palairet had significant involvement with all parties, Doug and Lesley and Mark and Kazia and their respective trusts, all of whom were customers of ASB while he was the rural manager at Te Awamutu. Mr Palairet says he had a number of meetings with Doug, Lesley, Mark and Kaz. He says that Doug and Lesley said they wanted to recognise the significant input Mark had put into the farm and wished the farm to be passed to Mark or at least that he would be able to continue the family farming tradition. They wanted to structure an ability for Mark (and Kaz) to own the farm or for Doug, Lesley, Mark and Kazia to farm together and use the equity they had built up while Mark was working the farm.
[34] Mr Palairet then referred to a partial written file note from the bank which records:
Comments:
The Loan from Pollard Family Trust is I & P free. The figure of $500k can be called upon by the Trust at a date in the future if need be, with the balance treated as a Inheritance in advance and substantially outweighs that of other siblings due to the contribution made to the current equity position of the Pollard Family Trust.
[35] Mr Palairet says he made the note (recording the loan as interest and principal free) based on his discussions with Doug, Lesley, Mark and Kazia and verbal confirmation (by phone) with their lawyer Sam Laubscher. He understood that essentially the farm was to be sold from one trust to the other, and the balance debt would not be called up either for interest or principal by Doug and Lesley except for
$500,000 if they required further cash in their retirement years or otherwise for the benefit of their other children on Doug and Lesley’s death. He had understood that call up would not occur for some time, (i.e. well into their retirement years or by their estate) to enable Mark and Kazia to solidify their position before having to
borrow further. Importantly, that understanding arose from his meetings with Doug and Lesley as well as his meetings with Mark.
[36] Mr Palairet says that if there was any suggestion at any point that Doug and Lesley’s trust could have called up an amount significantly in excess of $500,000 the bank would not have considered lending on the transaction. The bank would not permit a borrower, or more importantly the bank itself, to be at the mercy of a lender who could call up a debt when land values were not high leaving the borrower potentially in the zero or negative equity position.
[37] On Mr Palairet’s evidence the $500,000 limit was discussed on more than one occasion with Doug and Lesley and Sam Laubscher. Mr Palairet says that with access to the bank’s file (he now being retired) he is confident he would be able to recall the particular discussions with Doug, Lesley, Mark and Kazia in relation to the banking and property transactions in more detail.
[38] In his affidavit in response Doug Pollard rejects Mark’s and Mr Palairet’s evidence that there was any agreement or arrangement in relation to a $500,000 limit. He accepts it was explained that it would be helpful to Mark and Kazia if he and Lesley did not call up the debt too soon and says they intended to forgive some of the debt, but that any particulars of gifting were private and were to be arranged after the transaction.
[39] He remains adamant that he never told Mr Palairet or Mark and Kazia that only $500,000 would remain payable.
[40] Mr Gurnell has also sworn two affidavits in support of the application for summary judgment. He is a solicitor whose firm became a corporate trustee of the Pollard Family Trust in July 2014. He analyses the various documents, but of course cannot give evidence about the discussions at the time of the transaction in 2005.
[41] Mr Bailey has sworn an affidavit in which he says he does not recall any agreement or suggestion the Pollard Family Trust was limited to recalling only
$500,000 of the debt. He does not recall a figure of $500,000 being discussed at any
of the meetings he attended. However, Mr Bailey does not, at least at present, go so far as to say it definitely was not discussed.
[42] Mr Laubscher has also sworn an affidavit in which he says that he personally has no recollection of a promise by the Pollard Family Trust not to recover more than
$500,000 of the debt owed by Mark’s Trust. As far as he can recall it was never discussed at any meetings that he attended. Mr Laubscher says that he explained the purchase price needed to be as close to market value as possible and there could be no immediate gifts in order to avoid the risk of gift duty to both parties so that the entire balance of the purchase price would be a debt owing to the Pollard Family Trust. Whether all or part of the debt was to be forgiven was to be determined at a future time. Again, Mr Laubscher’s evidence is couched in terms of his recollection.
[43] Mr Laubscher does not respond to one aspect of Mark’s evidence. Mark said that in late 2012 Doug had come to the property and asked for additional funds. Mark says that Doug referred to a comment by Mark’s brother-in-law that the debt was around $2 million. Mark says that that was the first time Doug had referred to the debt as being anything other than $500,000 (or $600,000 after the run-off purchase). He and Kazia were upset by the approach and contacted Mr Laubscher and explained the position to him. Mark’s evidence is that:
When we said to Sam that Doug has suggested that he could ask us to pay
around $2m Sam response was words to the effect of ‘no he can’t do that’.
Mr Laubscher did not respond to that evidence in his affidavit.
[44] There are other aspects of the evidence which, if accepted, could support the proposition that the parties intended to make a substantial gift to Mark and Kazia to recognise the contribution that Mark had made in building up the value of the family farming operation.
[45] For example, Mr Laubscher’s notes of the meeting on 3 August record
(amongst other points):
4. How is P/P paid. David – In part paid by funds raised from bank.
Balance will be an IOU.
There is to be no immediate gifts. Prevents child from selling farm early & putting profit in pocket. Must be avoided.
Is a debt out there that you owe, but better having ‘parents’ as the bank than the bank. This is the only way in which parents can get children on to the farm.
Whether all or part of that is gifted and when that take place is determined at a future time. Remember D + L still have to make provision for Vicki, Marika & Chris.
Mr Laubscher’s notes are capable of more than one interpretation but on one view they support the defendants’ argument a substantial sum was to be gifted to Mark through his Trust. The issue cannot be resolved on the present state of the evidence.
[46] Importantly the file note goes on to record:
What if M + D die? Discuss estate docs + how debt can be dealt with in estate planning. Doug + [Lesley] will need to do wills & give thought to the IOU.
[47] Doug also says that he intended to gift $700,000 to Mark in his will. Importantly Doug says:
In or around the time of the deed of acknowledgement we were worried that if we suddenly died, Mark would not be able to repay the full debt owing. Lesley and I discussed this with Sam and it was agreed that if this occurred our wills would contain a provision that would allow forgiveness of
$700,000 of the debt and that Mark’s Trust would only need to repay the remaining $1,500,000 within three years. We considered that this would mean that Mark’s Trust would be able to pay the remainder of the money over this time.
[48] There is also some practical logic in the position that supports the defendants’ argument. As Mr Palairet has said the bank would not have been interested in lending in excess of $1.3 million to Mark’s Trust if it was going to be placed in the position of facing a demand for $2.24 million any time shortly after the advance. That would obviously potentially impact on the value of the bank’s security position. The bank lent the money on the basis that it would be receiving interest on the loan advance over the life of the farm operation. It is reasonable to expect that some discussion would have been held by Mr Palairet with both the vendor creditor Doug and Lesley and the purchasers, Mark’s Trust about the position. Further, there is
Doug’s own evidence that he did in any event intend to gift substantial sums to Mark
through Mark’s Trust.
[49] There is evidence the other way, such as the way the balance of the debt was treated in Mark’s Trust financial statements that were prepared for accounting purposes. However, the evidence confirms the parties were anxious to ensure the sale of the farm was at market value. There was always going to be a substantial sum owing by Mark’s Trust to the Pollard Family Trust because of the limitation on the amount that Mark’s Trust could borrow to settle the purchase. To avoid any suggestion of gifting at that stage or that the farm was not being sold at the proper value the advice appears to have been to leave the balance owing on demand or, as Mr Laubscher put it, as an IOU.
[50] However, it is at least arguable that if Mark’s and Mr Palairet’s evidence was ultimately accepted then Doug (and Lesley) on behalf of the Pollard Family Trust have created or encouraged a belief or expectation by Mark and Mark’s Trust that the balance owing on the farm sale and recorded in the deed of acknowledgement of debt would not be called up and that any amount called up during Doug and Lesley’s life would be limited to $500,000.
[51] Ms Whitfield submitted that Mark’s evidence as to the alleged representations to support the estoppel was ambiguous and unclear. She submitted there is no suggestion there was actually any promise on behalf of the plaintiffs that they would never demand repayment of more than $500,000, and made the obvious point that the alleged representations are completely contrary to the first Deed of Acknowledgement of Debt.
[52] While I acknowledge the force of the points Ms Whitfield makes, this is an application for summary judgment. The parties have presently given affidavit evidence of the alleged $500,000 issue in the absence of further discovery and/or interrogatories. There is a direct conflict of evidence not just between Mark and Doug about the matter but also between the evidence of Mr Palairet and Doug.
[53] Mr Palariet, who for present purposes at least, must be regarded as independent having been bank manager for all parties, supports Mark’s evidence that the balance owing was both interest and principal free, and that $500,000 only would be called up. His evidence is direct about that. Further, Mr Palairet’s evidence is supported by the partial file note that he has referred to. If Mr Palairet’s evidence is correct that the discussions with Doug and Lesley as well as Mark and Kaz, led to the file note which records expressly that the loan would be interest and principal free but that the figure of $500,000 could be called upon the Trust at a date in the future if need be with the balance treated as an inheritance in advance.
[54] For present purposes, given that this is a summary judgment application, I accept that it is at least arguable that the conflict of evidence is such that the Court cannot exclude the possibility that the evidence of Mark and Mr Palairet on this issue is correct and that Doug and Lesley did confirm that the balance due would be interest and principal free with the possibility that only $500,000 would be called up during Doug and Lesley’s life in their retirement years if further funds were needed by them.
Was the reliance by Mark’s Trust reasonable?
[55] Ms Whitfield next submitted that Mark’s Trust’s belief or expectation the debt would be limited to $500,000 was not reasonable as judged by the standard of a reasonable person in Mark’s position. In particular it was directly contrary to the terms of the acknowledgement of debt completed some months after the agreement for sale and purchase. She referred to the following passage from Hickman v Turn
and Wave Ltd:3
… the party seeking to establish the representation faces obvious evidential difficulties in proving a promise not to enforce a contractual provision when that party subsequently signs a contract in which he or she agrees to perform the relevant obligation notwithstanding the claimed promise that he or she would not have to do so. In such circumstances, statements made in pre- contractual negotiations may be overtaken and contradicted by the written contract.
3 Hickman v Turn and Wave Limited [2011] NZCA 100, [2011] 3 NZLR 318 at [213].
[56] Ms Whitfield also relied on the case of Welch v Fraser.4 Mrs Fraser promised Mr Welch she would give him a house (purchase price $200,000) because of his loyalty and closeness as an employee. For tax reasons the Welches established a family trust to which Mrs Fraser lent the money so that the trust could buy the house. All parties accepted that Mrs Fraser intended to forgive the debt at the maximum rate allowed without incurring gift duty (then $27,000 per year). The relationship between Mrs Fraser and Mr Welch ended. After making one gift of $27,000 she stopped the gifting programme and subsequently made demand of the Welch trust for the balance due. It was held that the effect of the acknowledgement of debt signed by the parties meant that Mrs Fraser was not obliged to proceed with the gift in any year.
[57] However, importantly in Welch v Fraser, the evidence was clear that the Welch’s knew Mrs Fraser could change her mind and decide not to make any further gifts. Further, the initial arrangement that the property was to be gifted had changed. It was restructured. Mr Welch knew or ought to have known there was a risk that Mrs Fraser would not make any further gifts and she was not bound in law to do so. Given the signed documentation acknowledging the debt it was not reasonable to rely on the promise. That is not the position in the present case. The acknowledgement of debt was required to support the purpose of the original transaction. On Mark’s evidence nothing had changed.
[58] In Bank Negara Indonesia v Hoalim5 the Privy Council accepted the plaintiffs were able to establish an estoppel based on an agreement entered in 1958 despite a subsequent written agreement to lease made in 1961 which, on one view of it, replaced the earlier agreement. In the circumstances of the case the benefit of the estoppel was not lost. Similarly, in the present case, it is at least arguable that the benefit of the estoppel was not lost by the execution of the acknowledgement of debt which was, on Mark’s evidence, (supported in part by Mr Laubscher’s), required as part of the structure of the transfer to avoid issues with gifting and tax.
[59] Further, as Mr Brant submitted, an important and distinguishing feature in the present case is the family relationship between the parties. In Harris v Harris6 parents sold two-thirds of a family farm to their son and daughter-in-law. A debt remained owing. The parents were to write-off the debt in their will. A deed of acknowledgement of debt was signed. An estrangement occurred. The parents changed their will removing the write-off. The son and daughter-in-law successfully
claimed an estoppel. The Court held that there was an assurance by the parents that carried with it an understanding the debt would not be called up in their lifetime and that they would not change their wills in that respect. The son and daughter-in-law acted in reliance on that in entering the transaction and assuming liability for the proportion of part of the existing mortgage indebtedness and committing themselves in the future to it.
[60] Hess v Hospenthal7 is to similar effect. The defendant owned a farm. He was unmarried and without children. He had siblings, including a sister Antoinette, who married a Swiss (the plaintiff) and lived in Switzerland. Antoinette and her husband travelled to New Zealand to take over the farm. They established a trust with the defendant. The trust was for the benefit of Antoinette, the plaintiff and their children. The trust purchased the farm from the defendant. The purchase price of the farm included an on demand loan in favour of the defendant. The defendant made four gifts of $27,000 and signed a will forgiving the debt upon his death. As a result of a car accident the defendant was injured and Antoinette killed. The plaintiff and defendant became estranged. The defendant issued a Property Law Act notice. The plaintiff sought an injunction preventing the defendant from exercising his rights under the mortgage recording the debt and the defendant sought summary judgment based upon the mortgage document.
[61] Goddard J held there was an arguable case granting an injunction and declined the summary judgment application. Despite the debt the Judge considered there was an arguable defence to the claim.
[62] In light of those authorities I consider that it is arguable the reliance by Mark on the representation was reasonable. He entered the acknowledgement of debt on the basis it was required to complete the transaction, which had always been referred to by Mr Laubscher as an “IOU” for legal or tax reasons.
Did Mark’s Trust suffer detriment as a consequence of its reliance?
[63] Ms Whitfield submitted that, as confirmed in Welch v Fraser, any detriment must be independent of the failure to obtain the expected benefit of the transaction in issue. She submitted that the farm was sold for below market value but that is in issue and cannot be determined at this summary judgment stage.
[64] Despite Ms Whitfield’s submission, the financial commitments incurred by the Trust and Mark and Kazia’s commitment of their future to the farm are for present purposes sufficient detriment. To improve working capital for the farm the Trust borrowed an additional $70,000 after the purchase and later, over the following years, borrowed further money for capital expenditure.
An unconscionable outcome for Mark’s Trust?
[65] Finally Ms Whitfield submitted that as in Welch v Fraser where the parties had entered an acknowledgement of debt it was not unconscionable to depart from the expectation or belief the debt would be forgiven and submitted the present situation was analogous.
[66] While the deed of acknowledgement of debt supports the plaintiffs’ case I do not consider it to be an absolute answer at this summary judgment stage on the facts of this case. For the reasons given above, there is at least an argument that the acknowledgement of debt was regarded as part of the documentation required or considered necessary by their legal and accounting advisers to avoid the implications of gifting for both parties.
[67] For present purposes if the Court was ultimately to accept Mr Palairet’s
evidence then that would be sufficient to sustain the finding the there was an
agreement the debt would be subject to a limit of $500,000, at least during Doug and
Lesley’s joint life time.
Is the Pollard Family Trust bound by the estoppel?
[68] Ms Whitfield submitted that in any event, if Doug and Lesley had arguably made the representation, they were only two of the three trustees of the Pollard Family Trust. There was a third trustee, Kelly Bryant Trustees Limited. A trustee may not delegate his or her functions to another person even if that person is a co- trustee unless authorised to do so by the trust instrument or by law, so that to bind a
trust the particular act must be the act of all of the trustees.8
[69] To respond to that point, Mr Brant referred to the case of Lang v Southen9 in which case Panckhurst J considered that whether the act of one trustee entering the contract was sanctioned and approved by another was a question of fact, referring to Lewin on Trusts:10
… the act of one trustee done with the sanction and approval of a co-trustee may be regarded as the act of both, though such sanction or approval must be strictly proved.
[70] At the time of the sale the third trustee of the Pollard Family Trust was Kelly Bryant Trustees Ltd, the corporate trustee of the accountants then acting for Doug and Lesley. Kelly Bryant Trustees were replaced by Bailey Ingham Trustees Ltd on
18 November 2005 after the sale but before the execution of the acknowledgement of debt. Mr Bailey was at the meetings when the $500,000 limit was discussed and, on Mark’s evidence, was confirmed by subsequent discussions.
[71] There is no evidence before the Court at this time of the state of knowledge of the original corporate trustee, Kelly Bryant Trustees. There is no evidence of the relationship or the way Doug and Lesley dealt with the corporate trustee. Whether
or not the independent trustee sanctioned or approved Doug and Lesley’s agreement
8 Hansard v Hansard [2014] NZCA 43, [2015] 2 NZLR 158 at [32]–[33] and at [47] citing
Thomas Lewin and others Lewin on Trusts (18th ed, Sweet & Maxwell, London 2008) at [29–
209]; Rodney Aero Club Inc v Moore [1998] 2 NZLR 1992 (HC) at 195.
9 Lang v Southen HC Christchurch AP 15/01, 24 July 2001, at [8], citing the District Court decision.
10 Thomas Lewin and others Lewin on Trusts (16th ed, Sweet & Maxwell, London 1964) at 181.
regarding the $500,000 is a question of fact which cannot be resolved on the current state of the evidence. In a family trust situation such as this it is possible the corporate trustee would sanction the type of family arrangement Mark argues for, namely it was for Doug and Lesley to determine how much and in what circumstances the debt would be forgiven or, on their evidence, called up.
[72] In Lang v Southern Panckhurst J held that the co-trustee had sanctioned a class of day to day contracts being made by Mr Lang that furthered the purpose of the trust, and that therefore the contact in question was binding on the trust without the express approval of the co-trustee.11 This type of sanction was discussed by the
Court of Appeal in Hansen v Hansen. The Court described Lang v Southern as:12
This was therefore a case involving prospective approval of a class of decisions that would be made by the co-trustees in furtherance of the purpose of the trust.
[73] I accept Mr Brant’s submission that it is at least arguable for summary judgment purposes that the corporate trustee had effectively agreed it would leave the decisions about recalling the debt for Doug and Lesley depending on their need. Certainly Mr Bailey’s evidence that “part of this debt” would be recalled if Doug and Lesley’s circumstances warranted is consistent with that decision being left to Doug and Lesley and to be determined by their needs. If Mark’s evidence is accepted, it cannot be ruled out that from the time Mr Bailey’s firm became the corporate trustee, it sanctioned or ratified the agreement. On the evidence as it currently stands it is reasonably arguable therefore that the Pollard Family Trust would be bound by an estoppel created by Doug and Lesley.
Deductions/quantum
[74] I have found that it is reasonably arguable that there is a defence of estoppel that prevents the Pollard Family Trust from recalling the entire debt acknowledged in the deeds. Accordingly I now proceed to consider the quantum, if any, owing immediately on summary judgement. Ms Whitfield submitted in the alternative that
even if Mark’s Trust’s argument as to an estoppel was considered arguable, on any
11 Lang v Southern, above n 9 at [16] and [18].
12 Hansen v Hansen, above n 8 at [48].
view of it $600,000 was owed to the plaintiffs. She submitted the plaintiffs were entitled to summary judgment for $423,825 being the $600,000 less the following deductions:
(a) the $104,000 paid by Mark’s Trust to the defendants;
(b)the matters the plaintiffs accept are not able to be finally determined in this summary judgment. They are the GST component of $49,375 paid to the Pollard Family Trust when Mark’s Trust sold the five hectare block; and the $22,800 paid by Mark’s Trust to Nancy Pollard.
[75] On the basis of those deductions Mark’s Trust owes the plaintiffs $423,825 and the plaintiffs seek judgment for that sum together with the interest claimed under the acknowledgement of debt.
[76] In his evidence Mark claims a number of further deductions:
The sale of the five hectare block – a deduction for excess profits
[77] The agreement for sale and purchase recorded that:
Payment of $370,000 will occur by [Mark’s Trust] transferring to [Pollard
Family Trust] all their interest in [the 5 ha block].
[78] Instead of transferring the five hectare block, Mark’s Trust sold it and transferred the sale proceeds of $395,000 (plus GST) to the Pollard Family Trust. The Pollard Family Trust accepts the GST component is deductible. Mark’s Trust argues that it should receive credit for the $25,000 different between the $395,000 and the $370,000.
[79] The arrangements between the parties and the evidence supports the conclusion only $370,000 should be applied to the purchase price, so that the additional $25,000 received on sale should not be deducted.
[80] The fact the land sold for more than $370,000 should not lead to a further deduction. The agreement fixed a price for the five hectare block. If, after transfer, the land sold for less than $370,000 the plaintiffs were to take the risk of it. If it sold for more than that then they were to get the benefit of that.
[81] The Pollard Family Trust would have been entitled to call for the transfer and then themselves on-sell the land. In his evidence Mark just says that in discussions around the time they agreed that:
rather than transfer their land to the Pollard Family Trust and then have the Pollard Family Trust sell the land we would simply sell the land by tender and then provide the net proceeds to the Pollard Family Trust.
[82] Mark’s evidence is consistent with his Trust effectively acting on behalf of the Pollard Family Trust in selling the land. In doing so it held the sale proceeds on trust for the Pollard Family Trust. No further adjustment should be given for the
$25,000.
Subdivision – a deduction for excess land gained by the Pollard Family Trust
[83] Following the subdivision the actual boundary adjustments differed from those contemplated at the time of the transfer in 2005. Mark’s evidence is that, in all, the plaintiffs received an area of 1,840m² greater than what was intended. He suggests the land might be worth in the region of $140,000 to $160,000.
[84] However, as Ms Whitfield correctly points out, the schedule to the family farm agreement acknowledges that the subdivided land may differ from the proposed plans:
The plan shall be generally in the same form as the plan annexed to this agreement, with such variations as may be required by the Council, the Department of Survey and Land Information of the District Land Registrar.
[85] Further, Mark’s Trust clearly accepted the result of the subdivision at the time. It is somewhat opportunistic for them to seek to raise a difference in the land area lost as a consequence of the subdivision at this late stage. There is no arguable basis for a further deduction at this stage.
The $50,000
[86] The parties accept that Mark’s Trust paid $50,000 in 2007 to Doug. The issue is whether, as Mark says, it was paid at Mr Bailey’s request to meet a tax bill/obligation on the part of the plaintiffs, or whether, as submitted for the plaintiffs, it was for the repayment of a short-term loan the plaintiffs had made to the first defendants.
[87] The plaintiffs rely on Mr Gurnell’s evidence. Mr Gurnell says the accounts show the plaintiffs advanced $49,750 to the first defendants on 2 August 2006 and that the first defendants repaid $50,000 in 2007. Further, Ms Whitfield submitted there is no basis for the plaintiffs to have had a taxation liability in 2007 as they had not operated the family farm since 2005.
[88] It is not possible to resolve this issue on the basis of the material before the Court. The accounts are not before the Court. Mr Gurnell simply deposes in his affidavit in general terms that the payment “appears to be recorded as the repayment of a short term loan to the Pollard Trust made to Mark’s Trust”. The issue is not sufficiently clear at this summary judgment stage for the defendants’ explanation to be conclusively rejected, particularly when it is clear that the $50,000 was paid by the first defendants to the plaintiffs. The $50,000 is to be deducted from the sum otherwise due and owing at this stage.
The stock – a deduction for double counting
[89] Mark submits there is a dispute whether or not there has been a double counting of the stock. There is force in Ms Whitfield’s point that this issue only arises in the event the Court rejected the estoppel argument. If the value of the stock was double-counted that would impact on the total original purchase price for the farm and stock. If that was the case there could not be any further deduction from the $500,000 which, on the basis of Mark’s case is the maximum payable.
[90] In any event, clause 22 of the agreement for sale and purchase provides for price of the stock and confirms that it is to be paid on settlement. It can only sensibly be read to be in addition to the purchase price for the land which is
separately provided for on the front page of the agreement. Further, the settlement statement clearly recorded the stock figures as an extra. There is to be no further reduction for the stock figure.
Interest
[91] The issue of whether the interest is claimable at the rate under the deed of acknowledgement of debt is a matter to be resolved at trial. However, interest should be payable at the Judicature Act 1908 rate on the amount clearly due and owing as from the date of issue of these proceedings at least, without prejudice to the plaintiffs’ right to recovery of interest over and above that sum.
Result
[92] The plaintiff is to have summary judgment against the defendant for the first defendant for $373,825 together with interest on that sum at the Judicature rate from
1 October 2014 to the date of judgment. The balance of the plaintiffs’ claim is to be
determined at a substantive hearing.
Costs
[93] The plaintiffs have failed to establish that the defendants do not have a reasonably arguable defence to its claims in its entirety but have succeeded in part. I fix costs on a 2B basis but reserve the incidence of them to follow the outcome of the substantive proceeding.
Directions
[94] The Registrar is to allocate a case management conference for this file.
Venning J
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