Ridge v Parore
[2014] NZHC 318
•28 February 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2012-404-000957 [2014] NZHC 318
UNDER Section 174 of the Companies Act 1993
BETWEEN SALLY ANNE JUDITH RIDGE and
JAMIE DILLON RIDGE First Plaintiffs
SALLY ANNE JUDITH RIDGE Second Plaintiff
ANDADAM CRAIG PARORE and AARON LLOYD as Trustees of the Adam Parore Family Trust
First Defendants
ADAM CRAIG PARORE Second Defendant
SMALL BUSINESS ACCOUNTING (NZ) LIMITED
Third Defendant
Hearing: 16-23 September 2013
Appearances: D W Grove for the Plaintiffs
Z G Kennedy and R W Harris for the Defendants
Judgment: 28 February 2014
JUDGMENT OF GILBERT J
This judgment is delivered by me on 28 February 2014 at 4.30pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
RIDGE and RIDGE v PARORE and LLOYD [2014] NZHC 318 [28 February 2014]
Introduction
[1] This proceeding involves a dispute over property following the breakdown of the relationship between Ms Ridge and Mr Parore. The claim is brought in this Court rather than in the Family Court under the Property (Relationships) Act 1976 because the relevant assets are held on trust rather than in the parties’ own names.
[2] Although at the commencement of the trial the plaintiffs advanced six causes of action, they abandoned all but one of these by the time of closing submissions. The sole remaining claim is that the Sally Ridge Family Trust is entitled to 50 per cent of the shares in Small Business Accounting (NZ) Limited (SBA), a company owned by the Parore Family Trust. This claim is based on the assertion that the parties had a shared intention, despite the legal ownership, that all assets of either trust were held for the benefit of both trusts equally. The plaintiffs claim that a common intention constructive trust arises out of this shared intention.
[3] The trustees of the Ridge Trust seek an order requiring the trustees of the Parore Trust to transfer 50 per cent of the shares in SBA to them. They also seek payment of 50 per cent of the distributions made by SBA to the Parore Trust from and including the year ended 31 March 2012.
Factual background
[4] Ms Ridge and Mr Parore met in early 2001. Initially, the couple kept their assets separate with Mr Parore forming the Parore Trust in 2001 and Ms Ridge settling the Ridge Trust in 2002.
[5] In late 2003, Ms Ridge and Mr Parore purchased a residential property in Ponsonby as a family home. They nominated their two trusts to take title to the property as tenants in common in equal shares. The Ridge Trust paid its half share of the purchase price in cash whereas the Parore Trust borrowed its half share secured by a first mortgage over the property.
[6] At the time of settlement in March 2004, the parties entered into a property sharing agreement prepared by Ms Ridge’s solicitor, Mr Garry Davidson. This
agreement recorded that all mortgage payments were the sole responsibility of the Parore Trust and that the two trusts would contribute equally to the improvements they intended to make to the property.
[7] In late 2006 or early 2007, the parties embarked upon a major construction project on the property which cost several million dollars. The Ridge Trust was not able to meet its share of the construction costs or service borrowings to meet these costs. Accordingly, the Parore Trust funded the construction works from its earnings.
[8] In May 2007, the parties agreed to a major restructure of the trusts and their assets. The family assets, including the Ponsonby property, were to be transferred to the Ridge Trust, which was to become a non-trading trust. All business related assets and liabilities were to be held by the Parore Trust, which would service the loans secured against the family home and meet the ongoing costs associated with the development. The Parore Trust would also provide the sole source of income for both parties.
[9] While a clear separation would be achieved in terms of ownership of the assets between the trusts, Mr Parore’s intention was that he and Ms Ridge would participate equally in the assets and income of each trust. To this end, the beneficiaries and trustees of the two trusts were also changed. Mr Parore and Ms Ridge along with the four children were made beneficiaries of both trusts. Mr Parore had already appointed Ms Ridge as his co-trustee of the Parore Trust. As part of the restructure Mr Parore was appointed a trustee of the Ridge Trust with Ms Ridge. To provide additional protection for Ms Ridge, Wyndam Trustees Ltd, an independent trustee company established by Mr Davidson’s firm, was appointed as the third trustee of the Ridge Trust.
[10] The restructure served a number of objectives. First, it provided asset protection by insulating the family home from potential claims by creditors and the risks associated with the parties’ trading activities. Second, it enabled the Ridge Trust to benefit from any appreciation in the value of the family home. The share of the home which the Parore Trust held was to be transferred to the Ridge Trust for
half of the existing land value. The Parore Trust would meet all loans secured against the property and fund the redevelopment costs. The parties’ expectation was that over time the Parore Trust would repay the loans so that this valuable asset would be held unencumbered by the Ridge Trust and beyond the reach of any creditors, whose claims would arise out of the trading activities of the Parore Trust and be limited to the assets of that trust. Third, the restructure simplified the administration of the trusts by the Ridge Trust becoming a non-trading trust and by housing all of the trading activities in the Parore Trust.
[11] The 2007 restructure represented a significant departure from the previous arrangements in terms of which the parties had kept their assets separate through their individual trusts. Quite apart from the practical benefits referred to above, Mr Parore says that the restructure was intended to allow for the income and assets of both trusts to be shared equally between the parties pursuant to an understanding which he referred to as the “equal sharing agreement”.
[12] There is no doubt that Mr Parore, who has degrees in commerce and law, understood the legal implications of the restructure and was the prime initiator of it. However, it is also clear that he took some care to ensure that Ms Ridge understood what was proposed and was content with it. The restructure was discussed with Mr Davidson in meetings which Ms Ridge attended and in email correspondence to which she was a party.
[13] The restructuring was subsequently implemented with assistance from Mr Davidson. A number of agreements and deeds were prepared by Mr Davidson and signed by Ms Ridge and the other trustees, Mr Parore and Wyndam Trustees Ltd. The agreements included an agreement for sale and purchase of the Parore Trust’s share of the Ponsonby property to the Ridge Trust for half of the value of the land as established by a valuation. Ms Ridge signed this agreement in her capacity as trustee of both the Parore Trust as vendor and the Ridge Trust as purchaser. The two directors of the independent trustee of the Ridge Trust also signed this agreement. Ms Ridge and the two other trustees of the Ridge Trust also signed a deed acknowledging the debt due to the Parore Trust for the purchase price. A further agreement was entered into recording the sale by the Ridge Trust to the Parore Trust
of its shares in James and August Limited, a company operated by Ms Ridge with her business partner. Ms Ridge also signed this agreement on behalf of both trusts.
[14] Ms Ridge says that she was not particularly interested in the details of the restructure and relied on Mr Parore to ensure that the arrangements were appropriate. She is adamant that she does not understand trust concepts and never will, no matter how often they are explained. She made this point repeatedly in her evidence but the following extract is sufficient to demonstrate her position about this:
I don’t actually to be honest with you Zane really understand trusts. You could explain them to me and I used to say this to Adam a million times, “My brain doesn’t compute trusts,” I don’t get them, don’t understand them, never have and I most probably never will. It would be like trying to get me to do your job. Don’t understand being a lawyer, don’t understand trusts. Call me thick, I don’t mind, but I do not understand the ins and outs of a trust full stop, I just don’t.
[15] Despite these comments, Ms Ridge impressed as an intelligent and capable woman. She may not have been particularly interested in the legal niceties, but I am satisfied that, from her discussions with Mr Parore and the advice she received from Mr Davidson, she understood the nature and effect of the arrangements she entered into, at least in broad terms. This is made clear in her own evidence when she explained the purpose of the restructure:
I know that this happened later on because Adam wanted to put the house into my trust and equity into my trust. He wanted to put the businesses and all the debt into his trust and he wanted to set it up like that because he did all the accountancy and all that sort of stuff for tax and accounting reasons and he said to me it was best to have all the debt in this trust and all the equity in this trust because this was protected and the debt should be here. That’s what he told me.
And later:
All Adam wanted to do, I’ll explain it again, was put the house into my trust to protect it. He wanted to put the businesses and the debt into his trust and that is why it was set up and that is exactly what Adam told me.
[16] In October 2007, Mr Parore and Ms Ridge as trustees of the Parore Trust, together with the trustees of the Harmony Trust, a trust associated with a Mr Beadle, agreed to purchase all of the shares in SBA. The Parore Trust subsequently acquired Harmony Trust’s shares in SBA, in July 2008. SBA proved successful and the
earnings generated by its business enabled the Parore Trust to continue to fund the parties’ living expenses and meet the costs of the redevelopment work on the Ponsonby property.
[17] Mr Parore and Ms Ridge separated in early 2010 and the Ponsonby property was sold in June of that year. The parties were not able to reach agreement on how the assets of the two trusts should be dealt with, each claiming that the other had received more than they were entitled to. I do not need to determine whether the sharing was equal or appropriate because the sole claim concerns whether the trustees of the Ridge Trust have a proprietary interest in the assets of the Parore Trust, in particular SBA.
Is the Parore Trust’s shareholding in SBA held on a common intention constructive trust for the joint benefit of the Parore Trust and the Ridge Trust?
[18] It is appropriate to consider this question first because, as noted, the plaintiffs’ sole remaining claim is based on an alleged common purpose constructive trust. The defendants’ counterclaims are contingent on the plaintiffs succeeding with their claim but do not otherwise require consideration.
[19] Common intention constructive trusts form a well-established part of the law of trusts in England and Australia. However, there have been few, if any, cases in which such a trust has been recognised in the New Zealand context.1 In Harvey v Beveridge, Associate Judge Osborne helpfully reviewed the authorities and set out the essential features of such a trust.2 The authorities establish that common intention constructive trusts are founded on proof of a subjective common intention, clearly and unequivocally established by words or conduct.
[20] In their (amended) fourth amended statement of claim, filed without opposition on the final day of the hearing, after the defendants had made their
closing submissions, the plaintiffs plead:
1 Cossey v Bach [1992] 3 NZLR 612 (HC); X v Y HC Auckland M100/95, 28 November 1995; LG v
MER [2010] NZFLR 1001 (HC); Boys v Calderwood HC Auckland CIV-2004-404-290, 14 June
2005; Clark v Clark [2012] NZHC 3159; and Harvey v Beveridge [2013] NZHC 1718, [2013] NZAR 1364.
2 Harvey v Beveridge [2013] NZHC 1718, [2013] NZAR 1364 at [59].
At all times it was agreed between the parties to these proceedings, and in particular, [Ms Ridge] and [Mr Parore] that the Ridge Trust would be a
50 per cent shareholder in SBA.
[21] Mr Grove elaborated on this asserted agreement or intention in his closing submissions as follows:
The factual basis for the claim is that Ms Ridge and Mr Parore had an intention/agreement that, despite the legal ownership structure, the assets would be held 50/50 between the two trusts. That was a common intention from the 2007 restructuring and Mr Parore said it was discussed and agreed with Ms Ridge. The agreement gives rise to a common intention constructive trust.
[22] One of the difficulties confronting the plaintiffs in their attempt to establish an unequivocal intention is the fact that their pleaded position has changed over the course of the proceeding as to whether the asserted common intention was in favour of Ms Ridge and Mr Parore personally, or in favour of their respective trusts. They opened their case at trial on the basis of their third amended statement of claim which alleged (emphasis added):
At all material times it was agreed between the parties to these proceedings, and in particular, [Ms Ridge] and [Mr Parore], that [Ms Ridge] or [the Ridge Trust] would be a 50% shareholder in SBA.
[23] Even the first version of the fourth amended statement of claim filed on
19 September 2013, shortly before the end of the trial, alleged:
At all times it was discussed and agreed between [Ms Ridge] and [Mr Parore] that the shareholding in SBA would be jointly owned between [Ms Ridge] and [Mr Parore] either personally or through their Trusts.
[24] The intention which the plaintiffs now allege is that the assets, in particular SBA, were to be held on trust for the benefit of the Ridge Trust and the Parore Trust in equal shares. The intention is said to have existed from the time of the restructuring in 2007, before SBA was acquired.
[25] This claim is contradicted by the evidence. It is quite clear that a decision was taken in 2007 to separate the family and business assets by placing the former in the Ridge Trust and the latter in the Parore Trust. This was implemented following
advice from Mr Davidson and with his assistance. I am satisfied that all parties, including Ms Ridge, understood the legal effect of the arrangements.
[26] One of the central purposes of the restructure was to separate the ownership of the assets in the two trusts. There was never any suggestion that the trustees of the Parore Trust would hold the assets of that trust for the beneficiaries of the Ridge Trust, contrary to the express terms of the Trust Deed. Equally, it was never intended that the trustees of the Ridge Trust would hold the assets of that trust in part for the benefit of the beneficiaries of the Parore Trust. This was plainly not Mr Parore’s intention at any point. There was no evidence suggesting that Wyndam Trustees Ltd had any such intention. Mr Davidson would have well understood that the assets of each trust would be held exclusively for the benefit of the beneficiaries of that trust. It is likely that Ms Ridge would have understood this as well.
[27] Mr Grove submits that the asserted common intention is supported by a number of statements made by Mr Parore referring to the “equal sharing agreement” and the parties’ intention to share the assets and income equally. Contrary to Mr Grove’s submissions, it is clear that the assets of each trust were to be held by the trustees of that trust for the benefit of the beneficiaries of that particular trust as was required by the terms of the Trust Deeds. The concept of equal sharing between Mr Parore and Ms Ridge was to be achieved by the trustees exercising their discretion to treat them as equal beneficiaries under each trust, not by the trusts sharing ownership of the assets.
[28] It follows that Ms Ridge’s claim fails at the first hurdle. There was no clear and unequivocal intention by the trustees of the two trusts that the assets of each trust would be held for the joint benefit of the beneficiaries of both trusts. There was never any intention that the trustees of the Parore Trust would hold 50 per cent of the shares in SBA on trust for the beneficiaries of the Ridge Trust. This finding is fatal to the plaintiffs’ claim.
[29] Because the defendants’ counterclaims are contingent on the plaintiffs’ claim
succeeding, I do not need to consider those claims.
Result
[30] The defendants are entitled to judgment on the plaintiffs’ claim.
[31] The defendants’ counterclaims are dismissed.
[32] If the parties are unable to agree on the issue of costs, any party seeking costs should file and serve a memorandum as to costs within 14 days of the date of this judgment. Any memorandum in response should be filed and served within 14 days
thereafter.
M A Gilbert J