Schubert v Boyle HC Auckland CIV 2008-404-428
[2010] NZHC 1587
•20 August 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-000428
BETWEEN ANDREA KATHRYN TRACEY SCHUBERT
Plaintiff
ANDJOHN DAVID BOYLE AND MAVIS MILLAR
Defendants
Hearing: 26, 27, 28 and 29 July 2010
Appearances: C T Patterson for the Plaintiff
W D Woodd for the Respondents
Judgment: 20 August 2010
RESERVED JUDGMENT OF PRIESTLEY J
This judgment was delivered by me on Friday 20 August 2010 at 1.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
C T Patterson, PO Box 2886, Auckland 1140. Fax: 09 300 5004. Email: [email protected]
S Bratley, Davenports West, P O Box 21248, Henderson, Waitakere 0650. Fax: 09 837 2671
Email: [email protected]
W D Woodd, Boyle Mathieson, PO Box 21640, Waitakere 0650. Fax: 09 837 6005. Email: [email protected]
SCHUBERT V BOYLE ANDMILLAR HC AK CIV-2008-404-000428 20 August 2010
A friendship, a loan, and a death
[1] The plaintiff (Ms Schubert) since the mid-1980s has owned a property, on the coastal side of the Waitakere Ranges overlooking Karekare Beach. She currently lives there. It had long been her dream to build a lodge on the property, which would provide her with an income.
[2] As a result of various transactions, of no relevance to this proceeding, she became the sole owner of the property. She then placed it in a Trust.
[3] In 2003 she borrowed money from New Zealand Home Loan Company (NZ Home Loans) which enabled her to construct much of the lodge. Construction was not, however, completed by the time of the critical events which gave rise to this proceeding. Nor did Ms Schubert have sufficient money to complete the building project.
[4] In approximately March 2004 Ms Schubert had a chance meeting with Mr Lloyd Millar (the deceased). Ms Schubert was at this stage in her late 40s and the deceased in his early 50s. They had apparently known each other previously. In May 2004 the deceased, who over the course of his life bought and sold a number of properties in Wellington and Auckland, agreed to purchase a property in Colwill Road, Royal Heights. The owner of the property was Ms Schubert’s Trust. She agreed to leave $55,000 in the property by way of second mortgage vendor finance.
[5] The deceased, for his part, became romantically interested in Ms Schubert. Ms Schubert was not uninterested in the deceased, but throughout the relevant period the deceased displayed more enthusiasm and persistence. After his death an extensive compendium of his emails, notes, and text messages was found, which he called “Hercules’ courtship of Venus”. In the deceased’s eyes, Ms Schubert was Venus. Like the Hercules of mythology, the deceased had various tasks, not the 12 labours imposed on the mythological character by the Argive King Eurystheus, but rather three tasks which the deceased imposed on himself. One was to marry Ms Schubert. Another was to help her complete the building of the Karekare property. The third (Ms Schubert being childless) was to impregnate her. Although a
vasectomy had been performed on the deceased some years previously, he had apparently arranged for his sperm to be frozen.
[6] The deceased was more enthusiastic about the idea of marriage than was Ms Schubert. He proposed to her over a period of many months. Ms Schubert had agreed to attempt to have a child by the deceased through artificial insemination, but she did not agree to marry her suitor until October 2005. Their “engagement”, however, was short-lived. Throughout their growing friendship neither had been the exclusive friend of the other. Ms Schubert was to discover, in February 2006, that the deceased had been in transitory relationships with other women. She stopped the artificial insemination programme.
[7] During this brief period (October 2005 to February 2006) critical events occurred. The first was that Ms Schubert did not have sufficient money to complete the Karekare construction. Because she was essentially unemployed, she did not meet NZ Home Loan’s lending criteria to qualify for the further advances (approximately $200,000) which she needed. Consistent with his Herculean labour, the deceased, who was an income earner, was prepared to become a co-borrower to assist Ms Schubert and to ensure that funds were available to complete the Karekare project. The loan documents, in circumstances examined later in this judgment, were signed on 16 December 2005.
[8] The second event was the deceased’s discovery that he had terminal stomach cancer. In early December 2005 he was told that abdominal swelling could well be attributable to cancer of his stomach lining. An appointment was made for him to see an oncologist at the North Shore Hospital on the afternoon of 16 December 2005. At that appointment, which occurred a few hours after he signed the relevant loan documents, the deceased was told his condition was terminal. He was to survive another 13 months, dying on 1 February 2007.
[9] The Karekare property, owned by Ms Schubert’s Trust, is worth (depending on market conditions) between $1.3 and $1.7 million. Unfortunately Ms Schubert has not been able to keep up the payments owing to NZ Home Loans under its
mortgage. The mortgagee is yet to issue a Property Law Act notice but, unless Ms
Schubert can rectify the position, the Karekare property will have to be sold.
[10] This proceeding, which Ms Schubert candidly volunteered in evidence was not her preferred option, is being driven by her financial need. The deceased’s net estate is approximately $230,000.
[11] Ms Schubert contends that she and the deceased agreed to be jointly responsible for the increased loan from NZ Home Loans drawn down in December
2005 and that the deceased had additionally agreed to earmark funds from his life insurance policy to retire the debt.
The Pleadings
[12] Ms Schubert’s cause of action relates, as is apparent from the above narrative, not to her entire indebtedness to NZ Home Loans but solely to post- December 2005 advances totalling $199,000. That sum was drawn down in three tranches.
[13] The amended statement of claim alleges that the deceased represented to Ms Schubert that his half share of the $199,000 loan, and also half of the repayments due in respect of it, would be repaid by him and, in the event of his death, repaid by his estate.
[14] Ms Schubert’s cause of action is thus breach of contract. The claim is not grounded on contribution principles. The deceased received no legal or equitable interest from the loan. Ms Schubert alleges she and the deceased contracted to accept joint liability in respect of the loan advances and ensuing interest charges and that the defendants (who are the deceased’s executors and trustees under his will) have refused to apply the assets of the deceased’s estate to meet that obligation. The civil onus lies on Ms Schubert to establish the alleged contract and its breach on the balance of probabilities.
[15] Ms Schubert’s amended statement of claim pleaded a second cause of action, being a testamentary promise under the Law Reform (Testamentary Promises) Act
1949. Even on the pleadings, let alone on the evidence called, there would have been enormous difficulties with establishing such a claim. Wisely, Mr Patterson abandoned the second cause of action at an early stage of the hearing.
[16] In their relevant statement of defence the defendants make certain positive allegations. These are:
a) The value of the Karekare lodge and the total borrowings meant there was “consequently no prospect whatsoever” of the deceased being called upon to repay the loans or any associated interest; and
b)Any communication by the deceased to Ms Schubert that he was willing to provide her with financial assistance were in circumstances which made it apparent the deceased did not intend his communications to have contractual force.
[17] In his closing submissions Mr Woodd advanced the argument that these were, in effect, affirmative defences pleaded by the defendants and thus positive allegations for the purposes of Rule 5.63 of the High Court Rules. Because Ms Schubert had failed to reply to these affirmative allegations within the 10 days envisaged by the Rule, they should be treated as admitted.
[18] Certainly, if Ms Schubert, on the pleadings, could be said to have admitted an allegation that the deceased had no contractual intention so far as his relevant communications with Ms Schubert were concerned, then the contract cause of action would evaporate. Because I was reluctant to allow a dispute of such importance to the parties to be determined solely on a narrow procedural point, I considered that the interests of justice would best be served by allowing the plaintiff to file, out of time, a reply to the defendants’ positive allegations. I saw those allegations as being issues properly raised in the context of whether the plaintiff was able to satisfy the civil onus. A reply was duly filed. The defendants for their part filed a memorandum accepting they could point to no prejudice flowing from the late reply.
The Evidence
[20] As is apparent from the narrative in the first section of this judgment, I am satisfied the evidence establishes that the deceased’s relationship with Ms Schubert developed throughout 2004 and 2005; he repeatedly expressed his desire to marry Ms Schubert; to assist her to have a baby; to help her with the completion of the Karekare lodge; and all being well, to live with her at Karekare in a family relationship. A marriage and a pregnancy were not objectives shared by Ms Schubert until October 2005. Those aspects fell away in February 2006, when Ms Schubert became aware of transitory associations the deceased had been having with other women. Certainly from mid-December 2005, the dark cloud of the deceased’s illness had fallen across the relationship.
[21] I am also satisfied on the evidence that the deceased was fully aware that, by assuming the obligations of a co-debtor for the three advances totalling $199,000 from NZ Home Loans, he was personally exposed to the mortgagee.
[22] But the issue for this Court is whether, in the context of those findings, Ms Schubert and the deceased formally contracted that the deceased should be personally responsible for half of the $199,000 loan and the ensuing outgoings. Such was the contract Ms Schubert alleges.
[23] The deceased is dead. He cannot give evidence on this central issue. The only witnesses able to give direct evidence are Ms Schubert herself, the deceased’s mother, (a defendant) Mrs M F Millar, and the deceased’s then solicitor, Ms J R Gill, whose evidence was detailed, professional, and extremely helpful. Much of the relevant evidence relates to events on 16 December 2005, being the day when the deceased, his mother, and Ms Schubert were told by the North Shore Hospital oncologist that the deceased’s illness was terminal. It was also the day on which the deceased and Ms Schubert signed the loan agreement with NZ Home Finance.
[24] Ms Schubert’s evidence was that in mid-October 2005 the deceased “took the lead” in seeking finance to complete the Karekare development. It was the deceased, she says, who negotiated the first and largest of the loan tranches. The basis for this assertion is an email from the deceased to Ms Schubert on 9 December 2005 which includes:
I have been onto NZ Home Loans who seem really useless. They are drafting up the papers and will fax them to my work when done, today or Monday. I will sign them and take them to Ken to sign for your end. They had it still at $115k in a floating interest rate, so I told them 2 years at 8.25% and that the whole point of getting the valuation done at some expense and delay was so we could go higher, with a limit of say $150k if needed. She said she would go back to William. Hopeless!!! Why does this keep happening to us?
The “Ken” appears to be a reference to Mr K Patterson, who was Ms Schubert’s solicitor and sole trustee of her Trust.
[25] I accept, there being no significant challenge to this evidence, that the deceased was experienced in property dealings and consistent with his desire to help Ms Schubert, played a dominant part in seeking additional finance from NZ Home Loans. The email was sent after the tentative diagnosis of cancer. Clearly he had been involved with NZ Home Loans before that.
[26] Ms Schubert’s evidence in chief omitted any mention of a luncheon at the
Karekare property attended by her, the deceased, and Mrs Millar on 16 December
2005 before the three travelled to North Shore Hospital to see the oncologist. I deal with that lunch later.
[27] Ms Schubert also gave evidence about the signing of the loan documentation on 16 December. She said it was signed:
...at the offices of my solicitors, Davenports West. Myself, Lloyd, Nicci Craig and Ken Patterson attended the meeting. Lloyd and I told Ken Patterson and Nicci Craig that Lloyd had been diagnosed with terminal cancer. Nicci asked whether we should be signing the loan together and I told her what Lloyd had told me; that his life insurance would cover the loan. Lloyd was present when I told Nicci that and he therefore was aware that she
was only happy for me to sign the document on that basis. Lloyd agreed with my statement that his life insurance would cover the loan.
[28] This evidence constituted an important plank in Ms Schubert’s case. It suggests that, in the presence of the deceased, Ms Schubert asserted to her solicitors that the deceased had stipulated his life insurance would cover the loan and that it was on such a basis that Ms Schubert’s solicitors were content for her to assume the loan obligation despite the revelation that the deceased, as co-debtor, was terminally ill.
[29] I reject Ms Schubert’s evidence on that aspect. I do not think she has deliberately chosen to give false evidence. Rather I suspect she has conflated various matters. I find, on the basis of the evidence of Mrs Millar and the deceased’s solicitor, Ms Gill, (detailed later) that it was the deceased who first signed the loan agreement and that Ms Schubert was not present when he signed it. I am not prepared to find that the deceased was present in Ms Schubert’s solicitor’s office with two solicitors when she signed the agreement. I find that no such conversation in the presence of her solicitors took place. My findings are buttressed by the observation that the briefs of the relevant defendants’ witnesses were available (particularly that of Ms Gill) to the plaintiff and that, in a position of likely conflict, Mr K Patterson and Ms Craig were not called to support Ms Schubert’s assertions. Mr Patterson, as sole trustee of Ms Schubert’s Trust would properly have an interest in the matter. On this aspect of Ms Schubert’s evidence, Mr Woodd has properly invited me to draw an adverse inference from the failure to call Ms Schubert’s two solicitors. He was correct to do so. I deal with the law relevant to that submission later.
[30] I observe too that in a situation where it would be standard practice for both co-debtors to be independently advised, Mr Patterson and Ms Craig would undoubtedly have had strong reservations about the deceased being present (had he been there), particularly given the information about his terminal illness.
[31] Ms Schubert gave evidence that when the second tranche of the loan was drawn on 16 February 2006 the deceased again promised that if he died, his life insurance would take care of his half of the loan. The third and final tranche was
drawn in May 2006, approximately three months after Ms Schubert had “cancelled” her engagement and stopped artificial insemination treatment. The plaintiff asserts that again the deceased told her his life insurance would cover half of the debt.
[32] However, Ms Schubert’s evidence, which I accept in this regard, was that throughout 2006 until his death in February 2007, the deceased made no contribution towards the Karekare outgoings because he needed to conserve his finances to pay for on-going medical treatment. This has some significance. An obligation which the deceased had assumed in respect of the vendor finance which Ms Schubert had extended for the Royal Heights sale (supra [4]) was a weekly obligation to pay her
$250 a week, subsequently reduced to $200 per week to assist Ms Schubert’s income stream. It is clear from the Hercules and Venus documents that as part of his desire to assist with Karekare, the deceased was prepared to continue those payments indefinitely. Clearly, and I so find, in the wake of his illness and the increased borrowing from NZ Home Loans, the deceased ceased weekly payments to Ms Schubert. Ms Schubert for her part took no steps to enforce the term of the contract she alleges.
[33] Certainly the contractual rights which Ms Schubert asserts did not loom large in her thinking until after the deceased’s death in February 2007. It was not until financial necessity forced her to look around for remedies that she began to pursue this claim. She stated in evidence she would not have pursued it if she had been able to realise a family inheritance or sell the Karekare property.
[34] Finally, so far as my analysis of Ms Schubert’s evidence is concerned, Ms Schubert wrote a letter to the deceased’s estate’s solicitors on 19 February 2007. I accept that she wrote this letter after a discussion she had with Mrs Millar (a co- executor of the deceased’s will) to set out her understandings of the arrangements with NZ Home Loans. The letter contains the following assertion:
Prior to leaving for Wellington, just before his death, Lloyd told me that he had declined to pursue having me sign a waiver of his share of the debt (as advised by Jenny Gill). He intended that money as a gift to me in view of his life being cut short. [Mrs Millar] stated in our conversation that that was also her understanding of Lloyd’s wishes.
[35] For some reason, unwisely perhaps, the estate’s solicitors never replied to that assertion. Mrs Millar, whose evidence I accept in this regard, denied she had ever indicated to Ms Schubert that she shared her “understanding” of her son’s wishes so far as the NZ Home Loan debt was concerned. Ms Schubert, as with her evidence about the deceased being present when she signed the loan document, is mistaken.
[36] I return to Mr Woodd’s submission that I should draw an adverse inference from Ms Schubert’s failure to call the two solicitors she says were present when she signed the loan agreement on 16 December. Caution is needed with a submission of this type. The Australian authority of Jones v Dunkel[1] is sometimes advanced as authority for a “rule” that the failure of a party to call a witness who might elucidate an issue, justifies an inference that the party’s failure to call the witness may be
attributable to a fear the witness would expose facts which were unfavourable.
[1] Jones v Dunkel (1959) 101 CLR 298.
[37] The limitations of the Jones v Dunkel “rule” were examined by the Court of Appeal in Ithaca (Custodians) Limited v Perry Corporation.[2] Relevant authorities are usefully examined at [149]-[155]. At [153] the Court of Appeal stated that there was no “rule”. There are limitations on drawing an inference that a party’s failure to call a witness may allow an inference that the evidence from that witness may not have helped a party’s case.
[2] Ithaca (Custodians) Limited v Perry Corporation [2004] 1 NZLR 731.
[38] In the circumstances of this case, and on the basis of the Court of Appeal’s discussion, I do not need to draw an adverse inference. Rather I see the absence of any evidence from the two solicitors who were present when Ms Schubert signed the loan agreement as reducing the weight which should be given to Ms Schubert’s uncorroborated assertions about the deceased’s presence at that meeting and what she said at it. It constitutes a deficiency in Ms Schubert’s evidence, resulting in it falling short of establishing her factual assertions on the balance of probabilities.
Mrs Millar’s evidence
[39] The evidence of Mrs Millar, who lives in Wellington, understandably focused on the events of Friday 16 December 2005. Aware of her son’s appointment that day with an oncologist, she had flown from Wellington the previous day to be with him.
[40] Mrs Millar was totally unaware of any “engagement” between her son and Ms Schubert. Indeed on the evening of 15 December (she was staying in the deceased’s flat) she met a Ms Graaf who came to visit and with whom the deceased had been having a close relationship.
[41] On the morning of 16 December Mrs Millar accompanied her son to see his solicitor Ms Gill. Mrs Millar’s recollection of events at that meeting is not comprehensive. Matters which I accept from Ms Gill’s evidence were discussed clearly passed Mrs Millar by. She was unaware, for instance, of discussions between her son and Ms Gill about a possible will. Nor did she recall that during the meeting Mr Boyle, a principal in the firm, arrived to reinforce Ms Gill’s advice, which was to the effect that the agreement should not be signed.
[42] Mrs Millar states, and I accept, that she was “uncomfortable” about her son signing a loan as co-borrower. She also recalls the deceased assuring both his solicitor and her that there was no prospect of him being liable to repay anything on the loan because of the large equity which was in the Karekare property. He was becoming co-borrower merely to assist Ms Schubert, in the same way as she had previously lent money to him (a reference to the Royal Heights transaction).
[43] After the meeting, Ms Schubert, the deceased and Mrs Millar travelled to the Karekare property where they had lunch in the partly completed structure. The deceased showed his mother certain work he had undertaken and indicated he would be helping Ms Schubert during the weekends. He described the lodge as a business venture and repeated that he wanted to help Mrs Schubert attain her dream house.
[44] Mrs Millar (she being unchallenged on this point) said that during lunch she again raised the subject of the loan. She considered it was important for her to get a
clear understanding of what was involved, so she asked questions of the other two. The answers she received (it not being clear which of the couple provided the bulk of the answers) were that Ms Schubert would be responsible for making the repayments on the loan; that the security was the Karekare property; and that a portion of the uplifted loan monies would be used to meet interest payments when they fell due, and would additionally be applied to Ms Schubert’s living expenses since she was working full-time on the project.
[45] Again Mrs Millar was told, and I find she was certainly told by the deceased, that his only exposure would be to repay the loan if for some reason the property sold at a sum lower than the outstanding borrowings. That was a risk which the deceased described (understandably given the values involved) as “minimal”.
[46] The evidence is unclear whether any of these replies to Mrs Millar’s questions came from Ms Schubert, or indeed whether Ms Schubert agreed verbally or merely nodded (as suggested by part of Mrs Millar’s evidence). I find, however, that Ms Schubert certainly did not express any understanding she might have had to the contrary. I also find that Mrs Millar asked these questions in an endeavour to find out from her son the type of financial risk to which he was exposed. Given the significant concerns which both Mrs Millar and the deceased would have had about a provisional cancer diagnosis, it was understandable and legitimate for Mrs Millar to have raised these questions.
[47] It was a topic at the lunch, reiterated by Ms Gill’s evidence, and I so find, that the deceased himself had already turned his mind to his exposure as a co-debtor. I consider it unlikely, certainly less probable than more probable, that anything was said at the lunch which was confirmatory of a contract of the type Ms Schubert alleges. Had such an arrangement been made, it was not mentioned when Ms Schubert herself signed the loan document later in the day. Were the deceased to be anything more than a borrower of last resort, and had Ms Schubert a clear view that the deceased had contracted to meet half of the advanced principal and half the interest outgoings, then it would clearly have been in Ms Schubert’s interest to have obtained some written confirmation of such an arrangement before she herself
assumed personal responsibility for the $199,000 and its interest payments and encumbered her Karekare property to secure those obligations.
[48] Ms Schubert in cross-examination, and also when recalled, (some of the specifics of Mrs Millar’s evidence were not put to her), accepted that in large measure she and the deceased had stated at the lunch that outgoings would be met from the monies borrowed and that the deceased would only be called on to pay the principal if there was insufficient equity in the property to repay borrowings.
[49] After lunch, on Mrs Millar’s evidence which I accept, she, the deceased, and Ms Schubert travelled in the deceased’s car to North Shore hospital for an appointment with an oncologist at 2 pm. The deceased was told he had peritoneal cancer which was terminal. He learned that New Zealand surgeons did not operate on a cancer of this type and that, in any event, surgery was seldom of any use. No life expectancy was given.
[50] The group returned to the deceased’s flat. The deceased then became involved in discussing his health situation with his former wife and their 12 year old son. Ms Schubert left shortly thereafter in another car. These timings reinforce my refusal to find that, when Ms Schubert went to the solicitors later that afternoon, she was accompanied by the deceased.
[51] In her capacity as her son’s executor, Mrs Millar gave some formal evidence which was unchallenged. In early 2006, Sovereign Assurance, with whom the deceased had a life policy, paid out two sums totalling $184,500 as a result of him being terminally ill. That money was used partly to reduce or repay various loans of the deceased and partly to purchase a motor vehicle and a motorcycle. The deceased also spent considerable sums on alternative medicines and treatments, dietary supplements, and surgery in Sydney in June/July 2006. Both Ms Graaf and the deceased’s parents accompanied him in Sydney. Ms Graaf helped him convalesce in her home for several weeks on his return to Auckland.
[52] The deceased made a will in Ms Gill’s office in December 2006, a few weeks before his death. There was no provision in the will for Ms Schubert. Mrs Millar
again asked her son about the loan and received the same reassurance that neither he nor his estate would be vulnerable because of the equity in the property.
Ms Gill’s evidence
[53] Before detailing Ms Gill’s evidence I record the major issues contained in a typewritten document, with the deceased’s typed signature at its foot, and headed “Meeting with Jenny Gill, Boyle Mathieson, 3 November 2005”. The provenance of this document is unclear. Ms Gill’s evidence was that there was a copy on her file for the sale of the Colwill Road property which the deceased had bought from Ms Schubert in June 2004. Approximately 16 months later the deceased contracted to sell the property with a settlement date in mid-November 2005. Ms Gill’s evidence, which I accept, was that although the document was found on her Colwill Road sale file, she has no recollection of having seen or read it before it was discovered. She had certainly never discussed its contents with the deceased or advised him on it.
[54] There is no challenge that the deceased was the author of the document. It shows in part the deceased’s thinking on aspects of his involvement with Ms Schubert and in particular her Karekare property. The major points are:
a) The deceased had agreed to co-sign a mortgage application with
Ms Schubert of between $150,000-$200,000;
b)The funds were needed to finish the Karekare property where the deceased had been helping with “labour and support” over the past 18 months;
c) The couple envisaged a life partnership and planned to live there together from January 2006;
d)Ms Schubert needed the deceased’s income stream for the application “to stack up”. She was on ACC, did not want to return to full-time work, and had no additional income;
e) The current mortgage was $230,000. The original property had been worth between $700,000 and $800,000. The new property which was costing $600,000 to build, would bring the final value of the property to an estimated $1.3-$1.5 million.
f) The property was owned by a family trust established in November
2001 in respect of which Ms Schubert was the only beneficiary.
g) Ms Schubert did not want any other names on the title to the Karekare property but was prepared to make the deceased a beneficiary of the family trust.
h)Ms Schubert had some expectation in a family estate which she was unable to realise at the moment.
[55] The note then sets out five issues which the deceased wished to discuss with
Ms Gill. These were:
1.Given that he had helped build the house and would help service the new mortgage, and if the relationship continued, what recognition would there be for this contribution? The deceased stated this was “of lower priority”.
2.If the relationship failed, what could be done to remove the deceased’s name from the mortgage and to recompense him for the work he had done in servicing the debt?
3. At what stage would a prenuptial agreement be necessary?
4. Were the deceased’s existing properties safe from mortgagee sale if there was a default on loan payments? Was it correct that NZ Home Loans could only pursue the property on which there was a mortgage?
5.As a result of the mortgage the deceased would find it harder to borrow money for other property developments. Were there other risks?
[56] The document concludes that there was a high degree of trust and goodwill between the parties and that they may be “happy with an agreement between both parties of some form”.
[57] The deceased’s summary of the relevant background information is all in accord with the evidence. The document shows a precise and logical mind. The issues arising from that background, on which the deceased sought advice, are clearly inconsistent with the deceased entering into a contractual arrangement with Ms Schubert of the type she now contends. There is nothing to suggest an assumption of liability for half the principal. Assisting with servicing the loan was in the context of the relationship continuing, with the hope that there might be compensation for labour and debt servicing if the relationship failed. Some form of written agreement, prenuptial or otherwise, was clearly envisaged. This is all the approach of a man who would require some formal documentation of any binding agreement.
[58] Such an approach is consistent in part with an earlier email from the deceased to Ms Gill (which she did receive) dated 13 October 2005. The email was sent as part of an exchange relating to the withdrawal of the caveat which protected Ms Schubert’s vendor finance in Colwill Road. The email relevantly states:
I would like at some stage to discuss with you how to lend most of the proceeds of the sale – perhaps 80-100k – to my friend and possibly future partner Tracey Shubert, the woman who sold me Colwill .... She has finally agreed to us being partners in life, not just business! Has been a long courtship.
She is running out of money to finish her huge Karekare house, worth maybe
$1.5m+ when finished along with land and existing house. Her main problem is debt servicing any top-up loan. She has low income while project managing the construction.
She is leaving me half the property in her Will. It is in a Family Trust .... Tracey has no children, although this could change.
I would like your advice on how to secure any money I put in, given the relationship situation but allowing for possible future scenarios.
My other option is to support a mortgage application with her and help her to service it.
I will also need advice in time on whether to keep my assets separate if hers are all in trust.
[59] Again these musings and questions are inconsistent with the contract Ms
Schubert alleges. It was the “other option” which eventuated.
[60] Against that background Ms Gill’s evidence was focused and helpful. In addition to the Royal Heights transactions in which she had acted for the deceased, she had also acted for him when he purchased another property in Henderson.
[61] On 15 December 2005, Ms Gill received in the mail loan instructions and loan documents from NZ Home Loans for a proposed loan to both the deceased and Ms Schubert of $115,332. The couple were to be co-borrowers with Ms Schubert’s Trust as guarantor. The security was to be the mortgagee’s existing first ranking all obligations mortgage over the Karekare property. Ms Gill clearly recalls that she had not been expecting these instructions. Their arrival was a surprise. She took the view that the instructions should properly have been sent to the solicitors of Ms Schubert who was the mortgagor.
[62] Ms Gill contacted the deceased and asked him to come into her office. This he did the following day, accompanied by his mother. At the outset the deceased explained to Ms Gill that he had been diagnosed with cancer and was to receive a specialist’s report that day. He first talked about his will and how he should divide up his estate between his five children. Turning to the loan, he told Ms Gill he intended to go ahead with the loan to assist Ms Schubert complete her “dream home”. He wanted to assist her. He thought the property was currently worth around $1 million and that the borrowings after the new loan would be around
$380,000. He referred again to Ms Schubert not working, and not otherwise qualifying for the loan unless he supported it. He said he would be paying $200 per week, which was the instalment sum he had been paying under the Royal Heights vendor finance arrangements.
[63] He further instructed Ms Gill that he understood Ms Schubert would be using part of the loan advance to service interest payments as they fell due until the completed property would generate income. He referred to income protection insurance payments he would receive and to a lump sum he would obtain as a result of being diagnosed with a terminal illness.
[64] Ms Gill was understandably concerned about the wisdom of the deceased committing himself as a co-borrower, given his state of health. She went to speak to a partner of her firm, Mr Boyle, who joined the meeting. Both solicitors recommended to the deceased that, at the very least, he should enter into a written agreement for an indemnity from Ms Schubert’s Trust against any loss. However, the deceased was very clear that there was no real prospect of him being called on to repay because of the large equity in the property. He wanted to repay Ms Schubert a favour by assisting her now when she needed it, as she had helped him with the Royal Heights vendor finance. He was adamant there was no prospect of the mortgagee calling on him.
[65] Ms Gill made a detailed file note recording most of the relevant background. Neither Ms Gill nor Mr Boyle seemed to have taken the step of recording in writing that the deceased was signing the loan agreement against their advice. Nor do any steps seem to have been taken by the solicitors acting for either party to notify NZ Home Loans of what arguably was a significant change (the deceased’s diagnosis) to the assumptions on which the loan had been approved. Despite that, I accept totally that Ms Gill has given accurate evidence about the 16 December 2005 meeting and the advice proffered by Mr Boyle and her to the deceased.
[66] The loan documents were then hand-delivered to the offices of Davenports West, Ms Schubert’s solicitors. They were accompanied by a short letter, marked for the attention of Mr K Patterson. That letter confirmed the deceased had executed the loan agreement and that disclosure to him under the Credit Contracts and Consumer Finance Act had been made. It also confirmed that Ms Gill had advised NZ Home Loans that Davenports West would be acting. At the same time Ms Gill sent a fax to NZ Home Loans acknowledging receipt of the loan documents and advising that, whilst the deceased was an existing client, the firm was not acting in
respect of the loan advance, and that all documents including NZ Home Loan’s letter of instruction had been forwarded by Ms Gill to Mr Patterson.
[67] The loan document which the deceased signed in Ms Gill’s presence has no requirement for a witness to the deceased’s signature. Nor was there any attesting witness of Ms Schubert’s signature. Ms Gill’s evidence, which I accept, was that the deceased signed the document in her presence. When the document was hand- delivered to Davenports West it was undated. Ms Gill has no knowledge of the handwriting on the document which has subsequently been dated with handwritten additions of “16” and “December 2005”. The writing is not Ms Schubert’s either. I infer that the document was dated by a solicitor in Davenports West.
[68] Contact between the deceased over the last year of his life and Ms Gill was limited to will instructions. She saw him twice. On each occasion she asked him about the borrowings for the Karekare property. Again on both occasions the deceased made it clear that the equity was sufficient and there was no prospect of him being called upon to make any repayments.
Discussion
[69] I accept Mr Woodd’s submission that, in assessing the evidence relating to the alleged contract, I should be mindful that evidence supporting a claim against a deceased estate should be carefully scrutinised and should be cogent.[3]
[3] Fleming v Beevers [1994] 1 NZLR 385 (CA). at 388.
[70] Certainly the deceased in his October and November 2005 communications with his solicitor (supra [54]-[58]) gave an extremely accurate account of the relevant background and context in which he wanted to assist Ms Schubert with the Karekare property. Nonetheless, there is some force in Mr Patterson’s submission that there were aspects of the deceased’s conduct which were duplicitous. His enthusiasm for the Herculean task of establishing a permanent relationship with Ms Schubert is undercut somewhat by his attachments to and companionship with other women. The life insurance cover which, on the evidence he seems to have taken out
in the same timeframe as he purchased the Royal Heights property from Ms Schubert, was not preserved by him, as Ms Schubert asserts, to cover the extra Karekare loan, but was instead cashed in and applied for personal expenditure.
[71] The onus of proof in this case to establish the contract which Ms Schubert claims, rests on her. Aspects of her evidence were not totally reliable. I have dealt with her insistence that the deceased accompanied her in the late afternoon of
16 December 2005 to Davenports West’s offices. I consider that is unlikely. No steps were taken by Ms Schubert, either at the lunch attended by Mrs Millar or subsequently, to record what Ms Schubert says was her understanding of the arrangements, and in particular the assumption by the deceased of a 50 per cent responsibility for principal and loan outgoings. Ms Schubert’s evidence, so far as the lunch is concerned, was largely supportive of Mrs Millar’s version. She accepted that Mrs Millar was asking the questions which she had detailed.
[72] Given the coherent approach evident from the deceased’s October 2005 email and the 3 November 2005 document, I think it improbable that the deceased would have concluded an oral contract with Ms Schubert in the terms which she alleges. The deceased’s focus throughout was on assisting Ms Schubert. He saw his vulnerability as a co-debtor solely in the area of the mortgagee calling on him should there be significant defaults. He did not regard himself as being exposed on his personal covenants because of the considerable equity in the Karekare property. The certainty of his premature death was sufficient for both Ms Gill and Mr Boyle to advise him against entering into the loan agreement without an indemnity from the Trust. The deceased’s assessment of his vulnerability and his continuing desire to help Ms Schubert led him to reject that advice. He analysed his personal vulnerability as being limited to recourse by the mortgagee in the unlikely event of there being insufficient equity. Had the deceased entered into an oral contract on the terms which Ms Schubert alleges (or a contract involving similar terms) he would almost certainly, in my judgment, have raised his contractual obligations with his solicitors and sought advice.
[73] It is significant that Ms Schubert in her evidence suggested that the contract was already in existence at the time the 16 December 2005 documentation was
signed. The pleadings refer to representations made in various “discussions” preceding 16 December 2005, and also in February and May 2006 and January 2007. It might possibly have been the case that the contract was formed after 16 December
2006 as the deceased was contemplating his death. I rule that out as a possibility for two reasons. First, by February 2006, the deceased was already cashing in his Sovereign Assurance life policy. Secondly, in the same month, the prospect of him marrying Ms Schubert and assisting her to conceive a child had, on Ms Schubert’s own evidence, passed. In any event, the thrust of Ms Schubert’s evidence was on the contract being in existence by 16 December 2005.
[74] Focusing again on the allegation that a contract had come into existence on or before 16 December 2005, I consider that highly improbable. Before the deceased realised he had cancer in early December 2005 he was happy to assist Ms Schubert. He helped her to apply for the extra money required to complete Karekare; he saw the Karekare property as probably being the future home for him, Ms Schubert and possibly a child; he was prepared to continue payments of $200 a week; he was secure in the knowledge that some of the uplifted of loan monies would be applied to meeting the outgoings, that the Karekare lodge would shortly be completed and income producing, and that there was a substantial equity in the property.
[75] The deceased was a man with considerable experience buying and selling properties and raising loans. On his assessment of the situation, there would be absolutely no commercial reason, or indeed moral or emotional reason, for him to commit himself contractually to Ms Schubert to be personally responsible for half the principal and half the outgoings. Were there to be any contractual dealings with Ms Schubert, his expectation was they would be in the form of some prenuptial contract or agreement in writing to protest what he saw as his interest in Ms Schubert’s property.
[76] By the morning of 16 December 2005 the deceased knew he was seriously ill. Hours after his meeting with Ms Gill he learned that his condition was certainly terminal. He did his best to prolong his life but he died. His obligations, as he saw them, had been fulfilled. He had assisted, by becoming a co-debtor, Ms Schubert to raise extra finance from NZ Home Loans which otherwise would have been
unavailable to her. The understanding, as he saw it, was that out of those borrowed funds she would be able to service the outgoings. His knowledge of his probable death did not alter his desire to assist Ms Schubert. Nor did it alter the basis on which he understood he was assisting her.
[77] In short, and for reasons apparent from the above analysis, I do not consider Ms Schubert has established, on the balance of probabilities, that the contract she alleges was concluded between her and the deceased existed. I am prepared, for the same reasons, to go even further and find that a contract containing the terms Ms Schubert alleges was never formed. I do not, in the light of those findings, need to examine Mr Woodd’s supplementary submission to the effect that, if the deceased made statements of the type pleaded by Ms Schubert, he did not intend to conclude a contract. In summary I do not consider the deceased made unqualified statements of the type alleged.
[78] I record that on three occasions during the course of the hearing I remarked to both counsel and the parties that, given the sum of money involved, litigation costs, and the consequences which would flow from one of the parties losing the case, every effort should be made to try to settle. It is regrettable that a settlement was unachievable.
Result
[79] The plaintiff has failed to establish her cause of action. Thus, there is judgment for the defendants.
Costs
[80] In a very general discussion at the end of the hearing, counsel, as I understand it, agree that the 2B scale was appropriate. Mr Patterson came close to suggesting that should the plaintiff fail he could probably not resist a claim for 2B costs. Mr Woodd for his part was not in a position to present considered submissions on costs.
[81] Accordingly, at the request of both counsel, I reserve costs. I urge counsel to conclude what must be a relatively straightforward assessment of the defendants’ costs entitlement on the 2B scale. If, for some reason, counsel are unable to agree, memoranda are to be submitted. A memorandum for the defendants (if agreement is impossible) should be filed no later than 29 October 2010 and from the plaintiff 10 working days thereafter.
.......................................… Priestley J
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