Smith v Ball
[2020] NZHC 944
•8 May 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2268
[2020] NZHC 944
IN THE MATTER of the Estate of RAYMOND ALEXANDER SMITH BETWEEN
SAHRA LING SMITH
Plaintiff
AND
ROGER NEVILLE BALL
First Defendant
CRYSTAL MINT DEVELOPMENTS LIMITED
Second Defendant
CRYSTAL MINT LIMITED
Third Defendant
Hearing: 9-13 and 17 March 2020 Appearances:
K P McDonald and N Percy for the Plaintiff
First Defendant on own behalf and on behalf of the Second and Third Defendants
Judgment:
8 May 2020
JUDGMENT OF GORDON J
This judgment was delivered by me on 8 May 2020 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Kevin McDonald & Associates, Auckland Copy To: First Defendant
SMITH v BALL [2020] NZHC 944 [8 May 2020]
CONTENTS
Introduction [1]
Background [10]
First cause of action – against CMDL: express trust [53]
Trusts – general legal principles [57]
Writing requirements for trusts - Property Law Act 1952 [65]
Is there certainty of intention? [71]
Mr Smith’s letter to his solicitor (7 October 1993) [71]
Mr Smith’s letter to his solicitor (26 October 1993) [77]
CMDL’s power of attorney (9 November 1993) [86]
Option to purchase 38 Dominion Street (undated) [89]
Mr Smith’s letter to his solicitor (22 November 1993) [92]
Mr Smith’s letter to Harold Kidd (16 December 1996) [97]
Mr Smith’s letter to Mr Kidd (30 January 1997) [100]
Document headed “Remember This” (1 March 2002) [102]
Document headed “CMD’s Income” (undated) [104]
Document headed “Routes/methods by which Key gets paid and when
the IRD gets GST” (undated) [106]
Handwritten file note (undated except for “June”) [108]
The “road map” [112]
Meeting of 20 January 2015 [128]
CMDL and Mr Ball as director [130]
Mr Smith’s conduct [134]
Lack of commercial rationale for the arrangement [138]
KCL and CMDL’s financial statements [139]Was Mr Smith’s $520,000 vendor loan repaid? [141]
Certainty of subject matter of trust [154]
Certainty of objects [156]
Writing requirements for an express trust [157]
Conclusion [161]
Second cause of action - against CML: express trust [162] Certainty of intention - shares in CMDL [163] Third cause of action - against CMDL and CML: constructive trust [170] Presumed or actual common intention [173]
Property obtained by fraud [181]
Sixth cause of action - against CMDL: loan by Mr Smith to CMDL of $303,000 [186]
Did CMDL borrow $303,000 from Mr Smith? [189]
Mr Ball acting under power of attorney? [202]
Fourth cause of action - against Mr Ball: loan by Mr Smith to Mr Ball of
$303,000 [216]Seventh cause of action - against CMDL: loan by Mr Smith to CMDL of
$646,500 [219]
Did CMDL borrow $646,500 from Mr Smith? [221]
Mr Ball acting under power of attorney? [228] Fifth cause of action - against Mr Ball: loan by Mr Smith to Mr Ball of $646,500 [235] Orders and declarations [236]
First cause of action [236]
Costs [239]
Introduction
[1] Raymond Smith was the owner of a property at 38 Dominion Street, Takapuna, Auckland. He lived at 5/38 Dominion Street. In November 1993, Mr Smith and his close friend, the first defendant, Roger Ball, entered into an arrangement whereby Mr Ball’s company, the second defendant Crystal Mint Developments Ltd (CMDL) was to purchase 38 Dominion Street. At that time, the beginnings of a development at 38 Dominion Street were underway. The development continued after the sale to CMDL.
[2] Mr Smith suffered a series of strokes, starting in 2004. He became incapable of managing his own affairs and Mr Ball was granted an enduring power of attorney in relation to property (EPA) by Mr Smith on 12 July 2004.
[3] Mr Smith died on 8 February 2010. Mr Smith’s only child, the plaintiff, Sahra Smith, was the sole beneficiary of his estate.
[4] Ms Smith now brings claims against Mr Ball, CMDL and the third defendant, Crystal Mint Ltd (CML). CML is the sole shareholder of CMDL and Mr Ball is the sole director and sole shareholder of CML. Mr Ball is also the sole director of CMDL.
[5] In her first cause of action, Ms Smith claims that CMDL holds units 3, 4 and 5/38 Dominion Street1 under an express trust for her father, and for Ms Smith, in her capacity as the executrix of her father’s estate.2
[6] In the alternative, in the second cause of action Ms Smith claims that CML holds the shares in CMDL on an express trust for her father. After his death, his interest in the trust passed to her in her capacity as the executrix of her father’s estate.
[7] The third cause of action is again an alternative claim. It is made against both CMDL and CML and claims that units 3, 4 and 5/38 Dominion Street, or alternatively
1 Units 1 and 2/38 Dominion Street were sold to unrelated parties and have since been on-sold.
2 Mr Ball was the executor under Mr Smith’s will. In 2016 Ms Smith applied to this Court for probate to be granted to her. That order was made on 15 August 2016.
CML’s shares in CMDL, are held on a constructive trust for her father and that those interests have passed to her in her capacity as the executrix of her father’s estate.
[8] The fourth and fifth causes of action are against Mr Ball personally. The claims arise out of loans said to have been made by Mr Smith to CMDL in 2005 and 2009 (after Mr Smith’s strokes) by way of Mr Ball acting under the EPA transferring funds from Mr Smith’s bank account to CMDL’s bank account. These causes of action are mirrored by the sixth and seventh causes of action respectively, which are brought in the alternative, against CMDL. Mr McDonald, who appeared for Ms Smith, clarified at the hearing that these four causes of action are not brought as alternatives to the first three causes of action.
[9] The eighth and final cause of action against CMDL, alleging that the contract between Mr Smith and CMDL in November 1993 was an illegal contract, was abandoned at the hearing.
Background
[10] Mr Ball and Mr Smith first met in 1975 when they both worked at the Housing Corporation. Mr Ball was a town planning and survey drafting cadet and Mr Smith was a quantity surveyor. They became best friends.
[11] Mr Smith acquired 38 Dominion Street from a family member in 1975. It was a half-acre site with an old house in the middle of the section. Mr Smith moved into the old house but had ideas about developing the site. Mr Ball’s evidence was that he assisted with some preliminary work on site and discussed Mr Smith’s plans with him. The house on the section was moved to the back of the site and later became known as 5/38 (and sometimes 6/38) Dominion Street.
[12] Mr Smith met Alida, who became his wife, and their daughter Sahra was born in 1988. Mr Ball became her godfather.
[13] Mr Ball, along with two others who were friends and colleagues of his, formed CMDL on 26 May 1989. Mr Ball’s evidence was that they wanted to buy properties
and build additional houses on them and sell them for a profit. By 1993, Mr Ball had bought his partners out and the company was no longer active.
[14] In December 1989, Mr Smith incorporated Key Consultants Ltd (KCL). Mr Smith was the sole director and held 999 shares. His brother Trevor held one share. Mr Smith used KCL for his activities as a builder.
[15] In 1991, Mr Smith bought 42 Dominion Street, Takapuna, which is next door to 38 Dominion Street. The following year he transferred title to 42 Dominion Street to KCL. In July 1992, KCL applied to subdivide 42 Dominion Street and three cross- lease titles were issued in August 1992. The leasehold interests in two of those titles were transferred to unrelated third parties.
[16] KCL remained the registered owner of one of those titles, which Mr Smith referred to as both 3/42 and 7/38 Dominion Street.
[17] In 1993, the legal title of 38 Dominion Street passed from Mr Smith to CMDL pursuant to an agreement for sale and purchase dated 12 November 1993. The purchase price was $540,000. It seems the initial idea was that the entire purchase price would be financed by way of a vendor loan. After receiving legal advice, the arrangement was that CMDL would pay a deposit of $20,000 and the balance of
$520,000 was by way of an interest free vendor loan. Ms Smith’s position is that the deposit was not paid nor was the loan amount repaid.
[18] CMDL received a $60,000 GST refund following the purchase. Mr Smith used that to pay off the mortgage on 38 Dominion Street.3
[19] Between 1993 and 1994, Mr Smith and KCL undertook building and ancillary work on the land that later became known as 2/38 Dominion Street. In September 1997, part of 38 Dominion Street was subdivided and cross-leases were created for 1, 2 and 5/38 Dominion Street. Unit 5 was registered in the name of CMDL, as was unit 1. That latter unit was transferred in the same year to unrelated purchasers,
3 Mr Ball says that the $20,000 deposit was paid and was also used to pay off the mortgage on 38 Dominion Street.
Mr and Mrs Chan. Unit 2 was registered in the name of a Mr and Mrs Coote who were also unrelated purchasers.
[20] Mr Smith/KCL then undertook building and ancillary work on the remaining land at 38 Dominion Street. Two houses, known as 3 and 4/38 Dominion Street, were constructed.
[21] In February 2001, KCL transferred 3/42 (also known as 7/38) Dominion Street to Mr Smith and Mr Ball as trustees of the Ray Smith Family Trust No 1 (RS Family Trust). That trust had been settled by Mr Smith by deed dated 31 March 1997. Mr Smith and Mr Ball were the trustees.
[22] In around September 2001, Mr Smith separated from his wife, Alida. During 2002, Mrs Smith commenced her first set of proceedings in the Family Court for the division of relationship property. Mrs Smith discontinued those proceedings in 2003. At that time the relationship property issues between Mr and Mrs Smith were left unresolved.
[23] In 2002, Mr Smith’s father died and in June 2003, Mr Smith inherited his father’s residential property at 24 Beach Road, Castor Bay, Auckland.
[24] After Mr and Mrs Smith separated, Ms Smith continued to live with her father at 5/38 Dominion Street. They had a very close and happy relationship. In 2004 Ms Smith moved to a new secondary school where she was a weekly boarder, returning home each weekend.
[25] In mid-2004, Mr Smith suffered a series of strokes. He was hospitalised initially and the strokes affected his ability to care for himself. On 12 July 2004, Mr Smith granted Mr Ball an EPA. On 1 November 2004, Mr Smith executed a will, in which he appointed Mr Ball as his sole executor.
[26] A progress summary issued by the Waitemata District Health Board dated 4 November 2005, recorded that Mr Smith still experienced difficulty understanding more abstract language or lengthy pieces of information. The results of a brief
cognitive screening assessment, completed at the end of October 2005 and referred to in the report, indicated that Mr Smith still presented with mild-moderately reduced orientation, severe memory impairment and severe impairment of reasoning skill which affected his ability to problem solve. The report noted that Mr Smith’s acceptance and self-awareness of those deficits was reduced.
[27] A further report dated 5 July 2006, this time from a Dr Wong, Mr Smith’s doctor, contained Dr Wong’s opinion that from his dealings with Mr Smith since his stroke, he lacked competence to manage his own affairs. Dr Wong stated that reports attached to his letter indicated there were issues with Mr Smith’s cognitive capacity. Dr Wong concluded that Mr Smith would have been like that on 12 July 2004 if not worse. He said the condition is usually at its worst immediately after a stroke and it may take months to improve. The medical evidence was not challenged.
[28] In late 2004, Mr Smith, through Mr Ball, entered into an agreement to sell the house at 24 Beach Road, Castor Bay which Mr Smith had inherited from his father. The sale settled on 15 February 2005. The net proceeds of the sale of $423,711.18 were deposited into one of Mr Smith’s bank accounts on 16 February 2005. Amounts of $3,000 and then $300,000 were withdrawn by Mr Ball from Mr Smith’s account and deposited into CMDL’s bank account on 21 and 25 February 2005 respectively.
[29] On 15 March 2005, $276,917.20 of the $303,000 that had been transferred from Mr Smith’s account to CMDL’s account was used by CMDL to repay its loan from Asset Lend Ltd.
[30] The financial statements for CMDL for the year ending 31 March 2005 do not record any money being loaned by Mr Smith to CMDL. They state that Mr Ball advanced $327,093 to CMDL4.
[31] The transfer of the sum of $303,000 to CMDL’s bank account is the subject of the fourth and sixth causes of action. Ms Smith also relies on the transfer and subsequent use of the money transferred to support her trust claims.
4 Mr Ball’s position is that was an error by the accountants. I refer to this further in the context of the sixth cause of action.
[32] In November 2005, Mrs Smith issued a second set of proceedings in the Family Court for the division of relationship property. The following year, Mr Ball applied to the Family Court to be appointed as Mr Smith’s property manager pursuant to the Protection of Personal and Property Rights Act 1988 (PPPRA). Mrs Smith countered by applying to the Family Court for the Public Trust to be appointed as Mr Smith’s property manager. She also filed an application to determine the validity of the EPA granted by Mr Smith to Mr Ball. Mrs Smith later withdrew that latter application.
[33] On 14 March 2007, the Family Court appointed Mr Ball and Mr Smith’s lawyer, Harold Kidd (who had acted for Mr Smith since December 1996 in relation to the Dominion Street properties) as joint property managers to manage Mr Smith’s property under the PPPRA. The appointment in fact ceased on 14 March 2008 but both Mr Ball and Mr Kidd, in a mistaken belief that their appointment as property managers remained in force, settled Mrs Smith’s matrimonial property claim. The settlement was recorded in a Deed of Family Arrangement dated 16 September 2008. The first schedule to that Deed set out assets said to be relationship property. The only real estate it referred to was 3/42 Dominion Street, which was recorded as being owned by the RS Family Trust.
[34] A clause in the agreement recorded that Mrs Smith did not accept that the assets in the first schedule represented the full extent of the relationship property. She agreed to accept the sum of $180,000 in full and final settlement of her claims. In order to implement the settlement reached between Mr and Mrs Smith, the Hold Hands and Trust was settled by way of a deed dated 25 August 2008. Ms Smith and Mr Ball were appointed as trustees.
[35] In January 2009, the trustees of the Hold Hands and Trust purchased a residential property where Mrs Smith has lived since that date under an occupation licence granted to her by the trustees.
[36] On 1 April 2009, the Family Court reappointed Mr Ball and Mr Kidd as Mr Smith’s property managers pursuant to the PPPRA for three years from that date. Their appointment was not retrospective. They therefore re-executed the Deed of
Family Arrangement and the Family Court subsequently issued consent orders in June 2009 dividing what was said to be Mr and Mrs Smith’s relationship property.
[37] On 30 January 2009, Mr Ball transferred the sum of $646,500 from Mr Smith’s bank account to CMDL’s bank account. The financial statements for CMDL for the year ending 31 March 2009 do not record any money being loaned by Mr Smith to CMDL. They do record that Mr Ball advanced $724,195 to CMDL.5 CMDL used the advance from Mr Smith to fund the payment of debts it owed to KCL. KCL then used those funds to refund the repayment of Mr Smith’s shareholder advances to it (referred to as a “money go round” by Mr McDonald).
[38] Mr Smith died on 8 February 2010 and Mr Ball administered Mr Smith’s estate as his executor.
[39] Ms Smith was 21 years old when her father died. She understood that under the terms of his will she would not receive her inheritance until she turned 25. Her expectation was that she would receive her father’s interest in 38 Dominion Street (Units 3, 4 and 5) and also 3/42 Dominion Street (she did not appreciate that 3/42 Dominion Street was held by a trust). She says that from 2010 to 2013 she did not take any steps and simply waited until she was old enough to inherit.
[40] After her father’s death Ms Smith lived at 5/38 Dominion Street from 2010 to 2014. She did not pay rent. After she moved out, she let friends house sit for around a year.
[41] Ms Smith turned 25 on 2 March 2013. Mr Ball, in his capacity as executor, prepared a written statement dated 2 March 2013 purporting to list the assets and liabilities of Mr Smith’s estate. The settlement statement records that the assets of Mr Smith’s estate totalled $18,186.03 with liabilities of the same amount. The statement recorded that there were no funds available to permit a distribution to Ms Smith. It made no reference to the loans/advances made from Mr Smith’s bank
5 As with the earlier transfer of $303,000 in 2005, Mr Ball claims that this was an error by the accountants. I refer to this further in the context of the seventh cause of action.
account to CMDL’s bank account of $303,000 in February 2005 or $646,500 in January 2009.
[42] Ms Smith says she did not receive a copy of the settlement statement of 2 March 2013. By the end of that year she was beginning to have doubts about whether Mr Ball was acting in her best interests and she was concerned that nothing seemed to be happening with the Dominion Street properties.
[43] Mr Kidd meanwhile was looking after Ms Smith’s interests and was in regular contact with her. But essentially he was waiting until she turned 25 years old. He tried to advance matters with Mr Ball, writing to him on 24 September 2013 regarding 3/42 Dominion Street, raising the issue of whether another trustee should be appointed (Mr Ball by then was the sole trustee of the RS Family Trust). There was no response from Mr Ball. Mr Kidd followed up with other communications on 12 December 2013, 17 January 2014 and 15 May 2014. Mr Ball finally responded on 31 July 2014 saying he would continue as sole trustee and that he was expecting to sign an agreement for sale and purchase for 3/42 Dominion Street the following week with settlement in November 2014.
[44] Mr Kidd then arranged a meeting for 25 September 2014 to be attended by Mr Ball, Ms Smith and himself. Ms Smith, who was then living in Australia, travelled to New Zealand for the meeting. At the meeting it was agreed that Ms Smith would approach the owners of 1 and 2/38 Dominion Street to obtain their consent to 5/38 being subdivided into two further cross-lease titles (as had been Mr Smith’s original plan).
[45] It was also agreed that the structure at 3/42 Dominion Street (owned by the RS Family Trust) was to be rebuilt.6 Once the rebuild had occurred and the property sold, the proceeds of sale were to be used to construct the two units on 5/38 Dominion Street. Unit 5/38 was then to be subdivided into two further cross-lease titles being 5 and 6/38 Dominion Street. Units 3, 4, 5 and 6/38 would then be sold.
6 It seems that the anticipated sale mentioned by Mr Ball in his email referred to in [43] did not eventuate.
[46] Ms Smith’s position is that at no time during the meeting did Mr Ball assert that CMDL was both legal and beneficial owner of 3, 4 and 5/38 Dominion Street. She says during the meeting Mr Ball told her that her father “… had set this all up for me so that I would get 38 Dominion Street on his death”. This is denied by Mr Ball. I return to this issue at [124] and following below.
[47] After the meeting, Ms Smith approached the owners of units 1 and 2 who did not agree to unit 5 being subdivided into two further cross-lease titles. As a result, there was a further meeting between Mr Ball and Mr Kidd on 20 January 2015. Mr Kidd prepared an agenda for that meeting and sent it to Mr Ball in advance. Part of the agenda records:
RB is the nominee and trustee for Ray Smith (RS) in respect of the property owned by CMD under an agreement entered into during RS’s lifetime and RB is also the sole executor of RS’s estate.
[48] At the meeting Mr Ball said he would investigate the possible development of 5/38 Dominion Street further. Between early March and late July 2015, Mr Kidd wrote to Mr Ball several times and requested an update on the progress of his investigation. Mr Ball did not respond. Mr Kidd wrote on 11 August 2015 to Mr Ball requesting that units 3, 4 and 5 be vested in Ms Smith. Mr Kidd did not receive any response from Mr Ball who denied receiving that communication.
[49] On 11 March 2016, Ms Smith applied to this Court for an order that probate of her father’s will be granted to her. Mr Ball filed a notice reserving rights on 11 July 2016 and an order was made as sought on 15 August 2016 appointing Ms Smith as the executrix of her father’s estate.
[50] At that time, Mr Ball was still a trustee of both the RS Family Trust and the Hold Hands and Trust. Ms Smith then used her Power of Appointment under the two trust deeds to remove Mr Ball as a trustee.
[51] Notwithstanding Ms Smith’s application of 11 March 2016, and Mr Ball’s notice of 11 July 2016, on 20 July 2016 Mr Ball transferred Mr Smith’s 999 shares in KCL from Mr Smith’s name into his own name. On 19 December 2016, Ms Smith’s legal representatives wrote to Mr Ball demanding the shares be transferred into her
name in her capacity as executrix of her father’s estate. There was no response to the letter.
[52] Ms Smith issued these proceedings on 27 September 2017. As part of the proceedings Mr Ball transferred the shares in KCL to her.
First cause of action – against CMDL: express trust
[53] Ms Smith’s position is that when title to the land at 38 Dominion Street passed to CMDL pursuant to the 12 November 1993 agreement for sale and purchase it held the land on trust for Mr Smith. Ms Smith says that the terms of the trust were that: the beneficiary of the trust was Mr Smith; the asset of the trust was all the land located at 38 Dominion Street transferred to CMDL;7 the trust was intended to minimise any tax payable as a result of the development of the land by Mr Smith and/or KCL; CMDL would subdivide the land at Mr Smith’s request; CMDL would engage Mr Smith or KCL to undertake all the building work and ancillary work on the subdivided land; and that CMDL would account to Mr Smith for the profits generated by the subdivision and the sale of the land.
[54] She says that the deposit of $20,000 and the balance of the purchase price by way of a vendor loan of $520,000 have never been paid by CMDL.
[55] The defendants all deny the allegations. Mr Ball appeared on his own behalf and, having been given leave, on behalf of CMDL and CML. They say that the agreement between Mr Smith and CMDL was an arm’s length transaction whereby CMDL would purchase 38 Dominion Street for $540,000 paying a deposit of $20,000 with the remaining $520,000 being an interest free loan from Mr Smith to CMDL. CMDL would obtain further interest-free loans from Mr Smith and/or his nominees to enable subsequent development of the land. The respective benefits would be that CMDL was entitled to any profits from developing the land and KCL would undertake and be paid for all building work at market value. Mr Smith would be able to continue to live in unit 5 rent free for as long as he wished. He would also have first option to
7 Ms Smith’s claim in this proceeding, was in relation to units 3, 4 and 5, with units 1 and 2 having been sold to unrelated purchasers. Ms Smith did not seek an accounting of the proceeds of sale of units 1 and 2 in the causes of action alleging an express or constructive trust.
purchase units 3 and 4 when they were completed and also the option to buy back his family home at unit 5.
[56] Mr Ball denied the existence of a trust and repeatedly emphasised that the sale was an arm’s length commercial transaction.
Trusts – general legal principles
[57] In order for there to be a valid trust, certain legal elements must exist. First, there must be certainty of intention. A trust may be created by any language that is clear enough to show an intention to create it. No special technical words or formal language is required. An intention to create a trust can be expressed by words or inferred from conduct that indicates an intention to create a trust.8 In case of doubt, contemporaneous and subsequent acts of the settlor may be looked at.9
[58] It is not necessary that the settlor should appreciate that their acts have the legal consequences of creating a trust. That is, the settlor’s subjective intentions are irrelevant:10
If a person has shown an intention that property transferred to another person is to be held separate from a transferee’s other property for the benefit of the transferor or a third person, and “a trust is, in the circumstances, the appropriate legal mechanism for giving effect to the intention”, a court may conclude that the person intended to create a trust and that an express trust was created.
[59] It is sufficient that the settlor intends to enter into the arrangements which have the effect of creating a trust.11
[60] The test of whether a trust has been created has been stated as being “whether in the circumstances of the case, and on the true construction of what was said and written, a sufficient intention to create a true trust has been manifested”.12
8 Andrew S Butler “Creation of an Express Trust” in Andrew S Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 69 at 74-75.
9 Belton v Commissioner of Inland Revenue [1959] NZLR 1372 (SC) at 1374.
10 WA Lee and others The Law of Trusts (looseleaf ed, Thomson Reuters) at [2.035], citing the High Court of Australia in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 147.
11 Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164 at [71].
12 Tito v Waddell (No 2) [1977] Ch 106 at 211.
[61] In addition to certainty of intention, there must also be certainty of subject matter. That is, the property which is the subject of the trust. In the present case the subject matter is said to be either land or shares in CMDL.
[62] Finally, there must be certainty of objects. A valid trust must have beneficiaries who are clearly identified and who will receive the benefit of the trust. Those entitled to enforce the trust have to be identifiable. In this case, it is pleaded that the trust is for the benefit of Mr Smith.
[63] As to the distinction between express trusts and presumed or constructive trusts, it is the declared intention evidenced when creating the trust:13
In the case of an express or an explicit trust, the creator has used language that expresses an intention to create a trust. The creator of the trust has meant to create a trust, and has used language that explicitly expresses that intention, either orally or in writing. …
In the case of presumed trusts the intention of the transferor of the property has not been expressed and cannot be inferred in any way from the language used in transferring the property to the trustee. However, from the circumstances of the case the law presumes that a trust was intended, even though the language used does not express that intention.
(emphasis in original)
[64] An express trust is created where there is evidence of an intention. A constructive trust arises where an intention is not expressed and cannot be inferred but the circumstances establish a presumption that a trust was intended.
Writing requirements for trusts - Property Law Act 1952
[65] In addition to these formal requirements to create an express trust, there are statutory writing requirements where a declaration of trust deals with land. Section 25 of the Property Law Act 2007 provides that trusts must be created in writing if the trust relates to land. However, s 367(3) and (4) preserve the law for trusts which existed before 1 January 2008. The trust alleged in relation to the units at 38 Dominion Street is said to have been settled in 1993. Section 49(A)(2) of the Property Law Act 1952 (Property Law Act) was added by s 2 of the Property Law Amendment Act 1980 and
13 Chris and Grey Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at 25.
further amended by the Property Law Amendment Act 1982. It is the relevant law. Section 49A(2) provides:
49A Certain instruments to be in writing
…
(2)A declaration of trust respecting any land or any interest in land shall be manifested and proved by some writing signed by some person who is able to declare such trust or by his will.
…
[66] Section 49A(2) does not require the trust to be created in writing but a declaration of trust has to be “manifested or proved” in written form and signed by a person able to make the declaration. A declaration can therefore be reduced to written form in several documents after the event and the person who signs one of the documents can either be the settlor or trustee.14
[67] However, despite the requirements of s 49A(2) of the Property Law Act, even where a declaration of trust over land does not satisfy the writing requirement, equity can impose a personal obligation on a trustee holding land and enforce the terms of the trust. This was addressed by the Court of Appeal in Crampton-Smith v Crampton- Smith.15 The Court of Appeal found the presumption of a resulting trust arose in the plaintiff's favour because he contributed the full purchase price of the land, which was registered in the defendant’s name. That presumption was not rebutted by other evidence and the Court of Appeal concluded the defendant held the land on trust for the plaintiff. While the claim established a resulting trust arose, the Court of Appeal observed that an express trust might have been enforceable despite the absence of any written document:16
The brother might well have been able to rely on an express trust in these circumstances but did not pursue the case on that basis. Mr McBride explained that difficulties might have arisen by reason of s 49A(2) of the Property Law Act 1952 which was then in force and required writing in the case of land.
14 Andrew S Butler “Creation of an Express Trust” in Andrew S Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 69 at 92-93.
15 [2011] NZCA 308, [2012] 1 NZLR 5 (CA).
16 At [57]. Citing Rochefoucauld v Boustead (No 1) [1897] 1 Ch 196 (CA) at 206; Bannister v Bannister [1948] 2 All ER 133 (CA); and Avondale Printers Ltd v Haggie [1979] 2 NZLR 124 (SC) at 161.
However, that might have been overcome by the principle that equity will not allow a statute to be used as an instrument of fraud.
[68] The last sentence paraphrases a well-known maxim of equity. If a party relies on a statutory formality which would facilitate unconscionable conduct, equity will intervene. It has particular application to s 49A(2). A person who takes land and agrees, orally, to hold it in trust for the former owner or any other person, he or she cannot defeat the trust by insisting that the terms were not recorded in writing. Equity gives effect to the trust, not by ignoring the statute, but by recognising the person has an absolute title to the land and imposing a personal obligation to hold the property on trust for the beneficiaries of that trust. Otherwise the writing requirement in the statute could facilitate unconscionable conduct.17
[69] Ms Smith relies upon the written documentation to satisfy the writing requirements of the Property Law Act and a combination of the written documentation and the conduct of Mr Smith, Mr Ball and CMDL to prove the existence of the express trust.
[70] Under the heading certainty of intention, I will review the various documents and the conduct of Mr Smith, Mr Ball and CMDL relied upon by Ms Smith. Then, after addressing certainty of subject matter and objects, I will return to the writing requirements for the creation of an express trust.
Is there certainty of intention?
Mr Smith’s letter to his solicitor (7 October 1993)
[71] On 7 October 1993, Mr Smith wrote to his then solicitor, Roger Donnell, one month before the date of the agreement for sale and purchase setting out his intentions. Mr Ball’s position is that the plan changed and evolved as it proceeded. Even if that is so, this letter is a good indicator of the plan one month out from the date of the agreement for sale and purchase. Mr Smith opened the letter by saying:
1.In essence I want to construct and sell four houses on the land also occupied by my family home at 38 Dominion Street.
17 Andrew S Butler “Basic Concepts” in Andrew S Butler (ed) Equity and Trusts in New Zealand
(2nd ed, Thomson Reuters, Wellington, 2009) 21 at 35.
2.In order that I not be caught for tax on the profit of the sale of the land on which the four houses are to be built, it appears that the cleanest action is simply for me to sell the whole lot at this point. Thereby the difference between that for which I bought the place, and that for which I sell it can clearly be seen to be a capital gain.
(emphasis added)
[72] Mr Smith went on to explain that to accomplish this he intended to sell to CMDL. He said that Mr Ball, whom he described as a trusted friend, held all but one share in CMDL and had been appointed governing director. He said that essentially CMDL had no assets or accumulated funds.
[73] This is evidence that at that point CMDL had no obligations to any third party but also no ability to purchase 38 Dominion Street on a commercial basis. Mr Smith went on:
6.I intend to loan CMD 100% of the sum they require to purchase 38 Dominion Street. CMD in turn will be able to claim a GST refund from the IRD sufficient to provide working capital.
[74]Mr Smith then said:
7.It is also my intention that CMD and (my Co.) Key Consultants will enter into an agreement (probably a cost plus form of contract) to have Key construct some houses on the land. It is intended that Key’s actual and other extraneous costs will equate with the price for which the houses are sold.
[75] I accept Mr McDonald’s submission that this expressed intention would not be consistent with a usual commercial transaction. The effect of the proposed arrangement was for the builder (KCL) to build houses on a site owned by another company (CMDL) with the houses to be sold for the cost of the building work. The profits would therefore go to Mr Smith’s company, KCL. The arrangement is, however, consistent with CMDL holding 38 Dominion Street on trust for Mr Smith’s benefit. He would then be the ultimate beneficiary of the development.
[76]Mr Smith concluded:
While Mr Ball is an old trusted friend anything can happen. Accordingly I wish that my loan to CMD be protected in the most appropriate manner.
Mr Smith’s letter to his solicitor (26 October 1993)
[77] This is a further letter to Mr Donnell and followed up the previous letter. Mr Smith said that he had consulted a lawyer who specialised in tax. He then said:
4.… I wish also, please, to check through the file you have on me, and to cull anything that may be viewed askance by the IRD.
[78] This statement suggests that Mr Smith wished to conceal the true nature of the transaction from any third parties who may view the file. He then says:
5.Throughout my reading of that which you completed for me the other day I have been conscious of the interpretation which may be put on any of the documents, and accordingly have amended them to serve the ends outlined.
[79] One of the documents Mr Smith said he had amended was the minutes. He said they are “… abbreviated to omit mention of all but the essence”. It is not clear which minutes he was referring to. He inquired as to whether the memorandum of transfer needed altering. He also said that he was not sure about the memorandum of mortgage and that he did not “… want to alert the IRD to anything extraordinary about this transaction”.
[80] This all suggests that Mr Smith was concerned about the way the documents might be interpreted.
[81] Mr Smith also stated there had been an amendment to the agreement of sale and purchase saying:
7(b) … although one further element has been introduced, i.e. that CMD will pay to
Keyme18 a deposit of $20,000.00. Accordingly the sum of the mortgage has been altered to $520,000.00 ($540-$20).
[82] Mr Smith referred to the $80,000 mortgage he had over 38 Dominion Street and said his bank had agreed to accept his (proposed) mortgage over the property as security.
18 The word “Key” typed in the letter has been struck through and the word “me” handwritten beside it.
[83] He also referred to a power of attorney saying that “it seems to me that this is the best and most convenient repository for all those things that I may want to achieve
…”.
[84]He concluded:
9.And finally, obviously, I wouldn’t like this memo to be read by any IRD wallah.
[85] This letter supports Ms Smith’s position that Mr Smith wished to maintain control over the development of 3, 4 and 5/38 Dominion Street but was seeking to conceal the existence of that control from third parties. This is more particularly evident in the power of attorney which is the next document I refer to.
CMDL’s power of attorney (9 November 1993)
[86] In this document, CMDL granted Mr Smith an irrevocable power of attorney which only expired on the sale of the last dwelling house to be erected on 38 Dominion Street. The power of attorney granted Mr Smith total control of the development of 38 Dominion Street, as can be seen from the powers conferred on him which are, in summary:
(a)To uplift from the IRD the GST refund monies in respect of the purchase;
(b)To enter into a mortgage in favour of RA Smith;
(c)To effect the sale of unit 5 and units 3 and 4 (to be erected) to Mr Smith;
(d)To enter into a building contract for the erection of up to four further dwelling houses on 38 Dominion Street;
(e)To obtain composite titles for each of the four further dwelling houses referred to in (d) above; and
(f)To do all things necessary and appropriate and to execute all necessary documents to give effect to the above transactions.
[87] Mr Ball’s position was that the power of attorney was drafted in that way to enable Mr Smith to act as CMDL’s agent on the occasions when Mr Ball was overseas. Firstly, the exercise of the power of attorney is not expressly limited in that way. Secondly, there was no evidence that Mr Ball was overseas on all the occasions when Mr Smith undertook the activities on behalf of CMDL, which are referred to later in this judgment. Thirdly, the irrevocable power is excessive for Mr Ball’s temporary absences overseas. I therefore do not accept Mr Ball’s evidence as to the purpose of the power of attorney.
[88] Mr Ball asserts that this wide-ranging irrevocable power of attorney was a feature of an arms-length commercial transaction. However, the power of attorney gave Mr Smith control of both sides of a contract (for example in [86](c) above). I accept Mr McDonald’s submission that it would be highly unusual for a company purchasing land to give such extensive powers to the vendor regarding the land it was acquiring.
Option to purchase 38 Dominion Street (undated)
[89] This document was signed by Mr Ball for CMDL but the copy available to the Court did not contain Mr Smith’s signature, nor was it dated. Mr Ball said it was his file copy. In this document CMDL “…irrevocably grant[s] to Raymond Alexander Smith” for valuable consideration the option to purchase unit 5 and units 3 and 4, to be erected. Such option was to be exercised within two years of the date of the agreement for sale and purchase.
[90] In support of his position that the option to purchase was a contrary indicator to the existence of a trust, Mr Ball referred to a document which all parties agreed was written by Mr Smith (albeit in shaky writing, as it was after his strokes) and that it referred to units 3 and 4/38 Dominion Street. The document is dated 4 February 2009 and was witnessed by Mr Ball and Mr Smith’s brother, Trevor Smith (Trevor was also a builder and assisted by completing construction of units 3 and 4). The document simply states:
Please sell these properties as soon as you have finished it.
[91] Rather than supporting Mr Ball’s position, I consider the document supports Ms Smith’s position that the units were held on trust. The document does not say that Mr Smith did not wish to exercise his option to purchase (expired in any event). Rather, it reads as an instruction by a beneficial owner to sell his properties.
Mr Smith’s letter to his solicitor (22 November 1993)
[92] Mr Smith, in a further letter to Mr Donnell, began with what he described as a “recap” on the sale. He says:
1.In order that I might dispose of the surplus land in front of my family home at 38 Dominion Street, and to ensure that (properly) it is treated as a capital gain by the IRD, and as well, in order that I (or rather my company i.e. Key) might reap any reward that may accrue from the subsequent development of the property, it was decided to sell to the company of a personal friend viz Mr R N Ball. His company is Crystal Mint Developments Ltd.
(emphasis added)
[93] Mr Smith again referred to the power of attorney as protecting his position “in respect of a number of aspects relating to all of this”.
[94]The letter also states:
7.The governing director of CMD has asked me to convey his request that you act on their behalf in these matters.
[95] Finally, in the letter Mr Smith referred to documents yet to be dated. They include the agreement for sale and purchase, which Mr Smith said needs to be dated 12 November 1993. He also said that Mr Donnell would need to witness Mr Ball’s signature on the option to purchase, to be dated 12 November 1993; to witness Mr Smith’s signature on the transfer of title, to be dated 12 November 1993; and the memorandum of mortgage signed by CMDL needed to be dated “12/ ” (the month and year are not recorded in the document).
[96] Mr Ball insists that Mr Smith was simply acting as his agent. However, this again is inconsistent with an arms-length commercial transaction. The vendor
continued to instruct a solicitor in relation to 38 Dominion Street and retained a high degree of control over the property said to have been sold by him. The fact that Mr Smith asked Mr Donnell to witness his signature and enter dates on documents concerning CMDL’s interests is not consistent with what Mr Ball insists was an ordinary commercial transaction.
Mr Smith’s letter to Harold Kidd (16 December 1996)
[97] Mr Smith instructed Harold Kidd, of Kidd Tattersfield & Co, solicitors, in December 1996 to act for him. It appears that at that time Mr Smith was having issues with Mr and Mrs Coote for whom KCL was building a house on Lot 2. Most of the letter addresses those issues. However, Mr Smith commenced the letter by saying:
1.At Dominion St Takapuna I have about half an acre of land. It is my intention to build 5 or 6 houses on this land. The width of the site (1 chain) dictates that they are built in the typical single file formation.
(emphasis added)
[98] Mr Smith mentioned that Mr Donnell had been handling conveyancing matters for him since 1993. Mr Smith explained that he then instructed another solicitor and added, “I asked him to handle cross-leasing of the No 2 house”.
[99] Nowhere in the letter does Mr Smith refer to CMDL’s involvement in the development. This is again consistent with the property being held on trust for Mr Smith.
Mr Smith’s letter to Mr Kidd (30 January 1997)
[100]This letter is another about the dispute with the Cootes. Mr Smith said:
For your information I have enclosed a photocopy of the building contract entered into between Crystal Mint Developments Ltd (a vehicle for me) and Mr & Mrs Coote.
(emphasis added)
[101] This is further evidence that the sale to CMDL was not an arm’s length transaction and that the property was being held on trust for Mr Smith.
Document headed “Remember This” (1 March 2002)
[102]Mr Smith’s file note states:
RAS [Mr Smith] can’t loan to Key. Why? Because RAS is always paying!! on behalf of either CMD or RAS trust to help out when they are short of funds.
(emphasis in original)
[103] This file note indicates that the relationship between Mr Smith and CMDL is not a usual commercial relationship.
Document headed “CMD’s Income” (undated)
[104] There is no dispute that this document was created by Mr Smith. It has a typed portion headed “CMD’s Income”. Under that heading it lists loans from Mr Smith and KCL between April and December 2002. It also lists one loan each from the RS Family Trust and KCL during that period and one loan from Mr Smith in January 2003. Mr Smith has then handwritten on the document that CMDL “needs to refund. CMD can’t – hasn’t got any money”.
[105] This document is evidence that as early as 2002 and 2003, Mr Smith was making payments to assist a company Mr Ball says Mr Smith had no interest in. This further indicates that the relationship between Mr Smith and CMDL was not a normal commercial relationship.
Document headed “Routes/methods by which Key gets paid and when the IRD gets GST” (undated)
[106] In this document Mr Smith set out the GST consequences for the “Proper Route” and “Actual Route” for payment by KCL of GST when either Asset Lend (which had loaned money to CMDL) or Mr Smith made payments to CMDL. Under the “Proper Route” he referred to the IRD receiving input tax from KCL and paying the same amount of output tax to CMD. The financial result for the IRD, he stated, was therefore “neutral”. The note then records that the “Actual Route” results in the IRD not receiving input tax from KCL and not paying out the equivalent amount of output tax to CMDL. So, Mr Smith concluded, the financial result for the IRD was similarly “neutral”.
[107] This would tend to suggest there was a roundabout of money with CMDL being part of that roundabout.
Handwritten file note (undated except for “June”)
[108] This is a handwritten document prepared by Mr Smith. At the top there is the amount $1,250,000.
[109]There is a list of payments from (a) to (f). Two appear to be personal payments:
$180,000 to his former wife Alida, and one to someone who is simply referred to as “Gary” for $30,000. He also listed the following:
(c)Give back to Asset Lend. $208K …
…
(d)Spend $80K on 38/3 & 4.
…
(f) Spend $30K on 38/6.19
[110] As well, he allowed $80,000 for spending on the property owned by the RS Family Trust, 3/42 Dominion Street. After totalling the amount he would either give back or spend, Mr Smith recorded: “550K left in bank and to buy boat and go sailing”. Mr Smith then listed “income” from three units, 3, 4 and 6.
[111] There is no reference to the need for Mr Smith to pay a purchase price to repurchase 3, 4 and 5/38 Dominion Street. In my view the document is again part of the evidence that indicates that Mr Smith had retained the beneficial ownership of units 3, 4 and 5 Dominion Street. It shows Mr Smith intended to invest his own funds to pay off a debt owed by CMDL (to Asset Lend Ltd) and to pay for the development of units 3, 4 and 5/38 Dominion Street. It also expressed his expectation that he would receive a rental income from three of the units at 38 Dominion Street.
19 Mr Smith referred to unit 5 as either 5 or 6.
The “road map”
[112] This document was not produced as an exhibit. Ms Smith’s position is that the missing document records the precise arrangement between Mr Smith and CMDL (and Mr Ball) in relation to the sale of 38 Dominion Street and, in particular, that it will contain evidence as to Mr Smith’s retention of a beneficial interest in the property. Mr Ball’s position is that there is no such “road map”.
[113] As already mentioned, on 25 September 2014, there was a meeting at Mr Kidd’s office which was attended by Mr Kidd, a legal executive from his office Anne Read, Ms Smith and Mr Ball. The meeting was initiated by Mr Kidd who prepared and circulated an agenda in advance. The agenda referred to the possible sale of 3/42 Dominion Street (known as the Taj Mahal); the overall plan for development/disposal of the Dominion Street properties and the cost of doing so; and Sahra’s wishes in respect of sales of the Dominion Street properties.
[114] There is a two page handwritten document written by Ms Read which came out of that meeting. Ms Read’s evidence is that the first part of that document, until the section headed “Path Forward”, was written by her in advance of the meeting. Mr Ball does not accept that and says the whole of the document was written at the meeting and the first part contains information provided by him at the meeting.
[115] The relevance of the dispute as to when the document was written is this: in the first part, there is a reference to the agreement for sale and purchase. The entry reads: “Agmnt for S & P - lays out sale of entire ppty. Sold from Trust to Crystal at 100% loan 540,000.00”. In the section headed “Path Forward”, Ms Read recorded:
3.Get a copy of Agmnt for S & P from Sara [sic] once she gets it from Ray’s files.
[116] Ms Smith’s position is that the reference to the agreement for sale and purchase in the “Path Forward” section is a reference to the missing “road map”. The evidence of Mr Kidd and Ms Read was to the same effect. Ms Read said there was a copy of the agreement for sale and purchase already on Mr Kidd’s file. That is what she was referring to in the first part of the document. Although she used the same description
of the document in the Path Forward, i.e. agreement for sale and purchase, this was a reference to the road map.
[117] Mr Ball, however, says that while Mr Kidd may well have had a copy of the agreement for sale and purchase on the file from the time of Mr Smith’s instructions to Mr Kidd in December 1996, he had clearly forgotten that he had it and what was to be searched for was a copy of that 12 November 1993 agreement for sale and purchase. Mr Ball emphatically denied there was any such road map setting out a plan for ownership of 38 Dominion Street between him, Mr Smith, and CMDL.
[118] There are a number of issues to be resolved. First, when was the first part of the document written? In my view, its contents support Mr Ball’s position that it was written by Ms Read at the meeting rather than before it. For example, there is a reference to the Taj Mahal having “wood removed: steel refurbished/replaced: pad OK”. That is the kind of detail one would not have expected to be on Mr Kidd’s file. Rather, it is the kind of information that Mr Ball might have supplied at the meeting.
[119] Also recorded is the following: “Wonder do you want this responsibility - explained to her”. Again that conveys the sense that this was a matter discussed with Ms Smith at the meeting. Finally, the time recorded in the top right hand corner of the first page is “2.20–3.55” and the agenda says the meeting was due to commence at
2.00 pm. It would be unusual to record the time of the meeting in that location if the first part of the document was prepared prior to the meeting. I therefore conclude that the entire handwritten document was made at the meeting.
[120] Turning then to what is meant by the entry in the Path Forward section: “Get a copy of Agmnt for S & P from Sara [sic] once she gets it from Ray’s files”. Does it mean the 12 November 1993 sale and purchase agreement (Mr Ball’s position) or does it refer to some other side agreement i.e. a ‘road map’ that existed (Ms Smith’s position)?
[121]There are factors in favour of Mr Ball’s position:
(a)The term “agreement for sale and purchase” has a commonly understood meaning. Ms Read, as a legal executive experienced in conveyancing transactions, might be thought to have used that term in its understood meaning, rather than using it to refer to some other sort of document; and
(b)There is a letter of 26 September 2014 from Harold Kidd Law to Ms Smith and Mr Ball, which has the typed names of Mr Kidd and Ms Read at the foot of the letter, but which is signed by Ms Read. The letter enclosed the notes on the “Path Forward” and says at the end:
We look forward to receiving a copy of the agreement for sale and purchase from Sahra, which is currently held in Ray’s personal files for our trust records.
[122] On the other hand there are the following factors which support Ms Smith’s position that the document to be searched for was the “road map” and not the agreement for sale and purchase:
(a)First, it was Mr Kidd who had dealt with Mr Smith within his law firm. Mr Kidd’s evidence in relation to CMDL and KCL was:
The actual personnel were blurred as far as we were concerned. There was no - we knew that there was some other arrangement in the background and that other arrangement was in what Ray styled his road map, a term I didn’t use at that time, and that was never found.
(b)There was already a copy of the 12 November 1993 agreement for sale and purchase on Mr Kidd’s file from the time that Mr Kidd was first instructed by Mr Smith;
(c)When Mr Kidd sent a follow up email to Mr Ball on 1 April 2015, he said as follows:
Roger,
It's several months ago now that you promised us a comprehensive development plan for Dominion Street.
I’ve politely reminded you once.
It’s really time to make those decisions and plans so that Sahra will know what is happening.
We are also awaiting a copy of the agreement between Ray Smith and Crystal Mint Developments Ltd etc which is fundamental to the equations.
It is to be noted that Mr Kidd did not use the term agreement for sale and purchase in the last part of his email. Also the reference to the agreement being “fundamental to the equations” is consistent with some other kind of agreement rather than an agreement for sale and purchase; and
(d)There is also the oral evidence of Ms Smith and Mr Kidd regarding the meeting and the fact that in the discussion there was reference to a document, other than the agreement for sale and purchase, which set out an agreement between Mr Smith and CMDL/Mr Ball. While Ms Smith had not been involved in much of the background over the years, and the associated correspondence and documents, Mr Kidd had been. I found him to be a careful witness whose recall, in general, was consistent with documents available to the Court.
[123] Despite the factors in favour of Mr Ball’s position, the weight of evidence supports Ms Smith’s position. I therefore conclude that there was a document referred to as a “road map” and that this was the document referred to as the agreement for sale and purchase in the “Path Forward” section. This supports Ms Smith’s position that sitting alongside the agreement for sale and purchase, there was a separate arrangement between Mr Smith and CMDL/Mr Ball in relation to the beneficial ownership of 38 Dominion Street.
[124] Even if I am wrong and there was no actual “road map” document that does not detract from Ms Smith’s case that there was an express trust in existence, having regard to other discussions at the meeting. They all support the existence of an express trust:
(a)In the document headed “Proposed Agenda” for the meeting, which Mr Kidd said was circulated in advance, there is an item: “4. Sahra’s
wishes in respect of sales of the Dominion Street properties”. Ms Smith’s wishes would be irrelevant if CMDL was the absolute owner of 38 Dominion Street;
(b)There is the following evidence from Mr Kidd, which I accept. He said:
The proposal was that, once the owners of flat 1 and 2 had consented to the variation [to enable two dwellings to be built on the part of the site where unit 5 was located], money could be borrowed against flats 3 and 4/38 Dominion Street that could be used to complete the building the Ray Smith Family Trust owned at 3/42 Dominion Street. This property is known as the “Taj Mahal”. Once completed the trustees of the Ray Smith Family Trust would sell the “Taj Mahal” and use the proceeds of sale to build flat 5/38 Dominion Street. Flat 6/38 Dominion Street will be completed and all the properties sold.
…
At no time during the meeting did Mr Ball ever suggest that Ms Smith was not entitled to the profits from the completion of the 38 Dominion Street development.
At no time during the meeting did Mr Ball suggest that there be some division of the profits of the development between Ms Smith, the trust and Crystal Mint Developments Limited. If a development [sic] 38 Dominion Street was to be a partnership or a joint venture, I would have expected Mr Ball to want to discuss how the profits would be shared. The purpose of completing the development of 38 Dominion Street was so that Ms Smith would get the benefit of the capital gain, and her Father’s long-term plan to develop his family’s land would be completed.
[125] This plan described in Mr Kidd’s evidence, and Mr Ball’s conduct at the meeting, only makes sense if Mr Smith had retained the beneficial interest in units 3, 4 and 5/38 Dominion Street. I do not accept Mr Ball’s evidence that the reason Ms Smith would benefit was because, out of godfatherly love (which he did not claim was expressed at the meeting), he would provide Ms Smith with some of the profit that CMDL would make on the sale of the units.
[126] For completeness, I also accept Ms Smith’s evidence that during the meeting Mr Ball told her that her father had set this all up for her “so that I would get 38 Dominion Street on his death”. That evidence is consistent with the evidence of Mr Kidd.
[127] At no time in the meeting did Mr Ball assert that CMDL was both legal and beneficial owner of 3, 4 and 5/38 Dominion Street. Such assertion would be inconsistent with the evidence of Mr Kidd, set out above, which I have accepted.
Meeting of 20 January 2015
[128] I have already referred to this meeting in [47] above, which was between Mr Kidd and Mr Ball. Mr Kidd’s evidence is that, as with the 25 September 2014 meeting, he prepared an agenda for the meeting that he sent to Mr Ball in advance. Mr Kidd’s evidence was that the agenda set out a review of the current situation. I have already referred to subpara (1)(b) which states:
RB is the nominee and trustee for Ray Smith (RS) in respect of the property owned by CMD under an agreement entered into during RS’s lifetime and RB is also the sole executor of RS’s estate.
[129] Mr Kidd’s evidence was that at the meeting Mr Ball confirmed the statements made under the heading of “Review of Current Situation” and that Mr Ball did not challenge the statement that he was holding the property owned by CMDL as the nominee and trustee for Mr Smith. I accept that evidence given by Mr Kidd.
CMDL and Mr Ball as director
[130] I turn now to examine Mr Ball’s conduct in his capacity as a director of CMDL for the purpose of examining whether, by his conduct, Mr Ball acknowledged that CMDL was holding units 3, 4 and 5/38 Dominion Street on trust for Mr Smith. The purpose of considering Mr Ball’s conduct is to assess whether it is consistent with an intention by Mr Smith to retain the beneficial ownership of the property while transferring legal ownership to Mr Ball. There is necessarily some repetition of matters already mentioned.
[131] CMDL permitted Mr Smith to manage all aspects of the development at 38 Dominion Street. Mr Ball said this was because he was extremely busy at the time, having set up a new professional practice, and Mr Smith was simply acting as his agent. Mr Ball said he continued to sign relevant documentation such as CMDL’s GST returns and any mortgage documents.
[132]Mr McDonald relies on the following activities which Mr Smith undertook:
(a)After the sale to CMDL, Mr Smith remained the primary contact person with the Council. For example, in an application dated 14 February 1995 for a building consent for 1/38 Dominion Street, the handwritten name of the applicant is Crystal Mint Developments Ltd. There is a line drawn through that handwriting and in its place is the entry “owner
- R.A Smith” with his mailing address of 38 Dominion Street, Takapuna. The application was signed by Mr Smith;
(b)In a letter, on the letterhead of Crystal Mint Developments Ltd, dated 21 March 1995 to the Chief Executive Officer of the North Shore City Council signed by Mr Smith, he refers to an application for dispensation and says: “… and despite a comparatively recent change of name on the title (i.e. from RA Smith to Crystal Mint Developments Ltd) little else has …”;
(c)CMDL authorised Mr Smith to deal with Mr Kidd over the subdivision and then sale of units 1 and 2/38 Dominion Street. Mr Kidd, in his evidence, said that from the beginning his understanding of ownership of 38 Dominion Street was nebulous. He said, “Mr Smith was chronically reluctant to divulge any information to me or my firm that he did not think was necessary”. Mr Kidd said while he was acting for Mr Smith he was aware of Mr Ball in the background at all times, although his instructions concerning CMDL came solely from Mr Smith;
(d)CMDL authorised Mr Smith to issue invoices on its behalf for building work undertaken at 38 Dominion Street. For example, Mr Smith wrote to the Cootes (unit 2) enclosing invoices “on behalf of CMD Ltd”. In one letter of 25 May 1994 he enclosed an account for CMDL, and said “despite the address of the letterhead, would you please forward it to 38 Dominion St, Takapuna”;
(e)As well as authorising Mr Smith to issue invoices as above, CMDL also authorised him to collect payments to CMDL for invoices which he had issued on behalf of CMDL for building work at 38 Dominion Street;
(f)CMDL authorised Mr Smith to arrange a loan of $120,000 for it from Westpac, secured over 38 Dominion Street. The loan was used as funding for the development of 38 Dominion Street. Mr Smith liaised with Mr Kidd who received the communications from Westpac. Kidd Tattersfield’s invoices for attendances were sent to Crystal Mint Developments Ltd, care of 6/38 Dominion Street;
(g)CMDL authorised Mr Smith to liaise with an accountant on its behalf. There is a letter dated 9 March 1998 to Mr Smith advising that the accountant needed to finalise the 1997 tax return. In the letter the accountant told Mr Smith what invoices he needed to produce for KCL and CMDL to enable her to complete the 1997 accounts;
(h)CMDL authorised Mr Smith to liaise with Asset Lend Ltd in 2000 to obtain a loan secured against 38 Dominion Street. There is a very detailed file note made by Mr Smith running to six pages of closely typed entries headed “Refinancing from W/pac to Asset Lend”. The document describes Mr Smith’s efforts to obtain an increase in the existing mortgage facility for CMDL from Westpac. The document refers to communication by fax and phone and letters with Asset Lend Ltd regarding the loan. There is an invoice from Kidd Tattersfield of 7 November 2000 which shows that Kidd Tattersfield acted in receiving
$171,975 from Asset Lend of which $117,894.80 was used to pay off the CMDL mortgage to Westpac;
(i)Further, in relation to Asset Lend Ltd, CMDL permitted Mr Smith to apply on its behalf to draw down funds from the loan facility referred to above. There is a file note from Mr Smith dated 14 December 2000 in which he said “I needed to get some more money (another draw) from the facility with Asset Lend that Kim Lyons had arranged”.
Mr Smith also said in that file note that a staff member at Asset Lend Ltd explained:
(a)That until “Lock Up” stage is reached all that is needed is;
(i)an invoice from the builder.
(ii)And a letter from (me) i.e. CMD to confirm that I am happy with the work completed and that it is OK to pay.
(j)CMDL authorised Mr Smith to obtain a loan facility from Gubb & Hardy Ltd which was used to part-fund the development of 38 Dominion Street. Security for the loan was the RS Family Trust’s property at 3/42 Dominion Street. Further the documentation prepared by Gubb & Partners states:
… The understanding for this advance is that the money advanced will be used to go towards completing the construction of two other houses at 38 Dominion Street. And that sufficient funds from this advance will be put aside to complete the exterior of the house at 42 Dominion Street …
Thus it can be seen that the one loan was for the purpose of financing both the property owned by the RS Family Trust as well as 38 Dominion Street;
(k)CMDL borrowed $303,000 from Mr Smith in February 2005. Of that amount, $276,917.20 was used by CMDL to repay its debt to Asset Lend Ltd. The loan from Mr Smith was interest free, undocumented and without security. At that stage Mr Ball was acting under the EPA20 because of Mr Smith’s condition (i.e. not capable of understanding or consenting to the transaction) after his strokes. Such a loan arrangement is inconsistent with a commercial relationship but it is at least understandable if CMDL was holding 38 Dominion Street on trust for Mr Smith. I refer to this particular transaction in more detail later
20 See discussion under the sixth cause of action.
in this judgment as it forms the subject of the fourth and sixth causes of action; and
(l)In a similar way, CMDL borrowed $646,500 (in three separate amounts) from Mr Smith on 30 January 2009 using that money to repay its debt to KCL. The loan from Mr Smith was again interest free, undocumented and without security and again at a time when Mr Smith was not capable of understanding or consenting to the transactions. But it is at least understandable if CMDL was holding 38 Dominion Street on trust for Mr Smith. These three loan payments are discussed in more detail later in this judgment as they form the subject of the fifth and seventh causes of action.
[133] The above conduct which CMDL permitted is all consistent with that company holding 38 Dominion Street on trust for Mr Smith. It goes beyond mere convenient arrangements for Mr Ball. I do not accept Mr Ball’s evidence that the activities undertaken by Mr Smith for CMDL were because Mr Ball was busy in his professional practice and that Mr Smith was only an agent. Nor do I accept that, because Mr Ball signed some formal documents for CMDL, that is evidence that contradicts an intention to declare an express trust. There were certain documents he needed to sign as the director of CMDL.
Mr Smith’s conduct
[134] Mr McDonald submits that Mr Smith’s conduct between 1993 and his death on 8 February 2010 shows that he believed that CMDL was holding 38 Dominion Street on trust for him. As with Mr Ball’s conduct, the focus is on whether his actions are consistent with an intention by Mr Smith to retain the beneficial ownership of 38 Dominion Street. There is some repetition of matters raised under other headings. There is the following:
(a)Mr Smith managed and controlled all aspects of the development of 38 Dominion Street after title passed to CMDL;
(b)Mr Smith, in his capacity as sole director of KCL, did not seek the prompt payment of the invoices that KCL issued to CMDL for building work at 38 Dominion Street;
(c)Mr Smith agreed to be personally liable for the building work undertaken at 2/38 Dominion Street for Mr and Mrs Coote;
(d)Mr Smith planned to live off the rental income generated by units 3, 4 and 5/38 Dominion Street;
(e)Mr Smith instructed Mr Kidd in March 1997 to prepare documentation for two family trusts. One was to take over the shareholdings in CMDL and KCL and the other was to hold 6/38 Dominion Street. Mr Kidd approached a chartered accountant for a valuation of the shares in both companies so he could prepare the necessary documentation. His letter records that the shares in CMDL and KCL were “held by Mr Smith or his nominees” (emphasis added). However, in the end the transfers did not take place;
(f)Mr Smith loaned CMDL $16,136.79 between April 2002 and January 2005;
(g)Mr Smith approved the RS Family Trust lending $2,100 to CMDL to fund the development of 38 Dominion Street in January 2002;
(h)Mr Smith paid the Council rates for 3/38 Dominion Street in the sum of $1,774.17 in November 2002;
(i)Mr Smith had a credit facility with Westpac secured against his inherited property at 24 Beach Road, Castor Bay. Mr Smith advised Westpac on 25 July 2003 that a loan of $100,000 was going to be used to complete the units at 38 Dominion Street; and
(j)Finally, there is also Mr Smith’s conduct in directing the sale of the units at 38 Dominion Street as referred to in [90] above.
[135] In my view, the way in which Mr Smith conducted himself as an individual and through KCL is consistent with him retaining a beneficial interest in units 3, 4 and 5/38 Dominion Street.
[136] I do not consider Ms Smith’s claim is affected by what Mr Smith said in an affidavit sworn on 13 September 2002, which was prepared in the relationship property proceedings. In that affidavit he denied his wife’s claim that he had an interest in units 3, 4 and 5/38 Dominion Street saying he did not have any influence on or interest in CMDL.
[137] I consider that statement is inconsistent with evidence I have already referred to above from [71] to [135]. I therefore put this statement to one side, noting as I do so that it was made in contested relationship property proceedings.
Lack of commercial rationale for the arrangement
[138] There is a lack of any commercial rationale from the perspective of Mr Smith if the arrangement was as Mr Ball asserts. The effect would be this:
(a)Mr Ball benefitted from the arrangement, as he explains it, because CMDL owns land that increases in value over time;
(b)By contrast Mr Smith received no benefit from the alleged arrangement. The money he advanced to CMDL was by way of interest free “loans”. Therefore, over time, the value of the debt owed to him decreased in value as a result of the effects of inflation. Mr Smith’s company, KCL’s work between 2000 and 2008 was not paid for until 2009 when the invoices were paid. This effectively was another interest free loan by an entity Mr Smith controlled again for the benefit of CMDL; and
(c)In the end, in January 2009, KCL’s invoices were only paid because Mr Smith loaned CMDL the money it needed to pay KCL.
KCL and CMDL’s financial statements
[139] Mr McDonald submits that the financial statements for the two companies disclose a close relationship between them that is consistent with CMDL holding units 3, 4 and 5/38 Dominion Street on trust for Mr Smith. He refers to the following:
(a)KCL’s net surplus between 2000 and 2017 show that it was not financially successful. But it did not collect the debt owing from CMDL;
(b)Between the 2000 and 2008 financial years KCL was only able to continue trading due to Mr Smith’s shareholder advances; and
(c)Between the 2000 and 2008 years CMDL’s accounts payable are almost identical to KCL’s accounts receivable. This is another indication that KCL was doing work for CMDL and was not being paid for that work despite KCL’s poor cashflow.
[140] I accept Mr McDonald’s submission that this is further evidence that CMDL holds 38 Dominion Street on trust for Mr Smith.
Was Mr Smith’s $520,000 vendor loan repaid?
[141] Mr Ball insists that the $520,000 vendor loan for CMDL’s purchase of 38 Dominion Street was repaid. He relies on a letter dated 8 July 2008 from Accounting North which had acted for Mr Smith and, on his instruction, for CMDL and KCL.
[142]In that letter Accounting North said:
The data for the year ending 31st March 1999, shows that Ray [Smith] was fully repaid and then made further advances to Crystal Mint Developments Limited.
The data for the year ended 31st March 2000, shows that there were further advances and repayments. As the original loans had been repaid the balances [sic] of this loan account was merged into the account that covered Shareholders advances.
[143] Mr McDonald submits that the evidence concerning the payment of the balance of the purchase price for units 3, 4 and 5/38 Dominion Street by CMDL to Mr Smith is unsatisfactory. He says the situation is, at best, ambiguous. Mr McDonald says, if Mr Smith’s vendor loan was repaid, such repayments were actually payments for the building work KCL performed and these payments were being redirected to minimise GST obligations. Mr McDonald submits that, in effect, Mr Smith, through KCL, was working to repay his own vendor loan.
[144] But in any event Mr McDonald submits that if Mr Smith’s vendor loan was repaid (denied) this is an analogous to the repayment of a settlor’s loan. The alleged repayment of the vendor’s loan does not disprove Ms Smith’s claim that a trust was settled.
[145] In my view the letter relied on by Mr Ball needs to be treated with real caution. First, it was prepared at a time when Mr Smith was dealing with his wife’s relationship property claim. Second, and more particularly, the letter is carefully worded and says that the data “shows” that Mr Smith was repaid. There is a question mark over the data available to the accountants. They question it themselves. In their letter of 31 March 2008 they state that they do not agree with Mr Smith’s interpretation of his, KCL’s or CMDL’s GST obligations. They expressed the same concerns in their much earlier letter dated 17 October 2000.
[146] As to those payments, the uncontested evidence is that Mr Smith was using payments from CMDL which should have gone to KCL for its building work to pay off his vendor loan. It is these payments that the accountants rely on as the “data” to suggest CMDL paid Mr Smith for 38 Dominion Street.
[147] The evidence is that the behaviour came to light during a GST audit of Mr Smith, KCL and CMDL by the IRD in 1999. I accept that when this audit was conducted it is reasonable to infer that Mr Smith did not supply the IRD with documents such as those referred to in [71], [77], [86], [92], [97] and [100] above as these documents, in my view, contradict Mr Smith’s claim to the IRD investigator that he had no interest in CMDL.
[148] Mr Smith prepared a file note regarding his contact with IRD. In the file note he acknowledged that he credited the payments from CMDL to KCL for building work against his vendor’s loan. He recorded in his file note that the amount credited in this way was $365,000. It is clear that his accountants had real concerns about the way Mr Smith was treating these payments.
[149] In their letter of 17 October 2000 they stated that they had completed the annual financial statements for KCL and CMDL for the year ended 31 March 2000 and went on to say that those statements did not address any of the issues that had been raised in the recent tax audit. They questioned whether GST should ever have been claimed by CMDL and concluded by saying:
Ray, we question the financial merits and cost of the ever complex web that you have created …
[150] KCL did not pursue CMDL payments of its invoices for its building work. As is apparent from the consideration of the fifth and seventh causes of action below, the amounts owing by CMDL to KCL were paid as a result of Mr Smith lending money to CMDL to do so. It will be recalled that after Mr Smith’s stroke in 2004 he was incapable of managing his own affairs. In 2009, Mr Smith loaned $646,500 to CMDL. That loan was effected by Mr Ball making three separate transfers on 30 January 2009 from Mr Smith’s bank account to CMDL’s bank account. Those advances were treated in CMDL’s account as shareholder loans by Mr Ball.21 Those amounts were then used by CMDL to pay KCL. In this “money go round” (as it was referred to in the hearing) Mr Smith, as an individual, paid himself, as a shareholder of KCL.
[151] I therefore do not accept Mr Ball’s submission that Mr Smith’s vendor loan was repaid. However, even if it was, it would be analogous to the repayment of a settlor’s loan. Any such repayment of Mr Smith’s loan does not weaken Ms Smith’s claim that an express trust was settled.
[152] Finally, there is the question of the deposit of $20,000 which Mr Ball insists was paid by CMDL to Mr Smith. Mr McDonald does not accept that the deposit was
21 The accounts were later amended in 2019. See further discussion of this at seventh cause of action below.
paid. There is no evidence, apart from Mr Ball’s assertion, that the deposit was in fact paid. I found Mr Ball to be generally lacking in credibility. His assertions as to the arrangement between himself/CMDL and Mr Smith are largely contradicted by the documentary evidence, and his conduct and Mr Smith’s conduct, that I have already referred to. I therefore do not accept his assertion that the deposit of $20,000 was paid.
[153] In conclusion, I find that Mr Smith intended to retain the beneficial interest in 38 Dominion Street while transferring legal title to CMDL on trust. This intention is demonstrated by the letters Mr Smith sent to his advisors, by other documents he created, by his actions and conduct, particularly in using his own property and assets to develop 38 Dominion Street and by the extent of the control he retained over the property through the power of attorney. He was not an agent for CMDL; he retained beneficial ownership. It follows that I do not accept the case for the defendants as summarised in [55] above. As to Mr Ball’s assertion that Mr Smith’s initial plan changed over time, if there were any changes, they related to matters such as development plans and did not affect the express trust intended by Mr Smith in the original transfer of 38 Dominion Street to CMDL in 1993.
Certainty of subject matter of trust
[154] I accept that Mr Smith intended that a trust attach to 3, 4 and 5/38 Dominion Street. This can be seen in the evidence that:
(a)the irrevocable power of attorney prepared in 1993 applies specifically to units 3 and 4 (describing them as “to be erected”) and unit 5/38 Dominion Street; and
(b)the option to purchase prepared in 1993 similarly refers to CMDL giving Mr Smith an option to purchase “flats 3 and 4 to be erected …” and lot 5.
[155]There is no doubt about the subject matter of the trust.
Certainty of objects
[156] This is established by the two factors referred to in [154] above. Mr Smith was to be the sole beneficiary of the trust. The rights that were conferred were conferred upon him personally.
Writing requirements for an express trust
[157] Having established there is an express trust, I return to the writing requirements set out in s 49A(2) of the Property Law Act. There are two points to address. First, if the writing requirements are not satisfied, would Mr Ball’s reliance on their absence to deny an express trust amount to using the statute as an instrument of fraud? Second, are the writing requirements of the Property Law Act satisfied.
[158] As stated earlier, equity will not permit a statute to be used as an instrument of fraud. The significance of this maxim is that CMDL is subject to a personal obligation, agreed by Mr Ball as director of the company either before or when CMDL acquired legal title to 38 Dominion Street, to hold units 3, 4 and 5 on an express trust for the benefit of Mr Smith. The absence of writing sufficient to discharge the requirement of s 49A(2) does not affect that obligation. Were CMDL to rely on the absence of writing to defeat the trust, equity intervenes to prevent the unconscionable outcome which would follow.
[159] However, even if I am wrong on this, I consider the writing requirements imposed by s 49A have been satisfied. Some preliminary comments are necessary. First, this provision does not require the trust to be created by writing.22 Some evidence of the creation of the trust must be in writing. This may take the form of documents created after the declaration of trust. Moreover, the requirement can be satisfied by a series of documents read together. Second, the writing does not have to be signed by the settlor of the trust but can be signed by the trustee.23
22 Forster v Hale (1798) 3 Ves 696, 30 ER 1226. See also Team Barry Ltd v Forlong HC Auckland CIV-2003-404-5393, 29 April 2005.
23 Mountain v Styak [1922] NZLR 131 (CA).
[160] I will not review again the documents signed by Mr Smith considered above, especially his file notes and correspondence with his solicitors, or the power of attorney, signed by Mr Ball as director of CMDL, also considered above. It is not necessary as I have already explained in some detail how these documents are evidence of an express trust. Together these documents manifest and prove an intention by Mr Smith, and indeed by Mr Ball were it necessary, for the purposes of s 49A(2), to declare a trust over the units transferred to CMDL. Mr Smith, as settlor, and Mr Ball, as director of the trustee (CMDL), were both persons able to declare this trust. The writing requirements of the Property Law Act for an express trust over land are therefore satisfied.
Conclusion
[161] For all the above reasons, I find in favour of Ms Smith on the first cause of action.
Second cause of action - against CML: express trust
[162] This cause of action is an alternative to the first cause of action. Having found in favour of Ms Smith on the first cause of action, it is not strictly necessary for me to consider the second cause of action. However, I do so briefly.
Certainty of intention - shares in CMDL
[163] Ms Smith’s alternative claim in this cause of action is that CML is holding the shares in CMDL on trust for Mr Smith.
[164] In the first cause of action, Mr Smith owned the three units at 38 Dominion Street. In transferring these units to CMDL, the evidence establishes that he intended to create an express trust in the property for his benefit. Since Mr Smith owned the property, he could declare the trust. CMDL is the trustee which holds the units in trust for Mr Smith who is the beneficiary.
[165] In the second cause of action, CMDL is not the trustee but holds the property. CML is the trustee, holding the shares in CMDL, allegedly in trust for Mr Smith. The Property Law Act is not relevant because the trust said to have been created does not
involve land. CMDL owns the land but disposition of the shares in CMDL is not a transaction subject to the provisions of the Property Law Act. The transfer of the units to CMDL is such a transaction but that is not relevant for the purposes of the second cause of action. The trust alleged in the second cause of action is one which focuses on Mr Ball’s intention because he was the owner of the property – i.e., the shares – at the time the trust was said to be declared. Therefore, in order to succeed, Ms Smith must prove an intention by Mr Ball to hold the shares on trust for her father when the trust was settled.
[166] I accept Mr McDonald’s submission that the following evidence establishes that Mr Ball had the necessary intention to hold his shares in CMDL on trust for Mr Smith:
(a)Mr Ball, as the sole director and shareholder of CMDL, authorised that company to grant Mr Smith an irrevocable power of attorney in relation to units 3, 4 and 5/38 Dominion Street;
(b)Mr Ball authorised CMDL to grant Mr Smith an option to purchase those units; and
(c)The factors I have already mentioned as set out in [71] to [153] above.
[167] Ms Smith’s claim is not affected by subsequent transfers of shares in CMDL for the following reasons:
(a)When title to units 3, 4 and 5/38 Dominion Street was transferred by Mr Smith to CMDL, Mr Ball was the sole director and shareholder of CMDL. Mr Ball transferred his shares in CMDL on 9 June 2010 to Ladbrooks, Solicitors Trustee Ltd (Ladbrooks) and himself as joint tenants. Mr Ball’s knowledge that his shares in CMDL were being held on trust for Mr Smith can be attributed to Ladbrooks as the shares were held by Mr Ball and Ladbrooks as joint tenants; and
(b)The following year, on 11 November 2011, Mr Ball and Ladbrooks transferred the shares they held in CMDL to CML. Mr Ball’s knowledge that the shares in CMDL were being held on trust for Mr Smith can be attributed to CML given that Mr Ball was the sole director of CML. Mr Ball’s knowledge can be imputed to the company.24
[168] There is no suggestion that these transfers were by bona fide purchases for value without knowledge of the trust obligations.
[169] For all of the above reasons, if it were necessary to do so, I would find in favour of Ms Smith on the second cause of action. Mr Ball initially held the shares in CMDL on an express trust for Mr Smith, settled when the units were transferred to CMDL in 1993. Mr Ball’s fiduciary obligations have since passed with the shares to his successors as owners of the shares and CML presently holds them on the same trust for Mr Smith.
Third cause of action - against CMDL and CML: constructive trust
[170] The third cause of action is brought as an alternative to the claims in the first and second causes of action. The third cause of action pleads a breach of constructive trust. In his submissions, Mr McDonald advances two alternatives:
(a)Unconscionability based on presumed or actual common intention; or
(b)Property obtained by fraud.
[171]Within the second alternative above, there are also alternatives:
(a)Units 3, 4 and 5/38 Dominion Street are held on a constructive trust (by CMDL); or
24 On knowing receipt, see Westpac Banking Corporation v Savin [1985] 2 NZLR 41 (CA) at 50-51. Moreover, Mr Ball was the “directing mind and will” of the CML. See Kendall Wilson Securities Ltd v Barraclough [1986] 1 NZLR 576 (CA) at 594, where Cooke J cites Lord Reid’s speech in Tesco Supermarkets Ltd v Nattrass [1972] AC 153 (HL), and Somers J at 601.
(b)The shares in CMDL are held on a constructive trust (by CML).
[172] I will consider this cause of action only briefly having found in favour of Ms Smith on the first and second causes of action.
Presumed or actual common intention
[173] A constructive trust arises where a plaintiff has contributed in more than a minor way to the acquisition, preservation or enhancement of a defendant’s assets, whether directly or indirectly; and that in all the circumstances the parties must be taken reasonably to have expected that the plaintiff would share in them as a result. As the Court of Appeal said in Almond v Read, a contribution can be in the form of improvement of the property or its value by a person other than the registered proprietor:25
One common category of constructive trusts is where contribution has been made to the acquisition, improvement or maintenance of property, or its value by a party other than the registered proprietor.
[174] The often-quoted judgment of Tipping J in Lankow v Rose sets out the elements a claimant needs to prove to establish that equity should regard a defendant’s denial of a claimant’s interest as unconscionable:26
(a)Contributions, direct or indirect to the property in question;
(b)The expectation of an interest in the property;
(c)Such an expectation is a reasonable one; and
(d)The defendant should reasonably expect to yield to the claim and the interest.
[175] There is the following evidence that supports the submission that Mr Smith made contributions directly and indirectly to the development of units 3 and 4 and indirectly to unit 5:
25 Almond v Read [2019] NZCA 26 at [66].
26 Lankow v Rose [1995] 1 NZLR 277 (CA) at 294.
(a)Between December 1993 until he suffered the first of his strokes in mid 2004, Mr Smith, through KCL, built units 3 and 4 (the final work on units 3 and 4 was undertaken by Mr Smith’s brother Trevor). Prior to December 1993, Mr Smith had only undertaken limited preparatory work;
(b)There is no evidence of any direct contribution by Mr Smith to the development or preservation of unit 5. However, Mr Smith advanced interest free loans to CMDL, as already referred to, which were an indirect benefit to unit 5 because they permitted the payment of liabilities of CMDL which could, given the company’s financial situation, otherwise only be discharged by advances secured against the property. This would have diminished the value of the property and Mr Smith’s contributions by way of loans had the effect of preserving the value of unit 5 in CMDL’s hands; and
(c)Mr Smith agreed to defer CMDL’s payment of KCL’s invoices over an extended period of time, which had the same effect as the advances provided by Mr Smith referred to in (b) above.
[176] It is apparent on the evidence that Mr Smith expected an interest in units 3, 4 and 5/38 Dominion Street. I refer again to all of the evidence that I have already summarised in [71] to [153] above.
[177] I consider that Mr Smith’s expectation was reasonable given the contributions that he made both directly and indirectly to the three units. Moreover, Mr McDonald submits that Mr Smith, CMDL and Mr Ball had a pre-existing common intention that Mr Smith’s contributions to the development of units 3, 4 and 5/38 Dominion Street would result in a proprietary interest in that property. That common intention has been established by the evidence that I have considered above and their common intention supports the reasonableness of Mr Smith’s expectation.
[178] Finally, CMDL should reasonably expect to yield an interest in units 3, 4 and 5/38 Dominion Street to Mr Smith. I say that for the following reasons:
(a)Mr Smith’s contributions, both directly and indirectly (through KCL), significantly outweigh the contributions that CMDL made to units 3, 4 and 5/38 Dominion Street; and
(b)Contributions made by Mr Ball to those three units were more than adequately compensated for by the drawings Mr Ball took from CMDL between 1999 and 2019:
(i)A table showing the changes in Mr Ball’s shareholder current account with CMDL between 1999 and 2010 records his contribution as $1,348,082. His drawings for that period total
$737,512. However, the contribution figure includes Mr Smith’s loans of $303,000 and $646,500 (the subject of the fourth to seventh causes of action). Deducting Mr Smith’s loans from the contribution figure, Mr Ball’s contributions for 1999 to 2010 decrease to $398,582. In other words, during that period Mr Ball took out of CMDL $338,930 more than he put in;
(ii)For the financial years between 2011 and 2019, Mr Ball took
$526,843 more out of CMDL than he put in. So for the whole period between the financial years ending 1999 to 2019, Mr Ball took out $865,773 more than he put in to CMDL. It needs to be noted that the above figure includes the sum of $588,889 that Mr Ball “gifted” to the RS Family Trust. Even so, his personal gain was $276,884 in the period between 1999 and 2019;27
(iii)As already noted in the above discussion, in addition to the vendor loan, Mr Smith put in at least $949,500 into CMDL ($303,000 in 2005 and $646,500 in 2009).
[179] CMDL has not quantified the value of any specific contribution it made to the development of the three units.
27 This personal benefit to Mr Ball is considered further below in relation to the sixth cause of action.
[180] In all the circumstances, were it necessary to do so, I would find in favour of Ms Smith against CMDL on this cause of action.
Property obtained by fraud
[181] Where property is conveyed following an oral agreement to preserve or convey a beneficial interest in the property, and refusing to perform that promise constitutes a fraud, the defendant may be compelled to hold the property as a constructive trustee.28 In Avondale Printers & Stationers Ltd v Haggie, Mahon J said:29
Where property is conveyed or proprietary rights released in consideration of an oral promise by the transferee the transferor will retain or later acquire a beneficial interest in the property in question, and where retraction of the promise amounts to a fraud upon the transferor, then the transferee will be held a constructive trustee for the benefit of the transferor of either the whole property or of the relevant interest therein. The key to this type of inquiry in my opinion lies in the question whether the transferor would have parted with his property but for the oral undertaking of the transferee.
[182] It is not necessary to discuss this part of the claim in detail, having regard to the findings I have already made and, in particular, that CMDL agreed to hold units 3, 4 and 5/38 Dominion Street on trust for Mr Smith, he having retained his beneficial interest in the property.
[183] In those circumstances I consider that CMDL’s denial of the agreement to hold the three units on trust for Mr Smith amounts to a fraud. Mr Smith would not have transferred them to CMDL but for Mr Ball’s agreement that Mr Smith would retain the beneficial interest in them. A constructive trust, therefore, arises.
[184] Mr McDonald submits, in the alternative, that Mr Ball agreed to hold the shares in CMDL, owned by Mr Ball in 1993 and subsequently transferred by him to himself jointly with Ladbrooks Solicitors Trustees Ltd in 2010 and by them to CML in 2011, on trust for Mr Smith. The distinction – CMDL is the trustee holding property or CML is the trustee holding shares in CMDL, which owns the property, on trust – is a fine one and, in these circumstances where the arrangements entered into were so informal,
28 Jessica Palmer “Constructive Trusts” in in Andrew S Butler (ed) Equity and Trusts in New Zealand
(2nd ed, Thomson Reuters, Wellington, 2009) 335 at 348-349.
29 Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 (SC) at 163.
is little more than a technical difference. For this reason, the evidence considered above also demonstrates that Mr Smith would not have transferred 38 Dominion Street to CMDL in the absence of a promise by Mr Ball to hold his shares in CMDL on trust for Mr Smith. Given Mr Ball’s knowledge of this agreement and his role in CML, that obligation was transferred to CML when it acquired the shares in CMDL.
[185] Were it necessary, I would find that CML’s denial of an agreement to hold these shares on trust is also a fraud on Mr Smith and a constructive trust arises.
Sixth cause of action - against CMDL: loan by Mr Smith to CMDL of $303,000
[186] I next address the sixth cause of action brought against CMDL. It is identical to the fourth cause of action which is brought against Mr Ball. Mr McDonald advances the sixth cause of action as the primary claim with the fourth cause of action brought as an alternative. Neither is an alternative to the trust claims in the first to third causes of action.
[187] This cause of action relates to the $303,000 that was said to have been transferred from Mr Smith’s bank account to CMDL’s bank account between 21 and 25 February 2005.
[188]I will consider the issues under the following headings:
(a)Did CMDL borrow $303,000 from Mr Smith?
(b)Did Mr Ball act as Mr Smith’s attorney when making the bank transfers in February 2005 and, if so, what were his obligations and did he breach them?
(c)Is CMDL liable to repay the $303,000 under the doctrine of knowing receipt?
(d)What interest is payable?
Did CMDL borrow $303,000 from Mr Smith?
[189]The defendants admit the following:
(a)Between 21 and 25 February 2005, $303,000 was withdrawn from Mr Smith’s bank account and deposited into CMDL’s bank account;
(b)Of the $303,000, CMDL used $276,917.20 to repay CMDL’s loan to Asset Lend Ltd;
(c)Mr Ball’s shareholder advance of $327,093 in CMDL’s accounts for the financial year 2005 includes the $303,000 advance; and
(d)The loan of $303,000 was not documented in writing, no security was provided by CMDL for the loan and the loan was interest free.
[190]Mr Ball accepts that he made the bank transfers.
[191] There is no evidence that the loan of $303,000 has been repaid. The bank statements provided by the defendants as part of their discovery obligations for Mr Smith and the RS Family Trust do not disclose any payments totalling $303,000 being made to Mr Smith in repayment of CMDL’s debt.
[192] For completeness I record here Mr Ball’s position that CMDL’s financial statements for the 2005 year contain an error made by the accountant and they should have recorded that the advance of $303,000 came from either the Ray Smith Family Trust or Mr Smith. And further that CMDL’s financial statements for the 2011 financial year have been amended to record that CMDL owes the R S Family Trust
$587,159. It is necessary to address each of these claims.
[193] First, there is the source of the money to fund the loan of $303,000 to CMDL. Mr Ball, acting under the EPA for Mr Smith, sold the residential property at 24 Beach Road, Castor Bay, which Mr Smith had inherited from his father. Those sale proceeds ($423,711.18) funded the $303,000 loan. The $303,000 did not pass through the R S Family Trust’s bank account at any time. Neither are there any contemporaneous
documents, such as trustee minutes or resolutions that suggest Mr Smith assigned his interests in his loan of $303,000 to CMDL to the R S Family Trust either in the 2005 financial year or subsequently. There are also no contemporaneous documents that suggest that the R S Family Trust loaned CMDL $303,000 in February 2005.
[194] However, on 28 November 2019 Mr Ball produced the financial statements for the financial years 2011 to 2019 for both the R S Family Trust and CMDL. These financial statements were produced after the defendants had been served with Ms Smith’s amended statement of claim dated 19 September 2019 which had put the February 2005 loan of $303,000 in issue. The financial statements do not reflect the movement of Mr Smith’s funds as set out in his bank statements. The financial statements for CMDL and the Ray Smith Family Trust record: Mr Ball received drawings from his shareholder’s current account with CMDL totalling $580,526; Mr Ball then gifted $588,889 to the R S Family Trust; the R S Family Trust then loaned
$584,149 to CMDL; and the alleged loan appears in the CMDL financial statements for the year ended 2011.
[195] Mr Ball said in evidence that it was Mr Smith’s intention that his money would go to the R S Family Trust for the benefit of his wife and daughter. However, as already noted, there are no documents in the nature of trustee resolutions that record that intent. And Mr Ball accepted that the $303,000 advance was advanced from Mr Smith’s bank account.
[196] Mr Ball claimed that his accountant had corrected the mistakes in the 2011 financial statements for CMDL and the R S Family Trust. However, Mr Smith died on 8 February 2010. Upon his death, the debts owed to him by CMDL vested in his estate. His will did not make any gifts to the R S Family Trust. Mr Ball, as the executor of Mr Smith’s estate, had no right under Mr Smith’s will to gift estate funds to the R S Family Trust in the 2011 financial year.
[197] In evidence Mr Ball claimed that the gift to the R S Family Trust occurred while Mr Smith was alive despite the financial statements for the 2011 financial year saying otherwise.
[198] Further Mr Ball knew from the statements of property prepared for the Family Court for the 2007 and 2008 financial years that he signed on 25 August 2008 as Mr Smith’s property manager jointly with Mr Kidd, that CMDL owed Mr Smith
$329,488. Clearly those statements of property needed to refer to the debt owed by CMDL to Mr Smith as they required Mr Kidd’s signature.
[199] Having signed the statements of property, Mr Ball knew that the CMDL 2005 financial year statements were incorrect as they failed to refer to the debt CMDL owed to Mr Smith but Mr Ball took no step to correct those financial statements.
[200] When Mr Ball prepared a settlement statement for Mr Smith’s estate he failed to refer to the $303,000 loan (or the $646,500 loan, which is the subject of the fifth and seventh causes of action) owed to Mr Smith by CMDL. In the absence of these proceedings being brought, Mr Ball’s conduct in doing so would not have come to light.
[201] For all the foregoing reasons I accept that CMDL borrowed $303,000 from Mr Smith and that loan has not been repaid to Mr Smith.
Mr Ball acting under power of attorney?
[202] The three defendants admit that at least by late 2004 Mr Smith was not able to manage his own affairs due to the effects of the strokes he had suffered. There is no evidence to suggest that Mr Smith regained his ability to manage his own affairs by February 2005 when Mr Ball advanced $303,000 from Mr Smith’s bank account to CMDL.
[203] The source of Mr Ball’s power to act on Mr Smith’s behalf in arranging for the sale of 24 Beach Road and transferring the $303,000 from Mr Smith’s bank account to CMDL’s bank account was the EPA granted to him by Mr Smith on 24 July 2004. There were no other documents or court orders in force at the time that conferred the right on Mr Ball to act in this way.
[204] In acting under the EPA Mr Ball owed certain obligations to Mr Smith. There is a helpful summary of the law relating to EPAs in the Family Law Service as follows:30
The relationship between an attorney and the donor is a fiduciary one. This means among other things that the attorney has an obligation to account for financial stewardship even though this is not expressly provided for in the statute [the Protection of Personal and Property Rights Act 1988]. At common law, an attorney must:
(a)Act with absolute openness and fairness to the donor;
(b)Exercise reasonable care in all the circumstances;
(c)Keep the donor’s property separate and be able to account for it;
(d)Avoid any position where the agent’s interests conflict with his duty.
That the wider law applies to enduring powers is affirmed in Vernon v Public Trust, where the Court of Appeal stated that the PPPRA is not “a self- contained codification” of the rules on enduring powers, in particular in relation to the donee’s duties where the donor is not mentally incapable: there is “an equitable overlay” to the statutory scheme. … The donor still had capacity. It was held that fiduciary duties were owed to him even though these were not specified in the Act.
[205]The Court of Appeal stated in Vernon v Public Trust:31
[37] … The nature of this statutory power does not exclude the imposition of equitable obligations. … Unless the instrument or statute requires otherwise, the agent must discharge his or her duties towards the principal with the utmost loyalty, honesty and good faith. He or she must ensure that he or she does not benefit himself or herself at the donor’s expense. And he or she must act always in the donor’s best interests, in particular where a power is granted for the purpose of preserving and managing the donor’s property.
[38] … In this context the donor’s mental capability does not militate against the exercise of obligations. Indeed, the imposition and proper performance are essential where the donor, even if mentally capable, is elderly, vulnerable and has granted the power for the obvious reason that his ability to protect his property interests is impaired or diminished. The factors of trust and reliance, recognised by the judge within the wider finding of a fiduciary duty must predominate.
(citations omitted)
30 Family Law Service (online ed, Lexisnexis) at [7.890].
31 Vernon v Public Trust [2016] NZCA 388.
[206] Those statements of the Court of Appeal apply here. There are no provisions in the EPA that Mr Smith and Mr Ball signed on 12 July 2004 that purport to limit or modify the fiduciary obligations referred to above. Section 107 of the PPPRA, in force at the time of the 2005 transactions, did permit an attorney to confer a benefit on himself or herself or a person other than the donor where the donor might be expected to provide for the needs of the attorney or a person other than the attorney.32 Apart from the limited statutory exception, the fiduciary obligations an attorney was required to discharge conferred protection because the attorney’s personal interest was not otherwise permitted to conflict with his or her duty to the donor.
[207] Was there a breach by Mr Ball of those fiduciary duties? I have found that Mr Smith was the beneficial owner of units 3, 4 and 5/38 Dominion Street and, alternatively, of the shares in CMDL. That distinction is not important for considering this issue. CMDL held the units on an express trust for Mr Smith or Mr Ball held the shares in CMDL (at the relevant time) on an express trust for Mr Smith. The units were Mr Smith’s property. The amount of $303,000 was applied primarily to discharge the loan owed by CMDL to Asset Lend. Were CMDL Mr Ball’s property, such a payment by Mr Ball to CMDL using the power of attorney would have been in breach of his fiduciary duty to Mr Smith. He would have obtained a benefit from his position by paying down debt on his property.33
[208] However, the units belonged to Mr Smith. Using the funds to pay down the debt on them was for the benefit of Mr Smith. Mr Ball apparently received no benefit from the loan because had no interest in the units. It is unclear what happened to the balance of $26,082.20 which is the difference between the amount transferred to CMDL and the value of the loan repaid.
[209] Mr Ball did not have a conflict of interest in arranging the loan because he had no personal interest in either the units or CMDL. The transaction was for the benefit of Mr Smith because the net value of his interest in the property increased with the
32 That an attorney may not act to benefit himself or herself, except in limited circumstances, is now provided for in a new s 107 of the PPPRA, substituted by the Protection of Personal and Property Rights Amendment Act 2007.
33 The Court of Appeal addresses this type of benefit, arising from a conflict between duty and interest, in Westpac Banking Corporation v Savin [1985] 2 NZLR 41 (CA) at 50-51.
repayment of the Asset Lend loan. Although not argued as an alternative to the first and second causes of action, the effect of my finding in those causes of action renders this cause of action an alternative because Mr Smith was contributing to the property in which he had retained the beneficial interest.
[210] Mr Ball’s efforts to explain or justify the loan, including an alleged agreement with Mr Smith to borrow money on an interest free basis, that Mr Smith was permitted to live at 5/38 Dominion Street rent free and that he obtained Mr Smith’s informed consent – none of which address what would have been a conflict of his duty and interest had the units or CMDL belonged to him – do not need to be considered as a result.
[211]I find that Mr Ball did not breach his fiduciary duty to Mr Smith.
[212] In consequence of this finding, I do not need to consider whether CMDL is liable to repay the loan or pay interest.
[213]Ms Smith has therefore failed on this cause of action.
[214] There is one further point regarding any benefit Mr Ball may have received from the property CMDL holds on trust for Mr Smith. In the third cause of action, Mr McDonald reviewed the contributions Mr Smith and Mr Ball made to CMDL. Mr McDonald submitted that Mr Ball’s net personal gain from the trust was $276,884. This represents the difference between the amount Mr Ball put into CMDL and the amount he took out. CMDL’s only assets during this period were those it held on trust for Mr Smith. The $276,884 represents an amount Mr Ball appears to have taken from the trust for his own purposes. This would be a breach of CMDL’s fiduciary duty to Mr Smith.
[215] Mr McDonald submits it is not clear on the evidence why Mr Ball was entitled to this amount but concedes this would compensate Mr Ball for any contributions he may have made to CMDL. No additional declaration is sought for this sum and I do not make one.
Fourth cause of action - against Mr Ball: loan by Mr Smith to Mr Ball of $303,000
[216] As already noted, this is an alternative to the sixth cause of action. It is brought on the alternative basis that the loan of $303,000 was made by Mr Ball on Mr Smith’s behalf to Mr Ball and that Mr Ball then loaned the money to CMDL. I have already found in the sixth cause of action that the money from Mr Smith’s account went into CMDL’s account. It did not go via Mr Ball.
[217] Mr McDonald’s position was that, if I found in Ms Smith’s favour on the sixth cause of action, there was no need for the court to consider this cause of action. Although I have found against Ms Smith on the sixth cause of action, I did find that the loan was to CMDL and not to Mr Ball.
This cause of action must fail because of that finding.
Seventh cause of action - against CMDL: loan by Mr Smith to CMDL of $646,500
[219] This is a claim against CMDL. An alternative claim, in the fifth cause of action, is against Mr Ball. As with the sixth and fourth causes of action the claim against CMDL is the primary one. Neither is an alternative to the trust claims in the first to third causes of action.
[220] This claim relates to three transfers totalling $646,500 from Mr Smith’s bank account to CMDL’s bank account on 30 January 2009. I will consider the issues under the following headings:
(a)Did CMDL borrow $646,500 from Mr Smith?
(b)Did Mr Ball act as Mr Smith’s attorney when making the bank transfers in January 2009 and, if so, what were his obligations and did he breach them?
(c)Is CMDL liable to repay the $646,500 under the doctrine of knowing receipt?
(d)What interest is payable?
Did CMDL borrow $646,500 from Mr Smith?
[221] The bank statements show that three amounts totalling $646,500 were transferred from Mr Smith’s bank account on 30 January 2009 to CMDL’s bank account. In another series of transactions the same day, $646,357.85 was transferred from CMDL to KCL and $646,000 was transferred from KCL to Mr Smith. Mr Smith received back all but $500 of the money paid through CMDL and onto KCL.
[222] Mr Ball’s position is that the three amounts making up the $646,500 were loans made by the R S Family Trust. I do not accept that. The bank statements before the Court show that the loan advances to CMDL came from Mr Smith.
[223] The payments made by CMDL were to discharge amounts owing to KCL for building work. The payments then made by KCL to Mr Smith were repayments of Mr Smith’s shareholder advances. This is confirmed by KCL’s financial statements for the 2009 financial year. They show that Mr Smith received drawings totalling
$647,998 from KCL in that year. These drawings were in repayment of Mr Smith’s outstanding shareholder loan.
[224] The financial statements for the R S Family Trust for the 2009 and 2010 financial years do not record any advance by the trustees to CMDL. Additionally there is no evidence to suggest that Mr Smith’s loan to CMDL was ever assigned to the R S Family Trust. There are no trust documents, minutes or resolution that would support Mr Ball’s claim that the R S Family Trust loaned the $646,500 to CMDL.
[225]I find that CMDL borrowed $646,500 from Mr Smith.
[226] As to any repayment, it is apparent from Mr Smith’s Westpac bank account that, between 5 January 2009 and 1 April 2011, CMDL paid $2,290 into that account. A similar analysis of Mr Smith’s Kiwibank account between January 2009 and 31 December 2011 CMDL paid $35,324.11. That is the extent of any repayment.
[227] Ms Smith accepts that CMDL should receive a credit in the sum of $37,614.18 for those payments.
Mr Ball acting under power of attorney?
[228] Mr Ball accepts that he was the person who made the transfers from Mr Smith’s bank account on 30 January 2009. Mr McDonald submits that Mr Ball was acting under the EPA on that date.
[229] As already mentioned, on 14 March 2007, in the context of Mr Smith’s matrimonial claim, the Family Court appointed Mr Ball and Mr Kidd as Mr Smith’s joint property managers. The end date for that appointment was 14 March 2008. It seems that both Mr Ball and Mr Kidd failed to appreciate there was an end date to the order and they failed to apply, prior to 14 March 2008, for the appointment to be renewed. Their appointment therefore came to an end.34 A later attempt by Mr Ball and Mr Kidd to have the Court order appointing them joint property managers varied so as to delete the term containing the expiry date was unsuccessful.
[230] There is nothing in the PPPRA that results in an existing EPA being discharged on the granting of a property order under the PPPRA.35
[231] Section 100 of the PPPRA provides that when an EPA and a property order exist in relation to the same person, the property order takes precedence. But s 100 does not provide that the EPA is revoked. Accordingly, once Mr Ball and Mr Kidd’s appointment as Mr Smith’s joint property manager came to an end on 14 March 2008, s 100 no longer applied to Mr Ball’s EPA. In other words, between 14 March 2008 and 1 April 2009 (when Mr Ball and Mr Kidd were re-appointed as joint property managers) Mr Balls authority to make decisions in relation to Mr Smith’s property was founded on the EPA which Mr Smith had granted to him.
[232]For all the reasons set out in [202] to [211], in relation to Mr Smith’s loan of
$303,000, I find that Mr Ball did not breach his fiduciary duty to Mr Smith in transferring the $646,500 out of Mr Smith’s bank account and into CMDL’s bank account. Given my finding that Mr Smith was the beneficial owner of the units held in trust by CMDL, Mr Smith did not lose the benefit of his funds and Mr Ball did not
34 See s 17(2), PPPRA.
35 See s 106, PPPRA. The making of a property order is not one of the specified circumstances where an EPA shall cease to have effect.
derive a personal benefit in breach of his duty. This action was not in breach of s 107 of the PPPRA for this reason.36 The plaintiff’s success on the first cause of action means these loans are not, of themselves, a breach of Mr Ball’s fiduciary duty under the power of attorney.
[233] In consequence of this finding, I do not need to consider whether CMDL is liable to repay the loan or pay interest.
[234]Ms Smith therefore fails on the seventh cause of action.
Fifth cause of action - against Mr Ball: loan by Mr Smith to Mr Ball of $646,500
[235] This cause of action is an alternative to the seventh cause of action. It relates to the $646,500 loan and is brought against Mr Ball. However, as with the fourth cause of action, it must fail. In dealing with the seventh cause of action, I have found that the loan by Mr Smith was to CMDL. It was not to Mr Ball.
Orders and declarations
First cause of action
[236]I make the following declarations and orders:
(a)A declaration that 5/38 Dominion Street, Takapuna (CT NA 115D/97), and 3 and 4/38 Dominion Street, Takapuna (CTs NA 89D/968 and NA 89D/969) are held by CMDL on trust for Ms Smith;
(b)An order requiring CMDL to transfer its interest in 5/38 Dominion Street, Takapuna (CT NA115D/97), and 3 and 4/38 Dominion Street, Takapuna (CTs NA89D/968 and NA89D/969) to Ms Smith in her capacity as the executrix of the estate of Mr Smith;
36 As noted earlier, s 107 was amended by the Protection of Personal and Property Rights Amendment Act 2007, which came into force on 25 September 2008. The former s 107, quoted by Mr McDonald in his submissions, was superseded by the current provisions at the time of these transactions in January 2009.
(c)An order that the Registrar of the High Court at Auckland be authorised to execute any instruments which are necessary to transfer the land referred to in (b) above, registered in the name of CMDL, to Ms Smith in her capacity as the executrix of Mr Smith's estate;
(d)I order that there be an inquiry into the rental income received by CMDL for 3, 4 and 5/38 Dominion Street, Takapuna, Auckland (being CTs NA89D/968, NA89D/969 and NA115D/97 respectively); and
(e)Payment of the rental income found to be due on the inquiry referred to in (d) above together with interest on that income is to be made by CMDL to Ms Smith.
[237] In relation to orders (d) and (e) above, I record that Mr McDonald, in oral submissions, noted both the further delay and cost that would result if those orders were made. However, despite his observation, Mr McDonald did not abandon Ms Smith’s application for these two orders. I have therefore made the orders as sought as I consider Ms Smith has established the necessary basis for doing so.
[238] However, given his oral submissions, I direct Mr McDonald to file and serve a memorandum within 20 working days of the date of this judgment advising whether Ms Smith does in fact seek to implement those two orders. In the interests of finality, Ms Smith may not wish to do so. However if Ms Smith does seek to implement them, I further direct Mr McDonald to include in his memorandum the steps that Ms Smith proposes for the implementation of an inquiry. Mr Ball may then respond by memorandum within a further 20 working days.
Costs
[239] Costs are reserved. If the parties can agree costs, they should file a joint memorandum within 20 working days of the date of this judgment. In the event that costs cannot be agreed, Ms Smith is to file and serve her memorandum within five working days of the date for the joint memorandum. Mr Ball may respond by memorandum filed and served within a further five working days. Memoranda should
not exceed five pages (excluding any attachments). I will determine costs on the papers.
Gordon J
5
0
0