Spence v Lynch

[2013] NZHC 1478

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-7681 [2013] NZHC 1478

BETWEEN  STUART GORDON SPENCE Plaintiff

ANDCHRISTOPHER MAURICE LYNCH Defendant

AMANDA ADELE WHITE First Third Party

ANNE LEOLINE EMILY FREEMAN Second Third Party

Hearing:                   20 - 24 May, 4, 5 and 7 June 2013

Appearances:           P J Wright and G D Stringer for the Plaintiff and the Defendant

A D White, First Third Party in person
A L E Freeman, Second Third Party in person

Judgment:                19 June 2013

JUDGMENT OF PRIESTLEY J

This judgment was delivered by me on Wednesday 19 June 2013 at 2.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:
P J Wright, Barrister, Auckland
G D Stringer, Inder Lynch, Papakura

Copy to:
First Third Party

Second Third Party

SPENCE v LYNCH [2013] NZHC 1478 [19 June 2013]

CONTENTS

PARAGRAPH

Introduction  1

Procedural background  7

The evidence  14

Relevant narrative

Section 21 agreement  15

The DCT Trust property trail  21

Mr Lynch’s resignation as trustee  29

Mr Spence’s advances to the trust  31

Property Sharing/Profit Sharing Agreement  46

Mr Spence’s Trust  64

Ms Freeman’s debt  68

Ford Territory  76

Taxation debt  80

Use of trust funds  81

Other evidence  85

Analysis  86

Result  136

Costs  140

Introduction

[1]      A man and a woman start a de facto relationship.  They had both emerged from  previous  failed  relationships  and  want  a  degree  of  certainty  over  their respective assets.  Sensibly they enter into an agreement under s 21 of the Property (Relationships) Act 1976 (the Act).  So far so good.

[2]      The woman, who has talents as a property developer and speculator, sees merit in establishing a family trust.  She does so.  She is the settlor.  There are three trustees: herself, her mother, and a solicitor. Appropriately the man has no interest in the family trust.   The beneficiaries are the woman herself, her children, and her siblings or their issue.

[3]      The relationship of the man and woman lasts for six years and five months. Despite the initial orthodox and sensible arrangements evinced by the trust and s 21 agreement, carelessness, confusion, and chaos rode in behind the couple.   Their family lived in properties owned by the trust.  Both the man and the woman’s mother advanced substantial sums to the trust.  Startlingly no one took any steps to prepare annual accounts and balance sheets for the trust.   The s 21 agreement was never reconsidered or updated.   The trust’s bank accounts were used constantly and extensively by the woman to pay domestic accounts.  The man, because he respected the woman’s financial acumen, gave her internet banking authority for his bank accounts.   The solicitor, advised the man and woman about a possible property sharing agreement, but one was never concluded.   When the couple separated the man lodged a notice of claim pursuant to s 42 of the Act.  The woman, despite the domestic loss of the man’s income, continued to use the trust as a vehicle to acquire further realty.

[4]      Four and a half years after the man and woman separated, the High Court is asked, through this proceeding, to sort out an unholy and totally unnecessary mess. The man wants the money which found its way to the trust returned to him.  The woman and her mother, who remain trustees, are exposed to the consequences of

forthcoming mortgagee sales and could well be insolvent.  They blame the man and the solicitor for their unfortunate predicament.

[5]      The parties have been unable to settle their disputes.  The hearing before me was fraught with difficulty.  The woman was unable or chose not to retain previous legal advisors.  She and her mother acted for themselves.  They did their very best. But understandable unfamiliarity with litigation processes caused the woman huge anxiety and stress.

[6]      The  man  in  this  saga  is  the  plaintiff  (Mr  Spence).   The  solicitor  is  the defendant (Mr Lynch).  The woman is the first third party (Ms White). The woman’s mother is the second third party (Ms Freeman). The trust is the DCT Trust.

Procedural background

[7]      Mr Spence began this proceeding by suing Mr Lynch in debt in his capacity as a former trustee of the DCT Trust.  Mr Spence claimed the sum of $224,480.48. The advances to the trust which Mr Spence sought from Mr Lynch (to which I shall return) were made between February 2005 and October 2006.   Mr Lynch was a trustee from the date the trust was established until he retired on 9 October 2007. The claim was filed by Mr Spence in November 2011.

[8]      Unsurprisingly Mr Lynch joined his former co-trustees of the DCT Trust as third parties in February 2012.

[9]      In December 2012 Messrs Spence and Lynch settled the litigation between themselves.  The terms of that settlement were that Mr Lynch would pay Mr Spence

$155,000.    In  return  Mr  Spence  discontinued  his  claim  against  Mr  Lynch  and assigned the debt claim to him.

[10]     This development explains why Mr Wright and his junior, Mr Stringer acted at trial for both the plaintiff and the defendant.  The essential contest was between Mr Lynch (with Mr Spence as his principal witness), on the one side, and the third parties, Ms White and Ms Freeman, on the other.  The re-pleaded claim, of Mr Lynch

seeks judgment for $224,480.48 (with interest) and in the alternative an indemnity for the payment of $155,000 plus interest.

[11]     Ms White and Ms Freeman filed statements of defence to the third party claims against them and have counterclaimed.   Their pleadings were broadly cast and led to a minute, after a face to face conference before Ellis J on 15 February

2013, which endeavoured to set out the positions of Ms White and her mother.  In essence the defence is that monies paid by Mr Spence were not loans to the DCT Trust but were paid pursuant to a profit sharing agreement between Mr Spence and the trust.  Additionally it was claimed that the funds advanced by Mr Spence are subject to a right of set-off.

[12]     The counterclaim alleges various failings on Mr Lynch’s part in respect of the s 21 agreement: wrongly, in his capacity as trustee allowing Mr Spence to lend money to the DCT Trust; wrongly representing to the third parties that a profit sharing agreement was in place; and wrongly prioritising the interests of Mr Spence against the interests of Ms White in a situation where Mr Lynch was conflicted.  The counterclaim seeks damages of $1 million relating to financial losses of the DCT Trust and lost opportunity, and $200,000 by way of exemplary damages.

[13]     The third parties’ counterclaim against the plaintiff Mr Spence alleges that Mr Spence wrongfully improved his financial position through deception; that he had allowed monies to be advanced to the DCT Trust when he knew a profit sharing agreement was not in place; made false statements to the Bank of New Zealand; and has unjustly enriched himself.  Similar damages are sought.

The evidence

[14]     Evidence was given by Mr Spence, Mr Lynch, and Mr L R Campbell (a chartered  accountant  who  endeavoured  to  analyse  both  the  financial  dealings between Mr Spence and Ms White and the possible profit made on a property owned by the DCT Trust).  Evidence was also given by three officers of the Bank of New Zealand being the bank  where Mr Spence, Ms White and  the DCT Trust were

customers.1   Both Ms White and (briefly) Ms Freeman gave evidence.  Produced as exhibits were decisions of the Banking Ombudsman and Auckland Standards Committees of the New Zealand Law Society relating to complaints made by Ms White against the Bank of New Zealand, a Papakura practitioner, Mr Warren Simpson, and Mr Lynch.

Relevant narrative

Section 21 agreement

[15]     Approximately one month after they began living together the parties entered into a “contracting out agreement” pursuant to s 21 of the Act.   The agreement is dated 14 August 2002.   Mr Spence was independently advised by Mr Lynch.   Ms White was independently advised by Mr Warren Simpson.   There was evidence which suggests, that although Ms White was the second party to sign the agreement, Mr Simpson failed to date it and return Mr Spence’s copy to Mr Lynch.  Mr Simpson suggested in correspondence to Mr Lynch two years later that he had given Mr Spence’s copy to Ms White for return.  Such a mechanism would be unorthodox and undesirable.   Mr Simpson has subsequently been subject to disciplinary action flowing from Ms White’s complaints.  But these matters are not determinative.  Both parties to the agreement accept that the 14 August 2002 document produced in evidence was the s 21 agreement which they signed.

[16]     The  agreement  is  essentially  unremarkable.    A  specific  provision  in  it, however, provided that Ms White would transfer a one per cent share to Mr Spence as a tenant in common in six specified properties which she then owned, called “Amanda’s Property Portfolio”.2    Ms White owned those properties at the outset of the relationship.  The one per cent interest transferred to Mr Spence was to assist Ms White in her mortgage arrangements with Sovereign Insurance.  As a nominal co- borrower, Mr Spence’s income could be taken into consideration.  Nonetheless the agreement  specified  that  the  property  portfolio  properties  remained  Ms  White’s

separate property, she being solely responsible for the outgoings on them.3     The

1      The witnesses were Ms L J Trevarthen, Ms J D Fenton, and Mr Broadman.

2      Agreement, cl 2.7.

3      Ibid cl 2.8 and Schedule A.

agreement contained standard clauses defining separate property; specifying that property derived from the sale of separate property was also separate property;4 and an intermingling clause which provided for a compensatory payment if separate property became intermingled with other property to the extent that separate identification was impracticable.5

[17]     At the time the agreement was signed the couple were living in a property owned by Ms White in Mahia Park, Manurewa.  The agreement specified that this property (which would in conventional terms have the status of a relationship home) remain Ms White’s separate property.6

[18]     Clause 2.12 of the agreement contains a covenant by Mr Spence not to lodge a  caveat  against  “the  property”  at  any  future  stage,  nor  to  bring  any  court proceedings claiming any interest in “the property”.  The expression “property” is broadly defined in the agreement as meaning all property held by the parties to the

agreement separately or jointly, or equity in any property.7

[19]     The schedules of the agreement listing assets then owned by the parties are comprehensive.  Ms White’s separate property, itemised in Schedule A, includes the Mahia Park home, her property portfolio, a business and its chattels, her personal bank account, her personal effects and a motor vehicle.   Schedule B itemises Mr Spence’s properties.  Relevantly these include a property at Mull Place, Manurewa, a

2001 Ford Falcon motor vehicle, his superannuation entitlements, an investment, his bank account, life insurance policies, and personal effects.

[20]     The agreement is sensible and comprehensive.8    Mr Spence and Ms White were independently advised.  There is no suggestion that it should be set aside under the relevant provisions of the Act.  It has not been amended or varied.  Nor can it possibly extend to the DCT Trust or any of its assets.  The statutory s 21 rights and

powers conferred on relationship parties to modify or contract out of the substantive

4      Ibid cl 2.5.

5      Ibid cl 3.

6      Ibid cl 2.6, 2.11 and Schedule A.

7      Ibid cl 1.

8      It is unnecessary to specify its many other provisions.

provisions of the Act cannot possibly extend to trusts.  Besides which, the DCT Trust was not in existence in August 2002.

The DCT Trust property trail

[21]     The DCT Trust was established by a deed dated 25 February 2003.  The three named trustees were Ms White, Ms Freeman, and Mr Lynch.  At some stage in late

2002  (the date being immaterial),  Ms White sold  the Mahia  Park property and purchased a 2.5 acre block at Heard Road, Ardmore, on which a home was built. Heard Road became the trust’s initial asset.

[22]     I infer that during this period Ms White also sold some of the properties which  she  owned  at  the  outset  of  the  relationship  and  specified  in  the  s 21 agreement. Whilst the Heard Road house was being built, the family moved into one of Ms White’s property portfolio properties.

[23]     Sometime in or around late April 2005, the trustees resolved to sell the DCT Trust’s property at Heard Road for $1.3 million, repay the trust’s existing indebtedness to the Bank of New Zealand, and purchase a block of land at Whangapouri Road in Drury for $530,000.  A written resolution, apparently signed by both Ms White and Mr Lynch, is one of the few trust administration documents produced in evidence.   The resolution records that the trust intends, “with all reasonable haste”, to construct a building on the Whangapouri Road property to be occupied by Ms White and her family.

[24]     Initially   after   the   sale   of   Heard   Road   the   couple   lived   in   rental accommodation.   They then moved into Mr Spence’s property at Mull Place.   Mr Spence’s evidence, which I accept and which is not seriously disputed by Ms White, is that the couple intended to use the Whangapouri Road home, once it had been erected, as their family home.  Both Mr Spence (in circumstances described in the next section of this judgment), and Ms Freeman contributed money which flowed into the construction costs of the Whangapouri Road home.  Ms White, for her part, continued to realise her various investments.   A granny flat was erected at Whangapouri Road for Ms Freeman, in which she lived.   Ms White, because of domestic responsibilities, was not in paid employment during this phase.  Advances

from the Bank of New Zealand also assisted with Whangapouri Road construction. How much the construction of the home cost is unclear from the evidence.

[25]     In October 2007 Ms White, whom I find was effectively the sole decision maker for the DCT Trust, decided the trust should purchase a property at Glenbrook Road in Waiuku.  The trust agreed to buy the Glenbrook Road property before it had sold Whangapouri Road, with the result that bridging finance was needed from the Bank of New Zealand.  Whangapouri Road was, however, sold.  At the time of its sale secured bank indebtedness approximated $1.3 million.   The purchase of Glenbrook Road (which cost $910,000) was settled in January 2008.   The sale of Whangapouri Road for $1.95 million was settled two months later.   The couple moved to Glenbrook Road and lived there until their separation on 26 December

2008.  Six months before the separation Mr Spence lodged a claim on the title of the

trust’s Glenbrook Road property.

[26]     Despite  the  parties’ December  2008  separation,  correspondence  from  Mr Spence’s solicitors in April 2009, and indeed inquiries by the Bank of New Zealand once it became aware of Mr Spence’s notice of claim, Ms White, as the decision maker for the DCT Trust, resolved to purchase another property for $350,000 (that sum being advanced by the bank) at Greenmeadows in Manurewa.   Mr Spence’s notice of claim, about which Ms White had been given notice on 18 June 2008, lapsed on 7 May 2009, approximately a fortnight before settlement of the Greenmeadows purchase.

[27]     Subsequently  Mr  Spence  filed  a  relationship  property  application  in  the Family Court at Papakura.  In March 2011 (18 months after it was seised of property matters) the Family Court made a restraining order to the effect that $208,000 be retained from the proceeds of any sale of Glenbrook Road.9

[28]     Thus  the  DCT  Trust  is  in  the  position  where  it  owns  two  properties

(Glenbrook  Road  and  Greenmeadows),  is  in  default  of  its  obligations  under

9      Spence v White FC PAP FAM-2009-055-000397, 28 March 2011.   It would seem that, on different topics, both Ms White and Mr Lynch gave incorrect evidence in some portions of affidavits filed in the Family Court.  In the circumstances I need make no further comment on this aspect.  Ms White’s justification was that in the lead up to Judge Rodger’s decision she and her mother were being led “like lambs to the slaughter”.

substantial loans advanced by the Bank of New Zealand, may well be insolvent, and additionally owes  unsecured  monies  to  Ms  Freeman  and,  if  Mr Spence’s  claim (assigned to Mr Lynch) is well grounded, an unsecured sum to Mr Spence.

Mr Lynch’s resignation as trustee

[29]     Mr Lynch remained as one of the three originally appointed trustees of the

DCT Trust for over four and a half years.  He retired from that position on 9 October

2007.  On that date he was overseas.  He had minimal if any involvement with the trust over the preceding year.

[30]     Mr Lynch’s resignation was initiated and finalised by Mr Saunders, one of Mr Lynch’s partners in the firm Inder Lynch.  Ms White had come to the firm with an unconditional written offer for the trust to buy the Glenbrook property.  Mr Saunders considered it would be imprudent for the trust to commit itself to the Glenbrook purchase when it had yet to sell the Whangapouri Road property.   He therefore declined to sign the agreement on Mr Lynch’s behalf.  The advice he gave to Ms White was that if she wished to proceed with the transaction, then it was her decision alone, but Mr Lynch would need first to retire as a trustee.  He did.  Although Inder Lynch acted for the DCT Trust on both the purchase of the Glenbrook property and the sale of Whangapouri Road, Mr Lynch had no inclination to be re-appointed as a trustee.  The two remaining trustees, Ms White and Ms Freeman, were henceforth responsible for the trust’s decisions and administration.

Mr Spence’s advances to the trust

[31]     The sum of $224,480.48, which Mr Spence claims is a loan by him to the DCT  Trust,  which  the  trust  has  failed  to  repay  (demand  having  been  made) comprises four main tranches. These are:

(a)       $ 20,000.00                 Advanced on 18 February 2005

(b)      $ 30,144.89                 Advanced between 16 February 2006 and 10

October 2006

(c)       $ 18,882.00                 Advanced 13 September 2006 (d)           $155,453.59                Advanced 10 October 2006. Total       $224,480.48

[32]     Mr Spence’s evidence is that item (a) was advanced to the trust so that it could complete the house being built at Heard Road.  His evidence, which I accept in that regard, was that he and Ms White agreed that he would be repaid the $20,000 once the Heard Road property had been sold.  Mr Spence raised the $20,000 by way of a loan from the Bank of New Zealand against his property at Mull Place (his separate property in terms of the s 21 agreement) which at that stage had a tenant in it.

[33]     The $20,000 loan was transferred from Mr Spence’s Ready Money account

with the Bank of New Zealand to the DCT Trust’s account on 18 February 2005.

[34]     After Heard Road  had  been  sold  and Whangapouri  Road  purchased,  Ms White spent some time, energy, and money realigning a power or gas line to a new position on the boundary (to clear the way for building a house).  Ms White said to Mr Spence (and again I accept his evidence) that she believed this realignment had improved the value of the property by some $80,000 and thus, since the couple were both going to own Whangapouri Road, the $20,000 loan was not really repayable. Nonetheless, some months later on 10 October 2005 Ms White made two internet deposits  of $2,000  and  $18,000  into  Mr Spence’s  Ready Money account.   The monies were not paid into Mr Spence’s bank loan account.   Nor did Ms White inform Mr Spence she had made the $20,000 deposit.  Instead Mr Spence’s Ready Money account was used to pay a variety of bills, all by way of internet banking.  Mr Spence had authorised Ms White to have internet access to his bank accounts on 25

July 2005.  Because (in part) of his workload and fulltime employment, Mr Spence made the decision that, in addition to Ms White managing the finances of the trust’s Whangapouri Road development, she should also manage his own finances and bank account.  He trusted her and relied on her acumen.

[35]     Mr Spence’s evidence is confirmed in large measure by his email dated 21

December 2005 to Mr Lynch in which he states he “lent Amanda $20,000 so she could complete work on the Heard Road ... property”.  He also refers to Ms White’s attitude to the power cable improvement.  He further informs Mr Lynch that, from the time Ms White had sold her business, his salary, the $20,000, and the surplus rental income from Mull Place were being used to pay for living expenses.

[36]     The  second  tranche  of  $30,134.89  (item  (b))  represents  a  further  loan advanced to Mr Spence by the Bank of New Zealand against the security of Mull Place.  It was a Rapid Repay Home Loan. A Bank of New Zealand file note refers to the couple building a new property with the $30,000 loan being repaid in full on the sale of Mull Place.  The loan was advanced in February 2006.  On the eventual sale of Mr Spence’s Mull Place property $30,144.89 was deducted from its net  sale proceeds to repay the Rapid Repay Home Loan.

[37]     Certainly the $30,000 loan found its way into the DCT Trust’s bank account. The Rapid Repay Home Loan was drawn down over the next few months. Again the transactions from Mr Spence’s loan account were made by Ms White pursuant to the internet banking access she had. The bank records are unfortunately incomplete.10

[38]     Between 16 February and 15 March 2006 $15,800 was deposited from the loan account into the DCT Trust’s account.   There were some items of domestic expenditure and other payments in respect of Whangapouri Road.  Ms White, for her part, states that $11,10411 was used to decorate Mr Spence’s Mull Place property and improve its garden before sale.  Mr Spence accepts that a portion of the $30,000 loan was used for that purpose, but he is unable, in the absence of produced receipts, to satisfy himself how much money was thus spent.  Although relevant receipts have not been produced and the evidence is somewhat haphazard, I am satisfied on the balance of probabilities that $11,104 (a reasonably precise sum) was so spent by Ms

White for the benefit of preparing the Mull Place property for sale.  Ms White had a talent for and experience in such activities and Mr Spence for his part was happy for her to assist.

[39]     The third component of the alleged loan to the trust (item (c)) was $18,882. That sum was transferred, again by way of internet banking initiated by Ms White, from  Mr  Spence’s  Ready  Money  account  to  the  DCT  Trust’s  account  on  13

September 2006.  Twelve days previously, on 1 September 2006, payments totalling

10     The third parties have failed to make full discovery or disclosure of all relevant bank statements.

Ms White contends the Bank of New Zealand blocked online access to historic bank records. Although not having a complete run of bank records has not helped, I am, without apportioning blame, able to resolve matters, and certainly in respect of claims and  cross-claims, on the balance of probabilities.

11     Modified during trial from $11,135.

$24,600  had  been  paid  into  Mr  Spence’s  Ready  Money  account  by  Jet  Realty Limited.    That  sum  represented  the  net  deposit  paid  by  the  purchasers  of  Mr Spence’s property at Mull Place.

[40]   The final and largest component of the loan, $155,453.59 (item (d)) is abundantly clear.  That sum was the entire net sale proceeds payable to Mr Spence on settlement of the sale of Mull Place.  Mr Lynch acted for Mr Spence on the sale. The payment was made by Mr Lynch to the DCT Trust on Mr Spence’s express instructions.

[41]     These instructions from  Mr Spence about the destination of the net sale proceeds of Mull Place were very much last minute.  Having established a trust for Mr Spence (detailed in a later section of this judgment) Mr Lynch expected the proceeds would be paid into that trust.  However, during a telephone conversation, Mr Spence informed Mr Lynch he had been unable, as yet, to set up a bank account for the trust, and that the monies should be paid to him.   Mr Lynch went so far as to requisition a cheque for the net sale proceeds to be drawn in Mr Spence’s favour. However, Mr Spence subsequently gave contrary instructions that he wanted the net proceeds of the Mull Place sale to be paid to the DCT Trust.

[42]     Those instructions are of some importance.  On 14 September 200612 both Mr Spence and Ms White met Mr Lynch to “discuss their property sharing matters”.  Mr Lynch noted that these discussions had been “ongoing for nine months” but neither of them had actually made any final decisions. The file note goes on to record:

Stu has sold Mull Place, and has loaned (sic) the money to the DCT Trust so they could commence building on the Whangapouri Rd land.  Stu & Amanda didn’t bother with a formal loan agreement, as it is intended that the loan will be converted to an interest in the property, once they actually decide on the ownership shares in the property etc.

[43]     Specific detail relating to the $155,453.59 advance is found in Mr Lynch’s letter, which attached settlement statements relating to the Mull Place sale, to Mr Spence,   dated  11   October  2006.     The  settlement   statement   and   letter  are

unremarkable.  But the latter records:

12     This date has some chronological importance.   It was the day after the item (c) transfer of

$18,882 referred to in [39] supra.

We confirm your advice that the net sale proceeds were to be transferred directly to the account of the DCT Trust.

[44]     I am satisfied that these four components of the sum claimed by Mr Spence were indeed advanced to the DCT Trust with his knowledge and with his authority. The entire sum is sourced either in the sale proceeds of Mull Place or from loans raised against that property.  Consequential issues will be whether the monies were simply loans and thus repayable, and whether the DCT Trust has repaid a portion of the sum or is entitled to a set-off.

[45]     I find it remarkable that a professional trustee  who, when acting for Mr Spence had no personal interest whatsoever in the DCT Trust, did not inquire or insist that some documentation was in place, and certainly a record appearing in annual accounts of the trust, to record the large advance made on 11 October 2006 and the terms on which such an advance was made.   This was a year before Mr Lynch retired as trustee.  Doubtless in some measure that oversight on his part lies

behind the $155,000 settlement payment he has made to Mr Spence.13

Property Sharing/Profit Sharing Agreement

[46]     The advances made by Mr Spence to the DCT Trust cannot properly be treated as loans if in fact there was a concluded agreement between relevant parties whereby the trust was sharing its assets in some agreed proportion with Mr Spence or another entity.14

[47]     Ms White’s evidence was that, when Mr Spence offered to use the equity in Mull Place to borrow $20,000 (the first tranche), this was a “kind gesture”.  When subsequently  Mr  Spence  proposed  selling  Mull  Place  and  applying  the  equity

towards some of the building costs for Whangapouri Road, Ms White’s evidence was

13 Supra [9].

14     Throughout the trial Ms White referred to such an arrangement as a “profit sharing agreement”.

Certainly she has used that term consistently.  Mr Lynch, in his file notes and correspondence refers to “a property sharing agreement”, a nomenclature which Mr Spence himself has used.  I suspect Mr Spence’s nomenclature is largely influenced by Mr Lynch.   For my part I prefer “property sharing agreement” since, during evidence, Ms White effectively accepted that there was no substantial difference.  Ms White’s property transactions over the years led her to expect to make profits from her various transactions.   She termed this a “lolly shop”.   However, a property sharing agreement in which the respective parties share property in the proportions “x” and “y” is not substantially different from a profit sharing agreement in which the parties will share profits and contribute to losses in the agreed “x” and “y” proportions.

that Mr Spence consulted his father.  After discussion spanning some months, and meetings which included Mr Lynch, Ms White’s perception was that a trust would be established by Mr Spence; that the sale proceeds of Mull Place would seed that trust; and that the contributions of the two trusts (which approximated 76 per cent for the DCT Trust and 24 percent for Mr Spence’s trust) would form the basis of a profit sharing agreement (as she called it).

[48]     Ms White’s evidence, which I accept in this regard, was that she wanted to ensure Mr Spence’s name never appeared on the titles of any property which she controlled.   This stance stemmed from difficulties she had encountered with her previous marriage.   So a profit sharing agreement was acceptable to her in broad outline.  But this would not confer legal ownership of any of the trust’s properties on Mr Spence.

[49]     A broad outline of these arrangements appears in a letter written by Mr Lynch to Mr Spence on 24 January 2006.  In that letter Mr Lynch suggests to Mr Spence the type of trust he might establish.  Since Mull Place was to be sold, Mr Lynch saw little point in immediately transferring that property to Mr Spence’s trust.  Rather, the net sale proceeds could be advanced to the trust by way of a loan followed by a gifting programme.

[50]     The letter goes on to record that there had been discussions between Mr Spence and Ms White over the Whangapouri Road property and that a property sharing agreement for Whangapouri Road “... would need to be entered into (separately  from  your  contracting  out  agreement)  which  would  define  your respective ownership shares in that property”.  The letter correctly records that if Mr Spence chose to set up a trust, then such a property sharing agreement would be between his trust and the DCT Trust.  Otherwise, if a trust was not established, the property sharing agreement would be between Mr Spence personally and the DCT Trust.

[51]     The letter correctly points out that the assets held by the trust were not subject to the s 21 agreement (described as the “Relationship Agreement”) because such  assets  were  not  owned  by  either  party  but  by  the  trust.     There  is  a

recommendation that, in any event, both Ms White and Mr Spence would need to enter into a s 21 agreement if they wished to retain certain assets as their separate property.  Independent legal advice would be required for such an agreement.

[52]     Ms White in evidence, probably to a degree being wise after the event, said that she was “very concerned” when she read this letter because she considered there was already a contracting out agreement signed in 2002.  She appears to have missed totally the point that the 2002 agreement did not extend to the couple’s rights in any property sharing agreement they might negotiate.  Nor does she appear to appreciate that the sale proceeds of Mull Place, quite clearly in terms of the s 21 agreement signed in 2002, had the status of Mr Spence’s separate property.

[53]     The flavour of Ms White’s evidence was the two trusts would indeed enter into a profit sharing agreement, the approximate shares being 76 percent/24 per cent and that the Mull Place sale proceeds would be paid to Mr Spence’s trust.  “The DCT Trust was never supposed to receive Mr Spence’s funds until this occurred” was her evidence.  She asserts that both Mr Spence and Mr Lynch were well aware of this.

[54]     Ms White’s evidence was when the third and fourth tranches, being the sale proceeds of Mull Place were paid into the DCT Trust’s account in September and October 2006 she “did not know at the time that Mr Lynch and Mr Spence had not done what they said they were going to do [i.e. establish a trust for Mr Spence to receive the Mull Place sale proceeds]”.  She stated that, around 12 October 2006, she phoned Mr Lynch because she was concerned a profit sharing agreement had not been drawn up and signed.  She stated Mr Lynch had refused to draw up such an agreement because she and Mr Spence had not yet agreed on a timeframe within which,  should  her  relationship  with  Mr  Spence  fail,  she  would  be  obliged  to refinance and pay out to Mr Spence (presumably his trust) his entitlement under the profit sharing agreement.

[55]     The evidence of Mr Spence and Mr Lynch is to the contrary.  I have already referred to Mr Lynch’s 14 September 2006 file note15 where he records that he urged the parties (and I accept his evidence in that regard) to finalise their discussions and

agree on the terms of a property sharing agreement.  Mr Lynch’s evidence was that as early as December 2005 he had discussions with Mr Spence about the formation of a family trust and the property sharing agreement.  I also accept his evidence in that regard.  The thrust of Mr Lynch’s discussions and his advice is contained in his

24 January 2006 letter to which I have referred.16    The file note returns to familiar

themes.   Mr Lynch reiterated his advice the couple would need to complete a contracting out agreement and seek independent legal advice.  It also refers, in the context of “various ownership scenarios”, to the main “sticking point[s]” being the actual percentage of ownership between the parties’ trusts and occupation rights if the parties separated.

[56]     Mr Lynch recorded a meeting he had on 13 December 2005 with Ms White. He wrote a memorandum to one of Inder Lynch’s employees.   The memorandum relevantly states:

Stuart currently owns a property at Mull Place ... as his separate property. This dwelling is worth $550,000 (approximately) and there is a mortgage of

$170,000 over that property.17     Stuart’s intention is to sell the Mull Place

property and then to use the net sale proceeds towards the construction of the dwelling at Whangapouri Road.   The issue as I see it is that the land is owned  by  the  DCT  Trust.    The  trust  will  be  borrowing  approximately

$150,000 to go towards the building costs and Stuart will be advancing the rest.   Whilst there is no issue with money that Stuart advanced towards

construction of the dwelling as being his separate property, there is an issue as  to  whether  or  not  Stuart should receive  any further  money from the property in the event that it is sold at a later date.

Amanda is prepared to give Stuart a greater contribution, but she is not prepared to agree to half of the value of the property belonging to Stuart. When the dwelling is completed, the property will be worth in excess of $2 million.

I have stated to Amanda that the land and the building will in fact belong to the Trust so therefore it may be difficult to encompass it in a Property Relationship Agreement.

[57]     The memorandum then goes on to suggest to Mr Lynch’s employee, as a possible solution, the somewhat cumbersome and probably unworkable suggestion that an agreement be structured in such a way that the bare land remained the

“separate property” of the DCT Trust whilst the dwelling be subject to some formula

16 Supra [49].

17     Mull Place actually sold ten months later for $406,000.

which gave to Mr Spence the assurance of getting his money back plus “a fair share”

of the increased value of the dwelling.

[58]     There was a subsequent meeting between Mr Lynch, Mr Spence, and Ms White on 9 February 2006 when, again, their proposed property sharing issues were discussed.  The next month, on 21 March 2006, when he returned from leave, Mr Lynch wrote again to Mr Spence advising that it would be “prudent” to establish a family trust along similar lines to the DCT Trust (but with different beneficiaries) and that once Mull Place had been sold, the net sale proceeds should be advanced to Mr Spence’s trust as an on demand interest free loan, with the trust then using its capital to purchase an interest in Whangapouri Road.  Whangapouri Road was to be owned “in shares, yet to be determined” between the DCT Trust and the Stuart Spence Trust.   The two trusts would then enter into a property sharing agreement setting up ownership rules and arrangements inter se including the respective occupancy rights of the couple.

[59]     As we have already seen, matters remained unchanged on 14 September

2006.18

[60]     Mr Spence’s evidence is broadly consistent with that of Mr Lynch.  It is clear that the Whangapouri Road property was to be built and used as a family home and that he was prepared to contribute the net sale proceeds of Mull Place to the property. He agrees with Ms White that their intention was that either he, or his family trust, would become a joint owner of the Whangapouri Road property with the DCT Trust. His  evidence  was,  however,  that  he  and  Ms White  never agreed  on  what  their respective shares should be.  He stated that Ms White wanted to have a clause in the agreement that if the relationship foundered, he would not be able to regain any of his capital for three years.

[61]     I accept the evidence of Mr Spence and Mr Lynch on this issue.  No property sharing agreement was ever concluded.   Although there was a broad measure of agreement between the parties that the shares might be 76 per cent/24 per cent, obviously no precise proportions could be calculated until such time as Mr Spence’s

separate property contributions to Whangapouri Road could be assessed as a fraction of the purchase price and building costs of that property.   More importantly, the parties to a property sharing agreement (Mr Spence personally or a trust) were never agreed.19    No property sharing agreement was ever prepared or executed.  Nor was the important feature of extending a period of grace to Ms White, during which the DCT Trust would be able to buy out the joint owner’s share should the relationship

with Mr Spence come to an end, ever agreed.

[62]   In the absence of a concluded property sharing agreement Ms White’s perceptions are rejected.  The monies advanced by Mr Spence to the DCT Trust are not repayable pursuant to the terms of any arrangement between the parties relating to profits or respective contributions, quite simply because no such agreement was ever concluded.   The same findings and state of affairs applies equally to the Glenbrook property into which the sale proceeds of Whangapouri Road passed.

[63]     After the couple separated Ms White was able to obtain copies of various handwritten file notes from Mr Lynch’s secretary.   Certainly these file notes have notations of the 76 per cent/24 per cent figures.  As already stated, those were the approximate figures acceptable to Ms White.  But the file notes are not evidence that such an agreement was ever concluded, nor do they detract from the findings I have made.

Mr Spence’s Trust

[64]     Establishment of a family trust by Mr Spence was clearly something which Mr Spence and Mr Lynch contemplated (as indeed did Ms White) during the discussions which the parties had on the property sharing agreement topic during late

2005 and throughout 2006.  Indeed such a trust was created, significantly perhaps a few days before the settlement of the Mull Place sale, on 6 October 2006.   Mr Spence was himself the settlor.  The trustees were Mr Spence, his father, and Inder Lynch Trustee Company Limited.   The deed of trust is unremarkable, similar in

format to that of the DCT Trust, but the beneficiaries are different.  They included

19     Ms White’s insistence that Mr Spence and, consistently, his trust, were not to be registered

proprietors might well have become an obstacle if the agreement had been concluded.

Mr Spence’s children and his parents.  Mr Spence (in both  his capacities), his father, and the trustee company all executed the deed.

[65]     Interestingly, on the same day a trustee resolution was signed by all three trustees.   Inder Lynch were appointed the initial solicitors of the trust.   Clause 3 states, somewhat surprisingly, that an advance of $134,000 from Ms Freeman to both the DCT Trust and Mr Spence was to bind the trust.  A further resolution was to accept “the advance of $....... from Stuart Gordon Spence as a loan to the trust ....”

[66]     The  existence  of  such  a  resolution  is  puzzling.    I  infer  that  the  trustee resolutions and the deed of trust establishing the Stuart Spence Family Trust (both dated 6 October) were prepared on the basis that Mr Spence’s trust would conclude a property sharing agreement with the DCT Trust.  But that never happened. And even if there had been finality on that issue, there would be absolutely no reason for Mr Spence’s trust to bind itself as a joint debtor in respect to Ms Freeman’s $134,000 advance, the more so since there is no evidence whatsoever that Ms Freeman considered that she was advancing that sum to her daughter’s trust and Mr Spence

jointly.     Furthermore,  the  blank  monetary  sum20   contained  in  the  resolutions

document was based on the premise that Mr Spence was going to lend a sum of money (almost certainly the net sale proceeds of Mull Place) to his trust.  That too never happened.  His instruction to Mr Lynch21 was to transfer the net sale proceeds, not to his family trust but to the DCT Trust.

[67]     There  is  no  evidence  that  the  Stuart  Spence  Family Trust  ever  had  any capital.  Certainly it was never the recipient of the net sale proceeds of Mull Place. Nor did it enter into any property sharing arrangements with the DCT Trust.  The net sale proceeds of Mull Place were never advanced to it.   For whatever purpose (probably anticipatory) the trust was established, its existence does not affect in any

way the monies advanced by Mr Spence to the DCT Trust.

20 Supra [65].

Ms Freeman’s debt

[68]     This topic is mysterious.  It undoubtedly led to Mr Spence’s then solicitors, Gilbert Walker, commencing this proceeding against Mr Lynch in November 2011. The  trustee  resolutions  of  the  Stuart  Spence  Family Trust22   refer  to  a  deed  of acknowledgement of debt for $134,000 advanced from Ms Freeman to the DCT Trust and Mr Spence jointly.

[69]     Significantly it was Ms White who instructed Mr Lynch to prepare the deed of acknowledgment of debt.  I am satisfied that on 5 October 2006 Ms White left a telephone  message  for  Mr  Lynch  to  the  effect  that  her  mother  had  advanced

$134,000 to the DCT Trust and asking Mr Lynch to prepare a deed of acknowledgment.

[70]     Mr Lynch was concerned to hear this.  He had acted some months previously for Ms Freeman when she had sold her residence.   He had no idea (either as Ms Freeman’s solicitor or as a DCT Trust trustee) that Ms Freeman had made this advance.  The news “alarmed” him.  It was of particular concern because there had, as yet, been no finalisation of the inter-relationship between the DCT Trust and Mr Spence’s trust.   Nor had instructions been received to prepare consequential documents.

[71]     The DCT Trust’s bank statements reveal that on 19 June 2006 the sum of

$234,000 was paid to the trust with the notation “From Mum”.

[72]     A copy of the prepared document has been produced in evidence.  The only signatory is Mr Spence who is described as a “Borrower”.  Ms Freeman is described as the “Lender”.  The borrowers are listed as the three DCT Trustees (Ms White, Ms Freeman and Mr Lynch), and Mr Spence “as trustee for a trust to be formed known as the Stuart Spence Family Trust”.   The $134,000 principal sum is repayable on demand and interest free unless three months notice of interest is given. The liability of Mr Lynch and Ms Freeman as borrowers is expressed to be not a personal liability “but only in their capacities as independent trustees of the DCT Trust”.   It was

certainly odd that Ms White is not similarly protected.  The inclusion of Mr Spence as a borrower is equally odd if the monies were being advanced to him (jointly) as trustee for his own trust.  There is no sensible reason why his liability should not be limited to his status as a trustee rather than personally.  There is evidence that the deed was signed by Mr Spence.  There is no evidence, to satisfy me on the balance of probabilities, that it was signed by the other parties.   Both Ms White and Ms Freeman believe that they did sign the deed of acknowledgment of debt.  They invite me to infer that Mr Lynch and/or Mr Spence have deliberately destroyed it.  There is no evidence on which I can possibly make such a finding.  More importantly, there is no evidence at all that Ms Freeman’s $134,000 was advanced to any debtor other than the DCT Trust.

[73]     The deed of acknowledgment of debt is inept.   It should never have been executed by anyone until such time as the property sharing arrangements relating to Whangapouri Road were finalised.

[74]     I have no satisfactory evidence about why Mr Lynch arranged for Mr Spence to execute the deed.  Certainly Ms Freeman’s interest as a creditor of the DCT Trust has not been adequately protected.  Whether she took any steps, however, to protect her personal interest beyond somewhat inchoate discussions she may have had with her daughter is not clear.  Had she instructed Mr Lynch herself and told him about her $234,000 advance, the outcome for her may well have been different.

[75]     On 25 March 2011 Mr Lynch swore an affidavit in the Papakura Family Court in which he asserted on oath that the original copy of the deed of acknowledgment of debt had been signed by all parties and had been uplifted from his office.  That assertion is incorrect. As I have already stated23 there is no evidence to satisfy me on the balance of probabilities that all parties to the document executed it.

Ford Territory

[76]     An alert reader will recall that the August 2002 s 21 agreement conferred separate property status on Mr Spence’s 2001 Ford Falcon motor vehicle. Approximately six years later Mr Spence decided that, for family purposes, a vehicle which could accommodate seven people was needed.  An additional consideration was to acquire a vehicle which Ms White could use from time to time to tow her horse float.  A Ford Territory vehicle was purchased in October 2007.  (A horse float was  subsequently painted  a  matching  colour).    The  purchase  price  of  the  Ford Territory was approximately $67,000.  This was financed first by Mr Spence’s Ford Falcon being traded in at the negotiated figure of $10,000, and secondly $57,000 was borrowed from a credit union of which Mr Spence was a member.  Shortly thereafter the couple decided that, rather than pay interest to the credit union, it would be sensible for the DCT Trust to advance the borrowed portion of the Ford Territory to Mr Spence on more advantageous terms.   Thus it was, that on 25 March 2008

$57,588.64, was paid by the trust to Mr Spence who in turn repaid the principal and outstanding interest of the credit union loan.  Again these transfers were completed by  internet  banking.     Ms  White’s  evidence  is  that  she  herself  borrowed  the

$57,588.64 from the DCT Trust and then lent it on personally to Mr Spence.  But there is no documentary evidence to support such a chain.

[77]     The  vehicle  was  valued  in August  2009  at  $29,000.    It  remains  in  Mr Spence’s possession.  He has been its registered owner throughout.  He claims that Ms  White  thought  it  was  preferable  for  the  vehicle  to  be  in  his  name  for  tax purposes, although no discernible tax advantage can be detected.  Nothing, however, hangs on that.

[78]     Ms White asserts that the loan has never been repaid to the trust and that Mr Spence, with compounding interest, now owes the trust over $83,000.  Mr Spence, for his part, asserts that the Ford Territory is relationship property and it would therefore be wrong to set off the $57,588.64 against his advances to the DCT Trust all of which had separate property status.

[79]     There could be no doubt that, but for the 2002 s 21 agreement, the Ford Territory, bought whilst the relationship subsisted, is caught by the “family chattels” definition in s 2(a) of the Act.  Its purchase price, however, had a separate property component (the Ford Falcon trade in) with what I consider to be the inevitable result that 10/67ths of the vehicle’s then value remained Mr Spence’s separate property. Section 4(4) of the Act is almost certainly engaged.  I return to this in a subsequent section of this judgment.   The relevant issues, however, are not the relationship property status of the vehicle but rather the effect its purchase has on Mr Spence’s claims against the trust and also the effect of the trust repaying his Credit Union debt.

Taxation debt

[80]     In the wake of selling Mull Place Mr Spence incurred a taxation liability flowing from the depreciation he had been claiming on that property whilst it had been rented.   The assessed tax liability was $5,630.   That sum was paid on Mr Spence’s behalf by the DCT Trust.

Use of trust funds

[81]     From  the  inception  of  the  DCT  Trust,  the  dominant  trustee,  Ms  White, operated the trust with scant regard for orthodox legal, equitable, and accounting principles.  I so find.  There is no evidence whatsoever the income and capital needs of the trust’s beneficiaries were given regular or impartial consideration.  There were never trustees’ meetings.  No accountant ever scrutinised the trust’s banking records. Loans  were never recorded.   There were no balance sheets.   Ms White clearly regarded the trust as a vehicle for her property development enterprises and as a fund from which her personal and family expenditure could be met.   Expenditure or reimbursement by the trust were permitted so that Ms Freeman could earn air points.

[82]     Property development (and historically she seems to have been reasonably successful at it) was Ms White’s livelihood.   During the course of the hearing it became clear she was unaware of the distinction between capital and income.  She regarded the trust and its assets as her income.  Money was received from both Ms Freeman  and  Mr  Spence  with  absolutely  no  thought  given  to  protecting  or

acknowledging  the  position  of  the  trust’s  creditors.    To  commit  the  trust  to purchasing the Glenbrook property before it had obtained an unconditional sale of Whangapouri Road, carried a degree of risk which no prudent trustee, responsible ultimately for the interests of beneficiaries, should have entertained.  Mr Saunders, with an eye for trustees’ prudence, was totally correct to bring about Mr Lynch’s retirement.

[83]     In the personal circumstances in which she found herself after the December

2008 separation, to commit the trust to further debt by acquiring the Greenmeadows property was akin to recklessness.  The trust became over-committed, was unable to service its debt, and now faces disaster.

[84]     As this judgment will make clear, I reject the suggestion that the trust’s current predicament can be blamed on Mr Spence or Mr Lynch.   Ultimately Ms White is the author of her own misfortune.

Other evidence

[85]     I am satisfied that this narrative, together with the relevant findings I have made, constitutes a sufficient evidential outline of the parties’ dispute.   There is much more detail contained in the consent bundle of documents and indeed in some of  the  produced  exhibits.    It  is  unnecessary,  however,  for  me  to  deal  with  the evidence in a more expansive fashion.

Analysis

[86]     I deal first with the submissions of Ms White and Ms Freeman,24 particularly as they relate to the counterclaims against Messrs Lynch and Spence.   Ms White submitted that Mr Lynch was in breach of his duty as a trustee and was also in breach of overarching fiduciary duties.  In particular Mr Lynch had breached cl 12.6 of the trust deed which required unanimity on the part of the trustees.  This breach was in respect of monies advanced to the trust by Mr Spence and in particular the

$155,000 advance being the net sale proceeds of Mr Spence’s Mull Place property.

24     Ms Freemans’s oral submissions dealt briefly with the $134,000 she had lent to the trust.  In all other respects she adopted her daughter’s submissions.

Ms  White  submitted  that,  had  she  known  a  profit  sharing  agreement  was  not finalised and in place, she would never have agreed to the trust accepting a loan from Mr Spence.   Mr Lynch had no right to refer to loans in his file notes.   Ms White submitted, somewhat extravagantly, that Mr Lynch had purposely delayed finalising the property sharing agreement thereby prejudicing the trust (of which he was a trustee) and benefitting Mr Spence.

[87]     I reject these submissions.  First these specific accusations were not put by Ms White or Ms Freeman when Mr Lynch was being cross-examined.  Secondly, Ms White was well aware that previous advances to the trust sourced from Mr Spence’s Mull Place property had found their way into the DCT Trust’s bank account.  She alone had access to that bank account and indeed used or otherwise dealt with the advances.  Thirdly, as Mr Lynch’s file note of his 14 September 2006 meeting with

the  couple  makes  clear,25   Ms  White  was  well  aware  that  a  property  sharing

agreement in relation to Whangapouri Road had not been finalised.  It defies belief that Ms White, experienced as she was in property development transactions (she submits that she has owned approximately 68 properties), would have continued with the sale of Whangapouri Road and the purchase of the Glenbrook property but remained oblivious to the fact that there was no concluded property sharing agreement.  Fourthly, when making the $155,000 transfer to the trust, Mr Lynch, as I have found, was acting as Mr Spence’s solicitor as vendor of Mull Place.  He was not at that stage acting as a trustee.

[88]     Mr Lynch, during the period he was a trustee of the DCT Trust was always in the position where there were latent conflicts of interest.   He had acted for Mr Spence in respect of the 2002 s 21 agreement.  He acted for both Ms White and the DCT Trust on various transactions.   He acted for Ms Freeman on the sale of her property.   He advised both Ms White and Mr Spence on possible mechanisms to share in future property developments and to protect their separate property funds (although ultimately all the property which was Ms White’s separate property found its way into the trust’s corpus).   Certainly in his preparation of the October 2006 deed of acknowledgment of debt, Mr Lynch was careless in respect of protecting Mr Spence’s position.

[89]     However, there is absolutely no evidence on which I can find (certainly not on the balance of probabilities) that Mr Lynch has breached relevant responsibilities and has thereby caused loss to the two third parties.

[90]     Ms White’s next cluster of submissions related to the counterclaim against Mr Spence.   She submitted he had been deliberately and indeed deceitfully silent, both in respect to the advances he had made to the trust and in respect to the absence of a loan agreement.  He had thereby caused loss to the third parties.  I reject that submission.  Mr Spence at all relevant times believed that he was applying his own separate property to improve or construct homes which were owned by the DCT Trust.   Foolishly, perhaps, he trusted Ms White to the extent he was prepared to allow her to operate his bank accounts.  He was well aware, as was Ms White, that a property sharing agreement had not been finalised.  To suggest that Mr Spence was being deceitful or was deliberately feathering his nest at the expense of Ms White and the trust is an untenable proposition and I reject it.

[91]     Ms White’s next submissions relate to the 2002 s 21 agreement.   I have referred briefly elsewhere26 to a perception that in 2004 the s 21 agreement had been mislaid or lost.  Certainly during a brief separation of the couple in 2004, Mr Spence asked  Mr  Lynch  about  the  terms  of  the  agreement.    At  that  point  Mr  Lynch discovered that his client’s copy of the agreement had not been returned to him by Ms White’s then solicitor, Mr Simpson.  Probably unfairly, Mr Simpson wrote letters

that invited the inference that mislaying the agreement was Ms White’s fault.

[92]     Ms White gave this issue great emphasis.  She seems to believe she should have been told by Mr Spence and/or Mr Lynch that the agreement might have been lost.   Mr Spence in evidence said he did discuss this matter with Ms White and I believe him.

[93]     In her submissions, Ms White, in the context of her argument that Mr Lynch had an obligation to disclose to her the fact that the s 21 agreement may have been lost, put it this way: if the agreement had been lost, it might have been possible for

Mr Spence to claim as relationship property assets or gifts of separate property which Ms White had made to the trust.

[94]     This concern of Ms White’s is irrelevant.  No such claim has been made by Mr Spence.  Even if the agreement had been lost, it would have been possible, as a matter of evidence, to prove its terms, execution by its parties, and the giving of independent  advice  which  the  statute  requires,  from  unsigned  copies  on  the solicitors’ files and correspondence.  In any event, the agreement was not lost.  Its terms were not disputed.   Its terms have little  relevance to the current dispute. Assuming that the trust had produced balance sheets (which it never did) carefully recording capital transferred to it by Ms White from her original property portfolio, the terms of the s 21 agreement would undoubtedly preserve the relevant sums paid by Ms White (assuming they were not gifts) as her separate property.

[95]     The parties’ s 21 agreement inevitably would have had a very limited effect on Ms White’s position once the DCT Trust had been formed.  Her 2002 property portfolio was soon realised.  Its proceeds flowed into the trust.  An identifiable sum (despite the absence of a documented loan to the trust) would have retained separate property status as I have said.   But, other than identifiable separate property loan components owing by the trust, the bulk of the trust’s corpus would have been immune  from  any  attack  by  Mr  Spence  and  certainly  not  covered  by  the  s 21 agreement.  Regrettably, Ms White’s perceptions in this area are flawed.

[96]     Ms White’s next submissions relate to the notice of claim lodged by Mr Spence against the title to the Glenbrook property in June 2008.  Ms White submits that the notice of claim prevented the trust from utilising, to the fullest extent, its equity  in  the  Glenbrook  property  and  availing  itself  of  further  opportunities. Lodging the notice of claim was compounded (in her submission) by letters sent to the Bank of New Zealand by Mr Spence and his then solicitors in February 2009. But for the notice of claim, submits Ms White, the trust would have been able to embark on a number of investment opportunities jointly with other parties.  Damages are thus sought for loss of opportunity.

[97]     The notice of claim under s 42(1) of the Act was dated 12 June 2008.   It alleged a de facto relationship in excess of six years between Mr Spence and Ms White.   It alleged that Ms White was entitled to, or beneficially interested in, the relevant fee simple.  It broadly claimed an interest under the statute by virtue of the de facto relationship.

[98]     It is hard to see, that by lodging the notice of claim, Mr Spence breached cl 2.12 of the s 21 agreement.27   Certainly there would have been a breach if he had lodged a claim against property owned by Ms White in her personal capacity.  The definition of “property” contained in the clause28  certainly refers to “all property” held by a party to the agreement.   I doubt whether a court should give such an expansive definition to the clause to cover property held by a relationship party who, although the legal owner of property, is holding it on a trust.  The words “equity in any property” must refer to an equitable entitlement in that property, not the duties which Equity imposes on trustees.

[99]     But even if I were wrong in this approach and lodging the notice of claim in June 2008 was a breach, for the reasons which follow it is clear the notice of claim could not possibly survive a challenge.  This notice of claim lapsed.  Its lodging, on the evidence, did not cause a loss flowing from a breach of cl 2.12.

[100]   I accept the Bank of New Zealand did not become aware of the notice of claim until February 2009. At that point indebtedness secured against the Glenbrook property to the bank was some $300,000 and Ms White was negotiating (presumably on the part of her vehicle, the trust, for a further $350,000 to purchase the Greenmeadows property.29     But, within a very short space of time, the notice of claim lapsed (16 April 2009).   The bank continued with its loan approval for Ms White of $350,000 and Greenmeadows was purchased.

[101]   I very much doubt whether Mr Spence’s notice of claim was sustainable. The

document, drawn by his then solicitor Mr Temm, purportedly claimed an interest arising out of the Act.  However, as Mr Spence well knew, the Glenbrook property

27 Supra [18].

28     Ibid.

29 See supra [26].

was owned, not by Ms White, but by the DCT Trust.  Mr Spence clearly believed he had monies owing to him by the trust.   But the relationship  which might have justified lodging a notice of claim was between him and Ms White, not between him and the trust.   A mere debt, unless it is a term of the loan that some registerable interest has or can be created, will not be sufficient to sustain a caveat or a notice of

claim.30

[102]   But even if I was to assume that the notice of claim was wrongly lodged, there is no causal nexus between its lodging and any loss sustained by the trust. Once the notice of claim lapsed, any deleterious effect it had was removed.  There has been absolutely no evidence of any potential dealings by the trust, or an attitude adopted by, or actions taken by the bank which would justify a conclusion that the lodging of the notice of claim in June 2008 caused loss.

[103]   Throughout her cross-examination of Mr Spence, Ms White asked questions designed to show that Mr Spence had over the years received extensive monetary benefits from the DCT Trust.  There was mention of this factor too in Ms White’s closing submissions.   It is doubtful whether this issue has been properly pleaded. Nonetheless I can deal with it succinctly.

[104]   Ms White essentially submitted that an analysis of Mr Spence’s credit card statements and personal bank accounts revealed inflows of money from the DCT Trust.   Her estimate of the figure is $184,000.   There has, however, been no itemisation or evidence of this.  Similarly there appears to have been modest funding of the DCT Trust on a reasonably regular basis from Mr Spence’s bank account.

[105]   I find as a fact, that payments made, on Mr Spence’s behalf, by the DCT Trust, were the product of Ms White’s internet banking access to his accounts.  More importantly this pattern is, in my judgment, a product of the use to which Ms White chose to put the trust’s funds.   Certainly Mr Spence was not a beneficiary of the trust. A perusal of such items as can be gleaned from the disclosed bank accounts of

the trust and Mr Spence points to high levels of domestic expenditure.  As I have

30     Rayner v Kilburn (1981) 1 NZCPR 395 (HC); Naran v Sim HC Auckland CIV-2010-404-1015, 7

May 2010 per Venning J at [12]; Shepherd v Houston [1927] SASR 144 (FC).

already commented31 Ms White’s clear conduct, as the dominant DCT Trust trustee, was to fund the bulk, if not all, of the domestic, personal, and family expenditure of the couple from the trust’s bank account.

[106]   During  the  course  of  cross-examination  of  bank  officers,  questions  were asked by Ms White designed to raise the inference that Mr Spence himself had operated the DCT Trust’s bank account to pay off his personal debts.  He would have been able to do this if he had had access to the account’s internet access number, password, and the frequently changing link card.  Certainly there would have been occasions (such as the Ford Territory’s loan refinancing) when Mr Spence might have asked for or suggested to Ms White payments.   The couple were living in a domestic relationship and would inevitably have periodic financial discussions.  But, as I have found, it was Ms White who effectively managed the family’s finances (including Mr Spence’s) through the vehicle of the DCT Trust’s account.  She would have inevitably discovered any internet banking transactions made by Mr Spence to which she might have been oblivious.   I find as a fact from the evidence I have heard, that at no stage did Mr Spence operate the DCT Trust’s bank account in an unauthorised fashion.

[107]   The final issue arising out of the third parties’ submissions relates to the deed of acknowledgment of debt.  There is evidence that, since the couple’s separation in December 2008 the trust has made some repayments to Ms Freeman of her $134,000 loan.   There is no satisfactory evidence of the size and dates of such repayments. Nonetheless the issue has no relevance.

[108]  Certainly Mr Lynch was instructed by Ms White to prepare a deed of acknowledgment of debt.   But there is no evidence it was signed by all relevant parties.  The Stuart Spence Family Trust was never funded.  There was no property sharing agreement. The factual matrix made it totally inappropriate for Mr Spence to be  personally  responsible  for  repayment  of  Ms  Freeman’s  loan  and,  as  I  have

found,32 an executed deed of acknowledgment has never surfaced.

31 Supra [81].

32 Supra [72].

[109]   I have some sympathy with Ms Freeman’s position.  Her capital ($234,000 it would  seem)  was  advanced  by  her  to  her  daughter’s  trust.    But  regrettably, inadequate steps were taken to protect her interests.  She left her position (including her daughter’s last minute instructions to Mr Lynch) for her daughter to sort out.  She gave no instructions to Mr Lynch at the time she advanced monies to the trust.  Like Mr Spence she appears to have trusted Ms White.   Unlike Mr Spence there have been some attempts by the trust to repay her.

[110]   I  have  given  careful  thought  to  whether  Mr  Lynch  might  be  liable  in negligence to Ms Freeman in respect of the $134,000 loan.   There is, however, insufficient evidence to make such a finding against him.  The position might well have been different had Ms Freeman gone to see Mr Lynch and given him specific instructions.  She never did.

[111]   In the light of these findings and my analysis the third parties’ counterclaims

must be dismissed.

[112]   I turn now to the issue of whether Mr Spence would be entitled to judgment against  the  two  remaining  trustees  of  the  DCT  Trust  for  the  claimed  sum  of

$224,480.48.   In   putting the issue that way, I am aware that first, Mr Lynch is claiming indemnity from his former co-trustees for the $155,000 he has paid out to Mr Spence to settle the plaintiff’s proceeding against him as defendant.   Both in terms of the relevant trust deed, trust law principles, and in particular in terms of the deed of retirement signed by Mr Lynch and his co-trustees on 9 October 2007, Mr Lynch is entitled to indemnity.   But given, as I understand it, that Mr Spence has assigned his rights to Mr Lynch as part of a settlement, I think it is easier to regard Mr Spence as the primary claimant whose rights have been transferred to Mr Lynch.

[113]   Because of the complexity of the pleadings I shall expressly reserve leave to both  the  plaintiff  and  the  defendant  to  seek  modifications  to  the  terms  of  my judgment (but not its quantum) should that prove necessary.  I hope that is not the case.   But I would rather adopt that approach than impose on the plaintiff and defendant the extra cost and delay of an appeal because of any unwitting infelicities on my part in the appropriate form of my judgment.

[114]   The remaining issues are thus first, whether Mr Spence indeed  advanced monies to the DCT Trust which can properly be treated as a loan repayable on demand.  The second issue is whether the entire claimed sum should be repaid or whether some of the trust’s outstanding debt has already been satisfied.

[115]   As to the first issue, I am completely satisfied that sums totalling $224,

480.48 were advanced, in the circumstances outlined in an earlier section of my judgment,33 between February 2005 and October 2006.  For Property (Relationships) Act purposes the sums were effectively sourced in Mull Place and were Mr Spence’s separate property.

[116]   But  it  is  not  their  relationship  status  which  is  of  importance  in  this proceeding.  As Mr Wright correctly submitted, sums were advanced to the trust for the specific purpose of assisting with the construction of the couple’s home, owned by the DCT Trust, in Whangapouri Road.  It is unnecessary to embark on a tracing exercise.   There is no dispute that the claimed sum found its way into the DCT Trust’s bank account.  In the absence of any specific arrangement to the contrary, and having particular regard to its origins and purpose, it must be regarded as a loan from Mr Spence to the trust.

[117]   The principle is reinforced by a passage cited to me by Mr Wright from the thirtieth edition of Chitty on Contracts:34

Where money is lent without any stipulation as to the time of repayment, a present debt is created which is generally repayable at once without any previous demand.  But it is, of course, open to the parties to fix a time for repayment, or to agree that the loan will only be repayable on demand.  And doubtless suitable implications as to such matters would readily be made in appropriate circumstances.

[118]   I am satisfied that the total sum of advances made by Mr Spence to the DCT Trust was indeed a loan and should have been recorded as a loan.  It is an identifiable sum.    To  the  extent  that  the  2002  s 21  agreement  has  relevance  (certainly  it

impressed on Mull Place and its sale proceeds the status of Mr Spence’s separate

33 Supra [31].

34     Chitty on Contracts Vol II (13th ed, Sweet & Maxwell) at 38-247. Footnotes omitted.

property)  I  do  not  consider  the  intermingling  clause  (cl 3)35    makes  separate identification of Mr Spence’s loan impracticable.

[119]   The critical issue is the second issue, whether the entire claimed sum must be repaid or whether there should be a lesser sum because of prior repayments.  I am satisfied, on the basis of the evidence I have heard, there should be four reductions.

[120]   The first is a reduction of $11,104 which were monies spent by Ms White on redecorating and improving Mr Spence’s Mull Place property before its sale.  That expenditure was sourced in the Rapid Repay Home Loan of $30,144 which Mr Spence raised against the security of Mull Place in February 2006.36     Both Mr Spence  in  evidence,  and  his  counsel  in  closing,  accepted  this  would  be  an appropriate deduction.

[121]   The  secondary  payment  I  am  satisfied  was  made  was  repayment  of  Mr Spence’s first advance of $20,000 borrowed against the security of Mull Place and lent to the trust so it could complete work on the Heard Road property.37   Despite Ms White’s initial assertions that the relocation of a utility line on the Whangapouri Road land relieved the trust of its obligation to repay, $20,000 was in fact paid by the DCT Trust into one of Mr Spence’s bank accounts in October 2005 (Heard Road

having been sold).

[122]   Mr Wright’s submissions against that $20,000 transfer being treated as a repayment of part of Mr Spence’s loan are first that the $20,000 was advanced for a specific purpose and should not have been subsequently spent on general living expenses as it seems to have been on an analysis of Mr Spence’s bank account into which it was paid.  Secondly Mr Spence’s evidence was that he always regarded the

$20,000 as his separate property and if indeed it was properly repaid it should have been credited to his Bank of New Zealand Rapid Repay Home Loan account not to his Ready Money account which he used for his own domestic and general expenditure.  Thirdly Mr Spence’s evidence was that Ms White never informed him

that the repayment had been made.

35 Supra [16].

36 Supra [36].

37 Surpa [32].

[123]   Although I have some sympathy with these submissions, I do not regard them as determinative.  There was a $20,000 repayment.  Mr Spence seems to have been content to relinquish supervision and control of his financial affairs to Ms White. The $20,000 was advanced to assist with Heard Road (that being its purpose) and was repaid after Heard Road had been sold.   I do not consider  Ms White was deceptive  in  placing  the  $20,000  into  an  account  other  than  the  loan  account. Finally, and importantly, separate property status does not confer on an item of property or sum of money a degree of immortality.  A legacy from an aunt, clearly separate property, can be spent on an asset which will retain separate property status. Or it can be spent.  The $20,000 was unfortunately spent and cannot be retrieved. Indisputably, however, the loan was repaid.

[124]   The third item relates to the taxation debt flowing from the sale of Mull Place of $5,630.   But for the sale of Mull Place and the depreciation issue which then arose, the taxation debt would not have been incurred.   It was Mr Spence’s clear intention (and he gave instructions to that effect) that the net sale proceeds of Mull Place were to go to the DCT Trust. The subsequent taxation debt in reality decreased the net sale proceeds figure.  It was a liability triggered by the sale.  Had the debt been identified at the time of the sale, then the amount available for transfer to the DCT Trust would not have been $155,000 but a lesser figure.

[125]   I am of the view that, as the beneficiary and recipient of the net sale proceeds of Mull Place, it was totally appropriate for the trust to pay Mr Spence’s taxation debt which must be treated as a partial repayment of the loan in the sense that it represents a liability attaching to the $155,000 and reduces the sum the trust received appropriately.

[126]   The final figure relates to the $57,588 loan or payment by the trust to repay the credit union borrowing in respect of the Ford Territory.   Mr Wright and Mr Stringer made careful submissions in that regard.   Section 4(4) of the Property (Relationships) Act comes into play.  It provides:

4        Act a code

...

(4)       Where, in proceedings that are not proceedings under this Act, any question relating to relationship property arises between spouses or de facto partners, or between either or both of them and any other person, the question must be decided as if it had been raised in proceedings under this Act.

I consider that although I am not resolving a property relationship dispute between Mr Spence and Ms White, the statutory status of the vehicle has considerable relevance  to  the  fate  of  monies  which  flowed  into  the  Ford  Territory.    It  is appropriate, as required by s 4(4), to decide the position of the vehicle as if it had been raised under the Act.  Motor vehicles are wasting assets.  This trite observation applies to Mr Spence’s 2001 Ford Falcon, which had separate property status under the 2002 s 21 agreement.   It also applies to the Ford Territory which, although purchased in October 2007 for $67,000, purportedly was only worth $29,000 less

than two years later in October 2009.38

[127]   The vehicle was originally acquired with $67,000 borrowed money from a credit union and the $10,000 trade in of the Ford Falcon.  At that point, the vehicle undoubtedly had mixed status.  10/67ths would have been separate property and the balance relationship property.  But five months later, the componentry  of the vehicle changed.  The credit union loan was repaid with monies sourced in the DCT Trust. The evidence satisfies me that both Ms White and Mr Spence were of the view that a soft loan from the trust would assist the family financially.

[128] With respect to these transactions, both Mr Spence and Ms White are endeavouring to achieve the best result.  Mr Spence for his part asserts the vehicle is relationship property and that the $57,588 is a relationship debt as defined by s 20(1) of the Act.  If that assessment is correct, it would mean that the vehicle, now worth approximately $30,000 (I accept Mr Spence’s evidence in that regard – the 2009 valuation must be suspect) which he has retained, effectively has no value and the shortfall of the alleged relationship debt would have to be met equally by the couple

in any final division of the relationship property pool.  Ms White for her part asserts

38 Supra [77].

that the figure was a loan to her, from the trust and on-lent to Mr Spence.  She claims compound interest on it.  The effect of that stance would be to increase significantly Mr Spence’s liability to her.

[129]   I  find  neither  of  these  stances  compelling.     Mr  Wright’s  submissions suggested that in any event the $10,000 trade in figure should remain intact.  That it is, with respect, an untenable proposition for a separate property component of a wasting asset purchased six years ago.

[130]   I  reject,  there  being  no  satisfactory  evidence  to  support  it,  Ms  White’s assertion that the monies used to repay the credit union were a personal loan by the trust to her and on-lent to Mr Spence.  There was absolutely no evidence, banking or accounting, to support that proposition.   Nor was there any evidence to justify a compound interest or indeed any interest component.

[131]   I intend to look at the reality of the transaction, the asset involved, and its status under the Property (Relationships) Act.  Although, when originally purchased in October 2007, the vehicle had the separate property/relationship property fraction which I have mentioned, this changed.  Monies from the trust were directly used to repay the credit union loan.  The source of those monies represented part of loans made by Mr Spence to the trust which had separate property status.  As Ms White observed, the $57,588 payment by the trust depleted what was otherwise a considerable credit balance at that stage in the trust’s bank account.  I am satisfied that this analysis conforms with the reality of the transaction surrounding the Ford Territory, correctly applies relationship property principles as required by s 4(4), and is fair to the parties.

[132]   In the circumstances surrounding the purchase and refinancing of the motor vehicle, and looking at the extremely loose and undocumented structure of first the separate property being advanced by Mr Spence to the DCT Trust and secondly the trust advancing a “loan” to him to enable him to repay the credit union debt, I consider that the trust’s loan, sourced in separate property, can properly be regarded as a repayment or deduction from advances made to the trust by Mr Spence.

[133]   The end result is that the Ford Territory, whatever its current value may be, despite its former use as a family chattel, must be regarded as Mr Spence’s separate property.  It also means that the sum used by the DCT Trust to repay the credit union loan must be treated as a part repayment of the loan owing by it to Mr Spence.  Mr Spence’s predictable complaint that the figure reduces his separate property loan figure  is  of  no  consequence.    Funds  with  the  status  of  separate  property  are frequently used by partners to purchase relationship property which is subject to equal division.  When motor vehicles are involved, inevitably the value of the asset will decline.

[134]   My conclusion thus is that the following payments made at various times by the DCT Trust must be regarded as partial repayments of Mr Spence’s initial loan.  I have ignored cents:

Ford Territory loan repayment  $57,588.00

10 October 2005 repayment  $20,000.00

Conceded Mull Place improvements  $11,104.00

Taxation debt  $  5,630.00

Total  $94,322.00

[135]   The sum thus due and owing by the two remaining the DCT trustees is: Sum claimed  $224,480.00

Less repayments  $  94,322.00

Total  $130,158.00

Result

[136]   The defendant is entitled to judgment against the two third parties in the sum of $130,158.00.

[137]   There is a claim for interest.  In the circumstances, having regard to timing of the settlement as between the plaintiff and the defendant, I consider interest should run at the appropriate rate prescribed by the Judicature Act 1908 from the date in late December when the defendant and the plaintiff settled matters between themselves to the date of this judgment, and thereafter at a per diem rate until payment.

[138]   Leave is reserved to both plaintiff and defendant to seek modifications to the terms of this judgment,39  (but not its quantum or the interest component), if this judgment in the defendant’s sole favour against the third parties does not accurately reflect what the pleadings require.

[139]   The third parties’ counterclaims are dismissed.

Costs

[140]   The plaintiff and defendant are entitled to one set of costs on the 2B scale. These are to be calculated by Mr Wright in a memorandum to be served on the third parties within 12 working days.  In respect of the counterclaim I am disinclined to award additional costs against the third parties except for the pleadings which the plaintiff and defendant were obliged to file in respect of such counterclaims.  The counterclaims occupied very little trial time.

[141]   Because within a day or two of the release of this judgment I leave New Zealand on five weeks leave I shall not be able to attend to costs until I return to New Zealand in mid-August. Any submissions which the third parties wish to file, if they contest the costs claims calculated against them in Mr Wright’s memorandum, are to be filed by 2 August 2013.

.......................................…

Priestley J

39 See supra [113].