Stokes v Insight Legal Trustee Co Ltd
[2012] NZHC 1822
•25 July 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-1317 [2012] NZHC 1822
BETWEEN B J STOKES, A M STOKES AND O N WILLIAMS AS TRUSTEES OF THE STOKES FAMILY TRUST
Plaintiffs
ANDINSIGHT LEGAL TRUSTEE COMPANY LIMITED AND G K HEENAN AS TRUSTEES OF THE RM COLEBROOK FAMILY TRUST
First Defendants
ANDE M COLEBROOK Second Defendant
Hearing: 22-23 March 2012
Counsel: A J Steele and J P Scott for the Plaintiffs
S Hunter and Z Brentnall for the Defendants
Judgment: 25 July 2012
RESERVED JUDGMENT OF ELLIS J
This judgment was delivered by me on 25 July 2012 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Martelli McKegg, PO Box 5745, Auckland 1141
Gilbert Walker, PO Box 1595, Auckland 1140
STOKES FAMILY TRUST V INSIGHT LEGAL TRUSTEE CO LTD HC AK CIV-2011-404-1317 [25 July
2012]
[1] On 31 August 2007 the plaintiffs agreed to sell their property at 5 Bucklands Beach Road for $1.8 million. The purchaser was named on the agreement as “E M Colebrook or nominee” and the agreement was signed “E M Colebrook”. Elaine Margaret Colebrook is the second defendant.1
[2] In August 2007 Mrs Colebrook was one of the two trustees of the RM Colebrook Family Trust (the RMCFT). Mrs Colebrook’s sister, Shona Carr, was then the only other Trustee.2 The present trustees of that trust are the first defendants in this proceeding.
[3] The sale and purchase agreement was stated to be conditional only on the purchaser obtaining the money required for the deposit, namely five per cent of the purchase price ($90,000). A successful application to borrow that sum, was made in the names of Mrs Colebrook and the RMCFT (from NZ Home Bonds Ltd (Home Bonds)). Home Bonds took a mortgage over Mrs Colebrook’s family home at
118 Clovelly Rd, Bucklands Beach as security. The Clovelly Rd property was owned by the RMCFT.
[4] The settlement date stipulated in the sale and purchase agreement was
20 December 2007. Settlement did not, however, occur on that day, or subsequently.
[5] During 2008 the property market plummeted. The plaintiffs eventually sold the Bucklands Beach Rd property for $1.1 million.
[6] In 2002 the plaintiffs obtained judgment by default against Mrs Colebrook for the difference between the purchase price agreed on 31 August 2007 and the amount eventually realised on re-sale. The amount of the judgment sum is
$943,033.36. Mrs Colebrook was unable to pay that judgment sum. She is
effectively insolvent.
1 In 2010 Mrs Colebrook remarried and now goes under the name Elaine Heenan. However, for convenience, I will refer to her in this judgment as Mrs Colebrook.
2 When the Trust was first settled Mrs Colebrook’s father-in-law was the third Trustee. He was later replaced by Carl Anthony Gruebner. I was advised, however, that Mr Gruebner had resigned as Trustee by 31 August 2007.
[7] The plaintiffs contend in the present proceeding that, unbeknownst to them at the time, Mrs Colebrook entered into the August 2007 sale and purchase agreement on behalf of the RMCFT. They say that, although as Trustee of the RMCFT Mrs Colebrook is personally liable for the Trust’s failure to settle, that she has a right of indemnity against the funds of the Trust which they (the plaintiffs) are entitled to subrogate. The plaintiffs have registered caveats over the Trust’s properties pending resolution of these proceedings.
Issues for determination
[8] There is no real dispute between the parties as to the applicable principles governing a trustee’s right of indemnity and the equitable lien over trust property to which that gives rise. Similarly, it is accepted that if such a right of indemnity exists on the facts of this case there is also no dispute that, in principle, the plaintiffs could
subrogate that right.3
[9] Rather, the central issue here is whether it can be said that Mrs Colebrook was (in fact and in law) acting on behalf of the Trust when she entered the agreement for sale and purchase. I agree with Mr Hunter that the only way in which the plaintiffs can establish that is by proving that she was acting as the RMCFT’s undisclosed agent. That is because:
(a) the agreement does not itself reveal or suggest that Mrs Colebrook was purchasing the property on behalf of the RMCFT; and
(b)the plaintiffs did not know of the existence of the RMCFT at the relevant time.
[10] I therefore do not accept what I understood to be Mr Steele’s alternative
proposition that Mrs Colebrook might somehow have simply entered the agreement as principal, or “as” the RMCFT. Even if that was her intention, it was not an
3 For example, see Ross B Brantham and Charles E F Rickett Enrichment and Restitution in New Zealand (Hart Publishing, Oxford, 2000); Charles Mitchell and Stephen Watterson Subrogation: Law and Practice (Oxford University Press, Oxford, 2007); Peter Birks Unjust Enrichment (2nd ed, Oxford University Press, New Yord, 2005).
intention that was, or could have been, known to the plaintiffs. The contract itself makes clear that Mrs Colebrook personally was the purchaser, subject only to:
(a) some later act of nomination by Mrs Colebrook; or
(b) the existence of an undisclosed agency.
[11] The leading modern authority on undisclosed agency remains the Privy Council’s decision in Siu Yin Kwan v Eastern Insurance Co Ltd where Lord Lloyd of Berwick said:4
For present purposes the law can be summarised shortly. (1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.
[12] It seems to me that the first, second and fifth pre-requisites require consideration in the present case. Thus in order to establish that Mrs Colebrook was acting as undisclosed agent for the Trust, the plaintiffs need to show that:5
(a) she intended to act on the Trust’s behalf;
(b) she entered into the agreement with the authority of the RMCFT; and
(c) there was nothing in the sale and purchase agreement or the circumstances surrounding the making of that agreement that expressly or impliedly exclude RMCFT’s ability to be sued.
[13] Before considering those issues, however, it is necessary to canvas the facts and evidence in considerably more detail.
4 Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199, 207 (PC) at 207.
5 Siu Yin Kwan.
Facts and evidence
[14] The RMCFT was originally one of two mirror Trusts settled respectively by Mrs Colebrook and her first husband (Mr Ross Michael Colebrook).6 The second Trust was known as the Elaine Margaret Colebrook Family Trust (the EMCFT). Mrs Colebrook acknowledged that the names of the two Trusts were “counter- intuitive” in that the Trust of which she was Trustee and beneficiary bore her husband’s name and vice versa.
[15] The corpus of the RMCFT has historically comprised a number of rental properties situated in Auckland and Hamilton, although a 50 per cent interest in the family home (at 118 Clovelly Rd) was also settled in it. The other 50 per cent was originally settled in the EMCFT.
[16] After Mr and Mrs Colebrook’s separation in 2003, Mrs Colebrook continued (along with her sister and the third trustee) to act as trustee of the RMCFT and to make investments on its behalf. As a consequence of the matrimonial property settlement (the precise details of which I am not aware) Mr Colebrook’s 50 per cent share of the Clovelly Rd property was transferred at some point from the EMCFT to the RMCFT. Mrs Colebrook was paid a small salary by the Trust for administering its rental properties.
[17] In relation to the RMCFT it was apparent from both the documentary and oral evidence before me that Mrs Colebrook was the dominant trustee and that her sister, Ms Carr, essentially consented to whatever investment proposals Mrs Colebrook put to her. Ms Carr’s evidence, in particular, confirmed that she very much took a back seat to Mrs Colebrook in terms of any property decisions made on behalf of the Trust. Indeed, it became clear that Ms Carr never declined to consent to any proposal put forward by Mrs Colebrook. Ms Carr also acknowledged that she had never viewed the Trust’s financial statements and never made investment
proposals herself.
6 As far as the RMCFT is concerned, the Trust Deed provides that the settlor is an Auckland solicitor, the principal (who initially at least has the power to remove and appoint trustees) is Ross Colebrook, the (original) Trustees are Mrs Colebrook, Ms Carr and Mr Colebrook Senior and the primary and residuary beneficiaries are Mrs Colebrook, her three children and any children they may have.
[18] Prior to the failure to settle the Bucklands Beach Rd agreement, it seems that all the agreements entered into by or on behalf of the RMCFT in order to purchase properties for investment purposes stated that the purchaser was “EM Colebrook or nominee”. Six such agreements (not including the Bucklands Beach Rd agreement) were produced in evidence.
[19] By contrast, the purchase agreements entered into by or on behalf of the RMCFT after 20 December 2007 have described the purchaser as the “R M Colebrook Family Trust or nominee”.
[20] As far as the pre-Bucklands Beach Rd transactions were concerned, Mrs Colebrook said that her fellow trustee(s) were not named on the relevant sale and purchase agreements because:
(a) in relation to the agreements dated around 2003 or 2004, she was uncertain as to the continued existence of the RMCFT as a result of her recent separation from her husband; and
(b) in relation to the later agreements (those dated approximately between
2004 and 2007) she (Mrs Colebrook) was living in Fiji and had been advised that simply naming herself (or nominee) as purchaser would make counter-offer and execution processes more straightforward.
[21] Mrs Colebrook was nonetheless quite clear in her evidence that the agreements referred to in (b) were entered into by her on behalf of the Trust. She said, however, that she routinely discussed her intention to enter into such transactions beforehand with Ms Carr and that Ms Carr authorised or consented to each.7
[22] In December 2006 the RMCFT entered into an unconditional sale agreement for the Clovelly Rd property. Mrs Colebrook said that the sale was one of the steps she was taking to establish a new life with her new partner, Grahame Heenan. The
Clovelly Rd agreement refers in one place to the vendor being “Elaine Colebrook”
7 She did not say whether or not the proposed transactions were ever discussed with the third Trustee.
and another as being “Shona Mavis Carr, Elaine Margaret Colebrook, Carl Anthony Gruebner”.8 The agreement was, however, signed by Mrs Colebrook alone. No evidence was given about whether Mrs Colebrook consulted with, or obtained the prior authority of, her co-trustees in relation to her entry into this transaction.
[23] The settlement date for the Clovelly Rd transaction was 20 December 2007. The purchase price was $1,920,000.
[24] As far as Bucklands Beach Rd was concerned, Mrs Colebrook said (and this was confirmed by Mr Heenan) that it was initially her intention to purchase the property as her new family home. She said that she had various family reasons for wishing to live in that general area. She said that the purchase of Bucklands Beach Rd was quite different from the rental property transactions entered into by the RMCFT and that it was never her intention that the RMCFT would own the Bucklands Beach Rd property. Mrs Colebrook’s evidence was that at the time she entered the agreement she had not made up her mind whether the property would be owned jointly by her and Mr Heenan or whether she would set up a new Trust for that purpose. Mrs Colebrook frankly accepted, however, that she had never owned a property in her own name.
[25] The sale and purchase agreement for Bucklands Beach Rd states that the purchaser was “E M Colebrook or nominee”. It appears from the fax number on the copy of the agreement that was in evidence that on the date the agreement was executed (31 August 2007) Mrs Colebrook was in Fiji.
[26] Ms Carr said that she was not aware of her sister’s proposed purchase of Bucklands Beach Rd until it was mentioned to her by their mother. She said that she was never asked to (and did not) consent to the purchase as trustee of the RMCFT. Rather, she said, in early September 2007 she was asked to consent to the RMCFT being guarantor of the deposit that Mrs Colebrook sought to borrow from Home Bonds. Ms Carr said that she consented to this arrangement because she was aware
that the RMCFT owed Mrs Colebrook “several hundred thousand dollars”.
8 I can only assume that at this point Mr Gruebner remained as the third Trustee. The evidence did not disclose when he resigned from that position although it must have been in the first eight months of 2007.
[27] As I have said, the relevant Home Bonds application form states that the applicant for the loan was both Elaine Colebrook and the RMCFT. It was signed by both Mrs Colebrook and Ms Carr. The application records that Mrs Colebrook was in Fiji. The blank application form was faxed by the bond broker to “Graham and Elaine Colebrook” in Fiji and says that:
As your existing property is in the name of a Trust the application form needs to be completed in the name of the trust. (which I believe is just in Elaine’s Trust) (sic).
[28] The letter approving the application is addressed jointly to Mrs Colebrook and the RMCFT. As I have said, a mortgage over Clovelly Rd was taken by Home Bonds as security for the loan for the deposit and Home Bonds then placed a caveat on Clovelly Rd.
[29] After payment of the deposit no steps were taken by Mrs Colebrook to obtain further funding to enable either her and Mr Heenan, or some new trust, to settle the Bucklands Beach Rd agreement. She said that she anticipated that once settlement of Clovelly Road had taken place, the $241,000 owed to her by the RMCFT would be repaid and that this would be put towards the Bucklands Beach Rd settlement. The evidence of Mrs Colebrook and Mr Heenan was that she would borrow a further
$600,000 against the property and he would borrow the remaining $1 million.
[30] The only explanation given for the failure to take steps to acquire the further funds required to settle was that obtaining mortgages at short notice would have been a straightforward matter. They said a call had been made to a mortgage broker but accepted that that had gone no further and that no formal valuation of the property was ever obtained. While Mrs Colebrook (and Mr Heenan) accepted that their inaction meant that there would necessarily have been some difficulty in completing the Bucklands Beach Rd purchase on time, they appeared utterly sanguine about the likelihood of incurring 12 per cent penalty interest for late settlement.
[31] The steps taken in December 2007 by the solicitors for Mrs Colebrook (and for the RMCFT) in relation to the settlement of the two transactions further muddy the evidentiary waters.
[32] First, on 17 and 18 December Ms Carr and Mrs Colebrook signed an Authority and Instriction (“A and I”) form for a proposed electronic transaction in relation to the sale and purchase of Bucklands Beach Rd. The form states that they have done so as “Trustees of EM Colebrook Trust”. There was, however, no such Trust.9
[33] The mystery is arguably either compounded or clarified by the two settlement statements which, it seems, were prepared by the solicitors on 19 December 2007. Both the statement in relation to the sale of Clovelly Rd and the statement in relation to the purchase of Bucklands Beach Rd is addressed to “The Trustees, EM Colebrook Family Trust”. This was of course the name of Mrs Colebrook’s ex- husband’s family trust. But the address given for the Trustees of the EMCFT referred to in the statements is the Fiji address used by the RMCFT.
[34] In addition:
(a) The settlement statement in relation to Clovelly Rd showed (inter alia)
that:
(i)the Bucklands Beach Rd Home Bond deposit of $94,991 that was secured over the Clovelly Rd property was to be repaid from the $1,917,838 settlement sum; and
(ii)a balance of $1,721,000.53 remained once that and other payments listed on the statement had been made.
(b) The settlement statement in relation to Bucklands Beach Rd showed
(inter alia) that:
(i)the amount required to settle was $1,709,698.74, to which was added a further $824.25 for legal costs and disbursements;
9 Although Mr Colebrook’s family trust (the EM Colebrook Family Trust) presumably still existed,
neither Mrs Carr nor Mrs Colebrook were trustees.
(ii)the balance of $1,721,000.53 from the sale of Clovelly Rd was to be transferred to meet the total sum owing, with the remaining $10,477.54 to be paid to the Trust.
[35] As I understood it, the evidence of Mrs Colebrook, Ms Carr and Mr Heenan was that the “EM Colebrook Trust” or the “EM Colebrook Family Trust” were correct (albeit slightly differing) references to what was to be a separate and new Trust into which the Bucklands Beach Rd property was to be settled. The Trustees of that Trust were to be the same as the Trustees of the RMCFT, namely Mrs Colebrook and Ms Carr. None of the witnesses were able to say who the beneficiaries were to be or to provide any other details of the new Trust. They said that, in terms of the sale and purchase agreement, the new Trust would be Mrs Colebrook’s “nominee”. They did not explain, however, why this proposed new trust was referred to as the vendor of the Clovelly Rd property. Insofar as the transfer over of the $1.7 million balance, Mrs Colebrook said the settlement statements did not reflect any instructions given by her.
[36] There was no evidence that any steps had been taken to establish the new Trust and nor did Mrs Colebrook or Ms Carr attempt to assert that such matters had been put in train. Given that settlement was a mere two days away, this seems inexplicable.
[37] As things transpired, of course, the purchasers of the Clovelly Rd property did not settle on 20 December 2007 or subsequently. It was not disputed that it was this failure to settle that led to the failure to settle the Bucklands Beach Rd transaction. That would have been the position regardless of whether the purchaser/nominee was Mrs Colebrook, the RMCFT or some new, as yet uncreated, entity.
[38] Following this default no attempt was made by Mrs Colebrook (or Mr Heenan) to find the settlement sum elsewhere. In March 2008 Mrs Colebrook and Ms Carr (as Trustees of the RMCFT) entered into a further agreement for the Bucklands Beach Rd property which was explicitly made conditional on the sale of Clovelly Rd. The purchase price was $1,730,000 and the agreement included
$20,000 penalty interest and $10,000 further deposit. But because the RMCFT was unable to re-sell Clovelly Rd, that agreement never became unconditional.
[39] Mrs Colebrook said that although she no longer wished to live at Bucklands Beach Rd, she had decided that the RMCFT could instead rent it out. She said that she entered the agreement in an attempt to stave off her liability under the August
2007 agreement.
[40] The Home Bonds deposit was later repaid by Mrs Colebrook out of the funds owing to her by the RMCFT.
[41] It is against this factual background that the issues identified at [11] above fall to be considered.
Discussion
Did Mrs Colebrook intend to act on the Trust’s behalf when she entered the
Bucklands Beach Rd agreement?
[42] As I have said, the gist of Mrs Colebrook’s evidence was that, at the time she signed the agreement, she had not made up her mind who the ultimate purchaser of Bucklands Beach Rd would be. I am prepared to accept that she may have been considering establishing a completely new Trust entity that could later be nominated for that purpose. But the reality was, however, that there was no such entity in existence at the relevant time and the possibility that a suitable “nominee” might subsequently become available is not the point. Rather, the only question must be whether Mrs Colebrook intended that, if and when push came to shove, it was she or the RMCFT who would settle the transaction.
[43] Notwithstanding her evidence to the contrary, I was left in little doubt that Mrs Colebrook did not at any stage envisage that she personally (either with or without Mr Heenan) would be the ultimate purchaser of the Bucklands Beach Rd property. She acknowledged that she had never owned any property (including her family home at Clovelly Rd) in her own name. I do not consider that her new
relationship with Mr Heenan would have caused her to change her practice in that respect.
[44] The view that Mrs Colebrook had no intention of binding herself personally to complete the Bucklands Beach Rd transaction is further borne out by her complete inaction in the three and a half months between the agreement becoming unconditional and the date of settlement. If she had intended that the RMCFT was the purchaser, that inaction is completely explicable; she knew that the amount received by the Trust from the Clovelly Rd sale would fund the Bucklands Beach Rd settlement. But if Mrs Colebrook believed that it was she who would be required to settle, the position was quite different. She would have known that she (and Mr Heenan) would need to raise a further $1.6 million in order to complete the purchase. So even if Clovelly Rd had settled as expected, and the RMCFT had repaid the $241,000 it owed her, she would have known that she would still have had to take steps to obtain the requisite funds.
[45] I do not find it credible that Mrs Colebrook and Mr Heenan believed that, two working days before Christmas, they could easily and at very short notice have obtained a mortgage in that amount. Both accepted that no registered valuations of the property had been sought or obtained. There was no evidence from the mortgage broker they said they had called. There was no evidence of Mr Heenan’s other property interests which they said would constitute ample security. Nor do I accept as credible the evidence that he and Mrs Colebrook were unfazed at the prospect of having to pay penalty interest (potentially in the thousands of dollars) for late settlement, particularly given that obtaining a mortgage was likely to have taken more time than usual due to the Christmas break.
[46] Conversely, there is in my view considerable evidence to suggest that, in the event that no suitable nominee came into existence or was otherwise identified prior to 20 December 2007, Mrs Colebrook’s intention was from the outset that the RMCFT would settle the Bucklands Beach Rd transaction and that (accordingly) she intended to bind the RMCFT in entering that transaction.
[47] First, Mrs Colebrook acknowledged that a number of earlier sale and purchase agreements in which she or her nominee were named as the purchaser were in fact entered by her on behalf of the RMCFT. The way in which she chose to name or describe the purchaser on the various sale and purchase agreements can thus hardly be regarded as decisive. Moreover, Mrs Colebrook’s evidence was that it was her practice to enter into agreements on behalf of the RMCFT in this way when she was in Fiji, as it seems she was at the time she executed the Bucklands Beach Rd agreement on 31 August 2007.
[48] Secondly, I consider that the evidence makes it clear that Mrs Colebrook’s “Plan A” was effectively to substitute the property at Clovelly Rd for the property at Bucklands Beach Rd in the corpus of the RMCFT. The respective sale and purchase agreements were highly intertwined. In particular:
(a) The settlement dates were deliberately the same;
(b)The RMCFT’s interest in Clovelly Rd was the security for the deposit borrowed for Bucklands Beach Rd;
(c) The proceeds of the sale of Clovelly Rd almost exactly matched (and slightly exceeded) the sum required to settle the Bucklands Beach Rd transaction.
[49] The fact that the principal business of the RMCFT was investing in rental properties does not undermine this view. Given that Clovelly Rd had been Mrs Colebrook’s previous family home and had also been settled in the RMCFT, there is nothing improbable or inconsistent about the property that was intended to be her new family home also being settled in the RMCFT.
[50] Thirdly, the settlement statements prepared by the RMCFT’s solicitors in my view indicate that the Bucklands Beach Rd property was to be funded by, and settled into, the RMCFT. I consider that the references in those statements (and in the A and I form) to the “EM Colebrook Trust” and the “EM Colebrook Family Trust” were
mistakes borne of the RMCFT’s counter-intuitive name. There is, I think, ample support for that view, in that:
(a) under cross-examination Mrs Colebrook herself repeatedly and mistakenly referred to the RMCFT as the EM Colebrook (Family) Trust;
(b)Mrs Colebrook’s evidence that she had decided to name her new Trust the EM Colebrook Trust (or the EM Colebrook Family Trust) makes no sense. Mrs Colebrook’s ex-husband’s family trust was already named the EM Colebrook Family Trust. Moreover the idea that she would choose to use the name “EM Colebrook” is at odds with her evidence that the purchase of Bucklands Beach Rd was part of her plan to distance herself from her ex-husband and that the property was
to be a family home for herself and Mr Heenan.10 Why would she use
her ex-husband’s surname in the name of the entity created for the purpose of owning her new family home that was intended to signal the start of her new life with Mr Heenan?
(c) notwithstanding Ms Carr’s evidence that she understood (when she signed the A and I form on 17 December) that the new “E M Colebrook Trust” was to be established in time to settle on
20 December 2007, there is no evidence of any steps taken in that respect. Moreover neither Ms Carr nor Mrs Colebrook (who were purportedly going to be the trustees of the new trust) was able to name the intended beneficiaries or to provide any other details of the Trust;
(d)more significantly, the settlement statement in relation to the Clovelly Rd sale cannot possibly have been intended to refer to a (not yet established) Trust as the owner of that property. Clovelly Rd was
indisputably owned by the RMCFT;
10 As I have already noted, when Mrs Colebrook later remarried she changed her name to “Heenan”.
(e) any suggestion that the settlement statements were somehow prepared by Mrs Colebrook’s solicitors on a whim, and without instructions, is inherently improbable.
[51] For completeness, I also record that at no stage did Mrs Colebrook say that the settlement statements were prepared in the way they were because she had, at some point between September and December 2007 “nominated” the RMCFT as the purchaser of Bucklands Beach Rd.
[52] For all the reasons I have given, I am satisfied on the balance of probabilities that Mrs Colebrook intended to act on the Trust’s behalf when she agreed to purchase the Bucklands Beach Rd property.
Was Mrs Colebrook acting as an agent with the actual (undisclosed) authority of the
RMCFT when she signed the August 2007 agreement?
[53] Notwithstanding the view I have expressed in the preceding paragraph, Mrs Colebrook cannot be said to have been acting as RMCFT’s undisclosed agent unless the plaintiffs establish that she was acting with the actual authority of the RMCFT when she signed the Bucklands Beach Rd agreement.11
[54] The starting point is that the Trustees of the RMCFT at the relevant time were Mrs Colebrook and Ms Carr. As regards Mrs Colebrook, I proceed on the assumption that she would not have acted as the RMCFT’s agent without believing that she had the requisite authority to do so.
[55] Mrs Colebrook’s belief in this respect is not, of course, determinative of whether she in fact had Ms Carr’s authority to act on behalf of the Trust in relation to the Bucklands Beach Rd transaction. She may simply not have turned her mind to
that issue at the time, although such an omission might, in itself, be telling.
11 Ostensible authority is not in issue on the evidence and in any event does not suffice for the purposes of undisclosed agency: See Siu Yin Kwan at 207 and Taaffe v Donald Reid and Co (1896)
15 NZLR 443 (SC).
[56] Ms Carr’s evidence was that she had given her sister no such authority. I accept that evidence, at least insofar as there was no evidence of any formal, documented, grant of authority by the Trustees to Mrs Colebrook in relation to the Bucklands Beach Rd transaction or more generally. But formality and record- keeping were hardly particular features of the operation of the RMCFT. Its absence here is not, in my view, determinative.
[57] Absent any express written authority, there are, in my view, two other possible ways in which Mrs Colebrook might have been the repository of actual authority to enter the transaction on behalf of the RMCFT. Either:
(a) Mrs Colebrook could have advised Ms Carr specifically of her desire to have the RMCFT make the purchase and Mrs Carr then consented verbally to the purchase (this appears to have been Mrs Colebrook’s past practice); or
(b)there could be some more general grant of authority to Mrs Colebrook to enter property transactions on behalf of the trust implied or inferred from the history and nature of the RMCFT’s past conduct and dealings.
[58] As regards the first possibility, I interpolate at this point that Mr Steele submitted that, in the event that Mrs Colebrook did not have the RMCFT’s actual authority to act on its behalf at the time the agreement was entered, Mrs Carr might nonetheless subsequently have ratified the transaction. But that does not appear to
me to reflect the law where an undisclosed agency is at issue.12 As Dillon LJ said in
Welsh Development Agency v Export Finance Co Ltd:13
Now it is clear law that the doctrine of subsequent ratification, in the law of agency, only applies where the contracting party has expressly made a contract as agent for another. It does not apply where the contracting party has ostensibly made a contract as principal, without any hint of agency. For the doctrine of undisclosed principal to apply, therefore, the authority of the agent to bind the undisclosed principal must exist at the time when the agent made the contract, ostensibly as principal. Only if that is so will the
12 This limit on the doctrine of ratification can be traced back at least to the decision in Keighley, Maxsted & Co v Durant [1901] AC 240 (HL).
13 Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 277.
undisclosed principal be able to step in and enforce the contract against the other contracting party. So much is clear law.14
[59] I am not, however, prepared to find that Mrs Carr specifically agreed to and authorised the Bucklands Beach Rd transaction prior to her sister’s entry into the sale and purchase agreement on 31 August 2007. As I have said, both women expressly denied it.15 While I have necessarily already found Mrs Colebrook’s credibility somewhat wanting, there is no evidence to warrant such a view in the present context. Thus there is potentially an obstacle to a finding of authority on the basis of
the first ([57](a)) possibility in terms of the cases referred to at [58] above.
[60] That said, however, it is not clear (and the issue was not addressed before me) whether the dicta to which I have referred would strictly apply where the contract concerned remains, in reality, contingent on the consent of the principal. That is conceivably the case here because the 31 August agreement was conditional on the purchaser obtaining finance for the deposit. That condition was fulfilled only when Ms Carr consented to the Trust making the application to Home Bonds and to Clovelly Rd being used as security. Had she refused, the agreement would not, in all probability, have become unconditional. It is arguable therefore that by consenting to the deposit Ms Carr also authorised the underlying transaction with no issue of
retrospectivity arising.16
[61] I do not, however, intend to decide the matter on that basis. That is because the position seems to me to be more clear-cut as regards the second ([57](b)) possibility. I consider that there is evidence from which actual authority of a less specific kind can reasonably be inferred. That evidence relates principally to the
history of the dealings of the RMCFT and Mrs Carr’s involvement with them.
14 As the quotation at [12] above makes clear, the “other contracting party” may also enforce a contract against an undisclosed principal, provided the pre-requisites for an undisclosed agency are met.
15 Mrs Carr must nonetheless have became aware of the transaction very shortly after 31 August, given that she signed the Home Bonds application in early September.
16 At first blush it seems that the need to obtain Ms Carr’s consent to borrowing the deposit is
arguably inconsistent with Mrs Colebrook having the RMCFT’s implied actual authority to enter the Buckland Beach Rd transaction. But the evidence was clear that Home Bonds knew that the RMCFT owned Clovelly Rd, which was the proposed security for the loan. In those circumstances it is hardly surprising that Home Bonds would have required the application to be signed by both Trustees.
[62] First, there is in my view no doubt that the RMCFT was Mrs Colebrook’s creature. It seems to have been understood that Mrs Colebrook would have virtually a free rein when it came to the RMCFT’s property transactions. She also administered the rental properties and dealt with all the RMCFT’s administrative affairs. No doubt the fact that Mrs Colebrook was also a beneficiary under the Trust would have given Ms Carr some comfort in taking the view (as she plainly did) that the degree of oversight required of her was minimal.
[63] I have already referred to Mrs Colebrook’s evidence that she had previously entered a number of sale and purchase agreements on behalf of the Trust using only her own name (or nominee). While she insisted that she always “discussed” these transactions with Mrs Carr prior to entering them in this way, there was certainly no formal process of approval involved and no records were kept. It is plain that Ms Carr had no substantive input into the purchases and never queried what was proposed. There was no suggestion that Ms Carr ever looked at any of the properties herself and both sisters could not be certain that Ms Carr was routinely given copies of the sale and purchase agreements, either before or after their execution.
[64] If Ms Carr’s practices were relaxed when it came to the RMCFT’s rental properties, it seems fair to suppose that they were even more so in relation to any dealings by the RMCFT in relation to Mrs Colebrook’s family home. Decisions about that property would involve many matters that were personal to Mrs Colebrook. Ms Carr could, again, reasonably assume that Mrs Colebrook would make such decisions in accordance with her own Trustee obligations.
[65] Notably, neither Mrs Colebrook nor Ms Carr said that the sale of Clovelly Rd had first been discussed with, let alone expressly authorised by, Ms Carr. The sale and purchase agreement was executed by Mrs Colebrook alone. It seems reasonable to assume that any decisions relating to Mrs Colebrook’s proposed new family home would be left to Mrs Colebrook in the same way. In my view Mrs Colebrook’s authority to act on behalf of the Trust in relation to its dealings over her family home(s) can fairly be inferred.
[66] I record that Mr Hunter submitted that a finding that Ms Carr had given her sister authority to act on behalf of the RMCFT in relation to the Bucklands Beach Rd transaction would necessarily mean that Mrs Carr had acted inconsistently with her duties as a trustee. He said in particular that, as a prudent trustee, she could not have authorised (either particularly or generally) the Bucklands Beach Rd transaction without ensuring that it was made conditional on the sale of Clovelly Rd.
[67] But I do not agree. Even putting to one side any assumption that Mrs Colebrook would not act in a way that was adverse to the interests of the RMCFT (given that she was also one of the beneficiaries), the fact was that Clovelly Rd had already been sold.17 I have no doubt that as at 31 August 2007
Mrs Colebrook (and, if she had turned her mind to it, Ms Carr) was confident that the Trust could responsibly agree to, and ultimately fund, the purchase of Bucklands Beach Rd.
[68] Accordingly, I find that Mrs Colebrook was acting as the agent of the RMCFT with the actual (albeit inferred) authority of the Trust when she signed the August 2007 agreement to purchase the Bucklands Beach Rd property.
Does anything in the sale and purchase agreement or surrounding circumstances exclude the ability to sue the Trust?
[69] The only matter raised by the defendants in relation to this last issue was the line of High Court decisions which suggest that the provision in a sale and purchase agreement for the named purchaser to nominate excludes the possibility of the named purchaser having an undisclosed principal: GPO Holdings Ltd v CIR;
Cashmore v Sands and Parsonage v Laidlaw.18
17 I note that in 2008 the RMCFT did make a further offer to buy Bucklands Beach Rd expressly conditional upon “an unconditional contract being entered into on or before 29 March 2008 for the sale of the Purchaser’s property situated at 118 Clovelly Road, Bucklands Beach for such sum as the Purchaser may accept.” There would have been no point in including such a condition in the 31
August 2007 agreement because an unconditional contract for the sale of Clovelly Rd had at that point already been entered into.
18 GPO Holdings Ltd v CIR (1996) 17 NZTC 12,429 (HC); Cashmore v Sands (2007) 8 NZBLC
101,897 (HC) and Parsonage v Laidlaw (2008) 9 NZCPR 302 (HC).
[70] In general terms, those decisions involved nominees who sought to enforce an aspect of the contract entered into between their “nominator” (for want of a better term) and another party. Privity, and in particular the operation of s 4 of the Contracts Privity Act 1982, was therefore the central issue. Because there was for some time conflicting authority about whether s 4 applied to nominees (a conflict
which has now been resolved by the Court of Appeal in Laidlaw v Parsonage19),
establishing an (undisclosed) agency was a way of potentially avoiding the privity problem.
[71] Interestingly, the High Court in Parsonage did not dismiss this alternative agency argument out of hand, notwithstanding that the identity of the alleged agent and the nominee were the same. Rather, Associate Judge Abbott found that the factual nature of the requisite inquiry meant that such a finding was not open to him in a summary judgment context. He said:
[26] I do not regard that evidence as determinative of the point whether Mr Parsonage was signing as agent, or in his own capacity but with a view to nominating the trust, particularly as the agency cause of action was not pleaded at that time. In this summary judgment context, and taking into account the wording of the agreement (to which I will return in a moment) I am not persuaded that this evidence necessarily amounts to disclosure by Mr Parsonage that he was entering into the agreement as agent for the Seeleye Trust.
[27] Further evidence may also be needed from the trustees to explain the evidence in Mr Parsonage’s first affidavit that he entered into the agreement, and then nominated Mr Goulding and himself as purchasers. This does not sit easily with the argument of agency. Counsel for the plaintiffs argued that it was explicable in terms of Mr Parsonage’s evidence about difficulties of getting Mr Goulding’s signature on counter-offers, but there was no reference to that (as one might expect) in the first affidavit. It is a matter that the defendants ought to be able to explore further at trial. The notion that the plaintiffs were already a principal party is difficult to reconcile with the provision for nomination (with themselves as the proposed nominees): GPO Holdings Ltd v CIR at p8; Cashmore v Sands at para [199].
[72] There are two important differences between Parsonage and the present case. Here, Mrs Colebrook’s evidence was that she used the “or nominee” device precisely
for the reason alluded to in the quotation above (the practical difficulties in execution
19 Laidlaw v Parsonage [2010] NZLR 286 (CA). Leave to appeal refused in Laidlaw v Parsonage [2009] NZSC 98; [2010] 1 NZLR 286; (2009) 9 NZBLC 102,696 (SCNZ). The effect of the Court of Appeal’s decision is to overrule aspects of GPO Holdings and Cashmore and other decisions taking a narrow approach to the privity issue. The decision also obviates the need to rely on undisclosed agency as an alternative to s 4 of the 1982 Act.
by the Trust when she was in Fiji and her co-trustee(s) were in New Zealand). Moreover, the issue here does not involve a choice between RMCFT as Mrs Colebrook’s nominee and Mrs Colebrook as agent for RMCFT; the one thing Mrs Colebrook has never said is that she nominated RMCFT as purchaser.20 To the extent the word “nominee” might have had any content in the Bucklands Beach Rd agreement, it was because she (or RMCFT) wished to keep open the possibility of
nominating some other, yet to be created, entity.
[73] Accordingly the inclusion of the “nominee” option in the Bucklands Beach
Rd contract does not in my view tell against the alleged agency relationship here.
Conclusions
[74] I therefore find that in entering the Bucklands Beach Rd agreement Mrs Colebrook was acting as the undisclosed agent of the RMCFT. The Trustees of the RMCFT were accordingly personally liable for the failure to settle that agreement on 20 December 2007.21 As Trustee, Mrs Colebrook is entitled, in turn, to look to the RCMFT to indemnify her. As I have said, once that point is reached it is not disputed that the equitable lien over the RMCFT’s property to which this gives rise may be subrogated to the plaintiffs.
[75] Memoranda may be submitted as to the final form of the orders required to give effect to my judgment and, in the event that the parties cannot agree, as to costs, which are payable by the defendants to the plaintiffs on a 2B basis.
[76] It may also be that consequential orders in relation to the proceedings against
Mrs Colebrook are also required. Again, memoranda may be submitted.
Rebecca Ellis J
20 This also distinguishes the present case from the facts of Cashmore.
21 There has been no suggestion of bringing proceedings against Ms Carr in this respect.
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