Sunde v Sunde

[2018] NZHC 2788

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2018-404-000768

[2018] NZHC 2788

BETWEEN

ROY MELVIN SUNDE

First Plaintiff

MARINA ANNE SUNDE

Second Plaintiff

ANNE VERA SUNDE

Third Plaintiff

LEO ZANE SUNDE

Fourth Plaintiff

AND

LEO ZANE SUNDE, ANNE VERA SUNDE, ROY MELVIN SUNDE, KEVIN PAUL SUNDE AND MARINA ANNE

SUNDE as trustees of the LeRoy Trust Defendants

Hearing:	11 October 2018
Appearances:	S E Cameron for the fourth Plaintiff J R Wain for the fourth Defendant
Judgment:	29 October 2018

[REDACTED] JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by me on

29.10.18 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Cook Morris Quinn J R Wain Barrister

SUNDE v SUNDE [2018] NZHC 2788 [29 January 2018]

Introduction

[1]    Leo Sunde is 91 years old. He is now mentally incapable. His relatively modest needs are paid for by two family trusts, including the LeRoy Trust, whose trustees are the five named defendants.

[2]In these proceedings Leo, the fourth plaintiff, seeks summary judgment for

$2,855,809.33, being principal and interest said to be owing to him under a deed of acknowledgment of debt between himself as lendor and the defendants as borrowers.1 At issue is the validity of the exercise of a power of attorney by Roy Sunde on behalf of Leo. The notice of demand for the principal and some of the interest payments was issued by Roy on behalf of Leo.

[3]    Kevin Sunde, on behalf of the LeRoy Trust,2 defends the summary judgment application on the basis that the notice of demand issued by Roy was contrary to, or in breach of, the provisions of the Protection of Personal and Property Rights Act 1988 (the PPPRA). Kevin contends that the notice of demand for repayment issued by Roy was not for the benefit of Leo as donor and was in breach of Roy’s obligations, as attorney, to act with loyalty and good faith.

[4]    The critical issues I must determine are whether the claims that the notice of demand was in breach of the provisions of the PPPRA and/or Roy’s equitable obligations, constitutes an arguable defence for the purposes of summary judgment and if not, whether I should nevertheless exercise my discretion to refuse summary judgment in what is said to be an exceptional case.

Relevant legal principles

[5]Rule 12.2(1) of the High Court Rules provides:

1      Of the sum of $2,855,809.33, interest of $165,212.11 is claimed for each of the three years demanded. Total interest claimed is $495,636.33.

2      The other trustees, Anne, Marina and Roy have consented to judgment. By minute dated 24 July 2018 Downs J directed that Kevin’s notice of opposition constitutes opposition on behalf of the trustees, and like representation, under s 33A of the Trustee Act 1956. Kevin is the sole voice of opposition.

The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[6]The principles are summarised in Krukziener v Hanover Finance Ltd:3

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In

the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

Background

The LeRoy Trust

[7]    The defendant trustees, Roy, Marina and Kevin are siblings. Their parents are Anne and the late Roy Senior. Leo is Roy Senior’s brother and thus the uncle of Roy, Marina and Kevin.

[8]    The LeRoy Trust was established in December 2005 at the initiative of Leo and Roy Sunde Senior. Another family trust, the MM Sunde Family Trust (MM Sunde Trust), also formed by Leo and Roy Senior was established in 1999.

[9]    The LeRoy Trust owns properties in Oratia, a commercial property in New Lynn and a residential property in Royal Oak.

[10]   The final beneficiaries of the LeRoy Trust are the grandchildren of Roy Senior and Leo. Deeds of acknowledgement of debt were entered into by the trustees at the time of the establishment of the trust.

3      Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].

[11]   Under those deeds, the trustees acknowledged that principal sums were due and owing to each of the lenders, Leo, Anne, Roy, Kevin and Marina personally. The trustees agreed to pay the principal sum owing to each lender to that lender personally on demand and upon demand from the lender to pay interest on the principal sum owing to that lender at the rate of 7 percent per annum.

[12]   At the time the deeds of acknowledgement were entered into, the amount due and owing to each of their lenders reflected their shares of the properties transferred into the LeRoy Trust.

[13]   In February 2016, Leo, Anne, Marina and Roy delivered to the defendant trustees notices of demand for interest at the rate of 7 percent for the 12-month period ending on 15 February 2016 (in accordance of 4 of the deeds of acknowledgment).

[14]   Leo, Anne, Marina and Roy delivered to the defendant trustees further notices of demand for interest for the 12-month period ending 15 February 2017 and 15 February 2018.

[15]   On 13 March 2018, each of Leo, Anne, Marina and Roy wrote to the defendant trustees demanding:

(a)Payment of the interest owing to them for the 2016, 2017 and 2018 years (in accordance with their interest demands for those years);

(b)Payment of interest for the 2019 year (payable on 15 February 2019);

(c)In Marina, Anne and Leo’s cases, payment of the principal sum owing to each of them under the relevant deed of acknowledgement.

[16]   The demand for interest issued by Leo in February 2016 was signed by him personally. The demand for interest and principal issued subsequently was made by Roy on behalf of Leo, pursuant to the power of attorney.

[17]On 24 July 2018 Downs J, by consent, granted summary judgment, as follows:

(a)For Roy in the sum of $156,928.53;

(b)For Marina in the sum of $1,018,226.55; and

(c)For Anne in the sum of $1,226,710.99.

[18]   Leo is represented by Cook Morris Quinn, solicitors, and independently of Roy, who is represented by another firm of solicitors.

Personal circumstances of Leo

[19]   In 2000 Leo granted Roy, his nephew, an enduring power of attorney in relation to property.

[20]   In 2006 the trust purchased an occupation license for Leo at the Pinesong Retirement Village. Leo has occupied the apartments since then with all expenses paid either by the LeRoy Trust and/or the MM Sunde Trust.

[21]   A redacted copy of Leo’s Will of 2014 is before the Court as evidence. [REDACTED]:

(a)[REDACTED];

(b)[REDACTED]; and

(c)[REDACTED].

[22]   Leo remains a trustee of the LeRoy Trust. The trustees recently sought a medical assessment of Leo’s capacity. In a report dated 3 September 2018, Dr. Alexa Srzich, Consultant Psychiatrist and Psychogeriatrician of the Bexley Clinic, concluded that Leo lacks mental capacity to continue as a trustee of the two family trusts. He concluded that although he has knowledge of some trust related facts and issues, such as the total value of the trusts and the current dispute, his lack of knowledge in other areas and lack of awareness of his cognitive difficulties means that he cannot use his

knowledge to formulate sound decisions. He concluded that his mental capacity will not return.

[23]   Following the report of the Bexley Clinic, Leo’s solicitors provided a complete copy of Leo’s Will to Roy to enable Roy to manage Leo’s affairs and to act in accordance with his testamentary wishes.

[24]   Having then reviewed the Will for the first time, Roy has sworn an affidavit confirming that he will be bound by Leo’s wishes in respect of the LeRoy Trust repayment funds and would not treat the repayment proceeds as part of Leo’s residual estate. The purpose of the affidavit is said to address Kevin’s concern that Roy’s position was somehow improved by the debt being repaid prior to Leo’s death.

The competing positions of the parties

[25]   Ms Cameron on behalf of Leo submits that this is a straightforward contractual claim. Kevin, as the defendant trustee, does not dispute that the acknowledgement of debt imposes a clear and unambiguous obligation on the trust to repay the principal sum upon demand. In fact, Kevin consented to judgment on this basis in respect of demands by his mother and sister on identically worded acknowledgments of debt.

[26]   Ms Cameron submits that Kevin’s allegations that Roy has acted in self-interest and contrary to his obligations as an attorney, have evolved considerably over the course of the proceeding. She contends that as a matter of law, an allegation of self- interest or any other alleged breach of the powers of attorney, cannot defeat a clear, written contractual obligation to repay a debt upon demand. The appropriate forum for Kevin to raise these issues is either an application under s 103 of the PPPRA or a challenge to the validity of Leo’s Will after his death.

[27]   The LeRoy trust is already indebted to other family members, following the entry of summary judgment by consent. The LeRoy Trust is dysfunctional and it is in Leo’s interests to get his money out of the trust. In any event, the person calling on the demand (Roy, exercising the power of attorney on behalf of Leo) does not have to justify to the debtor the reason why money is being demanded.

[28]   Ms Cameron further contends that if there is any merit to the challenge to the exercise of powers of attorney, then Kevin can at the appropriate stage, seek a stay of execution of any judgment but there is no arguable defence to the entry of summary judgment.

[29]   Kevin’s opposition to summary judgment is made in the context of concerns that he has for the retention of the Trust’s assets in the current trust structure for future generations. Kevin, in his capacity as trustee, says that he represents the interests of the discretionary beneficiaries of the trusts (other than the first – fourth plaintiffs) and the final beneficiaries. The final beneficiaries are the grandchildren of Roy Sunde Senior. Kevin is concerned that if successful, these proceedings could see the trust fund and thus the entitlement of the grandchildren beneficiaries, becoming significantly depleted.

[30]   He contends that the LeRoy Trust was set up to mirror the MM Sunde Trust, the purpose of which was to place in trust for future generations property acquired by his grandfather, the late Roy Senior, and by Leo (i.e. his uncle). Kevin claims that it was never intended by any party that the deeds of acknowledgment for the trusts would ever be called upon by the trustees of the respective trusts. They would ultimately all be forgiven to ensure the passing of wealth for future generations of the family.

[31]   Until 2016 there was never any call of any sort on any deed of acknowledgement in either the MM Sunde or LeRoy Trusts. The beneficiaries of the trusts simply received money from the trusts on a regular basis and as need demanded.

[32]   Kevin is also concerned that Leo lacked testamentary capacity at the time he signed his last Will in 2014. He believes that it has always been Leo’s intention (as reflected in a list of wishes made in 1999) to treat his nieces and nephews in a substantially equal way, that the principal debts owed to him by both trusts would be forgiven at the time of his death, and that he had always wished for the family to be unified.

[33]   Kevin says that in the circumstances there was no rational explanation for Roy, on Leo’s behalf, seeking to get money out of the LeRoy Trust. Leo’s needs, currently

very modest, are completely provided for by income he receives from the family trusts, including the LeRoy Trust and it is clearly not in Leo’s best interests for summary judgment to be granted.

[34]   Mr Wain on behalf of Kevin submits that this is not at all a simple debt collection case but a complex family dispute. To enter summary judgment would effectively circumvent key protections in the PPPRA. Even if as a matter of law (not accepted) an allegation of self-interest or other alleged breach of the powers of attorney cannot constitute an arguable defence for the purposes of summary judgment, as a matter of discretion, summary judgment should be refused. In this case, a family dispute where the parties should first attempt to resolve all their differences (not just the narrow issues in relation to the outstanding loans) through mediation or alternative dispute resolution, summary judgment is wholly inappropriate.

[35]   The principal ground of opposition to the summary judgment is that the notice of demand for repayment of the principal debt was contrary to ss 97A and 107 of the PPPRA. The notice of demand by the attorney, Roy, was not for the benefit of the donor, Leo or in his best interests. Furthermore, the notice of demand for repayment was for the benefit of the Attorney; the repayment of the debt will have the probable effect of inflating Leo’s residual estate to the benefit of the Attorney or others.

[36]   Mr Wain emphasised that the paramount obligation of the attorney is to use the donor’s property in the promotion and protection of the donor’s best interests.4 The attorney must discharge his or her duties towards the donor with the upmost loyalty, honest and good faith. He must always act in the donor’s best interests, particularly where a power is granted for the purpose of preserving and managing the donor’s property.5

[37]   The prohibition in s 107 of the PPPRA against self-dealing by the attorney is very limited. Mr Wain submitted that it did not apply in this case. Mr Wain further advised that he has instructions from Kevin to bring legal proceedings challenging the exercise of the power of attorney by Roy, as the attorney on behalf of Leo.

4      Protection of Personal and Property Rights Act 1988, s 97A(2).

5      Vernon v Public Trust [2016] NZCA 388 at [37].

Analysis and decision

Is there an arguable defence?

[38]   I accept that as a matter of fact it is arguable that the exercise of the power of attorney by Roy in making the demand on Leo’s behalf, was invalid on the grounds that it breached ss 97A and 107 of the PPPRA. The evidence is incomplete and has not been tested but it cannot be said to be lacking all merit or frivolous or vexatious. However, that finding does not necessarily answer the question of whether in the context of summary judgment, allegations of self-interest or any other alleged breaches of the powers of attorney can, as a matter of law, defeat a clear written contractual obligation to repay a debt upon demand.

[39]   The challenge to the exercise of the power of attorney is essentially a collateral challenge, akin in some respects to a collateral challenge to the exercise of a statutory power of a decision. Such challenges have arisen in summary judgment proceedings for recovery of statutory charges and fees where the defendant debtor has sought to challenge the exercise of a statutory power of decision giving rise to the imposition of the charges and fees in the first instance.

[40]   In this case no application has yet been brought before a court challenging Roy’s exercise of his powers of attorney. I accept, however, that Kevin has the standing to do so (he is a relative) and Mr Wain has received instructions from him to file formal court proceedings.

[41]   The jurisprudence involving collateral challenges in summary judgment proceedings to statutory powers of decision giving rise to the debt in dispute, was analysed by Associate Judge Smith in Environmental Protection Authority v Chatham Rock Phosphate6. This analysis included a discussion of the Court of Appeal decision in Air New Zealand Ltd v Wellington International Airport Ltd7.

6      Environmental Protection Authority v Chatham Rock Phosphate Ltd [2016] NZHC 2079.

7      Air New Zealand Ltd v Wellington International Airport Ltd [2009] NZCA 259, [2009] 3 NZLR 713.

[42]   In that case, the airport company applied for summary judgment to recover landing charges it had set under the Airport Authorities Act 1986. The appellant airline had sought judicial review of the decisions setting the charges to be imposed. Chambers and Arnold JJ summarized the issue before the court as follows: 8

Where a Body, whose pricing decisions are potentially susceptible to judicial review, seeks to enforce a pricing decision against a non-payor by issuing proceedings in seeking summary judgment, can a non-payor resist summary judgment on the basis that he or she has issued, or will issue, judicial review proceedings challenging the decision?

[43]   All members of the Court of Appeal concluded that the airport company’s charges should be treated as being lawful until declared unlawful, and it was for the airlines to apply for interim relief under s 8 of the Judicature Amendment Act 1972 if they wanted to be relieved of their obligations to pay until their judicial review challenge had been determined. Chambers and Arnold JJ held: 9

We think there is a strong argument that a charging decision by a statutory body should be treated as being lawful until declared unlawful, so that if an entity wants to be relieved of the obligation to pay until a judicial review challenge is determined, it should apply for interim relief under s 8 [of the Judicature Amendment Act 1972].

[44]   In Environmental Protection Authority v Chatham Rock Phosphate,10 the EPA sought summary judgment against Chatham Rock for fees said to be owing on a unsuccessful application by the defendant, Chatham Rock, for a marine consent under the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012. Chatham Rock challenged the lawfulness of costs charged to it by the EPA for processing the marine consent application and contested the summary judgment proceedings on that basis. Associate Judge Smith held, following Air New Zealand Ltd v Wellington International Airport Ltd, that it was not open to Chatham Rock to raise its illegality arguments in opposition to the EPA’s summary judgment application:11

For the forgoing reasons, I conclude on issue 1 that it was not open to Chatham Rock to raise its illegality arguments in opposition to the EPA’s summary judgment application. Its proper course was to file a separate proceeding for

8 At [82].

9 At [86].

10     Environmental Protection Authority v Chatham Rock Phosphate Ltd, above n 6.

11 At [77].

judicial review of the charges, and (in the event of the EPA taking enforcement action) apply for appropriate interim relief under s 8 of the Judicature Amendment Act (effectively staying the enforcement proceedings pending the determination of the judicial review proceeding).

[45]   In this case the proposed challenge is a collateral challenge to the exercise of a private power, of quite a different nature from the statutory powers of decision at issue in Wellington Airport and Chatham Rock. However, in principle I find that the same approach should be adopted. In the circumstances here, particularly where no formal proceedings have yet been brought, despite the opportunity to do so, I find that it is not open to Kevin to raise his illegality arguments about the power of attorney so as to contend that he has an arguable defence to the summary judgment application. The better approach is to treat the exercise of the power of attorney as a valid one until it is set aside or declared unlawful through the special statutory process set out in s 103 of the PPPRA.

[46]   The submission of Ms Cameron that the appropriate course is for Kevin to make an application under s 103 of the PPPRA and then to seek a stay of execution of the summary judgment (with full evidence before the court as to the implications) has, in my view, some merit. I shall address that matter further in my consideration of the second issue below, namely the exercise of my discretion.

[47]   I conclude, on this first issue, that Kevin’s proposed illegality arguments about the power of attorney cannot legitimately be raised in this case pursuant to r 12.2. In terms of r 12.2, I conclude that Leo, as plaintiff, has demonstrated that Kevin has no defence to the application for summary judgment.

Exercise of discretion

[48]   The Court retains a discretion to decline summary judgment, even when it is satisfied a defendant has no defence.12 McGechan on Procedure provides a useful overview of the scope of this discretion:13

(a)The discretion implied by the use of the word “may” is to be restrictively applied. In a great majority of cases, once the court is

12     Pemberton v Chappell [1987] 1 NZLR 1.

13     McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR12.2.11].

satisfied the defendant has no defence, there is no room for the exercise of discretion.

(b)The residual discretion may be invoked to avoid oppression or injustice to the defendant where:

(i)The proceeding involves the actions or possible liability of a third party which is not before the court;

(ii)The proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded;

(iii)The circumstances of the case disclose very unusual features, the presence of which leads the court to conclude that the entry of summary judgment would be oppressive or unjust; or

(iv)The combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the court cannot be satisfied that the defendant has no defence.

(c)Even where the court is not satisfied that a defence has been made out, in exceptional circumstances the application may be adjourned to allow for other processes to be followed.

[49]   While on its face, this case appears to be a simple contractual demand claim, it is clear from the evidence that it is part of a wider and complex family dispute that requires resolution. The LeRoy Trust is said to be dysfunctional and there are allegations of improper conduct by some of the trustees. The assets and income from the trust are substantial and obviously reflect the generous legacy and industry of earlier generations of the family.

[50]   The obvious solution appears to be a mediation or some other form of alternative dispute resolution involving all relevant family participants. To date, no such process has been attempted. On the evidence filed in this proceeding, it is surely time for this to occur. Family unity is a matter to be highly valued, and the imposition of binding determinations is rarely a satisfactory solution to disputes of this kind.

[51]   I have already concluded that as a matter of fact, the concerns Kevin raises about the exercise of the power of attorney may have some merit. Leo’s modest needs are currently well provided for through the income he receives from both trusts and it is clear that repayment to him of the principal and interest demanded would be under

the control of Roy. Leo is clearly incapable at this stage of making any decision in relation to any of these issues.

[52]   Against that background, I conclude, despite the  forceful  submissions  of Ms Cameron, that I should decline to enter summary judgment at this stage. This should be treated as an exceptional case.

[53]   I find that I should allow Kevin the opportunity to bring a claim challenging the exercise of the power of attorney, pursuant to s 103 of the PPPRA. If summary judgment were entered at this time, that might effectively pre-empt any rights that Kevin might have should he seek to set aside the decision made by Roy demanding the principal and interest. The better approach is to decline summary judgment rather than to enter judgment and then for Kevin to seek a stay of execution. That is because, as I see it, there is a clear need for a genuine attempt to agree a family-wide solution to all of the outstanding issues, before any binding judgment is imposed. This would include a decision on Leo’s financial future (the difficult question of how to deal with the will), or at least a genuine attempt to resolve it.

[54]   I propose to adopt the same approach as Associate Judge Smith in Chatham Rock,14 where His Honour declined to enter summary judgment but adjourned the proceedings for some time to allow Chatham Rock to commence collateral proceedings for judicial review challenging the validity of the EPA’s charges. The adjournment was also granted to allow Chatham Rock the opportunity of seeking an interim order under s 8 of the Judicature Act 1972 of staying the summary judgment proceeding.

[55]I find that I should adjourn these proceedings to enable Kevin to pursue his s

103 PPPRA application and, perhaps more importantly, to give the family an opportunity to meet and mediate with a view to try and resolve the key outstanding issues between them. This will also give Kevin the opportunity of seeking a stay of the present proceeding in circumstances where all the relevant evidence would be before the court properly to assess the merits of any such application.

14     Environmental Protection Authority v Chatham Rock Phosphate Ltd, above n 6, at [105].

[56]   In the circumstances, I adjourn the summary judgment application for mention in the chambers list on 26 March 2019 at 2:15pm. If no stay has been granted by then and/or no mediation or family resolution of outstanding issues been achieved, the appropriate course at that time may well be to enter judgment for Leo against the LeRoy Trust, and for the full amount of principal and interest sought.

Result

[57]   The summary judgment application is adjourned until 26 March 2019 at 2:15pm.

[58]Costs are reserved.

Associate Judge P J Andrew