Swift v Dormer HC Auckland CIV-2010-404-4647

[2011] NZHC 2135

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2010-404-4647

BETWEEN  GERALD NORMAN SWIFT AND DEBORAH ANNE SWIFT

Plaintiffs

AND  PAMELA CAROLINE DORMER AND LILIAN JUNE PRICE VIITAKANGAS

Defendants

Hearing:         2 February 2011

Appearances: R O Parmenter for Plaintiffs

M J Robinson for Defendants

Judgment:      4 February 2011

JUDGMENT OF COOPER J

This judgment was delivered by Justice Cooper on 4 February 2011 at 3.00 p.m., pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Daniel Overton & Goulding, PO Box 13 017, Onehunga Turner Hopkins, PO Box 33 237, Takapuna

Copy to:
R O Parmenter, PO Box 1052, Shortland Street, Auckland

SWIFT V DORMER HC AK CIV-2010-404-4647 4 February 2011

[1]    The plaintiffs commenced a proceeding seeking an order for the sale of land at 43 Harry Dreadon Road, Drury (“the property”) under s 339 of the Property Law Act 2007. They sought  summary judgment.  The application was initially opposed by the defendants, but subsequently the parties agreed on a basis on which the order for sale could be made. This judgment concerns certain related issues that could not be settled.

Background

[2]    Mr Swift and Ms Dormer were in a relationship. They decided that they would erect a house on the property, and that they would manage the development of the property through family trusts that each had settled.¹ The second named plaintiff is Mr Swift’s daughter and co-trustee; the second named defendant is Ms Dormer’s co-trustee.

[3]    The plaintiffs and the defendants, in their capacity as trustees, were parties to a “Property Sharing Deed” dated 6 October 2006 recording their agreement “to form a property partnership for the ownership and administration of the property.” The deed provided that any imbalance of contributions from the two trusts would be documented and on completion of the development the trusts would execute a deed acknowledging a debt between the trusts “to such an extent as to provide an equal ownership of the property.” It was further provided that the trusts would execute a licence to occupy the land in favour of Mr Swift and Ms Dormer.

[4]Clause 9 provided:

9.     In the event that the licensees cease to live together as a result of     their relationship coming to an end, the license to occupy will cease and the Trusts undertake the following options:

(a)The Trusts may agree to retain the property as an investment for any agreed period of time.

(b)Either Trust has the option of buying the other Trust’s share of the property.

1 The plaintiffs were the trustees of the Leslie Ewart Trust and the defendants of the Phoenix trust.

(c)Where the Trusts cannot agree on any of the above options within 3 months of the date where the Licensees relationship ceased, the property will be placed on the market and sold.

(d)In the event of (b) or (c) being applicable then the value of the property will be established by registered valuation and any debt between the Trusts will be discharged or secured by mutual agreement. Any settlement will reflect the equal sharing of the property between the Trusts whilst acknowledging any debt between the Trusts and the settlement of any costs, fees, and outgoings applying to the property.

[5]    The licence to occupy was contained in an agreement also dated 6 October 2006. It granted Ms Dormer and Mr Swift a licence to occupy the property, but provided for the termination of the licence on the happening of certain events. One  of those events was the separation of Ms Dormer and Mr Swift. A Deed of Acknowledgement of Debt was executed by the defendants on 30 October 2006 (the “2006 Deed”). In it they acknowledged that the sum of $147,500 “together with interest thereon at the rate of 7%” was owing to the plaintiffs with both principal and interest payable upon demand. It was provided that the defendants would have the right at any time to repay the principal without penalty. The recital to the Deed recorded:

... the Creditor has provided for the transfer of a proportion of the property ... to the Debtor to provide for an equality of property shareholding. To facilitate this the debtor has entered into a debt with the creditor and has borrowed the sum of...$147,500 from the Creditor together with interest ...’.

[6]    The house was completed in December 2007. A further Deed of Acknowledgement of Debt was executed on 7 July 2009 (the “2009 Deed”). Under the 2009 Deed it was recorded in the recitals, amongst other things, that:

C)On completion of the development of the property the 2 Trusts agreed to finalise the contributions of each Trust and reflect any imbalance in an updated Acknowledgement of Debt.

D)The Trusts have confirmed that the final balance of contributions is:

The Leslie Ewart Trust	$624,612.94
The Phoenix Trust	$454,489.68
Total	$1,079,102.62

E)The Trusts hereby enter into this Deed so as to provide an equality of contributions facilitated by a Debt between the 2 Trusts where, by calculation:

The Leslie Ewart Trust contribution     $539,551.31 The Phoenix Trust contribution  $539,551.31

F)To provide for this, a debt between the 2 Trusts in favour of The Leslie Ewart Trust is calculated to be $85,061.63.

[7]    In accordance with these provisions, in clause 1 of the deed the defendants acknowledged their indebtedness to the plaintiffs in the sum of $85,061.63 “together with interest, if demanded, thereon at the rate of 6 per cent per annum”.

[8]    There was a further recital, recital H on which the defendants particularly rely in the present circumstances. It provided:

This deed of acknowledgement of debt supersedes and replaces the initial executed deed of  acknowledgement  of  debt  between  the  parties  dated  30 October 2006.

[9]    The relationship of Ms Dormer and Mr Swift ran into difficulties. She says that it came to an end on 17 June 2009. Later, Mr Swift’s new partner moved in, an event preceded by the arrival of her personal belongings. Ms Dormer stayed on until 15 December, when, finding the situation intolerable, she left. She went to stay in a caravan park where she resided until August 2010.

[10]   Mr Swift wished to invoke the processes set out in clause 9(b) or (c) of the Property Sharing Deed. Between August and October 2009 there was correspondence between the parties in which Mr Swift suggested that the plaintiffs buy the defendants out of the property, but there was no agreement as to the price  that would be appropriate. At one stage Ms Dormer applied to the Family Court for an occupation order. Mr Swift then obtained a valuation from a registered valuer which valued the property at $865,000. The plaintiffs’ solicitors then wrote to the defendants’ solicitors on 23 March 2010 demanding interest under both the 2006 and 2009 Deeds, and confirming that the plaintiffs wished to buy out the defendants’ interest in the property. The interest claimed was the sum of $25,878.42 said to be owing under the 2006 Deed and $4,166.04 claimed under the 2009 Deed. It was said

that these sums would be taken into account on settlement of the purchase of the defendants’ interest in the property by the plaintiffs.

[11]Ms Dormer stated in her affidavit that she did not accept that the valuation of

$865,000 was realistic. She obtained her own valuation from Seagar and Partners, dated 9 August 2010. The valuer who provided that valuation, Mr Peters, attached his valuation to an affidavit that he swore in opposition to the application for summary judgment. In his view, the property had a market value of $1,020,000 as at 30 July 2010. He said that he was not surprised at the difference between the valuations obtained by the parties because of some unusual features of the design, construction, configuration and range of features exhibited by the property. These meant that it differed significantly from the “norm” and made it difficult to value.

[12]   Mr Swift had already commenced this proceeding by the time Mr Peters provided his valuation. He said in his affidavit that having thought about the matter carefully, even though Ms Dormer had agreed to obtain a valuation he was concerned that the sale would be drawn out by her failing to agree to the terms of sale. He thought the matter should have been resolved some months previously and said that he felt “obliged to carry on with the application for sale, just so some sort of finality could be reached”. The plaintiffs sought an order that the property be sold and the proceeds distributed between the co-owners in accordance with their entitlements, including the balancing of debts between the plaintiffs’ and defendants’ trusts.

[13]   Ms Dormer referred to the recommendations that Mr Peters had made concerning the marketing and sale of the property. She explained her opposition to the plaintiffs’ application on the basis that the marketing and sale process proposed by the plaintiffs was unacceptable.

[14]   The matter was set down for a case management conference on 19 November 2010 but at that conference there were settlement discussions, and the parties were able to settle the most significant aspect of their dispute: it was agreed that the plaintiffs would purchase the defendants’ share of the property for an agreed amount. Three issues were left outstanding. They were:

(a)The amount of interest the defendants were liable to pay the plaintiffs pursuant to the two deeds of acknowledgement of debt.

(b)An issue concerning occupational rental. The defendants claimed that the plaintiffs should pay occupation rent under s 343(f) of the  Property Law Act 2007 for the period in which Mr Swift had been in sole occupation of the premises. The plaintiffs accepted that they should make rental payments, but there was an issue about whether the amount should be reduced to reflect some ongoing use of the property by Ms Dormer.

(c)Costs.

Interest

[15]   The most substantial of these issues is the question of interest. Under the 2006 Deed, as has been seen, the defendants acknowledged indebtedness to the plaintiffs in the sum of $147,500, together with interest on that amount at the rate of 7 per cent.

[16]   Under the 2009 Deed, in addition to those that I have already set out, there was a further recital on which the defendants rely. It provided:

This deed of acknowledgement of debt supersedes and replaces the initial executed deed of  acknowledgement  of  debt  between  the  parties  dated  30 October 2006.

[17]   The defendants say that the effect of this recital was that the only indebtedness of the defendants to the plaintiffs from the date when the 2009 Deed was executed was to be the principal sum of $85,061.63 together with any sums owing as interest on that amount. Interest payable under the 2006 Deed was no longer payable.

[18]   In his affidavit sworn in support  of  the  summary  judgment  application,  Mr Swift referred briefly to the 2009 Deed, stating that it “updated and recorded the defendants’ debt to the plaintiffs after we had built the house”. One of the letters

attached was the letter from the plaintiffs’ solicitors dated 23 March 2010 which outlined the claims made for interest under both the 2006 and 2009 Deeds.

[19]   In her affidavit sworn in opposition to the application for summary judgment, Ms Dormer said at paragraph 8:

8. In the period between 30 October  2006  and  7  July  2009  the  defendants made loan repayments to the plaintiffs through the Puriri Partnership which was used as the working account to fund the building of the dwelling. The building process was financed exclusively by the Phoenix Trust from February 2007 and 96% of the total building costs had been paid by November 2007. Mr Swift took responsibility for calculating the balance of the inter-trust debt but did not complete this until mid 2009. The Phoenix Trust accepted the figures without reservation and executed the replacement deed on 7 July 2009.

[20]And at paragraph 17 she said:

17. The plaintiffs are seeking a division of the net sale proceeds of the property subsequent to its sale subject to adjustments arising from the Deeds of Acknowledgement of Debt of 30 October 2006 and 7 July 2009. The Deed of Acknowledgement of Debt of 7 July 2009 specifically agrees that the defendant (“debtor”) is indebted to the creditor in the sum of $85,061.63 together with interest at 6% per annum and importantly that the Deed “supersedes and replaces the initial executed Deed of Acknowledgement of Debt between the parties dated 30 October 2006”. As such the indebtedness of the defendants to the plaintiffs pursuant to that Deed amounts to

$85,061.63 along with interest at 6% per annum on that amount from 7 July 2009. I seek to have the occupational rental payable to the Phoenix Trust by Mr Swift offset against the interest that is being sought by the plaintiffs against the defendants in the first instance and the balance against the inter-trust debt.

[21]   Reading these two paragraphs together, it appears that Ms Dormer relied on the 2009 Deed as being a complete statement of the remaining indebtedness of the defendants to the plaintiffs. Mr Robinson submitted on the basis of statements attached to Mr Swift’s affidavit in reply that the amount of the indebtedness referred to in the 2006 Deed had been substantially repaid at the time that the 2009 Deed was executed, and that no demand for interest had ever been made under the 2006 Deed. Having regard to the language used in the 2009 Deed, he submitted that the plaintiffs could not legitimately maintain a claim for interest under the 2006 Deed.

[22]   Mr Parmenter argued that that was not so. He submitted that under the 2006 Deed interest should have been paid by the defendants at 7 per cent per annum on  the principal sum of $147,500, for a period of some 918 days as set out in the plaintiffs’ solicitor’s letter of 23 March 2010. He referred to Mr Swift’s evidence in his affidavit in reply that the starting point was the purchase of the land for $395,000 in April 2005 to which he had contributed $345,000 and Ms Dormer the sum of

$50,000. If Ms Dormer had made an equal contribution she would have had to pay an additional $147,500, and it was that shortfall in capital contribution that was acknowledged in the 2006 Deed. It was also Mr Swift’s evidence that he had contributed a total of $625,000 overall, compared to Ms Dormer’s total contribution of $449,900, figures that he said were “close enough” to those in the recital D to the 2009 Deed. He said that as far as he was concerned, the 2009 Deed was “merely updating” the 2006 Deed: “it was finalising the capital differential and interest was consequential on the capital.” On this basis, the interest that had accrued remained payable pursuant to the 2006 Deed down to the date when the 2009 Deed was executed

[23]   Mr Robinson noted that Ms Dormer had not had an opportunity to respond Mr Swift’s affidavit in reply and when I raised the possibility that the proceeding might be adjourned for that to occur, neither party appeared interested in that course being pursued. It is necessary to deal with the matter on the basis of the evidence as it stands.

[24]   There is force in Mr Parmenter’s submission that to forego the interest entitlement under the 2006 Deed it would not have made commercial sense from the plaintiffs’ perspective. He referred to the Judgment of Blanchard J in Vector Gas Limited v Bay of Plenty Energy Limited² emphasising the need to construe the words “supersedes and replaces”, used in recital H of the 2009 Deed, in their full context. The context importantly included the facts that the plaintiffs had contributed more for the purchase of the land and, in the 2006 Deed the parties had agreed that he should be protected for the principal sum and that the defendants should pay him interest.    Nearly three  years later the house had  been built  and the original  debt of

$147,500 was recalculated and was reduced to $85,061.63.  Again, there had been an

2 Vector Gas Limited v Bay of Plenty Energy Limited [2010] NZSC 5, [2010] 2 NZLR 444.

agreement that the plaintiffs should be protected for the principal sum and that the defendants should pay him interest.

[25]   Against this background, Mr Parmenter submitted that the meaning of the phrase “supersedes and replaces” that would be conveyed to a reasonable person with the relevant background knowledge was that the 2009 Deed simply updated the arrangements between the parties from its date of execution. It would be illogical in Mr Parmenter’s submission to infer that the 2009 Deed wrote off $25,000 of accrued interest, without very clear words to that effect, such as “abrogate” or “forgive”. He emphasised Blanchard J’s reference to the need for an interpretation in accordance with “business commonsense”.³

[26]   The difficulty that I have with Mr Parmenter’s argument, advanced in the context of a summary judgment application, is that something more is needed than an outcome that might appear unduly favourable to one of the parties to displace what appears to be the plain meaning of words which are readily understood and in common usage. To say that one deed is “superseded and replaced”  by another means, in the ordinary use of language, that the deed that has been replaced would  no longer be the source of whatever rights the parties now have. They would need to look to the 2009 Deed to establish what they were. The Oxford English Dictionary provides a number of definitions of “supersede” of which the most relevant in the present context are:

To take the place of (something set aside or abandoned);

[27]  

If a deed has been set aside or abandoned and in fact, as here, explicitly replaced, it is difficult to see how it could be resorted to as a source of ongoing legal liability. Without clear evidence that this is what was understood to be permitted by the parties at the time that they entered into the 2009 Deed, I consider that in the context of the summary judgment application the ordinary meaning of the words used should be applied. Mr Parmenter relied on the fact that on the defendants’ interpretation the plaintiffs would be out of pocket by over $25,000 and I accept that, based on Mr Swift’s reply affidavit, it does appear that the only payments made by the defendants under the 2006 Deed were payments of principal. However,

3 Vector Gas Limited, at [11].

assuming that to be the case, an argument based on commercial commonsense has to be approached with care in a setting where those involved are lay persons dealing with their private affairs. It is not clear on the evidence that Ms Dormer’s understanding would have been the same as Mr Swifts when the 2009 Deed was executed. In any event there is the further consideration that an unfavourable outcome for one of the parties is not necessarily determinative of a need to depart from the apparently plain meaning of the words they have used.

[28]   I note also that in terms of the recital to the 2006 Deed, interest was only payable upon demand. I have not seen in the papers filed any reference to a demand for interest made prior to execution of the 2009 Deed.

[29]   For these reasons I am not persuaded that the plaintiffs are entitled to have their claim for interest under the 2006 Deed upheld.

Occupation rent

[30]   Ms Dormer seeks to set off any liability of the defendants under the 2009 Deed by a sum which reflects an occupation rent payable in respect of Mr Swift’s occupation of the property. As to that, the parties have agreed that Mr Swift should pay an amount of $215 per week⁴ calculated over a period from 15 December 2009 to 20 January 2011. However, the plaintiffs say that there should be a deduction  from the amount claimed to reflect some  residual usage of the property made by   Ms Dormer and referred to at paragraphs 17 to 19 of Mr Swift’s affidavit in reply.  He there referred to property that she left in the garage which he described as (at 8 November 2010) “now reducing”. Apparently at the time of his affidavit a large ATM safe remained and a domestic trailer. He referred also to some personal items and clothes, and an antique tallboy in the second bedroom as well as a computer, filing cabinets and a large piano in the office. He alleged also that Ms Dormer had stayed at the property regularly whilst he was away and referred to other minor matters. He accepted nevertheless that he had had the “lions share of the benefit of

4 Half of the agreed appropriate market rental of $430 per week.

the property” but suggested that there should be a deduction of about 15 per cent so as to confine his liability to $182.75 per week.

[31]   The defendants say there should be no reduction. Mr Robinson was not in a position to refer to any evidence from Ms Dormer contrary to Mr Swift’s evidence and although he purported to convey what had occurred through submissions I cannot take those into account. I accept that there has been some residual use of the property but I would not reduce the rent payable by Mr Swift to the extent of the reduction that he sought. In my assessment, an appropriate weekly rental would be

$205 per week.

Costs

[32]   Notwithstanding the fact that the parties settled the issues concerning sale of the property, Mr Parmenter has sought costs on the whole of the proceeding. He submitted that the discussions of the parties had been characterised by delays on the part of the defendants and that the plaintiffs had been justified in commencing the proceeding when they did. Mr Robinson however submitted that the plaintiffs had for their own reasons attempted to speed up the sale process even thought negotiations were underway at the time to resolve an agreed sale value. He argued further that summary judgment was inappropriate in the context that there were factual disputes concerning the circumstances in which the 2006 and 2009 Deeds were executed and the intended meaning of the words used. He submitted that the defendants should have their costs against the plaintiffs.

[33]   Having reviewed the correspondence that passed between the parties I consider that Mr Swift’s decision that the proceeding should be commenced was a justified one. My impression is that had proceedings not been issued there would have been delays to a greater extent than occurred. The valuation which was obtained shortly after the proceeding was commenced revealed a significant difference between the parties and it is possible that the dispute would have dragged on unless brought to a head. Further, the plaintiffs were successful to the extent that their main objectives were achieved, albeit that occurred largely by agreement following the discussions that took place at the case management conference.

[34]   Against those considerations however is the fact that on the issues that have needed judicial consideration the plaintiffs have largely failed. In all the circumstances I consider that the most appropriate outcome is for costs to lie where they fall.

Result

[35]I resolve the issues which I was asked to decide as follows:

(a)I reject the plaintiffs’ claim to an entitlement to interest under the 2006 Deed.

(b)I declare that the fair rent to be paid in respect of Mr Swift’s occupation of the premises is the sum of $205 per week.

(c)I direct that costs should lie where they fall.

[36]   I was effectively simply asked to resolve these issues, on the basis that others had been settled. I am unsure whether any other formal order is sought to implement the settlement and dispose of the proceedings. Counsel should advise the Registrar, and if necessary I will make any other order which may be appropriate. I note that it will be necessary for the proceeding to be disposed of, whether by further order or discontinuance.