Thornley v Ford

[2021] NZHC 611

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2019-404-398

[2021] NZHC 611

BETWEEN

PETER ERIC THORNLEY and ROLIEN YOLANDA TREMAIN
First Plaintiff

JAMES RICHARD RUITERMAN
Second Plaintiff

JEREMY EDWARD HEWITT
Third Plaintiff

AND

GRAEME REYNOLD FORD and NGAIRE DAWN FORD and STEPHEN REYNOLD FORD

Defendants

Hearing:	17 March 2021
Appearances:	A E Simkiss for the Plaintiffs D G Hayes for the Defendants
Judgment:	24 March 2021

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 24 March 2021 at 12:30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

THORNLEY and TREMAIN v FORD & OTHERS [2021] NZHC 611 [24 March 2021]

Introduction

[1]    In 1979, three adjoining landowners at Bombay, south of Auckland, entered into an agreement to create a water easement. The purpose of the easement was to provide a water supply from one property to the other two properties.

[2]    The parties to this proceeding are successors in titles to those properties. The plaintiffs are the owners of two properties that now benefit from the easement. The defendants were, at the time this proceeding was commenced, and until recently, the owners of the property burdened by the easement. The proceeding has a trial set down for three days, to commence on 8 June 2021.

[3]The plaintiffs have applied (informally) for the following orders and directions:

(a)Granting leave to file an amended statement of claim;

(b)Granting leave to join a second defendant (Papa Putaiao Ltd);

(c)Discovery against all defendants in relation to a new issue;

(d)Variation to the existing timetable orders.

[4]    The plaintiffs say these orders and directions are necessary owing to a recent transfer of the burdened land from the defendants to Papa Putaiao Ltd (PPL).

Background

Parties to this proceeding

[5]    The defendants, Graeme Reynold Ford, Ngaire Dawn Ford and Stephen Reynold Ford, were, until recently, the registered owners of a parcel of land at 59 Chamberlain Road, Bombay. They formerly operated the Footbridge Wedding and Events Centre from this site. Their title is burdened with a registered easement entered into in December 1979.

[6]    The plaintiffs hold two parcels of land which benefit from that easement. The first plaintiffs, Peter Eric Thornley and Rolien Yolanda Tremain, are the registered owners of 33 Chamberlain Road. The second plaintiff, James Richard Ruiterman, is the registered owner of a parcel of land in Chamberlain Road. A third parcel of land also benefits from the easement. This land is owned by a person who was formerly the third plaintiff in this proceeding. That plaintiff discontinued against the defendants in March 2020.

Easement

[7]    At the time the easement was created, the registered owner of the defendants’ land was Bridge City Lands Ltd (Bridge City Lands). The land now owned by the first plaintiffs was owned by Alister and Vicki Palmer (the Palmers) and part of the land now owned by the second plaintiff was owned by Donald Law. Bridge City Lands, the Palmers and Mr Law entered into an agreement to grant a water supply easement. A memorandum of transfer creating the easement was registered.

[8]    The easement granted the Palmers and Mr Law the “right to draw and convey water as is more particularly set forth”. The benefitted land, now held by the plaintiffs, was entitled to draw water from a stream on the burdened land, until recently owned by the defendants. The easement also granted rights to convey that water via an underground pipe through part of the burdened land marked on a surveyed plan, install a pump to move the water and, at all reasonable times, enter the burdened land to lay and maintain the pipe, pump and related equipment.

Pipeline route

[9]    A pipeline was constructed across the burdened land to convey water to the benefitted land. It is not clear whether construction occurred before or after the easement was registered. In any event, the pipeline as constructed did not follow the route on the surveyed plan. The plaintiffs say that the defendants were aware of this variation at the time and agreed to the installation of the pipeline in the different location.

[10]At some point, a pump was also installed and a pump shed erected.

Subsequent transfers

[11]   The plaintiffs plead that on 7 December 1979, Bridge City Lands transferred its property to the defendants. The defendants admit this, save that they say the transfer was on 25 May 1979.

[12]   In 1988, the Palmers transferred their property to Phillipa Turner. Ms Turner transferred her property to Watford Trustees Ltd on 14 June 2006 and this company transferred its property to the first plaintiffs on 1 July 2009.

[13]The second plaintiff acquired his property in July 1989.

A dispute arises

[14]   In 2016 the first plaintiffs built a greenhouse on their property to cultivate microgreens. This somehow led a dispute between the neighbours, and ultimately this proceeding. The defendants cut the water supply to the plaintiffs’ properties in February 2019, and served the plaintiffs with trespass notices preventing them from entering the defendants’ property to access the pump shed. I understand the water supply was restored after the plaintiffs obtained an injunction.

Causes of action

[15]The plaintiffs have been pursuing three causes of action.

Rectification

[16]   The plaintiffs say the defendants knew the pipeline did not follow the surveyed route shown in the plan. The plaintiffs seek rectification of the plan to reflect the actual route of the pipeline.

Equitable easement

[17]   The plaintiffs say there is an agreement between the parties or their predecessors in title which has the essential characteristics of an easement. Both the defendants and the plaintiffs (or their predecessors in title) have performed the agreement since about 1979. The plaintiffs seek an order that there is an equitable

easement which is consistent with the actual route of the pipeline over the defendants’ property, with the same terms and conditions as the 1979 agreement, which the plaintiffs may either register or protect by way of a caveat.

Equitable estoppel

[18]   The plaintiffs say that the defendants have represented, by their words and conduct, that the plaintiffs have a right to a water supply conveyed by a pipeline passing over the defendants’ property. Further, the defendants have represented they do not insist on strict adherence to the route specified in the registered easement. The plaintiffs say they have relied on these representations. They further say that they will suffer detriment and that it is unconscionable for the defendants to deny the right to the water supply or insist on strict adherence to the route of the pipeline shown on the survey plan. The equity should be satisfied by granting a registrable easement to the plaintiffs for the supply of water over the defendants’ land which follows the current path of the pipeline.

Procedural background

[19]   A trial was originally set down for 6 July 2020. At the end of June 2020, the defendants filed an interlocutory application to amend their statement of defence. The defendants to this point had admitted an allegation made by the plaintiffs that the Palmers transferred their land to Ms Turner on 7 December 1979. The amendment was to deny this allegation. It had been found that the transfer of title to Ms Turner did not occur until 12 July 1988. The amendment was opposed by the plaintiffs. A telephone conference was convened on 2 July 2020 to consider the application, four days before the trial was due to start.

[20]   Muir J, in a minute of 3 July 2020, granted leave to the defendants to amend their statement of defence. His Honour also adjourned the trial. This was necessary to allow the plaintiffs to brief further evidence in light of the amendment.

[21]   A new close of pleadings date of 7 December 2020 was fixed. A three-day trial was set down to commence on 8 June 2021. Timetable orders were made by consent on 15 July 2020, in preparation for the new trial date.

A recent transfer

[22]   This brings me to the recent development that gave rise to the plaintiffs’ application to amend pleadings and for other directions.

[23]   On 28 January 2021, Mr Hayes (counsel for the defendants) advised Ms Simkiss (solicitor for the plaintiffs) that the defendants had sold their property. The sale was said to be in consequence of the decline in business following the COVID- 19 pandemic. Ms Simkiss’s investigations established the sale was to PPL. The sole director and shareholder of PPL is Stephen Ford, one of the defendants.

[24]   The plaintiffs lodged a caveat against the title to prevent further dispositions of the property. This caused Mr Hayes to write to Ms Simkiss, on 17 February 2021. This time Mr Hayes wrote on behalf of PPL. He said that the effect of the transfer to PPL was that the plaintiffs’ equitable interest in the property “evaporate[d]”. He said that, unless the plaintiff wished to assert fraud, PPL demanded that the plaintiffs remove the caveat forthwith.

[25]   Ms Simkiss responded by saying that the plaintiffs intended to amend their claim to allege fraud against PPL and to seek further discovery. The plaintiffs invited the defendants to consent to orders allowing the amendment and providing for further discovery. The defendants declined. The plaintiffs’ current application followed.

[26]   The defendants’ and PPL’s position, set out in submissions filed by Mr Hayes in advance of the hearing, is that they do not oppose the addition of PPL as a defendant. Nor do they oppose minor amendments to the statement of claim to reflect PPL being a party. The defendants and PPL do oppose (i) leave to amend the claim to include an allegation against PPL of land transfer fraud and (ii) further discovery.

Relevant law

[27]   Rule 7.7 of the High Court Rules 2016 provides for steps after the close of pleadings date to be taken only with the leave of a Judge:

7.7      Steps after close of pleadings date restricted

(1)No statement of defence or amended pleading or affidavit may be   filed, and no interlocutory application may be made or step taken, after the close of pleadings date without the leave of a Judge.

[28]   The paramount consideration in deciding whether to grant leave to amend pleadings is that the parties should have “every opportunity” to bring the real points in dispute to trial to ensure the just determination of the proceeding.1 Appropriate weight must be given to any significant delay or prejudice to another party arising from the proposed amendment. However, even where there is a high risk of serious prejudice and/or delay, the amendment may still be permitted if the proposed claim has substantial merit and will not cause injustice to the other parties.

[29]Rule 4.56 deals with adding a new defendant:

4.56     Striking out and adding parties

(1)A Judge may, at any stage of a proceeding, order that—

(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or

(b)the name of a person be added as a plaintiff or defendant because—

(i)the person ought to have been joined; or

(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.

Should the plaintiffs have leave to amend the pleadings?

[30]   The key issue on this application is whether the plaintiffs should have leave to amend their claim to add an allegation of fraud against PPL. Ms Simkiss examined this question through the lens of r 7.7. She said that the amendment would enable one of the real controversies between the parties to be determined at trial. The additional claim had substantial merit, as PPL had actual knowledge (through Stephen Ford) of the plaintiffs’ claimed equitable interest, and there was a serious issue whether PPL intended to deprive the plaintiffs of that interest. There was no injustice to the defendants in allowing the amendment, given that PPL was owned and controlled by

1      Oraka Technologies Ltd v Geostel Vision Ltd [2015] NZHC 991 at [17].

one of the defendants. Any prejudice caused by the late amendment was of the defendants’ and PPL’s own making, since it was their transaction that dictated the late timing of the amendment.

[31]   I accept these submissions. In my view the facts speak for themselves. The defendants, facing a claim by the plaintiffs to an equitable interest in the defendants’ land, sold that land to PPL. PPL is not wholly independent from the defendants. It is owned and controlled solely by one of them. PPL said that the effect of the transfer was that the plaintiffs’ equitable interest in the land “evaporated”. It is hardly surprising that in those circumstances the plaintiffs would allege that PPL is guilty of land transfer fraud.

[32]   This is not to say that that fraud allegation will necessarily be easy to prove. But the issue of fraud is one that is (now) a real point in dispute between the parties. Given that PPL is owned and controlled by one of the defendants (and therefore is not a true stranger to the litigation), it is in the interests of justice that that point be resolved at the upcoming trial. If it is not resolved at that point, there would have to be either a further adjournment to the trial, or separate litigation on the fraud allegation between the plaintiffs and PPL. Neither is an attractive alternative. Because of the connection between PPL and the defendants, any prejudice to them will be minimal (no more than the prejudice that the plaintiffs will suffer from having to pursue this further allegation) and in any case is of their own making.

[33]   Mr Hayes’ submissions did not examine the question of leave to amend through the lens of r 7.7. He therefore did not dispute that the issue of fraud was a real point in issue between the parties, did not suggest that there was some alternative to amendment that would better serve the overall interests of justice, and did not point to any prejudice that the defendants or PPL would suffer from the late amendment.

[34]   Instead, Mr Hayes’ submissions focussed on the merits of the proposed fraud allegation. He treated the application as if it were a pre-emptive application by PPL to strike out the proposed fraud claim. He put forward three arguments.

[35]   First, he submitted that any equitable interest that the plaintiffs might have had in the burdened land had been extinguished by prior transfers of that land. Mr Hayes pointed to evidence from Stephen Ford, who made an affidavit in opposition to the plaintiffs’ application. Stephen Ford said that there had been prior transfers in August 1999 (from Dr Graeme Ford to himself and Mrs Ford) and then in July 2019 (from Dr Ford and Mrs Ford to all three defendants). Mr Hayes submitted that because these prior transfers had extinguished any equitable interest that the plaintiffs might have had, there was no remaining interest that the recent transfer to PPL could have destroyed. Therefore, Mr Hayes submitted, the transfer to PPL could not be fraudulent.

[36]   I do not accept that argument. Those earlier transfers are not pleaded by either the plaintiffs or the defendants (indeed, the pleaded position appears to be that there were no earlier transfers). In any event, it is not clear that earlier transfers such as those to which Mr Hayes refers would necessarily prevent the plaintiffs from pursuing a fraud allegation against PPL. The Court of Appeal recently addressed, but did not have to resolve, that point.2 Mr Hayes’ point is one for trial.

[37]   Mr Hayes’ second point was that the allegations in the proposed amended statement of claim were inadequate to support a pleading of fraud. He relied on the Court of Appeal’s statement in Schmidt v Pepper New Zealand (Custodians) Ltd (underlining added):3

Allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity. As the authors of Bullen & Leake & Jacobs Precedents of Pleadings emphasise, counsel must not draft any originating process or pleading containing an allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud – that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it.  Fraud

cannot be left to be inferred from the facts – fraudulent conduct must be

distinctly  alleged  and  as distinctly proved.   General  allegations, however
 strong the words may be appear to be, are insufficient to amount to a proper

allegation of fraud.

[38]   Mr  Hayes  relied  on  the underlined sentences.    He said that the plaintiffs’ allegations were inadequate “because they require inferences to be made from facts”.

2      Infinity Enterprises Ltd v Kinara Trustee Ltd [2020] NZCA 309 at [64].

3      Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].

[39]   I reject that argument. As Ms Simkiss said, referring me to a statement by Lord Millett, “dishonesty is usually a matter of inference from primary facts”.4 The plaintiffs have, in the proposed amended claim, “distinctly alleged” fraudulent conduct by PPL. They have particularised the facts which are alleged to have constituted that conduct. The proposed pleading is, subject to one qualification that I will return to in a moment, sufficient.

[40]   Mr Hayes’ third argument was that in any event “the evidence is that the [fraud] allegations are not true”. The evidence Mr Hayes was referring to is contained in an affidavit of Stephen Ford. However, this is a matter for trial. It is not a basis for resisting an amendment.

[41]   Mr Hayes raised one further point. When the property was recently transferred to PPL, two mortgages were, at the same time, registered against the property. The second mortgage is to the defendants (presumably some form of vendor finance), but the first mortgage is to a group of lenders who (according to Stephen Ford’s affidavit) are independent of the defendants. Mr Hayes submitted that if I were to allow the plaintiffs’ amendment then the interests of the first mortgagees would be impugned, so the amended claim would have to be served on them. Mr Hayes said that this counted against granting leave to amend.

[42]   I am not going to require the first mortgagees to be served or to be joined to the proceeding. The plaintiffs have decided not to make any claim against the first mortgagees. Were the plaintiffs to succeed against the defendants, it is far from clear that that would have any practical impact on the first mortgagees. The first mortgagees would enjoy whatever protection is available to them under the Land Transfer Act 2017.

[43]   In summary, I accept Ms Simkiss’s submissions that leave should be granted to the plaintiffs to amend their claim to add an allegation of land transfer fraud against PPL. This is subject to one qualification. As I discussed with Ms Simkiss during the hearing, the proposed amendment provides sufficient particulars of the allegation that PPL knew of the plaintiffs’ equitable interest. It appears the plaintiffs intend to rely on

4      Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1 (HL) at [186].

those same particulars in their subsequent pleading that PPL intended that registration of the transfer defeat that equitable interest. But that should be made clearer in the amended claim that is filed and served.

Should PPL be joined as an additional defendant?

[44]   As noted earlier, the defendants do not oppose the joinder of PPL. It will be clear from what I have said that it is appropriate to join PPL.

Discovery, and amended timetable

[45]   Given that I am going to grant leave to the plaintiffs to amend their claim to include an allegation of fraud against PPL, the parties’ discovery obligations will now extend to documents relevant to that allegation. There will also have to be amended timetable directions.

[46]   Ms Simkiss proposed a new timetable in a memorandum dated 22 February 2021 (when she first drew this matter to the court’s attention). Mr Hayes did not have any comments on her proposal. Adjusting Ms Simkiss’ dates to reflect the time that has since passed, and recognising that the parties and PPL have in the meantime already started focussing on the new issues, I make the following timetable orders:

(a)amended statement of claim to be filed and served by 25 March 2021;

(b)statement(s) of defence to the amended statement of claim to be filed and served by 31 March 2021;

(c)any reply from the plaintiffs to be filed and served by 7 April 2021;

(d)supplementary affidavits of documents (in respect of the new fraud allegation) to be filed and served by 12 April 2021;

(e)plaintiffs’ briefs of evidence and documents for inclusion in the bundle to be served by 19 April 2021;

(f)defendants’ briefs of evidence and documents for inclusion in the bundle to be served by 3 May 2021;

(g)any reply briefs of evidence to be served by 11 May 2021; and

(h)the remainder of the existing timetable is unchanged.

Costs

[47]   In their written submissions each side sought costs in the event they were successful. In his oral submissions Mr Hayes retracted from that, submitting that costs should be reserved.

[48]   The general principle, in r 14.2(1)(a), is that the party who fails with respect to an interlocutory application should pay costs to the party who succeeds. This principle is also reflected in r 14.8(1). I see no reason for departing from that general principle.

[49]   The plaintiffs are entitled to costs on a 2B basis. The plaintiffs did not file a formal interlocutory application. Ms Simkiss sought costs for two memoranda (item 11 of sch 3), a mention (item 12), and the appearance before me (a quarter day). I award costs at 2B for those items, in the sum of $2,987.50.

Result

[50]I make an order joining PPL as the second defendant.

[51]   I grant leave to the plaintiffs to file and serve an amended statement of claim adding a cause of action alleging land transfer fraud against PPL (subject to the qualification in [43]).

[52]I make the timetable orders set out at [46].

[53]The defendants are to pay to the plaintiffs costs of $2,987.50.

Campbell J