Totaranui Trustee Limited (in liquidation) v Gunn
[2014] NZHC 3136
•9 December 2014
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV-2014-412-000086 [2014] NZHC 3136
BETWEEN TOTARANUI TRUSTEE LIMITED (in
liquidation) Plaintiff
AND
JOHN WILLIAM GUNN and ELIZABETH ROBYN GUNN Defendants
Hearing: 9 December 2014 Appearances:
D W Sim for Plaintiff
D R Tobin for DefendantsJudgment:
9 December 2014
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on plaintiff ’s summary judgment application
Introduction
[1] A liquidated trustee company (Totaranui) sues the trustees who now hold the trust assets. It claims indemnity in relation to a $502,150 debt incurred while Totaranui was trustee.
[2] Totaranui seeks summary judgment. There is no dispute as to the fact that Totaranui as trustee became indebted for the $502,150 and that the deed provides a right of indemnity.
TOTARANUI TRUSTEE LIMITED (in liquidation) v GUNN [2014] NZHC 3136 [9 December 2014]
Two or three issues
[3] The defendants nevertheless by their notice of opposition rely on two grounds of defence:
(a) The creditor’s debt has been neither proved nor admitted in
Totaranui’s liquidation;
(b) The defendants have a set-off.
[4] To these stated grounds of opposition, Mr Tobin in his submissions added reliance on the Court’s residual discretion to refuse summary judgment.
A farm block is sold and a debt incurred
[5] Totaranui was the sole trustee of John Gunn’s family trust. John and his wife, Robyn, were the directors of Totaranui. In 2004, George Gunn (John’s father) sold a farm block and 416 sheep to Totaranui as trustee for $529,150, which was their combined market valuation. In the Deed of Sale, George immediately gifted
$27,000 to the trust, leaving a debt of $502,150. That was repayable upon demand. It was interest free but with George having the right on notice to set an interest rate.
[6] In March 2014, the Court made an order on the unopposed application of George putting Totaranui into liquidation. George had issued an unanswered statutory demand for $502,150 in November 2013.
[7] Following the service of the demand, John and Robyn had their solicitors, Wilkinson Adams, prepare a deed (the Retirement/Appointment Deed) which was executed on 18 February 2014. By that deed, John exercised his power to have Robyn and himself replace Totaranui as trustees to hold the trust assets. The Retirement/Appointment Deed expressly entitled Totaranui to a full and complete indemnity from the trust fund for any personal liability which Totaranui might incur through having been trustee.
Plaintiff ’s summary judgment – the principles
[8] The starting point for a plaintiff’s summary judgment application is r 12.2(1) High Court Rules, which requires that the plaintiff satisfy the Court that the defendant has no defence to any cause of action in the statement of claim or to a particular cause of action.
[9] I summarise the general principles which I adopt in relation to this application:
(a) Commonsense, flexibility and a sense of justice are required.1
(b)The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence. The Court must be left without any real doubt or uncertainty on the matter.2
(c) The Court will not hesitate to decide questions of law where appropriate.3
(d)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements and affidavits.4
(e) In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or
other statements, or inherently improbable.5
(f) In assessing a defence the Court will look for appropriate particulars and a reasonable level of detailed substantiation – the defendant is
1 Haines v Carter [2001] 2 NZLR 167 (CA) at [97].
2 Pemberton v Chappell [1987] 1 NZLR 1 (CA).
3 European Asian Bank AG v Punjab & Sind Bank [1983] 1 WLR 642 (CA).
4 Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21 (SC).
5 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC).
under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the Notice of Opposition.6
(g)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court.7
(h)The need for judicial caution in summary judgment applications has to be balanced with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required
for the protection of the integrity of the summary judgment process.8
(i)Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.9
Issue 1: the absence of a proof of debt
[10] John and Robyn assert that the $502,150 debt has not been proved or accepted by Totaranui’s liquidator.
[11] Mr Tobin explained this ground in his written submissions thus:
15.There is no evidence that the liquidator has received proof of debt from Mr Gunn or that he, the liquidator, has accepted any proof of debt.
16.Acceptance of a proof of debt constitutes an acknowledgement by the liquidator that a debt is owing by the debtor to the creditor company. It is therefore submitted that in the absence of a claim
6 Middleditch v NZ Hotel Investments Ltd (1992) 5 PRNZ 392 (CA).
7 Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [28].
8 Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA).
9 Pemberton v Chappell, above n 2.
actually being accepted, Totaranui does not necessarily owe any debt to Mr Gunn.
17. The liquidator seems to be relying on the non-compliance by
Totaranui with the statutory demand.
[12] Mr Tobin’s focus on the process of proving a debt misses the point. So, too, does Mr Tobin’s focus on the earlier statutory demand. The liquidator, in pursuing Totaranui’s indisputable right to indemnity for any debt incurred as trustee, claims upon the $502,150 debt which Totaranui incurred in purchasing the farm block. In his oral submissions, Mr Tobin noted that there had not only been no proof of debt from George Gunn but equally no steps taken by him to sue Totaranui for the debt. But that additional feature of George’s failure to sue on the debt takes the defendant’s case no further. The debt exists regardless of what procedures have or have not been taken in relation to it.
[13] Mr Tobin, under the ground relating to the absence of a proof of debt, proceeded to a submission which suggested that the liquidator had misconceived his role in bringing this proceeding. Mr Tobin submitted:
With respect, the liquidator cannot simply say “pay me the money and I will pay Mr Gunn”. The liquidator is not the agent of Mr Gunn. Nor, in my submission, is it appropriate for the liquidator to be seen to be debt collecting for Mr Gunn.
[14] The misconception of what is occurring is not the liquidator’s. Totaranui has a contractual liability to George Gunn from the purchase of the farm block of which John and Robyn are now the registered proprietors. The liquidator seeks to put Totaranui in funds to discharge its liability. This is not “debt collection for George Gunn”. It is suing the trust for funds to meet the liability which Totaranui incurred as trustee when John (and presumably Robyn) wanted to purchase the farm-block. The liquidator’s focus is first on Totaranui’s right of indemnity from John and Robyn. His focus will then be on the right of George as creditor to a distribution.
[15] The defendants’ first ground of opposition does not raise any material or argument which points to a reasonably arguable defence.
Issue 2: a set-off
The defendant’s claim
[16] The defendants assert that as trustees of the family trust they have a set-off. It is said to arise from George Gunn’s breaching of “the agreement reached in 2004”. They quantify the damages caused by the breaches at $215,200. Because the damages arose from the “2004 agreement”, Mr Tobin submits that there is the interdependence which is required for an equitable set-off in terms of the classic
formulation of Somers J in Grant v NZMC Ltd.10
[17] The defendants’ $215,200 claim is based on a spread-sheet produced by their accountant by reference to benefits which John and Robyn assert George received as a result of the “2004 agreement”.
[18] The benefits are briefly evaluated by the accountant. For instance, he calculates $83,200 for “house rental”, $72,800 for grazing and $26,000 for “plant storage”, before arriving by reference to those and other costs over a 10 year period (2004–2013) at $215,200. Mr Sim has correctly observed that the accountant’s calculation is a bare assertion of figures, with no supporting valuation evidence. Such as it is, it is not qualified as expert evidence. On that ground alone, the Court cannot regard it as establishing tenably an argument as to $215,200 or any other particular figure. I nonetheless proceed with examination of the set-off claim for the purposes of considering other aspects of it.
[19] A set-off claim for such items assumes that there was a “2004 agreement”
which required George to account to the trust for the benefits he received.
[20] John explains the background to what he calls “the 2004 agreement” being a
set of arrangements beyond those expressed in the Deed of Sale:
(a) John from 15 years of age worked long hours on the family farm with no wages for 18 years;
10 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 12–13.
(b)John was always told by George that he would be working to owning the farm one day (meaning either when George finished farming or died);
(c) John says that “in 2004 George Gunn wanted to formalise our
agreement”;
(d)John and George reached an agreement whereby: (i) the trust would have the farm block;
(ii)the trust would allow George to live on the farm block and John would store his plant and equipment, and take care of his stock;
(iii)George would start a gifting programme with any remaining debt gifted by will (with George’s solicitor then instructed to draw up such a will).
[21] John deposed, in introducing the accountant’s calculation:
We believe that George Gunn must account to the Trust for all the benefits he has obtained as a result of the agreement made in 2004. For instance, he has been living in the house on the farm rent-free since 2004. He has also stored his plant and other equipment in the sheds on the farm. The Trust has also cared for his stock for no payment since 2004.
[22] He then refers to and exhibits the accountant’s calculations totalling
$215,200. He says that this represents “the amount George Gunn owes”.
[23] Similarly, Mr Tobin submits that the matters raised in John’s affidavit ought to be set off against any liability the Trust may have to George and that it would be unjust and wrong to allow the liquidator to have judgment without bringing the trust’s cross-claim against George Gunn into account.
George Gunn’s opposition evidence
[24] George filed reply evidence for the plaintiff. He accepted that of all his seven children, John was the one who had shown most interest in farming. He acknowledges that from time-to-time after he married, John assisted on the farm. George describes as “grossly exaggerated” John’s portrayal of the amount of work that John undertook.
[25] George denies that the issue of John’s taking over the farm was ever discussed before 2004. By 2004, George was getting older. He says he decided it was then an appropriate time for him to retire and for John to take over the day-to- day running of the farm. He says that agreement was reached that John would purchase the farm, for which purpose John got legal advice. The trust structure resulted.
[26] George deposes that the solicitor who prepared the documents for the sale of the farm block suggested that the sale agreement should include a term giving George the right to live on the farm till he died but George deposes that John and his wife would not agree to such a term. George therefore left it open as to whether or not he would make further gifts off the purchase price because at that stage he was uncertain what his future needs would be.
[27] George acknowledges that it was subsequently agreed that he would continue to live on the farm rent free, and could store his plant and equipment on the farm. He deposes that he did not agree to any gifting programme.
[28] George acknowledges that there was thereafter mutual assistance in relation to farm work. He notes that John omitted to mention that George had retained an 80 acre farm block which George continued to farm. George deposes that the two assisted each other as family members with no expectation of reward.
[29] He refers to earlier demands for payment he had made. In particular, to the occasion of a demand which George’s solicitors sent to Totaranui in December 2009. Wilkinson Adams, as the solicitors acting for Totaranui (and for John and Robyn), sent a letter in reply in 2010. It contained the following points:
(a) Totaranui could not understand why the demand was being made as there did not appear to be any major disagreements between the parties;
(b)John continued to assist George on the farm when requested and the only way the debt could be satisfied would be for Totaranui to place the farm on the market for sale and sell the farm with a view to paying the debt;
(c) the consequences of sale would be serious for George as he lives in one of the houses on the farm block without making a contribution to living there and receives farming assistance from John;
(d) Wilkinson Adams asked George’s solicitors to take instructions as to a
“compromise arrangement”;
(e) Any proceeding would be defended on the basis of “the cross arrangements between our clients” which involve an arrangement whereby “our client has an interest free loan, your client lives on the property rent free and obtains other benefits”.
Discussion of set-off ground
[30] This is not a case in which matters raised by the defendants constitute a tenable defence. That is the conclusion the Court must reach for reasons relating to both the factual circumstances relied upon by the defendants and the terms of the contract which the parties entered into.
[31] First, in relation to the facts, the defendants’ position as stated in the Wilkinson Adams letter of 2010 is entirely inconsistent with the basis of the defendants’ current set-off claim. At that time the defendants had received an obviously serious demand for payment. They had gone to their solicitors to deal with it. They explained the deal which they had with George Gunn, which was that in return for an interest free loan, George lived on the property rent free and obtained other benefits. In other words, those benefits which George received were the quid
pro quo for George not beginning to charge interest (which he was expressly entitled to do under the Deed of Sale). The arrangement which was in place from the start was working. Indeed, that was the cause of Wilkinson Adams’ opening comment, that Totaranui could not understand why the demand was being made (precisely because the arrangements flowing from the sale were working).
[32] The arrangement whereby George did not impose an interest rate in return for benefits he received makes sense on the evidence before the Court. The defendants value the benefits of the 10 year period at $215,200. If simple interest of that amount had been charged on the $502,150 debt for that period, the payment of
$215,200 over that time would have equated to an annual interest rate of 4.3 per cent. Both in the way the defendants put the arrangement through Wilkinson Adams’
2010 letter and from a simple examination of the figures, the benefits George was receiving during the 10 year period can be related directly to the foregoing of interest and not to an anticipated forgiveness of the principal debt. Another way of viewing that position would be to observe that any testamentary promises claim,11 which John might have for the services which Totaranui provided to George, would have been satisfied on the defendants’ own evidence in this case by George’s foregoing of his right to interest.
[33] Secondly, this discussion leads to a consideration of the 2004 Deed of Sale. The set-off claim which the defendants pursue would require the Court to find that the parties had agreed upon a term (“the loan will be forgiven progressively or at death”) which is contrary to the term of the deed (“the loan is repayable upon demand”). By the second recital to the Deed of Sale, the parties agreed that the sale and purchase was taking place “upon the terms and conditions hereinafter appearing”. The recital has a similar effect to an “entire contract” clause as often found in the operative provisions of contracts and deeds.
[34] It is a well-established principle that the statement of the parties to a deed which appears in the recital to a deed may give rise to an estoppel by deed.12 The
parties are estopped from denying what is stated in the recital. In this case, the
11 Under the Law Reform (Testamentary Promises) Act 1949.
12 Scales v Scales (2009) 10 NZCPR 479 (HC) at [43], applying Taylor v Knapman (1884) 2 NZLR SC 265 at 271.
estoppel arising as a matter of law directly parallels the overwhelming evidential conclusion which arises from the inconsistency between the defendants’ current position and that taken in 2010 in response to the formal demand.
[35] Thirdly, in this case the defendants were in control of Totaranui at a time when they assert Totaranui had a right of set-off pursuant to arrangements it had entered into with George in 2004. The defendants elected, without consultation with George, to remove the trust assets from Totaranui’s legal ownership and into their personal control. It was their decision alone to move the assets away from the party which is said to have reached oral agreements with George in 2004. They thereby placed, for the time being, the assets beyond direct recovery by George from Totaranui should Totaranui not be able to repay the debt, as has transpired. There is, as a result of the defendants’ decision and actions, a lack of remaining mutuality which robs the cross-claim of any continuing interdependence which might have existed if the cross-claim appeared otherwise valid. Their actions similarly remove any right of the defendants to invoke the Court’s equitable jurisdiction on the basis of set-off.
[36] Finally, I record Mr Tobin’s acknowledgement that had the defendants established a right of equitable set-off it would have been limited to $215,200 thereby leaving Totaranui entitled to obtain judgment for the balance, $286,950. Such a reduction of the judgment sum is not required by reason of my earlier findings.
Outcome
[37] The plaintiff has established that the defendants have no arguable defence. Costs must follow the event. Counsel accepted that the appropriate categories would be Scale 2 and Band B.
Order
[38] I order:
(a) There is judgment for the plaintiff against the defendants in the sum of $502,150;
(b)The defendants are to pay interest from 7 December 2013 to the date of judgment at a rate of five per cent per annum, totalling $25,245.08;
(c) The defendants are to pay the plaintiff ’s costs on a 2B basis together
with disbursements to be fixed by the Registrar.
Associate Judge Osborne
Solicitors:
Downie Stewart, Lawyers, Dunedin
Marks & Worth, Lawyers, Dunedin
Counsel: D R Tobin, Dunedin
1
0