Washikita v Smith
[2022] NZHC 3524
•19 December 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-001132
[2022] NZHC 3524
BETWEEN HISAKO WASHIKITA
Plaintiff and Second Counterclaim Defendant
AND
JOHN SOLOMON SMITH
First Defendant and Counterclaim Plaintiff
AND
ROBYN CHRISTINE MCALLISTER
Second Defendant
AND
AKIRA WASHIKITA
First Counterclaim Defendant
Hearing: 2 December 2022 Appearances:
P J Davey for Plaintiff
S P H Elliott for Defendants
Judgment:
19 December 2022
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 19 December 2022 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
WASHIKITA v SMITH [2022] NZHC 3524 [19 December 2022]
Table of Contents
Para No
The background [3] Summary judgment principles
[30]
The claim for possession
[34]
The grounds of defence
[40]
Material disputes of fact
[42]
The alleged oral agreement
[51] Was there an oral agreement? Uncertainty and part performance
[69]
Constructive trust
[76]
Unconscionability
[84]
Result
[92]
[1] Mrs Washikita and her husband live in Japan and are elderly. Mr Washikita has dementia and can take no part in this proceeding. Mr and Mrs Washikita are the owners of a property at Auckland which they purchased in 1992 from a company owned by the first defendant, Mr Smith. Since then, Mr Smith and his family, which includes the second defendant, have been allowed to live in the property rent free, although paying outgoings and maintaining the property. Mrs Washikita has required Mr Smith to vacate the property but he has not done so, and Mrs Washikita has commenced this proceeding seeking an order for possession by way of summary judgment.
[2] The defendants oppose summary judgment. Mr Smith says he had an informal agreement with Mr Washikita granting him a right of first refusal to purchase the property and agreeing to reimburse him for all costs incurred in respect of the property. Mr Smith says he wishes to purchase the property but only if his right to reimbursement is recognised, which Mrs Washikita will not do. He also contends that he has an interest in the property under a constructive trust by virtue of his contributions to it. Finally, the defendants argue the case is unsuitable for summary judgment due to the existence of factual disputes.
The background
[3] Mr Washikita and Mr Smith became acquainted in around 1991 when Mr Smith visited Japan. Mr Washikita then travelled to New Zealand in around October 1992. Mr Smith was a builder and was building a house at 14 Perotti Place, Conifer Grove, Auckland. Mr Smith offered to sell the property to Mr Washikita for
$250,000, which he said was for “no profit”. This was said to reflect the men’s friendship, that the house was incomplete, and the possibility of future business opportunities they had discussed. Mr Smith provided a breakdown of the $250,000 as being made up of a mortgage of $190,000, chattels of $25,000, and his labour of
$35,000. There were no details of the land and building costs, nor is there a valuation of the property. Mr Smith stated in a document prepared prior to the sale and provided to Mr Washikita that:
Simone1 and myself to remain in the premises until the new house is completed, or until further notice by yourselves.
(footnote added)
[4] Mr and Mrs Washikita entered into an agreement to purchase the property from Perotti Investments Ltd, which I understand was Mr Smith’s company. They settled and took title to the property in or around late December 1992. The property appears to have been intended as a holiday or retirement home for Mr and Mrs Washikita, but they visited only in 1993, 1994 and 2004 and have no intention of returning to New Zealand.
[5] Mr Smith, his partners and children have lived in the house, although Mr Smith says that has not been for the entire period since it was purchased by Mr and Mrs Washikita. They have never paid any rent but have until recently paid the rates, insurance and other outgoings.
[6] Mr Smith got into financial difficulty, and in September 2003 he asked Mr Washikita if he would lend him $110,000 for one month and he would pay back
$120,000. Mr and Mrs Washikita sent $110,000 to Mr Smith, but the loan was not repaid as promised. Mr Smith has, over the years, made part-payments towards the loan and interest.
[7] There has been correspondence between Mr Washikita and Mr Smith about Mr Smith’s failure to repay the loan. This includes a letter of 7 May 2010 from Mr Smith to Mr Washikita. In part the letter set out reasons why Mr Smith had not repaid the loan. Mr Smith advised that he had been declared bankrupt in May 2007 and would soon be discharged from bankruptcy. He said he would repay Mr Washikita and that he had a better chance of doing so when he was not bankrupt.
[8] There has been other correspondence between Mr Smith and Mr Washikita where Mr Smith referred to work that he had carried out at the property. Mr Smith never sought approval from Mr and Mrs Washikita to carry out this work and did not
1 I understand this was Mr Smith’s partner at the time.
assert an entitlement to, or seek, reimbursement for the costs he incurred until shortly before this proceeding was commenced.
[9] In March 2012, Mr Washikita received a letter from ANZ Bank, which was an insurance renewal notice for the property. Mr Washikita wrote to Mr Smith to say he had been living in the house without paying any rent for many years and asked him to attend to payment for the insurance. Mr Smith responded by apologising for accidently forwarding the letter from ANZ Bank and advised Mr Washikita not to pay it as they were already paying these by automatic payment. Mr Smith did not make a request that Mr Washikita should reimburse him for the cost of insurance. He wrote:
I am sorry I caused you both anxiety by my stupid mistake. I hope I never do this again. We are very grateful you both are so very generous to us, and especially in these very very hard financial times. I am embarrassed to admit, if it were not for you both, we all would be living on the streets.
[10] In January 2016, Mr Smith wrote to Mr Washikita and advised him that he was still paying the loan. He also stated that the property was “your house”. Mr Smith also sent another letter in January 2016 where he set out the work that he said he had carried out on the property. He said that he was looking after the house for Mr and Mrs Washikita and sought to distinguish this from simply living in their house. He also stated, “You never have asked me to do anything for your house, because I do it before you think to ask”. It appears from this letter that Mr Smith was justifying that he had not fully repaid the loan to Mr Washikita.
[11] In February 2020, Mr Washikita sent a letter to Mr Smith asking him to vacate the property by the end of the year. He said that they were going to advise him to do so at the end of 2015 but they had received the letter in January 2016 about the repairs that had been carried out and so decided to let them stay in the house. He said Mr Smith had undertaken this work without consulting him, and they could not pay any expenses without a quote or receipt.
[12] In October 2020, Mr and Mrs Washikita’s son sent an email to Mr Smith saying that his father was not well and that no one in the family was planning to move to New Zealand. He said they would like to sell the property and asked if Mr Smith would buy the house. Mr Smith responded that he would “dearly love to buy the house back”.
[13] In November 2020, Mrs Washikita’s lawyers in Japan wrote to Mr Smith saying that Mrs Washikita would like to sell the property and asked if he was willing to buy it at an appropriate price or leave the property. Mr Smith responded by saying that he was “willing to buy the property subject to conditions”, but did not expand on what his conditions were.
[14] Mrs Washikita’s lawyers then responded by email dated 24 December 2020, suggesting that a registered valuer be engaged to value the property. In February 2021, a registered valuation was obtained which assessed the market value of the property as $1,060,000 plus $20,000 for chattels.
[15] Mr Smith sent a letter dated 12 April 2021 to Mrs Washikita’s lawyers, referring to the valuation and to what he considered was the poor condition of the carpets, timber decking, curtains, light fittings, internal doors and kitchen cupboards and appliances. He also claimed that there was undoubtedly rot damage caused by extensive flooding originating in the laundry in 2014. He wrote:
Having being made aware of the real value of Chattels (nil value) it is my opinion and I accept the valuation as $1,060,000.00.
It must also be noted that initial consideration of a deal offer from Washikita to sell the property back to me has been a consideration of theirs at least as far back as 2014, (I discovered just recently) therefore timewise this exercise that we’re currently involved with does follow form, does it not?
Remember this, it was late last year 2020 that Tetsu contacted me with an offer to buy, 6 years after they first considering selling the property back to me!
...
I would also like to take this opportunity to personally thank my dear friend Nick and say that I am honoured he kept his word and to sell Perotti back to me when that time would come.
[16] There was no mention in any of the prior correspondence that Mr Washikita had promised to sell the property back to Mr Smith.
[17] In May 2021, Mr Smith wrote to Mrs Washikita’s lawyers in Japan, sending invoices for insurance and rates on the property which he said required payment. It appears Mr Smith was no longer prepared to pay these outgoings.
[18] In June 2021, Insight Legal, lawyers acting for Mr Smith’s company, Mu Holdings Ltd, sent a sale and purchase agreement to Rosebank Law (New Zealand lawyers engaged to act for Mrs Washikita) which stated that the purchase price of
$1,060,000 was to be paid or satisfied as follows:
By the vendors crediting the purchaser with the total sum of all invoices issued by John Smith, Omegatech and Mastercraftsmen Ltd to the vendors for the period 1992 to 2021 covering materials supplied, repairs and maintenance, rates, insurance and water rates, all of which at time of agreement remain unpaid and for which the combined total is $1,091,122.16.
[19] Mr Smith had not previously made such a claim for himself or on behalf of Omegatech and Mastercraftsmen Ltd. The expenses claim meant that Mr Smith was expecting Mr and Mrs Washikita to pay him over $31,000 to buy back the property.
[20] On 15 November 2021, Rosebank Law sent a letter to Insight Legal advising that the counter-offer was rejected and offering the property at the price of $1,060,000. They requested a response by 26 November 2021, failing which they expected a reasonable period of notice would be given for Mr Smith to vacate the property.
[21] By letter dated 30 November 2021, Rosebank Law advised that no response had been received, and therefore they had been instructed to terminate Mr Smith’s occupancy. The letter gave three months’ notice for Mr Smith and his family to vacate the property by 28 February 2022.
[22] Insight Lawyers subsequently sent a letter to Mrs Washikita’s lawyers in December 2021 (incorrectly dated 5 November 2021) which stated:
I have a long (five page) narrative from Mr Smith that emphasises that the relationship between Mr Washikita and Mr Smith was a long and close one. Clearly, the only agreement was the original one for our client to sell the property to your client. Mr Smith claims that your client repeatedly emphasised that no rent was to be paid whatsoever provided our client remained at the property taking care of it.
[23] The letter also stated that Mr Smith denied that Mr Washikita had ever made a loan to him and that a payment of $100,000 had been made by Mr Washikita to Mr Smith as reimbursement for property outgoings and improvements. In respect of this payment, Mr Smith’s solicitors wrote that in 2004, Mr Smith had asked
Mr Washikita during a telephone conversation to reimburse him for rates, insurance, repairs and ceiling insulation and:
… Mr Smith says it was never a loan in fact, it was reimbursement for property outgoings and improvements. If that could be established, payments made subsequently should presumably be taken off the sum now claimed, whether in reimbursement or as a credit against the purchase price.
[24] Mr Smith’s lawyers also said that Mr Smith was adamant there was a handshake agreement that he was to pay no rent as long as he maintained the property and acted as its property manager, and that from the outset Mr Washikita had trusted Mr Smith to take the appropriate steps in respect of the property. They said that Mr Smith had gathered and compiled copies of “all invoices and other documents relating to the maintenance and preservation of the property plus rates and insurance.”
[25] In response, Rosebank Law requested that copies of the invoices be provided. By email dated 23 December 2021, Insight Legal sent copies of invoices. They were in the names of Omegatech and Mastercraftsmen Ltd dating back to 1993. There were no third-party invoices provided for any of the amounts claimed (such as for materials and appliances). The email also included notes prepared by Mr Smith, which made no mention of a right to buy back the property.
[26] By letter dated 2 February 2022, Rosebank Law advised Insight Legal that the costs based on the invoices were not accepted as they seemed to have been created after the dates stated on the invoices and some were plainly exaggerated. The letter invited Mr Smith to put forward a reasonable proposal to purchase the property without prejudice to the notice that had been given for him to vacate by 28 February 2022.
[27] Mr Smith did not put forward any proposal to purchase the property. By letter dated 28 February 2022 his lawyers requested an indication of the extent of any credit towards the purchase price that would be offered and then he could amend his original offer, subject to finance. The letter concluded by stating that:
There must be a balancing point. If that balancing point once established is beyond the reach of Mr Smith and he cannot buy the house, then he will need to vacate. We suggest that insufficient information has passed for either party to be sure of the balancing point.
[28] By letter dated 10 March 2022, Rosebank Law advised that there were no independent invoices to substantiate what appeared to be exaggerated costs, which only served to confirm that no deduction should be made for those costs. The letter advised that Mr Smith’s implied licence to occupy the property was at an end and requested advice within seven days that Mr Smith and his family had either vacated the property or made firm arrangements to move out.
[29]Mr Smith and the second defendant have not vacated the property.
Summary judgment principles
[30] The application is made under pts 12 and 13 of the High Court Rules. Part 13 applies to every proceeding in which the plaintiff claims the recovery of land that is occupied solely by one or more unlawful occupiers. It provides that for the purposes of pt 13, an unlawful occupier means a person who:2
(a)occupies or continues to occupy land of the plaintiff without the licence or consent of the plaintiff or the plaintiff’s predecessor in title; and
(b)is not a tenant or subtenant holding over after the termination of a tenancy or a subtenancy.
[31] It is well established that merely because a proceeding falls within pt 13 a plaintiff is not barred from applying for summary judgment.3
[32] A plaintiff’s application for summary judgment is brought pursuant to r 12.2(1) of the High Court Rules 2016. It provides:
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.
[33] An oft cited summation of the correct approach to summary judgment applications is contained in Krukziener v Hanover Finance Ltd as follows:4
2 High Court Rules 2016, r 13.1
3 Terry v Calvert (1990) 3 PRNZ 63 (HC) and Kirkwood v Kirkwood [2020] NZHC 3108, (2020) 21 NZCPR 650.
4 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
[26] 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 at 3 (CA). 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 at 341 (PC). 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).
The claim for possession
[34] Mrs Washikita must prove that at the time of commencing her action she had an entitlement to immediate possession of the property and denial of such possession by Mr Smith.5 Mr Smith’s counsel acknowledged “…the starting point is that Mrs Washikita is entitled to possession as the registered proprietor”.
[35] Mrs Washikita is a registered proprietor of the property as a joint tenant along with Mr Washikita. As a joint tenant, there is a unity of possession so that she is entitled to occupy, use and enjoy the whole of the property.6 As a registered proprietor she is also entitled to possession of the property against someone occupying it without her consent.
[36] The evidence is that Mr Smith was given permission to occupy the property until such time as he was required to vacate. This is recorded in the pre-contractual document prepared by Mr Smith stating that he and his then partner would “remain in the premises until the new house is completed, or until further notice by yourselves”. To similar effect, Mr Smith’s counsel submitted that Mr Smith had agreed to stay in the property while Mr Washikita remained in Japan or requested otherwise.
5 Steven Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [9.3.01].
6 Bull v Bull (1955) 1 QB 234 (CA) at 237; Bunyan v Parish [2016] NZHC 2225, [2017] NZAR 931 at [32] and David Brown Property – A to Z of New Zealand Law (online ed, Thomson Reuters) at [48.R.6.6].
[37] As noted in McLaughlin v McGarry, a personal right or licence to occupy land may be terminated at the will of the landowner.7 There, Master Venning referred to Butterworths Land Law in New Zealand that:8
“When a contractual licence is found to be revocable, the licensee will have at least the period of grace which is allowed to a bare licensee to vacate the premises … What is a reasonable period depends on the facts of each case, but the Courts have considered as relevant the business commitments of the licensee at the time of the notice, the amount of financial investment made by the licensee which would presumably be lost, and in unusual circumstances have allowed the licensee a reasonable period to make suitable alternative arrangements. The period should allow both parties to adjust to the change.”
[38] It was not submitted the period of notice given to Mr Smith to vacate the property was unreasonable. Mr Smith’s position is that he is not required to vacate at all. In any event, I consider that the requirement that he vacate by 28 February 2022 was reasonable.9 This is so even taking full account of the lengthy period of time that he has been in occupation. The context is important also. In February 2020, he was given until the end of the year to vacate but did not do so. While subsequently the parties entered into negotiations for him to purchase the property, when those negotiations failed, Mr Smith was given a further three months from 30 November 2021 to 28 February 2022 to vacate the property. On 15 December 2022, and again on 2 February 2022, Mrs Washikita’s solicitors confirmed that Mr Smith should be making arrangements to vacate the property by 28 February 2022 as per the notice given.
[39] Subject to the matters raised by Mr Smith, to which I shall now turn, I am satisfied that Mrs Washikita has established that Mr Smith’s contractual licence to occupy the property terminated on 28 February 2022, and she is entitled to possession of the property.
7 McLaughlin v McGarry (2000) 15 PRNZ 178 (HC) at [34]-[35].
8 At [35].
9 Kirkwood v Kirkwood, above n 3; Bhanabhai v Lowndes [2019] NZHC 1441 and Johnston v Cooper [2018] NZHC 3087.
The grounds of defence
[40] In his written submissions Mr Elliott, counsel for Mr Smith, stated that Mr Smith had two defences to summary judgment,10 both of which arose from an informal oral agreement between Mr Smith and Mr Washikita.11 The defences are said to be that:
(a)Mr Smith has a right of first refusal to buy the property; and
(b)Mr Smith has an equitable interest in the property by virtue of his contributions, based on the principles in Lankow v Rose.12
[41] However, the written submissions advance two further grounds, namely that the case is unsuitable for summary judgment as there are material disputes of fact, and a more general ground that to grant Mrs Washikita possession of the property would be inequitable.
Material disputes of fact
[42] It is convenient to deal with this matter first. Mr Elliott emphasises the principle that, as a general rule, on a summary judgment application the Court will not attempt to determine disputed questions of material fact. He also submits the Court cannot be satisfied that Mr Smith does not have an arguable defence when there is no evidence from Mr Washikita and it is not clear the Court has all relevant documents before it. Several points must be made about this.
10 The defendants have filed a statement of defence and counterclaim against Mr and Mrs Washikita. The counterclaim contains three causes of action. The first cause of action alleges breach of contract by Mr Washikita in failing to acknowledge Mr Smith’s entitlement to be reimbursed for expenses and in not negotiating in good faith over the terms of sale of the property. The second cause of action claims an interest in the property under a constructive trust, in reliance upon Lankow v Rose. The third cause of action alleges Mr and Mrs Washikita are estopped from refusing to acknowledge Mr Smith’s entitlement to reimbursement as part of the purchase price of the property. Estoppel was not raised in defence of the summary judgment application.
11 There is no evidence that Mrs Washikita was a party to or even knew of the alleged agreement and no attempt on Mr Smith’s behalf to explain how such an agreement could bind Mrs Washikita or be set up against her to prevent her from obtaining possession of the property. Due to the conclusions I have reached on the arguments that were presented on Mr Smith’s behalf, I have not had to deal with this issue.
12 Lankow v Rose [1995] 1 NZLR 277 (CA).
[43] First, as noted in the extract from Krukziener v Hanover Finance Ltd at [33], the Court is entitled on a summary judgment application to determine and reject spurious defences or plainly contrived factual conflicts and 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.13
[44] Second, in certain important respects Mr Smith’s evidence does not support the submissions his counsel makes on his behalf. For instance, Mr Smith’s evidence does not support the submission that there was an agreement between Mr Smith and Mr Washikita encompassing both a right of first refusal and reimbursement of Mr Smith’s expenses. It is clear from his evidence that these matters are said to have been agreed at different times and Mr Smith does not draw any connection between them. As another example, counsel submitted that Mr Smith had sent invoices to Mr Washikita seeking reimbursement for expenses but there is no evidence from Mr Smith that he did so and no such invoices have been produced. I do not accept, as I understood was submitted, that in making these observations I am examining Mr Smith’s affidavit with an unduly critical eye or that these matters can be overlooked as reflecting poor drafting of Mr Smith’s affidavit.
[45] Third, Mr Washikita has not given evidence, nor is he ever likely to do so given his condition. However, the evidence before me includes correspondence between Mr Washikita and Mr Smith spanning many years, much of it written by Mr Smith. While Mr Smith says there was other correspondence he does not produce any such correspondence, he does not say the correspondence before me is not genuine, he does not comment on the content of particular correspondence, and he does not say how other correspondence that is not before me is material. I consider the correspondence that is before me, when considered alongside the other evidence, is a sufficient basis upon which to reach my conclusions.
13 Eng Mee-Yong v Letchumanan s/o Velayutham [1980] AC 331 (PC) at 341 and Gardiner v Gardiner [2018] NZHC 2618 at [20]. For application of the principles see Bilbie Dymock Corporation v Patel (1987) 1 PRNZ 84 (CA) at 86 and Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175.
[46] Fourth, some correspondence written by Mr Smith contains material that is so incongruent with his defences that they required some comment or explanation in his affidavit. As an example, Mr Smith sent correspondence to Mr Washikita stating he was paying all costs relating to the property. Mr Elliott submits that Mr Smith should be taken to have meant he would cover the costs in an “administrative” sense only, but was entitled to reimbursement. Mr Smith does not say that in his affidavit, and there is no evidence that Mr Smith sought reimbursement of expenses from Mr Washikita until he was asked to vacate the property. In the absence of such evidence, I consider I am entitled to take Mr Smith’s letters at face value
[47] In this respect, the position is similar as arose in Krukziener v Hanover Finance Ltd14 where the appellant brought an appeal from the entry of summary judgment on the basis that the affidavit evidence had provided a clear evidential basis for defences of promissory estoppel, collateral contract and rectification. It was argued that the Associate Judge was wrong to have resolved conflicts in the affidavit evidence. The Court of Appeal disagreed and said:15
Was a robust and realistic approach to the conflict of evidence warranted? In our view it was. The default terms were included in a commercial agreement drafted by solicitors. The attention of Mr Krukziener and his solicitor had been drawn to Elders’ insistence upon them. There is no allegation of mistake or non est factum. Mr Krukziener makes no attempt to explain why he signed the agreement in circumstances where he and his advisors knew it was not consistent with a blanket prohibition on default before the term expired. There is no affidavit from the solicitor. In the circumstances, an explanation was called for. We accept Mr Gilbert’s point that Ms Dwyer’s evidence was filed in reply, and that Mr Krukziener had no right of rejoinder. But the explanation was so fundamental to his defence that there was no excuse for omitting it in the first place. Leave could also have been sought to file an affidavit by way of rejoinder. Had Mr Krukziener a cogent response to Ms Dwyer’s evidence, and in particular her introduction of the email in reply, it is likely that the Associate Judge would have allowed him to advance it.
[48] Finally, I consider positions taken by Mr Smith, both prior to and in this proceeding, to be spurious . As an example, he asserted through his lawyers that Mr Washikita did not make a loan to him but that the money was reimbursement of expenses, when he had acknowledged the loan repeatedly in correspondence and now accepts there was a loan. There is also no explanation why, if he was owed
14 Krukziener v Hanover Finance Ltd, above n 4.
15 At [29].
reimbursement for amounts expended on the property, he asked Mr Washikita for a loan rather than just reimbursement.
[49] In another example, Mr Smith’s evidence is that Mr Washikita was to pay rates and insurance for the property, yet he paid them for 30 years, and there is correspondence where he apologises to Mr Washikita (who had received a renewal note for the insurance) and advised, “I automatically pay”.
[50] Another example is the invoices that Mr Smith’s solicitors said he had “gathered and compiled” after he was asked to vacate the property, totalling
$940,948.16, that it is now accepted were never sent to Mr Washikita and for which no supporting documents have been provided. I am advised by counsel that these invoices are to be regarded as estimates, but Mr Smith does not say that in his affidavit and his solicitor’s correspondence was not written on that basis. In their letter (incorrectly dated 5 November 2021) where Insight Legal refers to the invoices for the first time, they say, “Our client for his part has produced multiple invoices which with all due respects to the parties, should have been dealt with in a more business-like fashion than either has done”. That comment makes no sense unless it was being asserted by Mr Smith that the invoices had previously been sent to Mr Washikita. Further, Mr Smith offers no explanation why the amounts of some of these invoices have been changed by significant sums since they were sent to Mrs Washikita’s solicitors or how, in addition to all other sums he claims, Mr Smith can claim property management fees of more than $150,000.
The alleged oral agreement
Was there an oral agreement?
[51] Mr Elliott submits there was an informal oral agreement between Mr Smith and Mr Washikita that had the following terms:
(a)Mr Smith agreed to sell the property to Mr Washikita at a reduced price, in acknowledgement of their close friendship.
(b)Mr Washikita agreed that if he wished to sell the property in the future he would first offer it to Mr Smith on the same “no profit” basis.
(c)Mr Smith agreed to stay and care for the property while Mr Washikita remained in Japan or until Mr Washikita requested otherwise.
(d)In consideration, Mr Washikita agreed to reimburse Mr Smith for any costs incurred in relation to the upkeep of the property and did not require any rent to be paid.
[52] The existence of an oral agreement encompassing both a right of first refusal and an obligation on the part of Mr Washikita to reimburse Mr Smith’s costs to maintain the property, is fundamental to Mr Smith’s defence to the summary judgment application. Mr Elliott accepted that a right to reimbursement, standing alone, would not provide Mr Smith with a defence to Mrs Washikita’s claim for possession. The argument advanced is that equity will not allow Mrs Washikita to exercise her legal rights in an inequitable manner. The inequity Mr Smith complains of is that in the exercise of the right of first refusal Mrs Washikita will not allow reimbursement of costs Mr Smith says he incurred on the property.
[53] However, Mr Elliott’s submission is not supported by Mr Smith’s evidence. Mr Smith does not draw a connection between these two matters in the way counsel framed the argument. The only mention that Mr Smith makes of a right of first refusal is in one paragraph of his evidence where he says nothing about an agreement to reimburse his costs. His evidence is that he sold the property at a reduced price and:
Nick was grateful for the price reduction and said if for any reason he was thinking of selling the Property in the future, he would offer it to me first. I told him I would definitely buy it back and he told me because I am selling it to him at cost, he would honour that and would sell it back to me at no profit. We shook hands and celebrated the deal with a meal at Angus Steakhouse in Auckland City. A very memorable time.
[54] Mr Smith’s evidence is to the effect it was only later, when the house had been completed and Mr Washikita had returned to Japan, that Mr Washikita said he would
reimburse Mr Smith’s costs for work on the property.16 In relation to this, Mr Smith says:
Once the property was completed, Nick wanted me to remain and look after the property. Nick was clear that he didn’t want me to pay any rent. Given Nick was on the other side of the world and wouldn’t be visiting the property very often, it was important to him to know someone was looking after the property on a day-to-day basis while he was away.
Nick left it entirely to me to decide what work was required on the property. Nick was adamant he was not interested in seeing quotes or prices prior to me starting any property job. Given he wasn’t in New Zealand it would have been difficult for Nick to form a view one way or another on any particular job in any event and he completely trusted my professional opinion on such matters.
…
Nick made it clear to me that he intended to reimburse for the cost of any work undertaken on the property. When I got paid was entirely up to me. All Nick asked was that I send him any invoices and some photos of the work done and he would arrange payment.
[55] For reasons I shall shortly come to, I do not accept Mr Washikita granted Mr Smith a right of first refusal, but had I considered it was arguable that he had done so, I would not accept counsel’s submission that it was a term of that agreement that Mr Smith was to be given credit against the purchase price for costs he had incurred in respect to the property.
[56] However, I am satisfied that Mr Washikita did not grant Mr Smith a right of first refusal and did not agree to reimburse Mr Smith his costs. The evidence is quite overwhelming that this is the case.
[57] There is no mention of a right of first refusal in the agreement for sale and purchase or in any correspondence prior to Mr Smith being asked to vacate the property. There is a document prepared by Mr Smith at the time of the sale that simply states, “Simone and myself to remain in the premises until the new house is completed, or until further notice by yourselves”. Mr Smith corresponded with Mr Washikita at this time and the prospect that he might at some later time buy the property back is not mentioned.
16 It should be noted that the invoices Mr Smith has produced shows work to complete the house and grounds through to April 1993.
[58] The first mention of a promise by Mr Washikita to sell the property back to him is in Mr Smith’s letter dated 12 April 2021 where he said, “…I am honoured [Mr Washikita] kept his word and promise to sell Perotti back to me when that time would come”. At that stage he accepted a valuation of the property of $1,060,000 and made no mention that the sale was to be at “no profit”. Mr Smith also made no mention of a promise to sell the property back to him at “no profit” in notes that he made dated 22 April 2021 provided to Mrs Washikita’s solicitor by Mr Smith’s solicitors. That was first raised in his affidavit filed in opposition to the application for summary judgment.
[59] Mrs Washikita and her son state that Mr Washikita did not ever tell them of an agreement that Mr Smith was to buy back the property at no profit. Mr Smith’s counsel argues there are any number of reasons why Mr Washikita may not have mentioned the oral agreement to his wife and son, and that it would not have been a relevant matter for discussion unless and until the property came to be sold. He also submits the right of first refusal may have been discussed by Mr Smith and Mr Washikita, even if not mentioned to Mrs Washikita or referred to in correspondence. This is another example of where counsel’s submission is insufficiently supported by Mr Smith’s evidence. Mr Smith does not refer to any such discussions with Mr Washikita.
[60] I accept there may be reasons why Mr Washikita might not mention to his wife and son that he had agreed Mr Smith could buy the property. However, of more consequence is Mr Smith’s failure to raise the matter when, in October 2020, he expressed an interest to buy the property, or when it was suggested the parties seek a registered valuation. Importantly also, Mr Smith’s solicitors did not mention the agreement, even when attempting to negotiate over the price to be paid for the property after the registered valuation was obtained. To the contrary, Mr Smith’s solicitors wrote (letter incorrectly dated 5 November 2021) that the only agreement between the parties was for the original sale of the property to Mr and Mrs Washikita as follows:
I have a long (five page) narrative from Mr Smith that emphasises that the relationship between Mr Washikita and Mr Smith was a long and close one. Clearly, the only agreement was the original one for our client to sell the property to your client. Mr Smith claims that your client repeatedly emphasised that no rent was to be paid whatsoever provided our client remained at the property taking care of it.
[61] It is then submitted for Mr Smith that “aspects” of the oral agreement were raised by Mr Smith in the correspondence between him and Mr Washikita that is before the Court. None of the correspondence I was referred to in the written submissions or at the hearing provide any meaningful support for that submission. For instance, it was submitted that Mr Smith provided regular updates of maintenance and improvements he made on the property, but it is clear from the correspondence that reports to Mr Washikita were sporadic and years apart, and to the extent Mr Smith did update Mr Washikita on work that he says was done, it was well after the event and often as justification for non-payment of the loan.
[62] Insofar as Mr Smith says that Mr Washikita agreed to reimburse him for costs incurred this is also inconsistent with the correspondence that passed between him and Mr Washikita. It is also inconsistent with the manner in which Mr Smith conducted himself. For instance, while asserting in his affidavit that Mr Washikita was to pay the rates and insurance for the property, Mr Smith paid them for almost 30 years, only refusing to do so when he had been asked to vacate the property.
[63] There are several clear acknowledgements from Mr Smith that it was his obligation to pay all costs. As an example, in a letter to Mr Washikita of 28 January 2016, Mr Smith stated:
I am not living in your house Nick; I am looking after your house. I am your house manager.
The difference between living in your house and looking after your house is because of the following:
Anything that breaks, I have it fixed and I pay. Anything that wears out, I have it replaced and I pay.
Anything that is damaged I repair and I pay …
[64] This and other correspondence does not suggest the existence of an agreement, or even an expectation, that Mr Smith would be reimbursed for his costs.
[65] I do not accept that Mr Smith ever sent invoices to Mr Washikita for the cost of work and there is no evidence that he did so. The invoices that Mr Smith has now produced for work done to the property are particularly problematic. While Mr Elliott
advises me that the invoices were prepared recently and were never sent to Mr Washikita, that is certainly not the impression given by his solicitors when they first mentioned the invoices in their December 2021 letter (wrongly dated 5 November 2021), and it is not what Mr Smith says in his affidavit. What he says is:
Obviously over 30 years there was much that had to be done on the Property to maintain it in a good condition. For the purposes of the proposed sale of the Property to me in 2021 (discussed from para 29 below) I put together a schedule of all the costs incurred in relation to the Property. A copy of that schedule, together with my specific invoices to Nick is annexed marked “JS- 1”. The total of these costs (as at March 2021) was $940,948.16 including GST.
(emphasis added)
[66] Expert evidence has been given for Mrs Washikita by Brent Whale, a computer forensic specialist, to which there is no reply by Mr Smith or in his counsel’s submissions. Although the invoices are dated from 1993, Mr Whale states they have been created using a Microsoft Excel format that was not introduced until January 2007. It also appears that the invoices were all modified in either January or April 2021, which was after the offer was made for Mr Smith to purchase the property.
[67] Further, the total of the invoices that were provided to Mrs Washikita’s solicitors in December 2021 was $758,003.68. However, the invoices that are now attached to Mr Smith’s affidavit have been changed and only total $534,159, a difference of $223,844.68. Nevertheless, the schedule attached to Mr Smith’s affidavit still claims $762,979.32 for those invoices. Mr Smith offers no explanation for this. As mentioned, there are no third-party invoices to support the claimed amounts despite these having been requested by Mrs Washikita’s solicitors.
[68] Finally, it is submitted for Mr Smith that the existence of the oral agreement is corroborated by subsequent conduct of the parties where Mr Smith has cared for the property, met all expenses of an owner for the last 30 years, and that it is inconceivable he would have done so unless there was an agreement of the kind submitted. I consider the position Mr Smith advances entirely implausible. It involves Mr Washikita having paid Mr Smith for the property, provided him with 30 years rent free occupation of the property and now being obliged to transfer it back to Mr Smith along with a substantial payment to reimburse Mr Smith for expenses he says he incurred in respect of which
Mr Washikita was never consulted, all outgoings and property management fees. Contrary to Mr Elliott’s submission, the parties’ conduct and all the correspondence confirms the agreement was that Mr Smith would live in the property rent free but meeting all the expenses and that he would leave when requested to do so.
Uncertainty and part performance
[69] Mrs Washikita submits that a term of the agreement Mr Smith relies upon, that the property would be sold to Mr Smith at “no profit”, is too uncertain to be enforceable as a contract and, in any event, such an agreement is not in writing so as to comply with the requirements of the Contracts Enforcement Act 1956.17
[70] A right of first refusal is only enforceable as a contract if there is agreement on price or upon the means by which the price may be determined measured against “objective criteria independent of the future agreement of the parties themselves”.18 The author of Sale of Land states:19
The terms and conditions of any sale may have been agreed in advance by the grantor and the grantee and be embodied in the right of pre-emption itself. The price may be an absolute sum already agreed between the grantor and grantee, or an independent mechanism for fixing the price must have been agreed, or the right of pre-emption may fix the price by reference to the terms of any offer received by the grantor from a third party, or the terms on which the grantor is willing to sell. In any event, there cannot be specific performance without certainty as to the terms on which the offer to the grantee is to be made; the court cannot tell the grantor what the terms should be.
(footnote omitted)
[71] The correct approach to contractual interpretation is settled. The Court must decide what the contract in question would convey to a reasonable person having all the background knowledge which would reasonably be available to the parties in the position they were in at the time of the contract. However, as is noted in Burrows, Finn and Todd on the Law of Contract in New Zealand:20
17 Contracts Enforcement Act 1956 s 2(1)(b) and (2).
18 D W McMorland Sale of Land (4th ed, Cathcart Trust, 2022) at 100.
19 At 119.
20 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at 91.
If, however, the ambiguity of the terms the parties have chosen to express essential elements of their intended legal relations cannot be resolved through interpretation, the court will reluctantly have to conclude that no contract was ever concluded.
[72] In the present context it is difficult to see what meaning can be given to the term “no profit”. Mr Elliott could not suggest what those words might mean and Mr Smith also does not shed light on the matter. What is instructive is that in his counterclaim alleging breach of contract, Mr Smith pleads the parties would engage in good faith and negotiate as to the terms of sale of the property to him. The relief sought includes an order requiring such negotiations for “an appropriate corresponding set-off from the agreed purchase price of the Property”. That pleading implicitly acknowledges that the parties had reserved to themselves the question of price for determination by a later agreement. The Court cannot complete a bargain which the parties themselves have determined to delay concluding.21
[73] Mr Elliott argued that any uncertainty that might exist as to the meaning of the term “no profit” is now moot as the parties had agreed that the price to be paid for the property was $1,060,000. He argued that the need for a set-off against this sum “arises ancillary to that” and only because Mr Smith had not been reimbursed for his costs earlier. This argument is incorrect as the parties did not agree on price.
[74] When first asked if he would buy the property Mr Smith said, “I am willing to buy the property subject to conditions.” He did not state what his conditions were. When the valuation was obtained he challenged it and advised he accepted a valuation of $1,060,000 (which was less than the valuation by $20,000) and said the parties were working towards “a settlement with a Sale & Purchase Agreement on Perotti Place”. Then Mr Smith’s solicitors prepared an agreement for sale and purchase under which Mr Smith was not offering to buy the property at valuation or even at the lesser sum that he accepted as its market value, but required Mrs Washikita to pay him around
$31,000 to take title. That was not accepted by Mrs Washikita. The parties were therefore never at one as to the price Mrs Washikita would sell the property to Mr Smith.
21 Todd and Barber, above n 20, at 95 and Willetts v Ryan [1968] NZLR 863(CA), applied in Barrett v IBC International Ltd, above n 13.
[75] I therefore accept the submission for Mrs Washikita that an agreement that Mr Smith would have the first right to purchase the property “at no profit” would be too uncertain to be enforceable as a contract. This conclusion effectively disposes of two other matters. First, Mr Smith accepts that a right of first refusal must be in writing but submits that the doctrine of part performance applies. As the Court of Appeal held in Barrett v IBC International Ltd, if there is never a contract constituted between parties there cannot have been part performance of it.22 Second, as Mr Elliott’s acknowledged, in the absence of an enforceable right of first refusal, Mr Smith’s defences to the summary judgment application fall away. Nevertheless, I will turn to the other matters raised.
Constructive trust
[76] Mr Smith argues that he has an interest in the property under a constructive trust based on principles in Lankow v Rose.23 In Lankow v Rose, McKay J succinctly stated the relevant principles as:24
The claimant must show a direct or indirect contribution to the property in question, an expectation of an interest, and that the circumstances are such that it is reasonable for the claimant to have an expectation of an interest and for the respondent to expect there to be such an interest.
[77] I accept that Mr Smith made more than minor direct and indirect contributions to the property during the many years he has been in occupation of it, although not that such contributions exceeded the benefits he and his family received from rent free occupation of the property over the same period. But that is not why I reject this aspect of his defence.
[78] Referring to the judgment of Hardie Boys J in Lankow v Rose25 and a judgment of Heath J in O’Connell v Muharemi,26 Mr Elliott submits that it is unnecessary for a claimant in Mr Smith’s position to establish that he or she actually had an expectation
22 Barrett v IBC International Ltd, above n 13 at 176.
23 Lankow v Rose, above n 12.
24 At 289.
25 Lankow v Rose, above n 12, at 282.
26 O’Connell v Muharemi HC Auckland CP546-SD01, 24 October 2003.
of an interest in the defendant’s assets provided that it was reasonable for him or her to have that expectation in all the circumstances.
[79] However, the authors of Equity and Trusts in New Zealand note that in the present context the expressed intentions of the parties with respect to the disputed property remain paramount.27 This is consistent with the extract from McKay J’s judgment in Lankow v Rose above, and the judgment of Tipping J in the same case who said:28
The second thing the claimant must establish is that she expected an interest in the property. If, for any reason, she had no such expectation, a constructive trust cannot be imposed in her favour.
[80] Here, Mr Smith’s claim to an interest in the property on the basis of a constructive trust fails because he did not in fact have an expectation of an interest in the property, nor would the existence of such an expectation have been reasonable in the circumstances.
[81] Nowhere in his affidavit does Mr Smith assert that he carried out work on the property in the expectation that he would receive an interest in it. In correspondence with Mr Washikita he repeatedly acknowledged the property belonged to Mr Washikita and he was looking after it for him. The absence of any expectation of an interest in the property is confirmed by the notes that Mr Smith made dated 22 April 2021 sent by his solicitors to Mrs Washikita’s solicitors that “The sale of property to Washikita removes me of any legal interest OR claim of the property including ANY COSTS from this time forward.”
[82] Further, the existence of an expectation of an interest in the property is inconsistent with Mr Smith’s case that he had an agreement with Mr Washikita he would be reimbursed for his work. If there was an agreement to that effect Mr Smith is entitled to demand payment, but there are no unconscionable circumstances arising that requires the intervention of equity by way of the imposition of a constructive trust
27 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 1200.
28 At 294.
in the property. This is particularly so when it was always understood that Mr Smith was allowed to occupy the property but would vacate when he was asked to do so.
[83] It follows, Mr Smith does not have an arguable case to an interest in the property on the basis of a constructive trust.
Unconscionability
[84] It is then argued that even if Mr Smith does not have a defence to Mrs Washikita’s claim it would be unconscionable (or inequitable) to require him to vacate the property. The unconscionability is said to arise from the cost and inconvenience of requiring Mr Smith to move from the property and then back into it should his counterclaims ultimately prove to be successful. It is said that allowing Mr Smith and his family to remain in the property would cause minimal inconvenience to Mr and Mrs Washikita who do not need the property for themselves, and the property will be better maintained by Mr Smith than if he is required to vacate. I do not accept these submissions.
[85] Mr Smith is entitled to pursue his counterclaims whether or not he has possession of the property. If he is concerned that the property may be sold before his claim is heard he can apply for interim relief regardless of whether Mrs Washikita obtains possession.
[86] I do not consider that it is unjust that Mr Smith be required to vacate the property before his counterclaims are heard for several reasons. First, I consider Mr Smith’s counterclaims are without merit and have no realistic prospect of success.
[87] Second, even if I was wrong in that assessment, it is not disputed that Mr Smith agreed to vacate the property upon request and he has not done so.
[88] Third, Mr Smith has not offered to pay rent or outgoings during any period of occupation or to compensate Mr and Mrs Washikita should his counterclaims fail. Mr and Mrs Washikita have been requiring him to vacate the property since February 2020. It could be another 18 months or more before Mr Smith’s counterclaims are
heard meaning Mr and Mrs Washikita will be forced to bear the financial cost of Mr Smith’s occupancy with no assurance of ever being compensated for that.
[89] Fourth, I do not accept there is any basis for the submission that the property will be better maintained if Mr Smith continues to occupy it. It is notable that despite asserting he has spent more than $750,000 on maintaining the property, in his letter to Mrs Washikita’s solicitors of 12 April 2021 Mr Smith describes a property that is significantly rundown.
[90] Finally, given their ages and Mr Washikita’s health condition, the lengthy delay until Mr Smith’s counterclaims are heard is so significant it could prevent either Mr or Mrs Washikita from ever receiving any benefit from their property.
[91] On balance, I consider the hardship that Mr and Mrs Washikita will suffer, should summary judgment be refused, would far outweigh any inconvenience to Mr Smith.
Result
[92]Mrs Washikita’s application for summary judgment is successful.
[93] Subject to [94] below, there shall be an order that the defendants are to forthwith deliver up possession of the property at 14 Perotti Place, Auckland to Mrs Washikita or any agent nominated by her.
[94] Mr Davey advises me that Mrs Washikita wishes to provide some further time for the defendants to order their affairs and vacate the property. In light of that indication the order made in [93] shall lie in Court until 28 February 2023. Whether Mrs Washikita wishes to grant any further time is a matter for her.
[95] Mrs Washikita is entitled to costs. If counsel cannot agree as to the quantum of those costs, they may file memoranda, which shall be no longer than five pages.
[96] Mr Smith is entitled to pursue his counterclaims. The Registrar is to set those matters down for a case management telephone conference in the New Year. Counsel
shall file memoranda for the case management conference at least three working days prior with proposed timetable directions.
O G Paulsen Associate Judge
Solicitors:
Rosebank Law (J Nishimura), Auckland Insight Legal Limited, Papakura
4
0