Whittle v Whittle
[2015] NZHC 2879
•19 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-001039 [2015] NZHC 2879
BETWEEN GLENN RAYMOND WHITTLE
Plaintiff
AND
GLENN WHITTLE, ALEXANDRA JANE WHITTLE AND QUANTUM TRUSTEE COMPANY 1003 AS TRUSTEES OF THE HOJAG FAMILY TRUST
Defendants
Hearing: 3 September 2015 Appearances:
R B Hucker for the Plaintiff
C Patterson and A M Halloran for the DefendantsJudgment:
19 November 2015
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 19 November 2015 at 11.00 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Hucker & Associates, Auckland
Quinn Law, Auckland
C Patterson, Auckland
WHITTLE v WHITTLE & Anor [2015] NZHC 2879 [19 November 2015]
[1] The plaintiff, Glenn Whittle, separated from his wife, Alexandra Whittle, in March this year. They are endeavouring to reach agreement on the division of their assets and the interest they have in the assets of their family trust (of which both are trustees). They have not yet reached a resolution but negotiations between the couple’s solicitors are ongoing. In the meantime Mr Whittle is anxious to have payment of $158,955, which he says represents his share of a current account debt of
$317,910 that the family trust owes to the couple and for which he made demand on the trustees. As payment has not been forthcoming he has commenced this proceeding in which he seeks summary judgment against the trustees for his claimed share of the debt, plus interest.
[2] Mr Whittle deposes to his belief that there is no defence to his claim.
[3] The application is opposed. Mrs Whittle, who is effectively Mr Whittle’s only co-trustee - she is a trustee in her personal capacity and a trustee in her capacity as the director of the corporate trustee - contends that he is not entitled to payment on his unilateral demand.
[4] The application is made in reliance upon High Court Rule 12.2 which relevantly states:
(1) 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.
[5] In order to receive summary judgment, Mr Whittle must provide a sufficient evidential foundation to demonstrate his claim against the trustees to the sum claimed; show that the trustees have no arguable defence; and I must be satisfied that summary judgment should not be declined on the basis of the residual discretion.
Background
[6] In 2003 Mr Whittle set up a family trust of which they are beneficiaries. The trust is named the Hojag Trust. The Whittles are the trustees, together with a third
trustee, Quantum Trustee Company 1003 Limited. Ms Whittle is the director of that company.
[7] In 2006 the Whittles transferred ownership of their family home at Meadowbank to the trust. The home is the trust’s only asset. It is not in dispute that the trust’s acquisition of it resulted in a corresponding debt which, despite being recorded as a current account debt owed to “the beneficiaries” in the trust’s unsigned
2013 financial statements, is a debt back to Mr and Mrs Whittle. It is common ground the debt now stands at $317,910 and that it is relationship property. There is however no documentation before the court recording the terms on which the trust made the acquisition. It is not clear what express terms there are for the repayment of the resulting debt.
[8] Mr Whittle has commenced this proceeding in a context of a background of recent developments that are twofold. First, the Commissioner of Inland Revenue has commenced a bankruptcy proceeding against him based on an unsatisfied judgment debt of $147,591.25 for unpaid taxes which he cannot pay unless he receives payment from the trustees as he has no other funds. The Commissioner’s proceeding has been adjourned on the basis of Mr Whittle’s expectation that he will receive a payment in this proceeding sufficient to satisfy the tax debt.
[9] Secondly, Mr and Mrs Whittle are endeavouring, through negotiations conducted by their respective lawyers, and under pressure due to mortgage repayment obligations, to come to an arrangement to wind up the trust and to agree on terms either for the sale of the home (which Mr Whittle believes is inevitable) and a division of the proceeds; or for the vesting of the home in Mrs Whittle with a payout to compensate Mr Whittle (which Ms Whittle wants). They are in agreement (wearing their trustee hats) that the trust should be wound up now (given that their marriage has broken down). They also agree that the trust’s interest in the home should be vested in them alone. Their disagreement is as to the quantum of the respective shares that each should receive. That stalemate is one of several factors that has infected the possibility of an agreed resolution in relation to the debt back.
Another such factor is whether Mr Whittle should compensate the trust for damage he is said to have caused to the home by carrying out defective electrical work.
Submissions
[10] At the hearing counsel for Mr Whittle explained that the case against the trustees is that as they are indebted to Mr Whittle and his wife for $317, 910, it must be the case that they each own a half share in the debt as “tenants in common” and that the trustees are obliged to pay out his half share on demand. Counsel contends in the alternative that even if Mr and Mrs Whittle own the debt as “joint tenants”, the trustees are nevertheless obliged to pay Mr Whittle a half share upon demand. He contends that, either way, the trustees have no defence to the claim for summary judgment, and further, that there are no discretionary reasons for withholding judgment.
[11] Counsel for Mr Whittle further submits that the fact the tax debt is a relationship property debt, this is an added reason for ordering summary judgment: it is inevitable that monies owed by the trustees to Mr and Mrs Whittle will have to be used to pay the tax debt.
[12] Counsel for Ms Whittle and Quantum acknowledges that Mr Whittle’s tax debt is probably a relationship debt, but he submits that it is a joint debt which cannot be severed into two parts without the consent of both or simply upon Mr Whittle’s unilateral demand. Mrs Whittle, in her personal capacity, would have to agree to make a joint demand. Counsel further submits that in any case, the unanimous agreement of the trustees is required if the debt is to be repaid. Such consent is not given.
[13] Counsel for Mrs Whittle also argues that as the Whittles’ interest in that debt is relationship property, the division of the ownership of the debt should be dealt with as part of the overall division of such property, in the context of an intended Family Court proceeding.
[14] Counsel adds that since the proceeding was filed, Mrs Whittle has filed a further affidavit detailing the electrical damage to the home which she claims was
uncovered in June and July 2015. She says that this damage must have been caused by Mr Whittle, who was the only person to do electrical work on the property. If the Court grants this summary judgment application, she asks that it reduce the proportion of the debt owed to Mr Whittle in recognition of the loss his substandard work caused.
Summary judgment principles
[15] The applicable principles in determining an application for summary judgment against a defendant are well settled, and are set out by the Court of Appeal in Krukziener v Hanover Finance Ltd:1
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. 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. 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. 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.
Discussion
Joint owners or owners in common?
[16] There is insufficient evidence to enable me to make findings on whether the debt owed to Mr and Mrs Whittle is owed to them as joint creditors, or whether (as he claims) he has a separate half interest which he is entitled to call upon.
[17] Counsel for Mr Whittle attempted to get around these issues by arguing that the amount of the debt is essentially agreed, and the underlying law makes it clear that whether it is owed to the Whittles as tenants in common or jointly, Mr Whittle is
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26] per Miller J (citations omitted).
entitled to call it up his share as he wishes, or to draw on it as if it were a bank account. I could therefore conclude that, in the absence of evidence to the contrary, this must be a debt held in common in equal shares, and Mr Whittle is entitled to call up his half of the debt; or else the debt is held jointly on terms with the same practical effect. In support of the proposition that equity prefers tenancy in common
to joint tenancy, he cited a number of venerable cases.2 In support of the proposition
that joint owners of assets are each allowed to draw on those assets he cited Edgar v Commissioner of Inland Revenue.3 That case involved a joint bank account, and established that joint account owners could each draw on the account as required for their own benefit, unless there were circumstances that suggested an agreement to the contrary.
[18] I cannot see how that helps Mr Whittle, however. It was central to the reasoning in Edgar that all the circumstances of the case were to be taken into account, as indeed is true of equitable presumptions in general. There are situational factors here that possibly undermine his contentions as to the mode of ownership.
[19] First, a debt is substantively different from a bank account. Bank accounts are intended to be used, and drawn on, on a day to day basis. Those drawings may be large, but the majority of expenditure from joint bank accounts will tend to be small: purchases of groceries, and the like. The consequences if mutual agreement were required for each withdrawal are not difficult to imagine, in terms of spouses’ ability to access funds for daily use.
[20] Drawing against a joint debt is quite a different matter, particularly where, as here, the debt represents, in practical terms, a house. Debts are usually repaid on set terms, and there are usually restrictions on how and when a debt can be called up. That recognises the fact that, unlike bank accounts which are made available for the use and benefit of the holders, debts must be paid by debtors who themselves need the funds, and so have practical restrictions on their ability to pay. The consequences
of a demand for immediate payment in this case provide an illustration: Mrs Whittle
2 Re Jackson, Smith v Sibthorp (1887) 34 ChD 732, Steeds v Steeds (1889) 22 QBD 537, 541;
Robinson v Preston (1858) 27 LJ Ch 395; Re Foley (decd) Public Trust v Foley [1955] NZLR
702.
3 Edgar v Commissioner of Inland Revenue [1978] 1 NZLR 590.
says that, in order to pay the debt for which Mr Whittle made demand, the trustees would be forced to sell the house. Regardless of whether the sale of the house is, in this case, inevitable, that consequence demonstrates why the presumption in Edgar arose in circumstances quite different to those in this case, and why it cannot be applied directly to this situation.
[21] Furthermore, the house was owned jointly. In my view, that suggests the possibility that the parties intended that the debt into which Mr and Mrs Whittle’s interest was converted was also to be owned jointly, and in the absence of evidence of any circumstances which indicate an intention to change the mode of ownership, I would be reluctant to find otherwise because of the limited evidence and submissions put before the court in the context of this summary judgment application. The practical consequences of the ability for one spouse to call up his or her share of a joint debt tend to point in the other direction. If Mr Whittle had presented me with a contract or contemporaneous documentation that might shed some light on the nature of the debt back, he might have been able to show that the debt was indeed held in common, but he has not done so.
[22] I am not prepared therefore, on the strength of precedent that relates to a distinctly different situation, to conclude that Mr Whittle was clearly entitled to a half share in the debt which could be called up at any time.
Whether debt repayable on demand?
[23] Even if it were demonstrated that the debt were indeed owed in common in equal shares, I have significant reservations about Mr Whittle’s contention that he is entitled to make unilateral demand upon the trustees for payment of his part of the debt.
[24] Mr Whittle has not pleaded or given evidence that establishes that the debt the trustees owe to him and Mrs Whittle is repayable on demand. In that situation I can only speculate whether counsel for Mr Whittle’s submission that the debt is repayable on demand is right.
[25] In the circumstances, unless all of the trustees are unanimous in their agreement that the debt should be repaid now (and they are not), then the deficiency in Mr Whittle’s pleading and proof is a bar to summary judgment.
[26] Mr Whittle has neither shown that the debt is held as tenants in common, nor that he has a presumptive right to call up his share.
Set-off / counterclaim
[27] Mrs Whittle contends by way of an alternative argument that even if Mr Whittle makes out a case against the trustees for liability, there is a valid claim for set-off because of the loss the defective wiring has caused, which would constitute an arguable defence to at least part of the debt. Such a set-off may well be arguable, assuming I were able to give judgment on liability in Mr Whittle’s favour. (I would be unable to determine quantum because there is insufficient evidence before me to decide what the amount of any set-off should be). However, the whole issue of set-off is academic. It would not be appropriate for me to determine liability in light of my earlier findings as to the nature and term of the debt.
Residual discretion
[28] Counsel for Mrs Whittle relies on a further and final argument. She submits that the Court should use its residual discretion to decline summary judgment, even if Mr Whittle could demonstrate a present entitlement to part or all of the debt. She argues that her intended Family Court proceeding brings relationship property issues affecting the trust debt and the trust asset into the frame, and that this sets up a situation where the High Court should be careful not to overstep its jurisdiction. To grant summary judgment would be contrary to s 4 of the Property (Relationships) Act 1976. Alternatively, it would ignore that the dispute before this court arises in a situation of the very kind in which the Court should in its discretion refuse to deal with it by of summary judgment, in favour of having it dealt in the Family Court, where all of the relationship property issues can be dealt with as a whole, rather than in a piecemeal way which may lead to unjust outcomes.
[29] It is also unnecessary to address this argument given my earlier findings. Having concluded that Mr Whittle has not proven his case to the required standard, there is no need for me to consider whether such issues (whatever they are) warrant the exercise of the discretion to decline summary judgment.
Other matters
[30] Without wishing to say anything that is taken as determinative of the parties’ rights and interests in relation to the repayment of the trust’s debt, the winding up of the trust, and the forthcoming Family Court proceeding, it may be useful to the parties if I make a few brief comments about the most practical and efficient way of achieving resolution.
[31] Both sides have a need to find a prompt resolution to the dispute that is the subject matter of this proceeding, and to the Whittles’ wider dispute. Mr Whittle is confronted with a tax debt that he must pay to avoid bankruptcy. The trustees are confronted with the real possibility that their bank will commence a mortgagee sale because they are apparently behind in their payments on the mortgage of the home, and it is self-evident that the costs will then ultimately fall on Mr and Mrs Whittle.
[32] Mr and Mrs Whittle in their personal capacities, and as trustees, recognise that a resolution lies in the winding up of the trust, which has a very significant equity in the home which they agree should now be made available to them by distribution. That equity is sufficient to enable satisfaction of the IRD relationship property tax debt, and also the mortgage to the bank, while leaving a significant sum for distribution to Mr and Mrs Whittle. Conceivably the interests of both can be met.
[33] The only real dispute between the parties appears to be confined to issues of quantum (principally arising from the claimed set-off and Mrs Whittle’s ability to finance the costs of a new mortgage if the property is transferred to her). As these issues are relatively limited, the dispute ought to be capable of prompt resolution without the expense of ongoing litigation. Certainly there is no advantage to the trustees or Mr and Mrs Whittle in prolonging the winding up, or in an ongoing delay of payment of Mr Whittle’s tax debt.
[34] I therefore encourage the parties again, as I did at the hearing, to look seriously at the option of attending mediation or some other form of alternative dispute resolution to resolve these remaining issues as expeditiously as possible.
Result
[35] The application for summary judgment is declined.
[36] The matter is adjourned to the chambers list at 2.15 pm on
10 December 2015. If the parties have not been able to resolve the areas of dispute that appear to be standing in the way of an agreed resolution, an initial case management conference will have to be allocated for this proceeding and it should take place as soon as possible.
[37] In accordance with the Court of Appeal’s judgment in NZI Bank Ltd v
Philpott4, costs are reserved.
Associate Judge Sargisson
4 NZI Bank Ltd v Philpott [1990] 2 NZLR 403.
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