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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
TAURANGA REGISTRY
CIV 2005-470-396
UNDER the Land Transfer Act 1952, the Credit
Contracts and Consumer Finance Act 2003 and
the Fair Trading Act 1986
BETWEEN K.S. BURMEISTER AND V.J.
BURMEISTER
Plaintiffs
AND
J.L. O'BRIEN
First Defendant
AND G.S. O'BRIEN
Second Defendant
AND P.E. PATTERSON
Third Defendant
AND G.P. CLAYTON
Fourth Defendant
AND J.F. CLAYTON
Fifth Defendant
AND M. HENLEY-SMITH
Sixth Defendant
AND AUCKLAND SAVINGS BANK
Seventh
Defendant
Hearing: 12 July 2006
Appearances: D.G. Chesterman for Plaintiffs
J.M. von Dadelszen for Third
Defendant
Judgment: 24 April 2007 at 11am
JUDGMENT OF ASSOCIATE JUDGE D.H. ABBOTT
In accordance
with R540(4) I direct that the Registrar endorse this judgment with the delivery time
of
11am on 24 April 2007
Solicitors:
Sharp Tudehope, Private Bag 12020, Tauranga
Bannister & von Dadelszen, PO Box 745, Hastings
BURMEISTER V O'BRIEN & ORS HC TAU CIV 2005-470-396 24 April 2007
Introduction
[1] The plaintiffs are the former registered
owners of a property at 1 Lotus
Avenue, Tauranga. In 2001 they were persuaded to take part in a scheme, operated
through the ICMG
Group of companies, which they understood would earn them
income on the equity in their Lotus Avenue home. They handed the title
to Lotus
Avenue to the scheme organisers, following which it was transferred to the first,
second and third defendants as trustees
of the first and second defendants' family
trust (the O'Brien Family Trust).
[2] The plaintiffs say that they did not agree
to transfer Lotus Avenue to the
O'Brien Family Trust and that their signatures on the memorandum of transfer were
forged. They say
that the scheme was a buy-back transaction, as defined by the
Credit Contracts and Consumer Finance Act 2003. They seek to have the
transfer to
the family trust set aside and to have the Lotus Avenue property put back into their
names. Alternatively they seek orders
to compensate them for the loss of their home,
and other losses suffered as a result of the fraud.
[3] The third defendant was
a professional trustee of the O'Brien Family Trust at
the relevant time. The plaintiffs say that she must have known of the scheme,
and is
party to the fraud because, at the very least, she knew of facts which ought to have
alerted her to it, but chose to ignore
those facts. Although the third defendant has
now resigned as a trustee, the plaintiffs say that she remains personally liable.
[4] The third defendant applies for summary judgment or for strike out of the
claims against her on the ground that the plaintiffs
cannot succeed on any of their
causes of action. She says that there is no evidence which can support the allegations
that she knew
of the underlying scheme and was aware of the fraud, and that
knowledge cannot be imputed to her on the facts that were known to her. She also
says that there is no basis for finding her personally
liable, and no need for her to
remain in the proceeding as she is no longer a trustee.
[5] The essential issue on this application
is whether the third defendant has
established that there is no factual basis on which the plaintiffs can succeed against
her personally.
Context
[6] The following facts (drawn from the pleadings and affidavits filed) are not in
dispute in this application.
[7] The plaintiffs purchased the Lotus Avenue property in 1990, and have lived
in it ever since. They borrowed from their bank
to purchase the property, and
completed paying off that loan in August 1999.
[8] In June 2001 the fifth defendant (who was known
to them) approached the
plaintiffs about participation in a scheme which the plaintiffs understood allowed
them to turn their now
unencumbered home into an income generating investment.
The plaintiffs were looking for ways of increasing their income. They agreed
to
participate in the scheme in the belief that Lotus Avenue would be put into "a secure
family trust" for the duration of the scheme,
and that they would receive regular
weekly payments. They understood the house would be transferred back to them,
unencumbered and
at no cost, when the scheme ended.
[9] The fourth defendant was one of the promoters of the scheme. He was
associated with a
group of companies operating under the name ICMG Group (who
were to administer the scheme). He got the plaintiffs to sign a document
when they
agreed to join the scheme. They cannot now identify what that document was but
recall that it was a single page and believe
it was an acknowledgement of their
agreement to join the scheme.
[10] The third defendant is a chartered accountant and a director
of the company
through which she practices. The practice has acted as accountant for the O'Brien
Family Trust for some years. The
third defendant was a trustee from November
1999 to July 2005. Amongst other things the trust owned the majority shareholding
in
the first defendant's mortgage broking business, the Mortgage Centre (HB)
Limited.
[11] The third defendant's accountancy practice
also acted for the ICMG Group
from December 2000 until early 2003. The ICMG Group was introduced to the
practice by the first defendant,
who was a director and shareholder in some of the
group companies, including ICMG Property Company Limited, between December
2000
and February 2002. (I will refer to the latter company as ICMG Property
Limited as it has been identified that way in documents and
affidavits.) Another
member of the practice was the partner responsible for the ICMG Group.
[12] In September 2001 the O'Brien
Family Trust purchased two residential
properties from ICMG Property Limited as investments. One of these was the
Lotus Avenue property.
It was purchased for $215,000 with the help of loan finance
from ASB Bank Limited. The third defendant's firm (but not the third
defendant
herself) prepared the loan application. The third defendant submitted the application
to the ASB. She has never met the
plaintiffs.
[13] In late September 2001 the plaintiffs uplifted the title to Lotus Avenue from
their bank (where it had remained
since they repaid their loan). A day or two after
that the first defendant collected the title from them (together with a discharge
of the
repaid mortgage executed by the plaintiffs' bank). He delivered the title
and discharge to the sixth defendant (the solicitor
instructed to act for the
O'Brien Family Trust on the purchase) in Auckland.
[14] On or about 4 October 2001, the third defendant
as one of the trustees of the
O'Brien Family Trust, signed loan documents sent to her by the sixth defendant,
including a mortgage
to the ASB Bank. She signed the documents separately from
the other trustees who signed the mortgage in front of the sixth defendant.
The loan
finance was drawn down and paid into the trust account of the sixth defendant (who
was acting both for the O'Brien Family Trust and for ICMG
Property Limited).
[15] The Lotus Avenue property was transferred to the O'Brien Family Trust by a
memorandum of transfer dated
5 October 2001, directly from the plaintiffs to the
trustees. The transfer appears to have been signed by the plaintiffs. The plaintiffs
contend that their signatures on this document are forgeries. The transfer and
mortgage were presented to the Land Transfer Office
for registration on 14
November 2001.
[16] In mid April 2002 the plaintiffs signed two further documents purporting to
record
the arrangement between them and the ICMG Group. One was an agreement,
the other a deed of acknowledgement of debt. Both were with
Opol Limited (another
company in the ICMG group), referred to an earlier agreement for sale and purchase
of Lotus Avenue, and recorded
terms for a buy-back arrangement. These documents
were backdated to 18 October 2001.
[17] The plaintiffs did not learn that Lotus
Avenue had been transferred to the
O'Brien Family Trust until November 2002.
[18] The third defendant did not receive a statement
of account issued by the sixth
defendant dated 8 October 2001 showing receipt of the ASB finance and
disbursement to the ICMG group
until late 2002. She was not aware that the
plaintiffs had not been paid in full by ICMG until about June 2003 (when told by the
first defendant). She did not become aware of the documents signed by the plaintiffs
and Opol Ltd, or a number of other post-settlement
documents relating to the buy-
back transaction, until after issue of this proceeding.
[19] The third defendant resigned as a
trustee of the O'Brien Family Trust on 14
July 2005. She is willing to have her name removed from the title (and to sign a
transfer
to the remaining trustees to effect that).
Applicable principles
[20] The third defendant's application is brought under r
136(2) of the High Court
Rules which provides:
136 Judgment where there is no defence or where no cause of action
can succeed
...
(2) The Court may give judgment against a plaintiff if the
defendant satisfies the Court that none of the causes of action in the
plaintiff's statement of claim can succeed.
[21] The principles which the Court applies in deciding such cases are now well
established: Westpac Banking Corp v MM Kembla
(NZ) Ltd [2001] 2 NZLR 298:
Bernard v Space 2000 Ltd (2001) 15 PRNZ 338, (2001) 15 PRNZ 347 (CA) and
[2003] UKPC 48; (2003) 16 PRNZ 715 (PC). The important elements for the present application are to
be found in the following passage of the Court of Appeal's decision
in Attorney-
General v Jones (2001) 15 PRNZ 347 (at paragraph [5]):
(4) A summary judgment application will not however
succeed where the
Court cannot confidently resolve disputed facts; the Court must be satisfied
that none of the claims
can succeed; it is not enough that they are shown to
have weaknesses; the assessment to be made is not one to be arrived
at on
the fine balance of the available evidence.
(5) While the plaintiff does not have to put up any evidence
at all, if the
defendant supplies evidence which would satisfy the Court that the claim
cannot succeed, the plaintiff
will usually have to respond with credible
evidence.
[22] It is also appropriate, in the present case, to note the comments
of the Chief
Justice in Westpac Banking Corporation v Kembla:
Except in clear cases, such as a claim upon a simple debt
where it is
reasonable to expect proof to be immediately available, it will not be
appropriate to decide by summary
procedure the sufficiency of the proof of
the plaintiff's claim. That would permit a defendant, perhaps more in
possession
of the facts than the plaintiff (as is not uncommon where a
plaintiff is the victim of deceit), to force on the plaintiff's
case prematurely
before completion of discovery or other interlocutory steps and before the
plaintiff's evidence
can reasonably be assembled.
[23] A defendant seeking summary judgment must show that the plaintiff cannot
succeed on any cause
of action. If that cannot be established the Court may
nevertheless strike out individual causes of action (under r 186
of the High Court
Rules), if satisfied that the pleading fails to disclose a reasonably arguable basis for
them. The principles
which the Court will apply in making that decision are
concisely set out in the following, often-cited, passage from the Court of
Appeal's
decision in Attorney-General v Prince and Gardner [1998] 1 NZLR 262, 267:
A striking-out application proceeds on the assumption that the facts pleaded
in the statement of claim are
true. That is so even although they are not or
may not be admitted. It is well settled that before the Court may strike out
proceedings the causes of action must be so clearly untenable that they
cannot possibly succeed ...; the jurisdiction
is one to be exercised sparingly,
and only in a clear case where the Court is satisfied it has the requisite
material
...; but the fact that applications to strike out raise difficult
questions of law, and require extensive argument does not
exclude
jurisdiction ....
Pleadings
[24] The plaintiffs claim against all three trustees under three causes of action:
the
first, third and fourth causes of action in their statement of claim. First, they say that
by reason of the fraud the trustees
are not bona fide purchasers for value, and hold
Lotus Avenue on constructive trust for them. Secondly, they say that the transfer
should be set aside under the Credit Contracts and Consumer Finance Act 2003 as
part of an oppressive buy-back transaction (oppressive
by virtue of the fraud).
Thirdly, they say that the trustees have been unjustly enriched, again because the
trust was not a bona
fide purchaser for value.
[25] There is no specific pleading of the basis on which they say that the third
defendant is personally
liable.
[26] In their first cause of action the plaintiffs allege:
a) The third defendant gave the first defendant,
Mr O'Brien
(a co-trustee), full authority to act for the trustees in all dealings
involving Lotus Avenue
(paragraph 69 of the amended statement of
claim);
b) Mr O'Brien knew that there was no agreement for
sale and purchase
of Lotus Avenue between the plaintiffs and the O'Brien Family
Trust, and arranged
for the Burmeisters' signatures to be forged on the
transfer and for the forged transfer to be registered (paragraphs
73, 74
and 75); and
c) The trustees obtained title to Lotus Avenue in the knowledge that they
were not bona fide purchasers for value (paragraph 77).
[27] Although the plaintiffs' second cause of action is said
to be against the
solicitor acting for the trust on the transfer (the sixth defendant) it repeats the relief
sought against the trustees
under the first cause of action. This seems to be an error
there is no relief sought against the sixth defendant but the pleading
is repeated in
later causes of action against the trustees and alleges that the solicitor's knowledge
knowledge can be imputed to
the trustees.
[28] In their third cause of action, the plaintiffs allege:
a) The O'Brien Family Trust was nominated
by the scheme organisers to
hold Lotus Avenue for the duration of the scheme, and the trustees
granted
them a right to occupy the property for the same period
(paragraphs 92 and 94);
b) They believed they
were entering into a buy-back transaction and had
a right to re-purchase Lotus Avenue from the trust at the end of
the
scheme (paragraph 95);
c) The transaction was oppressive because the trustees became registered
proprietors through fraud and deceit (the forging of the plaintiffs'
signatures) (paragraph 100).
[29] In their fourth cause of action, the plaintiffs allege:
a) The trustees have been enriched at their expense
by becoming
registered proprietors of Lotus Avenue (paragraphs 101 and 102); and
b) That enrichment
is unjust because the trustees were not bona fide
purchasers for value by reason of the fraud (paragraph 102).
[30]
In her statement of defence the third defendant admits paragraph 69 of the
amended statement of claim but states that (para 12):
(a) Her involvement in the purchase,
financing and ownership of Lotus
Avenue was solely in her capacity as a trustee of and accountant to
the O'Brien Family Trust,
(b) She gave authority to the First Defendant as her co-trustee to act on
behalf of the O'Brien Family Trust in arranging the purchase and
financing of Lotus Avenue, but she did not delegate
any of her
trustee powers to the First Defendant, and
(c) The First Defendant kept her reasonably informed
of his actions at
all times.
Apart from those admissions she denies the plaintiffs' allegations.
Opposing arguments
[31] Mr von Dadelszen, for the third defendant, made the general submission that
the plaintiffs had failed to provide any plausible
evidential basis for their allegations
against the third defendant. I take this submission to be that the third defendant had
put
forward evidence sufficient to satisfy the Court that the causes of action could
not succeed, and the plaintiffs had failed to put
forward plausible evidence to rebut
this. In other words, that the third defendant has satisfied the onus on her having
regard to
the whole of the evidence filed.
[32] Mr von Dadelszen submitted that, despite two affidavits having been filed by
the plaintiff
Mr K. Burmeister, there was no evidence capable of rebutting direct and
clear evidence from the third defendant that she had no knowledge
of any fraud, nor
of the underlying buy-back transaction. He pointed to the absence of any
documentary evidence capable of supporting
the allegations (discovery is complete)
or any contemporary third party evidence. He referred to an acknowledgement by
Mr Burmeister
that he had no direct knowledge as to the third defendant's
involvement. He submitted that the only dispute was over inferences to
be drawn
from facts which were not in dispute. He submitted that the evidence relied on by the
plaintiffs had no prospect of reaching
the high factual threshold needed to establish
an allegation of fraud. He invited the Court to take a robust approach, more
particularly
so given the harm to the third defendant (as a professional) in having to
respond to unsubstantiated allegations of fraud.
[33]
Mr von Dadelszen also submitted that the causes of action under the
Credit Contracts and Consumer Finance Act 2003 and for unjust
enrichment could
not succeed on various other grounds, regardless of the question of fraud.
[34] Finally, Mr von Dadelszen submitted
that, in the absence of any basis for the
allegations of fraud, the third defendant could not have any personal liability.
Additionally,
there was no reason to enter summary judgment against her as a trustee
because she had resigned and was willing to sign a transfer
to the remaining trustees
(the first and second defendants).
[35] Mr Chesterman, for the plaintiffs, took issue with Mr von Dadelszen's
analysis of the facts. He submitted that there was clear evidence that the plaintiffs
had been defrauded out of their interest in
the property. (I do not understand there to
be any dispute on this for the purpose of this application). He argued that there was
sufficient evidence from which to infer that the third defendant participated in and
had knowledge of the fraud (through knowledge
of the plaintiffs' interest), or at least
sufficient knowledge to warrant making further enquiries.
[36] Mr Chesterman submitted
that there was also sufficient evidence from which
to infer that the third defendant had either actual knowledge of the buy-back
transaction or knowledge to put her on inquiry as to its existence.
[37] The evidence on which the plaintiffs relied was the
third defendant's
acknowledged role for the trust in the acquisition of property, her lengthy
relationship with the first defendant
and his relationship with the ICMG Group and
ICMG Property Limited in particular, her firm's relationship with the ICMG Group,
and the particular
steps she had taken and the documents that she dealt with in
relation to the transfer of Lotus Avenue.
[38] Mr Chesterman also
submitted that, as a matter of law, the third defendant
can be liable for the actions of a co-trustee in the course of carrying out
a venture
that has been approved by the Trust.
[39] Conversely Mr Chesterman said that there were material disputes as to the
third defendant's knowledge which could not be resolved on an application for
summary judgment.
Issues
[40] The following
issues arise out of the opposing arguments:
a) Can the plaintiffs show fraud on the part of the third defendant?
b) Can the plaintiffs succeed in their action under the Credit Contracts
and Consumer Finance Act?
c) Can the plaintiffs show that the third defendant was unjustly
enriched?
d) If the
plaintiffs cannot succeed in their causes of action against the
third defendant personally, should the third defendant
nevertheless be
retained as a party?
Discussion
Can the plaintiffs show fraud on the part of the third defendant?
[41] Knowledge of fraud underlies each of the plaintiffs' causes of action.
The plaintiffs will have to prove requisite knowledge
of fraud on the part of the third
defendant to succeed on their causes of action against her personally. Mr von
Dadelszen acknowledged
that his client will be liable personally if fraud is
established against her.
[42] Both counsel referred to the test for fraud
under the Land Transfer Act, as
stated by Salmond J in Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1923]
NZLR 1137, at 1775:
The true test of fraud is not whether the purchaser actually knew for
a certainty of the existence
of the adverse right, but whether he knew
enough to make it his duty as an honest man to hold his hand, and
either to make further inquiries before purchasing, or to abstain from
the purchase, or to purchase subject
to the claimant's rights rather
than in defiance of them. If, knowing as much as this, he proceeds
without further inquiry or delay to purchase an unencumbered title
with intent to disregard the claimant's rights,
if they exist, he is
guilty of that wilful blindness or voluntary ignorance which
according to the
authorities, is equivalent to actual knowledge, and
therefore amounts to fraud.
[43] I understood Mr Chesterman
to argue that the fraud on the part of the third
defendant comprised the various steps which she took to bring about the transfer
of
Lotus Avenue to the O'Brien Family Trust, with knowledge of the underlying buy-
back transaction and the alleged forgeries (the
signatures on the agreement for sale
and purchase and on the transfer).
[44] To succeed on her application for summary judgment,
the third defendant has
to satisfy the Court that the plaintiffs will be unable to prove actual knowledge of the
plaintiffs' adverse
rights or, at least, sufficient facts relating to those adverse rights to
impute knowledge on the grounds of "wilful blindness or
voluntary ignorance".
[45] The third defendant has filed an affidavit in support of her application. In it
she sets out her
role for the trust and her knowledge or understanding of its
investment history:
a) The O'Brien Family Trust was originally
established as a standard
family trust to protect family assets and split family income. In about
September 2001, and at the instigation of the first and second
defendants, the trustees decided to extend the trust's
activities to
investment in residential properties;
b) It was her understanding in 2001 that the ICMG companies were
involved
in buying and selling houses for investment purposes, for
which ICMG Property would provide rental management. She
was
aware of the engagement of her firm to handle the accounting
requirements of ICMG companies but
was not personally responsible
for that work. She had some limited knowledge of the companies'
activities
and accounting systems at the time of the purchase of the
Lotus Avenue property;
c) She was in favour
of the O'Brien Family Trust purchasing residential
investment properties. Her involvement in that property investment,
and the firm's involvement as the trust's accountant, was limited to
approval of the investment strategy
and of particular purchases,
considering financial aspects of the purchase (such as the proposed
price
being supported by valuation), checking the ability of the trust to
service loans, and preparing loan applications.
A partner of the third
defendant specialised in preparation of loan applications and "did
most if not
all loan applications for the O'Brien Trust".
[46] The third defendant gives specific evidence of her involvement in, and
knowledge
of, the purchase of Lotus Avenue. The following passages are
particularly relevant to this application:
8. I knew about
and approved of the purchase of the Lotus Avenue
property, as the trustees discussed this from a financial point of
view. The following information relates to the purchase:
a) As is common with such trusts, all
purchase arrangements
were made by one of the family member trustees, Mr
O'Brien, and
my involvement as a trustee was essentially
limited to agreeing to proceed with the purchase, considering
and advising on the figures involved with the transaction and
proposed borrowing (this
was assessed for the whole term of
the loan, and took into account all income sources and the
other commitments of the Trust) and signing the ASB Bank
mortgage documentation. I had not visited
the Lotus Avenue
property prior to the purchase nor have I ever done so since.
As the
decision to make the purchase was verbal, there were
file notes made; and a formal meeting was not held. The
solicitor did not provide any minutes and interest disclosures
that I recall.
b)
Prior to and at the time of the purchase of the Lotus Avenue
property, I was not involved at all in any discussions relating
to the purchase of the Lotus Avenue property or its financing
or otherwise with the plaintiffs personally or through any
agent or other representative of the plaintiffs, nor with the
ASB Bank or any agent or other representative of the ASB
Bank.
c) As far as I was aware at the time, the sale and purchase of
the Lotus Avenue property was between ICMG Property
Ltd
(as vendor) and the O'Brien Trust (as purchaser). At
settlement, I understand that the funds were paid to ICMG
Limited, which is a separate company to ICMG Property
Limited. I do not know who instructed the solicitor, Henley-
Smith
Law, where to pay the funds.
d) My understanding at the time of purchase was that Mr and
Mrs Burmeister had sold the Lotus
Avenue Property to
ICMG Property Limited and the O'Brien Trust then
purchased from ICMG Property Limited . I did not have
at
the time of purchase ... a copy of the sale and purchase [sic]
for the O'Brien Trust's purchase of the Lotus Avenue
property from ICMG Property Limited,
and I cannot recall
signing that sale and purchase agreement. We were provided
with a copy of the sale and purchase [sic]
from Burmeister
to ICMG Property Limited which ASB [sic] requested
should be provided. However, the transfer was directly
from
the Burmeisters to the O'Brien Trust trustees. This was not
the transfer that the trustees of the O'Brien Trust expected.
I
did not know about the direct transfer from the Burmeisters
to the O'Brien Trust until well after the property was
purchased.
e) At the time of the purchase I had no knowledge of any
arrangements between the Burmeisters and ICMG following
transfer of the Lotus Avenue property from them to ICMG,
such as them remaining in possession or ICMG making
payments
to them of any amounts.
f) From the point of view of the O'Brien Trust and ICMG, at
the time of the purchase I understood
that the O'Brien Trust
was purchasing the Lotus Avenue property, that it was to be
rented (but I did not know the identity
of the tenants) and
that the tenancy would be managed by ICMG (that is, ICMG
would collect the tenant's rent, attend to
repairs etc and pay
the rent to the O'Brien Trust, and that the rent was to be
guaranteed by ICMG).
g) On or about 4
October 2001 Mark Henley-Smith's legal
executive, Helen Viesnik, sent the mortgage documents
associated with the purchase
of the Lotus Avenue property
to me at the offices of Harding & Associates Ltd by courier
... I was then to return the originals
by way of courier.
....
h) ... from my recollection, when I received them all
documents had been signed already by Mr and Mrs O'Brien
as my co-trustees, and I note that their signatures
were
witnessed by Mark Henley-Smith as is evident from exhibit
D.
i)
I signed the mortgage documents and my signature was
witnessed by a colleague of mine, David Sorensen,
who is
an accountant and was employed by Harding & Associates
Ltd at the time. I then
returned them to Henley-Smith Law
as requested.
[47] Two professional witnesses, one an accountant with
experience as a trustee
and the other a solicitor specialising in conveyancing, have sworn affidavits in
support of the application.
These witnesses have reviewed the third defendant's files.
They have formed the opinion that there is nothing in them to justify
the plaintiffs'
allegations. Their evidence is relied upon as corroborative of the third defendant's
evidence, and to rebut inferences
which the plaintiffs ask the Court to draw from the
available documentary evidence.
[48] The plaintiffs have realistically accepted
that they cannot provide any direct
evidence as to the third defendant's knowledge (they have never met her). In the first
of two
affidavits relied upon in opposition to the application (filed in response to an
earlier application by another party), the plaintiff
Mr Burmeister has given evidence
of the buy-back transaction. As might be expected (given that it was in response to
an application
by another party), he makes only brief, passing reference to the
position of the O'Brien Family Trust. He says:
73. I
have no idea how our signatures have come to be on a transfer in
favour of the O'Briens, witnessed by Geoff Clayton
and dated 5
October 2001. I can only guess that this transfer was dishonestly and
fraudulently obtained
by Geoff Clayton and the O'Briens.
....
147. In conclusion I must reiterate that our understanding all along
was
that our home was being placed in a secure family trust for our
benefit.
148. We have never entered into any agreement
with the O'Briens for the
sale and purchase of Lotus Avenue.
....
152. I believe that we
are the real owners of Lotus Avenue. The O'Briens
have somehow acquired our house as a result of a scam but I believe
that they hold Lotus Avenue for our benefit.
[49] In his second affidavit, filed specifically in response to
the third defendant's
application and affidavit, Mr Burmeister states:
I do not have any direct knowledge of the
third defendant's
involvement in the transfer of Lotus Avenue to the O'Brien Family
Trust ("the Trust")
because my wife and I had no involvement with
and knew nothing about the transfer of Lotus Avenue to the O'Brien
Family Trust.
[50] Mr Burmeister produced copies of documents with which the third defendant
had some involvement.
These documents, obtained in discovery, comprise two loan
applications for proposed purchases by the trust; correspondence between
the third
defendant and the trust's solicitor about the opening of a bank account and signature
of loan documents; and the loan documents
and mortgage in respect of Lotus
Avenue (which were signed by the third defendant). The second of the two loan
applications related
to Lotus Avenue. It was supported by a valuation dated 24
September 2001 addressed to the first defendant's mortgage company, and
by a two-
page agreement for sale and purchase dated 25 September 2001 between ICMG
Property Limited and the O'Brien Family Trust.
[51] It may also be assumed (as discovery has been completed) that any
documentary evidence bearing on the third defendant's
knowledge is before the
Court.
[52] The plaintiffs, therefore, cannot do better than rely on inferences from the
few documents
that are available to overcome the direct evidence of the third
defendant that she had no knowledge of their interest. As a general
proposition they
must be reasonably arguable from the facts on which they are based. Given the
seriousness of an allegation of fraud,
those inferences should be compelling. That is
all the more so where they are contrary to direct evidence. They must be more than
hypothesis or mere possibility.
[53] The plaintiffs' case is founded upon two key documents. The first is the
agreement for
sale and purchase between ICMG Property Limited and the O'Brien
Family Trust dated 25 September 2001. The second is the loan application
in respect
of Lotus Avenue which the third defendant sent to ASB Bank on 1 October 2001.
[54] The agreement for sale and purchase
is a curious document. It has been
produced in evidence by both the third defendant and the plaintiffs in the same form,
namely two
pages of a standard form REINZ/ADLS agreement bearing a facsimile
transmission record showing it was transmitted from The Mortgage
Centre (the first
defendant's business) on a Friday afternoon. Counsel agreed this was likely to have
been 28 September 2001.
[55]
The two pages comprise the first page of the standard form, with the details
of the transaction, and the later page for incorporating
non-standard terms (blank)
and the parties' signatures. The first page shows the vendor as ICMG Property
Limited and the purchaser
as O'Brien Family Trust and/or nominee. Although dated
25 September 2001, it seems to be drafted from an earlier agreement as it
shows a
possession date of 5 September 2001. The second page contains just the signatures
of the parties.
[56] There are two
signatures for the vendor. The first is very similar to
Mr Burmeister's signatures on his affidavits. The surname for the second
signatory is
clearly Burmeister, although the initials are not as distinct. It seems likely that it is
intended to be the signature
of Mrs Burmeister.
[57] The signature of the purchaser is incomplete, the bottom half having been lost
in the facsimile transmission. However, what shows is
consistent with the signature
on behalf of ICMG Property Ltd and another company in the ICMG Group in two
other agreements in the
evidence before the Court.
[58] One of the other agreements was attached by the third defendant to an earlier
loan application
(on 5 September 2001). I will come back to that shortly. The other
(dated 23 July 2002) was between the O'Brien Family Trust and
another ICMG
company, CH Finance Ltd. It purported to record a re-arrangement between the trust
and the ICMG Group in relation to
Lotus Avenue. This later agreement appears to be
signed by the first and second defendants on behalf of the O'Brien Family Trust
as
vendor. The signature for CH Finance Ltd is similar to what can be seen of the
signature for the purchaser in the agreement of
28 September 2001. I note that the
third defendant says that she did not become aware of this later agreement until the
plaintiffs
had issued this proceeding.
[59] The second key document is the loan application form of 1 October 2001.
This is said to be an
amended application. The application it was amending was the
one I have just mentioned which the third defendant sent to ASB Bank
on
5 September 2001. That was in respect of a property at Papamoa. A valuation and a
copy of an agreement for sale and purchase of
that property were included with the
application. The agreement was between ICMG Property Limited as vendor and the
O'Brien Family
Trust as purchaser. The signatures are again incomplete, but the
single signature for ICMG Property Ltd bears a resemblance to the
signature for the
purchaser on the Lotus Avenue agreement, and for CH Finance Ltd on the July 2002
agreement. The single signature
showing for the purchaser of the Papamoa property
bears a resemblance to the signature of the first defendant on the July 2002
agreement.
[60] The loan applications are important, in the plaintiffs' view, because they refer
to ICMG Property Management Group managing
the property, arranging tenants,
and ensuring weekly payments are made to the trust's bank account, which payments
were "part of
an option to purchase programme". The plaintiffs say that the
third defendant would have been aware from the valuation that they
were the owners
of Lotus Avenue at the time, and should have been alerted to their ongoing interest
by the reference to the "option
to purchase programme".
[61] The third defendant does not deny that she knew that ICMG Group was
purchasing Lotus Avenue with
a view to sale to the trust. She produced an exchange
of facsimile correspondence between ASB Bank and herself in relation to the
earlier
loan application in which she refers to consultation with the first defendant and
confirms that a simultaneous transfer was
proposed from the (then) owners to
ICMG Properties Limited, and from it to the O'Brien Family Trust. She said that,
both as a trustee
and as an accountant for the trust, she had no concern with this as
the trust's purchase was at market value according to the valuation,
and outgoings
could be met from planned rental income.
[62] Mr Chesterman, for the plaintiffs, argued that the knowledge that
the third
defendant derived, or should have derived, from these documents must be assessed
in the context of her, and her firm's,
relationships with the first and second
defendants, the trust and the ICMG Group. He argued that on her own admission the
third defendant
was kept fully informed by the first defendant, and hence must be
taken to have known of the background arrangements with the plaintiffs.
Alternatively, he said that she should have picked up that the signatures on the
agreement for sale and purchase were wrong. He also
argued that the knowledge of
both the first defendant and the sixth defendant (as to the background to the
transaction) can be imputed
to her.
[63] Mr von Dadelszen, for the third defendant, submitted that the plaintiffs' case
against his client was based on "hypothesis, conjecture, speculation and insinuation"
rather than any credible evidence. It is this last point that the Court must focus on.
[64] I do not regard the history of the
third defendant's relationship with the trust,
or her firm's relationship with ICMG Group (which I have referred to in paragraph
[45]), as a sufficient basis for imputing knowledge of arrangements between the first
defendant and the ICMG Group. There is no reason,
in my view, to infer anything
from those relationships to contradict the third defendant's evidence of the role she
undertook for
the trust generally, and in relation to the Lotus Avenue transaction
specifically (set out in paragraph [46] above). Her knowledge
of the transaction, in
my view, must be confined to what can properly be inferred from the loan
applications and the agreement for
sale and purchase that she received. I turn then to
consider those documents.
[65] Taken on its own, I do not consider the reference
to "an option to purchase
programme" raises a necessary inference that the option was between the trust and
the plaintiffs. The natural
inference is that the persons renting had the option to
purchase. There is no reason to infer that the plaintiffs were to be the
tenants. The
third defendant knew of them only as the vendors. This transaction took place before
the phenomenon of buy-back transactions
emerged (and led to the urgent
introduction of the Credit Contracts and Consumer Finance Act 2003).
[66] The agreement for sale
and purchase of 25 September 2001, on the other
hand, raises some questions. The information on the two pages appears to be
contradictory.
The front page is for an agreement between ICMG Property Limited
as vendor, and the O'Brien Family Trust as purchaser. The second
(signature) page
appears to be that of an agreement between the Burmeisters and an ICMG Group
company.
[67] There are potentially
two states of knowledge of the third defendant in
relation to this document. First, she may have noticed this contradiction but chose
to
ignore it. Secondly, she may not have noticed it. I accept Mr Chesterman's
submission that her evidence on this is both unclear
and contradictory. She states
(at paragraph 8(d) of her affidavit) that she did not have a copy of the agreement for
the trust's
purchase from ICMG Property Limited, but then said:
"We were provided with a copy of the sale and purchase [sic] from
Burmeister to ICMG Property Limited which ASB [sic] requested should be
provided."
[68] Her latter statement is
consistent with her evidence of her correspondence
with ASB Bank in relation to the earlier loan application. Her former statement
is
inconsistent with the first page of the document. It suggests that she did not
appreciate the internal contradictions in the document.
However, it also gives rise to
a possible inference that she was aware of the internal contradiction, but chose to
disregard it.
[69] The conveyancing expert who reviewed the third defendant's files noted the
contradiction but stated that there is nothing
in the information in those files to
indicate whether the third defendant actually saw and inspected the agreement, or
how closely
she examined its contents.
[70] I accept there is a possibility that the third defendant closed her eyes to the
contradictions
in the agreement sent to ASB Bank. However, even if ultimately
proved, that is still not enough for the plaintiffs to succeed. They
have to establish
knowledge that their interests were being adversely affected by the transaction.
[71] Again, there are two
hypothetically possible scenarios. One is that it was not
significant because, although irregular, it was still consistent with a
sale from the
Burmeisters to ICMG Property Ltd and on to the trust. This scenario is consistent
with the third defendant's evidence.
It does not raise an inference of knowledge of
the fraud (whether the alleged forgeries or the underlying buy-back transaction). The
second scenario is
that this is the tip of an evidential iceberg of knowledge of the
buy-back transaction, and possibly of a forged agreement or transfer.
[72] I am conscious that the Court should not, on an application for summary
judgment, decide the sufficiency of proof a plaintiffs'
claim. However, in this case,
I have to decide not the sufficiency of some evidence, but whether there is any
evidence capable of
proving the claim. In this respect the third defendant is in a
different position to the remaining defendants.
[73] Mr Chesterman,
quite understandably in light of his clients' predicament,
asks the Court to infer knowledge of fraud on the part of the third defendant.
This is
at odds with what I take to be the common sense inferences from the same facts. I
accept that the very nature of most fraud
is that it is hidden from the victims.
However, it must still be sheeted home to the party against whom it is alleged. A
possible
inference, in my view, does not constitute credible evidence, particularly
where there is another, more likely, inference open.
[74] At best, it seems to me, the plaintiffs are saying "we have this suspicion, and
wish to be able to explore it by cross-examination
at trial". Cross-examination of the
third defendant may clarify the state of her knowledge, at the time, about the
signatures on
the agreement. However, in the absence of any other evidence I see no
reason to believe that cross-examination will do other than
confirm the strong
evidence that she has given that her only knowledge was of a genuine purchase from
ICMG Property Limited, without
knowledge of the underlying transaction.
[75] Up to this point I have been considering whether there is a basis on which the
third defendant can be found to have either actual or implied knowledge. The
plaintiffs also argue that knowledge of her co-trustees
or of the solicitor for the trust
can be imputed to her.
[76] Counsel for the plaintiffs invited me to infer knowledge from the
third
defendant's pleading in her statement of defence (paragraph 12) that she gave Mr
O'Brien authority to act in the purchase of
Lotus Avenue, and that Mr O'Brien kept
her reasonably informed of his actions. Counsel referred me to the decision in this
Court
Lang v Southen (HC, Christchurch AP 15/01, 24 July 2001 Panckhurst J)
where, on appeal from a decision of the District Court, the
Court upheld a finding of
liability on a professional trustee for a contract debt incurred by a co-trustee who had
had all the dealings
with the plaintiff. I do not find that authority helps in deciding
whether the third defendant had sufficient knowledge of facts
for actual or implied
knowledge of fraud.
[77] I turn then to address the further argument for the requisite knowledge on the
part of the third defendant to establish the first cause of action. The plaintiffs argue
that the third defendant should be held
liable for any fraud which the solicitor or co-
trustee are found to have committed (which will not be determined until the trial).
The only way that this fraud can be imputed to her is through the law of agency.
There is some divergence of opinion on the fraud
exemption to agency. There is an
old line of authority (traceable back to Kennedy v Green [1834] EngR 1072; (1834) 3 MY&K 699, 720)
that an agent's knowledge of a fraud will not be imputed to the principle where the
circumstances demonstrate that it is highly
unlikely that the agent would have
communicated that knowledge: for example, when he is committing fraud on his
principal). However,
this has been questioned in another, more recently developed,
line of authority. For an examination of the conflict, see Nathan v
Dollars & Sense
Ltd [2006] 1 NZLR 490, and Professor Peter Watts' article `Imputed Knowledge in
Agency Law: Excising the Fraud Exemption' (2001) 117 LQR 300 in which he
argues that the proposition that knowledge should not be imputed is inconsistent
with founding cases on agency, and cases
concerning vicarious liability of employer.
[78] I do not intend to undertake an analysis of the conflicting arguments as this
point was not developed in any significant way by counsel for the plaintiffs. In my
opinion neither approach seems to go so far as
to allow imputation of knowledge of
her co-trustee or the solicitor to the third defendant, so as to give a basis for liability
in
her personal capacity. Both the co-trustee and the solicitor were acting as agents
for the trust, rather than the third defendant
personally. I have no difficulty with the
proposition that their knowledge can bind the trust (or more importantly, the trust's
assets), just as the agent's knowledge was found to be binding on the company that
was the principal in Nathan v Dollars & Sense
Ltd. However, if there is a divergence
between the lines of authority in this respect, I prefer the older line of authority when
considering whether their knowledge should be imputed to the third defendant. I,
therefore, do not accept that the third defendant
can be held liable personally for any
fraud that the co-trustee or the solicitor may be found to have committed against the
plaintiffs.
[79] Before turning to the next issue, I will also address the plaintiffs' argument
that summary judgment is unsuitable for
cases of fraud. Counsel referred me to the
decision of this Court in Sime v Bale (HC, Whangarei CP 34/95, 15 February 1996,
Master
Gambrill). That was an application by a plaintiff for summary judgment. The
defendant raised a possible fraud as a ground for defence.
The Court declined to
grant summary judgment, commenting that the defendant's allegation of fraud
"cannot be refuted". I do not regard
the case as authority for the proposition that
summary judgment is always unsuitable where there is an allegation of fraud. The
Court
found in that case that there were clear disputes of material fact. In many cases
of fraud that is likely to be so. However, the
case can be distinguished from the case
before the Court as in this case there is no credible basis for the allegation of fraud
against
the third defendant.
[80] The third defendant may have been careless in not picking up the
contradiction in the agreement (this
is not a finding on that), but that is not the
allegation against her. The allegation is that she thereby has knowledge of an
underlying
fraud. It is a serious allegation to make against a professional trustee. It is
not enough to put it on a mere possibility when she
provides a reasonable
explanation which is consistent with the only evidence from which an inference of
fraud could be drawn.
[81]
I am satisfied on all the evidence before the Court that the plaintiffs cannot
succeed on their first cause of action.
Two professional witnesses, an
accountant/trustee and a solicitor, have sworn affidavits in support of the application.
These
witnesses have reviewed the third defendant's files. They have formed the
opinion that there is nothing in them to justify the
plaintiffs' allegations. This
evidence corroborates the third defendant's evidence.
[82] The plaintiffs cannot give evidence
to contradict that evidence. Their case
for fraudulent knowledge is wholly reliant on inference from documents. For the
reasons I
have given I do not consider that inference as the natural one to draw. I do
not consider this to be a case where the third defendant
should be required to go
through the stress and cost of trial simply to rule out a conjectural possibility. I do
not come to this
view lightly, but sympathy for the plaintiffs' plight is no reason to
step back from a decision which has to follow a proper analysis
of the evidence.
Can the plaintiffs succeed under the Credit Contracts and Consumer Finance
Act 2003?
[83] Counsel for the
plaintiffs accepted that for the Court to order the third
defendant personally to pay any sum to the plaintiffs, the plaintiffs have to show that
the scheme they had entered into
was a buy-back transaction as defined under s 8,
that it was oppressive in terms of s 118, and they were induced to enter into it
by
oppressive means (as provided in s 120). Finally, counsel acknowledged that the
plaintiffs had to show that the third defendant
was a party to the buy-back
transaction. In this latter respect, counsel submitted that the fact that the third
defendant was a transferee
of the property was sufficient to make her a party for the
purpose of the Credit Contracts and Consumer Finance Act 2003 ("the CCCF
Act").
Counsel submitted that actual knowledge of every part of the scheme (including its
fraudulent aspects) was not necessary for
the Court to order relief under s 127(2)(c).
It was sufficient if knowledge could be imputed to the third defendant. He relied on
the same facts put forward under the first cause of action as the basis for actual,
implied or imputed knowledge. In particular,
he relied on the reference to "option to
purchase" in the loan application, and the lack of any evidence from the third
defendant
as to what she understood by that.
[84] Counsel for the third defendant raised several reasons for saying that this
cause of
action could not succeed. First, he argued that this was not a "buy-back
transaction" as defined by s 8 of the CCCF Act. Secondly,
he argued that the claim
was statute barred under s 125 of the Act, and thirdly that the transaction was not
oppressive. These
arguments are predicated on treating the transaction between
ICMG Property Limited and the trust separately from the arrangement
between the
plaintiffs and the ICMG Group, both before and after the transaction between ICMG
and the trust.
[85] Section 8(1)
of the CCCF Act reads:
8 Meaning of buy-back transaction
(1) In this Act, unless the context otherwise requires, buy-back
transaction
means a transaction under which--
(a) a person (the occupier) transfers, or agrees to transfer,
an estate
in land to another person (the transferee); and
(b) the land is the principal place of
residence of the occupier at
the time that the occupier enters into the transaction; and
(c) the occupier,
or a person designated by the occupier, has, after
the transfer, a right to occupy the whole or any part of the land;
and
(d) 1 or more of the following applies:
(i) the occupier, or a person designated by the
occupier,
has a right to repurchase the estate in the land in whole or in
part:
(ii) there is an understanding between the occupier and
the transferee that
the occupier, or a person
designated by the occupier, has a right to repurchase
the estate in the land in whole or in part:
(iii) there is an understanding between the
occupier and
any buy-back promoter that the occupier, or a person
designated by the
occupier, has a right to repurchase the
estate in the land in whole or in part; and
(e) the
occupier is a natural person who enters into the transaction
primarily for personal, domestic, household, or investment
purposes.
[86] The transaction between the plaintiffs and ICMG clearly comes within this
definition, in that the plaintiffs agreed
to transfer Lotus Avenue to an ICMG
nominee, and retained a right to occupy it with an understanding either with the
ICMG nominee
or ICMG as promoter that they had a right to re-purchase it. It is the
plaintiffs' case, that they did not agree to, or in fact,
transfer Lotus Avenue to the
O'Brien Family Trust. On the other hand, the transaction between ICMG Property
Limited and the O'Brien Family Trust does not meet the requirements of s 8(1) as
ICMG
Property Limited was not an occupier. The question is whether the latter
contract can be added to the former to come within s 8(2)
as a transaction that is in
substance or effect a buy-back transaction.
[87] The CCCF Act extends the definition of a buy-back
transaction to include
transactions that are "in substance or effect" a buy-back transaction. Section 8(2)
reads:
8 Meaning
of buy-back transaction
...
(2) If, by virtue of any contract or contracts (none of which by
itself constitutes a buy-back transaction) or any arrangement, there is
a transaction that is in substance
or effect a buy-back transaction, the
contract, contracts, or arrangement must, for the purposes of this
Act, be treated as a buy-back transaction made at the time when the
contract, or the last of those contracts,
or the arrangement, was
made, as the case may be.
[88] Whether or not the two agreements are entirely independent,
or are to be
taken together as part of an overall buy-back transaction is not a question which I
consider should be decided on this
application. I consider that decision could only be
made at trial. Once that decision is made, the Court would have to consider whether
the combined transaction was oppressive. I accept the submission for the third
defendant that, on its own, the transaction between
ICMG Property Limited and the
trust is for proper consideration and would not appear to be within the definition of
oppressive conduct
under s 118 of the Act.
[89] I shall deal briefly with her counsel's argument that the claim appears to be
statute barred under
s 125 of the Act. Again, that question depends on what the
transaction is ultimately found to be. If the transaction between ICMG
Property
Limited and the trust is found to be part of the buy-back transaction, the three year
limitation period prescribed by s
125 of the CCCF Act will not begin to run until the
end of that transaction, namely the date on which the plaintiffs expected the
property
to be returned to them. In that event the claim would be clearly within time.
[90] The major point for decision in
respect of the cause of action under the CCCF
Act is whether the third defendant personally is a party against whom relief can be
ordered.
[91] The Court's power in that respect is set out in s 127 of the CCCF Act. The
relevant part of that section reads:
127 Power of Court on reopening credit contract, consumer lease, or
buy-back transaction
(1) If
the Court reopens a ... buy-back transaction, it may make
any orders that it thinks necessary to remedy the matters
that caused
the Court to reopen the ... transaction.
(2) The Court may--
...
(c) direct any party to pay to any other party any sum that
the Court thinks fit; or
...
(g) direct any party to do or refrain from doing any act or
thing in relation
to any other party.
[92] Counsel for the plaintiffs acknowledged that to succeed against the third
defendant personally, the plaintiffs
would need to establish some knowledge of the
buy-back transaction. He submitted that there was evidence of actual knowledge in
the
reference in the loan application to an option to purchase programme, but
otherwise it could be inferred from the relationships between
the third defendant and
her co-trustees and the ICMG Group. Additionally, he argued that she also had
personal responsibility for
acts of her co-trustees taken in the course of a
contemplated trust activity: Lang v Southen.
[93] For the reasons previously
given, I do not consider that knowledge of the
buy-back transaction can be inferred from her relationship with her co-trustees or the
trust's solicitor. I see no evidence of
any closer relationship between the third
defendant and her co-trustees than that of professional adviser. In that respect I note
a bank account authority form sent to the third defendant on 26 September 2001 for
signature listed the first and second defendants
as the only signatories for the
account. As to a relationship with the trust's solicitor, the third defendant states that
it was
the first defendant's decision to use the sixth defendant (rather than local
Napier solicitors with whom she had dealt previously),
and the only evidence of any
communication between her and the solicitor was correspondence entered into with a
legal executive handling
the conveyancing matters. There was no basis for imputing
to the third defendant any knowledge which these other parties may have
had about
the buy-back transaction.
[94] Nor do I consider there to be a basis for personal liability on the grounds that
the
third defendant sanctioned the acts of her co-trustee (the first defendant). I accept
that if the first defendant took part in the
buy-back transaction, and that action had
the sanction and approval of the third defendant, the first defendant's actions could
be binding on the third defendant personally: Lang v Southen at para [9]. There is
simply no evidence, however, that the third defendant
sanctioned any action other
than the entry into an agreement for sale and purchase of Lotus Avenue from ICMG
Property Ltd, and the
financing of that transaction through the loan from the ASB
Bank.
[95] I turn lastly to the significance of the reference to
"option to purchase" in the
loan application. I have already found that there is nothing in this phrase to suggest
an adverse interest
on the part of the plaintiffs. Counsel for the plaintiffs sought to
persuade me that I should place greater significance on it due
to the third defendant's
failure to explain what was meant by that phrase. Counsel for the third defendant
accepted that the third
defendant had not addressed this in her evidence, but
submitted that there was adequate other evidence to negate any adverse inference
from that omission.
[96] I do not consider that the omission to address the point explicitly should
change the inference to
be drawn from that phrase. The third defendant was very
explicit in denying any knowledge of arrangements between the plaintiffs
and ICMG
at the time of purchase (in paragraph 8(e) and (f) of her affidavit). She says that her
partner (Mr Harding) drafted most
if not all of the loan applications for the trust. In a
standard broker's loan application form submitted with the first loan application,
Mr
Harding was named as accountant for the trust. There is nothing in the loan
applications to indicate a need to enquire further
into the terms of the letting
arrangement in order to advance the loan application.
[97] Counsel for the plaintiffs was also
critical of the expert witnesses for failing
to question the third defendant on this point. I do not find that as sinister as counsel
would have me conclude. It is clear that neither of them read into it anything more
than the plain words suggest, namely that the
unidentified renter had an option to
purchase.
[98] There must be some basis other than her role as a trustee for the Court to
order that the third defendant personally make any payment to the plaintiffs. I find
no basis on which to infer or impute knowledge
of the buy-back transaction to justify
an order. Similarly I find no factual basis for any allegation that the third defendant
sanctioned
or approved any action by the first defendant which could constitute a
part of the buy-back transaction.
Can the plaintiffs show
the third defendant was unjustly enriched?
[99] There is conflicting recent authority in this country as to whether there is
an
independent cause of action for unjust enrichment: ASB Bank Ltd v Davidson & Ors
(2003) 7 NZBLC 103, 927 and Villages of NZ (Pakuranga) v Ministry of Health (HC
Auckland CIV 2003-404-5143, 6 April 2005, Winkelmann J). For the purposes
of
the present application, I will assume that it remains arguable provided the plaintiffs
can make out the three prerequisites to
recovery identified by Laurenson J in ASB
Bank Ltd v Davidson, namely enrichment of the defendant by receipt of a benefit
from the
plaintiff, at the expense of the plaintiff, and in circumstances rendering it
unjust that the enrichment be retained.
[100] The
issue for the present application is whether the third defendant has
received a benefit.
[101] Counsel for the plaintiffs accepts
that the third defendant has not been
enriched personally. Equally, counsel for the third defendant does not contest that the
trust
has been enriched, although he does contest the allegation that this has been as a
result of fraud.
[102] Counsel for the plaintiffs
argues that it is irrelevant whether the defendant
was enriched personally. He relies on Lang v Southen for the submission that the
trust has no separate identity from the trustees, and that a trustee is personally
responsible for actions of a co-trustee.
[103]
I have already found that there is no evidential basis for holding that the third
defendant sanctioned or approved any action by
the first defendant which might
constitute any part of the buy-back transaction. Given that finding, the plaintiffs
cannot succeed
in holding the third defendant liable personally for any benefit
received by the trust.
Is there any reason to retain the third
defendant as a party?
[104] The third defendant is no longer a trustee, having resigned in July 2005. She
has offered to sign any
transfer that may be required to remove her from the title. I
have concluded that the plaintiffs cannot establish that she has any
personal liability.
In my view, there is no reason to retain her as a party in the proceeding in the
absence of any personal liability.
Should summary judgment be granted?
[105] There is one last matter which I must address, and that is the submission by
counsel
for the plaintiffs in respect of the first and second causes of action that there
are disputes as to material facts, namely the knowledge
of the third defendant of
facts which at the very least ought to have put her on enquiry. In my view the
disputes are as to inferences
to be taken from clear or accepted facts, rather than over
the facts themselves.
[106] There are two areas where the matters of
"dispute" are over facts which are
not in evidence before the Court. These are whether the third defendant was aware
that the signatures
on the agreement of 25 September 2001 did not match the parties
named at the head of the agreement, and what, if anything, the third
defendant knew
about the option to purchase referred to in the loan application.
[107] I have found that the third defendant's
knowledge about the signatures is not
material as the plaintiffs cannot succeed, even assuming that the third defendant
noticed the
inconsistency but chose to ignore it. The basis for this was that it was not
reasonable to infer from that inconsistency that the
plaintiffs had a continuing
interest that was being adversely affected by the agreement.
[108] As to the reference to an option
to purchase, I have found that the omission to
refer to that phrase does not justify an inference of knowledge of an adverse interest
held by the plaintiffs. The likelihood of further facts emerging, contrary to the
natural inference, needs to be considered in context
and weighed against the
evidence given by the third defendant, supported by the independent assessment by
the two experts. In that
context I do not consider that this case should go to trial.
Decision
[109] Counsel for the plaintiffs referred me to the decision
of this Court in
Mawhinney v Chamberlain in relation to the knowledge required to justify a case of
land transfer fraud. The case
is also useful for the following comment on the
approach that the Court should take in such cases:
[16] Further, a general assertion although
on oath, which is
inconsistent with indisputable inconsistent evidence, need not
necessarily be allowed
to delay a decision that the evidence is so
implausible and the answer so clear that it would be oppressive to
require trial. In Eng Mee Yong v Letchumanan [1980] AC 331, 341
Lord Diplock said a judge is not bound:
...to accept uncritically, as raising a dispute
of fact which
calls for further investigation, every statement in an affidavit
however
equivocal, lacking in precision, inconsistent with
undisputed contemporary documents or other statements by
the same deponent, or inherently improbable in itself it may
be.
[17]
Nevertheless care must be taken to avoid short-circuiting a
proceeding where there is a true factual dispute on
an essential issue:
see Jones v Attorney-General [2003] UKPC 48; [2004] 1 NZLR 433 where the Privy
Council held that what it called "this exacting test" (of establishing
absence of an
arguable case) had not been satisfied.
[110] I am satisfied that this is one of the cases where a critical examination of the
plaintiffs'
contentions is warranted, and where the facts cannot support the
allegations in the statement of claim.
[111] The third defendant
has satisfied me that the plaintiffs' causes of action
against her personally cannot succeed. There being no reason to retain her
as a party.
I enter judgment for the third defendant on the plaintiffs' first, third and fourth
causes of action.
[112] The third
defendant having succeeded on the application is entitled to costs
on a 2B basis with disbursements as fixed by the Registrar.
________________________________
Associate Judge D.H. Abbott
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