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King v Clarke [2022] NZHC 1649 (13 July 2022)

Last Updated: 26 July 2022

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 13 July 2022 at 2.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date.............................

KING v CLARKE [2022] NZHC 1649 [13 July 2022]

Introduction

• [1] Jody King and Sharon Clarke are sisters.¹ Sharon lives at the property at 3125 State Highway 1, Sanson.² That property is owned by Jody and her husband, Steven King.

• [2] Jody and Steven wish to sell the property. They seek, by summary judgment, an order for the recovery of possession of the property from Sharon.

• [3] The property was previously owned by Jody and Sharon’s father. It was purchased by Jody and Steven from the father’s estate and in accordance with a deed of family arrangement.³ That deed was entered into by Jody, Sharon and their siblings to settle competing claims to the estate.

• [4] Sharon has refused to vacate the property to enable it to be sold to a third party. Sharon says that there should be implied into the arrangements between she and Jody a term that Sharon should have the opportunity to purchase the Sanson property at or at about the same price as was paid by Jody and Steven. She says that her possession of the property should continue until she has had the opportunity to make the purchase. Sharon claims she has not had that opportunity because the price has increased.

• [5] The critical issue I must determine is whether Jody and Steven have established that Sharon has no defence to their claim. Is there a tenable claim that a right to remain is to be implied into the DOFA and/or are Jody and Steven estopped from seeking the orders for possession?

Background

• [6] The father, Noel Clarke, died on 22 August 2014. He was survived by his four children, Jody, Sharon, Hayley and John. Noel died leaving a will dated 9 August 1984, under which he gifted the whole of his estate to his four children in equal shares.

¹ For ease of reference, I shall refer to them by their first names; no disrespect is intended.

² The Sanson property.

³ DOFA.

• [7] The trustee appointment provisions of Noel’s will failed because all of the proposed trustees pre-deceased him. Letters of administration were therefore granted, appointing each of his four children as co-administrators of his estate.

• [8] The main assets of Noel’s estate were a 130-hectare farm in Apiti,⁴ the Sanson property, stock located at the Apiti farm, and plant and machinery that were located at both the Apiti farm and the Sanson property.

• [9] Jody sought to purchase the Apiti farm from Noel’s estate.

• [10] Sharon has lived at the Sanson property since 2006. Noel also lived there when he was not at the Apiti farm.

• [11] On 1 October 2015, Sharon was adjudicated bankrupt. She wanted to purchase the Sanson property, but her bankruptcy became a significant hurdle.

• [12] In about May 2016, the estate’s solicitor proposed that Jody purchase the Sanson property from the estate, in addition to the Apiti farm. It was proposed that Sharon would rent the Sanson property from Jody and Steven while she had the opportunity to get her bankruptcy annulled or discharged. She could then potentially buy the Sanson property.

• [13] A private mediation was convened on 14 October 2006 to resolve competing sibling claims to the estate. In summary, the terms of the DOFA entered into were as follows:

1. The net value of the estate was $1m. Each child’s equal quarter share of the estate was therefore $250,000;

2. Jody and Steven would obtain sufficient finance to pay out Hayley’s and John’s quarter shares to them, to repay Noel’s borrowings from ANZ and to purchase the assets of the estate, including the Apiti farm and the Sanson property;

⁴ The Apiti farm.

3. Sharon’s $250,000 quarter share would not be distributed to her, but would be secured for her by way of a second mortgage registered over the title of the Sanson property;

4. The settlement was a resolution of all claims, including the debt owed by the estate to Jody and Steven for their unpaid management of the Apiti farm and the debt owed by Sharon to the estate for non-payment of rent for occupying the Sanson property.

• [14] Sharon executed a deed of acknowledgment to Jody dated 14 October 2016, which records:

I, SHARON MAY CLARKE, hereby acknowledge that I understand the terms of settlement reached between us, namely me and Jody, and our sister, Hayley, and our brother, John, may still result in the Sanson property (which I presently occupy) having to be sold to a third party despite that the intention of my sister, Jody, and I is that we will try and arrange matters so that the Sanson property does not have to be sold to a third party.

AND FURTHER I appreciate that whether the Sanson property is retained or sold to a third party may be out of the control of Jody.

• [15] In November 2016, Jody and Steven purchased both the Apiti farm and the Sanson property. The purchase price is recorded in the agreement for sale and purchase as follows:

Apiti farm $1,240,000 and the Sanson Road property $510,000.

• [16] The title to the Sanson property records a second registered mortgage in favour of Jody and Sharon as administrators. There is a first registered mortgage to the Bank of New Zealand securing the borrowing of Jody and Steven.

• [17] Sharon was discharged from bankruptcy on 11 March 2019.

• [18] Proceedings were subsequently brought against Noel’s estate by his former partner, Gemma McConkey. However, those claims were dismissed in April 2020 when the Court of Appeal declined Ms McConkey’s application for leave to bring a second appeal.⁵

⁵ McConkey v Clarke [2020] NZCA 83, [2020] NZFLR 207.

• [19] Jody and Steven say that they have had to re-finance their borrowings from the BNZ three times over the past five-and-a-half years in order to retain ownership of the Sanson property. During that time Sharon has paid $1,250 per each month to Jody and Steven for what they say is rent for the property.⁶ Jody and Steven now say that that sum no longer covers increased costs of rates and insurance.

• [20] Jody and Steven further say that in 2021 they needed to sell the Sanson property because they could no longer afford to service the loans both for it and the Apiti farm. They obtained a real estate agent’s appraisal of the value of the Sanson Road property. The appraisal estimated a value between $740,000 and $790,000.

• [21] On 4 May 2021, Steven offered to sell the Sanson property to Sharon for

$700,000. Sharon responded on 28 May 2021, advising Steven that she was interested in purchasing it. Further options were then offered to Sharon in August 2021 for the purchase of the property.

• [22] By letter dated 19 August 2021, Jody and Steven gave notice to Sharon that her tenancy of the property would be terminated on 17 November 2021 (that being 90 days notice to vacate, as required by s 51 of the Residential Tenancies Act 1986).

• [23] Sharon has not vacated the Sanson property and continues to occupy it without Jody and Steven’s consent.

Relevant legal principles

• [24] Rule 12.2(1) of the High Court Rules 2016 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.

• [25] The “well settled” principles on a summary judgment application are summarised in Krukziener v Hanover Finance Ltd:⁷

6. Sharon says these payments were a reimbursement for the costs of the Sanson Property (i.e. rates and insurance).

⁷ Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.

• [26] ... The question ... is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1986] NZCA 112; [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 Corporation Ltd v Patel [1987] NZCA 193; (1987) 1 PRNZ 84 (CA).

• [26] Rule 13.2 of the High Court Rules provides that Part 13, summary proceedings for the recovery of land, applies to every proceeding in which the plaintiff claims the recovery of land that is occupied by “unlawful occupiers”.

• [27] “Unlawful occupier” is defined in r 13.1:

In this Part, unlawful occupier means a person who –

(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 subtenancy.

Analysis and decision

Implied term

• [28] As noted, Sharon contends that a term should be implied into the DOFA that she is entitled to continue in occupation until she has had the opportunity to purchase the Sanson property. Sharon says that if Jody obtains a higher price for the Sanson property than what she paid for it, it will be a windfall gain for Jody obtained largely out of Sharon’s share of the estate. Sharon contends that she is still entitled to a share in the estate (as opposed to repayment of a loan) and that if that share has increased in value, then she should be entitled to the increase attributable to her share.
• [29] The leading New Zealand decision on implying terms into contracts is Bathurst Resources Ltd v L & M Cole Holdings Ltd.⁸ The Court held:⁹

To conclude, the principal points that govern the implication of terms are as follows:

1. The legal test for the implication of a term is a standard of strict necessity, a high hurdle to overcome.

2. The starting point is the words of the contract. If a contract does not provide for an eventuality, the usual inference is that no contractual provision was made for it.

3. While the task of implication only begins when the court finds that the text of the contract does not provide for the eventuality, the implication of a term is nevertheless part of the construction of the written contract as a whole. An unexpressed term can only be implied if the court finds that the term would spell out what the contract, read against the relevant background, must be understood to mean.

4. As with the task of interpreting a contract, the inquiry for the court when considering the implication of a term is an objective inquiry – it is the understanding of the notional reasonable person with all of the background knowledge reasonably available to the parties at the time of contract that is the focus of this assessment. The court is tasked with the role of constructing the understanding of that reasonable person.

5. Thus, the implication of a term does not depend upon proof of the parties’ actual intentions, nor does it require the court to speculate on how the actual parties would have wanted the contract to regulate the eventuality if confronted with it prior to contracting.

6. The BP Refinery conditions are a useful tool to test whether the proposed implied term is strictly necessary to spell out what the contract, read against the relevant background, must be understood to mean. Whilst conditions (4) and (5) must always be met before a term will be implied, conditions (1) – (3) can be viewed as analytical tools which overlap and are not cumulative. The business efficacy and the “so obvious that it goes without saying” conditions are both ways, useful in their own right, of testing whether the implication of a term is strictly necessary to give effect to what the contract, objectively interpreted by the Court, must be understood to mean.

(citations omitted)

⁸ Bathurst Resources Ltd v L & M Cole Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.

⁹ Bathurst Resources Ltd v L & M Cole Holdings Ltd, above n 8, at [116].

• [30] The well-known, five-point test for the implication for terms in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings,¹⁰ referred to by the Supreme Court in Bathurst, is that the term must:

1. Be reasonable and equitable;

2. Be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

3. Be so obvious that it goes without saying;

4. Be capable of clear expression;

5. Not contradict any express term of the contract.

• [31] The issue I must determine has a relatively narrow compass; have Jody and Steven established that Sharon has no tenable claim to remain in possession and to prevent a sale by them of the property to a third party? Jody and Steven say they are under financial pressure and that if the Sanson property is not sold there is a real risk of a mortgagee sale of both the Apiti farm and the Sanson property.

• [32] The issue before me is not whether Sharon is entitled to any interest on the mortgage protecting her interests in the estate or whether she is entitled to any increase in value in the property, which should be reflected in her share of any proceeds of sale. In these proceedings the plaintiffs seek only an order for recovery of possession from Sharon.

• [33] As Bathurst makes clear, the issue of implication only arises after the express terms of the contract have been interpreted and found not to provide for the eventuality.¹¹

10. BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 (PC).

¹¹ Bathurst Resources Ltd v L & M Cole Holdings Ltd, above n 8, at [113].

• [34] The starting point here is the words of the DOFA and, in particular, cl 5 which reads:

IN THE EVENT that clause 1 [Jody and Steven’s option to purchase the Apiti farm and the Sanson Road property] applies, Jody and Sharon have agreed between them that Jody will have twelve (12) months in which to satisfy Sharon’s one-quarter interest in the estate which shall be the said sum of two hundred and fifty thousand dollars ($250,000) or such other sum as they may agree between them AND in order to protect Sharon’s interests pending Jody satisfying such quarter share, the estate shall have the right to security over the Sanson Road property that is to be purchased by Jody or her nominee in order to give effect to clause 1 in respect of any entitlement due to Sharon pursuant to the terms of the will PROVIDED THAT on satisfaction of such share by Jody then Sharon agrees that the Official Assignee shall be advised that such payment is about to be made so that the Official Assignee can ensure payment of any sum due to the Official Assignee pursuant to Sharon’s bankruptcy.

• [35] This is a curiously worded clause; it obviously addresses Sharon’s bankruptcy but makes no reference to any purchase by Sharon or occupation of the Sanson property by her. It imposes obligations on Jody (not Sharon), and beyond rights as a mortgagee, Sharon has no interest in the property. However, the clause is best understood by construing it in conjunction with the deed of acknowledgment executed by Sharon (at [14] above) at approximately the same time as the DOFA.

• [36] In resolving the issues between Sharon and Jody, cl 5 and Sharon’s deed of acknowledgment need to be read together. It is the only sensible approach. Adopting an objective approach and reading the provisions together, it is apparent that against the backdrop of Sharon’s bankruptcy there was an agreed 12-month period in which it was hoped/anticipated that Sharon would be able to purchase the Sanson property using her quarter-share in the estate (i.e. $250,000) or other sum as agreed to. The undisputed evidence is that it was anticipated that Sharon could either discharge or annul her bankruptcy within a 12-month period. In the meantime, Sharon would remain in possession.

• [37] It is also clear that Jody and Steven would become the registered proprietors (i.e. cl 1 applies) and Sharon’s interest in the estate would be protected by a mortgage. However, the contractual arrangements do not provide for the eventuality that the parties now face; namely a sale of the Sanson property by Jody and Steven some five

years later, when the anticipated purchase by Sharon has not occurred and her share of the estate not distributed.

• [38] Sharon says that her acknowledgment to Jody was only ever intended to allow the sale of the Sanson property in the event that Jody was unable to raise the necessary finance to buy the shares of the other two siblings in the estate, and the Apiti farm and Sanson property as set out in the DOFA. She says that Jody did all that and that her acknowledgment to Jody does not mean that Jody now has some unconditional right to sell. I doubt that that is the case. But even if the point is arguable (it might turn on a close examination of the factual context), it does not provide an answer to the issue now before me as to whether, some five years later and well after the expiry of the 12- month period in cl 5 of the DOFA, Sharon has some arguable right to remain in possession and prevent a sale by Jody and Steven. The parties obviously anticipated a purchase by Sharon, but only within reasonable proximity of the finite period of 12 months and the circumstances spelt out in cl 5.

• [39] Having concluded that the contractual arrangements do not provide for the eventuality that has now arisen, it is necessary to address whether there is an arguable case for the implication of the term Sharon contends for.

• [40] In applying the various Bathurst factors, it is clear first and foremost, that an implied term must not contradict an express term of the contract.

• [41] The contract, the DOFA, expressly contemplated that the Sanson property might be sold to a third party; cl 2.2 expressly spells out the consequences of Jody electing not to purchase the Apiti farm and/or the Sanson property. In that event, an independent administrator would be appointed to sell all the assets of the estate and distribute them equally to the four siblings. The contract also expressly provided that in the event that Jody did elect to purchase (as she did) then she and Steven (the nominees under cl 1) would become the registered proprietors and that Sharon’s interest would be protected by a mortgage. To now imply a term into the DOFA that Sharon can remain in possession and prevent a sale by Jody and Steven as the registered proprietors, well after the expiry of the 12-month period provided for in cl 5, contradicts the fundamental terms of these contractual arrangements.
• [42] When applying the relevant Bathurst factors, it is also necessary to ask whether the proposed implied term is arguably reasonable and equitable. In the context of the undisputed circumstances of this case, the arguable threshold of reasonable and equitable is not made out. Jody and Steven have taken considerable and generous steps to protect Sharon’s interest. They purchased the Sanson property with a view to Sharon ultimately purchasing it, in circumstances where Sharon was currently unable to do so (i.e. because of her bankruptcy). Since the purchase they have continued to meet the financial commitments required to maintain ownership. Some five years later, and after Sharon has been discharged from bankruptcy, Jody and Steven need to sell the Sanson property to save the Apiti farm. It would be unreasonable and inequitable for Sharon to be able to thwart them in that endeavour, particularly when they have sought to negotiate a sale to Sharon on discounted terms.

• [43] In reaching that conclusion, I acknowledge that Sharon has contributed to the payment of rates, insurance and mortgage obligations. However, without the commitment and steps taken by Jody and Steven, the Sanson property would have been sold long ago.

• [44] Ultimately, as Bathurst makes clear, the enquiry for the Court when considering the implication of a term is objective – i.e. the enquiry is based on the understanding of the notional, reasonable person with all of the background knowledge reasonably available to the parties at the time of the contract that is the focus of the assessment. On the undisputed facts that I have outlined above, and in adopting an objective enquiry, I conclude that the notional, reasonable person would not understand the contract to mean what Sharon now contends. Her contention is not reasonably arguable. Jody and Steven have established that the high hurdle for the implication of a term has not been overcome and there are no relevant factual disputes that need to be resolved at trial.

• [45] If I am wrong in that assessment, I would find that in any event there is no arguable breach of the proposed implied term. There is no probative evidence before the Court that Sharon is in any position to purchase the Sanson property at the price paid by Jody and Steven ($510,000 less her $250,000 interest in the estate) or, indeed, at any price. Furthermore, it is now three years since Sharon was discharged from her

bankruptcy. The McConkey proceedings against Noel’s estate were dismissed in April 2020. Nonetheless, Sharon has not taken any steps over the last two to three years to purchase the Sanson Road property from Jody and Steven, despite significant steps taken by Jody and Steven to sell the property to her at a discount from its current market value. I also note that when Steven, in May 2021, proposed to Sharon in his text that she purchase the property for $700,000, she responded by saying “Yes I’m interested in buying”. She did not object to the price or make any suggestion that there was an agreement between them that the price would be the same as that paid originally by Jody and Steven.

Estoppel

• [46] Sharon’s second defence in opposition to summary judgment is an arguable, equitable estoppel claim. She relies on the following passage from Equity and Trusts in New Zealand:¹²

Although the modern approach is “to depart from strict criteria and to direct attention to overall unconscionable behaviour”, it is nevertheless clear that the party alleging an estoppel must show that:

(a) A belief or expectation has been created or encouraged through some action, misrepresentation, or omission to act for the party against whom the estoppel is alleged;

(b) The belief or expectation has been relied on by the party alleging the estoppel;

(c) Detriment will be suffered if the belief or expectation is departed from; and

(d) It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.

• [47] Sharon contends that she and Jody had a close relationship. She says they had a common intention that Jody would purchase the Apiti farm and that Sharon would purchase the Sanson property. They intended to work together to achieve that end. Sharon further says that both of them knew the price paid by Jody for the Sanson property and that Sharon believed (because she had never been told otherwise) that

¹² James Every-Palmer “Equitable Estoppel” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 601 at 613; see also Gillies v Keogh [1989] NZCA 168; [1989] 2 NZLR 327, (1989) 5 FRNZ 490 (CA) at 346, 508 per Richardson J.

she could purchase the property from Jody for the same price or thereabouts. Furthermore, Sharon says that she believed or expected that as sisters engaged in a joint enterprise, both she and Jody would deal with each other in a fair and candid manner without taking advantage or profit at the expense of the other.

• [48] Sharon further contends:

(a) She relied on this belief or expectation when she permitted her share in the estate to be used for the purposes of the acquisition of the Sanson property;

(b) There will be a detriment if she is forced out of possession of the Sanson property without having the opportunity to purchase it at Jody’s purchase price;

(c) Because of a general increase in the price of real estate she is now unable to acquire a property comparable to Sanson;

(d) Jody would receive a windfall gain at her expense if she does not have the opportunity to purchase at the price paid by Jody. It would be unconscionable for Jody to insist upon this.

• [49] It is clearly arguable that there was a mutual belief or expectation that Sharon would purchase the Sanson property within reasonable proximity of the 12-month period referred to in cl 5 of the DOFA. However, I find that it is not arguable that there was any belief or expectation created or encouraged by Jody that Sharon would be able to purchase it six years later at the price Jody paid in 2016, and to remain in possession until she could achieve that aim. Clause 5 of the DOFA expressly states that any departure from Sharon’s quarter-share of $250,000 would need to be agreed between Jody and Sharon. There has never been any agreement or, indeed, any reliance by Sharon, and certainly no detrimental reliance. The delay in any purchase, at least until 2019, was of Sharon’s own making. She was not discharged from bankruptcy until that time. She did not want her share of the estate paid out until the bankruptcy was over.
• [50] Jody says that Sharon never knew of the price that she, Jody, paid for the Sanson Road property. However, that is essentially a trial issue; I cannot determine the matter at this summary stage. In any event, even if Sharon did know, she still needs to establish an arguable basis for each of the four elements of equitable estoppel.

• [51] Sharon’s contention that it would be unconscionable for Jody to insist upon Sharon paying a higher price than Jody paid for the Sanson property is overstated. It might arguably be unconscionable to deny Sharon an increase in the value of the property as reflected in any entitlement of Sharon to a share in the proceeds of any sale. However, on the undisputed evidence here, I do not see how Sharon has a credible claim of unconscionability when she is insisting that she remains in possession with a right to purchase at the original price of $510,000, in circumstances where this would jeopardise Jody and Steven’s retention of the Apiti farm. On the contrary, in circumstances where they face losing the Apiti farm, it cannot be unconscionable for Jody and Steven to hold Sharon to her bargain, which expressly involved an acceptance by Sharon that the Sanson property could be sold to a third party. It should also be recalled that the Apiti farm was an integral part of the DOFA.

• [52] In circumstances where Sharon was bankrupt, Jody bought the Sanson property and gave Sharon the opportunity to buy it herself after 12 months and a reasonable opportunity to resolve the bankruptcy complication. It will not be a windfall gain for Jody and Steven to obtain an increase in value for any sale of the property, having paid the mortgage, become the registered proprietors and performed their obligations under the DOFA. On the other hand, and as I have noted, it might arguably be unconscionable for Sharon not to receive any benefit for the capital gain, but that is not a basis for saying that it would be unconscionable for Jody and Steven to remove her and sell to a third party.

• [53] I conclude that there is no arguable case of equitable estoppel.

Result

• [54] Having determined that Jody and Steven have established that Sharon has no arguable defence to the claim, I find that the summary judgment application should be granted, and on the terms sought. Sharon is an unlawful occupier.
• [55] I enter summary judgment for the plaintiffs and make an order that the plaintiffs recover possession of the Sanson property from the defendant.

• [56] As to costs, having succeeded, I am of the preliminary view that the plaintiffs are entitled to costs and on a 2B basis plus disbursements. If costs cannot be agreed, then memoranda (no more than three pages) are to be filed and served within 14 days.

Associate Judge P J Andrew