Goodwin v Rocket Surgery Limited [2013] NZCA 172 (22 May 2013)

Last Updated: 29 May 2013

IN THE COURT OF APPEAL OF NEW ZEALAND

CA748/2012 [2013] NZCA 172

BETWEEN WAYNE ERNEST GOODWIN AND MARY ELIZABETH GOODWIN Appellants

AND ROCKET SURGERY LIMITED Respondent

Hearing: 24 April 2013

Court: Arnold, Harrison and White JJ

Counsel: A C Beck for Appellants D P Robinson for Respondent

Judgment: 22 May 2013 at 2.30 pm

JUDGMENT OF THE COURT

A The appeal is allowed.

2. The orders made in the High Court granting summary judgment and consequential relief including costs are set aside.

100. The interim orders made in this Court on 18 December 2012 and 14 February 2013 are discharged.

4. There is no order for costs in this Court.
   

REASONS OF THE COURT

(Given by Harrison J)

Introduction

[1] This appeal raises the essentially factual question of whether on an application for summary judgment by the respondent, Rocket Surgery Ltd (RSL), Associate Judge Osborne was correct to order the sale of a property formerly owned by the appellants, Wayne and Mary Goodwin (the Goodwins).[1]
[2] On 18 December 2012 and 14 February 2013 this Court made interim orders staying execution of the judgment pending further order of this Court.

Facts

[3] The Goodwins owned a residential property at Mosgiel, near Dunedin, known as “Chelmsford”. They fell into financial difficulties and faced a sale by the mortgagee, Westpac Banking Corporation.[2]
[4] The Goodwins’ son-in-law, Campbell Harvey, agreed to assist in saving Chelmsford from sale. Mr Harvey and some colleagues were shareholders in RSL, a small private company. RSL agreed to borrow a sufficient sum to buy the property at the mortgagee’s sale and to cover financing costs for a year after purchase while the Goodwins recovered financially. The ultimate purpose was to enable the Goodwins to buy Chelmsford back in their own names or through a nominee.
[5] It was agreed in principle that RSL would derive some reward for providing the finance. Apart from an understanding that when repurchasing the Goodwins would repay RSL all outgoings spent on the property, they were also to pay a fee for providing the finance. That fee was never settled but the parties discussed figures ranging between $20,000 and $40,000. If the Goodwins were unable to repurchase, Chelmsford would be sold and RSL would recover its expenditure. Unfortunately the parties never settled the terms and conditions of an agreement.
[6] In accordance with this informal arrangement RSL purchased the property at sale by Westpac in April 2010. But thereafter relations between the parties gradually deteriorated. Attempts to settle written terms of an agreement were unsuccessful. Proposals and counter proposals were exchanged in an environment of increasing acrimony. The Goodwins did not repurchase the property within a year. In the event, in May 2012, more than two years after the acquisition, RSL filed a proceeding against the Goodwins in the High Court. The company sought summary judgment for a range of remedies on the grounds that the Goodwins had no right of occupation or interest in the property and no defence to RSL’s claim.
[7] From the bar, Mr Robinson advised us that when entering into the original arrangement the parties understood that Chelmsford had a value of about $1.6 million. However, when it was marketed in 2012, before a stay order was made in this Court pending determination of this appeal, buyer interest did not exceed a price of $1 million.
[8] Mr Robinson also advised us that the property is charged to a total of about $950,000, principally to Kiwibank. Additionally, RSL has contributed about $250,000 towards the purchase price and holding costs. On this analysis there is no equity in the property when RSL’s contribution is taken into account. RSL’s total indebtedness now exceeds $1.2 million against an indicated market value of $1 million. In fact, as Mr Robinson advises, RSL now faces the risk of a mortgagee’s sale.

Summary judgment application

[9] RSL’s statement of claim alleged the existence of an oral agreement between Messrs Harvey and Goodwin entered into for the parties prior to RSL’s purchase of the property on 7 April 2010. The agreement as pleaded alleged eight material terms and conditions which the Goodwins breached by failing to purchase the property from RSL by March 2011. RSL sought orders cancelling the oral agreement and directing the Goodwins to give vacant possession of the property; a declaration that the Goodwins had no interest in the property; judgment in a sum equivalent to the holding costs incurred by RSL during the Goodwins’ unlawful possession; and interests and costs.
[10] The Goodwins filed a notice of opposition. Significantly, they alleged that the relationship between the parties relating to RSL’s acquisition of Chelmsford was one whereby RSL held legal title to the property on trust for the Goodwins’ beneficial interest. Allegations of consequential breach were made. Alternatively, the Goodwins asserted that if there was a contract, which was denied, then its terms were materially different from those alleged by RSL.
[11] Messrs Harvey and Goodwin filed affidavits in support and opposition to RSL’s application for summary judgment. The affidavits were extensive, covering a large amount of argumentative and irrelevant territory. But they disclosed a direct conflict between Messrs Harvey and Goodwin on the terms and extent of what was agreed between them. In the normal course, that evidential conflict could only be resolved by findings of fact made by the High Court following a trial.

High Court

[12] After reciting the relevant facts, Associate Judge Osborne noted:

[15] Initially Rocket Surgery pleaded in contract. By the nature of an unwritten agreement relating to land, with as many imprecise features as this arrangement had, Mr Robinson for Rocket Surgery recognised in the course of his submissions (without conceding that the contractual cause of action could not succeed) that a contract claim would not lead to summary judgment.

[16] The focus of Rocket Surgery’s case shifted to an analysis in trust law. Mr Robinson had, with leave, filed an amended statement of claim which asserted that a trust had come into existence of which Rocket Surgery was trustee and the Goodwins beneficiaries. In an ironical twist, this approach resonated with the Goodwins’ own notice of opposition which had asserted that the Goodwins had a beneficial interest.

[17] By a process of identifying what the real issues in this litigation are, counsel had happily arrived at an identification of the strength of equity to fulfil the parties’ mutual expectations where a focus on contractual principles might have left them, most unsatisfactorily, to continuing litigation lasting months if not longer.

[13] Mr Robinson apparently filed an amended statement of claim seeking the alternative remedy for breach of trust at the Associate Judge’s instigation. In essence RSL’s amended pleading alleged that it held Chelmsford on trust for the Goodwins or their nominee for a period of one year to 31 March 2011 for the specific purposes of enabling the Goodwins to purchase the property from RSL on terms or procure the sale to a third party; that the purpose of the trust had failed; and that in the result the parties held Chelmsford as tenants in common in unequal shares reflecting their respective contributions to the purchase price.
[14] On apparent reliance on this amended pleading, the Associate Judge found briefly as follows:

The solution is in the law of trust

[18] The relationship between Rocket Surgery and the Goodwins proceeded as a relationship of trust. The Goodwins trusted Rocket Surgery to purchase the property if it could and to then hold and deliver back the property. Rocket Surgery trusted the Goodwins to take the opportunity of a year’s breathing space, to get themselves into a position to buy the property back, to manage the property in the meantime, and if they could not buy the property back, then to let Rocket Surgery proceed to the market so that its shareholders could get their investment back, with any remaining equity belonging to the Goodwins.

What is the particular solution in this case?

[19] Rocket Surgery, as trustee, must be able to dispose of the property for its market value now through a proper sale process.

[20] Rocket Surgery by the trust arrangement committed to holding the property for approximately one year. It has more than fulfilled its obligation in that regard. In the light of the parties’ initial agreement that the property would be held for approximately one year, equity would imply a term that Rocket Surgery’s responsibility to hold the land would come to an end within a reasonable period after the expiry of 12 months. The 18 months since April 2011 represent much more than a reasonable period. Although, after the property was purchased by Rocket Surgery, the Goodwins had suggested that they should have a right to unilaterally veto a sale, such on the evidence was never part of the understanding reached. Responsibly in his submissions for the Goodwins, Mr Shiels did not suggest that the law would imply any right on the part of the Goodwins now to have the sale of the property further deferred.

[15] In the result the Associate Judge did what he described as “... mov[ing] quickly to the practicalities of a sale”.[3] He first identified his jurisdiction to make orders arising under s 64 of the Trustee Act 1956.[4] He held that the sale of Chelmsford was expedient in the administration of the trust.[5] Then, after consultation with counsel, he settled the terms of sale and a detailed series of consequential orders.[6] He also ordered the Goodwins to pay costs to RSL on a 2B scale with a 25 per cent uplift together with disbursements.

Decision

[16] We commend the Associate Judge’s attempts to find a practical resolution of the parties’ problems. But we cannot uphold his decision to grant RSL summary judgment. Our reasons can be stated briefly.
[17] The relevant principles governing the entry of summary judgment are well settled. That remedy should not be granted wherever a defendant has produced tenable or arguable evidence in support of a defence to establish the existence of a genuine dispute.[7] Other than in exceptional circumstances, such as where the plaintiff is able to show that a defendant’s affidavit is on its face plainly implausible, the Court on a summary judgment application does not resolve material conflicts of evidence or assess relative credibility without the benefit of a trial.[8] The plaintiff carries the onus throughout of satisfying the Court that a defendant has no defence to a cause of action in the statement of claim.[9]
[18] Mr Beck, who did not appear for the Goodwins in the High Court, relies on the statutory requirement that an application for summary judgment be supported by an affidavit made on behalf of the person making the application. That affidavit must verify the allegations in the statement of claim and depose to the belief that the defendant has no defence to the allegations, with the grounds for the belief also set out.[10] Mr Harvey’s originating affidavits filed in satisfaction of this requirement affirmed the terms of an alleged contract while denying Mr Goodwin’s counter assertion of a trustee/beneficiary relationship.
[19] The Associate Judge gave judgment on RSL’s amended statement of claim filed during the course of the hearing alleging the existence of a trust. Mr Harvey swore a brief affidavit in support. However, while verifying the allegations made in the amended statement of claim, this supplementary affidavit effectively contradicted what Mr Harvey had originally alleged on oath. Of itself, this factual inconsistency was so fundamental that summary judgment could not properly have been entered without its resolution.
[20] In this respect, RSL’s belated decision to plead the existence and breach of a trust was ironical in that it amounted to a reformulation of its claim to coincide with the conceptual basis for the Goodwins’ defence. However, while the parties found this degree of conceptual consensus, they remained well apart on the terms of the trust. The Associate Judge’s brief summary of the relationship failed, with respect, to identify its key elements – in particular, the intention to create a trust; the identity of the beneficiaries; the terms on which the trust was created: all are required for the creation of a trust. Whether RSL was in breach of its obligations also needed to be identified. And the failure to resolve the evidential conflict meant that the additional requirement for validity – particularly formality and clarity of the terms – were absent.[11]
[21] Also, while RSL’s amended application for summary judgment pleads “a failed purpose trust”, this reference could only be to the failure of the objective underpinning the creation of an express trust here – the Goodwins’ repurchase of Chelmsford – as opposed to the legal category of trusts known as purpose trusts. A purpose trust is created to fulfil a specific purpose, not to benefit a person: in that sense it is therefore an exception to the beneficiary principle (that for a trust to be valid it must have a beneficiary to enforce it) and is irrelevant here.[12]
[22] Mr Robinson seeks to support the judgment on the alternative grounds that the Associate Judge has in fact found the existence of a constructive trust or a resulting trust. However, Mr Robinson did not develop arguments in support; and neither alternative is open on RSL’s amended pleading.
[23] RSL could not assert the existence of a constructive trust. That remedy is normally imposed according to principles of equity where it would be a fraud for the person on whom the Court imposes the trust to assert a beneficial ownership.[13] RSL could hardly assert on its own pleading that it has acted unconscionably, justifying equity’s interference against it. And a resulting trust could not arise where RSL itself provided the purchase price and is also the registered proprietor – that is, there is no separation between the party which advanced the money and ownership of the legal title.[14]
[24] While it is unnecessary for us to decide the point, we doubt also whether s 64 of the Trustee Act was an available source of jurisdiction for the Associate Judge to make orders for sale of the property on terms.
[25] In summary, RSL’s claim was never suitable for determination by summary judgment. Its allegation of breach of contract was unsustainable on summary disposition because its terms were in dispute. There was no evidence of a clear intention to create an express trust. The alternatives of a constructive or resulting trust are plainly unavailable. In essence this was an informal family arrangement which was never properly documented. The facts as pleaded do not support the existence of a trust.
[26] We add that this litigation was unnecessary from the outset. RSL is the registered proprietor of Chelmsford. It had an absolute right to exercise its powers of sale whenever it asserted that it was no longer obliged to retain the property. The Goodwins could have lodged a caveat against the title if they wished to oppose sale, alleging the existence of an equitable interest in the property. The Goodwins, not RSL, would have carried the burden of proving the nature and extent of their interest.
[27] Assuming the Goodwins did lodge a caveat, a Court would likely have discharged it on terms requiring RSL to pay any net proceeds of sale after settlement of all indebtedness into a solicitor’s trust account pending determination of the Goodwins’ claim. The evidence of Chelmsford’s value and the compounding amounts charged against it would have dictated a direction for sale. If a surplus was available, which seems unlikely, its amount would have fallen within the jurisdiction of the District Court. Even now, despite the wasted efforts of the past year, there is nothing to prevent RSL from taking steps to sell the property.

Result

[28] The Goodwins’ appeal is allowed. The orders made in the High Court granting summary judgment and consequential relief including costs are set aside.
[29] The interim orders made in this Court on 18 December 2012 and 14 February 2013 are discharged.
[30] In the normal course costs would follow the event. However, while the Goodwins have been successful, we are satisfied that costs should lie where they fall. In our view, even though RSL’s claim was misconceived, this litigation has been generated and prolonged by the Goodwins’ failure to honour the spirit of a family arrangement. Sale of the property is inevitable and the Goodwins’ failure to recognise this inevitability has unnecessarily compounded the costs for both the parties.

Solicitors:
Jenny Beck Law, Greytown for Appellants
Gallway Cook Allan, Dunedin for Respondent

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[1] Rocket Surgery Ltd v Goodwin [2012] NZHC 2752.

[2] Mr Goodwin was declared bankrupt before the appeal was heard but the point was academic given that Mrs Goodwin’s standing is unaffected.
[3] At [22].
[4] At [23]–[27].
[5] At [26].
[6] At [30] and [38].
[7] MacLean v Stewart (1997) 11 PRNZ 66 (CA) at 69.
[8] Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
[9] High Court Rules, r 12.2.
[10] High Court Rules, r 12.4(5).

[11] Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [4.2].

[12] Butler (ed) at [3.2] and [4.5.3].
[13] Lankow v Rose [1995] 1 NZLR 277 (CA).

[14] Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 (HL) at 708.