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Court of Appeal of New Zealand |
Last Updated: 12 December 2014
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellants |
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AND
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Respondents |
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Hearing: |
9 September 2014 |
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Court: |
French, Winkelmann and Asher JJ |
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Counsel: |
M T Davies and S R Jacobs for Appellants
J E M Lethbridge and T J P Gavigan for Respondents |
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Judgment: |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by French J)
Introduction
[1] Mr and Mrs Cowan (the Cowans) appeal a decision of Associate Judge Sargisson made in the High Court at Auckland.[1]
[2] In the decision, the Associate Judge declined the Cowans’ application for a defendant’s summary judgment.
[3] The appeal raises the following issues:
- (a) Were the proceedings issued in the wrong name or the wrong capacity?
- (b) Is any error in the statement of claim capable of being cured by amendment to avoid summary judgment?
Background
[4] The Cowans owned a residential property in Mt Eden, Auckland.
[5] On 26 October 2005 they entered into a written agreement to sell the property. The contract showed the purchasers as “Julia Martin and Stephen Farrell” (Martin and Farrell). It did not say “or nominee”.
[6] Prior to settlement, solicitors acting for Martin and Farrell advised the Cowans’ solicitors that their clients had formed a trust to complete the purchase. The letter, dated 22 November 2005, enclosed a transfer document showing the purchasers as “Stephanie Diana Martin and Colleen Clare Ciobo”. Mesdames Martin and Ciobo were the trustees of the newly formed trust, under which Martin and Farrell were discretionary beneficiaries. The trust was called the Slan Abhaile Family Trust (the family trust).
[7] The sale was duly settled on 25 November 2005 and the Mt Eden property was transferred into the names of Stephanie Diana Martin and Colleen Clare Ciobo. The transfer was registered on 2 December 2005.
[8] In October 2007, Stephanie Martin resigned as trustee and was replaced by a Dr Malcolm Sturm. The property was then transferred into the names of Dr Sturm and Ms Ciobo.
[9] On 27 October 2011, Martin and Farrell issued proceedings in the High Court against the Cowans. The statement of claim alleges that in breach of an express warranty under the agreement for sale and purchase, the Cowans carried out certain defective building work during their period of ownership, causing Martin and Farrell loss or damage in the sum of $225,000.
[10] The loss or damage is particularised as follows:
- (a) $15,000 expended to make good unsafe electrical work;
- (b) diminution in the value of the land as a result of an unlawful carport, estimated at $60,000; and
- (c) remedial works to the rear of the property estimated to cost $150,000.
[11] The Cowans filed a statement of defence denying the allegations and also pleading that any claim was statute-barred under the Limitation Act 1950, time having started to run from the date the contract was signed, namely 26 October 2005.
[12] The Cowans also filed an application for summary judgment. The only grounds identified in the formal notice were that Martin and Farrell’s claim could not succeed and “on the grounds appearing” in an affidavit sworn by Mr Cowan.
[13] The affidavit in question exhibited a number of documents that had been obtained on discovery relating to the family trust. They included a deed dated 12 January 2012 under which Ms Ciobo and Dr Sturm purported to retire as trustees and appoint Martin and Farrell as substitute trustees. The affidavit also exhibited documentation showing that Martin and Farrell did not become the registered proprietors of the property until 28 February 2012.
[14] Martin and Farrell opposed the summary judgment application.
The High Court decision
[15] The Associate Judge identified two arguments advanced by the Cowans in support of their application for summary judgment.
[16] The first was an argument that because it was the trustees who had owned the property and not Martin and Farrell, Martin and Farrell had no standing to sue.[2] Martin and Farrell could not themselves make a valid claim in contract unless and until they became trustees, which did not happen until January 2012 – that is, after the limitation period had expired.
[17] In opposition, Martin and Farrell contended that while a formal deed appointing them as trustees had not been signed until January 2012, they had been orally appointed trustees in October 2011, before they issued the proceedings. The oral appointment was said to be evidenced by a minute dated 25 November 2011. Alternatively, they argued they had been appointed as the trustees’ agents for the purpose of commencing the proceedings or that the claim had been brought in a representative capacity.
[18] The minute relied upon reads:
MINUTE OF THE MEETING OF
THE TRUSTEES OF THE SLAN ABHAILE FAMILY TRUST
(“the Trust”)
on 25 November 2011
(passed by entry in the Trust’s minute book)
PRESENT: Colleen Clare Ciobo, Malcolm Randall Sturm, Stephen Farrell and Julia Martin
RESOLVED:
Signed:
Colleen Clare Ciobo
Resigning Trustee
[19] The Judge acknowledged that Martin and Farrell’s arguments on ownership were problematic.[3] She considered their interpretation of the minute was strained, that a formal deed (in this case the deed ostensibly appointing Martin and Farrell trustees on 12 January 2012) would ordinarily be assumed to reflect the true position, that as a matter of law an agent cannot bring proceedings for trustees and that it was far from clear that Martin and Farrell had the same interests as the trustees so as to be able to bring a representative claim.
[20] However, the Judge said those apparent problems were not determinative.[4] In her assessment, the evidence did not establish that Martin and Farrrell ceased to be parties to the agreement in their personal capacities, in that there was no evidence of a novation or assignment to the trustees or any other cancellation of their rights.[5] The possibility that Martin and Farrell might still be parties to the contract with rights to sue for breach of warranty could not therefore be discounted.
[21] The second argument identified as being advanced by the Cowans was that even if Martin and Farrell did have rights to sue on the contract in their personal capacities, they had not personally suffered any loss that would result in anything more than nominal damages.[6] In support of that argument, the Cowans relied on a letter written by Martin and Farrell’s own solicitors which stated that it was the family trust that had suffered the loss.
[22] As regards this second argument, the Judge said that it might well be that Martin and Farrell had not suffered a personal loss.[7] However, she was not prepared to enter summary judgment on that ground. In her view the letter was not without some ambiguity. The Judge was also concerned that the Cowans had failed to put the question of loss squarely in issue, with the result that Martin and Farrell may not have addressed it in their affidavit evidence. She could not, therefore, rule out the possibility that Martin and Farrell did suffer at least some of the categories of harm pleaded in the statement of claim, irrespective of the transfer to the trustees. Further, evidence on who had actually borne the loss and whether it was Martin and Farrell personally or the trust fund would be relevant.[8]
[23] The Judge concluded by stating she was not satisfied the Cowans had established that Martin and Farrell’s claim could not succeed. She therefore dismissed the application for summary judgment.
Issues on appeal
[24] On appeal, Mr Davies for the Cowans submitted that in essence this was a case in which the wrong party had brought the claim. He conceded that the Cowans’ application for summary judgment was deficient because of its lack of specificity, but submitted it had always been a shared assumption that it was the family trust that had purchased the property and had suffered the alleged loss, not Martin and Farrell personally. In his submission, the Associate Judge had therefore decided the case on a different basis to that on which it had been argued.
[25] For her part, counsel for Martin and Farrell, Ms Lethbridge, denied any such shared assumption.
[26] As the hearing progressed, the arguments of both parties evolved and the issues became further refined.
[27] In particular, Ms Lethbridge adopted the following final positions:
- (a) As currently pleaded, the statement of claim suggests the claim is a claim by Martin and Farrell personally.
- (b) The losses pleaded in the statement of claim are, however, the losses of the trust, not Martin and Farrell personally.
- (c) To the extent that amendment of the statement of claim is necessary to show that Martin and Farrell are suing in their capacity as trustees, any such amendment would be correcting a misnomer, not a misidentification, and so is permissible notwithstanding the expiry of the limitation period.
[28] The claim is solely one for breach of contract and it is not at all clear to us that the trustees would be able to sue on the contract. The general rule is that a purchaser has the right to nominate a third person whose name is to be put into the memorandum of transfer, but that notwithstanding the nomination the purchaser remains the only party to the contract.[9] As explained in Sale of Land:[10]
The nominee can never become a party to the contract, and so never in privity of contract with the vendor. Thus the nominee cannot sue or be sued on the contract except in the circumstances of subsale, assignment, novation or in terms of ss 4 and 8 of the Contracts (Privity) Act 1982 ... .
[29] We drew these authorities to Ms Lethbridge’s attention but she maintained the position that the claim is one by the trustees and is intended to be so. That in our view makes the claim potentially problematic. However, the evidence as to the circumstances in which the trustees came to acquire legal title to the Mt Eden property is not sufficiently clear-cut for the purposes of a summary judgment application. We cannot categorically exclude the possibility of any of the exceptions to the general rule applying and also note that during the hearing, Mr Davies submitted, relying on Laidlaw v Parsonage, that the Contracts (Privity) Act 1982 would apply to give the trustees standing to sue.[11] We therefore say no more on the point.
[30] In light of the position taken by Ms Lethbridge, the appeal falls to be determined on the basis that the claim which Martin and Farrell seek to bring is a claim on behalf of the trust.
[31] On that basis, the starting point is that on its face the current statement of claim discloses a cause of action in contract brought by Martin and Farrell personally, which would only yield nominal damages. It follows in our view that if summary judgment is to be avoided, the statement of claim must be amended to plead that the proceeding is brought by Martin and Farrell in their capacity as trustees or in some other way on behalf of the trust. It is well-established that summary judgment will not be appropriate where it is possible for the plaintiff to amend the claim so as to remedy the defects relied upon by the defendant.[12]
[32] That in turn means the critical issues for determination are:
- (a) Is it arguable on the evidence that Martin and Farrell were trustees at the time they issued the proceedings?
- (b) If not, is it arguable they issued the proceedings as agents for the trustees or as a representative claim?
- (c) Is the failure to specify that they were suing in some capacity other than their personal capacities an error in the nature of a mere misnomer (as distinct from a misidentification) and so able to be cured by amendment of the statement of claim?
[33] Before proceeding to discuss those issues, we pause here to note that it was common ground – at least for the purposes of the appeal – that time under the Limitation Act started to run from the date of settlement, not the date the agreement for sale and purchase was entered into. This means the limitation period expired on the 25 November 2011.
Discussion
Is it arguable that Martin and Farrell were trustees at the time they issued the proceedings on 27 October 2011?
[34] Ms Lethbridge submitted that there is undisputed affidavit evidence of a meeting held prior to the claim being filed at which Martin and Farrell were orally appointed as trustees and authorised to issue the proceedings on behalf of the trust. She accepted that there is a conflict in the documentation as between the formal deed of appointment and the minute, but submitted that resolution of that conflict is a trial issue.
[35] We do not accept those submissions, which face two significant problems.
[36] The first is that under s 43(1) of the Trustee Act 1956 the power to appoint new trustees must be exercised by deed.
[37] Ms Lethbridge attempted to overcome that difficulty by submitting that the deed requirement under s 43 did not apply because the power to appoint new trustees was regulated by the trust deed setting up the family trust. Clauses 8 and 9 of that trust deed state:
- The Statutory power of appointment of new trustees hereof shall be vested in the trustees or the trustees or trustee surviving from time to time and after the death of the surviving trustee, in the administrators or executors of the last surviving trustee and if at any time after the death of the last surviving trustee there shall be no such administrator or executor able and willing to act then in the person or persons in whom the said statutory power is vested by the Trustee Act 1956 or any statutory modification thereof for the time being in force.
- The person or persons in whom the said statutory power of appointment of new trustees is vested shall have power:
(1) to appoint at any time or times an additional trustee or trustees of all or any of the trusts hereof whether or not occasion shall have arisen for appointment of new trustee or trustees;
(2) to appoint a retiring or retired trustee or any other person at any time or times as an advisory trustee of the trusts hereof;
(3) upon the retirement of a trustee or trustees of all or any of the trusts hereof to appoint a new trustee or trustees within or outside the jurisdiction of the New Zealand Courts;
(4) to appoint himself, herself or themselves or any of themselves to be a trustee of all or any of the trusts hereof.
[38] The reference in cl 8 to the “[s]tatutory power of appointment” must be a reference to the power under s 43.
[39] Ms Lethbridge acknowledged this but submitted that cl 9 grants wider powers than those provided under s 43. When asked to identify any aspect of cl 9 that authorises oral appointments, Ms Lethbridge relied on the width of the discretion conferred by cl 9, the absence of any requirement for the appointment to be made in writing or by deed and the words “at any time” in the clause. She submitted that those words displaced the requirement for writing and further submitted that to read in a requirement that any appointment had to be by deed would thwart the purpose of cl 9.
[40] In our view, those arguments are not tenable. The words “at any time” are purely temporal. They relate to the time at which the power may be exercised and cannot possibly bear on the mode of appointment. Clause 9 does not address the mode of appointment and in our view is not capable of being interpreted as displacing the requirement under s 43 that the appointment must be made by deed.
[41] We know of no authority that has held an oral appointment of new trustees is valid in the absence of any provision under the trust deed authorising oral appointments.
[42] The second difficulty is that in any event the affidavit evidence does not support the proposition that Martin and Farrell had been orally appointed trustees at the time the proceedings were issued.
[43] Martin and Farrell filed four affidavits in opposition to the application for summary judgment.
[44] In his affidavit, Mr Farrell says that:[13]
- ... prior to the proceedings being issued, the (then) trustees agreed to my wife and I commencing proceedings on behalf of the trustees.
- The then current trustees, Colleen Ciobo and Malcolm Sturm did not wish to remain as trustees and so elected to appoint Julia and I as their agents to bring the proceedings against the defendant.
[45] To similar effect are affidavits sworn by Ms Ciobo and Dr Sturm. Ms Ciobo expressly deposes that she and Dr Sturm appointed Martin and Farrell “as agents” to bring the proceedings on behalf of the trustees (meaning herself and Dr Sturm) against the Cowans. She goes on to state: “This delegation was decided and agreed upon on the basis that the then trustees would resign and Stephen Farrell and Julia Martin would be appointed as trustees.” Significantly, Dr Sturm deposes that he was a trustee when the claim was filed.
[46] A fourth affidavit, sworn by Julia Martin, says that Dr Sturm and Ms Ciobo authorised Mr Farrell and herself to bring the proceedings.
[47] In our view, notwithstanding the reference in the minute to the “third trustees”, it is not arguable that Martin and Farrell were appointed trustees of the family trust prior to the claim being filed. On the evidence before us, they could not have issued the proceedings in that capacity.
Is it arguable that Martin and Farrell issued the proceedings as agents for the trustees or as a representative claim?
[48] Our conclusion on the above issue makes it necessary for us to consider Ms Lethbridge’s fall-back arguments, which were that Martin and Farrell issued the proceedings as agents for the trustees or that they did so in a representative capacity under r 4.24 of the High Court Rules.
[49] We agree with the Associate Judge that r 4.24 could not apply because at the time the proceedings were issued Martin and Farrell did not have the same interest in the subject matter as the trustees.
[50] In our view Ms Lethbridge may, however, be on stronger ground in relation to the agency argument.
[51] Under cl 12.33 of the deed establishing the family trust, the trustees were empowered “... at their uncontrolled discretion instead of acting personally to employ and pay any person ... to do any act of whatever nature relating to the trust ...”.
[52] In the High Court, the Associate Judge considered an agency argument was not tenable because as a matter of law “an agent cannot bring proceedings for trustees”.[14] That assertion is supported by a footnote in the decision that reads:
It is clearly established that a trustee must bring proceedings personally and only in an extreme case will beneficiaries be entitled to bring proceedings in the name of a trust. See Hayim v Citibank [1987] AC 730 [a Privy Council decision from a Hong Kong appeal].
[53] Our understanding of the relevant law is as follows:
- (a) Where a claim is based on a duty owed to a trust, a beneficiary of the trust does not have a separate cause of action in their own right against the third party wrongdoer. The beneficiary cannot supplant the trustee and bring a separate action.[15]
- (b) A beneficiary may bring a derivative action; that is, an action in right of the trust and in the room of the trustee.[16]
- (c) A beneficiary may only bring a derivative action in special circumstances.[17]
[54] Significantly, special circumstances have been held to include a situation where it is clear that liberty to use the trustees’ names would have been granted if sought.[18]
[55] If that is so, a case where permission has been obtained and the trustees have expressly authorised another person to issue proceedings on their behalf must be stronger still. In our view the line of authority represented by Hayim does not prevent an argument that these proceedings were in principle capable of being issued in the name of Martin and Farrell as authorised agents for the trust.
Is the failure to specify that Martin and Farrell were suing in their capacity as agents for the trustees a misidentification or a misnomer?
[56] It was common ground that whether Martin and Farrell should be permitted to amend the statement of claim turns on whether the misdescription in the statement of claim is a mere misnomer or a misidentification. If the case is one of misnomer, then no limitation question arises. The correction has effect from the date the proceedings were filed. If, however, the error is a misidentification, then any amendment would run afoul of the rule that the court will not allow an amendment if the result is to deprive a party of a limitation defence.[19]
[57] The distinction between misidentification and misnomer has been discussed in several cases referred to us by counsel.[20] Most of them concern misdescriptions of a defendant not, as in this case, a plaintiff. Presumably that is because plaintiffs do not usually make errors with their own descriptions.
[58] The leading New Zealand authority is the decision of this Court in Registered Securities Ltd (in liq) v Jensen Davies & Co Ltd.[21] In Registered Securities, the Court confirmed the rule to be applied was that laid down in the English decision Davies v Elsby Brothers Ltd, namely that an amendment may be allowed to correct a misnomer but should not be permitted where the effect of the amendment would be to substitute a new party.[22]
[59] The Court also held that the test requires a two-stage approach.[23] The first stage is to determine whether what has occurred is a misnomer. The second stage is to determine whether prejudice exists of such a nature as to justify denying correction of the misnomer.
[60] As this Court made clear in Registered Securities, the stage one inquiry requires the court to examine the statement of claim to see whether the description of the circumstances giving rise to the claim is so clear and detailed that it must displace any inference arising from the misdescription. If so, the misdescription will be a misnomer.
[61] The test is an objective one in the sense that it is not what the drafter of the statement of claim intended or meant that matters, but what a reasonable person receiving the document would understand it to mean.[24] Although the test is an objective one, the reasonable person receiving the document is vested with the same knowledge of the facts as is possessed by the other party, in this case the Cowans.
[62] Applying that test to this case, we are satisfied that the misdescription is properly characterised as a misnomer, rather than a misidentification. Although the statement of claim does not mention the trust and the Cowans were unaware that the trustees had authorised Martin and Farrell to bring the proceedings, the Cowans did know from the outset that the property had been settled by the family trust, not Martin and Farrell personally, and that the trustees were the registered proprietors. The loss pleaded in the statement of claim included diminution in the value of the land, which by its nature was something that could only be suffered by the owner, the trust. The other two categories of loss involved losses that would be most unlikely to have been suffered by Martin and Farrell in their personal capacities.
[63] We acknowledge that a different conclusion was reached by Associate Judge Gendall in Wilson v Shoreham Properties Ltd, a decision relied upon by Mr Davies.[25] However we consider there are some crucial factual differences between that case and the present one. In Wilson, the plaintiffs had in their personal capacities been the registered proprietors of the property, the claim for diminution in value was identified in the statement of claim as occurring at a date when the trust did not exist, and the amendment sought included the joinder of a third person, which is not the case here.
[64] As for stage two and considerations of prejudice, Registered Securities requires that the prejudice must be of “at least a substantial if not an overwhelming nature” in order to displace the policy consideration that a plaintiff should not be shut out from access to the court.[26] The prejudice must arise beyond the issue of the limitation period.
[65] In this case, there is no prejudice to the Cowans in allowing the amendment of a misnomer.
Outcome
[66] The appeal is dismissed.
[67] Martin and Farrell are to file an amended statement of claim consistent with these reasons within 15 working days of the date of this judgment.
[68] As regards costs on the appeal, we have decided that costs should lie where they fall. Although Martin and Farrell have been successful, the statement of claim was defective and their written submissions were confusing and raised a number of patently unsustainable arguments. The submissions failed to clearly articulate their position, which only became apparent during the course of the hearing. Similarly we are not persuaded costs should be awarded to the Cowans. They must bear some responsibility for the confusion that has arisen because of the inadequate notice of application for summary judgment. Arguments advanced on their behalf also evolved during the hearing. Further, their appeal was unsuccessful.
Solicitors:
Meredith Connell,
Auckland for Appellants
Grove Darlow & Partners, Auckland for
Respondents
[1] Martin v Cowan [2013] NZHC 1274.
[2] At [14].
[3] At [19].
[4] At [20].
[5] At [26].
[6] At [15].
[7] At [28].
[8] At [29].
[9] Lambly v Silk Pemberton Ltd [1976] 2 NZLR 427 (CA).
[10] DW McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [3.03].
[11] Laidlaw v Parsonage [2009] NZCA 291, [2010] 1 NZLR 286.
[12] Westpac Banking Corp v M M Kembla New Zealand Ltd [2000] NZCA 319; [2001] 2 NZLR 298; Attorney-General v Jones [2003] UKPC 48, [2004] 1 NZLR 433.
[13] Emphasis added.
[14] Martin v Cowan, above n 1, at [19].
[15] Nimmo v Westpac Banking Corp [1993] 3 NZLR 218 (HC).
[16] Parker-Tweedale v Dunbar Bank plc (No 1) [1991] Ch 12 (CA) at 19.
[17] Parker-Tweedale v Dunbar Bank plc (No 1), above n 16, at 19; Hayim v Citibank NA [1987] AC 730 (PC) at 748.
[18] Harmer v Armstrong [1934] Ch 65 (CA). See also Halsbury’s Laws of England (5th ed, reissue, 2013, online ed) vol 98(3) Trusts and Powers at [525].
[19] Chilcott v Goss [1995] 1 NZLR 263 (CA).
[20] Watercare Services Ltd v Affco Ltd HC Auckland CIV-2003-404-4207, 2 June 2004; Farr v Shrimski HC Auckland CIV-2004-404-3705, 18 February 2005; and Visini v Cadman [2012] NZCA 122, (2012) 21 PRNZ 70.
[21] Registered Securities Ltd (in liq) v Jensen Davies & Co Ltd [1999] 2 NZLR 686 (CA).
[22] At 691 citing Davies v Elsby Brothers Ltd [1961] 1 WLR 170 (CA).
[23] At 694.
[24] Registered Securities Ltd (in liq) v Jensen Davies & Co Ltd, above n 21, at 692–693.
[25] Wilson v Shoreham Properties Ltd HC Auckland CIV-2003-404-5550, 8 August 2006.
[26] At 694.
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