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Court of Appeal of New ZealandLast Updated: 2 September 2015
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellant |
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AND
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Respondent |
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Hearing: |
28 July 2015 |
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Court: |
Randerson, Heath and Collins JJ |
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Counsel: |
E J L Werry for Appellant
K T Glover and H E McQueen for Respondent |
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Judgment: |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Collins J)
Introduction
[1] The appellant, Ms Marr appeals a decision of Faire J in which he concluded Ms Marr had no claim in equity to a house at 1/27 Birdwood Crescent, Parnell (the property).[1] The property had been Ms Marr’s family home but was purchased by the respondent, Mr Parkin following a mortgagee sale.
[2] Faire J rejected Ms Marr’s claim that Mr Parkin received the property knowing it was subject to a constructive trust or that Ms Marr’s agent, Ms Guttenbeil, had breached her fiduciary duty to Ms Marr when she assigned to Mr Parkin the right to purchase the property.
[3] Faire J also rejected Ms Marr’s claim Mr Parkin had breached the Credit Contracts and Consumer Finance Act 2003 (the Act) when he lent Ms Guttenbeil the deposit to purchase the property. Faire J concluded there was in fact no loan agreement between Ms Marr and Mr Parkin.
[4] The two issues we have had to consider are:
(1) Whether Mr Parkin was liable to Ms Marr for knowingly receiving the property subject to a constructive trust in favour of Ms Marr. In the circumstances of this case, this issue is answered in favour of Mr Parkin if Ms Guttenbeil no longer owed any fiduciary duty to Ms Marr at the time Ms Guttenbeil assigned to Mr Parkin the right to purchase the property.
(2) Whether there was a consumer credit contract as defined in the Act between Ms Marr and Mr Parkin.
[5] To assist in understanding our judgment we shall set out the facts, briefly explain the judgment of Faire J, explain the law, apply the law to the facts under the heading of “analysis” and set out our conclusions.
Facts
[6] In December 2007 the property was purchased on behalf of Ms Marr, a real estate salesperson and registered in the name of members of Ms Marr’s family. A mortgage was obtained from Linkloan Trustees Ltd (Linkloan). Ms Marr was responsible for making the mortgage repayments. By November 2012, Ms Marr had fallen into arrears in repaying the mortgage.
[7] In February 2013, Linkloan issued a notice under the Property Law Act 2007 requiring Ms Marr to repay $14,945.25 by 5 April 2013. When the amount required by Linkloan was not repaid it commenced the procedures required for a mortgagee sale, which was scheduled for 17 July 2013.
[8] Ms Marr approached mortgage brokers, including a Mr Barton, in an effort to refinance the mortgage. Those efforts were not successful.
[9] On 16 July 2013, Mr Barton approached Mr Parkin believing he might be able to provide a “mortgagee sale rescue” for Ms Marr. Mr Barton believed Ms Marr was owed approximately $35,000 in real estate sales commissions, which were thought to be due in August 2013 and that this money might assist Ms Marr to retain the property.
[10] On the same day Mr Barton contacted Mr Parkin, Ms Marr persuaded her friend Ms Guttenbeil, to attend the auction and try to secure the property on behalf of Ms Marr.
[11] On 17 July 2013, Mr Parkin met Ms Guttenbeil at the request of Mr Barton. Mr Parkin agreed to assist Ms Guttenbeil to purchase the property on four conditions:
(1) The deposit was to be $25,000 and not more than 10 per cent of the purchase price of the property.
(2) The settlement date was to be extended from 14 to 28 days.
(3) Mr Parkin’s agreement to the purchase price.
(4) Mr Parkin was to be named as nominee who could purchase the property in the event of Ms Guttenbeil being unable to settle.
Mr Parkin agreed to pay the deposit to the mortgagee’s real estate agent if he agreed to the purchase price and the other conditions we have set out in this paragraph.
[12] Mr Parkin wanted to be named as nominee so that his payment of the deposit was protected in the event Ms Guttenbeil was unable to settle the purchase.
[13] Ms Guttenbeil and Mr Parkin attended the auction. Ms Marr did not go but her husband, Mr Marr, was present. Before the auction commenced Mr Marr stood up and told those who were there that the family would remove “all carpets, drapes, light fittings ... stove ... fences and balustrades” and that it would cost between $50,000 to $100,000 to replace these items. Mr Marr also said the family would not leave the home “... so any buyer ... will have to spend tens of thousands of dollars through the courts to obtain a vacant possession order”. After making these statements Mr Marr was removed from the auction by security guards.
[14] There was little interest in the property at the auction. Mr Parkin approved Ms Guttenbeil bidding to $425,000, which was the highest bid. The auction was eventually stopped and the property passed in as it did not meet the reserve price.
[15] The following day Mr Barton liaised with Mr Parkin, who agreed to Ms Guttenbeil making an offer of $435,000 for the property on the conditions we have set out above at [11](1), (2) and (4).
[16] Later on 18 July 2013, the mortgagee accepted the offer of $435,000 from Ms Guttenbeil. Settlement was due on 15 August 2013. Mr Parkin and Ms Marr then had a discussion about him being named as nominee. It was apparent Ms Marr did not want Mr Parkin to have any legal authority to purchase the property but agreed to this condition when Mr Parkin made it clear he would not pay the deposit unless he was named as nominee. Ms Marr faxed a page of the sale and purchase agreement to Mr Parkin at 6.58 pm on 18 July 2013. On that page Mr Parkin was named as nominee. However, Ms Marr did not notify the mortgagee that Mr Parkin was the nominee. Nor did Ms Marr obtain the mortgagee’s agreement to add Mr Parkin’s name to the agreement as nominee. Mr Parkin did not become aware until approximately 15 August 2013 that Ms Marr had omitted to notify the mortgagee he was the nominee.
[17] On 19 July 2013, believing he was named as nominee Mr Parkin paid the $25,000 deposit to the mortgagee’s real estate agent. He emailed Ms Guttenbeil confirming he had paid the deposit and congratulating her.
[18] Ms Marr then attempted to raise a loan to enable Ms Guttenbeil to settle the purchase of the property on 15 August 2013. Those efforts were unsuccessful, in part, because neither Ms Marr, nor members of her family, were named as purchasers. Ms Marr thought she could circumvent this problem by arranging for Ms Guttenbeil to sell the property to two of her children, Charlotte and Keith Marr, straight after Ms Guttenbeil had settled her contract with the mortgagee.
[19] Ms Marr prepared a sale and purchase agreement between Ms Guttenbeil as vendor and Charlotte and Keith Marr as purchasers. That agreement was dated 2 August 2013. At trial, it was established Ms Guttenbeil’s signature on the 2 August 2013 agreement was “not genuine”, that is to say, Ms Guttenbeil’s signature was forged. That finding has not been appealed. Ms Guttenbeil did not become aware of the 2 August 2013 contract until 26 August 2013.
[20] Ms Marr continued to encounter difficulties in securing a loan. Her next move was to prepare a second contract between Ms Guttenbeil and Charlotte and Keith Marr for the sale and purchase of the property. This agreement was dated 9 August 2013 and stated the purchase price was $560,000 and that a deposit of $125,000 had been paid. Ms Guttenbeil and Charlotte and Keith Marr signed that agreement. On 12 August 2013, Ms Marr and Ms Guttenbeil had a meeting with Mr Phillips, who was Ms Guttenbeil’s solicitor. He strongly advised them not to pursue the 9 August 2013 contract and said he would have nothing to do with them if they acted dishonestly. The 9 August 2013 agreement was never pursued.
[21] After their meeting with Mr Phillips, Ms Guttenbeil and Ms Marr had lunch. Ms Guttenbeil said she was becoming increasingly concerned about Ms Marr’s inability to raise the finance required for Ms Guttenbeil to settle the purchase on 15 August 2013. Ms Guttenbeil said she would explore options to raise the money herself, possibly in conjunction with her son who was looking for an investment property. On 13 August 2013 Ms Guttenbeil asked Ms Marr for a copy of a valuation that had been obtained for the property in order to assist Ms Guttenbeil in raising the money required to settle the contract.
[22] By 14 August 2013, Ms Marr appreciated Ms Guttenbeil was endeavouring to raise the finance to purchase the property. At the same time Mr Parkin had lost confidence in Ms Marr’s ability to raise the requisite finance. He approached his bank, the BNZ, to secure the finance necessary for him to settle the purchase of the property as the nominated purchaser. Mr Parkin explained to Mr Barton what he was doing.
[23] At 2.16 pm on 14 August 2013, Mr Barton emailed Ms Marr and informed her of Mr Parkin’s intention to purchase the property if Ms Marr was unable to raise the money to allow Ms Guttenbeil to settle her contract with the mortgagee.
[24] On 15 August 2013, Ms Guttenbeil failed to settle. Linkloan issued a notice to Ms Guttenbeil requiring settlement on or by 30 August 2013.
[25] Later on 15 August 2013, Ms Guttenbeil explained to Mr Parkin she had no intention to buy the property and that for some reason Linkloan would not recognise Mr Parkin as nominee. Mr Parkin then sent an email to Ms Guttenbeil in which he explained he had tried to talk to her and left messages. Mr Parkin reminded Ms Guttenbeil that if she intended to purchase the property without addressing his loan for the deposit, then he would take whatever steps were necessary to protect his position. Mr Parkin said:
Your failure to communicate does not bode well and unless I receive a considered and reasonable response by midday tomorrow which addresses my concerns I will seek legal advice as to remedies.
[26] Mr Parkin had his lawyer contact Ms Guttenbeil’s lawyer on 16 August 2013 and later that day told Ms Guttenbeil he remained content for Ms Guttenbeil’s son to purchase the property so long as Mr Parkin’s deposit was protected. However, by 20 August 2013, it appears Ms Guttenbeil’s son could not raise the necessary money. In the meantime, on 18 August 2013, Mr Barton had sent an email to Ms Marr in which he said that the real estate sales for which Ms Marr expected to receive commissions had fallen through and that as Mr Parkin’s deposit was at risk he was “ready to settle tomorrow”. Mr Barton also said:
Who-ever settles it, it is our understanding (it is only that and nothing more) that arrangements can be put in place that the Family rent and have an option to buy back short term, so that surely gives you comfort.
Other than you going completely off the air for the last half of this week unexplained we can add little more.
[27] On 21 August 2013, Ms Marr telephoned Mr Parkin and told him finance for the purchase would be resolved by the next week.
[28] On 22 August 2013, Ms Guttenbeil sent Ms Marr’s emails which made it clear Mr Parkin was concerned about losing his deposit and that he was prepared to step in to purchase the property as Ms Guttenbeil’s nominee. Later that evening, Mr Parkin sent a text to Ms Marr asking if she had “any news”. The following morning Ms Marr responded, saying she would be in touch the following week.
[29] On 26 August 2013, Ms Guttenbeil signed a deed nominating Mr Parkin as purchaser. Ms Guttenbeil then told Ms Marr of this development. Ms Guttenbeil explained she had no option other than to arrange for Mr Parkin to purchase the property and that Mr Parkin was prepared to sell the property back to Ms Marr in three months’ time when she had achieved sales that would generate commissions for her.
[30] At 9.13 pm on 26 August 2013, Ms Marr emailed Ms Guttenbeil telling her not to fret as her solicitor could put a stop to Mr Parkin purchasing the property because of the 2 August 2013 contract. This was the first time Ms Guttenbeil had heard of the 2 August 2013 contract.
[31] On 26 August 2013, Cressida Capital sent a conditional offer to Ms Marr. The offer, if accepted, would still have left a shortfall that would have meant Ms Marr would not have been able to arrange for Ms Guttenbeil to settle and repay Mr Parkin in full the deposit he had paid.
[32] On 27 August 2013 Ms Marr received an unsigned offer of finance for a second mortgage from a friend.
[33] On 29 August 2013 at 11.15 am, Charlotte Marr and Keith Marr placed a caveat on the property. The caveat cited the 2 August 2013 agreement as the basis for them having an equitable interest in the property.
[34] Between 3.30 pm and 3.45 pm on 29 August, Mr Parkin’s settlement funds were transferred to Linkloan and the land transfer was lodged but unable to be registered due to the caveat.
[35] We understand Ms Marr and her family are still living in the property and have paid some rent for part of the time they have remained in the property. Mr Parkin is resigned to the fact he will now have to take further steps to obtain vacant possession as Mr Marr had warned on the night of the auction.
High Court decision
[36] Faire J concluded Ms Guttenbeil ceased to be Ms Marr’s agent on or about 15 August 2013 when Ms Guttenbeil made it clear to Ms Marr that she was concerned about Ms Marr’s inability to raise a loan to enable Ms Guttenbeil to settle the purchase of the property. Faire J held that at the time Ms Guttenbeil signed the deed of 26 August 2013 nominating Mr Parkin as purchaser of the property, Ms Guttenbeil no longer owed any fiduciary duty to Ms Marr.[2] Accordingly, Faire J held Mr Parkin did not purchase the property in circumstances where his knowledge was such that he became a constructive trustee of the property for the benefit of Ms Marr.
[37] Faire J held Mr Parkin lent the $25,000 deposit to Ms Guttenbeil, not Ms Marr.[3] As there was no loan agreement between Mr Parkin and Ms Marr, the Act was not engaged.
Law
Knowing receipt
[38] Liability on the basis of “knowing receipt” and its related but distinct “knowing assistance” basis of liability can be traced to the judgment of Lord Selborne LC in Barnes v Addy.[4] Lord Selborne did not use the terms “knowing receipt” or “knowing assistance”. Those descriptions were first devised in 1966 by the editors of Snell’s Principles of Equity.[5] Brightman J adopted the terms in Karak Rubber Co Ltd v Burden (No 2) as an “admirable shorthand description of their different natures”.[6] The terms “knowing receipt” and “knowing assistance” are now well entrenched in the lexicons of Judges, lawyers and academics. Despite being well-established there has been considerable academic and judicial debate about the conceptual basis of liability for knowing receipt.[7]
[39] The most difficult challenge with the law of knowing receipt is establishing the degree of knowledge or notice required before the recipient of the property in question will be held accountable. Part of this challenge arises from the different approaches that have been taken to assessing the degree of knowledge or notice required to establish liability. According to one school of thought any one of the five categories of knowledge or notice set out in Baden v Sociéte Générale pour Favoriser le Développement du Commerce et del lʹIndustrie en France SA will suffice.[8] Another school of thought focuses on whether the conscience of the recipient of the property in question is affected.[9]
[40] As we explain below at [43]–[52] however, it is not necessary for us to reach definitive views on this issue because of our analysis of the facts in this case. In particular, our conclusions about when Ms Guttenbeil ceased to be the agent of Ms Marr renders it unnecessary to resolve the differences in approach found in the authorities we have referred to in footnotes 8 and 9.
Credit Contracts and Consumer Finance Act 2003
[41] Mr Werry, counsel for Ms Marr, reiterated in this Court his submission in the High Court that the deposit paid by Mr Parkin constituted a consumer credit contract as defined in the Act. From this platform Mr Werry submitted Mr Parkin had failed to comply with the disclosure requirements in s 17 of the Act and/or that the consumer credit contract was oppressive and should be reopened.
[42] Pivotal to this aspect of Ms Marr’s case are the definitions of “credit”, “credit contract” and “consumer credit contract” in ss 6, 7 and 11 of the Act. Those provisions provide:
6 Meaning of credit
In this Act, unless the context otherwise requires, credit is provided under a contract if a right is granted by a person to another person to—
(a) defer payment of a debt; or
(b) incur a debt and defer its payment; or
(c) purchase property or services and defer payment for that purchase (in whole or in part).
7 Meaning of credit contract
(1) In this Act, unless the context otherwise requires, credit contract means a contract under which credit is or may be provided.
(2) If, because of any contract or contracts (none of which by itself constitutes a credit contract) or any arrangement, there is a transaction that is in substance or effect a credit contract, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a credit contract made at the time when the contract, or the last of those contracts, or the arrangement, was made, as the case may be.
11 Meaning of consumer credit contract
(1) A credit contract is a consumer credit contract if—
(a) the debtor is a natural person; and
(b) the credit is to be used, or is intended to be used, wholly or predominantly for personal, domestic, or household purposes; and
(c) 1 or more of the following applies:
(i) interest charges are or may be payable under the contract:
(ii) credit fees are or may be payable under the contract:
(iii) a security interest is or may be taken under the contract; and
...
Analysis
Knowing receipt
[43] The issue of whether Mr Parkin was liable for knowingly receiving the property hinges upon an analysis of the nature and scope of the agency agreement between Ms Marr and Ms Guttenbeil. That agency agreement formed the foundation of any fiduciary duties Ms Guttenbeil owed Ms Marr.
[44] We agree with Faire J’s conclusion that Ms Guttenbeil agreed to be Ms Marr’s agent on a limited basis. Ms Guttenbeil agreed to attend the auction and bid for the property on Ms Marr’s behalf and if Ms Guttenbeil were successful she also agreed that she would enter into a sale and purchase agreement with the mortgagee.
[45] Ms Guttenbeil agreed to be Ms Marr’s agent on the basis that the contract would be settled with funds raised by Ms Marr. Neither Ms Marr nor Ms Guttenbeil intended Ms Guttenbeil would have to settle the purchase of the property if Ms Marr were unable to raise the necessary funds.
[46] The agency agreement between Ms Marr and Ms Guttenbeil remained in force for as long as it was feasible that Ms Marr would raise the funds required to settle the purchase of the property. The agency agreement, and Ms Guttenbeil’s fiduciary duty to Ms Marr, terminated when it became abundantly clear there was no realistic prospect Ms Marr would be able to raise the necessary funds.
[47] Faire J held the agency agreement between Ms Marr and Ms Guttenbeil came to an end on 15 August 2013. We agree. In our assessment, it was very clear by that date Ms Marr was not going to be able to arrange the funds to settle the purchase and that Ms Guttenbeil was being placed in the unintended and unenviable position of being liable to settle the property without funds from Ms Marr.
[48] By 15 August 2013, Ms Marr had made a number of unsuccessful attempts to raise the necessary money. She had even devised two dishonest schemes to improve her prospects of raising funds. Those schemes involved the forged 2 August 2013 contract and the 9 August 2013 contract, which misrepresented the purchase price and the deposit which had been paid.
[49] Also, by 15 August 2013 Ms Marr knew Ms Guttenbeil was very concerned about her exposure and that Ms Guttenbeil was looking for funds from other sources. Ms Marr was also aware from Mr Barton that Mr Parkin was preparing to purchase the property if Ms Marr was unable to find the funds to enable Ms Guttenbeil to settle as required on 15 August 2013.
[50] These facts leave no room for doubting Ms Guttenbeil ceased to be Ms Marr’s agent on 15 August 2013 and from that time Ms Guttenbeil no longer owed any fiduciary duties to Ms Marr.
[51] On 26 August 2013, when Mr Parkin accepted from Ms Guttenbeil the nomination to purchase the property there was no fiduciary relationship in existence between Ms Marr and Ms Guttenbeil. Absent any breach of fiduciary duty by Ms Guttenbeil, Mr Parkin could never be liable on the basis of knowing receipt.
[52] Even if Ms Guttenbeil continued to owe a fiduciary duty to Ms Marr at the time she nominated Mr Parkin as the purchaser, Mr Parkin did not act unconscionably or possess any of the states of knowledge referred to in Baden. When Mr Parkin accepted the nomination from Ms Guttenbeil he was simply giving effect to the rights he negotiated with Ms Marr on 18 July 2013, and which he was clearly entitled to enforce, in order to protect the deposit which he paid on behalf of Ms Guttenbeil.
[53] Although it does not arise, had we reached the stage of having to consider relief, we would have required considerable persuasion that Ms Marr’s conduct warranted equitable intervention. Ms Marr’s hands were far from clean.
Credit Contracts and Consumers Finance Act 2003
[54] We agree with Faire J that any credit contract in this case was between Mr Parkin and Ms Guttenbeil. It was Ms Guttenbeil who entered into the contract to purchase the property from the mortgagee. Mr Parkin agreed to pay the $25,000 deposit directly to the real estate agent acting for the mortgagee as vendor. That payment was made to satisfy Ms Guttenbeil’s obligation under the agreement for sale and purchase.
[55] There was no evidence Ms Marr assumed responsibility to repay to Mr Parkin the deposit. That was solely Ms Guttenbeil’s responsibility.
[56] Faire J was right when he concluded there was not a consumer credit contract between Mr Parkin and Ms Marr and that all causes of action based upon the Act had to be dismissed.
Conclusion
[57] The appeal is dismissed.
[58] Costs are payable by Ms Marr for a standard appeal on a band A basis with usual disbursements. This is not a case which warrants costs for a second counsel.
Solicitors:
Atmore & Co, Auckland for Appellant
Graham Jones
Law, Auckland for Respondent
[1] Marr v Parkin [2014] NZHC 3269.
[2] At [65]–[66].
[3] At [82].
[4] Barnes v Addy (1874) 9 Ch App 244.
[5] Robert McGarry and PV Barker Snell’s Principles of Equity (26th ed, Sweet & Maxwell, London, 1966) at 202.
[6] Karak Rubber Co Ltd v Burden (No 2) [1972] 1 All ER 1210 (Ch D) at 1235.
[7] Rohan Havelock “The Battle Over Knowing Receipt” (2015) 26 NZULR 587.
[8] Baden v Sociéte Générale pour Favoriser le Développement du Commerce et de lʹIndustrie en France SA [1992] 4 All ER 161 (Ch D) at 235–243. .
[9] Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] 2 All ER 961 (HL) at 987; Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 (CA) at 455; Worldtel NZ Ltd v Kim HC Auckland CIV-2009-404-1158, 30 September 2011 at [38].
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URL: http://www.nzlii.org/nz/cases/NZCA/2015/371.html