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Court of Appeal of New Zealand |
Last Updated: 13 November 2015
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IN THE COURT OF APPEAL OF NEW ZEALAND
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CA |
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BETWEEN
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Appellants |
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AND
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First Respondents
ELAINE MARGARET COLEBROOK
Second Respondent |
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BETWEEN
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First Appellants
ELAINE MARGARET COLEBROOK
Second Appellant |
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AND
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Respondents |
JUDGMENT OF THE COURT
C No order for costs in relation
to CA577/2014 or
CA679/2014.
____________________________________________________________________
REASONS OF THE COURT
(Given by Ellen France
P)
Table of Contents
Para No
Introduction [1]
Background [8]
The High Court judgment [17]
Did the appellants establish
Mrs Carr’s consent? [18]
The trustees’
account [21]
Our
analysis [27]
(a) New
Zealand Home Bonds application [34]
(b) Draft statements to
clients [39]
(c)
The A and I forms [40]
Result and costs [52]
Introduction
[1] The trustees of the Stokes Family Trust (the appellants) appeal against a decision of Peters J declining to grant a declaration.[1] The primary challenge is to the Judge’s finding that she was not satisfied Shona Carr, as a trustee of the RM Colebrook Family Trust, had consented to the acquisition of a property at 5 Bucklands Beach Road as an asset of that trust.
[2] In August 2007 the Stokes signed an agreement to sell the Bucklands Beach Road property to “Elaine Colebrook or nominee”. Mrs Colebrook and Mrs Carr are sisters. Mrs Colebrook was the other trustee of the RM Colebrook Family Trust. Mrs Colebrook failed to settle on the due date. The appellants cancelled the agreement and resold the property but at a substantial loss. They obtained judgment against Mrs Colebrook for their loss[2] but Mrs Colebrook is insolvent and unable to pay.[3]
[3] The appellants learned Mrs Colebrook was a trustee of the RM Colebrook Family Trust at the time she signed the agreement relating to the Bucklands Beach Road property. They brought proceedings in the High Court to recover the sum outstanding from the trustees of the RM Colebrook Family Trust. They claimed that Mrs Colebrook has a right of indemnity in respect of the outstanding amount from the assets of the RM Colebrook Family Trust, that such right gave rise to a lien in Mrs Colebrook’s favour against those assets and that the appellants are entitled to subrogate to Mrs Colebrook’s lien.
[4] The appellants’ claim was initially heard by Ellis J in the High Court. Ellis J found for the appellants. She accepted Mrs Colebrook signed the Bucklands Beach Road agreement in her capacity as trustee with the intention of binding the RM Colebrook Family Trust to settle.[4] The Judge also found that in doing so she was acting with Mrs Carr’s authority and as her agent.[5] The respondents appealed to this Court. The Court upheld Ellis J’s factual finding as to Mrs Colebrook’s intention but considered it was wrong to analyse the matter as one of agency.[6] The appeal was allowed and the case remitted back to the High Court to determine the question of Mrs Carr’s consent.
[5] On the application of the respondents, Ellis J recused herself and on remittal back the question of Mrs Carr’s consent was dealt with by Peters J. Peters J refused to make a declaration to the effect that Mrs Carr had consented to the acquisition of the property as an asset of the RM Colebrook Family Trust. The appellants appeal from this refusal.
[6] In addition, the respondents appeal with leave from the decision of Ellis J relating to the ambit of matters referred back to the High Court by this Court.[7] They say Ellis J incorrectly held the terms of this Court’s remittal back precluded the RM Colebrook Family Trust and Mrs Colebrook from advancing a new affirmative defence that the appellants failed to mitigate their loss.[8] Finally, the appellants also appeal against the decision of Associate Judge Sargisson declining their application to sustain a caveat over two properties owned by the RM Colebrook Family Trust.[9]
[7] After setting out the factual narrative in more detail, we address the issues on the appeal from Peters J’s decision as to Mrs Carr’s consent.
Background
[8] The material which follows is taken from the earlier judgment of this Court and the two High Court judgments.[10]
[9] Mrs Colebrook and Ross Colebrook (RM Colebrook) were married in 1979. After they separated in 2002, Mrs Colebrook formed a relationship with Grahame Heenan. The two were married in 2010. For consistency with the earlier decisions, we refer to Mrs Heenan as Mrs Colebrook.
[10] The RM Colebrook Family Trust was settled by Mr and Mrs Colebrook on 1 September 1994. The initial trustees were Mrs Colebrook, Mrs Carr and Ross Colebrook’s father, Allen Leonard Colebrook. The beneficiaries of the trust were Mrs Colebrook, her children and their children, if any. The trustees had power to purchase and hold real property. The couple also settled a mirror trust called the Elaine Margaret Colebrook Family Trust.
[11] After Mr and Mrs Colebrook separated, Allen Colebrook retired as a trustee and Carl Gruebner, an accountant, was appointed in his place. Mr Gruebner retired as a trustee before the relevant events. Accordingly, at the date of the signing of the Bucklands Beach Road property agreement the trustees were Mrs Colebrook and Mrs Carr, who by that point were making investments on behalf of the trust. The corpus of the RM Colebrook Family Trust generally comprised a number of rental properties.[11]
[12] The agreement for sale and purchase of the Bucklands Beach Road property was entered into on 31 August 2007. The appellants agreed to sell a residential property at 5 Bucklands Beach Road for $1.8 million. The purchaser was “Elaine Colebrook or nominee”.
[13] The agreement for sale and purchase was conditional on the purchaser obtaining money for the deposit (five per cent of the purchase price), namely, $90,000. A successful application was made in the names of Mrs Colebrook and the RM Colebrook Family Trust to borrow that sum from New Zealand Home Bonds Limited. New Zealand Home Bonds secured the sum by mortgage over a home at 118 Clovelly Road, Bucklands Beach as security. The Clovelly Road property was owned by the trustees of the RM Colebrook Family Trust. This house had been Mr and Mrs Colebrook’s matrimonial home. Before the couple separated, the trustees of the RM Colebrook Family Trust owned a half share in Clovelly Road with the other share being owned by the trustees of the EM Colebrook Family Trust. After separation, the trustees of the EM Colebrook Family Trust transferred their one-half share in Clovelly Road to the trustees of the RM Colebrook Family Trust. At the relevant times the title to Clovelly Road was in the names of Mrs Colebrook, Mrs Carr and Mr Gruebner.
[14] In late 2006, the trustees of the RM Colebrook Family Trust entered into an unconditional agreement for the sale of the Clovelly Road property. There was evidence Mrs Colebrook was owed funds by the trustees of the RM Colebrook Trust and it appears she intended to use these funds towards the purchase of the Bucklands Beach Road property.
[15] The sale of Clovelly Road did not take place. Mrs Colebrook’s lawyers Insight Legal (Insight) were informed in mid-December 2007 that the purchaser would not be able to settle. The Bucklands Beach Road agreement did not settle on 20 December 2007. The agreement, as we have noted, was cancelled and Mrs Colebrook forfeited her deposit. The appellants obtained judgment against Mrs Colebrook for the shortfall. She has not paid that debt.
[16] The appellants brought the present proceeding, which was successful before Ellis J. Then, after the respondents’ appeal to this Court, the matter was remitted back to the High Court for determination of two issues, namely:[12]
- (a) whether Mrs Carr consented to the acquisition of the Bucklands property for the benefit of the [RM Colebrook Family Trust]; and
- (b) if so, whether the conduct of Mrs Colebrook and Mrs Carr disentitled them to indemnity from the assets of the [RM Colebrook Family Trust]. The [respondents’] case is that they were not entitled to indemnity on the basis that omissions on their part meant the liability was not “properly” incurred.
The High Court judgment
[17] Peters J concluded the appellants had not met the burden of proof to show Mrs Carr consented to the acquisition of the Bucklands Beach Road property as an asset of the RM Colebrook Family Trust.[13] In reaching that view, the Judge reviewed each of the matters relied on by the appellants to show Mrs Carr had consented. Those matters were the application to New Zealand Home Bonds, the settlement statements relating to the agreement for sale and purchase, and the Authority and Instruction (A and I) forms in relation to the two agreements for sale and purchase.
Did the appellants establish Mrs Carr’s consent?
[18] The appellants say Peters J erred for two main reasons. First, Mr Davison QC for the appellants submits, in assessing Mrs Carr’s evidence Peters J did not consider the overall picture. In particular, the appellants point to the finding of Ellis J, undisturbed on appeal, that Mrs Colebrook intended to bind the RM Colebrook Family Trust when she entered into the agreement relating to the Bucklands Beach Road property. The appellants say that finding should have affected Peters J’s assessment of the reliability of Mrs Carr and it was artificial not to draw the obvious inference that Mrs Carr’s evidence was tailored to fit with Mrs Colebrook’s account. In this context, the appellants also contend the hearing before Peters J ranged more widely than anticipated by this Court’s remittal back.
[19] Secondly, the appellants say the various documents associated with the agreement for sale and purchase support the conclusion Mrs Carr consented to the purchase as an acquisition of the trust.
[20] In assessing these matters, it is helpful first to summarise the evidence of Mrs Carr and Mrs Colebrook.
The trustees’ account
[21] Mrs Carr and Mrs Colebrook denied that Mrs Carr assented to the Bucklands Beach Road property being acquired as an asset of the RM Colebrook Family Trust.
[22] Peters J summarised Mrs Carr’s evidence in this way:
[31] Mrs Carr said that she was not asked to agree to the acquisition in her capacity as a trustee of the [RM Colebrook Family Trust], that the issue of the trustees of [that Trust] taking title was not discussed and that she had never agreed that the trustees would take such title. To the extent that the trustees made offers to purchase after cancellation (which they did), Mrs Carr said those offers were something of a “rescue mission” for Mrs Colebrook.
[23] Importantly, as Peters J recorded:
[34] Mrs Carr’s evidence is that she learned of the proposed purchase of the Bucklands property in early September 2007 from her mother, Mrs Anderson, who told her that Mrs Colebrook proposed to acquire the property to live in with Mr Heenan. Mrs Carr said Mrs Colebrook subsequently called her and asked her to provide security for an advance from New Zealand Home Bonds Limited ... to Mrs Colebrook for payment of the deposit due under the Bucklands agreement ... . Mrs Carr said that she agreed to do so, given the amount of the trustees’ debt to Mrs Colebrook.
(footnotes omitted)
[24] Mrs Carr explained that, before giving her consent, she would have wanted to know the source of the funds for any purchase by the Trust. However, there was no discussion with Mrs Colebrook about how the Bucklands Beach Road purchase was to be financed. Peters J noted Mrs Carr’s previous experience had been that if Mrs Colebrook wanted to buy property for the RM Colebrook Family Trust she “invariably” discussed the matter with her sister and obtained her sister’s agreement before executing an agreement for sale and purchase.[14]
[25] Mrs Carr said, as recorded by Peters J, it was “not uncommon” for Mrs Colebrook to telephone her very close to settlement date and ask Mrs Carr to sign a loan agreement, memorandum of mortgage or similar.[15] Mrs Carr also said her sister had raised the possibility of settling a new trust to be the purchasing entity and that Mrs Carr had agreed to be a trustee of the new trust if Mrs Colebrook wished.[16] If she had been asked, Mrs Carr accepted it was possible she may have agreed to the trustees of the RM Colebrook Family Trust making a loan to Mrs Colebrook of part or all of the purchase price to enable Mrs Colebrook to complete the purchase.[17]
[26] As we have foreshadowed, Mrs Carr’s evidence was supported by that of Mrs Colebrook. Mrs Colebrook explained she and Mr Heenan decided they wanted to purchase the Bucklands Beach Road property as their home. She said she did not ask Mrs Carr to give her consent to the purchase as a trustee and she gave no instructions to Insight that the purchase would be by the RM Colebrook Family Trust. Mrs Colebrook agreed that if there was to be a new trust to undertake the purchase then Mrs Carr would be a trustee.
Our analysis
[27] We begin by noting that some of the issues arising on this appeal would have been resolved if, as we envisaged, Ellis J had dealt with this matter on its remittal back. We do not see a basis for her recusal. That said, it does not necessarily follow that because of Mrs Colebrook’s intention, Mrs Carr’s evidence is implausible. A number of factors are relevant.
[28] First, Peters J was aware of the finding of Ellis J that Mrs Colebrook executed the agreement intending to bind the trustees of the RM Colebrook Family Trust. Peters J acknowledged this finding was “important” to the issue she was required to determine.[18] The Judge noted also that this Court had upheld that finding and although the respondents sought to revisit the finding before her it was not open to them to do so.[19]
[29] Further, as the respondents anticipated on the first appeal to this Court, Peters J had other evidence before her, in particular from those involved at Insight with the transaction, from Bruce Patten who dealt with the loan application for the deposit, and from Brian Bramwell the accountant who prepared the RM Colebrook Family Trust’s financial accounts. We interpolate here we see no merit in the argument the hearing before Peters J was too broad. The respondents were entitled to call new evidence relevant to the issue of consent.
[30] Secondly, the evidence showed there was an expectation as between the two sisters that Mrs Carr’s consent as trustee would need to be obtained. The manner in which the two operated in this respect was sloppy: there were, for example, no formal resolutions. But the essential requirement of trustee consent was something the two appear to have kept in mind. That is perhaps not surprising given Mrs Carr is an experienced lawyer having worked as a senior solicitor for over 20 years at the Ministry of Business, Innovation and Employment.
[31] Thirdly, the circumstances in which the transaction was finalised supports the evidence of Mrs Carr and Mrs Colebrook in that there was not a great deal of opportunity for discussion between the two over these matters. That is because Mrs Colebrook was in Fiji over the key period.
[32] Accordingly, our starting point is that Mrs Carr’s position at the second hearing was not inherently implausible.
[33] We turn to the documentation.
(a) New Zealand Home Bonds application
[34] Mrs Colebrook had to borrow the funds to pay the deposit on the Bucklands Beach Road property purchase. She contacted Mr Patten, a mortgage broker of “The Loan Market”. Because she had no property in her own name and security was necessary to obtain the loan, she asked Mrs Carr to agree to the RM Colebrook Family Trust providing security for the advance. Mrs Carr consented to this course.
[35] The applicants shown on the New Zealand Home Bonds application form were Mrs Colebrook and the RM Colebrook Family Trust. The form included the address of Clovelly Road as the address of properties already owned by the applicants “in which equity is declared if other than the residential address of applicants”. The form also provided that all registered proprietors of the properties must sign the document. The document was signed by Mrs Colebrook and Mrs Carr as applicants and they each initialled every page. New Zealand Home Bonds approved the application, advanced the funds by paying them to the real estate agent, and then lodged a caveat against the title to Clovelly Road.
[36] As we have noted, Mrs Colebrook engaged Mr Patten to apply to New Zealand Home Bonds for the funds. Mr Patten wrote to Mrs Colebrook and Mr Heenan on 31 August 2007 with the form New Zealand Home Bonds required to be completed. In his letter, he said:
As your existing property is in the name of a Trust the application form needs to be completed in the name of the trust (which I believe is just in Elaine’s Trust).
[37] Accordingly, as Peters J said, Mr Patten’s evidence supports the evidence of Mrs Carr and Mrs Colebrook. The Judge observed:
[46] Mrs Colebrook and Mrs Carr’s evidence was that the [RM Colebrook Family Trust] was only shown as an applicant for the loan because [New Zealand Home Bonds] required security for the advance. That evidence is consistent with Mr Patten’s covering letter and the terms of the [New Zealand Home Bonds] application form.
[38] Further, there was evidence before Peters J that the accounts of the RM Colebrook Family Trust did not record the loan from New Zealand Home Bond as an advance to the trustees.[20]
(b) Draft statements to clients
[39] The appellants relied in the High Court on the settlement statements prepared by Insight in relation to the sale and the purchase. The client statements, as Peters J noted, proceeded on the basis that the proceeds of the sale of Clovelly Road were to be applied to the purchase of the Bucklands Beach Road property.[21] However, there was evidence that no specific instruction to this effect had been given to the legal executives or the lawyer working on the file at Insight. In addition, there was evidence that these statements were not sent to the client. These documents do not advance the appellants’ case.
(c) The A and I forms
[40] There are two pages to the A and I forms. On the first page, the names of the clients and the nature of the dealings, for example, an agreement for sale and purchase, and the property address are recorded. On the second page the clients authorise and instruct the relevant law firm on matters relating to the transaction by signing that page. The A and I forms in this case were prepared by Gail Thorburn, a legal executive at Insight.
[41] In relation to Clovelly Road the names of the clients recorded on the first page of the form were Mrs Colebrook, Mrs Carr and Mr Gruebner “as Trustees of EM Colebrook Trust”. That is obviously not correct as there was no trust in that name.
[42] The Judge’s explanation for this was that, as Mrs Thorburn explained, the cover of Insight’s physical file on the sale of Clovelly Road recorded that Insight’s client was “EM Colebrook Trust”.[22] The evidence of Sandi Neale, the other legal executive at Insight, was that she wrote those words on the outside of the sale file but could not now say why she had done that. Mrs Neale’s evidence was that she thought the sale was a separate transaction to the purchase and she had not understood that the proceeds of the sale of Clovelly Road were to be applied to the purchase of the Bucklands Beach Road property.
[43] The front page of the A and I form for the purchase of the Bucklands Beach Road property recorded the clients as Mrs Colebrook and Mrs Carr, also “as Trustees of EM Colebrook Trust”. Mrs Thorburn could not recall how she had learnt that Mr Gruebner was not to be on the title to the Bucklands Beach Road property.
[44] Mrs Carr has initialled the front pages of both A and I forms. Her signature appears on one of the two second pages.
[45] Peters J records the evidence from Mrs Carr about the signing of the forms:
[63] Mrs Carr’s recollection was that she called into her mother’s house that is, Mrs Anderson, as that is where the forms had been faxed. Mrs Anderson’s name and fax number is one of several appearing on the various copies in evidence. Mrs Colebrook was not present. Mrs Carr said that she initialled the first page of each ... form but that she signed only one second page, being the second page of the ... form in respect of the sale of Clovelly Road. Mrs Carr was adamant that she did not sign the second page of the ... form for the purchase of the Bucklands property and that she would not have done so without knowing that funds were in hand to settle.
[46] The appellants rely on what they say was the changing evidence from Mrs Carr in relation to these forms. They point to her acceptance at the first hearing before Ellis J of signing the forms in relation to the purchase of the Bucklands Beach Road property. But there were difficulties in the way the forms were presented at the first hearing.[23] Even now Peters J makes the point that it is difficult to work out the proper order of the forms.[24] This may be explained by the fact, as we have noted, the facsimile of the forms went to Mrs Anderson’s facsimile machine, Mrs Colebrook was in Fiji at the time and Mrs Carr now has no real recollection of matters.
[47] Mrs Colebrook said on “closer scrutiny” she may have been the only one who signed the form for the Bucklands Beach Road property. Mrs Carr’s evidence is similar. She was not directly confronted with her evidence from the first trial on this point. The less than direct approach may be seen as consistent with the two particulars pleaded to show Mrs Carr’s consent, namely, Mrs Carr signed the application for the loan for the deposit, and Mrs Carr signed “an [A and I] form intending to convey the Property to herself and Mrs Colebrook as the trustees” notwithstanding that the form contained a mistake as to the name of the trust. The significance of the latter particular is that there is no reference to Mrs Carr initialling rather than signing the form.
[48] As best we can tell Mrs Carr has not signed the second page of the form relating to the Bucklands Beach Road property. The evidence from Gordon MacKay, the lawyer from Insight responsible for the conveyancing, was that both pages of the form would need to be completed before the authority would be accepted. On this basis, the appellants are left to rely on Mrs Carr’s initials on the first page of the form. Obviously, Mrs Carr’s initials on the first page of the A and I form indicates agreement to something but the appellant’s submissions do not ultimately answer the question of what it is.
[49] In an analogous situation when considering whether a trustee had ratified a decision, this Court observed:[25]
[I]t must be shown that there was more than a passive acquiescence to a decision made by another trustee. The ratifying act must show that the trustee considered the exercise of his or her power as a trustee and consented to the action taken.
[50] Given her responsibilities as a trustee, and her evidence that she would not have consented absent information about the source of funds, we do not consider the initials on the A and I form were sufficient to establish consent. There was, as we have noted, evidence consistent with Mrs Carr’s evidence. Accordingly, having reviewed the evidence, we agree with Peters J that given all of the circumstances the appellants have not shown that Mrs Carr had consented to the acquisition of the Bucklands Beach Road property as an asset of the RM Colebrook Family Trust.
[51] Because of this finding, we do not need to address the other appeals. The respondents’ appeal based on their wish to argue an affirmative defence falls away as does the appellants’ challenge to the caveats.[26]
Result and costs
[52] As discussed with the parties, it is appropriate to deal with costs by awarding costs on the appeal relating to the decision of Peters J to the respondents for a standard appeal on a band A basis together with usual disbursements and to let costs on the other appeals lie where they fall. As to the costs on the other appeals, we have not found it necessary to deal with either the appellants’ appeal against the caveats or with the respondents’ appeal in relation to the affirmative defence. Honours in that respect are equally shared. We certify for second counsel.
[53] The appeals are dismissed.
Solicitors:
Martelli McKegg, Auckland for
Appellants in CA207/2014 and CA577/2014 and Respondents in CA679/2014
Insight
Legal, Auckland for First and Second Respondents in CA207/2014 and CA577/2014
and First and Second Appellants in CA679/2014
[1] Stokes v Insight Legal Trustee Co Ltd [2014] NZHC 543, (2014) 15 NZCPR 64 [second High Court decision].
[2] $943,033.36.
[3] We will call the trustees of the RM Colebrook Family Trust and Mrs Colebrook the respondents.
[4] Stokes v Insight Legal Trustee Co Ltd [2012] NZHC 1822 [first High Court decision] at [52].
[5] At [68].
[6] Insight Legal Trustee Co Ltd v Stokes [2013] NZCA 148, (2013) 14 NZCPR 118 at [20] and [50].
[7] Stokes v Insight Legal Trustee Co Ltd [2013] NZHC 2745.
[8] Stokes v Insight Legal Trustee Co Ltd [2014] NZHC 2691.
[9] Stokes v Insight Legal Trustee Co Ltd [2014] NZHC 2475
[10] Insight Legal Trustee Co Ltd v Stokes, above n 6, at [6]–[17]; first High Court decision, above n 4, at [14]–[40]; and second High Court decision, above n 1, at [4]–[10].
[11] First High Court decision, above n 4, at [49].
[12] Second High Court decision, above n 1, at [10].
[13] At [72].
[14] At [35].
[15] At [35].
[16] At [36]. There was evidence from Mrs Colebrook’s legal advisers that a new trust could be set up very quickly.
[17] At [37].
[18] At [7].
[19] At [10] and [13].
[20] Mr Bramwell’s evidence was that during the period from 2007 until the completion of the financial accounts for the RM Colebrook Family Trust in May 2009 it was never suggested to his firm by Mrs Colebrook or anyone else that the Bucklands Beach Road property had been purchased by the trustees of the RM Colebrook Family Trust.
[21] Second High Court decision, above n 1, at [69].
[22] At [55].
[23] Mrs Colebrook says only two of the four documents were before the Court on the first occasion.
[24] At [62].
[25] Hansard v Hansard [2014] NZCA 433, [2015] 2 NZLR 158 at [51] (footnotes omitted).
[26] The Stokes had applied to amend their notice of appeal because the properties subject to the caveats had been sold.
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