Ireland v Ireland [2014] NZHC 1432 (25 June 2014)

Last Updated: 10 July 2014

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000130 [2014] NZHC 1432

BETWEEN	PATRICIA ANN IRELAND Plaintiff
AND	HAMISH ROBERT IRELAND Defendant

CIV-2014-409-000224

BETWEEN JIGSAW PRESCHOOLS LIMITED Applicant

AND NEW ZEALAND CHILDCARE CENTRES LIMITED Respondent

Hearing:	17 June 2014
Appearances:	S N van Bohemen for Plaintiff and Applicant M J Wallace for Defendant and Respondent
Judgment:	25 June 2014

JUDGMENT OF ASSOCIATE JUDGE OSBORNE on summary judgment application and application to set aside statutory demand

Introduction

[1] Hamish Ireland (“Hamish”) and Patricia Ireland (“Trish”) were married in

1990 but separated in 2011. They had numerous interests in businesses and trusts. They had differences about ownership and control of property which led to almost two years of negotiation and litigation.

[2] Ultimately, on 22 May 2013, they were able to execute what they called a

_{“Deed of Settlement of Relationship Property, Trust and Other Matters”, which they}

IRELAND v IRELAND [2014] NZHC 1432 [25 June 2014]

recorded to be in full and final settlement of their property claims. They agreed upon a number of transactions by which ownership of assets was to alter; some assets were to be realised; interests in trusts were to change; and debt was to be dealt with. Most transactions were to be settled by 31 May 2013. Two matters were to be dealt with by 7 November 2013.

[3] The Deed contained ten “general provisions” – Hamish and Trish acknowledged that they had been unable to reach agreement on the extent and value of relationship property assets; they considered the terms of the Deed fair and reasonable based on their own assessment as to the value of relationship and other property; and they wished to achieve certainty and settlement of their differences about ownership and control of property. They acknowledged and agreed, notwithstanding any legal advice to the contrary, that they wished to sign and be bound by the terms of the Deed, with neither subsequently to seek to void the Deed for lack of proper or inadequate advice.

[4] It is common ground that Hamish and Trish have completed most of the transactions agreed to in the Deed. But the hope of certainty and settlement of all differences has not been fulfilled.

These two proceedings

The summary judgment proceeding

[5] Trish alleges that Hamish has not met three sets of obligations under the Deed. In the CIV2014-409-000130 proceeding she seeks summary judgment in relation to those obligations.

The statutory demand proceeding

[6] Through the Deed, Hamish and his trust were to obtain control of New Childcare Centres Limited (NZCC), the respondent in the CIV-2014-409-000224 proceeding. Trish was to retain control of Jigsaw Preschools Limited (“Jigsaw”), the applicant in the statutory demand proceeding. After Trish issued the summary judgment proceeding, Hamish had NZCC issue a statutory demand against Jigsaw

for three sums which NZCC claimed as debts owed by Jigsaw. Jigsaw applies to set aside the statutory demand upon the basis that there is a substantial dispute as to whether it is indebted to NZCC and on the basis that substantial injustice would be caused if the statutory demands were not set aside.

The procedure adopted

[7] By their nature the summary judgment proceeding and the statutory demand proceeding were separately issued. A substantial body of affidavit evidence was filed in each proceeding with significant overlaps in both the narratives and the exhibits.

[8] For convenience the parties agreed, and the Court directed, that the proceedings would be heard on the same day (albeit not consolidated).

[9] It is convenient by reason of the very substantial overlap of facts to deliver a single judgment in relation to both proceedings.

The determinative issues

[10] The parties by their evidence and counsel by their submissions suggested there were many issues for the Court’s consideration. But it emerged clearly in the course of the submissions that there was in each proceeding a dispositive issue which leads me to deliver this judgment in much shorter form than were I to consider in detail the full range of issues addressed by counsel.

Trish’s summary judgment application

[11] Trish seeks summary judgment on all the three causes of action contained in her statement of claim. The three causes of action cover what Trish asserts to be three sets of obligations of Hamish pursuant to the Deed. Hamish filed a detailed notice of opposition with eight specific grounds. He says that he has set-offs and counterclaims arising from Trish’s non-performance of obligations. His culminating ground of opposition in relation to all causes of application for summary judgment is that the application must be declined in the exercise of the Court’s discretion. I will

refer to the earlier grounds only briefly. The summary judgment application in my

judgement must fail in any event as a matter of the Court’s discretion.

The Deed

[12] The following list (not intended to be comprehensive) indicates the extent of agreements relating to assets and interests –

(a) The home property to Trish (relied on by Trish as the obligation pursuant to which her first cause of action, in which she seeks assignment of earthquake insurance claims relating to the home, is said to arise).

(b) Chattels in the home to Trish. (c) Forestry ownership to Hamish.

(d) Shareholders’ current account debts in three companies to Hamish. (e) Shareholders’ current account debts in Jigsaw to Trish.

(f) Hamish to pay an agreed sum to Trish by 7 November 2013 (relied on by Trish for her second cause of action).

(g) Interest in one family trust renounced by Trish.

(h) Interest in another family trust renounced by Hamish, after distribution of some trust assets to Hamish.

(i) Control of three companies to Hamish. (j) Control of Jigsaw to Trish.

(k) A recording of Trish’s and Hamish’s intentions as to their preschool businesses, including an intention that the Richmond Preschool be sold and the net proceeds of the sale applied 50% to the taxation

liabilities of two of Hamish’s companies and 50% to the taxation liabilities of Jigsaw (a provision which Hamish asserts Trish has breached by failing to co-operate in order to achieve a sale of the Richmond Preschool).

(l) A recognition that three preschools including the Richmond Preschool have been operated and paid for by Jigsaw although each of the preschool’s leases was in the name of one of Hamish’s companies.

(m) Hamish to procure an assignment of a preschool lease to Jigsaw and to have one of his companies acknowledge that all advances to Jigsaw were satisfied at settlement date.

(n) An intention is recorded that a property in Darvel Street is to be readied for sale with any net profit or loss to be distributed equally.

(o) An intention is recorded that a section in Jacksons Road is to be sold as soon as possible with any net profit or loss to be shared equally, a provision pursuant to which Trish brings her third cause of action in relation to cost for which Hamish has not repaid or indemnified her.

(p) The settlement date of the various transactions covered by the Deed (except where another date was expressly stated) was 31 May 2013 or another date acceptable to Trish and Hamish.

[13] The structure and general provisions of the Deed make it clear that the Deed represented a bundle of arrangements in full and final settlement of Hamish’s and Trish’s competing claims. None of the individual provisions bears any evident, direct financial correlation to any of the other provisions. The Deed did not provide that any particular provision was independent of others. The parties agreed on a complete package of rights and obligations all of which were to be brought to completion within a relatively short time (with most to be settled nine days later on

31 May 2013; some within six months by 7 November 2013; and a few with no

particular dates but in the near future – governed by words such as “as soon as possible”).

The things said to have gone wrong

Outstanding matters for implementation

[14] Trish and Hamish acknowledge that most of the provisions of the Deed were carried into effect in 2013.

[15] At most there appear to be five provisions of the Deed yet to be fully implemented. Trish for her part asserts that there are three areas in which Hamish is in default. Hamish through NZCC, in the statutory demand proceeding, asserts that Jigsaw is in default of commitments in relation to the lease of its property. Hamish also asserts (in one of his grounds of opposition in relation to the summary judgment application) that Trish is in breach of an obligation to co-operate to achieve the sale of the Richmond Preschool business.

Earthquake insurance proceeds

[16] Trish’s first claim concerns insurance proceeds in relation to the home property of which she was to take title by 7 November 2013. Her statement of claim asserts that –

A pre-requisite to the plaintiff refinancing...is that the plaintiff deliver to her Bank a Deed of Assignment of EQC and Insurance Claims..., duly executed by the defendant.

[17] Mr van Bohemen for Trish accepted that the Deed itself did not contain an express obligation in relation to the rights in the insurance proceeds. Mr van Bohemen’s written submissions suggested that Trish should succeed either by reason of an implied term or by the doctrine of estoppel.

[18] An estoppel is said to arise because Hamish had subsequently authorised payment of some insurance proceeds into Trish’s bank account, but Mr van Bohemen accepted in the course of submissions that he could not point to any

evidence (let alone pleadings) whereby Hamish had made a clear representation as to the payment of other insurance proceeds (namely the EQC payments).

[19] Trish does not quantify the value of what is at stake. She deposes however that it is a prerequisite to her bank’s refinancing the mortgage over the house property that Hamish assign the insurance benefits to her.

The debt

[20] Trish’s second claim is more straight-forward, arising from the Deed’s

express provision that Hamish was to repay her a debt. The payment date of 7

November 2013 was the same date as for Trish’s refinancing of the Jacksons Road property. The clear inference is that the timing of the payment would substantially assist Trish in relation to that refinancing exercise.

Issues on sale of the Jacksons Road section

[21] Trish’s third claim also arises from the express provisions of the Deed recording the intention of the parties to sell the Jacksons Road section as soon as possible and to share losses equally, with each indemnifying the other for 50% of any such loss. It is not in dispute that Trish has carried losses (relating to costs on the property). Trish claims 50% of those losses. But in addition she seeks the following orders:

An order that the defendant pay the plaintiff 50% of the loss...immediately

upon advice from the plaintiff that she has repaid that loss; [and]

An order that the defendant reimburse the plaintiff interest on 50% of the loss...from the date of payment of the loss until the date the defendant pays the plaintiff 50% of the loss...

[22] Some of the debt in relation to the Jacksons Road section remains secured over the home property. The debt has therefore yet to be cleared as Trish deposes that Hamish’s conduct has prevented her from taking over the home property and refinancing it. Hamish opposed summary judgment in relation to the two quoted heads of claim partly on the basis that any order would be premature as no loss has yet been incurred.

[23] For Trish, Mr van Bohemen recognised the difficulty created by the premature nature of the relief sought. In his submissions he sought to recast the two quoted aspects of the third cause of action as an application for judgment as to liability (not quantum).

A failure of co-operation on the sale of the Richmond Preschool business

[24] Hamish relies on the provision as to the parties’ intention to sell the Richmond Preschool business and to equally divide the proceeds for the benefit of Hamish’s companies and Trish’s company (Jigsaw) respectively. The Deed was executed in May 2013. In June 2014 the Richmond Preschool business has still not been sold. In the evidence they have filed, Trish and Hamish have dramatically opposed views as to the responsibility for delay and in particular whether Trish has been co-operating. Hamish deposes to a lack of co-operation by Trish. He says she has excluded his involvement. Trish for her part filed lengthy reply evidence in which she deposed that she had continued to try to achieve a sale of the business. It is impossible in a summary context to resolve what are substantially issues of credibility. It is significant, however, that Trish herself deposes that –

Problems arose after May 2013 because Hamish and I were unable to work together on the sale of Richmond for our common good.

[25] If that evidence is ultimately upheld it may be that both parties are found to be in breach of a duty to co-operate to achieve a prompt sale.

Jigsaw’s failure to make lease payments

[26] By the Deed the parties had recognised that Jigsaw would be operating the Richmond Preschool business for the time being and that on the sale of the business there would be a shared benefit (or loss) to Trish’s company (Jigsaw) and Hamish’s company (NZCC). The arrangements were and remain complicated by the fact that the landlord’s lease of the premises was to NZCC and not to Jigsaw itself.

[27] Although Trish has deposed that Jigsaw has obligations in relation to meeting the rental and other outgoings under the lease, it is common ground that some of the lease payments which fell due after the execution of the Deed were not met by

Jigsaw and are still owing to the landlord. They were still owing when Trish issued her summary judgment proceeding.

[28] Because of Hamish’s control of NZCC, it is his interests which are affected by Jigsaw’s failure to meet what Trish accepts are Jigsaw’s obligations.

[29] This led Hamish, approximately one month after Trish issued her summary judgment proceeding, to have NZCC issue a statutory demand against Jigsaw for payment of outstanding rental, rates and insurance. (There are some issues as to arrears figures which NZCC has included in the rates aspect of the demand but the arrears are indisputably substantial).

[30] If Jigsaw does not make those payments, NZCC will be exposed to recovery proceedings by the landlord. Such an eventuality was clearly not the intention of the parties through the Deed, when Trish was given control of the operation of Jigsaw (including its premises).

[31] I will be finding that the statutory demand must be set aside because the right to demand payment belongs not to NZCC but to the landlord. But in the context of the summary judgment proceeding, and given the identity of interests between Hamish and NZCC (on the one hand) and between Trish and Jigsaw (on the other hand), any failure by Trish and Jigsaw to meet obligations under the Deed can be properly brought into account in assessing any claim by Trish to relief in the nature of specific performance. Trish’s first cause of action – for assignment of insurance rights – is clearly of that nature.

The discretion on summary judgment applications

[32] Rule 12.2(1) High Court Rules provides that where a plaintiff satisfies the Court the defendant has no defence to a cause of action, the Court may give judgment against the defendant (my emphasis).

[33] In the course of submissions reference was made to two cases involving estranged spouses in which the discretion in summary judgment cases was applied so as to decline summary judgment.

[34] First, in Herring v Herring¹ the couple’s family trust owed each of them

$271,000.00. In turn each of them owed one of their family companies at least

$271,000.00. The husband demanded repayment of the $271,000.00 owed to him personally by the trust. The wife resisted summary judgment partly on the basis that

$271,000.00 of the husband’s debt to the company had been assigned to her in her capacity as trustee. At first instance it had been held that the claims were sufficiently interdependent to attract equitable set off, and summary judgment was refused on that basis.

[35] The Court of Appeal overruled the equitable set-off finding but held that summary judgment should have been declined as a matter of discretion. The head note to the New Zealand Law Report accurately summarises the Court of Appeal’s judgment in this regard:²

The Court had a residual discretion to decline summary judgment and was entitled to look at any injustice arising to the defendant arising out of other aspects of the overall dispute between the parties. This was essentially a relationship property case and it was preferable that all issues were resolved in relationship property proceedings.

[36] Ellen France J observed that the majority thought it likely that the present proceeding could serve only to complicate matters relating to relationship property. Her Honour adopted from the earlier decision in Sayles v Sayles³ the observation that the grant of summary judgment would entail “some injustice” and, “whether intentionally or not”, would be an oppressive use of the procedure of the Court.

[37] Sayles was, similarly, a case in which a partner (in a de facto relationship) had sought summary judgment against the other partner. In giving judgment, Wylie J noted an absence of authority on the exercise of the discretion in what was then r

136 High Court Rules.

[38] Wylie J noted⁴ that an outcome of an early summary judgment in favour of

Mr Sayles would be resolution so far ahead of the resolution of other disputes that

_{Ms Sayles might be deprived of the opportunity to exercise the right to bid for and}

¹ _{Herring v Herring [2011] 2 NZLR 433 (CA).}

² _{At 434.}

³ Sayles v Sayles (1986) 1 PRNZ 95 (HC).

purchase the subject property by reason of her inability for final purchase through lack of resolution of other disputes. Wylie J noted that such proceedings involved the possibility of parties taking steps either of a vindictive or a retaliatory nature and equally of defendants adopting stalling tactics, and observed:⁵

...where such possibilities exist the Court should be on its guard not to allow its procedures to be used in such ways to enable advantage to be taken of those possibilities.

[39] The head-note to the Procedure Reports accurately summarises his Honour’s

conclusion:⁶

A material factor in the exercise of the discretion to grant summary judgment is whether injustice may be caused or whether the summary judgment procedure is being used, whether intentionally or not, as an instrument of oppression.

Summary judgment application – conclusion

[40] The risk of oppression foreseen by the Court in Herring and in Sayles is present in this case.

[41] I do not find it material that the property disputes in Herring and Sayles had yet to become the subject matter of agreement as to property division. The significant feature of both Herring and Sayles was the range of intertwined disputes between the parties in relation to their property interests with impact on the ability of each party to fairly deal with or optimise their property interests. In the present case, it has transpired that the range of individual property interests which had to be dealt with in the Deed has led to unfinished business involving disputes of similar magnitude and consequence to those in Herring and Sayles.

Conclusion as to claims and cross claims

[42] The parties have not provided the Court through their evidence with any comprehensive understanding of the value of all their various claims and cross

_{claims. Accordingly the Court cannot gain any accurate understanding as to which}

⁵ At 99.

party stands to gain most financially from the resolution of all outstanding provisions of the Deed.

[43] While the existence of summary judgment proceedings (and the consequential statutory demand proceeding) between the parties is regrettable, the proceedings have served to flush out all the grievances, identified the issues and laid them out ready for substantive resolution. The substantive resolution may and should lie in the parties themselves reaching agreement across the range of issues so as to achieve the finality they had expected through their Deed. The Court (during the course of the argument which I heard) was able to offer the parties a very early settlement conference when it became clear to me that I must reach the decision which is contained in this judgment. The availability of that conference reinforces the appropriateness of declining summary judgment as a matter of discretion. A judgment which focussed on a few issues for resolution and left other issues for later resolution would not serve the interests of justice.

[44] Accordingly in the orders which follow the plaintiff’s summary judgment application will be declined.

Application to set aside the statutory demand

The statutory demand itself

[45] NZCC’s statutory demand against Jigsaw was for sums said to be due by way of rental, rates and insurance. As I have already recorded, there are some issues as to arrears figures which were included in the rates aspect of the demand but the arrears are indisputably substantial.

Trish’s grounds of application to set aside the statutory demand

[46] Trish raised a number of grounds in support of her application to set aside the statutory demand.

[47] As I am satisfied that she must succeed on at least two of those grounds, I

focus on those two only.

The right to demand payment for outstanding rental, rates and insurance

[48] The lease of the Richmond Preschool premises is between an unrelated party and NZCC. For historical reasons which are not in evidence the premises have been leased to NZCC rather than to Jigsaw which actually operated from the premises. There has never been a sublease or other contractual arrangement between NZCC and Jigsaw.

[49] It is common ground that the payments due to the landlord under the lease have not been paid by NZCC to the landlord. By its statutory demand, NZCC is accordingly demanding payment from Jigsaw of sums which NZCC itself has neither paid to the landlord nor derived from a contract between NZCC and Jigsaw.

[50] Given that the basis of NZCC’s statutory demand might therefore be inferred to arise from some implied or construed right of indemnity, I enquired of Mr Wallace whether such an argument was suggested (although not contained in the pleadings or the written submissions). Mr Wallace responsibly accepted that even were there a properly signalled argument as to a claim based on indemnity, the authorities are against him.⁷

[51] Accordingly, NZCC has not established any right to make against Jigsaw the demand that it made. Jigsaw has a substantial dispute as to liability.

[52] The statutory demand must be set aside.

The residual discretion

[53] Section 290(4)(c) Companies Act 1993 permits the Court to set aside a statutory demand on grounds other than those earlier contained in s 290(4) of the Act. This is frequently referred to as “the residual discretion”.

[54] The residual discretion enables the Court to do justice between the parties. As Tipping J indicated in Commissioner of Inland Revenue v Chester Trustee

Services Ltd,⁸ the exercise of the discretion comes down to the Court’s judgement as to whether a creditor’s prima facie entitlement to liquidate a company is outweighed by some factor making it plainly unjust for liquidation to occur.

[55] My analysis of the outstanding issues between the parties and the various cross claims which arise, which leads me to decline Trish’s summary judgment application by reason of the residual discretion in that jurisdiction, leads me similarly to the conclusion that the statutory demand also be set aside as a matter of discretion. It would be plainly unjust if the statutory demand were allowed to proceed and Jigsaw was wound up on that basis.

[56] One particular passage in Trish’s evidence in the statutory demand

proceeding encapsulates what I find to be her valid objection in this regard –

If Hamish would honour his obligations to me (in particular his obligation to pay me [the debt], to transfer ownership of our former family home...and to pay his share of loss on the sale of...Jacksons Road, Jigsaw would be able to perform its obligations. Given the fact that our personal finances are so intertwined with the financial affairs of Jigsaw and NZCC I believe a substantial injustice would be caused if this...statutory demand was not set aside.

The statutory demand – conclusion

[57] The statutory demand must be set aside for both the reasons I have stated.

Costs

[58] I will be reserving costs, as suggested by counsel at the conclusion of the hearing.

[59] It is appropriate that the parties, given their commitment to a settlement conference, have the opportunity to resolve all issues without the intervening costs awards against one or other of the parties. For the time being, this course will also avoid the spectre of both parties incurring further legal costs through having costs submissions prepared.

[60] Should there subsequently be disagreement between the parties as to whether any costs orders should be immediately made, any applicant for costs is to file and serve a memorandum (no more than four pages) with the respondent to that application to file and serve their response memorandum (no more than four pages) within five working days after receipt of the application for costs.

Orders

[61] I order:

(a) CIV-2014-409-130

(i) The plaintiff’s summary judgment application is dismissed;

(ii) Costs are reserved;

(iii) The substantive proceeding is adjourned for mention at the conclusion of the settlement conference scheduled for Monday, 30 June 2014;

(iv) The time for filing the defendant’s statement of defence is

extended until further order of the Court. (b) CIV-2014-409-224

(i) The statutory demand issued by New Zealand Childcare

Centres Limited upon Jigsaw Preschools Limited and dated 10

April 2014 is set aside; (ii) Costs are reserved.

Solicitors:

Godfreys Law, Christchurch

Copy to: S van Bohemen, Christchurch

J V Dallison, Christchurch

Copy to: M J Wallace, Christchurch