Smith v Jones [2014] NZHC 2674 (30 October 2014)

Last Updated: 18 November 2014

PUBLICATION OF THE NAMES OF THE PARTIES, OR OF ANY DETAIL THAT COULD ENABLE THEM TO BE IDENTIFIED, IS PROHIBITED.

THE COURT FILE IS NOT TO BE MADE AVAILBLE TO ANY PERSON SEEKING TO ACCESS THE SAME EXCEPT BY ORDER OF THE COURT FOLLOWING APPLICATION UNDER RULE 3.13.

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-002050 [2014] NZHC 2674

BETWEEN	SMITH Plaintiff
AND	JONES Defendant

Hearing:	6-9 October 2014
Appearances:	J D Turner and N C Baier for Plaintiff J B Murray for Defendant
Judgment:	30 October 2014

_{(RESERVED) JUDGMENT OF ANDREWS J}

SMITH v JONES [2014] NZHC 2674 [30 October 2014]

Introduction

[1] The plaintiff seeks judgment against the defendant for the sum of $500,000, which he paid into the defendant’s bank account and placed on term deposit in mid- December 2012. The plaintiff contends that the payment was on certain terms, which have been breached, or on trust. The defendant contends that the payment was a gift to her.

[2] Pursuant to an order made earlier in this proceeding, publication is prohibited of the parties’ names, and of any fact which could lead to their identification, and the Court file is not to be made available for search unless application is made under r 3.13 of the High Court Rules and the permission of the Court is obtained.¹ The plaintiff is referred to as Mr Smith, and the defendant as Ms Jones. These are not their real names.

Background

[3] Mr Smith is a director of a closely-held family company. He has been successful in business and can be described as being relatively wealthy. Ms Jones came to New Zealand with her son in 1999, having met her then partner in 1996, when he was working in her home country. That relationship ended in 2005. At that time, Ms Jones bought a house in Auckland. The house is owned by Ms Jones’ family trust, and is mortgage free.

[4] Mr Smith met Ms Jones at the massage parlour where she was working as a sex worker, in either late 2007 or early 2008, some months after his wife’s death. Mr Smith found Ms Jones attractive and “booked her” and paid for her services. Mr Smith continued to visit the massage parlour regularly, booking Ms Jones for the next visit as he left each time.

[5] Mr Smith’s evidence was that he felt sorry for Ms Jones, and wanted to help her to leave the massage parlour. To this end, he offered to pay her a regular sum each month if she left. Initially she refused, but later agreed to leave the parlour

_{upon his offering to pay her $5,000 a month. Mr Smith described the arrangement}

¹ Smith v Jones [2013] NZHC 2627.

with Ms Jones as being an “escort arrangement”. Ms Jones’ evidence was that from Mr Smith’s second (if not the first) visit to the massage parlour, she had no other clients and that her only concern was as to whether she could trust Mr Smith. There was no mention of, or agreement to, an “escort arrangement”. Mr Smith made the decision to pay her $5,000 a month, but she agreed to leave the massage parlour on his promising to look after her financially and “secure her future” if she left the massage parlour.

[6] Mr Smith made payments to Ms Jones of $7,000 on 25 February 2008 and

$15,000 on 26 February 2008. Mr Smith said this was to show his commitment to the escort arrangement. Ms Jones left the massage parlour and in April 2008

Mr Smith began depositing $5,000 into her bank account each month. Their relationship evolved into one of companionship as well as a sexual relationship. They went out on social outings for meals, attended concerts and the theatre, and Mr Smith frequently visited Ms Jones at her home. Mr Smith met Ms Jones’ son, and Ms Jones met Mr Smith’s daughter and granddaughter. She was not introduced to Mr Smith’s son.

[7] The relationship continued in this manner until May 2010 when there was, Mr Smith said, a dispute between himself and Ms Jones. He did not make the monthly payments for May and June 2010. The relationship resumed, but ceased in July 2010. During the period of their relationship, Mr Smith provided Ms Jones with clothes, jewellery, and an expensive car, and paid for Ms Jones’ travel, including travel to her home country for herself and her son.

[8] Mr Smith and Ms Jones resumed their relationship in May 2011. From this time, Mr Smith paid Ms Jones $2,500 a month, by giving her access to a bank account, up to that amount. Mr Smith’s evidence was that the payments were limited to that amount, because Ms Jones was continuing to see a man with whom she had begun a relationship. Ms Jones denied any connection between the $2,500 limit and contact with the man. Mr Smith continued to pay for gifts for Ms Jones (including a replacement car), outings, and travel. He also paid around $50,000 for renovations to her house. He bought an apartment in which Ms Jones’ son lived at a modest rental.

[9] Mr Smith’s evidence was that during 2012, Ms Jones suggested that they look for a house to buy where they could live together. They began looking at houses but did not find a suitable house. Ms Jones’ evidence was that she and Mr Smith were looking first for a business that he would buy for her, then for a residential property for her to rent out so as to provide her with an income.

[10] On 15 December 2012 (a Saturday) Mr Smith and Ms Jones went together to a bank, where Mr Smith completed a form to transfer $500,000 into an account in Ms Jones’ name. Mr Smith instructed the bank that the money was to be put on interest-bearing deposit for six months. The bank was not able to process the transaction that day, but it was completed the following Monday, 17 December 2012.

[11] Mr Smith said that the payment was to demonstrate his commitment to provide his share of the cost of buying a house property in which they would live together, and he intended that in the meantime Ms Jones would have the benefit of the interest. However, he said, Ms Jones’ entitlement to the benefit of the deposit depended on the continuing existence of their relationship.

[12] Ms Jones said that the deposit of $500,000 was intended to replace the purchase of a business, or of a residential rental property, as they had not been able to find either a suitable business or a rental property. It was to be for her sole benefit, fulfilling Mr Smith’s original promise to secure her future. She said that Mr Smith said that he had “buckets of money”, had already provided for his children and grandchildren, and that he intended both the principal sum and the interest to be hers, absolutely, irrespective of whether the relationship continued.

[13] Later in December 2012, Mr Smith and Ms Jones travelled to Sydney and spent Christmas with her son. Ms Jones and her son gave evidence of Mr Smith saying that he had “secured [Ms Jones’] future”. The relationship between Mr Smith and Ms Jones deteriorated in January 2013 and terminated in or about mid-February

2013. The parties’ evidence differed as to the circumstances in which the relationship ended. That difference is not relevant for the purposes of this judgment, and I will not, therefore, set out the evidence, or express any view regarding it.

[14] On 25 February 2013, Mr Smith made an oral demand that Ms Jones return the money held on deposit, and she refused. A further demand was made by way of letter from Mr Smith’s solicitors to Ms Jones. Ms Jones’ solicitors responded, declining to repay.

[15] On 8 April 2013, Ms Jones terminated the term deposit and transferred the principal sum and accrued interest into an account opened by her in another bank. Because of the early termination, the interest payable was reduced.

[16] The principal sum and interest accrued to 8 April 2013, together with interest accruing since then, have been held on interest-bearing deposit, subject to freezing orders and ancillary orders made earlier in this proceeding.

The competing claims

[17] Mr Smith’s first cause of action is that Ms Jones is in breach of an oral contract between them pursuant to which she was to hold the sum of $500,000 to purchase a house to be registered in their joint names. In his second, and alternative cause of action, Mr Smith contends that Ms Jones’ retention of the $500,000 is an unjust enrichment. Thirdly, Mr Smith contends that the Court should hold that Ms Jones holds the money in trust, and is required to return it. Mr Smith’s final cause of action is that Ms Jones is in breach of a gratuitous bailment.

[18] Ms Jones denies that the money was to be put to purchasing a house in their joint names. She contends that there were no conditions on the transfer, and that it was an outright gift.

[19] The central issue for determination is whether the payment was a gift. It is appropriate to address that issue first.

Was the payment a gift?

[20] There is no dispute that Mr Smith paid $500,000 into Ms Jones’ bank account. Mr Murray, in his submissions for Ms Jones, accepted that she bears the

onus of proving that the payment was a gift.² In order to satisfy the onus, Ms Jones must establish that:³

(a) Mr Smith expressed an intention to give her $500,000, that would henceforth belong to her, permanently;

(b) She agreed to the gift; and

(c) The money was delivered to her.

[21] The real contest is as to the first element. Mr Murray submitted that the issue as to intention has to be considered in the context of the entire relationship, in which there was a climate of generosity by Mr Smith towards Ms Jones. He submitted that a number of features of their relationship supported Ms Jones’ contention that Mr Smith intended the payment of $500,000 to be a gift to her.

[22] First, Mr Smith had been “giving” from the outset and voluntarily supported Ms Jones throughout the relationship. He had given Ms Jones sums of money, jewellery, expensive cars and travel of such a value that the payment of $500,000 was only a “step up” in amount. On this occasion, he chose a capital payment rather than his previous forms of support.

[23] Secondly, at the time of the payment, Ms Jones was financially dependent on Mr Smith, and his original motivation of helping a disadvantaged person applied. The payment acknowledged Ms Jones’ need for an income, and was consistent with Mr Smith’s wish to make Ms Jones financially secure, being large enough, and safe (being placed on a bank term deposit). The discussions concerning buying a business or rental property had all been on the basis that Mr Smith would be the funder and the business or property would be in Ms Jones’ name, and for her sole

_benefit.

² See Seldon v Davidson [1968] 2 All ER 755 (CA) and Milne v Armijo HC Christchurch CP7/88,

_{25 August 1989 at 2.}

³ See Williams v Williams [1956] NZLR 970 (SC) at 972; McNeill v Gould (2002) 4 NZ ConvC

193,557 (CA) at [20].

[24] Thirdly, at the time of the payment, Ms Jones and Mr Smith had been in a close personal relationship for an overall period of some four years, apart from the periods of separation. Mr Murray submitted that the relationship was akin to a familial blood relationship, such that a presumption of advancement could apply. The payment was not a payment for service.

[25] Finally, the payment was made into Ms Jones’ bank account, in her name, only, at Mr Smith’s direction. He created no relevant documentation. He is a successful businessman with all his faculties and experience, and knew exactly what he was doing. He has considerable wealth, and has not been left in need.

[26] Mr Turner submitted for Mr Smith that there must be reasonably convincing evidence that Mr Smith expressed an intention to give Ms Jones $500,000. The “clearest evidence” is required.⁴ He submitted that there was no such evidence. Mr Smith gave clear evidence that he did not intend to give $500,000 to Ms Jones, and that he had explained the details of the transfer to her, in simple terms. Mr Turner submitted that Mr Smith’s evidence should be accepted.

[27] Mr Turner further submitted that there is no contemporaneous evidence that would support Ms Jones’ assertion that the payment was a gift. To the contrary, Mr Smith’s evidence was clear. He intended the principal sum to be held for six months and applied towards the purchase of a joint property failing which, and if the relationship ended, the principal would be returned to him. In the meantime, the interest was to be paid to Ms Jones. In the event that Mr Smith died while the relationship continued, but before a property had been purchased, Ms Jones would have the benefit of the principal sum, but only in that event.

[28] Mr Turner submitted that the relationship between Mr Smith and Ms Jones should be seen as comprising three stages. The first stage, when Ms Jones was still working at the massage parlour, was a commercial sexual and escort arrangement. Thereafter, the second stage (the period up until July 2010) was characterised by Mr Smith’s payments of $5,000 a month, and those payments stopped when there was a dispute in May-June 2010. The relationship at that time was dependent on the

payments. In the third stage (the period from May 2011), the relationship evolved to one of mutual trust and confidence, but was never akin to that of a husband and wife, or de facto partnership, and Ms Jones had never claimed that there was such a relationship. The relationship was not, therefore, one from which a presumption of advancement could apply. Even if it were, the presumption would be negated by Mr

Smith’s evidence that he did not intend the payment as a gift.⁵

[29] While accepting that Mr Smith had been generous to Ms Jones, Mr Turner submitted that the earlier payments to her were in line with his “mental budget” of about $60,000 a year. A single payment of $500,000 would have been grossly outside that. Further, if Mr Smith had intended to give Ms Jones a sum of money he would (as he had previously) have written out a cheque and given it to her to do what she wanted with it.

[30] Finally, Mr Turner submitted that earlier discussions concerning the purchase of business or rental property were never on the basis of an outright gift: they incorporated Mr Smith’s continued involvement,⁶ and an assumption by Ms Jones of some liability, for example by way of a mortgage.⁷ In any event, Mr Smith’s contribution was dependent on the relationship continuing.

Discussion

[31] I accept Mr Turner’s submission that a presumption of advancement does not arise in this case. In Seldon v Davidson, the United Kingdom Court of Appeal accepted that no presumption arose in the case of a payment made to an employee. Edmund-Davies LJ observed:⁸

There being no blood relationship, no husband-and-wife, no father-and- child, no adoptive-parent and adoptive-child relationship between the plaintiff and the defendant, ... gave rise to no presumption of advancement.

⁵ _{See Narayan v Narayan [2009] NZHC 1973; [2010] NZFLR 161 (HC) at [46]–[47].}

⁶ Mr Smith in evidence said that if he was not going to be part of a business, he would not be putting his money into it.

⁷ Mr Smith in evidence said that any rental property would be financed by a bank mortgage and rental payments received would have to be sufficient to service the mortgage and provide an income.

⁸ Seldon v Davidson, above n 2 at 758.

In Milne v Armijo, Hardie Boys J found that the presumption of advancement did not apply where payments were made by the plaintiff to the defendant with whom the plaintiff had developed a relationship (evolving from outings to intimacy) after her husband had died.⁹

[32] Even allowing for the possibility that the courts may in 2014 recognise a close familial relationship in somewhat broader circumstances than those indicated in Seldon v Davidson, the evidence in this case does not support a conclusion that a sufficiently close familial relationship existed. Mr Murray’s submission that the relationship was “akin to” a close familial relationship which was “overall one of shared life and emotional commitment” is inconsistent with Ms Jones’ denials in response to a notice to admit facts, and in her evidence, that she and Mr Smith ever discussed living in a house together, or that they shared an intention to share their life together. Her references to Mr Smith as her “partner” cannot therefore be taken as references to him as her “life partner”.

[33] In the absence of a presumption of advancement, has Ms Jones satisfied the onus of proof? In her evidence as to the visit to the bank in December 2012, Ms Jones said there were no discussions with Mr Smith about depositing money, how much would be deposited, on what terms, or for what reason. She said they simply went to the bank. She did not ask what the deposit was for, and Mr Smith did not say “I’m giving you $500,000” when he made the deposit. Her evidence was that Mr Smith did not say anything at the time, but simply deposited the money. There is, therefore, no clearly expressed intention, at the time the payment was made, that Mr Smith intended it to be a gift.

[34] Can that intention be inferred? Repeatedly in her evidence, Ms Jones said that when she was still at the massage parlour, Mr Smith had “promised me he would look after me, he would secure my future, for life, he had buckets of money, and had provided for his kids and grandkids.” She also said that Mr Smith’s promise did not depend on their relationship continuing, or their having an exclusive relationship. It was against this background that the payment was to be seen as a gift, confirmed by Mr Smith’s statement after the payment, that he had “secured my future.”

[35] I do not accept that a gift can be inferred. In Milne v Armijo, Hardie Boys J

observed:¹⁰

Whether there was a gift turns on two things: firstly delivery, and secondly, intention of the donor; the latter being significant rather than the understanding of the donee.

[36] Having heard the evidence given by Mr Smith and Ms Jones, I accept Mr Smith’s evidence that he did not intend the payment to be a gift to Ms Jones. I accept his evidence that discussions between himself and Ms Jones as to providing an income for her did not involve his making such a substantial, unconditional gift. Rather, the discussions incorporated Mr Smith’s continued involvement, and the relationship continuing. Further, I do not accept Ms Jones’ submission that statements as to “securing my future” necessarily lead to a conclusion that the payment was a gift.

[37] I conclude that Ms Jones has not satisfied the onus of proving that the payment of $500,000 was a gift to her. In the light of that conclusion, I turn to the bases on which Mr Smith claims to to be entitled to have the payment, and accrued interest, returned to him.

Claim in contract

[38] Mr Smith first alleges that there was an oral contract between himself and Ms Jones to the effect that the payment was to be applied to the purchase of a house, to be owned by them, jointly.

[39] For a contract to be validly formed, the following must be established: (a) that the parties agreed to be legally bound;

(b) an offer by one party and acceptance by the other; (c) an exchange of consideration; and

(d) agreement as to the terms of the contract.

[40] Mr Turner submitted that the payment in this case was properly characterised as a loan contract. I was referred to cases where payments by one person to another had been held to be loans, rather than gifts. Mr Murray submitted that Mr Smith did not in his evidence assert that the payment was a loan, and that there was no evidence of any agreement as to the terms of any such loan.

[41] In McNeill v Gould, a payment of $450,000 by one de facto partner to the other was held to be a loan.¹¹ The relationship had developed after Mr Gould separated from his wife. During the relationship, Mr Gould gave Ms McNeill substantial gifts, including a luxury car, company shares, and jewellery, and paid for overseas trips for her and members of her family. After the relationship ended, Mr Gould claimed in respect of his payments towards the purchase of a residential

property registered in Ms McNeill’s name. At trial, the issue was whether that payment was a gift or a loan.

[42] The Court of Appeal upheld the trial Judge’s finding that the payment was not a gift.¹² In holding that the trial Judge was correct to find that the payment was a loan, the Court of Appeal noted the context of the transaction (the parties setting up a new life together in the home); the lower Court’s finding that the parties would have intended that the advance would subsist during the relationship, and the principal circumstance in which the loan would be called up would be the failure of the

relationship; and solicitors’ correspondence referring to calling up “an advance” after the parties separated. Also relevant was Mr Gould’s concern to avoid gift duty, which was “probably, taken by itself, enough to deflect [the argument that it was a gift]”.¹³

[43] In Kwan v Quon, Allan J held that $150,000 paid by the plaintiff towards the purchase of a house which was occupied by the defendant (his sister) and their

_{mother was a loan, rather than a gift of part of the family inheritance.}¹⁴ _{His Honour}

¹¹ _{McNeill v Gould, above n 3.}

¹² _{At [22].}

¹³ _{At [22].}

¹⁴ Kwan v Quon [2013] NZHC 1431.

held that the loan was conditional on their mother continuing to live in the house, and not able to be called up while she did so.

[44] In Milne v Armijo, Hardie Boys J held that the sums of money paid by Mrs

Milne to Mr Armijo were loans, not gifts. His Honour said:¹⁵

... where there is not the kind of relationship in which the presumption of advancement arises, ... the payment of money by one person to another prima facie gives rise to an obligation to repay within a reasonable time of the making of the demand but if the borrower repudiates the loans and asserts that the payments were gifts that repudiation renders the moneys immediately repayable.

[45] Hardie Boys J went on to refer to a submission made for Mr Armijo that the case was one of those “domestic type cases”, where there was no intention to create legal relations and the law would not find a contract of loan (with the consequence that the payment became gifts). As to that submission his Honour said:¹⁶

This approach has been developed by the Courts to deal with domestic transactions of rather different kinds from the mere payment of money. In that kind of case the presumption of advancement arises or may arise and where it does not there is in my view no reason for any notion of what would in effect be an implied gift or a gift by default. Instead the law in effect implies a contract of loan with the obligation to repay ...

[46] There are evident similarities between the facts of the present case and those in, in particular, McNeill v Gould and Milne v Armijo. In both of those cases one party had made substantial gifts to the other, in the context of a relationship, but a loan contract was implied in respect of a more substantial payment.

[47] Mr Turner correctly summarised the issue to be determined as being whether the parties themselves considered that there was some agreement as to payment. Having asked myself that question, and heard and reviewed the evidence, I reject Ms Jones’ evidence that there was no discussion of the purchase of a house together, or of Mr Smith’s continuing involvement in any business she might have purchased, or that she would be liable for mortgage payments if Mr Smith assisted with the

_{purchase of a rental property.}

¹⁵ _{Milne v Armijo, above n 2 at 2.}

¹⁶ At 2-3.

[48] I accept Mr Smith’s evidence that there were such discussions, and the the deposit of $500,000 was to demonstrate his commitment to the joint purchase of a hour and to provide an income for Ms Jones in the meantime, and if the relationship continued. I also accept Mr Smith’s evidence that he thought that the only circumstance in which the deposit would become Ms Jones’ property would be if he were to die while the relationship was still ongoing, and before the deposit had been used as his contribution to a joint property. His evidence was that the reason it would then become her property was because no one else would have known about it. However, he said, he had not died, the deposit had not been used for a joint property, and the relationship had ended.

[49] I conclude, on the basis of the evidence and the authorities referred to above, that there was an implicit agreement between Mr Smith and Ms Jones that the

$500,000 was in her bank account to be put towards the purchase of a house, that in the meantime she was to have the interest on the deposit. I am also satisfied that that the payment was conditional on their relationship continuing. That conclusion is supported by the fact that their relationship was characterised by agreements – for example, Mr Smith’s payments to the massage parlour in the first stage of their relationship, and his payments of $5,000 a month after she left it.

[50] That conclusion is sufficient for a finding in favour of Mr Smith. However, for completeness I go on to consider, briefly, his alternative causes of action.

The causes of action for money had and received, and breach of constructive trust

[51] The elements of Mr Smith’s alternative causes of action for money had and received, and breach of constructive trust, are essentially the same.¹⁷ Each claim rests on his contention that:

(a) the $500,000 was paid by Mr Smith into Ms Jones’ bank account for a

particular purpose (the purchase of a house together) and conditional on their relationship continuing;

¹⁷ As observed by Henry J in National Bank of New Zealand Ltd v Waitaki International (NI) Ltd

[1999] 2 NZLR 211 (CA) at 215.

(b) the money has not been used for that purpose, and the relationship has ended; and

(c) Ms Jones has not repaid the money on demand being made.

[52] I was referred to the discussion of these causes of action in Martin v Pont,¹⁸

Goss v Chilcott,¹⁹ and Lipkin Gorman v Karpnale Ltd²⁰(in relation to restitutionary claims and claims for money had and received), and in Lankow v Rose,²¹ and Westdeutsche Landesbank Girozentrale v Islington London Borough Council²²(in relation to claims of breach of constructive trust).

[53] For essentially the same reasons as I have rejected Ms Jones’ contention that the payment of $500,000 was a gift, I would hold that Mr Smith is entitled to recover the payment from Ms Jones. That is, the payment was made for a specific purpose, which was to go towards the purchase of a house which they would own jointly, and it was conditional on their relationship continuing. Whether as money had and received, or as requiring a declaration of a constructive trust, Mr Smith is entitled to judgment.

[54] In the circumstances, it is not necessary to consider Mr Smith’s third alternative cause of action, which was that the payment is recoverable as a gratuitous bailment.

Interest

[55] The final matter to consider is that of interest. Interest on the sum of

$500,000 was claimed as from the date of the solicitors’ letter of demand on 2 April

2013. Mr Murray submitted that, in the event that it was held that the payment was not a gift, Ms Jones was nonetheless entitled to interest for the intended term of the

_{deposit, namely six months.}

¹⁸ _{Martin v Pont [1993] 3 NZLR 25 (CA).}

¹⁹ _{Goss v Chilcott [1996] 3 NZLR 385 (PC).}

²⁰ _{Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (HL).}

²¹ _{Lankow v Rose [1995] 1 NZLR 277 (CA).}

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

[56] I do not accept the submission for Ms Jones. She became liable to repay Mr Smith (whether by way of contract of loan, money had and received, or constructive trust) from the date of the letter of demand. Her entitlement to interest ceased as from that date.

Result

[57] Judgment is entered in favour of Mr Smith for $500,000, together with actual interest accrued on the deposit as from 3 April 2013.

[58] Costs are reserved. If the parties are not able to agree on costs, then memoranda may be filed: that for Mr Smith within 15 working days of the date of this judgment, and that for Mr Jones within a further 10 working days. Unless a hearing is specifically requested, I will make a decision as to costs on the papers.