Shailer v Shailer [2015] NZHC 250 (24 February 2015)

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BETWEEN	DENISE MINNIE SHAILER Plaintiff
AND	WAYNE LAWRENCE SHAILER, DENISE MINNIE SHAILER AND CHARLES JOHN ANDREWS Defendants

Hearing:	24 October 2014
Counsel:	G Mason for the Plaintiff and second-named defendant, Denise Minnie Shailer J W Maassen for the first-named defendant, Wayne Lawrence Shailer D Shephard for the third-named defendant Charles John Andrews
_Judgment:	_{24 February 2015}

[1] Mrs Shailer applies for summary judgment on a debt owed to her by the trustees of the Shailer Family Trust (the Trust). Her husband Wayne Shailer, who with Mrs Shailer is a trustee of the Trust, opposes her application. He says that her application is in effect an application by Mrs Shailer for an interim distribution of relationship property under the Property Relationships Act 1976 (the Act), which should be dealt with in the Family Court.

[2] In the course of their marriage, Mr and Mrs Shailer established and ran a family dairy farm and contracting business near Foxton. They established several trusts to operate their farming, contracting and dairying businesses. One of them

DENISE MINNIE SHAILER v WAYNE LAWRENCE SHAILER, DENISE MINNIE SHAILER AND CHARLES JOHN ANDREWS [2015] NZHC 250 [24 February 2015]

[3] There were originally three trustees of the Trust. Until his resignation very shortly before the hearing of Mrs Shailer’s application, the third-named defendant Mr Andrews was also a trustee. Mr Andrews had been the Shailers’ family solicitor for a number of years, going back at least as far as the creation of the Trust in 1994.

[4] In addition to the various trusts, Mr and Mrs Shailer established a partnership, the Wayne Shailer and Denise Shailer partnership (the partnership), to operate one or more of their businesses. They were the only members of the partnership.

[5] In 2001, Mr and Mrs Shailer transferred certain land owned by them to the trustees of the Trust. The Trust funded the purchase with the assistance of loans back from Mr and Mrs Shailer, each in the sum of $500,000. Over subsequent years, the debts of $500,000 owed by the Trust to Mr and Mrs Shailer were both reduced by gifts made to the Trust by Mr and Mrs Shailer, in equal amounts.

[6] Mr and Mrs Shailer separated on 7 November 2012. At the date of their separation the Trust owed $419,000 to each of them. No repayments have since been made by the Trust, and the sums of $419,000 remain owing by the Trust to Mr and Mrs Shailer.

[7] On 28 August 2013 Mrs Shailer made demand on the defendants as trustees of the Trust for repayment of the $419,000 owed by the Trust to her. In her letter of demand, she provided a formal consent (in her capacity as trustee of the Trust) to the payment being made.

[8] Mrs Shailer noted in her letter that there were funds held to the credit of the Trust in Mr Andrews’ firm’s trust account, from which the money could be repaid. That money ($867,559.30) represents the net proceeds of sale of certain farm land sold by the Trust.

[9] Mr Shailer says that the farm land referred to in Mrs Shailer’s letter of demand was sold with a view to reducing the Trust’s overall debt, but as Mr and Mrs Shailer could not agree on the use of the money, the trustees ultimately agreed that

the $867,559.30 should remain in an interest-bearing deposit pending unanimous agreement by the trustees as to its disbursement. The trustees’ agreement relating to the retention of the $867,559.30 in the solicitors’ trust account was recorded in a formal instruction to Mr Andrews’ firm dated 21 May 2013.

[10] Mr Andrews replied to Mrs Shailer’s letter of demand on 30 August 2013. He pointed out that the funds held in his firm’s trust account could not be utilised without the unanimous instructions of the trustees. In the absence of agreement from Mr Shailer to the payment, the debt due to Mrs Shailer could not be paid from those funds.

[11] The parties have not since been able to reach agreement, and Mrs Shailer issued this court proceeding in November 2013. She asks for judgment in the sum of

$419,000, together with interest and costs. She applies for summary judgment on her claim, on the basis that the trustees of the Trust have no defence to the claim.

[12] Mr and Mrs Shailer have not reached any agreement on the division of their relationship property. No proceedings have yet been issued, but Mrs Shailer says in her affidavit that she intends to issue relationship property proceedings in the Family Court.

[13] While Mr Shailer does not dispute that the Trust owes the money to Mrs Shailer, he says that the claim is in effect a relationship property claim which the High Court has no jurisdiction to hear: it must be determined in the Family Court. In the alternative, he submits that, if Mrs Shailer’s claim can be heard in this Court, it must be resolved on the basis of the principles set out in the Act, and the application of those principles is not a task which should be undertaken on a summary judgment application relating to a single relationship debt.

[14] Mr Shailer raises a further ground of opposition, based on equitable set-off. The basis for this opposition is that the partnership owes the sum of $594,704 to the Trust. The existence of this debt is not in dispute, and Mr Shailer says that it is a relationship debt for the purposes of the Act. He submits that it would be inequitable

for Mrs Shailer to claim the $419,000 owed to her by the Trust, while at the same time disregarding the debt owed by the partnership to the Trust.

[15] As a last line of defence, Mr Shailer says that if his various arguments on the merits are rejected, the Court should nevertheless exercise its discretion against the grant of summary judgment. He submits that it would be a sufficient remedy for the Court to declare that the debt is owed to Mrs Shailer, with matters of division of the relationship property thereafter being left for resolution in the Family Court, or for further order in this Court. He says that “as a last resort”, the money owed by the Trust to Mrs Shailer could be paid into Court, and disbursed only after all appeal rights have been exhausted and Mrs Shailer has provided an undertaking to the Court that she consents to the same amount being paid to Mr Shailer by the Trust.

$867,559.30 held in Mr Andrews’ firm’s trust account left Mr Andrews in a very difficult position. The trustees were only empowered to act unanimously, and Mr Andrews was unable to properly discharge his duties as trustee while Mr and Mrs Shailer could not agree. He resigned as a trustee of the Trust a few days before the hearing. The result of his resignation is that he no longer holds property of the Trust as a trustee of the Trust, but now does so only as a bare trustee.

[17] Mr Andrews says that he will act on the directions of the continuing trustees of the Trust as to the disposal of the Trust’s assets, and will otherwise abide any decision of the Court in this proceeding. He did not participate in the hearing, but in a memorandum filed in advance of the hearing advised that he wished to be heard only on the form of any relief which might be granted to Mrs Shailer, and on the question of costs. Specifically in respect of the form of relief if Mrs Shailer’s application is successful, Mr Andrews submitted that judgment should only be entered against the continuing trustees (Mr and Mrs Shailer) – as he no longer holds trust property as a continuing trustee, it would be unnecessary to enter judgment personally against him. Alternatively, Mr Andrews submitted that the Court could consider a declaratory order rather than the entry of judgment for a sum of money.

(1) Does the High Court have jurisdiction, or should the claim be heard in the Family Court?

(2) If this Court does have jurisdiction, is it obliged to apply the principles set out in the Act to Mrs Shailer’s claim? If so, is the claim appropriate for resolution under the summary judgment procedure?

(3) Is the Trust entitled to set-off against Mrs Shailer’s claim the debt owed to the Trust by the partnership?

(4) Should the Court, in the exercise of its discretion, decline to enter summary judgment?

[18] The principles to be applied in considering an application for summary judgment have been clearly established through decisions of the Court of Appeal such as Pemberton v Chappell¹, Grant v NZMC Ltd²and Westpac Banking

Corporation v M M Kembla New Zealand Ltd³. The following broad principles are

(a) The plaintiff must satisfy the Court that the defendant has no arguable defence to the claim. The issue is whether there is a real question to be tried.

(b) It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however,

³Westpac Banking Corporation v M M Kembla New Zealand Ltd [2000] NZCA 319; [2001] 2 NZLR 298 (CA).

(c) Although the Court should adopt a robust approach, summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.

Issue 1: Does the High Court have jurisdiction, or can the claim only be heard in the Family Court?

(2) This section is subject to any other provision of this Act that confers jurisdiction on any other court.

(1) This Act applies instead of the rules and presumptions of the common law and of equity to the extent that they apply—

[21] Mr Maassen submits that s 22 is to be construed purposively and applied pragmatically, by assessing whether or not in substance a proceeding is an “application under this Act”. He submits that the policy and intention of the Act is that matters that in substance raise issues between spouses concerning the division, use, vesting or control of relationship property must be determined by the specialist Family Court and the available procedures governing that jurisdiction.

[22] In support of his submission that Mrs Shailer’s application is “in substance” an application under the Act, Mr Maassen refers to s 25 of the Act, which provides an indication of the nature of the orders which may be made on applications under the Act. Section 25(1) of the Act provides:

(i) determining the respective shares of each spouse or partner in the relationship property or any part of that property; or

(ii) dividing the relationship property or any part of that property between the spouses or partners:

(b) make any other order that it is empowered to make by any provision of this Act.

[23] Mr Maassen notes that it is not uncommon for spouses to be in business together and to have shares and financial arrangements with closely held companies or trusts. He submits that in such circumstances it is not appropriate for a spouse to use the summary judgment procedure in the High Court to claim an amount owed under a current account by a closely held company where the debt (which qualifies as relationship property) has arisen from a marital business and was incurred for the purpose of using the money as separate property, without the “holistic assessment of entitlements” that is required under the Act. He submits that to permit the High Court to be used as the venue for spouses to obtain money in circumstances such as the present would undermine the policy behind the Act concerning the exclusive jurisdiction of the Family Court. It would encourage parties to use the High Court as a theatre for ancillary skirmishes.

[24] In Jew v Jew, Paterson J held that the exclusive jurisdiction of the Family

Court which is provided for in s 22(1) of the Act is limited to applications made under s 25(1) of the Act.⁴

[25] Considering the kinds of orders the Family Court is empowered to make under s 25(1) of the Act, I note first that Mrs Shailer’s claim in this case does not seek any order determining the parties’ shares in relationship property, or in any part of the relationship property (s 25(1)(a)(i) of the Act). All Mrs Shailer seeks is an order directing that a debt which is admittedly owing to her be paid.

[26] It is common ground that the debt constitutes relationship property, and that when it is paid the cash in Mrs Shailer’s hands will also be relationship property. No order the Court might make on the present application will determine the shares of the parties in the relationship property, or in any part of it.

[27] Any order for summary judgment which the Court might make would not effect a “dividing” of relationship property (or any part thereof) between Mr and Mrs Shailer (s 25(1)(a)(ii) of the Act): Mrs Shailer is already the legal owner of a chose in action consisting of a debt for $419,000 owed to her by the Trust, and an order directing the trustees to pay that debt to her would not result in the cash receipt in Mrs Shailer’s hands becoming her separate property, or otherwise effect a “division” of relationship property between Mr and Mrs Shailer.

[28] Nor does the application for summary judgment seek “any other order that [the Family Court] is empowered to make by any provision of [the Act]” (s 25(1)(b) of the Act). The application for summary judgment seeks an order directed to third parties, namely the trustees of the Trust, and the Act contains no provision empowering the Family Court to direct third parties to make payment of a debt due to a spouse or partner – that is a matter left to the courts exercising their general civil

[29] In Shirtcliffe v Albert, Associate Judge Bell considered that the exclusive jurisdiction provision of s 22 applies when the Court makes orders under part 7 of the Act (which includes s 25), after it has applied the division rules under part 4

_{(which is concerned with the division of relationship property between
the spouses}

⁵See Wallis v Wallis (1990) 6 FRNZ 645 at 648, and Yeoman v Public Trust Ltd [2011] NZFLR

or partners).⁶In this case the Court is not being asked either to apply the division rules of the Act or to make any order which is reserved to the Family Court under part 7 of the Act.

[30] Section 4(1) of the Act cannot assist Mr Shailer. Section 4(1)(a) is concerned with “transactions between spouses or partners”, and Mrs Shailer’s action to recover the debt due to her from the Trust does not fit into that category. The loan from Mrs Shailer to the Trust was a transaction between a spouse and third persons within the meaning of those words in s 4(1)(b)(ii), but that provision only has application “in cases for which this Act provides”. As noted in para [28] above, there is no relevant provision in the Act which would assist Mr Shailer’s argument. I accept Mr Mason’s submission that, to get her debt repaid, Mrs Shailer had to apply to the High Court in a civil proceeding against the trustees.

[31] I accordingly conclude that the application for summary judgment is not caught by s 22(1) as an “application under this Act”, which must be heard and determined in the Family Court.

[32] That conclusion is in my view consistent with other provisions in the Act. For example, s 19 provides in relevant part:

(a) ... affect the power of either spouse or partner to acquire, deal with, or dispose of any property or to enter into any contract or other legal transaction whatsoever as if this Act had not been passed...

[33] In Reid v Commissioner of Inland Revenue, Tipping J considered that s 19 has the effect of providing that, until there has been a division of the relationship property between the parties, nothing in the Act affects the ordinary right of the spouse having the legal and beneficial interest in a property to deal with that property as if that Act had not been passed.⁷In this case, there has been no division

[34] It seems to me that, in asking the Court to direct that the debt be converted into cash in her hands, Mrs Shailer is in effect “dealing with” a particular item of property of which she is the legal and beneficial owner (the debt owed to her by the Trust). She would clearly be entitled under s 19(a) to assign the debt owed to her by the Trust to some third party, and if she can do that it is difficult to see why she would not be permitted to ask the Court for an order having the effect of converting the debt into cash.

[35] Mr Maassen endeavours to distinguish Reid by submitting that this is not a case of a spouse or partner dealing with a “third party”. He submits that Mr Shailer is a defendant, and there are inter-related family parties involved. I do not accept that submission. The parties deliberately created the Trust as a separate entity, distinct from themselves, with Mr Andrews as an additional, independent trustee. Mr and Mrs Shailer have each contracted with the trustees of the Trust as if the trustees of the Trust were third parties, and, subject only to the set-off argument to which I refer below, there is no dispute that the debt is owed by the trustees to Mrs Shailer.

[36] Mr Maassen also notes that s 19(a) commences with the words: “Except as expressly provided in this Act...”. He submits that ss 24 and 25, and the purpose of the Act, are provisions that create an exception to s 19(a). I do not accept that submission either. Section 25 is concerned with applications for orders under the Act, and in my view Mrs Shailer’s application for summary judgment is not an application under the Act – it is simply an enforcement proceeding to recover a debt due to her. Section 25 is generally concerned with the determination of the parties’ respective shares in the relationship property, and the subsequent division of the relationship property (or any part of it) between the spouses or partners, and there is nothing in the section which expressly abrogates the power given to the parties by s

19(a) to acquire, deal with, or dispose of any property to which they are legally and

_{beneficially entitled. Nor does s 24 of the Act contain any such
express provision.}⁸

⁸Section 24 is concerned only with time limits within which applications may be made to the

[37] Mr Maassen further submits that if s 19 of the Act is applied in the way that Mrs Shailer suggests, spouses or partners will use the civil courts to obtain relationship funds for personal use arising from debts from multiple family-related entities in a manner that is “chaotic”, and inimical to the principles of the Act. I reject that submission. The parties in this case set up trusts and a partnership in conducting their farming and contracting businesses, and neither party has suggested that any of these entities or structures is a sham, or is otherwise invalid. In those circumstances, I see no basis to treat a debt owed by one such entity (the Trust) to Mrs Shailer as any less valid and enforceable than a debt owed to her by any other third party. It may now suit Mr Shailer to argue that Mrs Shailer is really seeking an interim distribution of relationship property, but that is not what is in fact occurring – I accept Mr Mason’s submission that Mrs Shailer’s application for summary judgment seeks only to get in a debt which will form part of the relationship property pool, and be available for division between the parties in due course. (I note in that regard that Mrs Shailer has expressly acknowledged in her counsel’s submissions that, once repaid, the money paid to her by the Trust would be relationship property in her hands.)

Issue 2: If this Court does have jurisdiction, is it obliged to apply the principles set out in the Act to Mrs Shailer’s claim? If so, is the claim appropriate for resolution under the summary judgment procedure?

(4) Where, in proceedings that are not proceedings under this Act, any question relating to relationship property arises between spouses or partners, or between either or both of them and any other person, the question must be decided as if it had been raised in proceedings under this Act.

[39] Mr Maassen submits that Mrs Shailer’s claim raises the question of whether or not, and at what time and in what manner, it is appropriate to vest in Mrs Shailer relationship property represented by the debt owed to her by the Trust. He points out that Mr Shailer does not agree to Mrs Shailer obtaining, using, or dissipating that money as separate property in the absence of a final division of relationship property

(and payment of relationship debts), either by agreement or as determined by the

[40] First, I accept Mr Mason’s submission that any judgment the Court might enter in Mrs Shailer’s favour would not have the effect of deeming the money paid to her under the judgment to be her separate property under the Act.

[41] Secondly, it seems to me that the latter words of subs 4 imply that the relevant question must be one which is amenable in some way to the application of the principles set out in the Act. As I read it, there is nothing in the Act which affects the right of a spouse or partner to sue a third party for recovery of a debt. It could not have been the intention of parliament that every time a spouse or partner sues a third party for recovery of a debt the Court is obliged to treat the claim as if it had been filed in a proceeding under the Act.

[42] Thirdly, it seems to me that if I were required to deal with Mrs Shailer’s claim as if it had been raised in a proceeding under the Act, I would be obliged to apply s 19 of the Act to the claim, and determine that Mrs Shailer is entitled under the Act to deal with the debt owed to her by the Trust in advance of any division of relationship property under part 4, or the making of orders under s 25 of the Act.

[43] In my view, s 4(4) of the Act does not provide Mr Shailer with an arguable defence to the claim.

Issue (3) - Is the Trust entitled to set-off against Mrs Shailer’s claim the debt

[44] Mr Shailer argues that it would be inequitable to allow Mrs Shailer to recover the $419,000 due to her by the Trust, without bringing to account the debt of

[45] The guiding principle in equitable set-off is that a defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two claims are in effect interdependent: that judgment on one

could not fairly be given without regard to the other. The defendant’s claim must call into question or impeach the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.⁹

[46] Those general principles were confirmed by the Court of Appeal in Hamilton Ice Arena Ltd & Ors v Perry Developments Ltd & Ors.¹⁰The Court of Appeal noted that the claimed set-off must somehow undermine the right of the plaintiff to enforce his or her legal claim, either at all, or to the extent of the cross-claim. The defendant must show that it would be unconscionable for the plaintiff to seek judgment at law without bringing the defendant’s cross-claim to account.¹¹

[47] In this case, Mr Mason submits that Mr Shailer faces an insuperable problem, in that equitable set-off requires that the parties must be the same in both claim and cross-claim. He submits that that is not the case here, as the claim which the Trust seeks to set-off against Mrs Shailer’s claim is not a debt owed to the Trust by Mrs Shailer alone, but a debt owed to the Trust by the partnership. He submits that equity does not permit a debtor to set-off against a debt owed to an individual an amount which is owed to the debtor by a partnership of which the individual is a member. He referred to a number of authorities in support of that proposition, noting that the cases have generally held that a debt owed by a partnership to a third party is owed by the partners jointly (not jointly and severally), and cannot be set-off against

[48] In Hamilton Ice Arena, the Court of Appeal referred to Halsbury, noting the

_{authors’ statement that a “set-off may only be maintained
where the claims to be set-}

¹⁰Hamilton Ice Arena Ltd & Ors v Perry Developments Ltd & Ors [2001] NZCA 308; [2002] 1 NZLR 309 (CA) at

“Debts owed by and to a firm. A defendant sued for a debt due from himself alone may not set- off a debt owing to firm of which he is a member. Similarly, a debt owed by a firm may not be set-off against a claim by an individual partner.”

However a joint debt due from two partners on an account may be set-off against a debt due to one of the partners on another account, when, from the conduct of the parties it may be inferred that they intended the accounts to be amalgamated: Ell v Harper & Anor (1886) IV SC 307.

off against each other exist between the same parties and in the same right”.¹³Their Honours noted that the need for identity of the parties was consistent with the proposition that the cross-claim is regarded in equity as fully or pro-tanto extinguishing the plaintiff’s right to judgment on the claim. The concept of extinguishment is difficult if the cross-claim is made by a different party.¹⁴

[49] In the Hamilton Ice Arena case, the appellant, Hamilton Ice Arena Ltd, was in arrears with rent owed by it to the first respondent, Perry Developments Ltd (Perry). At the same time, Perry owed money to the individuals who were the shareholders and directors of Hamilton Ice Arena Ltd, for work done by those individuals for Perry in relation to separate commercial premises in Auckland. Hamilton Ice Arena Ltd argued that it was entitled to set-off against the rent owed by it to Perry the amounts which Perry owed to the shareholders and directors of Hamilton Ice Arena Ltd. There was clearly no identity of parties as the respective claimants were a company (Perry) and a group of individuals (the shareholders and directors of Hamilton Ice Arena Ltd). The Court of Appeal considered that the case fell a long way short of raising circumstances in which it would be appropriate to lift the corporate veil of Hamilton Ice Arena Ltd and treat it and the shareholders and directors as being the same person in law. However, the Court of Appeal went on to

While we would not wish to rule out the possibility that in some unusual circumstance it might be appropriate to allow equitable set-off where there is no identity of parties, any such circumstance (other than one justifying the lifting of the corporate veil) would have to be consistent with the extinguishment rationale.

[50] For Mr Shailer, Mr Maassen submits that each partner of the partnership is jointly and severally liable for debts owed by the partnership to third parties, and that Mrs Shailer is therefore liable “personally and individually” for the $594,707. In his submission, the necessary “identity or mutuality” is therefore present. In the alternative, he submits that if identity has not been established, the impeachment

_{rationale referred to in Hamilton Ice Arena applies, with the
result that it would be}

¹³Hamilton Ice Arena Ltd & Ors v Perry Developments Ltd & Ors, above n 10, at [8], referring to

¹⁴_{Hamilton Ice Arena Ltd & Ors v Perry Developments
Ltd & Ors, above n 10, at [8].}

¹⁵Hamilton Ice Arena & Ors v Perry Developments Ltd & Ors, above n 10 at [9].

inequitable for Mrs Shailer to be permitted to recover her debt from the Trust without bringing to account the debt owed by the partnership to the Trust.

[51] Mr Maassen submits that the respective debts in this case were incurred as part of inter-related transactions that formed part of a single family enterprise, of which Mrs Shailer was a part. Further, he submits that in her capacity as a trustee, Mrs Shailer owes a duty of utmost good faith to the Trust and its beneficiaries, and she cannot in good faith receive the debt without paying the partnership debt. He referred to the “appreciable risk” that the Trust may never recover the debt owed by Mrs Shailer, because neither Mr Shailer nor Mrs Shailer can agree who should be liable to pay the debt. Finally, Mr Maassen relies on Mrs Shailer’s letter of demand, pointing out that the target of her claim is the funds held in the solicitors’ trust account. He submits that, in making a claim against those funds, Mrs Shailer is acting contrary to her own unequivocal instructions and agreement with her fellow trustees that the fund should only be used where there is unanimity among the trustees.

[52] Mr Maassen points to the willingness of the Court of Appeal in the Hamilton Ice Arena case to thoroughly investigate the detail of the cross-claims, to ascertain whether it can be said that one claim “extinguishes” the other. He notes also the Court of Appeal’s acknowledgment in Hamilton Ice Arena that no category of potential set-off is closed. In his submission, the Court must look at the position in its entirety. Whether there exists a basis for equitable set-off is essentially a fact- led enquiry, and in this case Mrs Shailer has provided no evidence of the circumstances in which the debts were created. He submits that it is hard to imagine the inter-relationship of debts being more closely established than when a couple in marriage create inter-party debts as part of a common enterprise. He refers also to the parties’ unequivocal instructions given (with Mr Andrews) to Mr Andrews’ law firm.

on Mrs Shailer’s claim without bringing to account the Trust’s claim against the

partnership. Can it be said that the Trust’s claim against the partnership somehow impeaches, or extinguishes, Mrs Shailer’s claim against the Trust?

[54] I accept that there may be unusual cases where the requirement for mutuality in the respective cross-claims need not be met. But the starting point is that mutuality will ordinarily be a requirement of equitable set-off, and in my view the onus was on Mr Shailer to provide adequate particulars of the basis for the equitable set-off, sufficient to show that the defence is at least reasonably arguable.¹⁶In my view he has not done that.

[55] In the end, I have not found it necessary to reach a view on whether mutuality of claims, or identity of parties, is essential to the claimed equitable set-off defence in the circumstances of this case. That is because I am not satisfied that Mr Shailer has put forward sufficient particulars of the defence to show that it is reasonably arguable that the debt owed by the partnership to the Trust is sufficiently related to the debt owed by the Trust to Mrs Shailer that the two can be regarded as so interdependent that the partnership debt must be regarded as extinguishing the debt owed by the Trust to Mrs Shailer. The following considerations have led me to that conclusion:

(a) The parties’ intention appears to have been to keep the various debts separate. There is no evidence that any merger of accounts was intended.

(b) No evidence has been provided of how the debt owed by the partnership to the Trust is constituted. It may be that the debt represents unpaid rent due by the partnership to the Trust for occupation of the land purchased by the Trust, but there is no evidence of that. While the evidence sufficiently shows that the debts owed by the Trust to Mr and Mrs Shailer were incurred so that the Trust could

¹⁶If the defendant wishes to resist summary judgment he must file an affidavit raising an issue of fact or law and give reasonable particulars of the matters which he claims ought to be put in issue: Pemberton v Chappell, above n 1, at 185 per Somers J.

(c) In my view it is not sufficient for Mr Shailer to refer in broad brush strokes to the marriage, the common business enterprises, and the fact that assets and debts have generally been used for common purposes. In my view that broad approach is insufficient to show an arguable case of unconscionability or interdependence, in the face of the separate structures (partnership and trusts) which were deliberately created by Mr and Mrs Shailer to run their businesses and hold their assets, and the complete absence of evidence establishing that the claims can properly be regarded as interdependent. Mr and Mrs Shailer’s deliberate decision to hold assets and incur debts in different independent entities cannot be ignored in considering the interdependence/extinguishment issue.

[56] Quite apart from the identity of parties issue, what Mr Shailer needed to do was provide evidence showing that there is at least a reasonable argument that some or all of the debt owing by the partnership to the Trust was incurred for purposes which in some way are so closely linked to the borrowing from Mrs Shailer for the acquisition of the farm land that the partnership debt undermines, impeaches, or extinguishes the debt owed by the Trust to Mrs Shailer. In my view, Mr Shailer has failed to produce evidence sufficient to meet the “arguable case” threshold on that issue.

Issue 4: Should the Court, in the exercise of its discretion, decline to enter summary judgment?

[58] Even where a plaintiff makes out a case for summary judgment, the Court retains a residual discretion to decline to enter summary judgment. In Sayles v

_{Sayles, Wylie J held that the word “may” in the
forerunner of r 12.2(1)}¹⁷_{should be}

given its full discretionary meaning, and not be read in a restricted way.¹⁸The Court in Sayles considered an application for summary judgment on a claim for an order directing the sale of certain residential property owned equally by the plaintiff and the defendant, and for an order for the equal division of the proceeds of sale. The parties had lived together for about five years, and the property in issue had been their home prior to separation. There were other assets to which the defendant said she contributed during the period of cohabitation, and the defendant had issued separate proceedings against the plaintiff seeking a declaration as to the ownership of assets acquired by the parties during their cohabitation.

[59] Wylie J considered that he was entitled to look at the practicalities of the situation, and in particular take into account whether the application of the summary judgment procedure to one aspect of the matters in dispute between the parties might result in some injustice to the party against whom summary judgment was given, in relation to the other aspects of the overall dispute. The learned judge considered it to be a material factor in the exercise of the Court’s discretion whether some injustice may be caused, or whether the procedure of the Court may be used, whether intentionally or not, as an instrument of oppression.

[60] In Sudfeldt v UDC Finance Ltd, Casey J noted that the discretionary power is unrestricted, but there will be little scope for its exercise where there is no suggestion of injustice.¹⁹

[61] The decisions of the Court of Appeal in Berg v Anglo-Pacific International (1988) Ltd²⁰and Dominion Breweries Ltd v Countrywide Banking Corporation Ltd²¹confirm that the scope for the exercise of the discretion to decline to enter summary judgment on the basis of injustice is very limited. In Dominion Breweries Ltd, the Court held that the discretion implied by the use of the word “may” is to be restrictively applied, and that in the great majority of cases once the Court is satisfied

_{the defendant has no defence, there will be no room for the exercise of
the discretion.}

¹⁹_{Sudfeldt v UDC Finance Ltd [1987] NZCA 138; (1987) 1 PRNZ 205 (CA)
at 209.}

²⁰_{Berg v Anglo-Pacific International (1988) Ltd
[1989] NZCA 111; (1989) 1 PRNZ 713 at 717.}

²¹Dominion Breweries Ltd v Countrywide Banking Corporation Ltd CA 314/91, 18 August 1992.

However the discretion may be invoked where the circumstances are such that the entry of summary judgment would be oppressive or unjust.

[62] In this case, Mr Shailer’s evidence is that the farm land which yielded the figure of $867,559.30 now held in the solicitors’ trust account was sold in order to reduce the Trust’s level of debt. Following Mr and Mrs Shailer’s separation, Mr Andrews and Mr Shailer remained of the view that the funds should be used for that purpose, but Mrs Shailer insisted that the money should be held in Trust, and that it was best to resolve all matters arising from Mr and Mrs Shailer’s relationship property dispute in a comprehensive agreement. Mr Shailer says that he and Mr Andrews finally agreed with Mrs Shailer, culminating in the issue of the instruction given to Mr Andrews’ law firm that the funds were to be held undisbursed pending the unanimous agreement of the trustees. Mr Shailer says that he considered that that instruction meant that neither Mr Shailer nor Mrs Shailer could claim the money until they had resolved their relationship property division and family arrangements.

[63] In her reply affidavit, Mrs Shailer stated that the bank had advised it did not require any principal repayment. Nor was there any need for the partnership debt owed to the Trust to be repaid in the foreseeable future. She stated that she had no wish to see Mr Andrews embarrassed, and that the obvious step for Mr Shailer to take if he wanted to avoid embarrassing Mr Andrews was to agree to her being paid the debt due to her by the Trust.

[64] The principal difficulty Mr Shailer faces in arguing that an injustice will arise if Mrs Shailer is permitted to enforce her loan to the Trust is that the agreement between the trustees that the $867,559.30 should be held undisbursed in the solicitors’ trust account pending the unanimous agreement of the trustees as to its disbursement was only an agreement relating to one particular asset of the Trust. It did not purport to affect the Trust’s liability to Mrs Shailer, and I do not believe it had that effect.

[65] Mr Shailer says that he considered that the instruction given by the trustees to the solicitors meant that neither he nor his wife could claim the debts owed to them

by the Trust until they had resolved their relationship property division and family arrangements, but he stops short of saying that there was any agreement with Mrs Shailer to that effect.

[66] I accept that there is at first sight an appearance of injustice to Mr Andrews. He is personally liable, and he is caught in the middle. His firm holds the proceeds of sale which could be used to satisfy the Trust’s debt to Mrs Shailer, but were Mrs Shailer to seek to enforce the debt against him as bare trustee, he would be prevented from having recourse to those funds for the purpose of meeting his liability. He would be prevented in part because of the agreement between the trustees to which Mrs Shailer was a party.

[67] But it is the trust deed generally, not the instructions given by the trustees to the solicitors, that demands unanimity of the trustees and gives rise to the present deadlock. I do not believe that Mrs Shailer’s participation in the instruction given to the solicitors affected the existence of the debt owed to her by the Trust, or her entitlement to have that debt paid.

[68] Those who establish trusts are entitled to enjoy the advantages a trust provides, but if they accept the role of trustee they must accept the responsibilities and liabilities that go with that role. In that respect, it is an important principle that a trustee dealing with a third party assumes personal liability to that third party, subject

[69] I think that principle should be respected and enforced in this case. Mr Andrews has not relied on any limitation of liability in the Trust Deed, and he appears to have no legal defence to the claim. Mrs Shailer is entitled to judgment

²²See for example AMP General Insurance Ltd v Macalister Todd Phillips Bodkins [2006] NZSC

105; [2006] NZSC 105; [2007] 1 NZLR 485, at [43] per Anderson J: “The personal liability of a trustee is counter- balanced by equity which allows full indemnification of the trustee out of the trust’s property, or for the trustee to apply the trust property in discharge of the liability.”

[70] I do not think that outcome, unfortunate as it may be for Mr Andrews, can be characterised as oppressive or unjust, such that it would be permissible for this Court to exercise its discretion to refuse to grant summary judgment.

[71] The plaintiff is entitled to summary judgment. The grounds raised in opposition to summary judgment must all fail for the reasons given. But there are unresolved matters as to the form the judgment should take. Mrs Shailer is both plaintiff and a defendant in the proceeding – is judgment to be entered for the full amount claimed, or should it be reduced by the amount for which Mrs Shailer is herself personally liable as a trustee? That issue was not the subject of argument at the hearing, and I would be grateful for counsel’s assistance by way of further memoranda addressing the point.

[72] I think the parties should also be given some time to see if arrangements can be worked out which would avoid the need for the formal entry of judgment against Mr Andrews. He has asked to be heard further if the Court is minded to grant summary judgment, and I think he should have that opportunity.

[73] Accordingly, I direct that further submissions are to be made on the final form of the judgment. Mrs Shailer’s submissions on that issue are to be filed within one month of the date of this judgment. Mr Shailer and Mr Andrews may file memoranda in reply within 21 days of their receipt of Mrs Shailer’s memorandum.

[74] If the parties are unable to agree on costs, they may include submissions on costs with their memoranda as to the form of the judgment which is to be entered.

High Court of New Zealand Decisions

Shailer v Shailer [2015] NZHC 250 (24 February 2015)