Garnham v Garnham [2018] NZHC 2937 (13 November 2018)

Last Updated: 19 November 2018

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV 2018-485-702 [2018] NZHC 2937

BETWEEN	MICHAEL ROBERT GARNHAM Appellant
AND	DAVID MARK GARNHAM AND GRAEME DAVID FALLOON as trustees of the Chameleon Trust, a trust created by deed of trust dated 21 February 2003 First Respondents DAVID MARK GARNHAM Second Respondent

Hearing:	9 November 2018
Appearances:	D G Dewar for Appellant K P Sullivan for Respondent
Judgment:	13 November 2018

_{JUDGMENT OF MALLON J}

Introduction

[1] The appellant (Mike) and respondent (Mark) are brothers. In 2015 Mark advanced $150,000 and then a further $100,000 to Mike.¹ Mike has repaid the

_{$150,000 but has not repaid the $100,000. The issue between them is whether the}

¹ There is a dispute between the parties as to whether the advances were made by Mark personally or by his trust. Initially Mike’s appeal was against Mark only. By consent the trust has been added as a first respondent and Mark is now named as the second respondent. The trust should have been a party to the appeal because the summary judgment was granted in favour of it. The evidence shows that the advance came from the trust’s account. The source of the funds is, however, not necessarily determinative of who the loan agreement was with. That said, I understand it is not necessary for me to rule on this dispute.

GARNHAM v GARNHAM [2018] NZHC 2937 [13 November 2018]

time for Mike to repay the $100,000 has been reached. There is no dispute that the loans were subject to interest.

[2] On a summary judgment application, the District Court found that Mike had no reasonably arguable defence to Mark’s demand for repayment of the $100,000 plus interest.² Mike appeals that decision. He says the Judge was wrong to summarily dismiss his evidence that the $100,000 was not payable until Mike had funds from a Wanaka property development and this has not yet occurred.

The facts

[3] The two advances were made by Mark to Mike when Mike was in financial difficulty. It is not disputed that:

(a) On 9 March 2015 Mark agreed to lend $150,000 to Mike. Mike asked for the money to pay an Inland Revenue debt. At Mike’s request, Mark agreed to break a term deposit so that Mike would have the funds sooner than if he waited for funds from another source (proceeds from a sale of a property Mark owned would be available in a week or so).

(b) On 3 August 2015 Mark advanced a further $100,000 to Mike. Mike explained that he needed the advance because he still owed money to Inland Revenue.

(c) The terms on which the two sums were advanced were not formally documented.

(d) On 14 April 2016 Mike paid $10,000 at Mark’s request.

(e) On 16 September 2016 and 28 September 2016 Mike paid Mark

$150,000 (principal) and $25,066.09 (interest) respectively. These funds came from the sale of a commercial property (ASB Tower) in which Mike had an interest.

² Garnham v Garnham [2018] NZDC 16818 [Judge Hastings].

(f) On 13 October 2017 Mark asked when the last $100,000 would be paid.

Thereafter Mark continued to seek repayment ultimately leading to a formal demand dated 8 February 2018 from Mark’s solicitors for

$100,000 plus $15,000 interest and costs.

[4] Mark’s understanding, as set out in an email from Mark to Mike dated

24 February 2017, was that the loans were to be repaid after one year or earlier if he and his partner found a house to buy. Emails between Mark and Mike consistent with Mark’s understanding, and which pre-date their dispute about when the money was to be repaid, are:

(a) On 6 August 2015 Mark advised Mike by email that “[i]f we have good luck [finding a property] then I might need the money back sooner than thought”. On 11 November 2015 Mark said there was “[n]o sign of a house purchase as yet – maybe after xmas”.

(b) Mike was involved with his father-in-law in selling a South Island beach property which was purchased by the public following a high- profile campaign to raise the funds for the purchase. In the context of discussing this campaign, on 3 February 2016 Mark said to Mike “[w]ill probably be looking at recalling the first $150k term deposit when you have completed the sale – its due in March”.

(c) On 16 March 2016 Mark:

(i) noted the anniversary of the loan;

(ii) said there was “no immediate rush” because there was no property to buy but if something popped up “everything suddenly changes”;

(iii) assumed Mike would have been paid for the beach property by now “[s]o we can discuss what happens with the loan when you have time”; and

(iv) said he had an “immediate requirement is to pay IRD in early April and then to have a few pennies to live off for the rest of the year”.

[5] Mike’s evidence is that there was no discussion with Mark that the loan was repayable on demand, or that it was for a three or 12 month term. His evidence is that:³

When Mark first provided the two loans in question, I provided him with a detailed disclosure of a number of the financial issues that I was dealing with at that time, in large part also referenced in the media during the course of

2015. As a result of those issues I made it very clear to Mark that I would not be able to provide certainty in terms of a date for repayment of the loans, but that the sell down of a subdivision development in Central Otago would be the ultimate source of repayment ...

[6] The evidence before the Court is that Mike’s investment in the Wanaka development (being the development referred to in the above quotation) began in

2014.

[7] The first mention of the development in emails between Mike and Mark was, however, on 20 April 2016 when Mike advised Mark “I am just back from Wanaka dealing with a subdivision that I hope to have kicked off shortly”. Mike’s response to this email on the same day did not refer to the subdivision or ask any questions about it. He referred to his own investment plans and asked if Mike had any more money for him and that he would “appreciate some more dosh in my account if you can assist this week”. Mike’s response, later the same day, was “[c]an’t assist on the funds front, but have arrangements in hand for late May”.

[8] Mike did not make any payment in May. On 17 May 2016 Mark emailed Mike hoping he was enjoying good relations with the bank and asking to discuss money matters soon. On 22 August 2016, following further contact from Mark, Mike advised that he had an “update” namely that he had sold the ASB Tower and settlement was mid to late September.

³ By way of background, I note that Inland Revenue commenced liquidation proceedings against a company of which Mike was a director in March 2015. This, and other more general financial difficulties, were given media coverage in a series of Stuff articles dated between 11 February

2016 and 27 April 2016.

[9] On 13 October 2016 Mark asked Mike whether he had “[a]ny idea of ETA for the last 100k?”. Mike’s email on 14 October 2016 did not directly respond to this but commented that the retentions from the ASB Tower sale were “probably still a few weeks away”. Soon after this, Mark noticed that Mike had purchased a new car and said “[o]bviously money not an issue now so how about sending me my 100K”.

[10] In response to Mark further pressing for repayment, on 9 February 2017 Mike said “[a]s I mentioned a little while ago, the next release of funds that I will need to clear the balance $100 k will come from the sale of our Wanaka section subdivision”. This email provided Mark with information of the progress with that project. Mark responded immediately to the effect that this was not what was agreed. Mark continued to press for payment. Mike responded on 24 February 2017 saying:

I would of course have already cleared the balance of your loan if I had been in a position to do that by now. That is why I flagged the matter when we spoke before xmas, and why I provided you with the update on the subdivision which will be the source of funds to clear that balance.

[11] Mark’s response the same day rejected any agreement to this effect and said he did not care where the money came from but that he wanted it “ASAP”. That did not occur and on 24 May 2017 Mark asked how many sections had been sold and when was he getting his money. On 25 May 2017 Mike advised he was waiting on a resource consent decision before $4 million of sales could settle. As noted earlier, formal demand was made by Mark’s solicitors on 8 February 2018.

The law

[12] A loan is a contract pursuant to which a person agrees to lend a sum of money to another in consideration of a promise, express or implied, to repay that sum on demand, or at a fixed or determinable future time, or conditionally upon an event which is bound to happen, with or without interest.⁴

[13] When there is no stipulation as to the time of repayment, a present debt is created which is generally repayable at once without any previous demand. But it is

4. H G Beale (ed) Chitty on Contracts Volume II Specific Contracts (32nd ed, Sweet & Maxwell, London, 2015) at [39-258].

open to the parties to fix a time for repayment, or to agree that the loan will only be repayable on demand. If it is only repayable on demand, the making of a valid demand is a pre-condition of the debt become due.⁵ If the loan is for a specified period repayment is due at the end of the specified period.⁶

The District Court

[14] The District Court Judge considered the issue was whether Mike had communicated to Mark at the time the loan was agreed that repayment depended on the success of the Wanaka subdivision.⁷ He noted that credibility issues were not normally resolved in a summary judgment application but this was subject to exceptions.⁸ The Judge considered Mike’s assertions had insufficient evidential foundation to give rise to an arguable defence because they were inconsistent with the contemporaneous documentation. The Judge noted there was no evidence prior to

2017 that the second loan would be repaid when the Wanaka subdivision bore fruit; Mike did not dispute Mark’s earlier emails that he might call upon the loan; and in

2016 Mike indicated the payment would be made from the sales retentions from the sale of the ASB Tower. The Judge also considered it was implausible that the sale would be conditional on the success of the Wanaka subdivision.

My assessment

[15] On appeal counsel for Mike contends the Judge was wrong to summarily reject Mike’s evidence that the money was repayable once the Wanaka subdivision was concluded. He submits the contemporaneous documentation is consistent with Mark having an expectation of repayment after a year but the documentation does not show that this expectation was a firm agreement if Mark did not find a property he wished to buy or Mike was not in a position to repay Mark before the subdivision was

⁵ At [39-267]. Note that Chitty on Contracts states that, once the demand is made, it is then repayable immediately, and the borrower is allowed only such time as is necessary to implement the mechanics of payment and is not allowed a reasonable time to discharge the debt (for example to muster the resources to pay the debt). Compare with DFC New Zealand Ltd v Mckenzie [1993]

2 NZLR 576 at 583: “Once it is established that the demand is necessary then the expression “on demand” requires that the debtor be given a reasonable time to comply. What is reasonable time must depend on the circumstances of each case bearing in mind the peremptory nature of an on- demand obligation”.

⁶ Above.

⁷ Garnham v Garnham, above n 2, at [17].

⁸ At [18].

concluded. Counsel notes Mike’s evidence that he had gifted Mark $50,000 a few years earlier (which is not disputed by Mark) and in 2003 there had been other inter- family loans.

[16] I agree with the District Court Judge that it is not reasonably arguable that the

$100,000 loan was only repayable once the Wanaka subdivision was completed. Oral evidence from Mike could not assist his position in light of what is apparent from the emails. If that had been the agreement Mike could have been expected to refer to that agreement in these emails earlier than he did. Further, Mike’s email dated 20 April

2016 is inconsistent with there being a firm agreement to this effect at the time the advance was made. That is because it indicates Mike was informing Mark, for the first time, that he had a subdivision development underway in Wanaka. Moreover, there was no further mention of the Wanaka subdivision, despite Mark’s continued pressing for payment, until Mike’s email of 9 February 2017. Mike’s emails of 9 and

24 February 2017 are not consistent with a firm agreement between the brothers that the money was not due until the subdivision was completed. Rather Mike was conveying the practical reality that Mike could not pay Mark until money from the subdivision was available.

[17] It is reasonably arguable that the loan was not repayable one year after it was advanced or earlier if Mark needed it. It is reasonably arguable that this was Mark’s expectation and Mike’s hope, but there was no firm agreement about this. The informal nature of the two loans is consistent with there being no firm agreement as to when the loans would be repaid. Mike needed the money because of his financial difficulties. Mark did not need the money immediately but might need it for a property if he found one. Mike anticipated he would be able repay Mark from his property interests. Mark may not have had a full appreciation of Mike’s financial difficulties when he made the advances. However, by 2016 these difficulties were reported in the media and Mark had read them and met with Mike about them.⁹ For a while Mark was willing, although not necessarily happy, to wait for Mike to sort out his difficulties

_{through realisation of his property interests. He became less willing to do so when he}

⁹ I note Mike may be wrong that this was in 2015. See [5] and n 3 above.

saw that Mike had purchased a new car and learned that Mike and his family had been on overseas holidays.

[18] However, this reasonably arguable view of the position does not assist Mike either. That is because, if there was no firm concluded agreement between Mike and Mark as to when the loan was to be repaid, the loan was repayable on demand. Given the family context it is reasonably arguable that an implied term was that such demand would not be made without reasonable notice. A formal demand was made on 18

February 2018. That sought payment within ten working days. The District Court hearing took place on 24 July 2018. On any view of it, a reasonable period for repayment had elapsed by then. Mike was therefore in default of the loan and the Judge was correct to grant summary judgment in favour of Mark.

Result

[19] The appeal is dismissed. The respondents are entitled to costs on a 2B basis together with disbursements as fixed by the Registrar.

Mallon J