[1] This proceeding concerns an unfortunate and ultimately very sad falling out between two brothers. The plaintiff is the younger of the brothers and to avoid confusion, I will refer to him in this judgment by his first name, Rick. The first defendant is Rick’s older brother, Tony.¹The second defendant is a company through which both Rick and Tony worked, and I will refer to it in this judgment as “the Company”.

[2] The dispute centres on the brothers’ working relationship over the period 2003 to 2015, and the purchase of a 130-acre property in Paparoa in 2003/2004, which I will refer to as the “Property”. The Property is registered in Tony’s name.

[3] In short, Rick says that from 2003 to 2015, he and Tony were in partnership, with the partnership operating through the Company. He further alleges that the Property was purchased by and for the purposes of the partnership, or represents the “fruits” of the partnership, such that he has a 50 per cent beneficial interest in it.

[4] In the alternative, Rick claims a beneficial interest in the Property on the basis that its purchase and/or development was funded in part with funds provided by his mother, Heather, which were earmarked for Rick. Rick also says that he has contributed significantly to the Property’s development such that, on Lankow v Rose principles, he is also entitled to a beneficial interest in it.²

[5] Tony disputes these claims, including that he and Rick were in a partnership. Rather, he says he was running his own business at the relevant time, and it was agreed that upon Rick’s release from prison in late 2002, he would help Rick out and provide him with some work. He said the arrangement was that they would see how matters went over time, rather than there being any agreed partnership arrangement. Tony also rejects the suggestion the Property was bought by or on behalf of the alleged partnership. He says he bought the Property with his own funds, and that his mother did not contribute financially to its purchase or development.

¹There is a 12-year age difference.

²Lankow v Rose [1995] 1 NZLR 277 (CA).

[6] I wish to record two matters at the outset.

[7] First, the dignified way in which both Rick and Tony conducted themselves at the hearing, in the context of what must have been a difficult exercise for them. In addition, each of Rick, Tony and their sister Judy, explained at the hearing how family is everything to them. Given this, it is very unfortunate this dispute has developed.

[8] Secondly, and as I explained to the parties at the conclusion of the hearing, this is a difficult case. Not only are the legal issues complex, but establishing what occurred more than a decade ago is difficult in any case. It has been hampered by a number of factors in this case, including that:

(a) Rick and Tony’s parents have both sadly passed away. Had they still been alive, they (and in particular Heather) would have been crucial witnesses in this proceeding.

(b) Given the passage of time, key bank records are not available, which may have shed some light on some of the disputed payments in this case.

(c) Similarly, given the passage of time, other relevant documents have been lost or damaged (through storms and the like).

(d) Further, the Company’s accounts are somewhat impenetrable, aspects of them described by one of the accountants who gave expert evidence as a “black hole”. The state of the accounts is relevant, as Tony accepts he ran most expenses and claims through the Company’s accounts, including, for example, the cost of the building materials used to construct the dwelling on the Property. Unfortunately, the accountant who prepared the accounts is also deceased. Despite each party calling expert accounting evidence, I did not derive any material assistance from the contents of the Company’s accounts.
(e) Finally, the claims have obviously given rise to a reasonable degree of tension between family members and persons allied to either Rick or Tony. As a result, a not insignificant amount of the evidence presented at trial was in fact inadmissible, given it simply recorded witnesses’ views, beliefs and opinions on the disputed claims, depending on where their sympathies lie.

[9] I turn now to the factual background to Rick’s claims.

Factual background

[10] In the late 1990s/early 2000’s, Rick was sentenced to a term of imprisonment. The nature of his offending is irrelevant to the present dispute. His parents, and from time to time, Tony, visited him while he was in prison. Rick says that shortly before his release in late 2002, he and Tony discussed and agreed that upon his release, the two brothers would go into partnership together. At that time, Tony traded on his own account (under the trading name “AEW Contractors”), carrying out earthworks and other related activities. There is no doubt Tony had built up a successful business, and had purchased several items of significant equipment, including an excavator (digger) and a traxcavator. Rick says their father had helped buy this equipment, given he had unexpectedly inherited $100,000 when a close friend passed away. Tony denies this, pointing to a depreciation schedule which shows that much of the equipment was purchased prior to their father’s friend passing away. Although it is not material to my judgment, I record that I prefer Tony’s evidence on this issue, given it is consistent with the documented depreciation schedule recording the timing of the equipment’s purchase.

[11] Rick also says that in August 2002, and while he was still in prison, his father purchased a Chevy Ute for Rick, for his use upon his release. On the other hand, Tony says he purchased the Chevy Ute on 29 August 2002 (well before Rick’s release from prison in December 2002). The Chevy Ute is registered in Tony’s name. I again prefer Tony’s evidence on this point. The Chevy’s purchase was some considerable time prior to Rick’s release and the certificate of registration was in Tony’s name only. Rick did not dispute that after his release, he was provided with a Toyota Landcruiser
vehicle for his use. Tony’s depreciation schedule shows this was purchased in January 2003. Rick does not suggest he purchased that vehicle. His use of the Toyota Landcruiser is inconsistent with the Chevy Ute having been bought for him, and his exclusive use, on his release from prison. Nor was there any evidence of complaint at the time by Rick that he was given a Toyota Landcruiser vehicle to use, rather than the Chevy.

[12] On 30 October 2002, Tony arranged for the Company’s incorporation, the name of which was “AE & RTW Contractors Ltd”. Tony was and remains the sole shareholder and director. The letters used in the Company’s name represent the brothers’ initials. Tony says his accountant had advised him at the time to incorporate a company, given he had too many assets in his own name.

[13] The Company’s accounts for the year ended 31 March 2004 show that at some point during that financial year, Tony loaned the Company approximately $138,000. Tony says these shareholder funds were brought over by him into the Company from his earlier business, trading under the name AEW Contractors.

[14] Rick relies heavily on the naming of the Company in support of his claim that, upon his release from prison, the brothers went into partnership. I return to this issue later in this judgment, when considering his partnership claim. For present purposes, however, it is sufficient to record that Rick says he and Tony discussed the naming of the Company while Rick was still in prison. Tony has no specific memory of this, though accepts the naming of the Company reflected the brothers’ work activities together. However, as noted earlier, rather than the brothers entering into partnership, Tony says he had general discussions with his parents about trying to help Rick upon his release from prison by providing him with work and that, at best, they would see where things went over time. The brothers’ sister, Judy, gave evidence, and described her understanding of the plan as being that upon his release from prison, Rick would “become part of Tony’s business”.

[15] Very sadly, the brothers’ father passed away while he was visiting Rick in prison with Tony, shortly before Rick’s release.
[16] Rick was released from prison on 9 December 2002 and, in accordance with his release conditions, went to live with Heather at her home in Redoubt Road. Rick accepts that by the time he was released from prison, he had no funds or assets of his own. Any assets he had owned had been left to his ex-wife.

[17] From that time, Rick says he and Tony were in an equal partnership, operated through the Company. Rick was paid a regular fortnightly wage, which he says was at minimum (or below minimum) levels, amounting to around $250 to $350 per week. His wages were not tied to the Company’s profits and Rick did not otherwise share in the profits. Rather, Rick says he accepted what he described as minimum wages in order to “build up his equity” in the Company.

[18] Tony’s evidence, on the other hand, is that Rick was not working full time for the Company (for example, over the period 2005 to 2008 he was completing a drain- laying apprenticeship), but that consistent with his discussions with his parents before Rick’s release, Rick was paid a wage to assist on his release and to compensate him for work he did carry out for the Company. In this context, Rick produced a schedule to his brief of evidence, summarising various jobs on which he says he worked with Tony through the Company. These mainly involved excavating works, labouring type works, building retaining walls, spreading metal, drilling work for retaining walls, clearing trees, preparation of floor slabs and the like. In the main, Tony agreed with the schedule of work. In response to questions as to why the wage did not vary significantly over time, Tony said he was not aware, as the arrangement had originally been set up by Heather (who looked after the Company’s books) and the Company’s accountant, but he thought it probably reflected an average contribution over a period of time.

[19] The Company’s bank statements were produced in evidence. Early versions are addressed to “The Partnership”, followed by the Company’s name and address. In cross-examination, Tony said he did not know why the bank had addressed the bank statements to “The Partnership”, but accepted it was probably him who had told the bank to do this. Rick also had signing rights on the account. I pause at this point to note that I do not rule out as a possibility that Heather may have set up the account in this manner, reflecting what seemed to be her and her late husband’s desire that Tony
and Rick would work together on Rick’s release from prison. She was closely involved in the Company’s accounts and administration, and Rick gave evidence that she had also set up a bank account for him upon his release, which he had understood at the time was his own account, but was in fact a joint account with Tony. Tony had no knowledge of this account until bank accounts relating to it were produced by Rick on discovery.

[20] Turning back to the chronology, in or around mid-2003, Rick helped Tony with some work on Tony’s own property in Beaumont Way, Manurewa, readying it for sale. Tony says Rick was paid for the work he did. Rick does not make any claims in relation to Beaumont Way or its proceeds.

[21] In early 2003, Tony began looking at lifestyle properties north of Auckland. I return to the rationale and basis upon which the Property was purchased later in this judgment. However, Rick, Tony and Heather all went to inspect the Property in or around May 2003. Evidently all liked the Property as a decision was made to purchase it. Rick says the Property was purchased jointly for him and Tony. Tony says it was a purchase by and for him with his personal funds.

[22] The agreement for sale and purchase is dated 21 May 2003, with a purchase price of $225,000. The agreement required $20,000 to be paid on signing. Rick says he paid the $20,000 deposit. Ultimately, I consider that unlikely. As noted, Rick had only been released from prison a few months earlier, and had no assets or funds of his own. At the hearing, he said the deposit funds were drawn by him from an account that he now understands was a “joint account” between him and Tony (i.e. the one Heather had opened and referred to at [19] above), and into which funds they had earned on jobs carried out together to that point had been deposited. Bank statements for the joint account going back to 2003 were not available. As noted, Tony had no knowledge of this account. However, reviewing the account’s bank statements from 2006 onwards shows regular deposits of amounts that are very similar, which I infer to be Rick’s wages from the Company. The balance of that account was rarely above
$1500, and at most times, was well under $1000. While of course not in any way determinative, this pattern of operation is inconsistent with that account having some
$20,000 in it a few months after Rick’s release from prison. I further note that all
correspondence concerning the Property’s purchase was to and from Tony. The agreement for sale and purchase was in his name (or nominee). Tony says he had written a cheque for the deposit at the real estate agent’s office at Maungaturoto, drawn on his personal account. There was no suggestion Tony did not have funds available to him to pay the deposit at that time. I accordingly consider it more likely that Tony paid the deposit, rather than Rick.

[23] In about September 2003, and prior to formal settlement on the Property (which was to occur once title had issued), Rick says he moved up to the Property to begin its development (it was then bare land). A bus was brought on site for initial living accommodation. A barn was also built fairly early on. Tony says Rick and his mother only moved up some time after April 2004, when formal settlement occurred. Irrespective of the particular timing, it seems the brothers and Heather lived in the barn while the house was built. Rick does not suggest that he purchased or paid for the bus or the barn, which I accept were paid for by Tony.

[24] In October 2003, Tony sold his Beaumont Way property. Settlement occurred in mid-November 2003 and Tony received net settlement proceeds of $169,288.52. He says he put these funds aside to complete settlement on the Property which was, as noted, awaiting title to issue.

[25] In January 2004, Heather sold her Redoubt Road property for $625,000. A mortgage had been registered against the property to secure debts of Heather’s daughter, Judy, and her husband David. Mr Michael Hall, then a partner at the law firm Murdoch Hall & Co, acted for Heather on the sale. Mr Hall gave evidence at the hearing and, while he could not recall his discussions at the time with Heather, he produced his contemporaneous file note of a discussion with her which records:

Wants to ~~give~~ loan children $200,000 each. Judy’s share to be less the amount secured on [mortgage]. We to give Judy the balance of her share. She to sign acknowledgement of debt.

[Strike-out in original]

[26] Mr Hall said he would have advised Heather to structure the advances to each of her children as loans because gifts at that time would have attracted gift duty. Tony
accepts Heather’s intention at that time was to split the net proceeds of sale from the Redoubt Rd property equally between her three children.

[27] A settlement statement for the sale of the Redoubt Road property shows that
$168,031.06 was repaid to the National Bank of New Zealand, to release the mortgage securing Judy and David’s debts, with the balance of Judy’s share of her $200,000, being $31,968.94, paid directly to her.

[28] Judy and her husband each gave evidence, though their memory was, understandably, somewhat vague as to events in 2004. Both were initially sure they received the full $200,000 from Heather, though having seen the settlement statement for Beaumont Way, accepted it was more likely that most of the $200,000 had gone to repay the mortgage, with only the balance being paid to Judy.

[29] The net proceeds available to Heather from the sale of her Redoubt Road property, after repaying the mortgage and paying Judy were $402,548.21. There is no documentary record or direct evidence as to what became of these funds. Of note is a letter from Mr Hall to Heather dated 28 January 2004 confirming settlement of the sale, and stating as follows:

Also in accordance with your instructions, we have completed and obtained signature by Judy of a Deed of Acknowledgement of Debt recording the amount advanced to her by you of $200,000. That amount has been disbursed by way of the repayment to the National Bank and payment of the balance to her.

As discussed, when you wish to make the arrangements to advance funds to Tony and Rick, you should contact us so that those advances can be recorded also, as well as formalising any arrangements concerning your right to occupy the Paparoa property.

[Emphasis added]

[30] Again, this is consistent with Heather’s intention at that time that her three children would benefit equally from the net proceeds of the sale of the Beaumont Way property. It also indicates there had been discussions that Heather would have a formal right to occupy the Paparoa Property.

[31] Rick and Tony deny receiving any of the remaining $400,000 from their mother. There is no evidence of any documentation being put in place formalising
advances to Rick and Tony, as envisaged in Mr Hall’s 28 January 2004 letter. Tony says he understands from discussions with his mother that most of the remaining funds ultimately went to Judy and David, who were experiencing significant financial difficulties at that time. Heather’s sister also gave evidence to this effect, stating that Heather had told her that all her money had gone to Judy and David, and all she was left with was her pension. For their part, Judy and David denied receiving any additional funds from Heather. I return to this matter later in this judgment, when considering Rick’s trust claims. What is clear, however, is that by the time of Heather’s death some two-and-a-half years later, there was only a very small sum of money left in her bank account, of around $4000.

[32] Returning to the chronology of events, settlement on the Property occurred on 30 April 2004. Shortly before that, Mr Hall, acting on the purchase, wrote to Tony in the following terms:

We will need to prepare a document to transfer Title from the vendor, and for that purpose you will need to advise us whether the property is to be owned in your sole name, or in the names of yourself and other members of the family, or otherwise. Please telephone us to let us have your instructions in that regard.

If your mother is to contribute funds to the purchase, but is not to be shown on the Title, then it will also be necessary to prepare an Acknowledgement of Debt to record the transfer of funds.

[Emphasis added]

[33] The highlighted aspects of Mr Hall’s letter suggest there may have been discussion at that time of the title being in other family members’ names, and Heather contributing to the purchase price, hence Mr Hall’s request for instructions on those matters. The letter is endorsed with a handwritten note recording an attendance on Tony two days later, stating that the purchase was to be in Tony’s name. There is no direct evidence that Heather actually contributed to the Property’s purchase, or that any documents, such as an Acknowledgement of Debt, again as envisaged in Mr Hall’s letter, were entered into.
[34] The amount required to settle the Property’s purchase was $233,349.10.³Tony says he sourced these funds from the net proceeds of the sale of his Manurewa property, with the balance of $64,060.58 sourced from cash savings he had accumulated to that point in time. Rick’s position, on the other hand, is that at least some of the further proceeds required must have come from Heather.

[35] In November 2004, Kaipara District Council issued a building consent for the Property. The consent estimated the value of the dwelling to be built on the Property as $240,000. Tony accepts that figure is broadly what it cost to build the house. The consent lists the builder as AE & RTW Contractors — the Company.

[36] Over the period April 2004 to July 2005, the Company completed a large project referred to at the hearing as the “Airpark job”. Tony says the earnings from this project in particular helped to fund the construction costs for the house on the Property. Tony’s evidence is that Rick worked with him on that job for the first two weeks only. Rick’s evidence was that he worked on it for about a month. Even on Rick’s evidence, therefore, he contributed in a relatively minor way to this particular job.

[37] From 2005 to 2008, Rick completed a drain-laying apprenticeship in Auckland. Rick accepts that he spent a reasonable amount of time living down in Auckland, completing the apprenticeship. He continued to receive, however, broadly the same amount in fortnightly wages from the Company as in prior years, as well as in 2009. Rick says that he still came up to Paparoa every weekend to assist on the Property, and also that it was not every week of each year of his apprenticeship that he was down in Auckland. In response to questioning from me, he estimated that it could have been around seven or eight months across the three years that he spent down in Auckland, but that he also undertook correspondence work as part of the apprenticeship.

[38] Sadly, Heather became ill and passed away on 29 September 2006. In her will, she left her estate to her three children in equal shares. Tony and Mr Hall were the executors of the estate. Of some relevance is a file note in Mr Hall’s handwriting dated

This reflected a purchase price of $253,125, which is higher than the $225,000 referred to in the agreement for sale and purchase. The increase reflects GST.

11 October 2006, in which he records that Tony had informed him that Heather had died and that:

Assets had been divided among the children during her lifetime – Judy, Tony and Ricky.

[39] The file note did not elaborate in this regard, or otherwise shed any light on whether the intended “three-way split” of the $600,000 sales proceeds from Redoubt Road had been effected. Unsurprisingly, Mr Hall could not recall any further details of his discussions with Tony at the time. Tony was cross-examined about the file note, but also could not recall the discussion.

[40] Heather’s funeral expenses were paid by a cheque drawn on the Company’s bank account.

[41] On 29 November 2006, the small balance of Heather’s estate was transferred to Tony’s account. Tony says this was a partial reimbursement to him for the funeral expenses. However, as noted, the funeral expenses had been paid out of the Company’s account. Tony did not dispute that most expenses were put through the Company accounts in this way.

[42] In early 2007, Rick moved out of the Property and went to live with his then partner. Rick has not lived at the Property since that time (from 2012 onwards, living on the farm on which he and Tony jointly carried out a share-milking business).

[43] In 2009, tragedy again struck, when Tony’s son suffered an aneurysm on the brain and was hospitalised for several months. Tony naturally spent a considerable amount of time with his son in hospital. He does not dispute that Rick worked for four months for the Company without Tony, and in particular, on the Manawhai sewage scheme. Invoices totalling approximately $28,000 were issued for that job.

[44] Tony says his son’s illness and ongoing poor health led him to conclude that it would be better to do work that was closer to home rather than the contracting work which took him to all parts of Auckland. He recalls that in this context, Rick suggested the possibility of share-milking together, to which Tony agreed.
[45] The actual share-milking contract was entered into by the Company. Tony accepts the share-milking was intended as a partnership between himself and Rick. However, despite the share-milking contract being formally entered into by the Company, Tony says he always viewed this venture as quite different to and separate from the contracting work he had carried out to that point in time.

[46] An interest only loan of approximately $287,000 was taken out by the Company from ANZ Bank to finance the share-milking venture and fund the initial purchase of stock. The borrowing was secured by a mortgage over the Property.

[47] The share-milking partnership, conducted over the period 2010 to 2015, was a disaster. Part of this was because of water contamination issues, which were not identified for some time and which led to very low calving rates. These issues were exacerbated by the downturn in the dairy industry at that time. Ultimately, as Ms Carter, an accountant called by Tony, noted in her evidence, the Company is in a considerably worse position as a result of the share-milking venture. The debt to ANZ at the end of 2016 of $287,000 remains secured over the Property.

[48] I now briefly mention some details from the Company’s accounts. The accounts for the year ended 31 March 2005 show a total of $153,000 expenses which Tony accepts relate to the costs to develop the Property and build the house.⁴

[49] The accounts for the year ended 31 March 2005 also show that the shareholder current account, or shareholder loan to the Company, had increased from approximately $138,000 (see [13] above) to approximately $311,000, an increase of some $172,000. Given the only shareholder was Tony, it can be taken from the accounts that Tony advanced these funds to the Company. However, by the time of the accounts for the year ended 31 March 2006, the shareholder loan account had reduced by $114,760, to a closing balance of approximately $196,000. Additional loans to the Company are recorded in those accounts totalling $104,600. In later accounts, the notes to the accounts state that the $104,600 is made up of a loan from

For example, an expense of $20,959 is shown for power. The Property did not have electricity for some time; Tony said he could not afford it at the time. Documents show that Northpower provided a quote to “AE Woodcock” for power in December 2004, at a cost of $23,577.74 including GST, or $20,958 excluding GST.

Heather of $98,800 and from Rick of $5,800. Rick has no knowledge of the suggested loan from him.

[50] The loan from Heather is still shown in the Company’s accounts to 31 March 2007, being some four months after her estate was finalised, though it did not form part of her estate. The Company accounts for the year to 31 March 2008 show that the $104,600 loans had been repaid. Rick denies receiving the sum of $5,800. In the same accounts, the shareholder account, or Tony’s contributions to the Company, are shown as increasing by $104,845.

[51] Each of Tony and Rick called expert accounting evidence. Rick’s wife also gave evidence as to the accounts (she did not qualify herself as an expert, but had clearly conducted a thorough review of the Company’s accounts, noting various gaps and anomalies). I directed the accountants to confer and advise the Court of matters upon which they were agreed. Ultimately, they agreed that “the accounting for shareholder and other loans and livestock appears substandard and not able to be clearly understood”. In short, and certainly intending no criticism of or disrespect to the expert witnesses themselves, I did not draw any significant assistance from their evidence. As they themselves recognised, the Company’s accounts are in a number of respects unclear, inconsistent and/or incomplete. For this reason, very little can be taken from them. Further, and self-evidently, the face of the accounts do not resolve issues such as the nature of Tony and Rick’s working relationship, or the dispute over the nature and purpose of the Property’s purchase.

[52] I briefly address one further matter. In his evidence, Rick says that an example of his trust in his brother being misplaced is that although the share-milking partnership ended in May 2015, without his knowledge, he had been removed from the Company’s joint bank account in 2013, which was then changed into a joint account between Tony and his son. In support of this contention, Rick refers to a letter from ANZ Bank dated 10 June 2013, which is referenced “new loans in the name of AE and RTW Contractors Ltd”, and enclosed loan documentation for two new loans. The letter went on to state:

Also enclosed is a new mandate authority form for the account that has been changed into a joint account between yourself and [your son].

[53] When this letter was put to Tony, he explained that as a result of his son’s illness (which prevents him from being able to speak), he arranged for his son’s accounts, Kiwisaver and the like to be transferred over to ANZ, with Tony having authority in relation to that account, so he could ring the bank if and when required on his son’s behalf. Tony said that his son had never been and is not a signatory on the Company account. I accept Tony’s evidence in this regard. The letter from ANZ was plainly dealing with the new loans taken out by the Company (for the share-milking venture) and enclosed the loan agreements for signature. But the letter also enclosed the new mandate form for the joint account between Tony and his son. In other words, the letter, no doubt for convenience, dealt with both the loan agreements with the Company and the new mandate to create a joint account between Tony and his son. I do not read the letter as supporting the proposition that Rick was removed from the Company’s account at that time.

[54] Matters ultimately came to a head in around April 2015, when Rick says he unsuccessfully requested Tony to confirm in writing Rick’s part-ownership of the Property and his 50 per cent ownership of the Company. Tony denies this conversation took place. The relationship between the brothers thereafter deteriorated fairly rapidly and Rick received his final pay from the Company on 22 May 2015. The share- milking contract concluded on 31 May 2015 and Rick says this was the date upon which he and Tony also concluded the broader partnership which had subsisted to that date.

The pleaded claims

[55] Rick’s amended statement of claim dated 16 May 2017 pleads four causes of action. While aspects of the pleadings are unclear and not easy to follow, the causes of action boil down to the following claims.

Partnership

[56] At times, the pleading refers to partnership and/or joint venture. The two are quite different concepts. The primary pleading is, however, partnership and this was the basis upon which Rick’s claim was put at the hearing.
[57] As noted, Rick says he and Tony were in partnership from 2002 to 2015. It is pleaded that the partnership business involved both Rick and Tony as partners, conducting the partnership business through the Company. It is pleaded that the partnership assets included, or the “fruits” of those assets were, the Property. On this basis, it is pleaded that:

At the date of this pleading, it appears that the only remaining principal asset of the partnership (or its fruits) lies in the Paparoa Property.

[58] This was reinforced by Mr Black, counsel for Rick at the hearing, who stated on a number of occasions: “all roads lead to the Paparoa Property”.

[59] In terms of relief, Rick seeks an inquiry and account in relation to the alleged partnership and/or (it is not clear from the pleading if the claims are in the alternative) judgment in various amounts, including the equivalent of a 50 per cent share of the estimated value of the Property, or such other percentage or amount as the Court may determine. Sums totalling more than $1 million are also sought, said to be “under- payment of the plaintiff’s wages” from the end of 2002 to May 2015, together with
$300,000 representing what is said to be Rick’s “unpaid portion of Heather’s estate”, which was put into or is traceable into the Property; plus a 50 per cent increase in the value of that interest over some 13 years. Self-evidently, some of these claims are mutually inconsistent. For example, the claim for unpaid wages is inconsistent with the claim of partnership, in that the wages paid to Rick are said to have reflected a gradual build-up of Rick’s equity in the partnership. Further, the claim tracing the
$200,000 (said to be Rick’s “deemed inheritance” from Heather’s estate) is also inconsistent with this claim, as it is not (nor could it be) suggested that Heather’s own funds from the sale of her Redoubt Road property were partnership property.

Constructive/resulting trust

[60] The second cause of action is framed as “constructive and resulting trust”. The claim is advanced on two bases:

(a) First, that Rick contributed directly and indirectly to the acquisition, preservation and enhancement of the Property and “other assets presented by the Company’s business”. It is pleaded that as a result,
Rick expected he would equally share in and have a beneficial and proprietary interest in the Property and that Tony must have reasonably have expected that would be the case. As will be appreciated, this is a claim brought on the basis of the principles set out in leading authorities such as Lankow v Rose.⁵

(b) Secondly, tracing or following what is said to be Rick’s share, or “deemed inheritance” of the remaining $400,000 sales proceeds from Heather’s Redoubt Road property, which are said to have been fully utilised to purchase and/or develop the Property.

[61] The relief sought on this cause of action includes a declaration that:

The first and second defendants are liable to account to the plaintiff as constructive trustees and as a resulting trust, for an equal beneficial ownership and interest to the properties, assets and other benefits derived by them as a consequence of the joint venture farming and other activities resulting from their breach of trust.

[62] A further declaration is sought that Rick is entitled to a 50 per cent interest, or such other percentage the Court may determine, in the Property, and/or judgment in the sums sought on the first cause of action, interest (including on a compound basis) and costs.

Fiduciary duty

[63] The third cause of action is entitled “breach of fiduciary duty”. This cause of action does not add materially to the previous two causes of action, given the relationships between partners, and the trustee and beneficiary relationship, give rise to fiduciary duties in any event. Nevertheless, various characteristics of the alleged fiduciary relationship are pleaded, together with Tony’s breach of those duties. The pleaded breaches include: claiming full ownership of the Property; claiming ownership of all the assets of the Company; and exclusively deriving the income from the Company which properly represents the fruits of the partnership activities. Broad

⁵Lankow v Rose [1995] 1 NZLR 277 (CA).

and unspecified prayers for relief are set out, which essentially mirror the claims for relief on the first two causes of action.

Companies Act 1993 claims

[64] The final cause of action is entitled “shareholder oppression and personal action by plaintiff against directors - Companies Act 1993, section 169, section 174 and section 56”.

[65] This claim is premised on a pleading that the plaintiff is an equal beneficial shareholder in the Company. This claim is jumbled and difficult to follow, but at its core, it alleges that the affairs of the Company have been conducted in a manner that is oppressive, unfairly discriminatory and unfairly prejudicial.

[66] I questioned Mr Black at the hearing in relation to this cause of action, and whether it adds anything to the earlier claims. He quite properly acknowledged that it did not add materially to the earlier causes of action and it was not pressed in any significant way at the hearing. Nor was it formally abandoned, however.

[67] I now turn to each pleaded cause of action.

Partnership

Submissions – Rick

[68] Mr Black’s submissions on behalf of Rick overlapped in relation to the first three pleaded causes of action. However, in relation to the partnership claim, he submits Rick’s evidence as to the brothers’ intentions was clear and cogent and supported by contemporaneous documents, such as the name of the Company itself and the Company’s bank statements which were, for a time, headed “The Partnership”.

[69] Mr Black referred to the brothers’ joint endeavours on projects conducted through the Company, and also to evidence of other family members and friends as to what they understood to be the nature of the brothers’ working relationship.
[70] Mr Black asked rhetorically: why would Rick continue to work for 13 years at minimum wage unless there was some form of partnership between him and Tony in which he had a valid interest? Mr Black also highlighted that there is no dispute that the share-milking venture was a partnership, yet there was no attempt in a legal or accounting sense to “separate out” that venture from the brothers’ previous work in construction and the like. Ultimately, Mr Black submitted that on the balance of probabilities, the relationship between the parties from the end of 2002 until mid-2015 was in the nature of a partnership, in which the brothers were to share equally from the outset.

Submissions – Tony

[71] Mr Hutcheson on behalf of Tony (and the Company) submitted there is no evidential foundation upon which the Court can properly conclude a partnership was intended and came into existence.

[72] Mr Hutcheson submitted that Tony’s evidence as to his general discussions with his parents and Rick about supporting Rick on his release from prison had an air of credibility about it. He noted that a partnership is a form of contract, and there must therefore be certainty in relation to the alleged terms of the partnership. Mr Hutcheson also noted that the pleaded partnership is said to be the carrying on of business and making contributions in common, when the evidence establishes there were far from common or equal contributions made by the brothers to the alleged partnership over the years. He observed that on any view of the evidence, Tony contributed very significant assets and money into the Company. He also pointed to the significant periods when Rick was not working in the alleged partnership (such as when he was obtaining his drain laying apprenticeship); that the company structure is inconsistent with a partnership; and there is no suggestion of a direct (or even indirect) profit share, which is also a hallmark of partnership. Mr Hutcheson submitted the evidence is also inconsistent with the Property forming a part of the partnership’s business or assets.

[73] Mr Hutcheson also noted that neither the Company nor the brothers accounted in terms of a partnership and there is no other hint or suggestion in the financial statements that the business was reflective of a partnership.
[74] Finally, Mr Hutcheson submitted that even if the Court were to conclude the brothers’ relationship from the end of 2002 was one of partnership, the only possible remedy is a direction for the taking of accounts. Mr Hutcheson argued that any account would need to take into account the substantial debt still owing to ANZ and secured by a mortgage over the Property, which Tony continues to service by payments of monthly interest. While accepting the share-milking venture was a partnership between the two brothers, Mr Hutcheson observed that Tony has not sought recompense from Rick in relation to what would be his own personal share of that partnership debt, as this is “not what brothers do”.

[75] I mean no disrespect to the helpful submissions from both parties by summarising them in the relatively brief manner set out above.

Analysis

[76] Section 4(1) of the Partnership Act 1908 (Act) provides as follows:

Partnership is the relation which subsists between persons carrying on business in common with a view to profit.

[77] Section 4(2) goes on to provide that the relation between members (i.e. shareholders) of any company is not a partnership within the meaning of the Act. Accordingly, Rick’s claim (in his fourth cause of action) that he is a beneficial owner of 50 per cent of the Company’s shares is inconsistent with his partnership claim.

[78] The focus of an inquiry as to the existence of a partnership is on the nature of the relationship between the parties concerned and whether it is one which the law properly recognises as a partnership. This latter point is important. As Chambers J observed in Clark v Libra Developments Ltd, whether there was a partnership is not for a witness to assert; rather “that is a legal question to be determined by the Court on the basis of what the parties said and did”.⁶For that reason, evidence given by a range of witnesses, including Tony and Rick themselves, that the brothers were or were not in “partnership” was not of any real assistance. Rather:⁷

⁶Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA) at [51].

Stephen Graw An Outline of the Law of Partnership (4th ed, Thomson Reuters, Pyrmont, NSW, 2011) at [1.30].

[W]hether a particular relationship is a partnership is a mixed question of fact and law that can only be determined by looking at the parties’ objectively determined intention, as it appears from all the surrounding facts and circumstances, and then deciding whether that relationship is one which the law regards as a “partnership”.

[79] Accordingly, even in cases where both parties believe they are in a partnership, the law may nevertheless conclude that a relationship of that type did not come into being.⁸

[80] There are no determinative features giving rise to or excluding a partnership relationship. Equally, there are no formal requirements for the creation of a partnership, and arrangements can vary from a formal, documented partnership agreement, to informal and undocumented arrangements. In fact, many partnership arrangements are oral.⁹

[81] Applying the above principles, and having carefully considered the evidence, I am not persuaded that Rick and Tony entered into a relationship in 2002 or 2003 which the law would regard as a partnership. I say this for the following nine reasons.

[82] First, the evidence as to the intended nature of the relationship is limited, very largely comprising oral evidence only, and in relation to events and discussions which took place some 15 years ago. Ultimately, I consider Tony’s account of the discussions which took place between him and his parents, and him and Rick towards the end of 2002 while Rick was still in prison, to be a more credible and likely account of what was to occur upon Rick’s release. As noted earlier, Tony accepts he agreed with his parents that he would try to help Rick after he came out of prison, by providing opportunities for Rick to work with him. This reflected the fact that Tony had a pre- existing and apparently reasonably successful business. He was therefore to be contributing considerable expertise, equipment, goodwill and capital to the ongoing business. By contrast, Rick did not have any of this to offer, other than his own manual labour and any experience he could offer from his earlier dairy conversion work. There was no evidence the brothers had worked closely together before. In these circumstances, it would have been a very considerable, and indeed bold, commitment

⁸Inland Revenue Commissioners v Williamson (1928) 14 TC 335 (IH (1 Div)).

⁹Clark v Libra Developments [2007] 2 NZLR 709 (CA) at [155] per Williams and Gendall JJ.

on Tony’s part to have agreed at that time to a 50/50 partnership as alleged. I am bound to observe that my impression was that Rick and his supporters’ evidence of what had been agreed in 2002 was affected by a degree of retrospective justification, arising from the nature of the dispute and issues that eventually arose.

[83] In addition, most of the “corroborating” evidence as to the nature of Rick and Tony’s business relationship did not advance Rick’s case. For example, Judy did not profess to have been involved in the original discussions between Rick and Tony or their parents, but in any event, as noted earlier, confirmed her understanding that her parents, and Tony, had planned for Rick to become a part of Tony’s business. I do not view Judy’s evidence as materially supporting either Rick or Tony’s case. Similarly, Rick’s partner from 2007 to 2013 necessarily had personal insight into Rick and Tony’s relationship from around 2007 only, well after the alleged partnership came into existence. Her statements as to her understanding that Rick and Tony were in partnership do not advance matters, and to a large degree are dependent upon what she was told by Rick. In a similar way, evidence called by Tony from neighbours recounting their understanding of the brothers’ relationship also did not advance matters.

[84] Secondly, while I am conscious that the Company name included the two brothers’ initials, I do not regard this as determinative, either in isolation or in combination with other factors. Tony’s evidence that his accountant had advised him at the time that he ought to structure his business into a company, given he had too many assets at risk, had a ring of truth about it. That the Company included Rick’s initials is consistent with the fact that Tony had agreed he would assist Rick on his release from prison, and that Rick was to work with Tony going forward. There was no direct evidence as to by whom or how the Company came to be named. I do not exclude as a possibility that Heather contributed to a discussion of the Company’s name, given the evidence of her (and her late husband’s) natural desire to ensure Rick had work upon his release; the discussions with Tony at the time about him helping Rick with work after his release; and her involvement in the Company’s administration, book-keeping and accounts.
[85] Thirdly, the work which was said to be carried out on a partnership basis was in fact carried out through a corporate vehicle, of which only one party was a shareholder and director. If there were agreement in 2002 that the brothers were to be in a 50/50 partnership, it is somewhat unusual that Rick did not explore or at least suggest having some nominal shares in the Company, or being a director of the Company. And while carrying out work through a corporate vehicle is not itself fatal to a finding of partnership,¹⁰the more usual approach is for partners to work together under an unincorporated trade name.

[86] Fourthly, I am again conscious that the Company’s bank statements referenced “The Partnership”, at least for a certain period of time. I accept this supports a finding of partnership, and is perhaps the “high point” for Rick’s case. However, as noted, the authorities are clear that even if the parties themselves speak in terms of partnership, that is not necessarily the appropriate characterisation of their relationship at law. In addition, I again cannot rule out as a reasonable possibility that Heather had input into or even initially set up the Company’s bank account. She carried out the Company’s accounting work, and Rick’s own evidence was that she opened a bank account for him on his release from prison, which had in fact been a joint account between him and Tony. Related to this point is that Rick has signing rights over the Company’s bank account. However, while the presence of a joint bank account may be some evidence of a partnership, it is not conclusive, or even prima facie evidence of that point.¹¹

[87] Fifthly, I have rejected earlier in this judgment Rick’s evidence as to other matters upon which he relies to support a finding of a partnership; namely the purchase of equipment by Rick and Tony’s father to assist getting the business up and running, and the purchase of the Chevy Ute for Rick, which Rick described as “starting all the process off”.¹²

[88] Sixthly, Rick was paid a salary or wage, rather than sharing in the Company’s profits. The wage was not in any way tied or linked to the success or failure of the

¹⁰See, for example, Millar v Rama HC Wellington CP 31/88, 1 July 1992.

See the authorities referred to in Roderick Banks (ed) Lindley & Banks on Partnership (20th ed, Sweet & Maxwell, London, 2017) at [7-29](xi).

¹²See [10] and [11] above.

alleged partnership, and therefore its profits (or losses), which might have ordinarily been the case had a true partnership been agreed. Again, while the absence of a direct link between the level of the wage and the profits of the firm is not fatal to the finding of partnership, it is “in most cases, a strongly negative pointer” towards that conclusion.¹³

[89] Seventhly, Rick’s evidence is that he accepted a lower fixed wage while his “equity” was built up in the partnership (or Company). This recognises what on any view was a significant imbalance in contributions at the outset. However, there is no evidence or basis from which to conclude how it was intended this “re-balancing” or building up of “equity” was to be achieved, for example, over what time period; by reference to how many hours Rick would need to work; what other contributions he may need to make; and so on. Allied to this point is that Rick says he worked full- time for 13 years for minimum wages, which supports an objective assessment of his rationale for doing so, namely he was in partnership with Tony. However, when the evidence is analysed more closely, it is not correct to suggest a full 13-year period in this way. Rick clearly worked on some jobs with Tony in the period immediately following his release from prison, in 2003 and 2004. I am not satisfied that was necessarily on a full-time basis. Further, over the three-year period 2005 to 2008, Rick was completing his drain-laying apprenticeship and spent a reasonable amount of time away from the Company working in Auckland. And after obtaining his drain-laying ticket, he worked for the Company in 2009, and particularly while Tony’s son was ill in hospital, before the share-milking venture commenced in 2010. As such, the disputed aspect of Rick and Tony’s working relationship does not extend over a full 13-year period as suggested.

[90] Eighthly, the Company’s accounts disclose no suggestion or evidence of a partnership.¹⁴Rather, on their face, and putting aside the issues identified by the accountants, they were fairly standard company accounts. This point is not determinative, however, as there is no dispute that even if there was a partnership, a

¹³M Young Legal Associates Ltd v Zahid (a firm) [2006] EWCA Civ 613, [2006] 1 WLR 2562 at [33].

¹⁴The authors of Lindley & Banks on Partnership (20th ed, Sweet & Maxwell, London, 2017) observe (at [7-23]) that accounts are frequently relied upon to prove the existence of an alleged partnership and might therefore be termed “usual” evidence of such a relationship.

significant amount of the partnership work was conducted through the Company. However, other than some requests to view the accounts in relation to the share- milking venture, there is no evidence of Rick taking any significant interest in the financial side of the business. And while it might be the case that one partner is more involved with the accounting and financial aspects of the business, to have no involvement or interest in those matters seems somewhat extraordinary if the brothers were operating under a 50/50 partnership from the outset and/or Rick was working from the outset under the expectation of building up his “equity” in the Company.

[91] Finally, the share-milking venture is accepted to have been a partnership between the two brothers. Mr Black is correct when he notes that this partnership was run through the Company’s books and there was no formal “separation” in that regard. Nevertheless, the share-milking venture was something quite different from any work the brothers had carried out in the past. It reflected to a much greater degree Rick’s prior background and expertise and thus what he could contribute to a true partnership. Moreover, while this partnership was run through the Company’s books, it became evident during the course of the hearing that virtually everything was run through the Company’s books, partnership or otherwise. For that reason, I do not view the fact that the share-milking venture was operated through the Company accounts as support for the proposition that the earlier work was also carried out under the guise of partnership.

[92] Accordingly, while I have no doubt the brothers discussed working together on jobs when Rick came out of prison, and that there may have been some general discussion as to Rick becoming more involved in the Company over time, in my view, the evidence falls well short of demonstrating the brothers operated under an equal partnership from late 2002 or early 2003. Rather than a partnership, Rick’s complaint can perhaps be more accurately described as not being allocated shares in the Company. However (and putting aside the fact that the claim was not put in this way), for the reasons outlined above, and particularly at [89], the evidence does not demonstrate any purported agreement in that regard, or enable the terms of any such agreement to be ascertained in any event. Nor would any relief for such a claim extend to the far-reaching relief sought on the partnership claim.
[93] There was, however, a partnership in relation to the share-milking venture. It is not in dispute that this partnership, which commenced in 2010, dissolved in May 2015.¹⁵Prima facie, an account as between partners would ordinarily follow. The accounting to date for that venture is clearly unsatisfactory. While the accountants expressed the view that, in the absence of substantially more information, ordering an account is unlikely to provide any greater illumination of that partnership’s operation, I nevertheless consider an account is appropriate in the circumstances. That partnership is much more recent than that alleged to have come about in late 2002, such that full or near-full documentation ought to be available, at least in relation to the partnership’s later years of operation. And while making general observations as to the utility (or otherwise) of the taking of an account of the share-milking partnership, neither accountant had turned their mind particularly to the process by which that would be carried out, having instead given much broader evidence as to the Company’s accounts from 2002, in the context of the partnership said to have existed from that date. Further, Ms Carter was only engaged a matter of days prior to the hearing, providing very limited time to consider in any detail an account for the share- milking partnership.

[94] Given I have found a limited partnership only, that is, one which does not extend to the purchase and/or development of the Property (see below), Rick may or may not decide to take that account forward. Nevertheless, in my view, the appropriate remedy on the partnership cause of action is that there is an account under pt 16 of the High Court Rules in relation to the share-milking partnership from 2010 to 31 May 2015. There is an order to that effect. If that account is to proceed, the parties, with experienced counsel on both sides, may be able to agree the process for the account, being one that is as cost effective and efficient as possible. In the event agreement is not possible, leave is reserved to either party to seek directions from the Court under r 16.3 as to the process for the taking of the account. Any such application for directions is to be filed and served within 30 working days of the date of this judgment.

¹⁵While the date is not in dispute, the reason for the dissolution is disputed; Rick says he and Tony informally dissolved the partnership at that time; Tony says it was dissolved at Rick’s insistence and refusal to continue. Thereafter, a number of activities occurred to sell and otherwise dispose of partnership assets.

[95] For completeness, I record that even if I had found there to be a partnership from 2002 or 2003, I am very clear in my view that the Property was not purchased by or on behalf of the partnership, or otherwise formed a part of the partnership assets. I make that observation as the pleaded claim of partnership was clearly to provide a basis for Rick having a proprietary interest in the Property. However, rather than being connected with any partnership, I consider the Property’s purchase was more arguably connected with a family venture. I now turn to that topic and Rick’s claim based on resulting and constructive trust.

Resulting and constructive trust

Claim based on Rick’s “deemed inheritance”

[96] Although not formally pleaded as such, a key aspect of Rick’s trust claim is that his “deemed inheritance”, or his share of the net proceeds from the sale of Heather’s Redoubt Road property, has “gone into” the purchase or development of the Property and he has a proprietary interest in it as a result.

[97] As outlined earlier in this judgment, Rick says that after the sale of her Redoubt Road property, Heather had approximately $400,000 in clear settlement funds. He says that half of this was intended for him, and half for Tony. Settlement of Redoubt Road occurred in January 2004. However, by the time of her death some two and a half years later in October 2006, only a small balance of $4,000 remained in Heather’s bank account. Rick therefore says the remaining balance of $400,000 was put into the Property for the equal benefit of himself and Tony.

[98] Given the passage of time since these events, there is no direct or documentary evidence of Heather’s funds being utilised in this way. However, Rick says the funds being used in this way was consistent with a common intention on the part of him, Heather and Tony that the Property would be purchased and developed using Heather’s money, for Rick and Tony’s joint benefit. Tony denies this, and says that in early 2003, before Heather sold her property, he started to look at lifestyle blocks in Paparoa. This led to the agreement for sale and purchase being signed by Tony in May 2003, after which Tony says he and Heather discussed Heather coming to live with him at the Property.
[99] I pause to observe that any such “common intention” as to the purchase and development of the Property is said to have come about prior to May 2003, when Tony signed the agreement for sale and purchase. This was only a matter of months after Rick had been released from prison, and well before Heather had sold her own home and came into funds (which did not occur until early 2004). Having assessed all the evidence, I find Tony’s evidence as to the circumstances in which the Property came to be purchased to be more credible — namely, that prior to May 2003, he looked for a lifestyle block and ultimately settled on the Property. I found his evidence that he then had discussions with Heather about her coming to live with him on the Property to be credible, which then led to the sale of Heather’s property later in 2003 and settlement in January 2004.

[100] I do not ignore Judy’s evidence that after Rick had been released from prison, Heather, Tony and Rick “all decided to have a new start in life” and Heather decided to sell her home and purchase land with Tony and Rick. However, that evidence is extremely high-level and somewhat vague, and the concept of Heather purchasing land “with” Tony and Rick is inconsistent with Rick and Tony’s own evidence that Heather did not purchase the Property for herself, or equally with Tony and Rick. It also does not address the timing outlined above; Heather’s sale of her property came some considerable time after Tony had already bought the Property. Judy also said that Heather had told her that Mr Hall, the solicitor, knew the Property was both Tony and Rick’s share of the estate. However, Mr Hall firmly denied knowing this. Given Judy’s recollections were incorrect in a number of aspects of her evidence (for example, initially being under the impression that she had received the full $200,000 from Heather), I place little weight on her recollections as to the Property’s purchase. I should emphasise that I mean no criticism of Judy in this regard; rather it is a natural consequence of events taking place some 15 years ago, and her evidence depending to some extent on what she recalls her mother told her at the time.

[101] Turning back to the suggestion that Rick’s “deemed inheritance” gave him a proprietary interest in the Property, this argument is somewhat misconceived. During her lifetime, and absent an express trust over some or all of the moneys in favour of Rick, the $400,000 balance of the sale of the Redoubt Road Property was Heather’s own money and property. Accordingly, unless some or all of that that money was,
during her lifetime, impressed with a trust in favour of Rick, it is not possible for Rick to simply “trace” Heather’s own money into the Property and claim a beneficial interest in it as a result.

[102] Given the reliance on tracing Rick’s “deemed inheritance” into the Property, and although not pleaded in precisely these terms, I have considered whether the evidence demonstrates Heather held the $400,000 on trust in equal shares for each of Rick and Tony during her lifetime, such that if she did, a tracing claim might follow.

[103] A settlor (in this case, Heather) may create a trust by declaring property he or she owns to be held on trust. To be valid, the declaration must meet the three certainties for the creation of a trust: certainty of words, subject-matter and objects.¹⁶

[104] The settlement of an express trust in this case turns on intention. The burden of establishing an intention to settle property on trust rests on the person alleging the trust.¹⁷Courts have been reluctant to prescribe any firm view as to the requirements for expressing intention. Salmon J observed in Thexton v Thexton:¹⁸

A declaration of trust does not require a technical form of expression, it is a question of construction whether the words used, taking into account the surrounding circumstances, amount to a clear declaration of trust. What is needed is the manifestation of an intention to declare a trust: Paul v Constance [1976] EWCA Civ 2; [1977] 1 All ER 195. Where no words exhibiting the necessary intent are used it may in exceptional cases be possible to infer a declaration of trust from acts showing that a person has constituted themselves as trustee, ie from conduct evincing an intent to deal with his property so that somebody else to his own exclusion acquires the beneficial interest in his property.

[Emphasis added]

[105] In my view, the evidence falls well short of demonstrating an intention on Heather’s part to hold any or all of the remaining $400,000 on trust for either Rick and/or Tony during her lifetime. First, there is no statement from Heather herself upon which the Court may rely. Secondly, while the contemporaneous file note referred to at [25] above discloses an intention on Heather’s part to advance, or give, or loan,
$200,000 to each of Rick and Tony at some future point in time, this does not equate

¹⁶Knight v Knight [1840] EngR 862; (1840) 3 Beav 148, 49 ER 58 (Ch) at 68.

¹⁷Thexton v Thexton [2001] 1 NZLR 237 (HC) at [47].

¹⁸At [52].

to an intention to hold those funds on trust for Rick and Tony.¹⁹This is particularly so given there was no suggestion Heather had been diagnosed with cancer as early as January 2004, such that she might be thought to be “getting her affairs in order” at that very early stage.²⁰

[106] Accordingly, I do not consider the evidence demonstrates that from or shortly after January 2004 (being the settlement of the sale of Redoubt Road) Heather held
$200,000 on trust for Rick.

[107] I accordingly turn to consider the pleaded bases upon which Rick says he has an equal beneficial interest in the Property: first, on the basis that some or all of Heather’s $400,000 was put into purchasing and/or developing the Property with the intention of gifting that money to Tony and Rick in equal shares, such that a resulting trust in favour of Rick arises; and secondly, by way of a constructive trust on Lankow v Rose principles.

A share in the Property through Heather’s contributions

The issues

[108] This aspect of Rick’s claim gives rise to a number of separate legal and evidential issues. First, was some or all of Heather’s $400,000 expended on either the original purchase of the Property, or its later development? Secondly, if the answer to the first question is “yes”, what was Heather’s intention in that regard: for example, was any contribution intended as a loan to Tony, a gift to Tony, or a gift to both Tony and Rick and, if so, in what proportions? Thirdly, if the Court is satisfied that Heather’s funds were used in relation to the Property for the equal benefit of Rick and Tony, is a proportion of the Property, corresponding to the amount advanced, held on a resulting trust by Tony for the benefit of Rick? And, if it is, is the Court entitled to perform a broad assessment of the proportion held on trust, in the absence of any direct evidence of the amount advanced?

As the Court of Appeal observed in Harvey v Beveridge [2014] NZCA 72, [2014] NZAR 677 at [33], “an intention to make a gift is not an intention to create a trust.”
Rick’s evidence was that his mother became very ill shortly after finishing the new house on the Property, which was sometime in 2005.

Presumption of resulting trust

[109] These issues give rise to what is called the presumption of a resulting trust, explained by Lord Browne-Wilkinson as follows:²¹

[W]here A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of A's intention to make an outright transfer...

[110] The majority of the House of Lords in Stack v Dowden has limited the applicability of resulting trusts, at least in the context of contributions by an unmarried couple to the purchase of a property while they are living there.²²The New Zealand Court of Appeal has more recently confined their Lordship’s observations on the continuing applicability (or otherwise) of resulting trusts to the fact scenario in Stack v Dowden.²³

Does the presumption of advancement rebut the presumption of resulting trust?

[111] In some cases, the relationship between transferor (Heather in this case) and transferee (Tony) is such that there is a natural obligation for the transferor to provide for the transferee (loco parentis, for example). This raises a counter-presumption to the presumption of a resulting trust, namely the presumption of advancement: the law presumes the transferor to have intentionally relinquished his or her beneficial interest in the property.²⁴In the circumstances of this case, this counter-presumption would mean that it is to be presumed, in the absence of evidence to the contrary, that any advances by Heather to Tony were intended to transfer full legal and beneficial title to him.

Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 (HL) at 708.

²²Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432.

²³Crampton-Smith v Crampton-Smith [2012] NZCA 308, 1 NZLR 5 at [36].

See generally Jessica Palmer “Resulting Trusts” in Andrew S Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 307 at 328–330.

[112] Questions have been raised whether the presumption of advancement is outdated.²⁵In Canada, the Supreme Court had held it does not apply to an advance made by a parent to an adult child.²⁶There is some suggestion it may be given little weight in New Zealand,²⁷although later Court of Appeal judgments refer to the presumption without commenting on any suggested limited effect or weight.²⁸In any event, the presumption of advancement would not necessarily hinder any recovery to Rick in this case, as it is a presumption only, and it may be possible to conclude that advancement to both Tony and Rick was intended.

[113] The key difficulty with a claim based on resulting trust is there is no evidence of what happened to the remaining $400,000, or more specifically, that any or all of it was expended on the Property. The actual advance of funds to purchase a property is a key aspect, or a “primary fact” to be proved on a resulting trust claim.²⁹In most, if not all, resulting trust cases, the fact money has been used to purchase a property, and the amount, is not in dispute. Rather, the key issue is ordinarily the transferor’s intentions in that regard. This case is different. Tony firmly disputes that any of Heather’s money was used to purchase the Property, or later develop it. As plaintiff, the burden rests on Rick to prove on the balance of probabilities that Heather’s moneys were expended on the Property, before then turning to the secondary question of her intention if that were the case.

The initial purchase of the Property (bare land)

[114] The Property was purchased as bare land. I have already found that Tony paid the deposit. There is no basis to suggest Heather contributed to that payment, which was made in May 2003, well before she sold her Redoubt Road property.

[115] As noted at [34] above, a total of $233,349.10 was required in April 2004 to settle the Property’s purchase. There is no dispute that Tony had $169,288.52 available to him for that purpose, and therefore only needed a further $64,060.58 to settle. As

²⁵See Kevin FK Low “The Presumption of Advancement: A Renaissance?” (2007) 123 LQR 347.

²⁶Pecore v Pecore [2007] SCC 17, [2007] 1 SCR 795.

²⁷Parlane v Parlane HC Auckland CIV-2009-404-7607, 30 May 2011.

Crampton-Smith v Crampton-Smith [2012] NZCA 308, 1 NZLR 5 at [40]; Chang v Lee [2017] NZCA 308, [2017] NZAR 1223 at [24].

²⁹Crampton-Smith v Crampton-Smith [2012] NZCA 308, 1 NZLR 5 at [42].

noted, Tony says he had cash savings on hand by that time for that purpose. Given the passage of time, there is no direct evidence to contradict this, though Mr Black points to Tony’s personal income tax return for the year to 31 March 2003, which he says shows Tony would not have had sufficient funds. That return is, however, for the year to March 2003, and accordingly does not speak directly to Tony’s position in April 2004.

[116] It is possible Heather assisted Tony, at least to some extent, in relation to the remaining $64,000 to settle on the Property. However, even if that were the case, there is insufficient evidence for me to conclude, even on the balance of probabilities, to what extent that may have occurred and, if so, what Heather’s intentions were in that regard. For example, she may well have intended to advance any such funds to Tony as a gift (given she had already advanced funds to Judy). This would be consistent with the presumption of advancement. She may have intended to advance any such funds in recognition of the fact she was going to be living permanently at the Property. She had not been diagnosed with cancer at that time, so presumably envisaged living at the Property for a lengthy period. I consider it less likely that any amount she might have contributed to the balance of the purchase price at this time was intended to benefit both Tony and Rick in equal shares, particularly given I am satisfied Tony paid the bulk, if not the entirety, of the purchase price. And putting aside these issues, there is no basis upon which I can say with any confidence how much money Heather might have advanced at this time in any event. Consistent with the assessment of contributions in the context of a constructive trust, it is not appropriate to consider the matter by reference to broad notions of justice; rather, the Court’s task is to arrive at the quantification of an interest which broadly reflects contributions that have been shown to have been made.³⁰Given the factual difficulties I have raised above, I cannot be satisfied that any such contributions have been shown on the balance of probabilities.

[117] For these reasons, I do not consider a claim of resulting trust in favour of Rick has been made out on the basis of Heather’s money being used to fund the initial purchase of the Property.

³⁰Lankow v Rose [1995] 1 NZLR 277 (CA) at 295.

The later development of the Property

[118] The second way in which Rick says Heather’s funds were used in the Property was to fund the cost of building the house on the Property (and other developments, such as the barn, power and so on). The Company’s accounts show these items were funded by the Company and totalled approximately $153,000. However, the fact the Company is recorded as funding these expenses does not exclude the possibility that Heather put the Company in funds for that purpose; or that she put Tony in funds, who in turn put the Company in funds for that purpose. As noted above, the Company’s accounts do disclose a significant increase in shareholder funds over the financial year to 31 March 2005, when the house building expenses were incurred. The accounts to 31 March 2006 also show the somewhat curious loan from “H Woodcock”, which no longer features by the time of the accounts to 31 March 2008.

[119] Tony says that during 2004 and 2005, he worked on the “Airpark job”, which brought in some significant income; invoices for the period April 2004 to July 2005 totalling $232,772.05 were produced in evidence. Tony says he took on this job specifically to earn enough money to build a house on the Property.

[120] Again, and like any contribution to the initial purchase price, there is no direct evidence that Heather’s funds were used to pay for the building of the house. Tony was adamant her funds did not contribute to building the house, and that he was able to fund this through the “Airpark job”.

[121] Ultimately, it is possible that some of Heather’s funds may have contributed to the cost of building the house on the Property (and other developments such as the barn). I remind myself of the file note of Tony’s discussion with Mr Hall shortly after Heather’s death, which recorded that Heather had divided her assets between her children during her lifetime.³¹But, like any possible contribution to the purchase price, the evidence does not establish that any funds were actually spent in this way; even if so, how much; and again, what Heather’s intention was in in relation to any such expenditure. Even if Heather had contributed, say, $98,000 (by reference to the

³¹See [38] above.

loan in the accounts), that may have reflected part of the funds she had “earmarked” for Tony.

[122] Mr Black put to Tony certain figures, based on the Company accounts, to suggest there was a “shortfall” of approximately $224,000 between on the one hand, funds Tony had available at that time (the net proceeds of the sale of his Manurewa home), and on the other hand, the cost to build the house, the barn and to introduce
$138,000 of shareholder funds into the Company. Given this proposition relies heavily on the Company’s accounts, which for the reasons already explained, I do not consider to be a reliable source of information, I do not consider this is sufficient evidence to conclude that Heather must have advanced $224,000, as a gift or for the benefit of Tony and Rick equally.³²

[123] Plainly the remaining $400,000 of Heather’s funds were expended on something. The difficulty is there is no evidence confirming if and, if so, how much of the balance of the Redoubt Road proceeds were advanced by Heather to the Property’s development, or that in relation to any such funds being advanced, her intention was to benefit Tony and Rick equally. Guesswork or speculation is not appropriate in this context.

[124] Further, even if I were satisfied that some of Heather’s money had been used to assist develop the Property (with the intention of benefitting Tony and Rick equally), I would then need to make an assessment of the quantum of any such contribution. Researches have not disclosed any authorities directly on point, at least in the context of resulting trusts.

[125] I am satisfied, however, that the inability to accurately quantify contribution would not have been a bar to recovery or to finding a resulting trust. In Hostick v The New Zealand Railway & Locomotive Society Waikato Branch Inc, the property at issue

³²For example, there is no evidence that Tony actually deposited a fresh amount of $138,000 into the Company’s bank account during the financial year to 31 March 2004. Rather, Tony’s evidence was that this was carried or brought over from his earlier trading as AEW Contractors. Neither accountant addressed this specifically at the hearing, other than to agree that the Company’s accounts concerning shareholder funds were substandard and unable to be clearly understood. Mr Gunson noted in his evidence that the source of these shareholder funds was not specified in the accounts, but accepted the accounts would not normally disclose that in any event.

was a steam railway locomotive.³³The plaintiffs claimed they were each part-owners of the locomotive, but the defendant society claimed it was the owner. The plaintiffs were members of the society at the relevant time. They had each made contributions to the purchase price but the contributions themselves were unclear.³⁴Although Asher J found the plaintiffs were the legal contracting party (thus obtaining legal ownership of the locomotive), he also recorded an alternative basis for his conclusion:

[59] I also record that if I was wrong in my conclusion that the legal ownership vested in Mr Hostick and the other contributors, I would conclude that they had beneficial ownership as a consequence of a resulting trust. When a person provides or contributes money to the purchase of property which is acquired partly or wholly in the name of another, there is a presumption that the contributor retains a beneficial interest in the property to the extent of the contribution. This presumption can be rebutted if there is something to indicate an intention to confer a beneficial interest onto the legal transferee (Bateman Television Ltd (in liq) v Bateman and Thomas [1971] NZLR 453 (CA) at pp 461 – 464; Potter v Potter [2003] NZCA 103; [2003] 3 NZLR 145 (CA) at paras [14]

– [16] approved, but not on this point at [2004] UKPC 41; [2005] 2 NZLR 1 (PC)). If the New Zealand Society was the legal transferee, Mr Hostick and others having made voluntary payments for the purchase of the locomotive are presumed to have retained beneficial ownership, and the locomotive is held on trust for them. I am satisfied that he and others did not intend to confer title to the New Zealand Society, or someone on behalf of the Waikato Branch. I consider that the presumption applies.

[126] The Judge was content to apply the presumption notwithstanding the contributions of individual members to the purchase price could not be determined with any precision.

[127] Nevertheless, had I been satisfied on the balance of probabilities that Heather did contribute to the development of the Property, and that contribution was intended to benefit Tony and Rick equally, the only approach to be taken in such circumstances would have been of considerable caution. Any share of the improvements on the Property held for the benefit of Rick in such circumstances would have had to be quantified as modest, and certainly no more than reflecting about a 10 per cent share.

[128] In all of the circumstances however, I am not satisfied on the balance of probabilities that Heather contributed to the development of the Property; I cannot

Hostick v The New Zealand Railway & Locomotive Society Waikato Branch Inc [2006] NZHC 807; [2006] 3 NZLR 842 (HC).

³⁴At [29].

make any sensible or rational assessment of the quantum of any such contribution in any event. The effect of a resulting trust is to divest the legal owner of property of a share of their property. Such divestment must be made on the basis of an appropriate evidential foundation. That evidential foundation is missing in this case. The resulting trust claim must therefore fail.

[129] I turn now to Rick’s claim based on a constructive trust.

Constructive trust based on Lankow v Rose principles

[130] The legal principles in this context are well settled and can be briefly stated.

[131] In Lankow v Rose, the Court of Appeal considered the circumstances in which a constructive trust may arise in the context of a de facto relationship.³⁵Tipping J outlined the following elements to be proved, for a claimant to be granted “a beneficial interest in property owned in law by the defendant”:³⁶

Contributions, direct or indirect, to the property in question.

The expectation of an interest therein.

That such expectation is a reasonable one.

That the defendant should reasonably expect to yield the claimant an interest.

[132] The Court of Appeal recently summarised how the principle in Lankow v Rose has been interpreted since that judgment.³⁷The Court said a claimant must establish that:³⁸

(a) More than a minor contribution was made to the acquisition, preservation or enhancement of the defendant’s assets, whether directly or indirectly;

³⁵Lankow v Rose [1995] 1 NZLR 277 (CA).

³⁶At 294.

³⁷Wakenshaw v Wakenshaw [2017] NZCA 252.

³⁸At [25].

(b) In all the circumstances both parties must be taken to reasonably have expected the claimant would share in the assets as a result;

(c) Contributions need not be monetary in nature, but there must be a causal relationship between the contributions and the acquisition, preservation or enhancement of the defendant’s assets;

(d) The contributions must manifestly exceed any benefits that the claimant derives from the arrangement.

[133] Adapted to the circumstances of this case, Rick must therefore prove that he made a more-than-minor contribution to the Property, in order to (with a requisite causal nexus) acquire, preserve or enhance it. He must prove that both he and Tony reasonably expected Rick would share in the Property as a result. And Rick’s contributions must manifestly exceed any benefit he took from this arrangement.

[134] While I have no doubt Rick contributed in a not insignificant way to the development of the Property and the building of the house on it (such that the factor set out at [132](a) is met), on the basis of the evidence available to me, I am not satisfied that Rick has a consequent beneficial interest in the Property. I say this for the following five reasons.

[135] First, Tony’s evidence, which I consider to be credible, was that Rick certainly helped out in the development of the Property from 2003 onwards. However he continued to draw a regular wage from the Company during this time, and the evidence was broadly that he was either working on jobs for the Company or on the Property. I accordingly view the wage as being linked to both jobs carried out for third parties and to work on the Property. Recompense for contributions to the Property’s development is inconsistent with an expectation of an interest as envisaged under Lankow v Rose.

[136] Secondly, as noted in Wakenshaw v Wakenshaw, the plaintiff’s contribution must manifestly exceed any benefits the plaintiff derives from the arrangement. In this case, Rick lived at the Property rent-free from 2003 to approximately 2007. Other than the dispute over the $20,000 (see [22] above), Rick does not suggest that he
personally funded any of the purchase price of the Property or its subsequent development. Living in the Property rent-free for some four years is accordingly a reasonably considerable benefit.³⁹

[137] Thirdly, and allied to the previous point, there is no evidence or suggestion on Rick’s part that he paid or contributed to any of the regular outgoings of the Property (either when he was living at the Property or otherwise), such as insurance, rates, utilities and so on. Had there been a reasonable expectation on both his and Tony’s part that he had an equal beneficial interest in the Property from the outset, it is unusual that there is no evidence he made any contribution to these regular outgoings.

[138] Fourthly, Rick accepts he was aware Tony was the sole registered proprietor of the Property. Again, had it been intended from the outset that the Property was to be beneficially owned by Rick and Tony in equal shares, it is unclear why he did not also push at any stage to be included on the Property’s title.

[139] Finally, it seems that at no time until 2015, and after the failure of the share- milking venture, did Rick raise any concerns or issues about his purported share in the Property. Again, these circumstances are inconsistent with both parties having a reasonable expectation from before May 2003 that Rick had an equal beneficial interest in it.

[140] For the above reasons, I consider the constructive trust claim is unsuccessful.

[141] I turn now to the third cause of action, fiduciary duty.

Fiduciary duty

[142] Mr Black did not separately address this cause of action in his closing submissions. Nevertheless, as noted at the outset of this judgment, it is not clear how this cause of action adds materially to the previous two causes of action, given a

³⁹This was also the position in Wakenshaw v Wakenshaw [2017] NZCA 252 (see [41]). Although the rent-free period in that case was considerably longer, this was against a backdrop where the claimants had made direct and substantial financial contributions towards the development of a dwellinghouse on the property concerned. That factor does not exist here.

finding of partnership or trustee/beneficiary gives rise to fiduciary obligations in any event.

[143] Mr Black did place some reliance on the Supreme Court’s decision in Chirnside v Fay.⁴⁰However, I am not satisfied the relationship between Rick and Tony from the end of 2002 could properly be characterised as a joint venture giving rise to fiduciary duties. Rather, and as already outlined above, I consider the more likely position was that Tony had agreed to assist Rick upon Rick’s release from prison, and Rick was paid a wage in that regard. I am not satisfied the position changed to any material degree over the period 2003 and 2004 and before Rick began work on his drain-laying apprenticeship in 2005.

[144] In Chirnside v Fay, the Supreme Court concluded that the parties’ relationship in that case could fairly be described as analogous to that of a partnership.⁴¹I do not consider that to be the case here.

[145] A relationship, irrespective of how it is framed, may nevertheless give rise to a relationship of a fiduciary kind which in turn gives rise to fiduciary obligations.⁴² Largely for the reasons I have already outlined in relation to my finding that there was no partnership, I am not satisfied that the relationship between the two brothers was one marked by the entitlement of one party (in this case Rick) to repose trust and confidence in the other, such that that party is entitled to rely on the other party not to act in a way which is contrary to the first party’s interests. Rather, I am satisfied that the relationship was one of one brother agreeing to assist his younger brother on his release from prison, and providing him opportunities to work with him in his existing business, which was then incorporated as the Company. Again, I do not reject the suggestion that there were discussions of how this relationship might evolve over time. But the evidence does not disclose that it did in fact evolve or how any such change might have been implemented, when, and upon what basis.⁴³Similarly, the history of the parties’ relationship and equitable principle do not in my view give rise to an

⁴⁰Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.

⁴¹That the relationship was analogous to a partnership was of some importance in Chirnside v Fay. Tipping J (writing for himself and Blanchard J) repeated (at [90]) that the relationship between the parties was analogous to one of partnership.

⁴²At [72].

⁴³See [89] above.

implication of equal sharing. As noted earlier in this judgment, the brothers’ contributions from the outset were markedly unequal.

[146] For these reasons, I dismiss the third cause of action.

Oppressive conduct

[147] Like the prior cause of action, this was not (significantly) pressed as a separate or free-standing cause of action. Mr Black quite properly acknowledged in his closing submissions that the Companies Act cause of action “may not be necessary or have wings”. He also rightly confronted the issue of standing, in that Rick is not a shareholder (or former shareholder) in the Company. However, Mr Black did refer to the fact that an “entitled person” may seek relief under s 174 of the Companies Act 1993, which includes a creditor. Despite that, it is not clear how Rick could be said to be a creditor of the Company.

[148] Mr Hutcheson also drew my attention to the definition of “shareholder” in s 96 of the Companies Act, and that there is no evidence which would give rise to Rick falling within any categories of that definition. Further, even if the owner of a beneficial interest in shares had standing to seek relief under s 174 (and Mr Black did not address me on this proposition), there is no evidence to reach the conclusion that any or a 50 per cent share of the Company’s shares were held by Tony on trust for Rick.

[149] Mr Black ultimately stated that:

If this cause of action needs to be considered, then the various factual points address above provide ample grounds supporting the affairs of the second defendant company being conducted in an oppressive, discriminatory or unfairly prejudicial manner because of the plaintiff’s “proprietary close” standing in the company.

[150] This submission was not developed any further, though it relies on the same factual matters as relied on for the partnership, trust and fiduciary duty claims.

[151] In the circumstances, I dismiss the fourth cause of action.

Conclusion

[152] There is an order for the taking of an account of the share-milking partnership, and associated timetabling directions, as set out at [94] above. Costs of the taking of the account are reserved pending the finalisation of the account.

[153] Other than the order of an account, the pleaded causes of action are dismissed.

[154] I appreciate the above is not the outcome Rick and his supporters had hoped for. However, the Court can only act on what it considers to be an outcome consistent with the evidence and inferences which may properly be drawn from that evidence. It must not engage in guesswork or speculation.

[155] I consider it appropriate that the costs of this proceeding are reserved pending the finalisation of the account in relation to the share-milking partnership. However, if any party is of the view that costs should be fixed now, a memorandum to that effect may be filed within 15 working days of this judgment. If such a memorandum is filed, I will then have a telephone conference with counsel to discuss and make any necessary timetabling directions.

Fitzgerald J

NZLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2018/470.html