C W FRICKLETON as trustee and executor of the estate of K W FRICKLETON v STAG TRADING LIMITED [2014] NZHC 884

C W FRICKLETON as trustee and executor of the estate of K W FRICKLETON v STAG TRADING LIMITED [2014] NZHC 884 [1 May 2014]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2014-485-710[2014] NZHC 884BETWEEN C W FRICKLETON as trustee and executor of the estate of K W FRICKLETONPlaintiffAND STAG TRADING LIMITEDDefendantHearing: 1 April 2014Counsel: J R Grace for plaintiffD G Dewar for defendantJudgment: 1 May 2014RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH[1] The plaintiff applies for summary judgment for an amount said to be outstanding under an alleged oral agreement dated 31 March 2004. The late Kalvyn William Frickleton (Mr Frickleton) is alleged to have lent $213,932.90 to Stag Trading Ltd (the defendant).[2] Mr Frickleton had four sons. One of them is Carl, who has filed the present proceeding in his capacity as executor and trustee of Mr Frickleton's estate. One of the other sons (Mark), is a director of, and the main shareholder in, the defendant.[3] The loan from Mr Frickleton to the defendant is said to have arisen out of the sale of Mr Frickleton's interest in a motor vehicle dealership known as High Street Cars. Mr Frickleton had been running the business for some years, and was joined by Mark in the business in the 1990s. Mark progressively took a greater role, and by March 2004 he was operating the dealership substantially single-handed.[4] By a letter dated 31 March 2004 Mark wrote to Mr Frickleton advising his intention to set up a company with the specific purpose of buying out Mr Frickleton's share of High Street Car Sales. He proposed to take over the business on the night of 31 March 2004 and suggested that the purchase be based around the accounts prepared by Mr Frickleton's accountant for the year ended on that date.[5] Mark incorporated the defendant company to take over the business, and High Street Cars has been operated by the defendant from 1 April 2004.[6] Mr Paterson, Mr Frickleton's accountant, prepared accounts for High Street Cars as at 31 March 2004. Mr Paterson is now deceased, but handwritten financial statements dated 19 August 2004, written on Mr Paterson's letterhead, were produced in evidence by Mr Colin Chard, a retired financial adviser who had known Mr Frickleton for approximately 30 years and was also close to Mr Paterson.[7] The financial statements as at 31 March 2004 consisted of two handwritten pages, being a balance sheet and a trading statement. The net assets of the business were shown as represented by a current account owing to Mark of $300,546.56, and a current account owing to Mr Frickleton of $213,932.90. This last figure is said to have been the purchase price at which the defendant bought out Mr Frickleton's interest in High Street Cars. The sum is claimed to have been left in the business by way of loan from Mr Frickleton to the defendant.[8] Mr Chard also produced copies of High Street Cars' financial statements for the year ended March 2003. These accounts, again written on Mr Paterson's letterhead, show that the firm's profit for the year was shared roughly equally as between Mark and Mr Frickleton. The same appears to have been the position in the year ended March 2002.[9] Mr Chard's evidence in support of the application was that in March 2004, he was assisting and advising Mr Frickleton on financial matters, and was then seeing him on an almost daily basis. Mr Chard stated that Mark advised Mr Frickleton that he was setting up a company for the purpose of taking over the business, and that Mr Frickleton agreed to sell his interest in the business to Mark's company.Mr Chard stated that Mr Frickleton agreed to provide vendor finance so that the purchase price did not have to be paid immediately. No date for repayment was stipulated. However it was agreed that interest would be charged at a rate of 10 per cent per annum compounding monthly. Mr Chard says that he was privy to those discussions.[10] In a second affidavit, Mr Chard addressed the issue of liability for interest on the alleged loan from Mr Frickleton to the defendant. His evidence on the point was as follows:21. As far as I am aware, the agreement to pay interest did not arise from [Mr Frickleton] and Mark sitting down together and saying "interest will be paid at 10% per annum compounding monthly". However, there was still an agreement.22. The requirement that interest should be paid at 10% per annum compounding monthly was originally Jon Paterson's idea. [Mr Frickleton's] family trust was paying interest of over 9% per annum, compounding daily, on loans that his family trust owed the National Bank. [Mr Frickleton] then insisted that interest of at least 10% would have to be paid on the loan. [Mr Frickleton] said that he would not lend money to the defendant if he could not offset the interest that he was paying.23. The defendant agreed to continue borrowing from [Mr Frickleton] on that basis. The defendant's accountant, Aaron Humphrey, actually told me that. All the loan schedules for the 2005, 2006 and 2007 financial years show interest accumulating at 10% per annum compounding monthly. [Mr Frickleton] was happy to continue lending on the basis set out in the accounts.[11] Mr Chard addressed in his second affidavit the question of when the alleged debt was due and payable. His evidence was that it was clearly understood by Mr Frickleton that the loan was not immediately due and payable. It was understood that a reasonable demand or request would need to be given first. Mr Chard stated that Mr Frickleton never expected that the defendant would be able or willing to pay him $213,932.90 plus interest as soon as he asked for it. He said that the basis of the agreement was Mr Frickleton would give the defendant a reasonable time for payment.[12] Mr Chard produced copies of the defendant's financial statements for the years ended 31 March 2005 and 31 March 2007. In the statement of financialposition as at 31 March 2005, a loan to Mr Frickleton in the sum of $236,433 was shown as a non-current liability. That sum was said to be made up of a loan figure of $213,933 plus interest of $27,500, less payments of $5,000. The balance of $236,433 was shown as "non-current".[13] The defendant's financial statements for the year ended 31 March 2007 also included reference to a debt to Mr Frickleton as a "non-current liability". The debt to Mr Frickleton at 31 March 2007 was said to stand at $251,183 comprised of an opening balance figure of $244,933, with interest of $23,750, less payments of $17,500.[14] Although Mr Paterson is now deceased, an affidavit sworn by him in certain proceedings under the Property (Relationships) Act 1976 in the Family Court at Lower Hutt was produced with a second affidavit sworn by the plaintiff in this proceeding. In his affidavit in the Family Court proceeding, Mr Paterson said that the March 2004 balance sheet for High Street Cars did accurately reflect the value of the business. He asserted that all of his papers were correct.[15] At the time of the transaction with Mr Frickleton in March 2004, Mark retained his own accountant, Mr Humphrey. Mr Humphrey is also now deceased, but he too gave evidence in the Family Court proceeding. A copy of his evidence in that proceeding was produced, without objection, in this proceeding. Mr Humphrey said that, following Mark's purchase of Mr Frickleton's interest in High Street Cars, Mr Humphrey was required to consult with Mr Paterson as to opening stock figures, and to pick up Mr Paterson's figures for the on-going trading of the business. Mr Humphrey described the transaction as very much an arm's length one, as the father and son were estranged commercially. He stated that, on his examination of Mr Paterson's workings, all payments and liabilities had been accurately recorded. He said that, at the time of creating the 2005 accounts for the defendant, he prepared a reconciliation to ensure the fairness of the sale transactions. He said that he was satisfied with the allocation.[16] Mark's evidence is that Mr Chard's testimony is false, and that Mr Humphrey proved to be incompetent. He stated that he did not ask Mr Frickleton to sell him hisshare in the business, and that there was no sale by Mark as he already owned the business.[17] In a brief of evidence prepared for a High Court constructive trust proceeding brought by the same claimant who had filed the Family Court proceedings against Frickleton, Mark said that, by March 2004, Mr Frickleton was not involved on any day-to-day basis in the business at all. He said that he was running the business himself, but would make occasional payments to his father on a "grace and favour" basis. As he put it in his brief of evidence, the only thing Mr Frickleton owned of value to Mark by 2004 was his good name and the motor vehicle dealer's licence.[18] Mark said in his brief of evidence that he had no idea at the time why the current account debt owing to his father was set up by the accountant at the time of the changeover.[19] Mark said that before his father's death in 2009, his father never told him that the defendant owed him anything, and never asked about any "current account".[20] Mr Frickleton's income tax return for the year ended 31 March 2005 included a figure of $27,576.83 for total gross interest earned during the year by Mr Frickleton, which included the $27,500 paid to him by the defendant.[21] Mr Frickleton provided an affidavit of assets and liabilities in the Lower Hutt Family Court proceedings on 15 March 2006. In that affidavit, he identified as an asset a debt owed to him by the defendant. The value of the debt as at the date of the affidavit was said to be $255,000.[22] In March 2013, the claimant in the Family Court and constructive trust proceedings indicated that she would settle her claims against Mr Frickleton's estate for $80,000 together with the release of the proceeds of sale of a property which had been held in a solicitor's trust account, and on payment of certain costs. On 4 April 2013, Mark offered, through his solicitors, to advance the $80,000 required to settle the claimant's claims. He indicated that he would either do so on the basis that he would stand in the claimant's shoes in respect of her claims against the estate, orhave a full settlement with his brothers. In the letter dated 4 April 2013, the defendant's solicitors asserted that the financial statements which purport to record the advance from Mr Frickleton to the defendant are plainly wrong.[23] Mark's initiative towards settlement of relationship property and constructive trust claims was well received, and by letter dated 8 April 2013 the estate's solicitors advised that, if matters with the claimant were settled by Mark as set out in the 4 April 2013 email, the plaintiff would authorise the release of the funds held in trust and would pay the costs sought by the claimant. The solicitors for the plaintiff noted:As I understand it, [the claimant's solicitors'] email simply records an offer you had orally made, and all you need to do is put it in writing. It will then be accepted.The basis on which you record the settlement between Mark and [the claimant] is a matter between you and [the claimant's solicitor]. If Mark steps into [the claimant's] shoes, then so be it.[24] The plaintiff's solicitor went on to suggest that Mark should put his offer to the claimant's solicitor in writing, noting that it would be a matter between Mark and the claimant how the settlement between them was recorded.[25] The defendant's solicitors replied the same day, seeking confirmation that the plaintiff understood that the defendant does not admit the debt claimed in the present proceeding. The defendant's solicitors said:2. If there is a claim against [the defendant] by either the Frickleton estate or otherwise, the funds paid by Stag/Mark ($80,000) will be acknowledged as having been paid for the benefit of the estate, and will at the very least be set off.3. That the settlement by Mark/Stag of [the claimant's] claim on this basis is recognised as being in the best interests of the family.[26] The constructive trust proceeding was set down for hearing in this Court on 29 April 2013. However, an adjournment was sought by memorandum of counsel dated 11 April 2013. The memorandum, referring to leave having been granted to Stag Trading Limited to appear and be heard at the hearing, advised the Court that a partial settlement had been reached, and that a "collateral agreement" had also beenreached with Stag Trading Limited, which would, inter alia, include transfer/assignment of the claimant's interests to Stag Trading Limited. The memorandum explained:5. In essence Mark Frickleton has agreed to provide funds to meet [the claimant's] claim to her satisfaction, but has not been able to resolve the terms on which the funds will be paid.6. The purpose of the partial settlement is to satisfy [the claimant], who will not otherwise wish to proceed with the fixture or her claims. Unfortunately, the issues within the estate and trust, however, are not straightforward, but it is hoped that they will be capable of resolution without recourse to a fixture and are essentially matters to be resolved between the beneficiaries who are all brothers.[27] The fixture for the hearing of the constructive trust claim was vacated, and that claim remains to be resolved. It appears that no steps have yet been taken by Mark, as assignee or transferee, to advance the claimant's claims against Mr Frickleton's estate as beneficiary under the alleged constructive trust.[28] The claimant, Mark and the defendant have executed a deed whereby the claimant assigned to the defendant and Mark all her causes of action in the relationship property and the constructive trust proceedings.[29] The plaintiff made demand for the debt on 23 December 2013. A further demand was made on 22 January 2014, saying that the sum of $406,580.20, which included interest compounded at the rate of 10 per cent per month, was immediately payable.The pleadings[30] The statement of claim was very brief. It simply pleads the loan made by oral agreement on 31 March 2004, the claimed interest rate of 10 per cent compounding monthly, and that the loan was repayable upon demand. It refers to the two repayments ($15,000 in June 2005 and $17,500 in April 2006), and acknowledges the plaintiff's agreement to set off from the amount due the sum of $80,000, which the defendant paid to the claimant in the relationship property and constructive trust proceedings. It alleges that the defendant repudiated the loan in an affidavit sworn by Mark on 10 December 2013.[31] In its notice of opposition, the defendant says that there was "no loan or agreement to pay interest". The defendant also pleads that the claim is out of time under the Limitation Act 2010, that the defendant has rights of set-off to be determined by the Court, and that the plaintiff has agreed that the rights of set-off held by the defendant are to be determined. Finally, the defendant says that the Court ought to exercise its discretion against the entry of summary judgment.Discussion –the legal principles applicable to summary judgment applications[32] The principles to be applied in considering an application for summary judgment have been clearly established through decisions of the Court of Appeal such as Pemberton v Chappell,1 Grant v NZMC Ltd2 and Westpac Banking Corporation v M M Kembla New Zealand Ltd.3(a) The plaintiff must satisfy the Court that the defendant has no arguable defence to the claim brought against it. The issue is whether there is a real question to be tried.The following broad principles are to be applied:(b) It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.(c) Although the Court should adopt a robust approach, summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.[33] The plaintiff also referred to Eng Mee Yong v Letchumana,41 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.where Diplock LJ said:2 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).3 Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).4 Eng Mee Yong v Letchumanan [1980] AC 331 at 341.Although in the normal way it is not appropriate for a Judge to resolve conflicts of evidence on affidavits, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal lacking in precision, inconsistent with undisputed contemporary documents or other statements made by the same deponent, or inherently improbable in itself it may be.Application of legal principles in this caseWas there a loan?[34] I am satisfied that the defendant has not raised an arguable case that no loan was made by Mr Frickleton to the defendant.[35] There are, of course, evidentiary issues for the plaintiff, in that the loan agreement relied upon is said to have been made orally, and the party who entered into the agreement with Mark on behalf of the defendant is deceased and unable to give evidence. To meet that difficulty, the plaintiff relies on the evidence of Mr Chard, who deposes that he was privy to the relevant discussions. The plaintiff also relies on affidavits filed in the Family Court proceeding where, in an affidavit setting out details of his assets and liabilities, Mr Frickleton included as an asset the debt due to him from the defendant, and a letter from Mark dated 31 March 2004 in which he advised Mr Frickleton of his intention to "buy out" Mr Frickleton's share of High Street Cars. The plaintiff also relies on the fact that the claimed debt, with interest thereon, was included in the defendant's financial statements as a debt due to the late Mr Frickleton, in each of the years ended March 2005, March 2006 and March 2007.[36] Although Mr Frickleton appears not to have participated to any great degree in the running of the car sales business in the period from 1999 through to 31 March 2004, he appears to have participated equally with Mark in the profits of the business for each of the years ended March 2002, March 2003 and March 2004, and it was Mr Frickleton who retained the licence for the car sales business. In an affidavit sworn in the constructive trust proceeding on 31 May 2012, Mark acknowledged that, in the period between 2000 and 2004, he and his father were still partners "on paper". His evidence was that by about 2000, his father had pretty much lost interestin the business, and although he still completed the occasional deal, he preferred to "potter around".[37] Even if that were so, I do not see it as a basis for concluding that, by 31 March 2004, Mr Frickleton no longer had any interest in the business. The situation appears to me to be a common one, where a father who has been joined in business by his son tends to wind down his involvement in his latter years. It does not mean that the business is somehow automatically transferred to the son, particularly in circumstances such as this where profits appear to have been shared roughly equally right through until 31 March 2004.[38] Indeed, Mr Dewar did not suggest at the hearing that Mr Frickleton had nointerest in the business as at 31 March 2004. Mark acknowledged in his counsel's submissions that Mr Frickleton had a "residual interest" in the business, but not to the extent of the amount of the loan now claimed by the plaintiff. Mr Dewar submitted that Mr Frickleton's interest in the business at 31 March 2004 was "unquantified".[39] There is no suggestion that Mr Frickleton gifted his interest in the business to the defendant on 31 March 2004, nor any suggestion that the defendant did not take over outright ownership of the business on that date. In those circumstances, the only sensible conclusion is that Mr Frickleton did leave the amount of his interest in the business, and effectively thereby lent the defendant a sum equivalent to the amount of that interest.[40] Both parties subsequently acted on the basis that there was a loan of $213,932.90 from Mr Frickleton to the defendant. Mr Frickleton included the loan as an asset in his affidavit of assets and liabilities subsequently filed in the Family Court, in circumstances where it can be safely assumed that he would not have included the loan if he did not regard it as an asset, which would or might be subject to the claimant's relationship property claims. The defendant also adopted the figure of $213,932.90 for a period of three years in the defendant's financial statements for the years ended 31 March 2005 to 31 March 2007.[41] It is in my view not plausible that Mark did not notice the loan recorded in the defendant's financial statements. The loan was set out separately and not included as a component part of a total figure incorporating other loans. In my view Mark could not have missed it. Nor do I consider it plausible that Mark, as the owner and director of the business, would not have been keenly interested in the loan figures in his company's accounts, particularly having regard to the apparently strained relationship between Mark and his father over the latter part of their involvement together in High Street Cars.[42] As noted by the Privy Council in Eng Mee Yong, I am not bound to accept uncritically as raising a dispute of fact which calls for further investigation, every statement in an affidavit which is lacking in precision, inconsistent with undisputed contemporary documents, or which is inherently improbable. In my view, the defendant's contention that there was no loan at all, or that it was "unquantified", falls within that category.[43] Accordingly, I find that the defendant has not raised any real question for trial on the issue of whether or not Mr Frickleton lent the defendant $213,932.90 on 31 March 2004.Was there an agreement for interest on the loan?[44] The evidence relating to the obligation to pay interest was substantially contained in Mr Chard's two affidavits. In his first affidavit, he said that he was privy to discussions in which Mark and his father agreed that interest would be charged at a rate of 10 per cent per annum compounding monthly.[45] In the same affidavit, Mr Chard referred to the defendant's financial statements for the year ended 31 March 2005, which showed an item "interest $27,500" under the heading "Loan – K W Frickleton". The same financial statements showed a payment or payments totalling $5,000 having been made during the year. However in his first affidavit Mr Chard said that this payment was not made "so the true interest was $22,500 rather than $27.500".55 Mr Chard's 24 January 2014 affidavit at [12].Mr Chard also saidthat the "true interest rate" was "rounded up".6[46] While Mr Patersen's accounts for High Street Cars appear to have been accepted and relied upon by Mark and the defendant at the time, I am not satisfied that the same can necessarily be said of the defendant's accounts, particularly in circumstances where Mr Chard asserts that a payment of $5,000 shown in those accounts was not in fact made. In his reply affidavit, Mr Chard's stated:He did not state by how much the true interest figure was rounded up.7As far as I am aware, the agreement to pay interest did not arise from [Mr Frickleton] and Mark sitting down together and saying "interest will be paid at 10% annum compounding monthly" however there still was an agreement.The requirement that interest should be paid at 10% per annum compounding monthly was originally Jon Paterson's idea. [47] That statement might be consistent with Mark's claim that he did not make any agreement to pay interest. Furthermore, no demand appears to have been made for interest, and the sums shown in the accounts as having been paid appear to be round figures, which may have been lump sums repaid in reduction of the principal sum.[48] Therefore, it would not, in my view, be safe to enter summary judgment for any amount in respect of interest. The allegation that there was an oral agreement made approximately 10 years ago is disputed, and such contemporary documents as do exist touching the interest issue are not so strong that Mark's evidence should be rejected as false in a summary procedure such as the present application. I am not satisfied that the plaintiff has shown that the defendant has no arguable defence to the claim for interest.Limitation[49] Mr Dewar submitted that the terms of the agreement are not ascertainable or to be presumed from the existing written record. He submitted that the agreement may well be unenforceable for limitation. He acknowledged that if the Court were to6 At [12].7 Mr Chard's 27 March 2014 affidavit at [21].find the debt repayable on demand it might be countered that only demand triggered obligation. Accordingly the time would not run for limitation purposes until the demand had been made. However, a creditor cannot simply demand interest under a contract that has accrued more than six years before the date of demand.[50] In his submissions, Mr Grace referred to s 5(1)(a) of the Limitation Act 2010, which provides that, where a claim is made based on an obligation not enforceable until a demand is made, the limitation period commences on the date on which the defendant defaulted after demand was made.[51] Mr Grace submitted that the plaintiff's evidence of the existence of the loanis evidence of a loan payable upon demand. He noted that the defendant's balance sheets show the loan to the deceased as a "non-current liability", as opposed to Mark's shareholder's account with the defendant where the amount due by the defendant to Mark was shown as a "current liability".[52] In his second affidavit, Mr Chard said that Mr Frickleton never expected the defendant would be able or willing to pay him $213,932.90 plus interest as soon as he asked for it. Mr Chard went on to say:8[Mr Frickleton] understood that he would have to give the defendant a reasonable time for payment.[53] That part of Mr Chard's second affidavit appears to raise two questions. The first is whether the loan from Mr Frickleton to the defendant was a loan repayable upon demand, in which case no limitation issue would appear to arise, except in respect of the claim for interest payable in the early years. The second question is whether the loan was simply to be repaid within a reasonable time.[54] In the latter case, it seems to me that the defendant might have an arguable limitation defence based on the fact that a "reasonable time" would have expired long before the date which is six years before the plaintiff commenced the present proceeding.98 Mr Chard's 27 March 2014 affidavit at [29].9 Limitation Act 1950, s 4 (1)(a). As the loan was made on 31 March 2004, the relevant statute is the Limitation Act 1950.[55] I accept Mr Dewar's submission that the terms of the agreement in this case, insofar as they relate to the time for repayment of the loan, cannot safely be ascertained or presumed from the written record. And Mr Chard's evidence seems equivocal on the question of whether the loan was to be repaid within a reasonable period, or repaid upon demand.10[56] In circumstances where the alleged agreement was an oral one made approximately 10 years ago where one of the parties to the agreement is now deceased and the other denies that any agreement was made, in my view the issue of whether the loan was to be repaid upon demand, or whether it was merely left to be repaid within a reasonable time, is one which should properly be left for trial. In those circumstances, I find that the plaintiff has failed to show that the defendant has no arguable limitation defence.[57] Accordingly, the summary judgment application must fail.[58] It is not necessary to address the defendant's set-off defence.Conclusion[59] The application for summary judgment is dismissed. The defendant is entitled to costs on a scale 2B basis plus any disbursements as fixed by the Registrar.[60] A case management conference is to be allocated on the next practicable date, at which timetable directions will be given for the future conduct of the proceeding.Associate Judge Smith10 In paragraph [7] of his first affidavit, Mr Chard simply said that no date for repayment was stipulated. In this second affidavit, Mr Chard said (at [28]) that it was "understood" that a reasonable demand or request would need to be given for repayment of the loan, and that Mr Frickleton understood that he would have to give the defendant a reasonable time for repayment. It is not clear from Mr Chard's evidence on this point whether the "understanding" referred to was that of Mr Frickleton alone or whether (to Mr Chard's knowledge) it was also shared by Mark.Solicitors:Jeffries Raizis, Wellington for plaintiffThomas Dewar Sziranyi Letts, Lower Hutt for defendant