NATIONAL PLANT AND EQUIPMENT PTY LIMITED v P MUNDY HEAVY EQUIPMENT LIMITED [2020] NZHC 1201

NATIONAL PLANT AND EQUIPMENT PTY LIMITED v P MUNDY HEAVY EQUIPMENT LIMITED[2020] NZHC 1201 [3 June 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-2443[2020] NZHC 1201BETWEEN NATIONAL PLANT AND EQUIPMENTPTY LIMITEDPlaintiffAND P MUNDY HEAVY EQUIPMENTLIMITEDFirst DefendantPAUL JAMES MUNDYSecond DefendantHearing: 20 May 2020Appearances: Daniel Kalderimis and Daniel Street for the PlaintiffDes A Wood for the DefendantsJudgment: 3 June 2020JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 3 June 2020 at 3:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Chapman Tripp (D Kalderimis/D Street), Wellington and Auckland, for the PlaintiffCraig Griffin & Lord (C N Lord), Auckland, for the DefendantsCopy for:D A Wood, Auckland, for the First Defendant[1] National Plant and Equipment Pty Ltd seeks recovery of USD 1.32m it paidP Mundy Heavy Equipment Ltd on 27 September 2019. It sues for money had andreceived and for breach of trust. It also sues Mundy Heavy Equipment's director,Mr Paul Mundy, for knowing assistance in misapplying some of the money paid to hiscompany. It has applied for summary judgment on all its causes of action. I find forit on all of them.[2] National Plant, an Australian company, provides heavy earthmovingequipment for mining and civil construction sectors in Australia. It has a fleet of over250 units, including excavators, dump trucks, bulldozers, graders, loaders,compacters, water trucks, service trucks and loaders. Customers include some ofAustralia's major mining companies. Mr Mark Ackroyd is the company's managingdirector and chief executive officer.[3] Mundy Heavy Equipment, a New Zealand company, carries on businesssourcing heavy equipment for prospective purchasers from around the world. Mr PaulMundy is the sole shareholder and director of the company.[4] U&M Mineração e Construção S/A.is a Brazilian mining company. Mr Mundysays that his company had an exclusivity arrangement with U&M under which hecould market and sell its trucks and equipment.Facts – general[5] In 2019, U&M had six surplus dump trucks it wished to sell. These are large240 tonne vehicles used in mining. U&M asked Mr Mundy to obtain purchasers forthe dump trucks. National Plant was one of the potential purchasers Mr Mundycontacted. National Plant was interested in buying the dump trucks with a view tohiring them out to one of its mining customers, Rio Tinto. Before it could go aheadwith its purchase, it needed the go-ahead from Rio Tinto. From June to September2019 there were negotiations towards an agreement for National Plant to buy the sixdump trucks. The executive who fronted the negotiations for U&M was Ms LucianaNeves. Mr Ackroyd represented National Plant. Negotiations were by email andtelephone. Mr Mundy acted as a go-between in the negotiations. Fabick Equipment,a Wisconsin entity based in Milwaukee, which carries on a similar business to MundyHeavy Equipment also played a part but for this case its role is peripheral. Arepresentative of National Plant went to Brazil to inspect the trucks. National Plantsent non-binding letters of intention to buy the trucks. On 18 September 2019 NationalPlant sent Mundy Heavy Equipment a purchase order for the dump trucks forUSD 13.2m. The next day Mundy Heavy Equipment sent an invoice to National Plantfor the dump trucks. Ten per cent of the price was payable immediately and was non-refundable, 40 per cent when the trucks were disassembled on site and the balancewhen they were delivered to a port in Brazil. National Plant did not pay the ten percent immediately. U&M had other interested purchasers. After giving National Planta short time to pay, on 25 September it said that it would offer the dump trucks toothers. That was for 20 days. If the trucks did not sell, they would come back on themarket on 15 October. National Plant wanted to show U&M that it was still genuinein wanting to buy the dump trucks. It now had finance arranged. It paid the ten percent, USD 1.32m, to Mundy Heavy Equipment, which held the money in a US dollaraccount. In the meantime U&M sold the dump trucks. National Plant asked MundyHeavy Equipment to repay the USD 1.32m. It did not do so. It transferredUSD 450,000 into a NZD account, converting to NZD 700,825.42. It cleared itsoverdraft of $95,354.62 and paid other expenses. It used NZD 103,712.26 of themoney it transferred into its operating account. On 5 November Jagose J made an orderpreserving the funds held by Mundy Heavy Equipment.[6] On those facts, which are not in dispute, National Plant says that it can recoverthe USD 1.32m in restitution as money had and received. It also says that MundyHeavy Equipment held the funds under a trust that failed. Mr Mundy is alleged tohave dishonestly assisted a breach of trust in moving the funds into the NZ dollaraccount and using them for Mundy Heavy Equipment's operating expenses.[7] There was no disagreement as to the principles applied on plaintiffs'applications for summary judgment. The Court of Appeal restated them in Krukzienerv Hanover Finance Ltd.1 They do not need to be repeated.The role of Mundy Heavy Equipment[8] At the outset Mundy Heavy Equipment acted as agent for U&M in marketingthe dump trucks. In an email of 2 January 2019 to Mr Ackroyd, Mr Mundy advised:I have been offered direct from the owners 6 Komatsu 830Es, all are 2014with between 4,500 hrs to 3,500 hrs approx On 5 June 2019, he emailed Mr Ackroyd saying that the trucks have just come backto the market:I have been told from the owner I have authority to sell them.In an email of 29 July 2019, Mr Jack Fabick of Fabick Equipment emailedMr Ackroyd:I asked the owner about payment terms, enclosed is their response On 6 August 2019, Mr Mundy emailed Mr Ackroyd:Re the 830Es you have been working on buying from Jack Fabick. Jack andI are working together on this as I have sole rights to sell the trucks on behalfof the owner. [9] There is no evidence that Mundy Heavy Equipment Ltd was to buy the dumptrucks from U&M and on-sell them to National Plant. Nor is there any evidence thatNational Plant appointed Mundy Heavy Equipment Ltd as its agent to purchase thetrucks.[10] National Plant sent a letter of intent on 13 September 2019 addressed to U&M.At Mr Mundy's request, it was amended to be addressed to Mundy Heavy Equipment.Similarly, National Plant's payment order of 18 September 2019 was addressed toMundy Heavy Equipment instead of U&M. But that does not change the fact that1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]-[27].Mundy Heavy Equipment was acting as agent on behalf of its principal, U&M. Underthe contract that was negotiated, ownership of the dump trucks was to pass from U&Mto National Plant. While Mundy Heavy Equipment had played a part in bringing aboutthat agreement, it was not a party to it, but merely agent for U&M.[11] Mundy Heavy Equipment was still U&M's agent when National Plant paid itthe USD 1.32m in September, but when the restitution claim is considered it will beseen that the agency goes to the reason why the payment was made, but not to thecapacity in which it received the money from National Plant.The facts around negotiating the agreement with U&M and its cancellation[12] The negotiations leading up to the agreement with U&M give context for whathappened afterwards. U&M was keen to sell and had interest from others besidesNational Plant. On the other hand National Plant did not want to commit itself to anypurchase unless it had a commitment from Rio Tinto that it would use the dump trucks.It took time to get clearance from Rio Tinto. U&M did not consider that NationalPlant moved promptly enough in making an offer for the dump trucks.[13] On 8 August 2019, Mr Mundy emailed Mr Ackroyd asking about a decisionwhether National Plant wanted to buy. On 24 August 2019, Ms Neves emailedMr Mundy that they would hold the trucks but U&M must receive a purchase orderby Wednesday 28 August and a 10 per cent payment by the end of the next week. On30 August, Ms Neves emailed Mr Mundy that U&M was "expecting a payment orderby tomorrow" as they have another buyer pushing to buy with immediate payment:I am sorry but we have been delaying this for four weeks now and we cannothold it any more.In his response, Mr Mundy assured her that they were close to a deal.[14] On 13 September 2019, Mr Mundy emailed Mr Ackroyd that U&M hadaccepted National Plant's offer. He asked for a letter of intent and purchase order tobe sent.[15] The contract was made on 18/19 September 2019 with National Plant'spurchase order and Mundy Heavy Equipment's invoice. Ten per cent of the purchaseprice, USD 1.32m, was payable immediately to Mundy Heavy Equipment's bankaccount. It was "non-refundable."[16] On 23 September 2019 Mr Ackroyd emailed Ms Neves, confirming hiscompany's purchase of the dump trucks and that they had approval from their miningcompany, but said that they were:Unable to transact the deposit today as we had a few holdups with ourfinancing arrangements, which will be resolved in the coming days, just asmall delay our end and our intentions are to transact as soon as possible,apologies for the slow progress, we ask for your patience in this matter.[17] In response, on 24 September, Ms Neves emailed that U&M had committedwith another buyer and:If the 10% is not on U&M account by Wednesday, that means you transfer thefunds today to Paul and he transfers back to U&M we cannot back up on ourcommitment with this other buyer.We have been patient and did the best we could to help but at this time that'sall we can commit.In an email of the same date to Mr Ackroyd, Mr Mundy emphasised the importanceof paying on that day:I've tried to call you, believe me if we don't get a payment working todayU&M will invite there customer that is waiting to inspect the trucks. If thathappens, we will be out until they have completed there due diligence, theymay decide to purchase or not, but we will be out. I've been in this situationwith U&M before, they are very loyal to there clients. Whether you chooseto believe me or not it's up to you, from my phone call this morning withLuciana I believe her in what she is saying.[18] Mr Ackroyd's email later that day indicated that payment would not be madethat day but:Our intention is to proceed with the purchase however we have a few minorholdups which are being resolved this week.In a further reply, Mr Mundy indicated:From my talks with U&M we are finished today. Unless something happenswith U&M overnight, our deal is no longer viable unfortunately, In a further email that day, Mr Ackroyd said:We will have the deposit paid this week...and confirmed their intention to go ahead with the purchase.In response, Mr Mundy said:Mark, you missing the point. U&M told me on the phone this morning thatwe are out tomorrow if no money is movingAs Luciana Neves said nopayment moving today, deals off.Mr Mundy also emailed Mr Ackroyd on 24 September, advising that he was happy forNational Plant to pay the deposit directly to U&M:But it must be done today.[19] National Plant did not pay. On 25 September 2019 Ms Neves emailedMr Ackroyd:We are sorry but we have agreed with another client to release the trucks forthem today and they already booked their flights for inspection. With thatbeing said, we cannot hold the trucks for National.We have given them a period of 20 days so on October 15th if we do not closethe deal by this date we can release the trucks back.In response to an email from Mr Mundy on the same day asking to reinstate, sheemailed:We have been very transparent with you at all times. It is not up to my decision.It's the board decision. I have hold it as much as I could, asking them manytimes for extra days.The payment of USD 1.32m to Mundy Heavy Equipment[20] By 27 September 2019, National Plant was in a position to send theUSD 1.32m. By then U&M was arranging for others interested to inspect the trucks.Before sending the money to New Zealand, Mr Ackroyd emailed Mr Mundy:We are ready pay the 10% deposit immediately for the purchase of the 6 x830E Dump Trucks.Do we transfer to U&M or to you.Call me to discuss urgently.[21] In response, Mr Mundy emailed:Mark, can you please send me a copy of the transfer receipts so I can attach itto my email to Luciana.[22] Mr Mundy advised Ms Neves of the payment in an email:Mark has now transferred to my account the deposit for the 830E trucks as perhis email this week. I have instructed my bank to transfer the funds to yourbank account as per your invoice as soon as they hit my account. I hope youcan understand my position in this. I have been trying my hardest with U&Mto complete this deal.I hope you except this even though a little late.[23] Ms Neves replied on 28 September:As per our Whatsapp conversation, please do not transfer any fund to U&Muntil we have a position from the buyer that is currently inspecting the trucks.That could happen from next Monday till 15 days later, thank you for yourunderstanding.[24] On 28 September Mr Mundy emailed Mr Ackroyd:U&M have their clients inspecting the 830Es today. They have 18 days fromtoday before the trucks will be released back to us.[25] What I have set out above is based on documents over which there is nocontest. There is also evidence of a telephone conversation between Mr Ackroyd andMr Mundy about this time. Mr Ackroyd says that the conversation was on25 September 2019. He asked Mr Mundy whether they should make the payment "toshow U&M we are good for the dollars", and he says that Mr Mundy replied:Yes, we should I will ring LN2 and transfer the deposit to them once I have it.Also show them your remittance advice, that way they may proceed to sellyou the trucks.2 That is, Ms Luciana Neves, U&M's executive.[26] On the other hand, Mr Mundy says that the telephone conversation was on27 September 2019. According to Mr Mundy Mr Ackroyd asked that the deposit berepaid if it was not accepted. Mr Ackroyd wanted him to agree that it would berefunded but Mr Mundy did not reply to Mr Ackroyd on that point. In his replyaffidavit, Mr Ackroyd confirms that part of Mr Mundy's evidence.[27] Mr Mundy's fiancée, Ms Oliver, says that the conversation was in a car andshe heard it on the Bluetooth speaker system. She recalls Mr Ackroyd tellingMr Mundy that he had everything sorted out at his end and was ready to pay thedeposit. When asked whether it should be paid to U&M or to Mr Mundy she says:Mr Mundy replied that it would be paid to him and he would then present theoffer.She understood that. She recalls Mr Ackroyd saying:I trust that you will return the money if there really is another buyer.but she says that Mr Mundy did not respond to that.[28] The three of them give different accounts. Normally in a summary judgmentapplication caution is required in relying on alleged oral statements. Working out whatwas said is usually better left to an ordinary hearing with witnesses giving oralevidence and being cross-examined. But in this case all agree that Mr Ackroyd didraise the question of repayment if the dump trucks did not come back on the marketand that Mr Mundy did not respond to that. As there is no disagreement among themon that point, I accept it. National Plant paid Mundy Heavy Equipment after thatconversation.The applicable law[29] The National Plant claim relies on its agreement to buy the dump trucks havingbeen terminated by U&M on 25 September 2019. To see whether it was terminated,it is necessary to apply the rules of law governing the agreement. It was between aBrazilian seller and a Queensland buyer and involved delivery to a port in Brazil forshipping to Australia. While a New Zealand company played a part in bringing aboutthe contract, New Zealand law does not govern the agreement. It is not, however,necessary to apply any choice of law rules because the law is the same, whetherBrazilian or Queensland law. Both Australia and Brazil are parties to the UnitedNations Convention on Contracts for the International Sale of Goods of 11 April1980.3 The convention applies to contracts for the sale of goods between parties whoseplaces of business are in different states when the rules of private international lawlead to the application of the law of a contracting state.4 Whether the proper law ofthe contract is Queensland law or Brazilian law, the convention applies.5 Theagreement does not come within any of the exceptions under Article 2 of theConvention. Accordingly, the rules under the convention decide whether the contractwas terminated. As New Zealand is also a party to the convention, the result wouldbe the same if New Zealand law were applied.6[30] National Plant's first cause of action against Mundy Heavy Equipment is inrestitution. In a restitutionary money claim arising out of a cross-border transfer of anasset or money, the law of the place of enrichment applies. The authorities, such asthey are, were referred to in MacMillan Inc v Bishopsgate Investment plc (No.3).7 Inthis case, New Zealand is the place of enrichment and New Zealand law applies.[31] National Plant also says that Mundy Heavy Equipment held funds on trust forit. Any trust arose in New Zealand either when Mundy Heavy Equipment receivedthe USD 1.32m from National Plant or some time later. New Zealand is the properlaw of the trust and any claim under trust law is decided under New Zealand law.[32] Mr Mundy is sued for assisting in the breach of trust. That claim, though amatter of trust law, has a delictual aspect as Mr Mundy is not alleged to be a trustee,but is said to be liable as an accessory to a breach of trust. The facts giving rise to the3 For Queensland, see the Sale of Goods (Vienna Convention) Act 1986 (Qld).4 United Nations Convention on Contracts for the International Sale of Goods 1489 UNTS 59(opened for signature 11 April 1980, entered into force 1 January 1988) art1(1)(d).5 For what it is worth, the proper law of the contract appears to be Brazil's. The seller was Brazilian.The dump trucks were in Brazil. Delivery was to a port in Brazil. Those factors outweigh others,namely that the buyer was Australian and part of the purchase price was payable in New Zealand.6 Contract and Commercial Law Act 2017, ss 204 and 205, 4th schedule.7 MacMillan Inc v Bishopsgate Investment plc (No.3) [1996] 1 WLR 387 (CA) at 397.claim all occurred in New Zealand and relate to a New Zealand trust which held fundsin New Zealand. New Zealand law applies.The status of the U&M agreement to sell the dump trucks to National Plant after25 September 2019[33] There is no dispute that U&M agreed to sell the dump trucks to National Planton 18-19 September for USD 13.2m and that National Plant did not pay ten per centof the price on time. For its case National Plant says that the agreement had come toan end before it paid the USD 1.32m on 28 September. Whether that is so is decidedunder the UN Convention on Contracts for the International Sale of Goods.[34] Under Art 53 of the convention, the buyer must pay the price of the goods andtake delivery of them, as required by the contract and the convention. The conventiongives the seller remedies if the buyer fails to perform its obligations, including failureto pay.8 Under Art 63(1), the seller may fix an additional period of reasonable lengthfor the buyer to perform its obligations (sometimes called a grace period or Nachfrist).If time is extended, (unless the buyer says that it will not perform in the extendedperiod) the seller may not during that period resort to any remedy for breach ofcontract.9 While not identical, a Nachfrist may be compared with the steps under acommon law contract to make time of the essence.[35] Art 64 gives a seller the right to avoid the contract in two cases:(a) if the buyer's failure to perform its obligations amounts to afundamental breach of contract;10 or(b) if the buyer does not within the time extended under Art 63(1) pay theprice or take delivery or declare that he will do so within the extendedtime.11[36] As to fundamental breach Art 25 provides:8 Art 61(1)(a).9 Art 63(2).10 Art. 64(1)(a).11 Art 64(1)(b).A breach of contract committed by one of the parties is fundamental if it resultsin such detriment to the other party as substantially to deprive him of what heis entitled to expect under the contract, unless the party in breach did notforesee and a reasonable person of the same kind in the same circumstanceswould not have seen such a result.[37] Art 26 says that a declaration of avoidance of a contract is effective only ifmade by notice to the other party. There are no formal requirements for giving notice.It can be given in writing, orally, electronically or impliedly such as by conduct, but itmust be clear and definite. No particular words are required.12[38] Art 81 deals with the effects of avoidance:(1) Avoidance of the contract releases both parties from their obligationsunder it, subject to any damages which may be due. Avoidance does not affectany provision of the contract for the settlement of disputes or any otherprovision of the contract giving the rights and obligations of the partiesconsequent upon the avoidance of the contract.(2) A party who has performed the contact either wholly or in part mayclaim restitution from the other party of whatever the first party has suppliedor paid under the contract. If both parties are bound to make restitution, theymust do so concurrently.According to commentators, the consequences are that the parties are released fromtheir original obligations, they regain their freedom to dispose of the goods, they areusually required to restore what has been supplied or paid under the contract and theparty in breach is liable for damages.13 That is different from the common law wherecancellation of a contract for breach operates prospectively only. While furtherperformance cannot be enforced, rights that have already accrued under the contractmay be.14 Under the convention however parties are restored to their positions at theoutset, save that the party in breach is also liable in damages.[39] National Plant breached the agreement when it did not pay ten per cent of theprice immediately. When Ms Neves said in her email of 25 September that U&M hadagreed to release the dump trucks to their other client and that it could not hold them12 Commentary on the UN Convention on the International Sale of Goods Schlechtriem andSchwenzer. 4th ed (Oxford University Press, 2016) at 463-4.13 Commentary on the UN Convention on the International Sale of Goods Schlechtriem andSchwenzer. 4th ed (Oxford University Press, 2016) at 462.14 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, Garratt v Ikeda [2002] 1 NZLR 577 (CA)at [7] and [10] and Contract and Commercial Law Act 2017, s 42.for National Plant, she showed that U&M no longer considered itself bound to sell thetrucks to National Plant. That gave notice of avoidance to National Plant. Thequestion is whether U&M was entitled to give that notice.[40] For summary judgment purposes I am wary of finding a fundamental breachunder Art 25 by National Plant. To a common law mind the obligation to pay a depositis considered essential and a failure to pay a deposit on time is ground to terminate acontract.15 But it may be a mistake to use that thinking to say that there was afundamental breach under Art 25. According to the commentators, mere delay inpayment is a fundamental breach only in exceptional circumstances.16 While ten percent of the price was payable immediately, it is not clear that any delay would give anautomatic right to avoid the contract. An argument could be made that U&M waslooking for a real commitment to the purchase from National Plant and it wantedcertainty because it had other interested buyers, but I am not sure that that warrantsgiving an immediate notice of avoidance.[41] Instead the alternative ground under Art 64(1)(b) is available. U&M gavenotice on 24 September that it required the 10 per cent to be paid by 25 September.As the payment was to be immediate, National Plant was already late in paying andU&M needed certainty because of its other interested purchasers, its relatively shortdeadline for payment was reasonable under Art 63(1). U&M was accordingly entitledto call the contract off. That was avoidance under the convention.[42] The effect of the avoidance was that both parties were to be restored to theiroriginal positions and neither could require further performance from the other. U&Mcould not sue for the unpaid 10 per cent of the purchase price. It was free to sell thedump trucks to other purchasers. National Plant could not require U&M to deliver thedump trucks under the agreement of 18-19 September. At the time both National Plantand Mundy Heavy Equipment accepted that the agreement was over.15 See the discussion in Don McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at7.06(b).16 Ingeborg Schwenzer, Schlechtriem and Schwenzer: Commentary on the UN Convention on theInternational Sale of Goods (4th ed, Oxford University Press, 2016) at 456.The claim for money had and received[43] When National Plant and Equipment paid the USD 1.32m to Mundy HeavyEquipment, it knew that it no longer had a contract with U&M Mining to buy the dumptrucks, but still paid to show that it was serious in its intention to buy the dump trucks,if they became available for purchase. After U&M sold the trucks, it asked MundyHeavy Equipment to repay. It says that it is entitled to it in restitution as money hadand received.[44] National Plant submitted that there was a restitutionary "failure of basis".There is convenient statement of this principle in Pure Elite Holdings Ltd v BodcoLtd:17Such claims are known as "failure of basis" claims. They are based on theprinciple that, where one party has conferred a benefit on another, that otherparty's right to retain the benefit is conditional, and if the condition is notfulfilled, the recipient must return the benefit. They are a well recognisedground for the remedy of restitution. They can arise where a party hasconferred a benefit on another in anticipation of a contract that nevereventuates. Such claims can also be brought where the benefit has beenconferred in the expectation of an event which fails to occur. Such claims arebased not in contract, but on the principle of restitution – the premiseunderlying the right of restitution being that the entire basis of the arrangementwhich led to the payment being conferred by one party upon another hasfailed. The claimant's intention was to confer the benefit, but it was in effectconditional on the occurrence of an event.(Emphasis added)The Privy Council's decision in Goss v Chilcott18 is an example where funds wereadvanced on loan to be secured by a mortgage but amendments to the mortgage, madewithout authority, discharged the borrowers from liability. They were neverthelessheld liable in restitution.[45] While the general principle is sound, for this case there is assistance from aline of cases on "holding deposits." There is a useful explanation in McMorland'sSale of Land.19 While the text is about agreements for the sale and purchase of land,this part also applies to holding deposits for other contracts:17 Pure Elite Holdings Ltd v Bodco Ltd [2019] NZHC 2191 at [188].18 Goss v Chilcott [1996] 3 NZLR 385 (PC).19 Don McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at 7.06(b).In some circumstances a would-be purchaser, perhaps anxious to secure theproperty, may pay a "holding deposit" before the contract is made. If the sumis paid to the real estate agent, during the pre-contract period, the sumcontinues to be the property of the would-be purchaser, the prospective vendorhas no entitlement to it, the agent must not pay the sum to the vendor beforethe contract is made without the consent of the purchaser, and the would-bepurchaser can demand repayment form the agent, the sum then become moneyhad and received to the use of the would-be purchaser. If the agent does nothave authority from the vendor to receive the pre-contract deposit, a purchaserclaiming repayment during the pre-contract period has no claim against thevendor, but only against the agent. The vendor is not liable for any failure bythe agent to account to the would-be purchaser. On the other hand, if thewould-be purchaser pays the sum direct to the vendor, and a contract does noteventuate, the purchaser's claim for its return is obviously against the vendorpersonally but, unless the purchaser has taken care that the terms of theoriginal payment to the vendor impress the sum with a trust, the sum is merelya debt owed by the vendor to the would-be purchaser, and in the event of thepurchaser being in financial difficulties, the purchaser is merely an unsecuredcreditor like any other.[46] In Richards v Hill, land agents were ordered to pay back to a prospectivepurchaser a deposit paid before there was a binding agreement between the purchaserand the vendor of the property. Salmond J said:20the defendants had no right so to part with the deposit. It was held by themfor and on account of the plaintiff until and unless a complete contract waseffected between her and the vendor. No such contract was ever effected, andthe defendants must account for the deposit accordingly to the plaintiff.[47] In Chillingworth v Escher, negotiations were "subject to contract." Thepurchasers paid the deposit to the land agent. The negotiations did not result in afinally concluded contract. The purchasers asked the land agent to refund the depositthey had paid. They were held entitled to the money. Sargant LJ said:21I look on the whole payment as being sufficiently explained as being ananticipatory payment intended only to fulfil the ordinary purpose of a depositif and when the contemplated agreement should be arrived at.The case illustrates that the purchasers can ask for their money back at any time beforethere is a contract with the vendor and do not need to justify the return of their money.20 Richards v Hill [1920] 39 NZLR 724 at 728. Approved in Sorrell v Finch [1977] AC 728 (HL) at744.21 Chillingworth v Esche [1924] 1 Ch D 97 (CA) at 115.[48] In Sorrell v Finch,22 potential purchasers paid a deposit to a land agent, whodisappeared without accounting for the money. There was no concluded contractbetween the would-be purchasers and the vendor. The plaintiffs who had paid thedeposit to the land agent were unsuccessful in their claim against the vendor. Thevendor was not liable for the agent's misappropriation. The agent did not have thevendor's authority to receive any payments on account of the purchase price until therewas a concluded contract between the vendor and the purchasers.[49] The difference between that line of cases and this one is that National Plantalready had a contract with U&M, whereas in the others a contract was only inprospect. But that difference does not matter. The agreement with U&M had come toan end. National Plant's payment to Mundy Heavy Equipment was the same as in theholding deposit cases. Even though it no longer had a contract with U&M, it wantedto show that it was genuine in wanting to buy the dump trucks. National Plant did nothave to wait to see if the dump trucks sold. Even though it may have made good senseto leave the money with Mundy Heavy Equipment, at law it could ask for the moneyback at any time.[50] In evidence Mr Mundy relied on the contract providing that the ten per centwas "non-refundable". But that does not justify his company not returning the money.National Plant did not make the payment under the original agreement because thatagreement was now at an end and U&M could not require National Plant to pay anyof the purchase price. That obligation had been discharged when U&M avoided theagreement. U&M did not assert any claim for damages. Moreover, it declined whenMundy Heavy Equipment offered to send the money on to it. Mundy HeavyEquipment was accountable to National Plant for the money, not to U&M. WhenNational Plant paid, there was no agreement between National Plant and U&M andMundy Heavy Equipment did not receive the payment on behalf of U&M.[51] Mr Mundy says that his company is entitled to charge commission on sales ofequipment that it has negotiated. He alleges that the commission in this case is payableby National Plant and claims USD 450,000, the amount transferred to his company's22 Sorrell v Finch [1977] AC 728 (HL).general operating account. National Plant did not, however, appoint him to act as itsagent on the purchase of the dump trucks from U&M. Mundy Heavy Equipment wasU&M's agent on the sale of the dump trucks. If there is any commission payable,Mundy Heavy Equipment should look to its principal. No doubt brokers in theposition of Mundy Heavy Equipment are able to take their commissions frompayments made by purchasers. If the sale had gone ahead, Mundy Heavy Equipmentwould have taken its commission out of the first payment of the purchase price, butthat does not mean that the buyer was responsible for paying commission on the sale.[52] National Plant has shown to the summary judgment standard that MundyHeavy Equipment was required to repay the USD 1.32m when National Plant askedfor it. It has also shown that Mundy Heavy Equipment cannot resist that demand byrelying on the terms of the original agreement with U&M or by claiming commission.It is accordingly entitled to recover judgment for the USD 1.32m plus interest. Thejudgment is in United States currency, following Miliangos v George Frank (Textiles)Ltd.23The claim for breach of trust[53] For its cause of action for breach of trust, National Plant says that it transferredthe USD 1.32m to Mundy Heavy Equipment Ltd as a sign of good faith and to showits intention to buy the dump trucks from U&M if the trucks were not sold to the otherinterested purchasers. Mundy Heavy Equipment could only deal with the funds inaccordance with its instructions. When the purpose of the payment failed, the fundsshould have been returned to it. This is a resulting trust claim. The money was paidto Mundy Heavy Equipment for a particular purpose and, when that purpose failed,Mundy Heavy Equipment held the funds on trust for National Plant.[54] In Twinsectra v Yardley Lord Millett said:24A Quistclose trust does not necessarily arise merely because money is paid fora particular purpose. A lender will often inquire into the purpose for which aloan is sought in order to decide whether he would be justified in making it.He may be said to lend the money for the purpose in question. But that is not23 Miliangos v George Frank (Textiles) Ltd [1976] AC 443 (HL).24 Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164 at [73]-[74].enough to create a trust; once lent the money is at the free disposal of theborrower. Similarly payments in advance for goods or services are paid for aparticular purpose, but such payments do not ordinarily create a trust. Themoney is intended to be at the free disposal of the supplier and may be usedas part of his cash flow. Commercial life would be impossible if this were notthe case.The question in every case is whether the parties intended the money to be atthe free disposal of the recipient; In Re Goldcorp Exchange Ltd25 [1995] 1 AC74, 100 per Lord Mustill. His freedom to dispose of the money is necessarilyexcluded by an arrangement that the money should be used exclusively for thestated purpose[55] The payment of a holding deposit to an agent before there is a binding contractmay give rise to a resulting trust. There is guidance in a New South Wales decision,McManus RE Pty Ltd v Ward.26 That case did not involve an agent. A potentialpurchaser paid the vendor $75,000 as a holding deposit before they made anagreement. Palmer J held that there was no trust, because the vendor could spend themoney as he wished. Palmer J distinguished cases where the funds were held by anagent or stakeholder, to be held for a particular purpose benefiting someone else.27 Hesaid:28In cases where no express or clearly implicit intention to create a trust isshown, such as where the parties give no actual thought to the matter, whetheror not there was an intention that the subject matter be kept separate from theother general monies of the recipient, is often decisive of the question whetherthe recipient is a trustee or merely a debtor. [56] In this case, Mundy Heavy Equipment had the payment by National Plantdeposited into a US dollar account at its bank. The account was separate from itsNew Zealand currency general operating account. Mr Mundy's email of 28 September2019 to Ms Nevin, offering to forward the money on to U&M, shows his recognitionthat his company was not holding the funds in its own right to dispose of as it wished,but was holding it for a third party, in the same way as an agent or stakeholder. Thatwas so, even though he was mistaken in thinking that he had to account to U&Minstead of National Plant. Mundy Heavy Equipment did hold the funds apart until it25 In Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 100 (per Lord Mustill).26 McManus RE Pty Ltd v Ward [2009] NSWSC 440.27 At [22].28 At [25].received news that U&M had sold the dump trucks and National Plant asked to berepaid. The funds were held on the basis that Mundy Heavy Equipment Ltd was notfree to deal with the funds as it wished but was required to hold them on behalf ofNational Plant. The funds were to be available to pay U&M if the dump trucks cameback on the market. It would be unthinkable for Mundy Heavy Equipment to spendthose funds on its general operating expenses and to deplete the funds before the dumptrucks might come back on the market. When that purpose failed, the funds were heldseparately and were not available for free disposal by Mundy Heavy Equipment. Theywere payable to National Plant under a resulting trust in its favour.[57] When Mundy Heavy Equipment converted USD 450,000 into New Zealandcurrency, had those funds paid into its general operating account and used them for itsown operating expenses, it breached the trust on which it held the funds. NationalPlant has established its claim for breach of trust.[58] For relief, National Plant and Equipment seeks declarations that the funds wereheld on trust and that Mundy Heavy Equipment breached the trust. In addition, itseeks an order for equitable compensation. In particular, it seeks payment of NewZealand $103,712.26. That may not, however, be adequate equitable compensation.A beneficiary is entitled to have the trust fund restored. As the trust fund was inUS currency, an order for equitable compensation should require Mundy HeavyEquipment Ltd to pay National Plant compensation in US currency (or, if in NewZealand currency, an amount equivalent to whatever is required to restore the trustfund to its US dollar value). In short, Mundy Heavy Equipment should carry the riskon any fluctuation in currencies between October 2019 and the date whencompensation is made. This approach is consistent with the standard approach onenforcement of foreign money obligations.29The claim against Mr Mundy for dishonest assistance[59] Mr Mundy transferred USD 450,000 from his company's foreign exchangeaccount to its business bank account. He used the funds to clear the company's29 Miliangos v George Frank (Textiles) Ltd [1976] AC 443 (HL).overdraft and to meet general operating expenses. The question is whether Mr Mundyis personally liable as well as his company.[60] Mr Mundy cannot run an attribution argument to say that his actions are to beidentified as those of his company. An authority against that is Royal Brunei Airlinesv Tan.30 In that case, a company held funds on trust and should have held them in aseparate account, but in breach of the trust the funds were paid into a general accountand used for ordinary trading expenses. The managing director and principalshareholder was involved in the breach of trust. His office as director of the companydid not exempt him from liability.[61] In Sandman v McKay, the majority in the Supreme Court stated the test forliability for dishonest assistance:31In dishonest assistance claims, New Zealand courts have followed theapproach of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan andBarlow Clowes International Ltd (in liq) v Eurotrust International Ltd. Thetest for dishonesty is an objective one, judged against the background of whatthe defendant subjectively knew. If the defendant's mental state would bedescribed as dishonest by ordinary standards, it is irrelevant that the defendantdoes not consider his or her conduct to be dishonest and/or does not appreciatethat, by ordinary standards, it would be regarded as dishonest.A defendant is dishonest if he or she has actual knowledge that the transactionis one in which the defendant cannot honestly participate. Wilful blindness,which equates in equity with actual knowledge, also suffices. This ariseswhere a defendant strongly suspects a breach of trust but makes a deliberatedecision not to enquire in case the enquiry results in actual knowledge. It is"necessary that the strength of the suspicion makes it dishonest to decidenot to make an enquiry".(Citations and footnotes omitted)[62] There is also helpful guidance from the United Kingdom Supreme Court'sdecision in Ivey v Genting Casinos (UK) Ltd.32 The test of dishonesty is as set out by Lord Nicholls in Royal BruneiAirlines Sdn Bhd v Tan and by Lord Hoffmann in Barlow Clowes InternationalLtd (in liq) v Eurotrust International Ltd When dishonesty is in question,the fact-finding tribunal must first ascertain (subjectively) the actual state ofthe individual's knowledge or belief as to the facts. The reasonableness orotherwise of his belief is a matter of evidence (often in practice determinative)30 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC).31 Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519 at [77]-[78].32 Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67, [2018] AC 391 at [74].going to whether he held the belief, but it is not an additional requirement thathis belief must be reasonable; the question is whether it is genuinely held.When once his actual state of mind as to knowledge or belief as to facts isestablished, the question whether his conduct was honest or dishonest is to bedetermined by the fact-finder by applying the (objective) standards of ordinarydecent people. There is no requirement that the defendant must appreciatethat what he has done is, by those standards, dishonest.(Citations omitted)[63] I assess Mr Mundy's knowledge and beliefs. I make these findings to thesummary judgment standard, that is, there can be no reasonable argument about thesematters. No useful purpose would be served by having a full trial to determine thosefacts. Mr Mundy knew:(a) There had been an agreement between U&M and National Plant for thesale of the six dump trucks, but U&M had brought that contract to anend when National Plant did not pay the USD 1.32m within thedeadline set by U&M.(b) In the agreement between National Plant and Equipment and U&M,Mundy Heavy Equipment had acted as agent for U&M, not for NationalPlant.(c) National Plant paid USD 1.32m to his company, after U&M had calledthe agreement off.(d) National Plant paid the money to show its ability to perform and itssincerity in wanting to buy the dump trucks, in case they came on themarket again.(e) National Plant expected the money to be repaid to it if it could not buythe dump trucks (even though Mr Mundy had not expressly agreed tothat).(f) When received, the funds were held in a separate foreign currencyaccount and were not mixed with funds in his company's generaltrading account.(g) When he received the payment, he offered to forward it to U&M.(h) U&M did not claim any interest in the funds held in his company's bankaccount, because it had declined to have the funds forwarded on to it.(i) The funds were held until it was known whether the dump trucks wouldagain become available to buy.(j) National Plant and Equipment had requested the return of the funds ithad paid, before he transferred USD 450,000 into his company'soperating account.[64] I make no assumptions as to Mr Mundy's knowledge of the law. It is arguablefor Mr Mundy that at trial a judge may find that he had little or no understanding ofthe law relating to funds paid as holding deposits. I also accept that a trial judge mayfind that Mr Mundy genuinely believed that his company was entitled to a commissionon the agreement to sell the six dump trucks to National Plant and Equipment, eventhough the sale had not gone through.[65] I assume in favour of Mr Mundy that this is not a black and white case, butthere are "shades of grey". Mr Mundy may have sincerely believed that the paymenton 27 September was "non-refundable" because of the term in the invoice and believedthat his company was entitled to commission on the sale (even though there was nodelivery or payment). In "shades of grey" cases, there is guidance from the PrivyCouncil's advice in Royal Brunei Airlines v Tan. Lord Nicholls addressed this underthe heading "Taking risks" in the context of investment decisions. He noted that theremay be differences of degree rather than of kind. While the test for liability for atrustee is strict, he said:The analysis of the position of the accessory, such as the solicitor who carriesthrough the transaction for him, does not lead to such a simple, clear-cutanswer in every case. He is required to act honestly; but what is required ofan honest person in these circumstances? An honest person knows there isdoubt. What does honesty require him to do?The only answer to these questions lies in keeping in mind that honesty is anobjective standard. The individual is expected to attain the standard whichwould be observed by an honest person placed in those circumstances. It isimpossible to be more specific. Knox J captured the flavour of this, in a casein a commercial setting, when he referred to a person who is "guilty ofcommercially unacceptable conduct in the particular context involved: seeCowan De Groot Properties Ltd v Eagle Trust plc Acting in recklessdisregard of others' rights or possible rights can be a tell-tale sign ofdishonesty. An honest person would have regard to the circumstances knownto him, including the nature and importance of the proposed transaction, thenature and importance of his role, the ordinary course of business, the degreeof doubt, the practicability of the trustee or the third party proceedingotherwise, and the seriousness of the adverse consequences to thebeneficiaries. The circumstances will dictate which one or more of thepossible causes should be taken by an honest person. He might, for instance,flatly decline to become involved. He might ask further questions. He mightseek advice, or insist on further advice being obtained. He might advise thetrustee of the risks but then proceed with his role in the transaction. He mightdo many things. Ultimately, in most cases, an honest person should have littledifficulty in knowing whether a proposed transaction, or his participation init, would offend the normally accepted standards of honest conduct.Likewise, when called upon to decide whether a person is acting honestly, acourt will look at all the circumstances known to the third party at the time.The court will also have regard to personal attributes of the third party, suchas his experience and intelligence, and the reason why he acted as he did.(Citation omitted)[66] When National Plant asked for the USD 1.32m to be returned on 18 October2019, it is summary-judgment arguable that an honest person with the knowledge andattributes of Mr Mundy and without any knowledge of the legal position may be indoubt what to do with the money. He may be unsure of the validity of National Plant'sdemand. For an honest person in doubt whether the company was required to refundthe money to National Plant, these actions are consistent with honesty:(a) The company could write to the potential claimants (National Plant andU&M) explaining that a demand for payment had been made andsetting out the reasons for doubting the demand.(b) If Mr Mundy considered that his company had a claim to the fund, hewould explain why to National Plant and U&M.(c) An honest person would not have left the demand unanswered.(d) An honest person would not have treated the money as its own withouttelling the others.(e) An honest person who believed that Mundy Heavy Equipment wasentitled to a commission would have issued an invoice and sent it to theperson liable for the commission. In this case, Fabick did send aninvoice for commission, but to Mundy Heavy Equipment.[67] An honest person would not have done what Mr Mundy did. He ignored thedemand from National Plant, moved USD 450,000 from the foreign currency accountto the company's ordinary trading account to pay off its overdraft, did not tell anyoneelse and did not issue an invoice for the commission which he now alleges was due tohis company.[68] As those steps fell below what an honest person would do, they were dishonest.The decisions do not suggest that there is any half-way house between acting honestlyand acting dishonestly. Accordingly, whatever Mr Mundy's personal beliefs, he didnot act in accordance with the normal requirements of honesty when he did not returnUSD 1.32m to National Plant but instead used some of it to pay off his company'soverdraft and trading expenses. Therefore I find Mr Mundy liable for knowingassistance in his company's breach of trust. National Plant is entitled to an order forequitable compensation to the extent of any shortfall in the recovery from hiscompany.Outcome[69] I find for National Plant on all its causes of action:(a) On its first cause of action, it recovers judgment against Mundy HeavyEquipment for USD 1.32m.(b) On its second cause of action against Mundy Heavy Equipment, I makethe declarations sought and make orders for equitable compensation,which require the trust funds to be reinstated to USD 1.32m and repaidto National Plant.(c) On the cause of action against Mr Mundy, I make an order for equitablecompensation, which requires him to make good any shortfall in theUSD 1.32m, payable to National Plant. The shortfall is to be paid inUS dollars or the New Zealand currency equivalent as at the date ofpayment.(d) On all its causes of action, National Plant recovers interest under theInterest on Money Claims Act 2016 from 21 October 2019, the datewhen it should have been repaid, until the date of payment.(e) National Plant has costs against both defendants. If the parties cannotagree costs, memoranda may be filed and I will decide costs on thepapers.Associate Judge R M Bell