RODNEY FAMILY TRUST LIMITED V CHONG HC TAU CIV 2006-470-511

RODNEY FAMILY TRUST LIMITED V CHONG HC TAU CIV 2006-470-511 28 March 2007IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY CIV 2006-470-511BETWEEN RODNEY FAMILY TRUST LIMITED Plaintiff AND RONA CHONG Defendant AND JOHN BOURKE AND LO-ARNE BOURKE First Third Parties AND WESTMINSTER CONTRIBUTORY MORTGAGE NOMINEE COMPANY LIMITED Second Third Party Hearing: 7 March 2007 (Heard at Rotorua) Appearances: Mr Lawson for Plaintiff Mr Brittain for Defendant Judgment: 28 March 2007 at 4 p.m.JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on28 March 2007 at 4 p.m., pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar DateCounsel: Mr Lawson, P O Box 2279, Rotorua G Brittain, P O Box 13473, TaurangaBackground[1] The Rodney Family Trust Limited ("Rodney") is the trustee for a trust known as the Rodney Family Trust, the beneficiaries of which are apparently a Mr J Bourke and his wife. The Bourkes are the first third parties in this proceeding. Mr Bourke became friendly with Mr and Mrs Chong. Mr Bourke had an interest in developing golf courses. He seems to have been unsuccessful in doing so, at least from a business perspective. Nonetheless, he interested the Chongs in investing in his schemes which involved golf course developments and apparently one other type of business, "Roof Shield". The association between the Chongs and Mr Bourke seems to have been a most disadvantageous one so far as the Chongs are concerned. They have lost many hundreds of thousands of dollars through involvement in these schemes. [2] In 2002 Mr Bourke was an undischarged bankrupt, having been adjudicated on 19 June 2002. His bankruptcy seems to have ensued from his involvement in an earlier golf course development proposition, "The Ballantyne" near Katikati. [3] Of the Chongs, the late Mr Joe Chong seems to have been the person who had most of the contact with Mr Bourke. He is said to have been a friend of Mr Bourkes. Unfortunately, Mr Chong died on 20 January 2005. By that time the Chongs had invested some $910,000 in Mr Bourke's schemes. After his death, his wife, Mrs Chong directed another $354,000 Mr Bourke's way. [4] Along the way the Chongs received shares in a company called Rodney Highlands Limited ("RHL"), which had as its object the development of a golf course and country club type development in the Rodney District north of Auckland. In 2002 the Chongs invested not only in RHL but also in another company, The National Golf Club, which had been incorporated to take over and further develop the Lake View Golf Course at Rotorua. As well they had invested in Roof Shield. Mr Chong agreed to assist Mr Bourke to purchase a house property at 239 State Highway 2, Tauranga. A company called Westminster Contributory Mortgage Nominee Company Limited entered into an agreement to purchase that property as trustee of the Rodney Family Trust. The purchase price was $415,000 and theagreement was entered into on or about 31 January 2003. Westminster Nominees Limited later changed its name to Westminster Contributory Mortgage Nominee Company Limited, ("Westminster") the second third party. A Mr Warburton, formerly a solicitor, was associated with the second third party and at one stage was its director. Mr Warburton acted for all parties in the transaction relating to the purchase of the property at 239 State Highway 2, Tauranga. The objective appears to have been to provide Mr Bourke with a family home and get around the difficulties posed by the fact that he was an undischarged bankrupt. Accordingly, it was resolved that Westminster's interests under the agreement for sale and purchase would be assigned to the Chongs. They would complete the purchase, raising the necessary finance and borrowing same from the BNZ to pay the purchase price which was all borrowed. Mr Bourke and his family would occupy the house. [5] On 3 March 2003 the Chongs and Mr Bourke met with Mr Warburton at his office in Auckland. Mr Bourke drew up a handwritten document for execution at that meeting. Features of the agreement seemed to have been the following: the second third party was granted an option to purchase the property for $415,000 at any time over the next 36 months which would have taken the term of the option out to March 2006. The consideration for the option was $1.00. The involvement of Westminster Nominees Limited, I should add, was in its capacity as a trustee for the Rodney Family Trust – Mr Bourke's trust. At some later stage, and in some way that has not been explained to me, Westminster was replaced by the plaintiff as the Rodney Family Trust trustee. [6] To return to the terms of the memorandum setting out the agreement of the parties Westminster and the Rodney Family Trust agreed to pay all outgoings, rates, and maintenance on the property. The Rodney Family Trust agreed to pay rent of $550 during the period of the option. A further term of the agreement involved additional "consideration", that consideration was stated to be that the Chongs would receive a further 155 shares in the company developing the Rodney Highlands Golf Course, but the memorandum stated that the Chongs: have paid $40,000 for these shares (ex A and V Brungger).[7] Page 2 of the agreement also set out under the heading consideration:The 60 shares – transferred to J and R Chong in December ($9,000) paid (sic) to RHE and CC – (part deposit on farm)![8] There were other statements made including that a further 50 shares were to be transferred to J and R Chong to be held in trust for Westminster. As to these shares the memorandum stated:In the event of RFT not purchasing the property at 239 State Highway 2 – or finding a purchaser in the agreed time frame (36 months) Chongs could keep the 50 shares in trust for WN Limited and the 1,000 shares held in Rotorua (National).[9] The reference to "WN Limited" seems to be a reference to the second third party, Westminster, and the reference to "Rotorua (National)" to the company which was proposed to be the developer of the Rotorua Lake View Golf Course. [10] The memorandum apparently also intended to confer on the Chongs additional options to buy further shares in various of the investments that I have already made reference to. [11] The memorandum continued:The agreement acknowledges that Chongs are to receive 9% return on ALL monies invested above – from 1 February 2003.[12] Further, the memorandum stated:Chongs agree to transfer 25% of RHE shareholding back to WN Limited when their principal and interest is paid.[13] And:Chongs Rotorua shareholding will remain at 30%.[14] There was also a final page to the memorandum which seemed to relate to an option conferred upon Chongs relating to acquisition of shares in Roof Shield or Rodney. This document is confusing and virtually impossible to understand.[15] At the meeting the Chongs entered into a tenancy agreement. That agreement related to the property at 239 State Highway 2, Tauranga. Under the heading "tenant details" there was inserted into the agreement:"Rodney Family Trust (Westminster Nominees Limited)."[16] The agreement also recorded that the rent was to be $550 per week to be paid in advance weekly with the tenancy commencing 7 March 2003. It contained the following provision as well:"This tenancy is for a fixed term, cannot be terminated with notice and will terminate on 7 March 2006."[17] It also provided that tenancy was subject to the Residential Tenancies Act 1986. In the section "other terms of this tenancy" there appeared the words:Tenant to pay rates, insurance, all maintenance in same good condition as property now in and maintain grounds.[18] The agreement was signed by the Chongs and executed purportedly by Westminster Nominees Limited: as trustee of Rodney Family Trust Limited.[19] The arrangements arrived at the meeting in March 2003 at Mr Warburton's office were never subsequently made the subject of an executed formal legal agreement. Mr Warburton drafted a document which he said reflected the agreements that were reached, but the Chongs never signed it. [20] In December 2005 the second third party purported to exercise the option contained in the handwritten agreement, the provisions of which I have just been discussing. Mr Bourke was by now clear of his bankruptcy. The Chongs consulted Holland Beckett, barristers and solicitors of Tauranga, who responded on their behalf to Mr Warburton. Holland Beckett wrote to the directors of Westminster on 10 January 2006. The letter gave some detail of what they understood was the history of the Chongs' investments in the various companies. The letter also sought details about certain investments and asked for a copy of Mr Warburton's conveyancing filerelating to the transaction involving the house property. The letter did not agree to the Chongs cooperating in the exercise of the option. [21] Subsequently, further correspondence ensued between Mr Warburton's office and that of Holland Beckett. On 12 May 2006 Mr Barry of Holland Beckett wrote setting out the Chongs' position:Mrs Chong is the owner of a property at 239 State Highway 2, Tauranga. A tenancy agreement was entered into between the Chongs and Rodney Family Trust (Westminster Nominees Limited). The tenancy agreement was signed by Westminster Nominees Limited as trustee for the Rodney Family Trust Limited. Robert Warburton was the sole director and shareholder of Rodney Family Trust Limited. Mr Bourke and his family have lived in the house since the time the tenancy agreement was entered into. The tenancy agreement expired in March 2006 with rent arrears in excess of $60,000 and for obvious reasons there has been no renewal. Mr Bourke and his family continue to occupy the premises and we therefore give you notice that we require vacant possession of the premises by 28 June 2006. It appears that no such company as the Rodney Family Trust Limited existed at the time of the lease. Because the tenancy agreement is so confusing we are sending a copy of this letter to John Bourke on the same basis. We require possession from him should he allege he has some occupancy rights either on his own behalf or on behalf of the Rodney Family Trust. All of the above is without prejudice to our clients' rights to raise other issues regarding the basic validity of the tenancy agreement or any alleged option to purchase.[22] In May 2006 the Rodney Family Trust Limited issued proceedings against Mrs Chong. Mr Warburton was on the record as Rodney's solicitor. In the statement of claim the plaintiff asserted that on 3 March 2003 the defendant and her late husband executed in favour of the plaintiff as trustee an option to purchase the property at a price of $415,000 with the option to be exercisable within 36 months and the Trust agreeing to pay all outgoings and pay $550 weekly rent for the period of the option. The statement of claim asserted that by letter dated 5 December 2005 the trustee of the Trust exercised the option on behalf of the Trust. The statement of claim alleged that the Trust was at all material times in a position to settle the purchase of the property in accordance with the terms of the option and that the Trust, having exercised the option, was entitled to obtain ownership and title to theproperty on payment of the sum of $415,000. The plaintiff sought specific performance of the agreement, a transfer of the property upon payment of the sum of $415,000 and an order for possession of the property. [23] Subsequently Mr and Mrs Bourke and Westminster were added as third parties to the proceeding. [24] The defendant's filed an application for summary judgment. The application was stated to be on the following grounds: a) the cause of action in the plaintiff's statement of claim could not succeed; b) that if the plaintiff was granted an option to purchase the property, which was denied, it was a condition precedent to the exercise of the option that: i) the first third parties and/or second third party would pay the rent due to the defendant and they failed to do so; and ii) the defendant would receive a minimum return of 9% per annum on various investments made by the defendant and her late husband, Joseph Chong, in the schemes promoted by Mr Bourke and otherwise appearing by the affidavits of Mrs Chong and Rae Williams;Summary judgment principles[25] Both sides referred to the decision of the Court of Appeal in Westpac Banking Corporation v MM Kembla Ltd [2001] 2 NZLR 298. The principles governing defendants' applications for summary judgment were set out in paragraphs 58 to 64 of the judgment of the Chief Justice where the following propositions were stated:(a) The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. (b) The application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from the affidavits. (c) Except in clear cases, it will not be appropriate to decide by summary judgment procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in the possession of the facts than the plaintiff to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled. (d) The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial. (e) The jurisdiction to make orders under r 136 is subject to a residual discretion to avoid oppression. Such an approach ensures that the plaintiff is not deprived of the benefit of the power to amend in r 187.[26] The principles in Westpac Banking Corporation v MM Kembla New Zealand Limited were adopted in the Privy Council case of Jones v Attorney-General, [2004] 1 NZLR 433. At paragraph 10 of Their Lordships advice, the following comment is made about the power to grant summary judgment to defendants:But it is clear, applying the guidance given by the Court of Appeal inWestpac, that summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiff's claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless it is quite clearly hopeless.Defendant's case[27] Mr Brittain for the defendant submitted that even where there are no express conditions precedent to the exercise of an option to purchase the reversion, a tenantin default ought not to be able to exercise the option. He relied upon Martin v Wills(HC TIM, CP 11/01, 8 November 2001, Master Venning) as authority for this proposition. I do not agree that the judgment in Martin v Wills is influential in the determination of the point concerning whether or not a tenant in default can exercise an option. It was a case decided on its own particular facts. [28] I consider that, in the first place, an analysis of the contractual provisions has to be undertaken to construe the contract which the parties admittedly entered into in March 2003. The analysis must focus on the question of whether the plaintiff, insisting as it does on the exercise of the option, has to demonstrate that it has satisfied the obligations incumbent upon it in the contract. That is, the enquiry is whether the obligations of each party were independent of the other, so that one party is able to insist upon performance by the other without first meeting its obligations under the contract. [29] The starting point is that the parties entered into a number of agreements on 3 March 2003. They signed a memorandum or memoranda following that meeting. The memoranda that they signed showed that agreements were reached on several matters. One of those was the grant of an option to Westminster Nominees Limited to acquire the house property. The memorandum refers to further shares to be transferred to the Chongs as part of the "consideration of the Chongs purchasing and holding the property" that was the subject of the option. It does not matter for present purposes exactly what agreements were reached concerning the shares. The fact is that the memorandum makes it plain that the share purchase arrangements were part of the consideration for the Chongs agreeing to acquire the house which was to be the subject of the option. The agreement also acknowledged that the Chongs were to receive a 9% return on all monies invested in the various Bourke companies from 1 February 2003. The agreement also provided that the option was to cost Westminster Nominees Limited $1, Westminster Nominees/ Rodney Family Trust agreed to pay all outgoings, rates and maintenance on the property and the Rodney Family Trust agreed to pay rent of $550 during the period of the option. There were other provisions as well but those that I have referred to give the general flavour of the agreement.[30] The plaintiff has sought an order that the defendant specifically perform the agreement and that she transfers the property to the plaintiff upon payment of the sum of $415,000. [31] The defendant's position is that the plaintiff has no entitlement to the order sought because the plaintiff, or more accurately, Mr J Bourke, has not performed the terms of the contract entered into on 3 March 2003.Did the plaintiff have to meet its obligations under the contract as a pre- condition to enforcing its rights under the contract?Preliminary[32] In my view, the key issue in this case is whether the Chongs duty to perform their obligations under the contract bound them irrespective of whether Mr Bourke met his obligations, or whether the Chongs are entitled to resist Mr Bourke's attempt to enforce his contract on the basis that both sets of obligations were dependent on each other. In other words, unless Mr Bourke performed his obligations, the Chongs did not have to perform theirs. [33] If the obligations were dependent upon each other, the next stage in the enquiry is to ascertain whether on the state of the evidence adduced in the parties affidavits, it can be said that the defendant has established on the balance of probabilities that the plaintiff cannot succeed. If there are factual disputes that are not able to be resolved, the defendant will not succeed.Approach to construction of the contract[34] My determination of the key issue will be approached as a matter of construing the contract between the parties. While there is an assertion in Breach of Contract, J W Carter, 2nd ed., that there is a presumption that obligations and promises are dependent in character, I would prefer to reach such conclusions as I can by the conventional route of contractual interpretation. There are two important sources from which this can be done. First, there is the factual background to thecontract. Second, explanations in the authorities of the nature of options have a bearing, too. [35] In Investors Compensation Scheme Ltd v West Bromwich Building Society[1998] 1 WLR 896 sets out the modern approach to contractual interpretation. There, Lord Hoffmann said at 912:"Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."[36] The entire statement of Lord Hoffmann as to the modern interpretative approach was adopted by the New Zealand Court of Appeal in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 at 81-82. [37] With regard to "conditional contracts" Burrows, Finn and Todd Law of Contract in New Zealand 3rd edn at [8.2] sets out the same approach:In the last three decades the New Zealand Courts have moved decisively away from reliance on the theoretical structure of the conditional contractsThe Courts have instead sought to establish the intentions of the parties and to interpret the wording of the conditions used in such a way as will accord with that perceived intention. Thus the discussion in the recent New Zealand cases has been concerned not so much with the theory behind any classification of conditions as with the practical effect to be given to particular conditions.[38] At least one New Zealand authority speaks of the satisfaction of "conditions precedent" to the exercise of an option. So in Plimmer v O'Neill [1937] NZLR 950 at 958, the Court said:A reason for the strict construction of options appears from the analysis of the nature of an optionThe consideration given by the option-holder deprives the grantor of his power to revoke it effectively. Not-withstanding a wrongful revocation, an option, as distinguished from an offer, may be exercised and the conditional contract of sale already constituted by the grant of the option becomes ipso iure an absolute contract of sale and purchase by the fulfilment by the holder of the conditions of the option. It is important therefore, to ascertain whether the precedent conditions of an option have been strictly complied with.[39] Those observations, of course, beg the question whether as a matter of construction, the option holder's right to exercise the option is conditional upon discharging his own obligations under the contract. But, if there are "conditions precedent" to the exercise of the option, Plimmer says that must be strictly complied with. [40] In Lewison The Interpretation of Contracts at para [15.14] discussing the construction of obligations as dependent or independent the author notes that:Which species of obligation has been created is a question of construction, but if the obligation constitutes the whole or a substantial part of the consideration for the contract, the court is likely to construe it as a dependent obligation. One factor which may be material in deciding whether obligations were intended to be dependent or not is whether they appear in the same document.Construction of the contract[41] I regard it as significant that the obligations were all entered into at the same time and as part of the same contract. That suggests that the obligations were dependent on each other. [42] Second, there is nothing inherent in the subject matter of the option, on the one hand, and the obligations that Mr Bourke was to assume under the contract which would justify an inference that those respective parts of the agreement were considered by the parties to be separate stand-alone arrangements. [43] Third, it is relevant to enquire what each party was to receive under the contract, depending on whether the obligations are construed as dependent or independent in the sense that I have been using those terms. Issues of valuation of the property are relevant to this matter. [44] There is not a great deal of evidence on the matter of point but the contract involved the fixing in 2003 of the price for a transfer of a house which was to take place in 2006. The price, as noted, was $450,000. If the Court could conclude that was a fair price in 2003, but not in 2006, the further inference might be available thatthe parties would not have intended an agreement that would work to the prejudice of the vendors, and from that point to draw a further inference that the likelihood of a sale below market value in 2006, made it likely that the parties considered that other consideration passing under the contract would offset any resulting prejudice to the vendor. But there is no proper evidential basis for coming to those conclusions. First, the parties were close friends. The late Mr Chong was apparently generous to Mr Bourke. It may be that his financial circumstances were such that he could afford to be. The evidence does not support a conclusion either way. Second, it is possible that the parties factored into the price some possible upward movement in property values in the next three years when they struck the price at $450,000. Third, it cannot be assumed that the parties would have had a common appreciation that unless there was some additional consideration which the Chongs were to receive, then the transaction would be detrimental to their interests, and unbalanced in favour of Mr Bourke. This factor, therefore, is neutral and does not assist the defendant. [45] The next point of relevance is that the Chongs were not to hold any security for performance by Mr Bourke of his obligations. One consequence of viewing the arrangements as being dependent, was that they gave the Chongs some security, in the sense that, provided the contractual arrangements required performance of Mr Bourke's obligations when settlement occurred (or at least readiness and willingness to perform), then they had some protection. The Chongs will have known that Mr Bourke was an undischarged bankrupt and therefore they would not be able to get compensation from him should he breach his obligations. If the covenants were dependent on each other, the parties were required to perform their obligations simultaneously or at least be willing and able to perform them at the time when they called for performance from the other side. An interpretation along the lines proposed by the defendant would therefore be of assistance to the Chongs. But, equally, the arrangements would be more disadantageous to Mr Bourke if the provisions of the contract which conferred him benefits (that is, those provisions conferring on him an option to purchase) were to be construed as dependent on him being ready and willing to perform his obligations under the contract. [46] Therefore, overall, there would be advantages to the Mrs Chong in construing the contractual arrangements as being mutually dependent. However, this does notnecessarily mean that the circumstances suggest that the parties had a common intention on the matter of whether the contractual conditions were mutually dependent. [47] Any inference that the Chongs might rely on is an inference that they would not have acted in a way that was markedly to their disadvantage unless the conditions were mutually dependent. But there are arguable answers to the proposed inference. Some I have already mentioned. The Chongs may have thought that they were getting a very good price for the house; they might have allowed themselves to be carried along on feelings of friendship for Mr Bourke. They may have made a poor business decision which Mr Bourke was content to take advantage of – assuming he knew that the Chongs were to be disadvantaged. I just do not have sufficient material upon which to base an assessment of these matters. [48] Given that conclusion, the defendant can only point to the fact that the contractual obligations were agreed at the same time and the agreement of the parties recorded in only one document. Those factors on their own do not carry me to the point where I should conclude that the plaintiff's case cannot succeed.Conclusion[49] I am not persuaded that this is a case where I can confidently conclude that the defendant has discharged the onus of establishing that the plaintiff cannot succeed. The defendant's application for summary judgment is dismissed. This outcome says nothing about the likely outcome of the case were the matter to go to trial. [50] I will hear the parties on the matter of costs, assuming that they cannot agree on the matter. If the parties so wish to be heard, they should file memoranda of not more than three pages, and I will arrange to hear from their counsel orally on a future chambers date which they should arrange with the Registrar.________________________________ J P Doogue Associate Judge