IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-1806 [2013] NZHC 2073

BETWEEN	STUART WALTON HERRON Plaintiff	

AND	
WAYNE ANDREW WALLACE First Defendant

SHADES OF AUTUMN LIMITED Second Defendant

BELMONT LIFESTYLE VILLAGE LIMITED
Third Defendant	

Hearing:	14 August 2013	

Appearances:	
C T Patterson and D J Powell for Plaintiff
J Strauss for Defendants	

Judgment:	
15 August 2013	

REASONS FOR JUDGMENT OF ASSOCIATE JUDGE BELL

This judgment was delivered by me on   15 August 2013 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules.

...................................
Registrar/Deputy Registrar

Solicitors:
Skeates Law Ltd, Auckland, for Plaintiff
Garry Pollak & Co Ltd, Auckland, for Defendants

Copy for:
C T Patterson, Auckland, for Plaintiff
Johann Strauss, Auckland, for Defendants

HERRON v WALLACE [2013] NZHC 2073 [15 August 2013]

[1]       I heard the plaintiff’s application for summary judgment on 14 August 2013. After hearing Mr Patterson, I indicated that I was not satisfied that the plaintiff had shown that the defendants had no defence to causes of action in the statement of claim.  Mr Patterson then withdrew the application for summary judgment.  I now give my reasons.

[2]       The plaintiff sues the defendants under a deed of settlement of 20 October

2005 and deed of acknowledgment of debt of the same date.  Under the settlement deed it claims $2,550,537.50 plus interest and costs against all three defendants. Under the deed of acknowledgment of debt it claims $600,000 plus interest and costs
against all three defendants.

[3]

for th	I di ese re

(a)	d not find that the plaintiff had shown that the defendants had no defence asons:

The plaintiff’s application in support of his application for summary	
		judgment does not meet the requirements of r 12.4(5)(b) of the High

Court Rules; and	
	
(b)	
The defendants have arguable defences that the plaintiff is not the trustee of the Churchside Trust and that the debts the subject of the	
		proceeding are not assets of that trust.	

[4]	
The	
defendants also opposed the summary judgment application on the basis	
that they have arguable defences on the merits.  However, as I found against the plaintiff on other grounds, it was not been necessary for me to consider the defendants’ arguments as to the merits.

[5]       During the hearing Mr Patterson tendered a copy of an affidavit sworn by Lucy Herron, the plaintiff’s daughter.  Mr Strauss objected to it coming in so late. I upheld that objection.

The requirements for affidavits under r 12.4(5)(b)

[6]       The rule says:

(5) The affidavit –

(a)	must be on behalf of the person making the application:

(b)       if given by or on behalf of the plaintiff, must verify the allegations in the statement of claim to which it is alleged that the defendant has no defence, and must depose to the belief of the person making the affidavit that the defendant has no defence to the allegations and set out the grounds of that belief...

[7]       The plaintiff has sworn one affidavit.   That affidavit sets out evidence in support of the application.  However, it does not meet the requirements of the rule because there are no statements verifying the allegations in the statement of claim to which it is alleged that the defendants have no defence.  Further, the plaintiff has not stated his belief that the defendants have no defence to the allegations.

[8]       This matter is more than a technical oversight.  It goes to the merits of the plaintiff’s application of the summary judgment application.  The plaintiff is seeking judgment on allegations in the statement of claim which have not been verified and in respect of which the plaintiff has not deposed to his belief that the defendants do not have any defence.

[9]       Sometimes such omissions may be repaired by giving a plaintiff time in which to file an affidavit addressing these defects.  Mr Patterson offered to arrange for the plaintiff to swear a fresh affidavit addressing the shortcomings. However, because I also found against the plaintiff on other grounds, it would not have served any useful purpose to give time for a further affidavit to be filed.

The deed of settlement and the deed of acknowledgment of debt

[10]     The deeds the plaintiff relies on were made in October 2005.  In May 2009 the  plaintiff  was  adjudicated  bankrupt.     In  May  2012  he  was  automatically discharged from his bankruptcy.  He began this proceeding in April 2013.

[11]     The deeds the plaintiff sues on name the plaintiff as the person entitled to be paid.  Accordingly, at first sight it would be expected that on his adjudication in bankruptcy, the rights to sue on the deed passed to the Official Assignee under s 101 of the Insolvency Act 2006. The defendants take that very point.

[12]     The plaintiff’s case is that although he was a person named as the payee under the deed of settlement and deed of acknowledgment of debt, the right to be paid belonged to a trust called the Churchside Trust.  When he entered into these deeds, he was not a trustee of that trust.  Because the right to enforce the deeds belonged to the trust, those are not assets that passed to the Official Assignee on his adjudication.  He says that since his discharge, he has been appointed trustee of the Churchside Trust, and he is now suing as the sole trustee of the Churchside Trust.  It is a necessary consequence of his argument that the debts on which he is now suing never vested in the Official Assignee and accordingly they cannot be applied to the benefit of his creditors.

[13]     The parties to the deed of settlement of 20 October 2005 are Shades of Autumn Ltd (a company associated with Mr Wayne Wallace), Central Auckland Properties  Ltd  (a  company  associated  with  Mr  Herron)  and  Belmont  Lifestyle Village Ltd (a company associated with Mr Wayne Wallace), Mr Wallace himself and the plaintiff, Mr Stuart Herron.

[14]      The deed of settlement includes these provisions under the heading “Wayne

Wallace and Stuart Herron”:

6	Issues have arisen between Wayne Wallace and  Stuart Herron in respect of which Wayne admits that Stuart would be entitled to claim damages as a result of his conduct with Lombard in securing earlier advances from Lombard.  The parties  have  agreed  to  settle  the  foreshadowed  proceedings  claiming  such damages on the following basis:

(a)        Wayne acknowledges that he is indebted to Stuart Herron in the amount of $3,160,950 (being $1,037,000 plus the value of the Turner and Waverley Street Apartments and Herron’s half share of the Queenstown Apartment detailed in clause 11 of this Agreement which are agree to have a value of $2,123,950) which shall be payable in full without deduction as required by this Agreement provided that upon fulfilment of the obligations pursuant to clause 11 of this Agreement the total outstanding amount due to Stuart Herron shall be reduced by $2,123,950.

In the event the Agreement for Sale and Purchase for the Queenstown property referred to at clause 11(c) does not become unconditional the total outstanding amount due to Stuart Herron by Wayne Wallace shall reduce by $1,448,950 instead of $2,123,950 referred to in this clause upon the fulfilment of the obligations under clause 11(a) and (b) only of this Agreement.

...

8	Wayne Wallace agrees to execute a Deed of Acknowledgment of Debt and an Admission of Claim in the amount of $3,160,950 (of which $600,000 will be credited as paid on receipt of the $600,000 pursuant to the Lombard Agreement) which shall become immediately enforceable in the event of this Agreement being breached by Wayne Wallace and/or Shades of Autumn Ltd by which time all monies payable or to be payable in the future pursuant to this agreement shall become immediately due and owing notwithstanding that the time for payment otherwise has not arisen.

9.1	All amounts due from Wayne Wallace to Stuart Herron shall become due and owing, within three years six months of this Agreement being executed by Wayne Wallace and/or Stuart Herron.

...

12	Wayne  Wallace,  Shades  of  Autumn  Ltd  and  Belmont  Lifestyle Village Ltd execute this Agreement as principal parties and each guarantee that the other will perform all that that other party’s obligations pursuant to this Agreement.  In the event one party is in breach of this agreement Stuart Herron shall be entitled to require any other party to this agreement to perform the obligations of the party in breach as if that party were principally required to perform that obligation. ...

[15]     The plaintiff’s case is that the conditions of the deed have all been satisfied and he is entitled to sue on the deed.  He also gives credits for payments of $600,000 and $5,412.50.

[16]     The deed  of acknowledge of debt of 20 October 2005 is between Stuart Walton Herron as creditor, Wayne Andrew Wallace as debtor, Belmont Lifestyle Village Ltd and Shades of Autumn Ltd. The deed includes these provisions:

1	The  Debtor  (Wayne  Wallace)  agrees  to  pay  the  Creditor  (Stuart
Herron) $600,000 (“Debt”) in accordance with this deed.

2	The Debt is payable by the Debtor to the Creditor within five years eleven months from the date of this deed.   For the avoidance of doubt, it is confirmed that no interest will be due and payable on the balance of the Debt outstanding at any time.

...

4	Belmont and Shades of Autumn guarantee the obligations of the Debtor under this deed notwithstanding any clause (including this clause)  of  this  deed  the  liability  of  Shades  of Autumn  shall  be limited to any interest Shades of Autumn has in apartment 1106 ... and apartment 901 ... and apartment 1401 ... and apartment 403.  ...

[17]     Both deeds contain entire agreement clauses.

Churchside Trust

[18]     The Churchside Trust was established under a deed of 30 March 2002.  The settlor is Christine Mary Herron, the plaintiff ’s wife.   The trustee is Lucy Rose Herron, one of the plaintiff’s daughters.   The deed provides for a discretionary family  trust.    The  final  beneficiaries  of  the  trust  are  two  other  daughters  of Mr Herron, Amy and Elizabeth. The date of distribution is eighty years after the date of the deed.

[19]     The deed also provides for an extensive range of discretionary beneficiaries, including any person the trustee in his or her absolute discretion may decide before the date of distribution. Accordingly, Mr Herron is potentially a discretionary beneficiary under this deed.  Elizabeth Herron is also the appointor.  The appointor has the power to remove trustees and to appoint new trustees (clauses 19 and 20). The trustee does not prescribe any particular formalities for the exercise of the appointment or removal of trustees.  Clause 18 of the trust deed provides for the trustees to keep a minute book.  There is no provision in the trust deed allowing the trustee to delegate the exercise of their powers or functions.

Is the plaintiff a trustee of the Churchside Trust?

[20]     Paragraph 24 of the statement of claim says that on 1 June 2012 Elizabeth Herron resigned as a trustee of the Churchside Trust. That allegation has not been verified in Mr Herron’s affidavit.  Whereas Lucy is the original trustee appointed under the trust deed, there is no evidence how the trusteeship passed from Lucy to Elizabeth.   Paragraph 24 of the statement of claim also says that Mr Herron was

appointed  as  the  sole  trustee  on  1  June  2012.    His  affidavit  in  support  of  the summary judgment application simply says:

Since June 2012 I have been the sole trustee of the trust.

[21]     Elizabeth Herron is the appointor, not Mr Herron.  There is no evidence from her that she appointed her father to be the trustee. Normally the resignation of one trustee and the appointment of a new trustee are carried out by deed.  It could also be carried out by some other instrument in writing.  Even an entry in the minute book might  suffice.    But  here,  there  is  no  documentary  evidence  at  all  to  support Mr Herron’s assertion that he is now the sole trustee of the Churchside Trust.  I do not regard Mr Herron’s unsupported assertion as being enough by itself to show that he is currently the sole trustee of the trust.

[22]    The matter is significant, because at the time that the summary judgment application was prepared, Mr Herron and his advisers knew that Mr Wallace had put in issue Mr Herron’s standing to sue.  The circumstances of this case also flagged this as an issue.    Mr Herron had recently come out of bankruptcy, but was now asserting the right to sue for substantial sums.  It would be natural to inquire how he came by the right to sue and to be wary of unsupported assertions. The defendants do not have to adduce any evidence on the point.  The matter is within Mr Herron’s knowledge and he has the burden of showing that there is no defence on that issue. Knowing that he would be required to show that he had title to sue, the failure to put in any supporting evidence to show that he had been appointed a trustee does not allow  me  to  find  that  the  defendants  do  not  have  an  arguable  defence  as  to Mr Herron’s status as trustee of the trust.

[23]     In this I am simply reflecting the approach taken by Duffy J in Westpac NZ Ltd v Cooper:1

[8]        I  consider  that  this  case  also  raises  a  further  key  issue  for determination.  That is whether or not Westpac has discharged the burden placed on an applicant for summary judgment to make out a case which satisfies the court that the defendant has no defence. Ordinarily this enquiry focuses on the absence of a substantive defence. However, the form of the plaintiff’s claim, and the evidence

to establish that claim, is also relevant to this enquiry.  A statement of claim which fails to include material allegations, and primary affidavits which fail to adduce evidence relevant to proving those allegations, can also result in the application for summary judgment being dismissed.   Minor errors or omissions may be curable by permitting the applicant leave to amend its pleading and to file additional  affidavit  evidence.    Where  such  errors  and  omissions cause real prejudice for a defendant, the likely result will be refusal of summary judgment.

Can the trustee of the Churchside Trust sue on the deeds?

[24]     On this, Mr Herron simply says:

23	In entering into the agreements with Wallace, I was doing so as an agent for Lucy as trustee of the trust, so that the benefits to be gained by the agreements would go to the beneficiaries of the trust.  I had Lucy’s authority to enter into the agreements as agent for her and the trust.

[25]     Mr Herron has not put in evidence any trust records to support his assertion that he entered into the agreements as an agent for Lucy as a trustee of the trust.  The submission for Mr Herron is that the doctrine of undisclosed principal applies.  His case is that because he was acting on behalf of Lucy as trustee, the entitlements in the deed of settlement and the deed of acknowledgment of debt belong to the trust and not to him personally.  He refers to the decision of the Privy Council in Siu Yin
Kwan v Eastern Insurance Co Ltd.2

For present purposes the law can be summarised shortly.  (1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority.  (2)  In entering into the contract, the agent must intend to act on the principal’s behalf.   (3)   The agent of an undisclosed principal may also sue and be sued on the contract. (4)    Any  defence  which  the  third  party  may  have  against  the  agent  is available against his principal.  (5)  The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued.  The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.

[26]     That case involved a purely commercial contract where there was no element of trusteeship.  In this case, agency is being asserted in the context of a trust.  It is important to bear in mind the personal nature of a trusteeship.  It is an established principle of trust law that a trusteeship is personal and only the trustee can exercise

the powers, authorities and discretions conferred under a trust deed.   The trustee must exercise his powers in good faith, must not allow others to dictate how he should exercise his powers, and must not fetter his discretion.  Trustees must act unanimously.  Subject to any provision in the trust deed and any relevant statute such as s 31 of the Trustee Act 1956, the trustee cannot delegate his powers to other trustees or to third parties.  However, the law recognises that a trustee cannot attend to everything required for the conduct of a trusteeship and a trustee may engage agents to implement trust decisions.   Section 29 of the Trustee Act provides for
trustees  to  employ agents.   The Australian  text  The Law  of Agency,3   notes  the

distinction between delegation and agency:

Trust law, however, distinguishes between the appointment of an agent and that of a delegate.   In general law, the personal nature of the trustee- beneficiary relationship dictates that although trustees can appoint an agent to  carry  out  or  implement  decisions  made  by  the  trustees,  they  cannot delegate the exercise of their powers, authorities and discretions under the trust to a third party.  Hence, the common law qui facit per alium facit per se does not apply to a trustee except as allowed by the terms of the trust instrument or pursuant to the limit of the power of delegation conferred by the trustee legislation.

[27]     The Court of Appeal’s decision in Niak v McDonald4 makes the same point:

It is an established rule of trust law that a trustee must not delegate his or her duties or powers, not even to co-trustees.  Delegation is, however, allowed where such delegation is specifically permitted by the trust instrument or practically unavoidable and is usual in the ordinary course of business, and the particular agent is employed in the ordinary course of his or her business.
...  The trustee has a duty to act personally and this duty requires trustees to be unanimous in any decision they take.  ...

In that case the Court of Appeal held that a general, non-specific delegation could not be valid.

[28]     The trust deed does not confer any power on the trustee to delegate functions. The circumstances of this case have not been shown to come within the scope of permissible delegation under s 31 of the Trustee Act 1956.  If the trustee were a party to the deeds the plaintiff relies on, the person who would be required to decide
whether the trust should enter into these deeds would be the trustee.  It is not open to

3	GE Dal Pont The Law of Agency (2nd ed, LexisNexis, Australia) at [3.31].
4	Niak v McDonald [2001] 3 NZLR 334 at [16].

the trustee to delegate that decision to anybody else.  It goes beyond a mere agency

function of implementing a trustee’s decision.

[29]     Mr Herron’s evidence is consistent with his making the decision to enter into

the deed.  His affidavit says:

17	I  was  not  happy  about  Wallace’s  behaviour  in  relation  to  the Lombard loan facility.   I discussed the matter with Wallace, he accepted that he had done the wrong thing by me and my family. We agreed on a way out of this mess, and on 20 October 2005 entered into a settlement deed, the terms of which were that ....

[30]     Similarly, Mr Wallace says:

8	At no time prior to the plaintiff’s discharge from bankruptcy has there ever been any mention of the Churchside Trust or any other trust.  Throughout all the negotiations and in all the documentation, the plaintiff held out that he was acting in his own interests or as a director of one of the companies in which he or he and his wife were the sole shareholders.

[31]     The terms of the deed of settlement are also consistent with Mr Herron acting on his own behalf and not on behalf of a trust.  Clause 6 of the deed of settlement refers to Mr Herron being entitled to claim damages.   If the trust held a cause of action I would expect the deed to refer to the trust’s cause of action, rather than a cause of action for damages held by Mr Herron.  The acknowledgement in the deed that the payment was to be made in settlement of Mr Herron’s potential claim for damages is consistent with Mr Herron entering into the agreement on his own behalf alone.

[32]     The entire agreement clauses stand in the way of Mr Herron asserting that the trust, rather than he personally, is able to enforce the deeds.  In claiming that the trustee of the Churchside Trust is able to enforce the deeds, Mr Herron is trying to add to the agreement, when the parties had agreed that the written deeds were the exclusive terms of the agreement.

[33]     Against that, it was submitted that clause 12 of the deed of settlement - which refers  to  the  defendants  as  principal  parties  but  makes  no  similar  reference  to Mr Herron - is consistent with his acting on behalf of the trust.  The reference to the

defendants as principal parties makes it clear that they were not merely guarantors but were also principal debtors.  It was unnecessary to provide any similar reference to Mr Herron because he was the creditor.  In any event the words “principal parties” are not strong enough to give rise to an inference that Mr Herron was entering into the deed on behalf of the trust.

[34]     The following matters are properly arguable for the defendants:

(a)       There is no evidence that the trustee, Lucy Herron, was involved in the decision to enter into these deeds. As the only trustee, she was the only one who could decide whether the trust could enter into these deeds.

(b)	It was Mr Herron, not Lucy Herron, who decided to enter into those deeds.  Under trust law he did not have any power or authority to do so.

(c)       Because he had no power or authority to bind the trust, he was acting on his own behalf.

(d)	The terms of the deed of settlement are consistent with Mr Herron entering into a deed on his own behalf, rather than for a trust.

(e)       Because the debts arising under these deeds belonged to Mr Herron personally, they vested in the Official Assignee on his adjudication in bankruptcy.

[35]     Mr Herron tries to meet the last point in paragraph 26 of his affidavit:

26	I do not accept Wallace’s argument because the debts were owed to the trust and not to me personally.  I have checked this with the OA and the OA has confirmed that it does not consider that the debts owed by Wallace vested in the OA upon my bankruptcy, but rather that they are the property of the trust.

[36]     There is no evidence from the Official Assignee.  Mr Herron’s statement is a

hearsay assertion.  Such a hearsay statement does not qualify for admission under the

Evidence Act.   In particular, I do not regard the circumstances relating to the statement attributed to the Official Assignee as providing a reasonable assurance as to its reliability.  Moreover, there is no good reason why the Official Assignee could not have given affidavit evidence to show that the assets represented by the trust had not vested in the bankruptcy.  Even if the requirements as to hearsay are relaxed for the purposes of a summary judgment application, I would not attach any weight to Mr Herron’s unsupported assertion that the Official Assignee has confirmed that the Official Assignee has no interest in these assets.

[37]     For these reasons I held that the application for summary judgment could not succeed.  Costs on the application have been reserved, but may be the subject of submissions at the first case management conference.  I have also given a minute directing a case management conference.

…………………………….
Associate Judge R M Bell