Sahra Ling Smith v Roger Neville Ball and Others

• Jurisdiction: New Zealand
• Judge: Gordon J
• Judgment Date: 08 May 2020
• Neutral Citation: [2020] NZHC 944
• Court: High Court
• Docket Number: CIV-2017-404-2268
• Date: 08 May 2020

IN THE MATTER of the Estate of Raymond Alexander Smith

Between

Sahra Ling Smith

Plaintiff

and

Roger Neville Ball

First Defendant

Crystal Mint Developments Limited

Second Defendant

Crystal Mint Limited

Third Defendant

[2020] NZHC 944

Gordon J

CIV-2017-404-2268

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Equity, Trusts — claim that the defendants held property on express trust or constructive trust — requirements for a valid express trust — fiduciary obligations of a done of an Enduring Power of Attorney — Property Law Act 1952

Appearances:

K P McDonald and N Percy for the Plaintiff First Defendant on own behalf and on behalf of the Second and Third Defendants

JUDGMENT OF Gordon J

This judgment was delivered by me on 8 May 2020 at 3 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

CONTENTS

Introduction	[1]
Background	[10]
First cause of action - against CMDL: express trust	[53]
Trusts - general legal principles	[57]
Writing requirements for trusts - Property Law Act 1952	[65]
Is there certainty of intention?	[71]
Mr Smith's letter to his solicitor (7 October 1993)	[71]
Mr Smith's letter to his solicitor (26 October 1993)	[77]
CMDL's power of attorney (9 November 1993)	[86]
Option to purchase 38 Dominion Street (undated)	[89]
Mr Smith's letter to his solicitor (22 November 1993)	[92]
Mr Smith's letter to Harold Kidd (16 December 1996)	[97]
Mr Smith's letter to Mr Kidd (30 January 1997)	[100]
Document headed “Remember This” (1 March 2002)	[102]
Document headed “CMD's Income” (undated)	[104]
Document headed “Routes/methods by which Key gets paid and when
the IRD gets GST” (undated)	[106]
Handwritten file note (undated except for “June”)	[108]
The “road map”	[112]
Meeting of 20 January 2015	[128]
CMDL and Mr Ball as director	[130]
Mr Smith's conduct	[134]
Lack of commercial rationale for the arrangement	[138]
KCL and CMDL's financial statements	[139]
Was Mr Smith's $520,000 vendor loan repaid?	[141]
Certainty of subject matter of trust	[154]
Certainty of objects	[156]
Writing requirements for an express trust	[157]
Conclusion	[161]
Second cause of action - against CML: express trust	[162]
Certainty of intention - shares in CMDL	[163]
Third cause of action - against CMDL and CML: constructive trust	[170]
Presumed or actual common intention	[173]
Property obtained by fraud	[181]
Sixth cause of action - against CMDL: loan by Mr Smith to CMDL of $303,000	[186]
Did CMDL borrow $303,000 from Mr Smith?	[189]
Mr Ball acting under power of attorney?	[202]
Fourth cause of action - against Mr Ball: loan by Mr Smith to Mr Ball of $303,000	[216]
Seventh cause of action - against CMDL: loan by Mr Smith to CMDL of $646,500	[219]
Did CMDL borrow $646,500 from Mr Smith?	[221]
Mr Ball acting under power of attorney?	[228]
Fifth cause of action - against Mr Ball: loan by Mr Smith to Mr Ball of $646,500	[235]
Orders and declarations	[236]
First cause of action	[236]
Costs	[239]

Introduction

1 Raymond Smith was the owner of a property at 38 Dominion Street, Takapuna, Auckland. He lived at 5/38 Dominion Street. In November 1993, Mr Smith and his close friend, the first defendant, Roger Ball, entered into an arrangement whereby Mr Ball's company, the second defendant Crystal Mint Developments Ltd (CMDL) was to purchase 38 Dominion Street. At that time, the beginnings of a development at 38 Dominion Street were underway. The development continued after the sale to CMDL.

2 Mr Smith suffered a series of strokes, starting in 2004. He became incapable of managing his own affairs and Mr Ball was granted an enduring power of attorney in relation to property ( EPA) by Mr Smith on 12 July 2004.

3 Mr Smith died on 8 February 2010. Mr Smith's only child, the plaintiff, Sahra Smith, was the sole beneficiary of his estate.

4 Ms Smith now brings claims against Mr Ball, CMDL and the third defendant, Crystal Mint Ltd (CML). CML is the sole shareholder of CMDL and Mr Ball is the sole director and sole shareholder of CML. Mr Ball is also the sole director of CMDL.

5 In her first cause of action, Ms Smith claims that CMDL holds units 3, 4 and 5/38 Dominion Street 1 under an express trust for her father, and for Ms Smith, in her capacity as the executrix of her father's estate. 2

6 In the alternative, in the second cause of action Ms Smith claims that CML holds the shares in CMDL on an express trust for her father. After his death, his interest in the trust passed to her in her capacity as the executrix of her father's estate.

7 The third cause of action is again an alternative claim. It is made against both CMDL and CML and claims that units 3, 4 and 5/38 Dominion Street, or alternatively

CML's shares in CMDL, are held on a constructive trust for her father and that those interests have passed to her in her capacity as the executrix of her father's estate

8 The fourth and fifth causes of action are against Mr Ball personally. The claims

arise out of loans said to have been made by Mr Smith to CMDL in 2005 and 2009 (after Mr Smith's strokes) by way of Mr Ball acting under the EPA transferring funds from Mr Smith's bank account to CMDL's bank account. These causes of action are mirrored by the sixth and seventh causes of action respectively, which are brought in the alternative, against CMDL. Mr McDonald, who appeared for Ms Smith, clarified at the hearing that these four causes of action are not brought as alternatives to the first three causes of action.

9 The eighth and final cause of action against CMDL, alleging that the contract between Mr Smith and CMDL in November 1993 was an illegal contract, was abandoned at the hearing.

Background

10 Mr Ball and Mr Smith first met in 1975 when they both worked at the Housing Corporation. Mr Ball was a town planning and survey drafting cadet and Mr Smith was a quantity surveyor. They became best friends.

11 Mr Smith acquired 38 Dominion Street from a family member in 1975. It was a half-acre site with an old house in the middle of the section. Mr Smith moved into the old house but had ideas about developing the site. Mr Ball's evidence was that he assisted with some preliminary work on site and discussed Mr Smith's plans with him. The house on the section was moved to the back of the site and later became known as 5/38 (and sometimes 6/38) Dominion Street.

12 Mr Smith met Alida, who became his wife, and their daughter Sahra was born in 1988. Mr Ball became her godfather.

13 Mr Ball, along with two others who were friends and colleagues of his, formed CMDL on 26 May 1989. Mr Ball's evidence was that they wanted to buy properties and build additional houses on them and sell them for a profit. By 1993, Mr Ball had bought his partners out and the company was no longer active.

14 In December 1989, Mr Smith incorporated Key Consultants Ltd (KCL). Mr Smith was the sole director and held 999 shares. His brother Trevor held one share. Mr Smith used KCL for his activities as a builder.

15 In 1991, Mr Smith bought 42 Dominion Street, Takapuna, which is next door to 38 Dominion Street. The following year he transferred title to 42 Dominion Street to KCL. In July 1992, KCL applied to subdivide 42 Dominion Street and three crosslease titles were issued in August 1992. The leasehold interests in two of those titles were transferred to unrelated third parties.

16 KCL remained the registered owner of one of those titles, which Mr Smith referred to as both 3/42 and 7/38 Dominion Street.

17 In 1993, the legal title of 38 Dominion Street passed from Mr Smith to CMDL pursuant to an agreement for sale and purchase dated 12 November 1993. The purchase price was $540,000. It seems the initial idea was that the entire purchase price would be financed by way of a vendor loan. After receiving legal advice, the arrangement was that CMDL would pay a deposit of $20,000 and the balance of $520,000 was by way of an interest free vendor loan. Ms Smith's position is that the deposit was not paid nor was the loan amount repaid.

18 CMDL received a $60,000 GST refund following the purchase. Mr Smith used that to pay off the mortgage on 38 Dominion Street. 3

19 Between 1993 and 1994, Mr Smith and KCL undertook building and ancillary work on the land that later became known as 2/38 Dominion Street. In September 1997, part of 38 Dominion Street was subdivided and cross-leases were created for 1, 2 and 5/38 Dominion Street. Unit 5 was registered in the name of CMDL, as was unit 1. That latter unit was transferred in the same year to unrelated purchasers,

Mr and Mrs Chan. Unit 2 was registered in the name of a Mr and Mrs Coote who were also unrelated purchasers

20 Mr Smith/KCL then undertook building and ancillary work on the remaining land at 38 Dominion Street. Two houses, known as 3 and 4/38 Dominion Street, were constructed.

21 In February 2001, KCL transferred 3/42 (also known as 7/38) Dominion Street to Mr Smith and Mr Ball as trustees of the Ray Smith Family Trust No 1 (RS Family Trust). That trust had been settled by Mr Smith by deed dated 31 March 1997. Mr Smith and Mr Ball were the trustees.

22 In around September 2001, Mr Smith separated from his wife, Alida. During 2002, Mrs Smith commenced her first set of proceedings in the Family Court for the division of relationship property. Mrs Smith discontinued those proceedings in 2003. At that time the relationship property issues between Mr and Mrs Smith were left unresolved.

23 In 2002, Mr Smith's father died and in June 2003, Mr Smith...