Sandilands v Carlaw [1982] CKHC 1 (4 June 1982)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)

BETWEEN

BARBARA PENE SANDILANDS
of Rarotonga, femme sole
APPLICANT

AND

DONALD MALCOLM CARLAW
of Rarotonga, entrepreneur
DEFENDANT

Dates of Hearing: 1982 Mar 17,18, 27. May 10, 11
Date of Judgment: 4 June 1982

JUDGMENT OF SIR GAVEN DONNE CJ

This is an application in which the applicant seeks (inter alia) the following declarations:

"(a) A declaration that the Applicant is entitled to a beneficial interest in all property real or personal of the Defendant commensurate to her contribution to the same and this under and by virtue of a resulting trust the Defendant being the trustee of same and the Applicant the cestui que trust.

(b) A declaration that the Applicant is entitled to beneficial interest in all property real or personal of the Defendant (other than that acquired by him prior to the commencement of their relationship) to the extent of a one-half share of the same this under and by virtue of a constructive trust the Defendant being the trustee of same and the Applicant the cestui que trust.

(c) (i) A declaration that the Applicant is entitled to a beneficial interest in all property real or personal of the Defendant in quantum to the extent of a one-half share of the quantum difference between the worth of the Defendant's retail clothing business at the time the Applicant commenced working in the said business and its worth at the time of its sale in early 1981 (the said business formerly trading as a limited liability company in New Zealand, and now sold) this under and by virtue of a constructive trust the Defendant being the trustee of same and the Applicant the cestui que trust.

(ii) OR ALTERNATIVELY A declaration that the Applicant is entitled to a beneficial interest in all property real or personal of the Defendant to he extent in quantum of one-half of the net sale price of the Defendant's retail clothing business (formerly trading as a limited liability company in New Zealand and now sold) this under and by virtue of a constructive trust the Defendant being the trustee of same and the Applicant the cestui que trust.

(iii) OR ALTERNATIVELY A declaration that the Applicant is entitled to a beneficial interest in all property real or personal of the Defendant to the extent in quantum of the remuneration that she might reasonably have expected to receive while working for the retail clothing business of the Defendant (formerly trading as a limited liability company in New Zealand and now sold) this under and by virtue of a constructive trust the Defendant being the trustee and the Applicant the cestui que trust."

The applicant first met the defendant in 1974 in Auckland and associated with him for approximately two weeks returning then to Hastings where she lived with her husband. In November 1978 she returned to Auckland and entered into a "de facto" relationship of man and wife with the defendant and apart form three or four short separations this association persisted until October 1981. The defendant, in 1978, was the principal shareholder and director of a company known as "Carlaw's Fashion Discounters Limited" (hereinafter referred to as "the company') which owed retail shops and conducted what were referred to as "roadshows" selling women's clothing. The shops were located in Ponsonby Road and Customs Street, Auckland and Hamilton, Whangarei, Rotorua and Otahuhu. Later, shops were operated in Queen and Elliot Streets, Auckland. The roadshows involved tours of provincial centres where clothing was put on sale under the authority of the of itinerant traders licenses. A roadshow required up to three weeks, travelling away from Auckland. At each centre visited, premises were obtained, the clothing which was transported with displayed stands and equipment in a trailer was set out and the offering was for up to five days in the centre. The defendant would use his vehicle for hauling the trailer and would be accompanied by an assistant. The setting up of the display at the beginning and the reloading at the end of each show required some effort in unpacking and repacking.

About February 1979, the applicant requested the defendant to arrange employment for her in the company, or as they referred to it, the "business". This he did and from that time until the company ceased business in 1981, the applicant was employed in various capacities as a shop assistant, wages clerk, relieving manageress and assistant to the defendant on roadshows. In the latter capacity she was with the defendant on several roadshows serving in all in about 20 centres.

The business was never very successful. For reasons which are not clear the name of the company was changed to "Fashion Discounters Limited" a move which had little effect on its fortunes. Shops were closed, new ones opened but, apart from a slight upsurge in trade resulting from the defendant acquiring for the company at a good price some "over runs" from two well known manufacturers with good brand names, and some successful roadshows, the business declined to the extent that it was decided to sell what could be sold of its assets and cease business. In March 1981, the Company ceased trading and it was then, as the accounts produced by consent show, insolvent. It has been wound up. It had many creditors, one of which was the Australian and New Zealand Bank to which was owing by way of overdraft $14,000. The defendant being the guarantor under a guarantee to the Bank was required to pay this debt. He also, although there appears to have been no legal obligation for him so to do, met the overall deficiency (apart from the overdraft) in the Company's account by the payment of $4,048.65.

In November 1978, the defendant owned a dwelling house in Sarsfield Street, Ponsonby in which he lived and another property at Kauri Point Road. He sold the former property in August 1980 and purchased a house property in Watene Crescent. After the Company ceased business he sold both Kauri Point Road and Watene Crescent properties and with the applicant he came to Rarotonga apparently with the idea of setting up two new businesses here. He had in January 1981, written to Mr R. Tylor, a solicitor in Rarotonga seeking advise as to the acquiring of land for a motel and the forming of a company to acquire a fishing vessels and engaged (inter alia) in charter work. He was having built in Auckland a 25 foot fibreglass boat which he proposed should be acquired by the Company. In a further letter he mentioned that the applicant was considering establishing a small clothing factory. From his letters it is clear he did not contemplate either the applicant sharing in the motel or fishing venture or himself being involved in the clothing factory other than in giving advice and assistance in selling. Mr Tylor considered these matters, and when he learnt the applicant was not the defendant's wife, his advice was to the effect that her chances of being allowed to live in the Cook Islands as a permanent resident would be slim unless he shad some interest in the defendant's business ventures. He advised that she should be given some share holding in the defendant's ventures. In consequence of this advice, he was instructed to write to the Development Investment Committee to obtain registration of the Motel and fishing boat ventures naming the applicant and the defendant as shareholders with local participation. In the event, the projects as outlined were not proceeded with. There is no question but that they were proposed in order to establish the applicant as being eligible for permanent residence.

The association of the applicant and defendant in Rarotonga was not idyllic. Within about four months she left the defendant and was accused by him of having an association with a local man. Three missives follow this event which purport to make certain arrangements which were to be effected in the event of either the plaintiff's innocence or her guilt. While there may be a record of the tribulations of the union of the parties and their consequences, they do nothing to support or reject the applicant's claim and I disregard them. The plaintiff returned to New Zealand with her young son in October 1981. It is acknowledged by the applicant that she and her son were maintained solely by the defendant in Rarotonga and in Auckland from November 1978 to February 1979. It is also established that he contributed substantially to their maintenance during the other periods of their association.

The applicant when she started work knew her employer was the company. She on a number of occasions did work for wages which were less than her lawful due and undoubtedly if the amount of the deficiency in wages were capable of assessment, she could have claimed from the company therefore. She also, as has already been mentioned, accompanied the defendant on the roadshows and was involved with him in long hours of work and travel. To that extent the company benefited materially from her services. There is, however, no way in which, from the evidence, her contribution can be quantified. She was able when working for the company to have access to the cash in the shops she worked in for wages and was a Wages Clerk, but, she has produced no record which could assist in the assessment of her claim. It has been shown on the other hand that she did enjoy when with the company perquisites such as clothing for herself and her family from time to time. The applicant contended that her advice on buying resulted in an increase in sales due to the purchase of more attractive and saleable merchandise. The evidence does not support her. The two manufactures who were called by the defendant to give evidence were emphatic that, as far as they were concerned, the applicant played no part in buying or selecting and I accept that. On the balance, therefore, I cannot conclude that the applicant by her efforts contributed significantly or materially to the increase of the business or assets of the Company during her time with it.

Turning now to the assets of the defendant, the only substantial asset in the Cook Islands is the fishing vessel "Te Manu Roa" which has been employed from time to time in tourist fishing expeditions. It was built in Auckland and costs about $45,000 to land here. The accounts show that it was paid for by the defendant out of the proceeds of the sales of his Auckland real estate and other funds. No funds were obtained from the company for the vessel's construction or its transport to the Cook Islands. Counsel have helpfully quoted various cases to assist the court. These cases underline the divergent views of Judges on this question of constructive trusts. After having considered them all, I have come to the conclusion that the approach of Moller J. in Hayward v Giordani (unreported) Auckland High Court A494/79) is to be preferred and, with respect, I would adopt it. After considering what he calls "these conflicting views", His Honour at page 4 said:

"I have read a great deal of the materials dealing with the conflicting views held amongst Judges and academics, and, in the end I adopt the views so clearly expressed by Mahon J., in Avondale Printers and Stationers Ltd. v Haggie (1979) 2 NZLR 124, and by Somers J., in Gibson v. Gibson (1979) 2.M.P.C.65, opinions which reject those of Lord Denning in so many cases in the Court of Appeal in England. I do not consider that the Court is entitled to impute an intention which does not appear from the evidence.

If one is therefore not bound, as I am not here, to consider an allegation that a constructive trust has arisen because of fraud on the part of the legal owner, it seems to me that, as suggested by Lord Diplock in Gissing's case, it does not greatly matter whether one calls the trust that the plaintiffs attempt to set up this kind of case a constructive trust.

This is because, to call to his aid any such concept, the person claiming to have a beneficial interest in the property concerned must be able to establish an oral agreement, or an agreement that can be properly inferred from the conduct of both parties, showing a common intention to establish a trust.

In Gough v Fraser (1977) 1 NZLR 279 such and agreement clearly existed, and the Court of Appeal was not in the case called upon to consider the conflicting authorities that I have considered.

Having said that, I derive the principles that I should apply in this case from consideration of two Australian Authorities. The first is Allen v Snyder (1977) 2 N.W.S.L.I. 685, and the other in McMahon v McMahon [1979] VicRp 23; (1979) V.R. 239. Those principles are:-

(a) a trust of the kind sought to be established here will arise to give effect to a common intention of the parties;

(b) the common intention to which the Court gives effect may be expressed in an oral agreement, or it may be inferred from the conduct of the parties, even though that common intention has not been the subject of any express communication between them;

(c) by appropriate evidence, it may be proved that a common intention arose after the property had been acquired;

(d) the court gives effect to the trust created by the oral agreement or common intention that, if the parties contribute as contemplated, the beneficial interest will be held in accordance with this agreement or common intention;

(e) proof of expenditure or services for the general benefit of the household is insufficient, standing alone, to show a common intention as to the ownership of the property;

(f) the expenditure or services must be sufficiently related to the property concerned; and

(g) an oral agreement that a party in whom the title is not vested shall have a beneficial interest, without requiring contribution from that party, would be a voluntary declaration of trust an unenforceable."

The basis of the applicant's claim for a beneficial interest in the defendant's property is detailed in paragraph 8 of her affidavit filed in support of her application. It reads:

"8. DURING the time of our working together in the said business the Defendant by his words and conduct held out to me that through my efforts of work and not receiving a salary commensurate with such work together with our living together as man and wife, I was to share;

(a) Equally with the Defendant his assets other than those acquired by him prior to the commencement of our relationship; and

(b) To the extent that my sharing of such assets referred to in paragraph (a) hereof was insufficient to be commensurate with my contribution to the said business, then such other assets of the Defendant to equate with my contribution to the said business;

I relied on this and did not seek to formalise these arrangements."

Now there is no suggestion here that there was ever expressed in any agreement, oral or otherwise, a common intention to create a trust.

Nor does the evidence disclose any words of the defendant from which an intention to share his property with the applicant could be inferred. The applicant however, relies on the fact that her efforts with the Company referred to above, which were known and accepted by the defendant, and their living as if man and wife, justifies the Court inferring a common intention as to sharing.

But in her "viva voce" evidence the applicant more specifically details her understanding as to the common intention which creates the beneficial interest she was to receive. On Page 3 (lines 25 & 6 and 7) she said in examination in chief:

"When we started living together there was a sharing of things. Understanding that we would share everything. Neither of us was drawing wages."

and Lines 30 & 4 to 35:

"I understand we would share because we both giving and both taking and it was through working at work and not taking wages and as we living as man and wife we would share as man and wife."

Again, in cross-examination at page 4 (line 20 & 7) to page 5 (line 1 & 8):

Q. When was it when you first understood there was some agreement to share in the assets.

A. When he first asked me to move in to live with as man and wife it was the natural thing to expect.

Q. It was an assumption on your part that he would share his assets.

A. yes

Q. What Assets did you assume he would share with you.

A. It was mainly through the business both of us working so hard and at the beginning his assets did not cover the debts he incurred anyway.

Q. What assets did you believe you assumed you would partake of it the relationship broke up.

A. At the beginning there would be nothing to partake in because at the start he owed so much and he had nothing but building the business right up I thought that naturally I would partake in part of the business.

Q. So is your claim really that you contributed to the business by your hard work and you would therefore expect to share at least in some proportion of the profit of the sale of the business.

A. Yes, but when you say profits.

Q. What did you expect he would share? After business built up share in that business and any assets he purchased from company funds. He did not tell me that in actual words."

and page 5 (lines 10 & 3 to 5):

"I do not know about mortgages. You do not want to share profits of sale of his houses? Purchase of homes came from business and boat purchased by proceeds for sale of houses."

and at line 20;

"He was owner of Sarsfield Street at time we met. Sarsfield Street purchased before my time. He never suggested I share in ownership but when I moved in I thought I would. I assumed because of my interest in property of my husband upon which I took legal advice."

In this evidence the applicant has clearly established that her expectations were that she would obtain a beneficial interest in all property purchased by the defendant from company funds. The basis of such a claim is that she, by her gratuitous efforts, which were accepted by the defendant at the time, had built up the company business and added to its worth. She in fact believed, wrongly, that that company monies had been used by the defendant to acquire real and personal estate and, in particular, the asset in the Cook Islands, the fishing vessel. She did not expect to share in assets acquired by him prior to the commencement of their relationship.

There is a contention mentioned in her affidavit, but not touched on or developed in the applicant's "viva voce" evidence, that there could be inferred a common intention that she would share in other of the defendant's assets if the assets of the company were insufficient to commensurate her for her contribution to its weal (paragraph 8 (b)). Nothing can I find in the evidence to justify such an inference being drawn. Neither the conduct of the parties during their employment with the company nor their conduct afterwards could be interpreted to this effect and I am satisfied there was no such common intention. But even, if such an inference could be drawn, I consider the applicant would be in difficulty in charging a beneficial interest in an asset outside the company since she has not been able, in the evidence to quantify her contribution.

The real and personal property acquired by the defendant during his relationship with the plaintiff was funded from monies obtained initially from the sale of the Sarsfield Street property and later from sales of other real estate. No company funds were used in the transactions. There is no evidence of any services by the plaintiff performed in relation to any such properties. She suggested that because they were living together for almost three years, she would expect to share such assets and that a common intention could be inferred from that fact, but, that is insufficient to establish a common intention - vide Kennedy's case (supra).

As I see it, the applicant's case is inextricably tied to the fortunes of the company. If the company were in funds which she could follow in any of the defendant's assets, a beneficial interest could be established provided, of course, a common intention was proven. The company funds have never been used for other than the purposes of the business; the company died insolvent. That is indeed the dilemma of the applicant who cannot show any transaction upon which she can pin her claim. She cannot succeed.

In the circumstances there is therefore no necessity to consider further the claim for the various declarations the applicant seeks and there will be judgment for the defendant with costs and witnesses expenses according to scale to be fixed by the Registrar based on a claim for $20,000.

SIR GAVEN DONNE
CHIEF JUSTICE

4/6/82

Solicitors for the plaintiff: Clarke, Ingram & Co, Rarotonga
Solicitors for the defendant: Short and Tylor, Rarotonga.