Mrs X v Company B [2014] NZHC 2197 (10 September 2014)

Last Updated: 2 December 2014

ORDER PROHIBITING PUBLICATION OF NAMES, ADDRESSES OR IDENTIFYING PARTICULARS OF THE PARTIES AND OF THE ENTITITES ANONYMISED IN THE JUDGMENT

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000354 [2014] NZHC 2197

UNDER	the Land Transfer Act 1952
AND
UNDER	the Property (Relationships) Act 1976
BETWEEN	MRS X Plaintiff
AND	COMPANY B Defendant

Hearing:	10 September 2014
Appearances:	A M Corry for Applicant/Plaintiff J E Bayley for Respondent/Defendant
Judgment:	10 September 2014

ORAL JUDGMENT OF ASSOCIATE JUDGE OSBORNE

_{as to application for stay of execution}

The application

[1] Mrs X and Mr X are married but estranged. Issues of relationship property are before the Family Court.

[2] The defendant (Company B) is the registered proprietor of property in

_{[location redacted] (the Company B land).}

MRS X v COMPANY B [2014] NZHC 2197 [10 September 2014]

[3] Mrs X registered a notice of claim under s 42 Property (Relationships) Act

1976 (PRA) against the Company B land. By a judgment dated 4 September 2014,¹

I dismissed Mrs X’s application for an order that the relevant notice of claim not lapse.

[4] Mrs X makes application for an order staying the enforcement of the 4

September 2014 judgment.

[5] Immediately following the judgment, Mrs X filed this application for a stay. [6] The first ground of application is that an appeal was being made that day to

the Court of Appeal against the judgment. Ms Corry has informed me today that the appeal was promptly filed and now has to be progressed.

[7] The second ground of application is that the right of appeal will be rendered nugatory if the stay is not granted.

[8] Mrs X has filed evidence in support of her application.

The subject matter of Mrs X’s claim

[9] In her notice of claim under s 42 PRA, Mrs X stated:

Mrs X is the spouse of Mr X of [location redacted], Property Investor, who is the beneficial owner of the land described below by way of an arrangement between Mr X and the Registered Proprietor of the said land Company B (“Company B”) by virtue of:

a. A constructive trust or express or implied trust or common intention trust, between Mr X and Company B whereby Mr X is the beneficial owner of the estate

b. Mr X is the beneficial owner of the land, irrespective of the ownership structure

c The beneficial ownership of Mr X is relationship property.

[10] A more detailed history of the respective positions of Mrs X and Company B

is contained in the 4 September 2014 judgment. Company B is the corporate trustee

of the H Trust which may be described as a X Family Trust (settled by Mr X’s mother in 1996). Company B is the sole trustee. The discretionary beneficiaries include Mr and Mrs X and their children. In July 2012, Company B entered into an agreement to sell the Company B land to [company name redacted] as a trustee of the P Trust. Subsequently in March 2014, [company name redacted] retired as trustee of the P Trust and Trustee Company E was appointed trustee. Trustee Company E is a trustee company utilised by the legal firm of [firm name redacted] to act as a professional trustee. Mr J, a partner of that firm and a director of Trustee Company E, has given evidence in opposition.

[11] The discretionary beneficiaries include Mr X’s children and the grandchildren

but do not include Mr and Mrs X themselves.

[12] As I have set out above (at [9]), Mrs X’s claim is that Company B is the trustee of a trust of which Mr X is beneficiary (focused by Ms Corry at the caveat hearing to an allegation of a constructive trust).

[13] In the judgment of 4 September 2014, I found that it was not reasonably arguable that Mr X had a beneficial interest in the Company B land through a constructive trust.

The jurisdiction to stay execution of a judgment

[14] Mrs X’s application purports to rely on r 20.10 High Court Rules. That Rule, being Part 20 of the High Court Rules, applies to appeals to the High Court.² The correct jurisdiction for an order staying execution of a judgment of this Court pending appeal to the Court of Appeal is r 12, Court of Appeal (Civil) Rules 2005. Nothing turns on the reference to the High Court Rules because the principles applicable, and the authorities relied on in relation to each rule, are similar. In the case of an appeal to the Court of Appeal, r 12(3) Court of Appeal (Civil) Rules empowers this Court to deal with an application of the present kind and I proceed with this judgment on that basis.

Stay of execution – the general principles

[15] A convenient and up-to-date summary of the general approach under r 12

Court of Appeal (Civil) Rules 2005 is that set out by the authors of McGechan on

Procedure which I adopt:³

Principles

(1) General approach

(a) An application under r 12(3) requires the Court to balance the competing rights of the party who obtained the judgment appealed from (ie the benefit of that judgment) against the need to preserve the appellant’s position against the event of the appeal succeeding: Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.

(b) “The object, where it can be fairly achieved, must surely be so to arrange matters that, when the appeal comes to be heard, the appeal Court may be able to do justice between the parties, whatever the outcome of the appeal may be”, per Buckley LJ at 676, in Minnesota Mining and Manufacturing Co v Johnson & Johnson [1976] RPC

671 (CA), cited by the Court of Appeal in New Zealand Insulators

Ltd v ABB Ltd [2006] NZCA 330; (2006) 18 PRNZ 459, at [13].

(c) Factors to be taken into account in the balancing exercise include:

(i) Whether the appeal may be rendered nugatory by the lack of a stay;

(ii) The bona fides of the applicant as to the prosecution of the appeal;

(iii) Whether the successful party will be injuriously affected by the stay;

(iv) The effect on third parties;

(v) The novelty and importance of questions involved; (vi) The public interest in the proceeding; and

(vii) The overall balance of convenience.

Keung v GBR Investment Ltd [2010] NZCA 396 at [11]; Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].

(d) While not included in this list, the apparent strength of the appeal now appears to be generally recognised as an additional factor: Keung v GBR Investment Ltd at [11].

Stay of execution – the principles as they affect caveat cases

[16] In Heeg v Heeg,⁴ I observed two different levels of concern which a caveator may have. First, there is the concern to prevent the transfer of the caveated property to another party. Secondly, there is the related concern to protect the assets of a trust which is alleged to exist (in that case also an interest as a beneficiary under a constructive trust). I concluded that a correct focus in a stay application in relation to a caveat judgment is for the Court to look not necessarily to whether the caveat itself can be protected but to whether the underlying interests of the caveator can be

protected.⁵

Company B’s opposition

[17] Company B opposes the application for a stay. [18] Company B identifies four grounds namely:

(a) Company B will be injuriously affected by a stay because the stay will cause Company B to be in breach of its obligations to Trustee Company E pursuant to the July 2012 agreement for sale and purchase which pre-dates Mrs X’s notice of claim;

(b) Third parties will be injuriously affected by the stay as the notice precludes the transfer of the land to the P Trust which thereby precludes P Trust from raising finance to develop the land and meet existing and future obligations in respect of the land;

(c) The lack of a stay does not preclude Mrs X from pursuing a claim against P Trust to recover her alleged interest or the monetary equivalent (if her alleged interest has priority to the P Trust interest) or from pursuing a claim to recover the monetary equivalent from

_{Company B or any other relevant defendant (Mrs X having produced}

⁴ _{Heeg v Heeg HC Nelson CIV-2011-442-000129, 29 August 2011 at [9] – [16].}

⁵ See also ANZ National Bank Ltd v Uruamo (No 2) [2012] NZHC 1914, (2012) 13 NZCPR 654.

a draft substantive statement of claim showing as defendants numerous entities associated with the Xs and Mr X himself);

(d) The merits of the appeal are not strong.

[19] Those are the four grounds asserted by Company B.

[20] The notice of opposition relies upon evidence filed in the caveat proceeding by the director of Company B and by professionals associated with Company B and Trustee Company E. Mr J of Trustee Company E has provided an additional affidavit. He confirms that the notice of claim is preventing the P Trust from taking title to the Company B land. He deposes that the trust requires title to the land in order to raise finance to enable it to develop the land. He deposes that the P Trust already owes significant debts in relation to the land including to one contractor of

$256,128.21. The contractor has demanded payment by 12 September 2014. Mr J deposes that the Trust also has other debts for professional and contracting services and for rates. Thus, the Trust’s needs to raise finance relate not only to future development but also to existing liabilities.

[21] Mr J exhibits correspondence which has taken place concerning the intended transfer, involving variously [firm name redacted], Ms Corry, and Rhodes & Co (for Company B). Mr J records:

If the Court so requires, Trustee Company E will undertake that, pending the outcome of any appeal brought on expeditiously by the applicant:

(a) Trustee Company E will not make or authorise any income or capital distribution to a beneficiary of the Trust; and

(b) Trustee Company E will promptly advise the Court if Trustee

Company E is sought to be removed as a trustee by the appointor.

[22] Earlier in his affidavit Mr J also deposed that Trustee Company E is fully cognisant of its trustee obligations to the P Trust and that any payment made or authorised by Trustee Company E as trustee of the Trust will be so paid or authorised on account of legitimate expenses or obligations that the Trust has incurred or will incur. Mr Bayley submitted that was effectively a further undertaking of Trustee

Company E and he has since confirmed that the Court is to take it as a third undertaking.

[23] Following the delivery of submissions I adjourned briefly. Mr Bayley also took further instruction from Company B in relation to a possible undertaking specifically by Company B. The sale to P Trust had earlier been completed in the sense that it had settled. What remains is the transfer of the title. Mr Bayley provided an undertaking of Company B, namely:

Company B undertakes to the Court that, subject to or pending any impediment outside its control or transfer the land contained within Certificates of Title [title reference redacted] and [title reference redacted] ([location redacted] Registry) to Trustee Company E as trustee of the P Trust.

[24] Mr Bayley, against this background, submitted that the overall balance of convenience was in favour of not granting a stay, in particular he said:

If there is no stay, the property is transferred to P Trust, and the applicant is successful in establishing an equitable interest, then there are two alternative scenarios, namely:

(a) The applicant’s equitable interest has priority over P Trust’s interest acquired on 27 July 2012: In that instance, the applicant could pursue a claim against P Trust for the monetary equivalent. The applicant’s position will be preserved because:

(i) P Trust’s professional trustee has deposed that any payment out of the trust will be on account of legitimate obligations that the trust has incurred or will incur. Any payments from finance raised against the land will not therefore be intended to defeat a claim by the applicant. On the contrary, expenses referred to by Mr J relate to maintaining or improving the land, which must enhance the position of the applicant if she has an interest.

(ii) There can be no suggestion that P Trust would sell the land or make distributions in order to defeat a claim by the applicant. Indeed, the professional trustee is prepared to undertake that no distributions will be made pending the outcome of the appeal.

(iii) The applicant’s equitable interest does not have priority over P Trust’s interest acquired on 27 July 2012: In that instance, P Trust is entitled to take title, there is no basis to maintain a caveat vis-à-vis P Trust, and the applicant could pursue a claim for the monetary equivalent against Company B or another X entity. To the extent that the applicant encounters

any difficulty in making recovery, the granting of a stay temporarily keeping the land in the name of Company B cannot improve the recovery situation – P Trust is entitled to the land in priority the applicant in any event.

Mrs X’s reply evidence

[25] Mrs X has filed reply evidence. She referred to four subjects which in part led to the exploration of the further undertakings of Trustee Company E and Company B to which I have just referred:

(a) Preventing [transfer of] title to P Trust:

Mrs X deposed to having made an offer in March 2014 to facilitate the transfer to P Trust, which was refused.

(b) P Trust:

Mrs X is concerned that with her husband’s control over the P Trust and other trusts settled since 2011, the borrowing and disposal of assets by the trusts will diminish the value of the assets.

(c) Inhibiting lending:

Mrs X notes that although Mr J speaks of the inhibiting affect of the notice of claim upon the raising of finance on security, the trustees were able to obtain an offer of finance (which was to expire on 1

August 2014).

(d) Debts for land clearance:

Mrs X questions the figures provided by Mr J as to contracting costs incurred by the P Trust, noting that the costs identified have not been supported through production of invoices.

[26] During the adjournment today, Mr Bayley obtained and produced the

invoices and engineers’ certificates which had been referred to. They, with one

minor arithmetical error, accord with the figures referred to in the contractor’s letter produced by Mr J. Ms Corry notes that the invoices were rendered to “P Trust Ltd” and not simply to P Trust. She submits that they should not be regarded as evidence of the detail of debts owed by the P Trust. There are other indicia in the invoices which strongly suggest that they were intended for the P Trust. Whether or not that is ultimately proved to be so, I proceed for the time being on the basis that there may be some room for questioning the invoices. What I do take from the invoices is that there has been significant work proceeding on the land (the Company B land purchased by the P Trust). It is likely that if significant work has been proceeding on the Company B land, expenses may have been incurred by the Trust in that regard.

Discussion of the principles as applicable to this case

Might an appeal by rendered nugatory?

[27] This is a case where the appeal on the refused application from the High Court – for an order sustaining the notice of claim – is likely to be rendered nugatory by the lack of a stay. If Company B transfers (as it almost certainly will) the Company land to the P Trust before an appeal is heard, there remains no point to the appeal in relation to the caveat itself.

[28] That leaves the substance of Mrs X’s claim in relation to what she asserts to be her relationship property entitlements derived through Mr X in the Company B land and other assets. As in Heeg, she will be left with her entitlement to pursue her substantive claims in that regard. Ms Corry has informed me today that the substantive claim against the various trusts (including the P Trust and the H Trust) will be filed in the High Court next week. Mrs X’s claim in relation to Mr X’s alleged constructive trust entitlement in the Company B land would need to be reformulated to a claim to an interest in the proceeds of sale of the P Trust. Nothing in the refusal of the stay cuts across Mrs X’s right to have her substantive claims determined and any tracing completed.

[29] I return below to consider whether the right is likely to be meaningful.

The bona fides of the appeal

[30] It is not asserted by Company B that there is any ground to consider that Mrs X lacks bona fides in relation to the prosecution of an appeal. I treat it as a bona fide appeal.

The injurious effect of a stay

[31] The evidence clearly indicates that Company B will be injuriously affected by a stay. It has a contractual obligation, pursuant to the July 2012 agreement, to complete its sale to the P Trust. That agreement pre-dates by more than a year the lodging of Mrs X’s first claim against the land. While Mr X’s involvement may limit or even eliminate the consequences of Company B being in default, the Court cannot make an assumption that Company B’s default will have no consequences.

The effect on third parties

[32] The evidence, particularly that of Mr J, establishes that the P Trust is prejudiced by Company B’s inability to complete the transfer. While Mrs X’s reply evidence invites the Court to find that the P Trust is itself responsible for the fact that it has not acquired title to the Company B land. Mrs X’s offer in that regard in fact contained conditions which were at least partly unacceptable to the P Trust. As it is, the P Trust is likely at the least to have mounting debt which, while challenged by Mrs X as to their true extent, must undoubtedly exist to a significant extent. This exposes the P Trust, but perhaps more significantly the corporate trustee Trustee Company E, to enforcement action for any existing debt and to significant difficulties in the raising of finance on security for the development of the Company B land.

Novelty and importance of question/public interest

[33] Neither party suggests that either of these considerations arises.

Balance of convenience

[34] I focus now particularly on Mrs X’s position.

[35] I recognise that Mrs X’s appeal in relation to the removal of the notice of claim will almost inevitably be rendered nugatory if the notice of claim is removed in the meantime because the transfer of the Company B land to the P Trust will almost certainly then occur.

[36] As in Heeg, I consider as of assistance the judgment of the Court of Appeal in Savill v Chase Holdings (Wellington) Ltd.⁶ In Savill, the Court did not consider that the unavailability of one remedy – specific performance which had previously been the claimant’s focus – rendered an appeal nugatory when the plaintiff had his right to pursue damages. In this case, Mrs X will have through her substantive proceedings her ability to pursue a judgment or judgments for relationship property entitlements

which arise through any beneficial interest which Mr X may have through a constructive trust or otherwise. The Company B and Trustee Company E undertakings which the Court accepts through this judgment are significant. They significantly protect Mrs X while removal of the caveat will allow the P Trust to develop or otherwise deal with the land it purchased in 2012.

Prospects of the appeal

[37] Mr Bayley submits, in keeping with the notice of opposition, that the merits

of Mrs X’s appeal are not strong.

[38] Mr Bayley notes the indication in Mrs X’s affidavit in support that she may seek leave to adduce further evidence on the appeal relating to her financial contribution to the acquisition of other significant properties which were relied on for the funding of the Company B land. The possible, additional evidence referred to by Mrs X is unlikely to strengthen her appeal, for the reasons enunciated in my 4

September 2014 judgment.⁷

[39] There is a further significant weakness in Mrs X’s assertion that Mr X is the beneficiary of a constructive trust in relation to the Company B land – the weakness arising in relation to the threshold requirement that there be a reasonable expectation

_{of an interest which Company B should reasonably be expected to yield. The further}

⁶ _{Savill v Chase Holdings (Wellington) Ltd [1988] NZCA 113; [1989] 1 NZLR 257 (CA).}

⁷ Mrs X, above n 1, at [62]–[64].

evidence referred to by Mrs X does not appear to relate to that requirement which I

found had not to have been met, even at an arguable level.⁸

[40] I cannot regard Mrs X’s appeal as having strong prospects of success but I am prepared for the purposes of this application to treat it as having some prospect of success.

Standing back – the overall discretion

[41] As my judgment of 4 September 2014 indicates, Mr X and Mrs X over 25 years of marriage embarked on the acquisition and holding of land in varying ways. Sometimes they personally bought and held the land; at other times, trusts were established and bought and held the land; at other times existing trusts bought and held the land; and on some occasions companies bought and held the land. Mr and Mrs X have both served as trustees or directors from time to time. Other people, including professionals such as Mr J, have also had and continue to have such roles.

[42] In relation to this proceeding, the relevant entity was Company B as corporate trustee of the H Trust. The other entity affected is Trustee Company E as the corporate entity of the P Trust. Those entities wish to complete a transaction which was entered into before Mrs X had put Company B on notice of her PRA claim.

[43] Company B succeeded in this Court in resisting Mrs X’s application. The restructuring arrangements which it was seeking to put into effect by its sale of the Company B land to the P Trust are on hold at least with some impact on Company B. There is in my assessment a significant impact on Trustee Company E and P Trust.

[44] The undertakings provided by Trustee Company E to which I have referred above and which the Court hereby accepts, significantly protect Mrs X for the time being by cutting across any distribution to any beneficiary and by limiting payments

_{so as to be in relation to legitimate obligations and expenses.}

⁸ At [66]–[71].

[45] Ms Corry after this morning’s adjournment presented alternatively worded undertakings which she submitted might more reasonably protect Mrs X than those at present offered by Trustee Company E and Company B. One suggested was that capital would have to be preserved by not disposing of land to another entity. I do not consider that such undertakings would strike the just balance which I seek to achieve through acceptance of the Trustee Company E and Company B undertakings.

[46] I conclude that the justice of the case requires that the application for a stay of execution be refused.

Costs

[47] Counsel accepted that costs must follow the event on a 2B basis.

Orders

[48] I order:

(a) The application for an order staying the order of 4 September 2014 is dismissed; and

(b) The applicant in any event is to pay the costs of the application and this order on a 2B basis together with disbursements to be fixed by the Registrar.

ADDENDUM 1

Stay pending application to Court of Appeal

[49] Having made the above orders, I record that Ms Corry had foreshadowed earlier an application, namely that I stay the 4 September 2014 judgment to allow Mrs X to consider and/or pursue a stay application in the Court of Appeal.

[50] That is the just course, subject to a condition as to a timetable.

[51] I stay the 4 September 2014 judgment pending the outcome of any stay application in the Court of Appeal on condition that Mrs X files any application to the Court of Appeal for a stay within 15 working days and promptly pursues a hearing. Leave is reserved to the defendant to apply to this Court in the event of unsatisfactory progress or in the event earlier steps are taken by a creditor which imperils the defendant.

ADDENDUM 2

Suppression

[52] Ms Corry and Mr Bayley have addressed me on issues of commercial sensitivity which they and/or the parties consider attach to material in this judgment. They are to confer as to a draft redacted version of this judgment which would protect the sensitivities to which they refer. I will further consider the matter when I receive their draft version and accompanying memorandum or memoranda. For the time being, it is appropriate that there be a restriction of access. I order that the Court file insofar as it relates to this application and judgment may be accessed or searched only by leave of the Court.

ADDENDUM 3

[53] Having now received submissions as to suppression, I recognise that the issues between Mr and Mrs X involve in part the commercial dealings and interests of a number of associated entities. To the extent that such interests are involved, it would be potentially prejudicial to those entities if outsiders gained insight into what are essentially matters of internal concern such as governance and accountability. In the summary context in which this caveat proceeding arises, such prejudice would outweigh any legitimate public interest. (Different considerations may well arise if there is ultimately a judgment on similar issues following that). For now, there will be a suppression order in terms of the banner appearing at the top of this judgment

There will also be an order precluding public search of the file without order of the

Court.

Associate Judge Osborne

Solicitors:

Rhodes & Co, Christchurch

A M Corry, Christchurch