Rault-Smith v Clow [2016] NZHC 2152 (12 September 2016)

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UNDER	The Land Transfer Act 1952
IN THE MATTER	of a Notice Under Section 145A of the Land Transfer Act 1952 to lapse a Caveat No. 10422366.1 over Title NZ 1962/66
BETWEEN	J P RAULT-SMITH Applicant
AND	K V CLOW AND M B CLOW Respondents

Hearing:	2 September 2016
Appearances:	Mr Stuart for Applicant Mr Skinner for Respondents
_Judgment:	_{12 September 2016}

[1] The applicant has applied for an order sustaining a caveat that she has lodged over a property at Wellsford. The ground upon which her application is made is as follows:

(a) The Plaintiff has a caveatable interest over the Defendant’s property (namely an equitable life interest in and right to occupy the cottage on the property) by virtue of an oral agreement between the Plaintiff and the Defendants whereby the Defendants undertook in consideration for direct and indirect contributions by the Plaintiff to the purchase and renovation of the property to hold the property in trust to allow the Plaintiff to occupy the cottage on the property for her life.

[2] The caveat itself states that the estate of interest claimed is in the following terms:

As beneficiary under an implied, constructive or resulting trust whereby the Registered Proprietors hold the property as trustees in trust as to a part share for the daveator.

[3] The case involving the caveat is an outgrowth of a very unfortunate family rift that has occurred between the caveator/applicant (“caveator”) and her daughter, (“the daughter”) the first named respondent, together with the daughter’s husband, the second named respondent.

[4] The daughter left her home country, South Africa, in or about 2000. In 2013 the caveator with her then husband, Stuart Smith, came to New Zealand. Before doing so, they had apparently given some consideration to how they would house themselves when they got to New Zealand. They did not expect that the results of liquidating their assets in South Africa would result in them having a great deal of New Zealand funds because of the poor exchange rate that would apply to any conversion into New Zealand currency. They discussed with the daughter where they could buy a house.

[5] Eventually it was agreed that a house at Glenbrook would fit their requirements and in December 2013 a property at Glenbrook (the Glenbrook house) was purchased. The house was purchased in the name of the respondents. The

respondents already owned a house that they had previously acquired at Glenfield in or about 2010.

[6] Prior to coming to New Zealand the applicant and her husband had transferred funds to New Zealand which were paid into the daughter’s account. The property at Glenbrook cost approximately $300,000. Approximately $200,000 of the price was met from the money which the applicant and her husband had remitted from South Africa and $100,000 was raised by the respondents granting a mortgage over their Glenfield property. In broad terms, the arrangement was that the applicant and her husband would live in the Glenbrook property and would service the mortgage and pay the outgoings. Consistently with the responsibility that the applicant and her husband had for paying the mortgage, the daughter sent the

I thought I would send you another statement to let you know how your home loan is doing.

[7] The attached table to that email showed that the amount owing under the mortgage had reduced to approximately $92,000, after payment of interest, capital reductions and other charges incurred such as rates and insurance together with the legal costs which were incurred on the conveyancing, all of which were secured by the mortgage. By way of comment, I observe that it is unclear why the rates and other charges should be debited to the mortgage account but it is not necessary to delay while that point is considered.

[8] The explanation for why the property was purchased in the name of the daughter and her husband which the caveator put forward at the time is spelt out in a letter which the caveator sent to the vendors prior to the settlement of the agreement for sale and purchase.

I have spoken to my daughter and son-in-law and they are going to take a home loan so that we can purchase your house at the price of $295,000.

As the loan will be in their name, they will be signing the Sale and Purchase agreement which will be subject to finance and a builders report.

If you agree and you have a Sales and Purchase agreement available would you like to email to us and we will sign, scan and email back to you. Alternatively, we can come to your house on Saturday after 1 p.m. with our daughter and son-in-law and sign the Sale and Purchase agreement at that time.

[10] In September 2015 the applicant’s husband was diagnosed with Stage four cancer which meant that he could not have long to live. The evidence is not entirely clear but it is arguable that the daughter suggested that to make things easier the entire family would purchase one house at Wellsford and the applicant and her husband would live there with the respondents and their children until the husband’s death.

[11] A rural property was located near Wellsford and the respondents entered into an agreement for sale and purchase for that property at $955,000. The respondents had sold their Glenfield property in November 2015 and in late November 2015 the Glenbrook property was sold for $445,000. This represented a substantial gain on the purchase price. All of the legal dealings in regard to the sale of the property at Glenbrook were managed by the daughter. She controlled the disbursement of the funds resulting from the sale of the Glenbrook property and as a result $160,000 was paid out to the caveator. However according to the caveator, the second named respondent made a statement around about this time that because he had signed the mortgage document he was entitled to all the profits on the property on Glenbrook including the deposit and the money paid off the mortgage.

[12] Ultimately, though, the possession that the respondents apparently took was that on the sale of the Glenbrook property, $445,000, they were obliged to repay

$200,000 at most to the applicant. On such an approach the gain on the property (the difference between $445,000 and $297,000, the purchase price) of $148,000 was not the caveators.

[13] It appears that the proceeds of sale from the Glenbrook property were, apart from the amount actually paid to the caveator of $160,000, were mixed in with the respondents’ funds and at least part of this amount was put towards the price of the

Wellsford property. Counsel for the respondents, Mr Skinner submitted that it was significant that when the purchase of the Wellsford property was settled, the money from the Glenbrook sale was not available and that it was covered by a mortgage. As I understand his contention it was only subsequently when the rest of the money from Glenbrook was received it was used to pay down the mortgage for the acquisition of the Wellsford property.

[14] It is the claim of the caveator that the understanding that she came to with the respondents was that if they put the money from Glenbrook less the $160,000 which was paid out to her for living costs she would be entitled to live in a cottage on the Wellsford property until her death. The view of the respondents is that the agreement was different and it was that in return for helping to look after the respondent’s children at the Wellsford property, the caveator could continue living there for her life. However, they assert, in the event the child-care arrangements never eventuated.

[15] The principles to be applied in applications such as this are well established through the decisions of the Court of Appeal in cases such as Sims v Lowe³and Pacific Homes Limited v Consolidated Joineries Limited.⁴

[17] What the applicant must show is that it is reasonably arguable that he/she has an interest in the land which is the subject of the caveat. It is trite that the court does not attempt to resolve contested allegations of fact on the hearing of a caveat.

[18] The case for the caveator which is founded on the caveat notice is based on the contention that the dealings between the parties gave rise to a constructive trust or resulting trust in regard to the Wellsford property.

[19] The principles relating to resulting trusts were stated as follows in the Court of Appeal decision in Potter v Potter in which Fisher J summarised the position as follows:⁵

[14] In the present context the essence of a resulting trust is that a person providing or contributing to the purchase price of property conveyed partly or wholly into the name of another retains a beneficial interest in the property to the extent of his or her contribution if there is nothing to indicate that he or she intended to confer the beneficial interest on the legal transferee: see, for example, Bateman Television Ltd (in liquidation) v Bateman and Thomas [1971] NZLR 453 (CA) and Efstratiou v Glantschnig [1972] NZLR 594 (CA). The settlor must have expressed no intention to dispose of his or her beneficial interest. To fill the vacuum, the law presumes an intention to retain the beneficial interest which the settlor has never effectively alienated. The trust "results" from the lack of effective disposition to another.

[15] A refinement to that principle is that where the settlor transfers the legal title to property for an express purpose, the transferee receives it subject to a trust for the attainment of that primary purpose. If, for what-ever reason, effect cannot be given to the primary purpose effect must be given to the contingent secondary purpose of restoring the property to the settlor. The general principles are set out in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137; and Cossey v Bach [1992] 3 NZLR 612.

[16] In either case the rationale is that notwithstanding the disposition of legal title, the settlor has retained the beneficial interest throughout, in the former case without qualification, and in the latter subject to the contingency

that it would be superseded by fresh beneficial interests if and when the stated primary purpose were attained.

[20] Based upon the factual circumstances which are contended for by the applicant in this case (which may or may not ultimately be accepted as correct in any substantive proceedings that might be issued), the first point at which resulting trusts become relevant is when the parties purchased the property at Glenbrook. A good case can be made that when the respondents acquired the Glenbrook property they held it on a resulting trust for the applicant who had provided the cash part of the consideration provided for the purchase price and effectively bore the burden of the mortgage which the respondents had granted over their Glenfield property in order to complete funding of the purchase price. While the respondents were no doubt the covenanters and mortgagors under that mortgage, as between themselves and the applicant, it was the applicant who was to bear responsibility for paying off the mortgage, which was achieved in part. That being so, if the contentions of the applicant are to be believed when the property sold all of the proceeds of sale, including that part attributable to increases in value, became her property. In other words, she would be entitled to the $445,000 less the cost of sale. She would also have to pay off the residue of the mortgage.

[21] There is in fact not a great deal of controversy concerning the applicant’s allegation that she provided the cash and that she paid off the mortgage. One development that occurred in the course of the exchange of affidavits in this proceeding, however, was that the respondents drew attention to certain narrations contained in the descriptions accompanying the transfer of funds from South Africa into the respondents New Zealand account which suggest that the payments the caveator and her late husband were gifts. I agree that this provides some evidence which could defeat the existence of a resulting trust but that is not a matter that can be resolved at this stage. In this connection, it needs to be mentioned that an explanation has been put forward by the caveator. She says that the reason why some of the payments were referenced as “gifts” was because the forex person they were dealing with at the bank in South Africa considered that presenting the payments as such would facilitate the transmission of the funds out of South Africa. That explanation is, in other words, that the payments were not in truth gifts at all. If that is so, the fact that the payments were made by the caveator and her late husband

for the purchase of the property means that a constructive trust arose in their favour in regard to the property to support their partial or whole interest in that property.

[22] If the respondents were the trustees under the resulting trust, then not only were they trustees for the caveator in respect of the Glenbrook property but also for the funds into which that property was subsequently converted on its sale. Additionally, they were potentially holding the money as trustees under a resulting trust when they applied those funds into the purchase of the property at Wellsford, again in their names exclusively.

[23] The extracts from Potter v Potter to which I have made reference indicate, though, that the beneficiary under the trust retains a beneficial interest to the extent of his or her contribution if there is nothing to indicate that he or she intended to confer the beneficial interest on the legal transferee.

[24] When the second property was brought, that is the Wellsford property, the circumstances were such that the applicant did not contribute funds to which she was beneficially entitled to the purchase of Wellsford on the basis that ownership of that property would reflect a proportionate beneficial interest being held by her. Rather the provision of the funds was recognised as supporting to a lesser interest, namely, an entitlement to reside on the property in the cottage for the rest of her life.

[25] Alternatively it is possible, but unlikely, that the arrangement represented an enforceable contract. It may be that there were not present the requisite elements of certainty about what was being agreed to. There may also be questions about enforceability in that there was no memorandum in writing supporting the arrangement⁶and further, that the performance of the arrangement now appears to be quite out of the question. This last observation is made on the basis the parties have had a most unfortunate but deep seated falling-out and at the present point there seems little or no chance that the rift can be repaired. If that remains the case, then

there is no prospect of the cohabitation arrangement being a practicable one which the court would enforce.

[26] An alternative view is that the funds from Glenbrook which the applicant beneficially owned and which were contributed to the purchase of the property were paid over to the respondents on the basis of an expectation or arrangement that they would, as proprietors of the property, respect the arrangement that the applicant should be entitled to live in the property rent free for the rest of her life. Given that that outcome is for the reasons just discussed now unobtainable, it could be said that the purpose for which they received the funds on trust is no longer achievable and

that by operation of law they are holding the money on trust for the applicant.⁷In

the circumstances of this case, the resulting trust would be a trust over the land representing the proportion of the purchase price contributed by the caveator.

[27] The alternative which Mr Skinner put forward was that any rights that the caveator had were limited to making a personal claim against the respondents for the recovery of her money and that there is no justification for recognising a beneficial interest in the land. Mr Skinner also contended that what the applicant was attempting to do was to use the caveat for purposes analogous to a freezing order to protect her personal right to recover money in circumstances where she was not entitled to do that.

[28] On balance I consider that the applicant has an arguable claim that she is entitled to a beneficial interest in the Wellsford property which is sufficient to support her caveat.

[29] Mr Skinner argued that there were discretionary reasons why the Court ought not to order the sustenance of the caveat. One of the first grounds that he put forward was that the breakdown in the relationships between the parties was such that they would be put in an impossible position having to live together on the property, albeit in the separate residences situated on it.

[30] I consider though that this amounts to an argument based on the balance of convenience which is not something that can be taken into account. Such an approach was said not to be part of the law of this country in the Court of Appeal

judgment in Sims v Lowe.⁸There remains a possibility that the Court might exercise its residual discretion against sustaining the caveat: Pacific Homes Limited v Consolidated Joinery Limited.⁹However, the caveat in this case could be justified not on the basis of the arrangement for the applicant to have a life interest but rather as supporting the relief that she is entitled to on the failure of the arrangement which has arguably resulted in her entitlement to the return of her money, money which the respondents have invested in the property at Wellsford.

[31] The dispute between the parties is, procedurally, at an early stage. The caveator has yet to formulate a claim as part of the statement of claim which would identify with precision the basis upon which she puts forward her claim to an interest in the property at Wellsford. While there is some uncertainty about the exact outlines of her legal claim, she has provided sufficient evidence, in my view, to demonstrate that depending upon what view of the matter the Court at a trial might take, she is entitled to some type of interest in the land. It would be quite unjust, in my opinion, for her to be denied the right to caveat the property at this point.

[32] Mr Skinner said it would be unfair for his clients to be placed in a position where they could not deal with the property. He said that the original arrangement that was contemplated by the parties of the caveator living on the same block of land as the respondents and the caveator discharging responsibilities under an agreement which he claimed the parties entered into to provide childcare, there could be no basis for concluding that the caveator had any surviving interest in the land. However, I consider that this overlooks the possibility that an interest in land has arisen by way of trust from the provision of funds for the purchase of the land which occurred in circumstances in which the parties contemplated accompanying arrangements which now cannot be realised because of a change of circumstances. Even if all that Mr Skinner says is correct, it does not necessarily lead to the conclusion that the caveator is limited only to a personal claim against the respondents for the return of her money, rather than for recognition of an interest in

[33] For all of these reasons I consider that the order which has been sought by the applicant in the originating application dated 22 June 2016 ought to be granted. There will be an order that Caveat No. 10422366.1 registered by the Plaintiff over the property at 81 Whangaripo Valley Road, R D 4 Wellsford (being all Certificate of Title NA 1962/66) (the property) owned by the Defendants as registered proprietors not lapse.

[34] The respondents as the unsuccessful parties are to pay costs on a 2B basis together with disbursements as fixed by the Registrar.

High Court of New Zealand Decisions

Rault-Smith v Clow [2016] NZHC 2152 (12 September 2016)