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High Court of New Zealand Decisions |
Last Updated: 28 August 2018
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
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BETWEEN
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FREDERICK JAMES PUTT
Applicant
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AND
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JEFFREY PAUL PUTT and DEIDRE COREN LATTELL
Respondents
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Hearing:
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9 July 2018
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Appearances:
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S Connolly for the Applicant
T J P Bowler for the Respondents
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Judgment:
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24 July 2018
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JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by me on
24.07.18 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
F J PUTT v J P PUTT and D C LATTELL [2018] NZHC 1849 [24 July 2018]
Introduction
[1] The applicant, Frederick Putt (Fred Putt) is the father of Jeffrey Putt, one of the respondents. Deidre Lattell, the other respondent, is the partner of Jeffrey Putt.
[2] Jeffrey Putt and Deidre Lattell are the registered proprietors of a property at 9B Jellicoe Avenue, Tuakau. Fred Putt lives at the property. Following an attempt by Jeffrey and Deidre to market the property for sale, Fred lodged a caveat claiming to be a beneficial owner of the property as a cestui que trust of which the respondents are trustees.
[3] Fred now makes application pursuant to Section 145 of the Land Transfer Act 1952 for an order that caveat no. 10753046.1 registered against the property (identifier NA 34B/944 North Auckland Registry) not lapse.
[4] The critical issue I must determine is whether Fred Putt has a reasonably arguable case that he has a beneficial interest in the land. That turns in large part on whether funds of $165,000.00 provided by Fred and used for the purchase of the property were simply an unsecured loan from Fred to Jeffrey or whether there is a tenable basis for proprietary relief.
Relevant principles
[5] A caveator, in response to the caveat lapsing procedure under the Land Transfer Act 1952, may apply for an order that the caveat not lapse.1
[6] I adopt these principles in relation to Frederick Putt’s application:2
(a) The burden of establishing that the applicant has a reasonably arguable case for the interest claimed is upon the caveator;3
1 Land Transfer Act, s 145.
(c) The summary procedure involved in an application of this nature is wholly unsuitable for the determination of disputed questions of fact5 - an order for removal of the caveat will not be made unless it is clear that the caveat cannot be maintained either because there was a no valid ground for lodging it or that a valid ground which previously existed no longer does so;6
(d) When an applicant has discharged the burden upon them, there remains a discretion as to whether to remove the caveat, which will be exercised cautiously;7
(e) The Court has jurisdiction to impose conditions when making orders.
Background facts
[7] Following the settlement of his relationship property dispute with his former wife, Nelda, Fred advanced significant sums of money to Jeffrey. The exact amount of the funds, whether they were a gift and/or a loan, and the extent to which they have been repaid, are in dispute. Fred says that he has provided funds of $215,000.00 to Jeffrey.
[8] In 2012 when Fred was living in a campervan and working as a caretaker in an adjacent shed, the parties had discussions about purchasing a property for Fred to live in. A decision was made to purchase the Jellicoe Road property. On 6 August 2012
4 Land Transfer Act, s 137.
5 New Zealand Limousin Cattle Breeders Society Inc v Robertson, above n 3, at 43.
6 Sims v Lowe [1988] NZCA 253; [1988] 1 NZLR 656 (CA) at 659-660.
Jeffrey, as purchaser, signed a sale and purchase agreement for the Jellicoe Road property. The purchase price was stated to be $262,000.00 with a $10,000 deposit.8
[9] The purchase of the property was funded as follows:
(a) Funds of $167,000.00 provided by Fred (this consists of two separate payments or sources), one of $100,000.00 and the other for $67,000.00;
(b) $90,000.00 by way of mortgage from Westpac secured against a property owned by Deirdre’s family trust.
[10] Jennifer Connell & Associates, who had previously acted for Deirdre, were instructed to act for the parties and deal with the conveyancing. In a letter dated 20 August 2012 addressed to the vendors’ solicitors, Jennifer Connell advised that “our clients will be purchasing the property in the names of Frederick Putt, Jeffrey Putt and Deirdre Lattell”.
[11] The Conveyancing Shop was subsequently instructed to act on the purchase. Jeffrey says that Jennifer Connell could no longer act because of a conflict of interest.
[12] On 30 August 2012, the parties signed a document described as a loan agreement. Jeffrey and Deirdre are described as the debtors and Fred as the creditor. The acknowledgements read:
[13] The loan is expressed to be interest free and repayment of the principal amount to be on request or on the sale of the property. It also provides that the creditor will secure his debt by registering a caveat over the property should the debtors fail to make payment on request by the creditor.
[14] Fred commissioned and obtained a building inspection and a LIM report for the purchase. Settlement took place on 31 August 2012 and the property was registered in the names of Jeffrey and Deirdre.
[15] Fred then moved into the property and has been living there ever since. Fred has paid the rates on the property and other expenses. The mortgage payments and insurance have been paid by Jeffrey and Deirdre.
[16] On 14 December 2015 Fred and Jeffrey signed a document stating that all monies borrowed by Jeffrey Putt has been repaid in full to Fred Putt.
[17] At some stage, the relationship between the parties then broke down. In March 2017 Jeffrey and Deirdre attempted to market the property for sale. They say, and Fred disputes, that Fred had agreed to sell the property.
[18] On 6 April 2017 Fred lodged a caveat against the property. On 6 May 2017 Jeffrey and Deirdre served Fred with a trespass notice.
[19] In a letter to Fred dated 22 April 2017 Jeffrey and Deirdre advised Fred that they would repay him the following:
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$
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(a)
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Loan for purchase of Jellicoe
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165,000
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(b)
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Balance of $215,000
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55,000
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(c)
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Additional money Fred claimed to have given to Jeffrey
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7,350
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Total
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$227,430
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Competing positions of the parties
[20] The essential claim for Fred Putt is that Jeffrey and Deirdre have unconscionably exploited his vulnerability in securing the property for themselves and for improper personal gain. On this basis he advances four causes of action, namely estoppel, undue influence, breach of fiduciary duty and unconscionable bargain/equitable fraud.
[21] Mr Connolly, for Fred Putt, emphasised that Jeffrey owed and breached fiduciary duties to his father, Fred. Mr Connolly emphasized the following facts:
(a) Fred was at the end of his working career and the parties agreed to purchase a house for him to live in, in his old age. Fred was living in a campervan at the time;
(b) Fred provided most of the equity and Jeffrey and Deirdre provided none;
(c) Fred did not have independent legal advice in circumstances where it was obvious to all, that such advice was required;
(d) The purported loan agreement and the exclusion of Fred from the title, were unconscionable bargains or ones procured by undue influence. Under that agreement Fred receives no capital gain, no interest on his funds, and in vulnerable circumstances in the later years of his life is simply a tenant of the property, who Jeffrey and Deirdre seek to evict. By contrast, Jeffrey and Deirdre, who provided no equity, get all the capital gain, an interest free loan and the right to evict Fred at any time.
[22] The respondents accept that when a person provides or contributes in some way to the acquisition of land, although the land is subsequently conveyed to another, and that person reasonably expects to receive an interest in the land, there is a prima
face presumption of a resulting trust.9 However, the respondents submit that the presumption in this case is rebutted by evidence of a contrary intention, namely, the loan agreement. The loan agreement, it is said, makes it clear that Fred is simply an unsecured creditor and this gives him no interest in the land capable of supporting a caveat.10 The provision in the loan agreement which gives Fred the right to lodge a caveat does not of itself create a caveatable interest in the land. A caveat can only predict an existing interest and by themselves, clauses of that kind do not create a new caveatable interest where one did not previously exist.11
Analysis and decision
[23] I find that Fred has an arguable case in estoppel. On that basis he has demonstrated that he may have a beneficial interest in the Jellicoe Road property. If the cause of action in estoppel is made out, then the loan agreement may well be set aside and or avoided. It provides no basis for concluding at this stage that Fred has no beneficial interest in the property. My reasons for these conclusions are as follows.
Estoppel
[24] Estoppel requires three elements to be proven:12
(a) A belief or expectation which has been created or encouraged by the other party;
(b) That belief or expectation has been relied on by the party alleging estoppel;
(c) Detriment will be suffered if the belief or expectation is departed from.
10 Rayner v Kilburn (1981) 1 NZCPR 395.
11 Burrows, above n 10.
12 Gillies v Keogh [1989] NZCA 168; [1989] 2 NZLR 327 at 345-356; see also Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington 2009) at [19.2] and Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407; [2014] 3 NZLR 567 at [44].
[25] There is clear evidence to support the contention that Jeffrey and Deirdre created a belief or expectation in Fred that he would be an owner of the property and that it was being purchased as his home. There is no basis at this summary stage for concluding that Fred’s account of the purchase is inherently unreliable or lacking in any credibility. The parties discussed purchasing Fred a home and he has been living there at the property for nearly six years. Fred funded most of the purchase price and the respondents do not dispute that. They did not provide any of their own funds. Fred says that he obtained a LIM and building report and that Jeffrey did not see the property prior to the purchase. Contemporaneous documentary evidence, namely the letter from Jennifer Connell, solicitor, dated 20 August 2012, suggests that at a late stage in the purchase process it was expressly contemplated that Fred would be a registered proprietor. The solicitor was acting on the instructions of Jeffrey and Deirdre.
[26] It may be, as Mr Bowler submitted, that there is no evidence of any unequivocal representation by Jeffrey and Deirdre that Fred would be an owner. However, that is not material; there is an arguable case that the respondents created and encouraged a belief held by Fred that he was to be an owner of the property.
[27] There is also evidence that Fred has relied on the belief or expectation that he was to be the owner of his new home and that he will suffer detriment if the belief or expectation is departed from. Fred has lived at the property for some six years and has nowhere else to live. I reject the contention of the respondents that Fred will suffer no detriment because they are willing to pay him at least $227,000.00, which includes repayment of the loan of approximately $165,000.00. I understand that the current market value of the property is far higher than that figure.
[28] A successful claim in estoppel can lead to a proprietary remedy.13 A caveat can be justified as long as the plaintiff can prove a reasonably arguable case to the equitable interest they claim in the property.14
13 Wellesley Property Club Inc v Wellesley Property Holdings Ltd (2007) 8 NZCPR 421 at [42].
14 At [52].
[29] This approach was applied in Halliday v Bank of New Zealand.15 One issue in that case was whether the Hallidays’ caveat over forestry land could be sustained because the Hallidays and the Bank had a common understanding about the trees on the land. The Court held:
[57] For the purposes of the Bank's application to remove the caveat the question is whether the Hallidays have an arguable claim to the interest claimed. Here the Thomsens agreed that the trees were owned by the Hallidays. The Bank were told that too, both at the time of purchase and before the mortgage in 2007 was registered. Before the Hallidays' first mortgage was discharged the Bank had a copy of the agreement for sale and purchase. It is arguable that there was a common understanding between the Bank (arguably at least through Mr Connor), the Thomsens and the Hallidays, that the Hallidays owned the trees. The Hallidays acted in reliance on that common understanding to their detriment when they incurred the on-going costs in managing the trees after the farm was sold. It is arguable that it is now unconscionable for the Bank to exercise the power of sale without recognising the (arguable) common understanding.
[58] There is then an issue as to whether such a claim can support a caveat. As this too was not part of the submissions before me (the Bank correctly contended that if the trees were chattels that could not support a caveat), I err on the side of caution. That is, I proceed on the basis that it is arguable that an estoppel (or constructive trust) claim is a caveatable interest because a potential remedy available on such a claim is to order the grant of the interest in the land. I consider that this is a preferable course to, for example, requiring the Hallidays to seek an injunction restraining the sale.
(emphasis added)
[30] I now turn to address the other causes of action.
Unconscionable bargain
[31] Undue influence and unconscionability are closely related doctrines. However, as Kos J held in Public Trust v Vernon16; their inclusion focus differs. The focus of undue influence is on the circumstances and sufficiency of consent to a transaction. Unconscionability, on the other hand enquiries more broadly into the existence of disadvantage or disability, and whether a stronger party has taken advantage unconscionably of that disadvantage or disability.
15 Halliday v Bank of New Zealand [2012] NZHC 3099, [2013] 1 NZLR 279.
[32] The Supreme Court in Gustav & Co Ltd v Macfield Ltd17, summarised the basis upon which unconscionable transactions are subject to equitable intervention:
The Court of Appeal dealt fully and accurately with the authorities which discuss the relevant general principles and no issue was raised in this Court regarding those principles. Equity will intervene when one party in entering into a transaction, unconscientiously takes advantage of the other. That will be so when the stronger party knows or ought to be aware, that the weaker party is unable adequately to look after his own interests and in acting to his detriment. Equity will not allow the stronger party to procure or accept a transaction in these circumstances. The remedy is conscience-based and, in qualifying cases, the Court intervenes and says that the stronger party may not take advantage of the rights acquired under the transaction because it would be contrary to good conscience to do so. The conscience of the stronger party must be so affected that equity will restrain that party from exercising its rights at law. All necessary consequential orders may be made in aid of the primary remedy.
[33] The Supreme Court clarified that the focus is on the time of entering the transaction.18 The principles stated by Arnold J for the Court of Appeal, which the Supreme Court approved, were:19
[30] We do not propose to analyse these authorities in detail. Rather, we derive the following principles from them. The principles stated are not exhaustive, but are sufficient for the purposes of this case.
17 Gustav & Co Ltd v Macfield Ltd [2008] NZSC 47, [2008] 2 NZLR 735 at [6].
18 At [7] and [8].
19 Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 at [30] - [31].
circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.
... circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.
[31] While factors such as a marked imbalance in consideration or procedural impropriety are generally present in unconscionability cases, neither is a prerequisite for relief. However, if there is no significant imbalance in consideration or if the weaker party received full independent advice it is unlikely that any issue of unconscionability will arise.
(emphasis added)
[34] Palmer J in Round v Round21 held that undue influence and unconscionable enrichment were established in the context of a blind, elderly man transferring his house to his son.
[84] Ordinarily there is no presumption of undue influence by children over parents. However, the English Court of Appeal has observed that influence may exist in “the relationship between a son in the prime of life and parents in the evening of life”. I consider a middle-aged man or woman living
20 Bowkett v Action Finance Ltd [1992] 1 NZLR 449 (HC) (citation in original at [29]).
21 Round v Round [2017] NZHC 428.
with, and caring for, their elderly blind parent is a class of relationships that raises the presumption of trust and confidence. And, on the facts, I consider it clear Eric placed trust and confidence in Martin. In 2012 Martin, in middle- age, was living with and had sole responsibility for the care of his blind, 90- year-old father.
[35] I find that there is an arguable case that the loan agreement and exclusion of Fred from the title were an unconscionable bargain.
[36] On the evidence before me there is an arguable case that Jeffrey and Deirdre knew that Fred suffered from a material disadvantage. Fred, in his old age, was in need of a home and with no income and having lent or gifted his son substantial monies, was very much reliant on Jeffrey and Jeffrey’s legal advisor. However, in circumstances where it was essential that Fred have his own independent legal advice, he received none. In this case, that was a significant disadvantage. I find that these circumstances were known to and well understood by Jeffrey and Deirdre. They were at all relevant times legally represented.
[37] It is also arguable that Jeffrey and Deirdre unconscionably took advantage of Fred’s vulnerability and disadvantage. The loan agreement, under which Fred became simply an unsecured creditor with no rights in the property is, as Mr Connolly submitted, a very unfavourable bargain from Fred’s point of view – and a substantially advantageous one for Jeffrey and Deirdre. The loan agreement is of course part of the overall transaction between the parties whereby Fred, despite putting up the bulk of the purchase price, was excluded from the title of the property. Under the loan agreement read together with the certificate of title, Fred receives no capital gain in the property, no interest on his substantial loan and is simply a tenant subject to the decisions of Jeffrey and Deirdre as the landlord. As Mr Connolly submitted, the independent legal advice which was surely essential for Fred in these circumstances, would inevitably have emphasised the importance of the legal instruments sufficiently protecting his interests.
[38] The circumstances giving rise to a change in solicitors is not clear. The respondents have apparently claimed privilege in relation to their solicitor’s files. The consequences of all this and whether it gives rise to any permissible inference, will need to be addressed, if necessary, at trial.
[39] On the basis of a cause of action based on unconscionable bargain, Fred, arguably, has a claim for direct proprietary relief. In Round v Round Palmer J held that a finding of both undue influence and unconscionable bargain meant that “the obvious relief is to vest the property in Eric’s ownership again. I consider equity demands that”.22
[40] In the alternative, and on the basis there was an unconscionable bargain, Fred has an arguable case for a resulting trust. A resulting trust arises where one party transfers funds to another so that they can purchase a property, which is vested in the name of the second party. The second party is deemed to hold the property on trust for the first party.23
[41] Where a resulting trust is established, the person who advanced the funds, here of course Fred, has a caveatable proprietary interest in the land. I acknowledge that the presumption of a resulting trust can be rebutted by proving that the transfer of funds was intended to be either a gift or a loan. However, I cannot determine that issue at this stage. It is arguable that the loan agreement should be set aside for the reasons given above.
[42] In the circumstances, I see no need to address the issue of a cause of action based on breach of a fiduciary duty or to say anything further on the issue of undue influence which I have briefly addressed above. Whether breach of fiduciary duty could lead to a proprietary remedy for Fred might depend on whether rescission of the loan agreement is available to him.24
[43] Having concluded that Fred has an arguable case for a beneficial interest in the land based on estoppel and/or unconscionable bargain, I now turn to address the issue of discretion.
22 At [99].
24 See Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371.
Should the caveat be removed as a matter of discretion?
[44] The property is Fred’s home and the security proposed by the respondents, even if of a higher figure, would not adequately protect him at this stage. He is of advanced years and has no income. It would in my view be unconscionable to expose him to the risk of sale of his home at this time. The caveat will remain in place.
Result
[45] The application by Fred Putt succeeds. The interim order made by this Court on 30 May 2017, that caveat no. 10753046.1 not lapse pending further order of the Court, is confirmed. The caveat is to remain.
[46] My order is subject to the condition that Fred Putt institute and prosecute the proposed substantive proceedings, diligently. Leave is reserved to apply for any directions if that condition is not met.
[47] As to costs, the applicant has been successful. I find that Fred Putt is entitled to an order for costs in the normal way. Costs are therefore awarded against the respondents, calculated on a 2B basis, together with disbursements if any, as approved by the Registrar.
Associate Judge P J Andrew
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