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High Court of New Zealand Decisions |
Last Updated: 7 August 2018
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
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UNDER
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the Land Transfer Act 1952
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IN THE MATTER OF
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an application for an order that a caveat not lapse
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BETWEEN
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CATHERINE MAY LOUISE CASEY
Applicant
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AND
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DAVID GREGOR CASEY and
GARY BRYCE CONWAY as trustees of the APOLLO 69 FAMILY TRUST
Respondents
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Hearing:
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31 July 2018
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Appearances:
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D Jaques for the Applicant
P M Webb for the Respondents
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Judgment:
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31 July 2018
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ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Legal Associates (D Jaques), Papatoetoe, Auckland, for the Applicant Denham Bramwell (P Webb), Manukau, for the Respondents
CASEY v CASEY [2018] NZHC 1930 [31 July 2018]
[1] Mrs Casey applies under s 145A of the Land Transfer Act 1952 for an order that a notice of claim under s 42 of the Property (Relationships) Act 1976 not lapse. The notice is lodged against the identifier for a two-hectare lifestyle property at Paremoremo, Auckland. The registered proprietors are her brother, Gary Bryce Conway, and her former husband, David Gregor Casey. They hold the property as trustees of the Apollo 69 Family Trust, which was established under deed dated 8 August 2014. A title search shows that the notice has been lodged against the interest of David Gregor Casey in the property. The actual notice has not been put in evidence, but the search copy is sufficient evidence that a notice of claim has been lodged.
[2] Mr and Mrs Casey married in 1995. There are two children of their marriage. Their marriage was dissolved on 15 May 2018 after a two-year separation. They bought the Paremoremo property in 2003 and took title in their own names. It was bare land. They built a house and lived in it as their family home.
[3] In October 2008, they established the Casey Family Trust. They settled the Paremoremo property on the trust. They are the settlors; they are also the trustees, as well as a Mr John Gray. The primary beneficiaries are Mr and Mrs Casey and their children, including any future children. The children are the final beneficiaries in that they take equally on the date of distribution. There are substitutionary provisions in the event of death. In the way of modern family trusts, there are discretionary powers to make distributions for maintenance, education and advancement, with powers to make distributions ahead of the distribution date, to add and exclude beneficiaries and to vary the trust deed. There is a power of resettlement. Mr and Mrs Casey were accordingly discretionary beneficiaries under the Casey Family Trust. Any benefits they might take under the trust turned on the trustees using powers under the deed to make distributions to them.
[4] In August 2014, the Apollo 69 Family Trust was established. Mr and Mrs Casey are the settlors. The trustees are Mr Casey and Mrs Casey's brother, Gary Conway. The final beneficiaries are the children of Mr and Mrs Casey. “Discretionary beneficiaries” are defined to mean any final beneficiary, any issue of
any final beneficiary and any beneficiary appointed by the trustees under their power to add beneficiaries. Mr and Mrs Casey are not named as beneficiaries at all under the trust. Up to now the trustees have not exercised any powers to add Mr and Mrs Casey as beneficiaries. The trust deed has extensive powers to make distributions ahead of the vesting date, to add and exclude beneficiaries, to vary the terms of the trust deed and to resettle the trust.
[5] Some of the provisions in the trust deed are relevant. Under clause 8.5 the trustees may by deed appoint a vesting date ahead of the vesting date under the deed. Clause 6 deals with distribution on the vesting day. In summary, it says that the trustees may distribute to such of the discretionary beneficiaries as they appoint by deed before the vesting day; and insofar as they have not made any distributions under that head, they are to be distributed to the final beneficiaries then living in equal shares. There is a residuary provision if that does not ensure a full distribution of the trust assets.
[6] Clause 30 says:
30.1 Notwithstanding anything contained herein either Settlor may exercise the powers contained in this paragraph notwithstanding disagreement from the other Settlor.
30.2 Notwithstanding anything contained herein either Settlor may, acting without consent of the other Settlor, exercise the power contained in clause 8.5 as if such Settlor were the trustees.
Clause 31 says:
31.1 In the event of the Vesting Day being advanced as nominated by one Settlor pursuant to this clause the Trust Fund shall be distributed as follows:
(a) the Trust Fund shall be divided in half;
(b) one-half shall be distributed in the shares, proportions (whether by reference to sums of money or interest in particular assets or otherwise) and subject to such trusts and provisions as one of the Settlors without infringing the law against perpetuities made in their absolute discretion by deed or deeds.
(c) the other half shall be distributed under the shares, proportions (whether by reference to sums of money or interest in particular assets or otherwise) and subject to such trusts and provisions as the other Settlor without infringing the law against perpetuities may in their absolute discretion by deed or deeds appoint.
[7] The trustees of the Casey Family Trust settled the Paremoremo property on the trustees of the Apollo 69 Family Trust. That is reflected in the current title search which shows the respondents as registered proprietors of the land. The Paremoremo property is the only significant asset of the Apollo 69 Family Trust. It is subject to a mortgage to a bank.
[8] The evidence includes two valuations of the property. One valuation was made in March 2017 and the other in May 2018. There is considerable difference between the two valuations, with the March 2017 value being considerable higher than the May 2018 value. I was not asked to make any findings as to the value of the property; but even on the lower value there is considerable equity in the property. The Apollo 69 Family Trust receives income by way of rent from the property. Mrs Casey is one of the tenants. She lives there with her new partner, both paying rent to the trustees. The children live with her.
[9] The trustees wish to sell the property. Mr Webb explained that, whereas they have been paying interest only under the mortgage, the trustees will now have to start making principal reductions and they consider that the income from the property will not be enough to meet the outgoings. Mr Casey’s evidence suggests that there are risk factors and uncertainty as to the stability of revenue for the trust. They also say they are not able to pay for current maintenance, so there is a risk of the property falling in value.
[10] The background to the Apollo 69 Family Trust being established and the Paremoremo property being resettled on that trust is financial difficulties from businesses run by the couple. Mrs Casey describes the businesses as "theirs"; whereas Mr Casey tends to speak of it as "hers". I do not need to decide who owned the businesses. Importantly, guarantees had been given to support financial accommodation. In the case of a bank, those guarantees were secured by a mortgage
over the Paremoremo property. In short, the trustees of the Casey Family Trust faced personal liability to the bank. Other creditors were also pressing. A way was found through the difficulties. A compromise was negotiated with the bank. A second-tier lender was found to provide finance to pay the bank. In the course of those arrangements the property was settled on the Apollo 69 Family Trust.
[11] In the light of those financial difficulties the transfer of the property from a trust under which Mr and Mrs Casey had interests as discretionary beneficiaries to a trust where they had no interest at all is significant. In the event of a financial collapse and their going bankrupt, their assets would vest in the Official Assignee. The establishment of the Apollo 69 Family Trust appears to have ringfenced the Paremoremo property so as to make it difficult for creditors to have recourse to the property.
[12] Mrs Casey has begun a proceeding in the Family Court. Some documents from her proceeding in the Family Court have been put in evidence. I understand that she is seeking relief under the Property (Relationships) Act 1976 and under s 182 of the Family Proceedings Act. The marriage was dissolved on 15 May 2018. Mrs Casey lodged her notice of claim against the title to the Paremoremo property on the same date. Edwards J made an order that the notice of claim not lapse pending further order of the Court.
[13] Section 42(3) of the Property (Relationships) Act says that notices of claim of interest shall have effect as if they were caveats but there are differences between the two. Caveats under the Land Transfer Act 1952 protect current interests in land. Notices of claim under s 42 protect claims for relief under the Property (Relationships) Act. Claims under the Property (Relationships) Act are inchoate. They do not give rise to immediate interests in property.1 Claims under the Property (Relationships) Act result in property interests only on division. Division can take place:
[a] by agreement under Part 6 of the Act;
[c] by court order after death under Part 8.
As the powers given to the Family Court under s 33(3) make clear, on division the court creates interests in property. It does not declare them. For division, assets owned by parties to a marriage or defacto relationship are classified as relationship or separate property under ss 8 to 10 of the Property (Relationships) Act. The status of an asset as relationship property does not by itself confer a property interest. It only identifies the asset as falling in the pool for division. If something is property, is owned by one spouse or defacto partner and is classed as relationship property under the act, it will fall within the pool of assets for division.
[14] It is important to note certain definitions in the Property (Relationships) Act:2
Owner, in respect of any property, means the person who, apart from this Act, is the beneficial owner of the property under any enactment or rule of common law or equity.
(Emphasis added)
Property includes:
(a) real property;
(b) personal property;
(c) any estate or interest in any real property or personal property;
(d) any debt or anything in action;
(e) any other right or interest.
The Property (Relationships) Act recognises trusts and provides that trusteeship of a property does not fall within the act. Section 4B(1) states:
2 Property (Relationships) Act 1976, s 2.
4B Law relating to trustees preserved
(1) Nothing in section 4 or section 4A affects the law that applies where either spouse or partner is acting as trustee under any deed or will.
....
[15] Under s 42(2) of the Property (Relationships) Act a notice of a claim to an interest under the Property (Relationships) Act against land subject to the Land Transfer Act 1952 must be in the prescribed form.3 That form provides for a claimant spouse or partner to lodge a notice of claim for the interest of the other spouse or partner in land. The form contemplates that the interest of the other partner may be a registered interest or a beneficial interest. It says:
I, ... am the spouse, civil union partner or de facto partner of ..., who is
*registered as a proprietor of [nature of estate or interest] in the land described below.
*entitled to, or beneficially interested [nature of estate or interest under the Land Transfer Act 1952] in the land described below by virtue of an unregistered agreement or other instrument or transmission or an express or an implied trust or by virtue of some other circumstances.
The words for beneficial interest are almost the same as those used in s 137(1)(a) of the Land Transfer Act for a caveatable interest in land.4 For convenience, I will call the interests, for which a notice of claim may be` lodged, a registered interest or a caveatable interest. A notice of claim may be lodged against land under the Land Transfer Act if the spouse or partner is registered as owner of an interest or they have a caveatable interest in the land. For a person with a registered interest there must also be an associated beneficial interest because a bare legal title is not sufficient.5 For unregistered interests, the principles for caveatable interests under the Land Transfer Act have a bearing in deciding whether there is an interest which can be subject to a notice of claim under s 42. For a caveatable interest the caveator must have a current
3 See Property (Relationships) Forms Regulations 2001, sch 1, reg 4.
5 See the definition of "owner" and s 4B of the Property (Relationships) Act 1976.
interest, not a potential interest in the land.6 Under s 42 of the Property (Relationships) Act, the claimant spouse or partner asserts a claim for a potential award under the Property (Relationships) Act on division, but it is in respect of an actual interest in land (registered or caveatable) currently held by the other spouse or partner.
[16] Notices of claim under s 42 cannot be used to protect claims under s 182 of the Family Proceedings Act 1980. Mr Jaques accepted that.
[17] Under the caselaw there are different approaches on applications to sustain notices of claim under s 42: the caveat analogy approach and the reasonable requirements test.7 The reasonable requirements test recognises that interests protected by notices of claim are different from interests protected by caveat. Thorp J stated them in Rusden v Rusden:8
Apart from the fact that the latter must have existing and not merely potential validity, the rights or expectations of persons entitled to give notices of claim may in a number of other respects be less certain and defined than is the case with interest which would support a caveat. Although there is at the centre of the matrimonial property legislation a presumption of equal sharing in matrimonial property, there remain large areas in which both the definition of the quantum of interest and the form which such interest shall take have to be assessed on the basis of criteria which are not susceptible to any precise or mathematical calculation.
He stated the reasonable requirements test:9
In my view, the basic question for determination by the Court in considering applications for removal of notices of claim, must be whether or not the continuance of registration of the notice in question was reasonably required to protect rights of the applicant under the Matrimonial Property Act 1976.
In Church v Church, a full Court upheld this approach.10
[18] Grieg J propounded the caveat analogy approach in Hayball v Lewis.11 In SM v ASB Bank Limited, the Court of Appeal stated the test in terms of the caveat analogy
7 See the discussion in Re Country Land Limited, Bennett v Blackley [2015] NZHC 1322.
8 Rusden v Rusden (1980) 3 MPC 157 at 159.
9 At 159.
10 Church v Church [1999] NZFLR 500.
11 Hayball v Lewis [1996] 1 NZLR 717 (HC) at 722.
approach.12 The Court did not, however, expressly refer to the Rusden line of authorities and did not expressly overrule them. The Court did, however, recognise that a court does have a discretion in caveat cases,13 and stated that a court may order removal if it is satisfied that the claimant can have no reasonable expectation of obtaining a benefit from the continuance of the caveat or notice of claim, or if the caveator’s or spouse's interest can be reasonably accommodated in some other way. That discretion seems to come close to what Thorp J had in mind under the reasonable requirements approach.
[19] The enquiry is whether Mr Casey arguably has a caveatable interest in the Paremoremo property and whether that interest is arguably relationship property. It is not necessary to decide whether Mrs Casey has a caveatable interest in the property because her notice is directed against Mr Casey's alleged interest in the property, not any interest of her own. The facts that Mr and Mrs Casey used to own the property in their joint names, that they used the property as their family home, and that it was once owned by the Casey Family Trust are no more than historical background. What counts is the current ownership of the property.
[20] Mr Casey's ownership of the property as one of two trustees cannot help Mrs Casey. He is not an “owner” as defined because his ownership as trustee does not give him any beneficial interest in the property. Moreover, s 4B of the Property (Relationships) Act makes it clear that the law relating to trusteeships is preserved. The property division rules are excluded. While his trusteeship makes him an owner of the legal estate, there is no associated beneficial interest which can be the subject of a relationship property claim.
[21] Under the trust deed Mr Casey is not a beneficiary. He is not defined as one of the final beneficiaries or one of the discretionary beneficiaries and the trustees have not exercised any power under clause 12.1 of the trust deed to make him a beneficiary. The potential for him to become a beneficiary is not enough to give him an interest in the land. A hope of becoming a beneficiary of a trust is not enough to support a caveat.
12 SM v ASB Bank Ltd [2012] NZCA 103, (2012) 13 NZCPR 30 at [35]. Leave to appeal refused,
SM v ASB Bank Ltd [2012] NZSC 48, [2012] NZFLR 659.
13 See Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
Similarly, even if he were no more than a discretionary beneficiary that would not give him a caveatable interest in the property.14
[22] That leaves Mr Casey's powers as settlor. Ordinarily when property is settled on a trust the settlor no longer retains any interest in the property, except to the extent that the trust deed otherwise provides. That is reinforced in this case because of the creditor protection purpose of establishing the Apollo 69 Family Trust. Given the uncontested evidence as to the insolvency difficulties the couple faced, the establishment of the Apollo 69 Family Trust clearly had a creditor protection purpose of ensuring that the family home would be out of reach of creditors. In these circumstances, a court will not find any resulting trust in favour of the settlors. The Court of Appeal stated the policy in Potter v Potter:15
In this situation, the settlor is the unwilling beneficiary of a compliment to his honesty. It is assumed that he would not have intended it to defraud others by pretending that his wife had a beneficial interest when in reality he had intended to retain the beneficial interest all along.
[23] In this case, however, the trust deed has provisions which Mr Jaques relied on to say that they allowed Ms Casey to make a notice of claim: clauses 30 and 31. Under clause 30.2 either settlor may accelerate the vesting day. Either settlor has the same power as if they were trustees. Clause 31 goes on to provide that the trust fund is to be divided in half and that the trust fund is to be distributed as each settlor appoints. There is a question of interpretation here. Does this power to distribute a half share of the trust fund allow the settlor to require a distribution to non-beneficiaries and, in particular, to themselves?
[24] There is no express provision in clause 31 recognising that there may be a distribution under that clause to a non-beneficiary. Under the trust assets are held for beneficiaries. Distributions are made to some or all of them on the exercise of powers under the deed. Clause 31 gives the settlors powers of appointment. Assets held by the trustees are to be distributed as directed by each settlor and each settlor can
14 Morrison v Morrison HC Auckland CIV-2006-404-7824, 27 February 2007 at [4], citing R & I Bank of Western Australia Limited v Anchorage Investments Pty Limited (1993) 10 WAR 59 (WASC).
determine for a half of the trust fund which of the beneficiaries are to receive, and how much. That is consistent with other provisions of the deed. Under cl 8.5 the vesting date can be brought forward to allow the trustees to make an earlier final distribution among beneficiaries. Under cl 6.1(a) the trustees may appoint among the beneficiaries, but they may not distribute to non-beneficiaries. Clause 31 gives the same power to a settlor who invokes cl 30. The discretion under cl 31 means that a settlor is not required to appoint to the final beneficiaries in equal shares. It does not follow that a settlor’s power of appointment under cl 31 allows the settlor to appoint non-beneficiaries. In other words, only those who are beneficiaries of the trust may receive assets under cl 31. It is possible, of course, that Mr Casey could become a beneficiary if the trustees exercised their powers under clause 12.1 to add him as a beneficiary. I note the presence of Mr Conway, Ms Casey's brother, who would no doubt act in her interest if there were any proposal that Mr Casey were to be a beneficiary to the exclusion of Ms Casey.
[25] Against those considerations Mr Jaques submitted that clause 31 is a winding- up provision. It is intended to operate in circumstances such as this, where a marriage has failed. I can understand that married couples putting assets into trusts may include provisions in their trust deeds to allow for a division of assets held on trust amongst them in a manner that would parallel division under the Property (Relationships) Act. But if that were to be the case, I would expect to find an express provision that Mr and Mrs Casey would be entitled to take beneficially under any such winding-up provision.
[26] In summary, in my view cl 31 by itself is not sufficient to give Mr Casey a caveatable interest in the trust land. He can only obtain a beneficial interest in the trust land if he is made a beneficiary under clause 12.1 and powers exercised under the deed confer an interest in the land on him. That has not happened and he accordingly does not have a caveatable interest in the land. And because he does not have a caveatable interest in the land, he does not have an interest for which a notice of claim can be lodged under s 42 of the Property (Relationships) Act.
[27] If I am wrong in my interpretation of cls 30 and 31, I consider the position if cl 31 gives a settlor the power to require a distribution to themselves personally.
I regard that power as property under the definition in s 2 of the Property (Relationships) Act. That is consistent with the Supreme Court’s decision in Clayton v Clayton.16 As with the Supreme Court's decision in Clayton v Clayton, I accept that that interest would be relationship property. The Supreme Court relied on s 8(1)(e) of the Property (Relationships) Act. In submissions, Mr Webb referred to s 10 of the Property (Relationships) Act to say that any interest that Mr Casey would take would be separate property as having come to him by gift. I do not however regard a distribution from the Apollo 69 Family Trust as a gift from a third party. It comes from a trust, but Mr Casey is one of the settlors.17 It is not within the exception under s 10, but is relationship property. The interest is arguably caveatable because Mr Casey can invoke it at any time. It is not subject to any contingency.
[28] If that interpretation of clause 31 gives Mr Casey an interest in the Paremoremo property and it is relationship property, does that mean that the notice of claim of interest should stay on the title? Under both the reasonable requirements and the caveat analogy approaches, the court is not necessarily bound to uphold the notice.
[29] If Mr Casey has a caveatable interest through clause 31, Mrs Casey would have a like interest. Clause 31 provides for them to take equal shares. That means that Mr and Mrs Casey each can enforce their rights by giving the appropriate notice under clause 30 of the trust deed, and then exercising their rights under the trust deed to obtain an equal half-share of the Paremoremo property, the major asset of the marriage. In short, Mrs Casey's rights are enforceable independently of the Property (Relationships) Act. Her rights are adequately protected without needing the notice of claim to stay on the title. If the caveat is removed the trustees are free to decide whether the property should be sold or not. That is a power they have as trustees acting in the interests of all beneficiaries. Mrs Casey is a non-beneficiary at present and is not in a position to dictate to them whether the property should be sold or not.
16 Clayton v Clayton (Vaughan Road Property Trust) [2016] NZSC 29, [2016] 1 NZLR 551.
17 See Property (Relationships) Act 1976, s 10(1)(a)(iv):
(1) Subsection (2) applies to the following property:
- (a) property that a spouse or partner acquires from a third person—
(iv) because the spouse or partner is a beneficiary under a trust settled by a third person: ...
(2) Property to which this subsection applies is not relationship property...
Accordingly, under the reasonable requirements approach I do not consider there is a need for the notice of claim to stay on the title.
[30] Under the alternative caveat analogy approach, I consider that Mrs Casey's needs can be adequately accommodated without the notice of claim staying on the title. Again, that is because she has rights independently of the Property (Relationships) Act which can protect her interests.
[31] Mr Jaques submitted there will not necessarily be equal division of relationship property. He suggested that there was a case for unequal division, relying on extraordinary circumstances. There is nothing in the materials in this case to suggest an arguable case for a departure from the normal equal sharing provisions of the Property (Relationships) Act. Mr Jaques submitted that Mrs Casey had stood firm when the family faced a financial crisis and had found a way through when Mr Casey had proposed that she go bankrupt. While that may show good business skills and good management by Mrs Casey, that is not unusual in a marriage and it does not give reason for ranking one spouse's share of relationship property as greater than the other.
[32] Accordingly, I am satisfied that the notice of claim does not need to stay on the title. I make an order that notice of claim 11116195.1 be removed from identifier 59738.
[33] I award costs to the respondents on a Category 2 basis. I expect counsel to agree costs, but if they cannot memoranda may be filed no later than 10 days' time.
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Associate Judge R M Bell
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