Kumar v Wendt [2018] NZHC 72 (8 February 2018)

Last Updated: 15 February 2018

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV-2016-485-000695 [2018] NZHC 72

IN THE MATTER OF	Section 339 of the Property Law Act 2007
IN THE MATTER OF	1332 High Street, Lower Hutt
BETWEEN	VINOD KUMAR AND LAGI KUMAR Plaintiffs
AND	MOANA LOUISE WENDT Defendant

Hearing:	5 February 2018
Counsel:	F J Handy for Plaintiffs K P L Ah Kuoi for Defendant
Judgment:	8 February 2018

_{JUDGMENT OF COLLINS J}

Introduction

[1] The issue in this case is encapsulated in the following question:

Are Mr and Mrs Kumar, who were each registered as proprietors of a one- third share of a property as tenants in common with Ms Wendt entitled to two- thirds of the net proceeds of the sale of the property, and other moneys?

[2] Save in one minor respect, the answer to this question is “no” because, at the time the parties became registered as tenants in common on the title to the property they intended Ms Wendt and her partner, Mr Fuimaono, would be the beneficial

_{owners of the property.}

KUMAR v WENDT [2018] NZHC 72 [8 February 2018]

Background

[3] Mr Fuimaono, who is the brother of Mrs Kumar, commenced a relationship with Ms Wendt in 1997. Their relationship was marked by periods of instability. In

2009, Ms Wendt decided to leave Mr Fuimaono and move to Auckland with their two children. Ms Wendt explained in her evidence that Mr Fuimaono soon followed her to Auckland and persuaded her to return to Wellington. Part of the inducement offered by Mr Fuimaono for Ms Wendt and their children to return to Wellington was that

Mr and Mrs Kumar were willing to assist Ms Wendt and Mr Fuimaono in purchasing a home in Wellington. This proposal appealed to Ms Wendt because it would mean she and her family would no longer be dependent on Housing New Zealand for their accommodation.

[4] At the time, Mr Kumar and his wife lived in a freehold property in Wainuiomata. They had also developed a small property investment portfolio comprising three “rental properties”.

[5] In 2010, Ms Wendt and Mr Fuimaono decided they wished to purchase a property at 1332 High Street, Lower Hutt (the property). To do so they needed to raise a mortgage. Mr Fuimaono, however, had a poor credit rating and could not borrow money from a bank. To overcome this impediment, Mr and Mrs Kumar agreed to assist Mr Fuimaono and Ms Wendt by joining Ms Wendt as mortgagors on the basis that Mr Fuimaono and Ms Wendt would assume responsibility for making the mortgage repayments. In order to become registered as mortgagors, Mr and Mrs Kumar also became registered as proprietors of the property, as tenants in common with Ms Wendt.

[6] The purchase price for the property was $197,500. Two mortgages were arranged with ANZ Bank (ANZ) for $164,000 and $41,000 that were secured against the titles to the property and Mr and Mrs Kumar’s home in Wainuiomata.

[7] Two other loans were advanced by ANZ at the time the mortgages were taken out. One sum was for $10,000, which was paid into Mrs Wendt’s personal account. Another loan, for $6,395.63 was paid into Mr Fuimaono’s and Ms Wendt’s joint account. Ms Wendt could not recall the $10,000 from ANZ, but she remembered that

approximately $7,000 was obtained from ANZ to enable Mr Fuimaono and Ms Wendt to undertake improvements to the property.

[8] The balance of the $205,000, namely $188,604.37 was paid into the trust account of the solicitor acting for Mr Fuimaono and Ms Wendt and disbursed as part of the settlement of the property on 30 July 2010. Upon settlement, Mr and Mrs Kumar and Ms Wendt became registered as owners of one-third each of the property, as tenants in common.

[9] There was no written agreement as to the beneficial ownership of the property. Nor does there appear to be any record of who paid the deposit for the property. The absence of documentary evidence in this case is due to the fact that the solicitor who acted for Mr Fuimaono and Ms Wendt when they purchased the property can no longer locate his file.

[10] What is clear is that Ms Wendt and Mr Fuimaono accepted full responsibility for repaying the mortgages to ANZ and that Mr and Mrs Kumar did not expect them to pay rent because the arrangements put in place were designed to “[help] [Ms Wendt] and [Mr Fuimaono] buy their home”.¹

[11] In late 2015, the relationship between Mr Fuimaono and Ms Wendt again began to founder. Mr Fuimaono moved to Auckland at the end of 2015, leaving Ms Wendt to care for the children and make the mortgage repayments by herself. Ms Wendt, who at this stage was employed as a kitchen assistant, could not make any mortgage repayments after January 2016.

[12] By the time Mr Fuimaono and Ms Wendt separated, they had paid ANZ

$79,466.84 of which $68,633.98 was interest, meaning the principal loans secured by the mortgages had been reduced by $10,832.86.

[13] ANZ issued notices of demand for repayment on 1 July 2016 and threatened default action under s 119 of the Property Law 2007 (the Act). Mr and Mrs Kumar

¹ Notes of Evidence at 3, lines 31-32.

decided to try and pre-empt the possibility of a mortgagee sale of the property by applying to this Court for an order under s 339(1)(a) of the Act which provides:

339 Court may order division of property

(1) A court may make, in respect of property owned by co-owners, an order—

(a) for the sale of the property and the division of the proceeds among the co-owners;

...

[14] The property was eventually sold by a private sale in April 2017 for $355,000. By the time of settlement, the addition of penalty interest meant the debt still owing to ANZ had increased to $201,023.62. The net proceeds of sale were $134,190.77.

[15] The present proceeding was continued because the parties were unable to reach agreement on the division of the net proceeds of the sale of the property. Mr and Mrs Kumar claim they should receive $118,275.39. This sum was calculated by Mr Kumar in the following way:

• Two-thirds of the net proceeds of sale: $ 89,460.51

• The amount that was paid to [Ms Wendt] and

Mr Fuimaono personally: $ 16,395.63

• The difference between what was borrowed and

_{what was repaid: $ 12,419.25}

_{Total $118,275.39}

[16] The approach argued for by Mr and Mrs Kumar would leave Ms Wendt and Mr Fuimaono with just $15,915.38 even though, all the principal repaid to ANZ prior to the sale of the property was paid by Ms Wendt and Mr Fuimaono, plus $68,633.98 in interest. Mr Kumar justified this outcome on the basis that he and his wife made “an investment” when they agreed to become mortgagors and registered as tenants in common on the title to the property. Mr Kumar said that as he and his wife had made a commercial decision to become mortgagors and tenants in common they should enjoy the bulk of the benefits of the net proceeds of sale which were primarily generated by an increase in the value of the property between 2010 and 2017.

Legal principles

[17] The starting point is the presumption in favour of the interests registered on the title of the property.² This presumption may, however, be rebutted if Ms Wendt establishes on the balance of probabilities that the interests registered on the title do not reflect the beneficial ownership of the property. This approach is consistent with the following statement of Lord Wilberforce in Frazer v Walker:³

... their Lordships have accepted the general principle, that registration under the Land Transfer Act 1952 confers upon a registered proprietor a title to the interest in respect of which he is registered which is ... immune from adverse claims, other than those specifically excepted. In doing so they wish to make clear that this principle in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a Court acting in personam may grant.

[18] Ms Wendt can rebut the presumption in favour of the primacy of the title to the property by invoking s 339(1)(a) of the Act,⁴ which, for present purposes, gives legislative effect to the principles of equity governing the creation of either a constructive or a resulting trust.⁵

[19] Mr Handy, counsel for Mr and Mrs Kumar submitted that if there were any form of constructive trust engaged in this case, then it would be an institutional constructive trust, which arises “where the parties intended that property would be held for or on behalf of [another party], but for reasons such as lack of formality ... the parties’ intention was legally non-cognisable or ineffective”.⁶ Mr Handy submitted that no such intention existed, so there could be no constructive trust.

[20] Mr Ah Kuoi, counsel for Ms Wendt, submitted that his client’s case involved a resulting trust. He maintained that Ms Wendt’s beneficial interest in the property was

² Land Transfer Act 1952, ss 35, 41 and 62.

3. Frazer v Walker [1967] NZLR 1069 (PC) at 1078. See also, Cossey v Bach [1992] 3 NZLR 612 at 627 (HC) and Pierce v Spargo [2013] NZHC 3124 at [7].
4. That section allows a court to make an order “for the sale of the property and the division of the proceeds”. In the present case, only the latter is necessary because the parties have already sold

the property. The question might arise whether a court still has jurisdiction to make an order under

that section in such circumstances. The point was not argued before me, so I do not take it further, however, my view is that the “and” in s 339(1)(a) is disjunctive, allowing a court to make an order only for the division of the proceeds of the sale of a property in appropriate circumstances.

⁵ See Bunyan v Parish [2017] NZAR 931 (HC) at [26] and [33].

⁶ Rt Hon Sir Peter Blanchard (consulting ed) Civil Remedies in New Zealand (2nd ed, Thomson

Reuters, Wellington, 2011) at [10.2.3].

not reflected in the title and that Mr and Mrs Kumar held their interests in the title on a resulting trust in favour of Ms Wendt and Mr Fuimaono, or alternatively, in favour of Ms Wendt alone who, in turn, would need to account to Mr Fuimaono under the Property (Relationships) Act 1976.

[21] It is not necessary in this case to engage in a forensic analysis of which type of trust applies. That is because, after hearing the evidence of Mr Kumar and Ms Wendt, I am very satisfied that, when the property was purchased, the parties intended

Ms Wendt and Mr Fuimaono would be the beneficial owners of the property. Thus, in the circumstances of this case I am satisfied that the parties’ intentions could give rise to either a constructive or a resulting trust in favour of Ms Wendt and Mr Fuimaono. My reasons for reaching this conclusion are explained below.

Analysis

[22] There are five reasons why I am satisfied Ms Wendt has established that she and Mr Fuimaono are the beneficial owners of the property and therefore entitled to the bulk of the net proceeds of the sale of the property.

[23] First, it is clear that in 2010 Mr and Mrs Kumar agreed to become tenants in common on the title solely to assist Mr Fuimaono and Ms Wendt in obtaining mortgages, to enable them to purchase their own home. It was generous of Mr and Mrs Kumar to have done so. Their generosity at that time was, however, driven solely by the obligations they felt they had to Mr Fuimaono and Ms Wendt as members of their family.

[24] Second, the parties proceeded on the basis that Mr Fuimaono and Ms Wendt would have full responsibility for repaying the mortgages. It was never contemplated Mr and Mrs Kumar would pay anything in relation to the property. This was entirely consistent with the parties’ intentions that Mr and Mrs Kumar would allow their names to be placed on the title to the property solely to assist Mr Fuimaono and Ms Wendt into their own home.

[25] Third, if the property was a commercial investment, it would be highly

irregular for Mr and Mrs Kumar to have simply sat on their hands while penalty

interest accrued on the mortgage. While the arrangement might have been that they would not be responsible for making repayments, one would expect a commercial investor to be more proactive in protecting their investment when unforeseen circumstances arose. They were subject to all the same legal obligations, and financial risks, as Ms Wendt.

[26] Fourth, if, as Mr Kumar now maintains he and his wife made a commercial investment in the property I would have expected they, as experienced investors, would have recorded any commercial agreement between themselves and

Mr Fuimaono and Ms Wendt. The fact they did not do so reinforces Ms Wendt’s case that the arrangements put in place were solely driven towards assisting her and

Mr Fuimaono into their own home.

[27] Fifth, I agree with Mr Ah Kuoi’s submission that Mr Kumar’s approach in court has only arisen since Mr Fuimaono and Ms Wendt separated. Had they not done so I am sure Mr Kumar would never have contemplated trying to make claim upon the increased equity in the property.

[28] In summary, I am very satisfied Mr and Mrs Kumar became registered on the title to the property as tenants in common solely to help Mr Fuimaono and Ms Wendt into their own home. At the time the relevant arrangements were put in place, Mr and Mrs Kumar did not contemplate benefitting in the way they now claim.

[29] There are, however, two aspects to Mr and Mrs Kumar’s claim that require separate consideration. First, I am satisfied that the loan of $6,395.63 that was paid into Mr Fuimaono’s and Ms Wendt’s joint account was applied towards improving the property. Ms Wendt referred in evidence to a loan of approximately $7,000 that was used to improve the property. As such, the loan of $6,395.63 forms part of the property.⁷

[30] A different conclusion must, however, be reached in relation to the $10,000 that was paid directly into Ms Wendt’s account. There is no evidence that money was

_{applied towards the property or that Mr and Mrs Kumar intended to allow Ms Wendt}

⁷ Bunyan v Parish, above n 5; and Long v Moore [1989] NZHC 667; (1989) 1 NZ ConvC 190,239 (HC).

to treat that sum as a gift. I accordingly exclude most of the $10,000 from the order that I make in favour of Ms Wendt. Logically, Mr and Mrs Kumar are entitled to two- thirds of that sum, namely $6,600.

Conclusion

[31] The net proceeds from the sale of the property are divided in the following way:

(1) Mr and Mrs Kumar are to each receive $3,300. (2) Ms Wendt is to receive the balance.

[32] Ms Wendt will need to account to Mr Fuimaono under the Property

(Relationships) Act.

[33] As Mr and Mrs Kumar have substantially failed in their proceeding, I order costs in favour of Ms Wendt on a scale 2B basis and disbursements.

_{D B Collins J}

Solicitors:

Francis J Handy, Wellington for Plaintiffs

Ah Kuoi Law, Wellington for Defendant