Beenen v Beenen

[2020] NZHC 3163

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE

CIV-2019-443-50

[2020] NZHC 3163

IN THE MATTER OF

Section 339 of the Property Law Act 2007

BETWEEN

ANGELA BEENEN

Applicant

AND

MARK BEENEN SUZANNE BEENEN

Respondents

Hearing:	23 November 2020
Counsel:	E L Smith for the applicant K Pascoe for the respondents
Judgment:	1 December 2020

JUDGMENT OF CULL J

[1]                  As this Court has noted, it is not uncommon in family settings for money to be paid without any clear or settled plan as to when and how it will be dealt with in the future,1 though it certainly can lead to problems down the line as has occurred here. This proceeding concerns an application under s 339(1)(a) of the Property Law Act 2007 to resolve a family dispute on the sale of a property and distribution of its proceeds. By the time the matter came on for hearing, the parties had agreed that the property should be listed on the open market and the sole remaining question for this Court is to determine the distribution of net proceeds of sale among the parties.

1      Zhang v Li [2017] NZHC 129 at [16].

BEENEN v BEENEN [2020] NZHC 3163 [1 December 2020]

Background

[2]                  The applicant, Angela Beenen, and the respondent, Mark Beenen, are siblings. The other respondent is Suzanne Beenen, Mark’s wife. Angela and Mark are the children of Mrs Phyllis Beenen and Mr Murray Beenen, along with Marion Beenen, Ian Beenen and Laurie Beenen. The other three children are not involved in the present proceeding. Phyllis, Murray, Marion and Laurie are all deceased.

[3]                  The dispute is centred around a family-owned property in Maungaturoto, Northland (the Northland Property). The Northland Property was initially owned by Angela and her husband Paul Nairn. They were going through financial difficulties, and so in 2004 Phyllis, Murray, Marion, Mark and Suzanne purchased the Northland Property as a family. In order to do so, Phyllis, Murray, Marion, Mark and Suzanne sold the original family home, and Mark and Suzanne sold their family home in Hamilton. The Northland Property was then placed in all the families’ names.

[4]In 2007, Angela and Paul raised a mortgage against the Northland Property for

$60,000. It was agreed the loan could be obtained using the Northland Property as security, but it was a personal loan that was to be paid back by Angela. The family group at this time raised a mortgage of $100,000 to build a compliant implement shed, sewage system and develop the woolshed building to accommodate two houses within the one building. Mark and Suzanne say they were the sole contributors to the Northland Property’s mortgage, rates and running costs from 2006 to 2011.

[5]                  Initially, and certainly from 2011 to 2014, Angela lived on the Northland Property and Mark and Suzanne visited regularly. However, in 2009, there was a large family disagreement and since then, Mark and Suzanne have not visited the Northland Property. Their children continued to visit for a time, but that too stopped after a few months. In 2011, Mark and Suzanne gave notice to Angela and Marion that they would no longer pay the mortgage on the Northland Property and have not contributed to the outgoings on the Property since 2011. In correspondence dated 29 July 2013, Mark and Suzanne wrote further to say they would never return to live at the Northland Property and want no further involvement in it. They wished to dissolve their share

of the Property and withdraw their funds from the business so all issues relating to the will, as outlined below, can be resolved.

[6]                  Phyliss died in 2010 and then Marion, shortly thereafter. Phyllis’s estate owns a two-fifth share of the Northland Property. Angela is the executor and trustee of both Phyllis’s and Marion’s estates and the beneficiaries include Angela, Mark, Ian and Laurie. Upon finalisation of the estates and their respective wills, all parties agree that Angela will hold a two-thirds share of the Northland Property and the respondents a one-third share. The issue, as noted, is how the proceeds of the sale of the Northland Property are to be distributed as between Angela and Mark.

[7]                  Neither party presently lives at the Northland Property. Mark and Suzanne have not lived there for over 11 years. Angela and Marion lived there until Marion’s death, at which time Angela moved out. At that time, Angela says that she and Marion serviced the joint bank loan on the Northland Property and all rates and utilities, and up until 2014 Angela has covered the cost of the Property. The respondents say Angela paid the sum of $7,991.88 per annum to the joint mortgage in lieu of rent.

[8]                  Since 2015, Angela has leased the Northland Property to a couple, the Taylors. She says this was necessary to pay the loans secured against the Northland Property and she also says Mark and Suzanne were aware that she had moved out. Suzanne says they were unaware of Angela leaving or her renting the Northland Property, a decision which they consider they should have been consulted about.

[9]                  There is some suggestion that a rent to buy arrangement was entered into with the Taylors. Angela says there is no such agreement but that she agreed in principle that if she were to sell the Northland Property, she would first offer it to the Taylors. Some of the correspondence, such as a bank statement and messages between the parties, refers specifically to a “rent to buy” agreement. Mark and Suzanne say Angela had no authority to enter into a rent to buy agreement with the Taylors and they should have been consulted. Mark and Suzanne also do not consider it appropriate that the monies paid for rental of the Northland Property by the Taylors have been used to meet Angela’s personal mortgage against the Northland Property. Angela disputes that she used any of the rent monies personally.

[10]              In January 2018, the Taylors offered to purchase the Northland Property. Angela agreed in principle that the rent they have paid and the sums of money they had applied in improving the Northland Property could be taken into consideration for their deposit. Suzanne says this was the first time her and Mark became aware that tenants were in the Northland Property and at no point did her or Mark authorise any works to be undertaken by the Taylors. Mark and Suzanne say that if the Taylors are to be compensated it should be out of Angela’s share of the estate, given they had no control and did not agree to the situation.

[11]              Mark and Suzanne agreed with the sale in principle but wanted signed acknowledgement that they would receive distribution of a one-third share of the net proceeds of sale directly following settlement. Angela’s lawyer explained the estates of both Phyllis and Marion would require finalisation and there were the issues of the “loan”, which I refer to below at [15], and the “rent to buy” agreement and rent payments discussed above at [9]-[10]. Ultimately, the parties have come to Court to have these issues resolved.

[12]              The parties agree that the Northland Property is to be sold. The parties have subsequently received several revised offers from the Taylors. Their second offer in 2020 was for a purchase price of $345,000 but sought to recompense them for works done in lieu of a deposit. The most recent offer was for a purchase price of $400,000 with a clause that provided for Angela to compensate the Taylors 25 per cent from her share of the sale. Mark and Suzanne consented to this with the provision that they were indemnified from any failure on the part of Angela to meet that obligation, but ultimately Angela did not agree. In the event the Taylors do not accept those terms, the Northland Property shall be marketed and sold on the open market.

The Property

[13]              The Northland Property is in Maungaturoto, Northland. It is co-owned by the parties as tenants in common. The applicant, Angela Beenen, owns two-thirds of the shares owning the Northland Property, and the respondents, Mark and Suzanne Beenen, own the remaining one third.

[14]              There are two bank loans secured over the Northland Property that are not in dispute. The first was secured by Angela against the Property for which Angela is responsible and which shall be deducted from her share of the net proceeds of sale. The second was secured by the family group against the Property, for which the parties are jointly responsible and which shall be deducted from the proceeds of sale prior to determination of distribution to the parties.

[15]              The parties agree that in May 2008, $80,000 was paid to Mark and Suzanne by Phyllis, Mark’s mother. The status of that payment as either a loan or a gift is a key issue in these proceedings.

[16]              There is a sale and purchase agreement currently in negotiation with the tenants, which is with the tenants for final acceptance of revised terms. It is agreed that if the sale to the tenants is not completed the Northland Property shall be marketed and sold on the open market.

The issue

[17]              The sole issue is the appropriate distributions to be made between the parties from the net proceeds of sale of the Northland Property.

[18]A distribution of proceeds of sale needs to make allowances for:

(a)the costs of sale;

(b)the $80,000 loan/gift referred to above at [15];

(c)apportionment of income and costs from the past 10 years for the respective shares in the Northland Property;

(d)settlement of the bank loans referred to above at [14];

(e)any taxes or duties payable in relation to the rent received and the estates;

(f)costs associated with the final settlement of Phyllis and Marion; and

(g)compensation for capital works on the Northland Property by the tenants.

[19]              Out of these allowances, the only points in contention between the parties before this Court are the matter of the $80,000 gift/loan and the correct apportionment of income and costs from the past 10 years for the respective shares in the Northland Property. The compensation for capital works on the Northland Property by the tenants is a proposition that does not require determination by this Court, although the parties foreshadow it as an issue in the future as between the tenants and the parties.

[20]The two issues for this hearing are therefore:

(a)whether the respondents, Mark and Suzanne, received $80,000 from Mrs Phyllis Beenen in the form of a loan and are therefore liable for repayment from their share of the net proceeds of sale to the beneficiaries of Mrs Beenen’s estate, or whether it was a gift; and

(b)what distributions are appropriate from the sale proceeds once the Northland Property is sold.

Was the $80,000 advance a loan or a gift?

[21]              There is no dispute that the $80,000 was advanced from Phyllis to Mark and Suzanne in 2008. The dispute is over whether it was a gift or a loan.

Angela’s evidence

[22]              In her affidavit dated 2 August 2019, Angela says it has always been the position that the $80,000 was a loan, and that Mark and Suzanne’s share in the Northland Property should be used to repay it. She says that although a formal loan agreement was never drawn up, it was always understood as a moral obligation on the respondents’ part to repay that sum. No gifting programme was undertaken in respect of the $80,000 and no gift duty was paid, which would have arisen at that time. She says that the sum was paid as an on-demand loan, to be repayable to Phyllis or her estate on demand and in the meantime secured by the respondents’ share in the Northland Property. She stressed that the position of herself, Marion, Laurie and Ian

remains that the money is to be repaid. Further, she says that on the evidence of Phyllis’s testamentary wishes and her general character, it is highly unlikely that Phyllis would prefer one of her children by the gifting such a large percentage of her estate.

[23]              As executor of Phyllis’s estate, Angela says she owes an obligation to ensure the assets of the estate are recovered and distributed in accordance with the terms of Phyllis’s will. Angela says that as the five siblings are the beneficiaries of Phyllis’s estate, the $80,000 repayable to the estate should be split in five equal shares. She says that Mark and Suzanne have already repaid the sum of $8,000 to their brother, Ian, in part repayment of his share of the loan.

Mark and Suzanne’s evidence

[24]              In her affidavit dated 16 October 2020, Suzanne explains that in July 2008, when  Phyllis  gave  them  the  $80,000,  she  and  Mark  had  just  relocated  to  New Plymouth with their three children and it was to help purchase a property. She says these funds were the residue from the Murray Beenen Estate and it was not a loan that they were expected to pay back. She says that Phyllis said to both her and Mark (and Marion) that they were to have the money and use it, whichever way they saw fit.

[25]              Suzanne accepts that correspondence between the parties over the years refers to there being a “moral obligation” on Suzanne and Mark to repay the money, but never a legal obligation. She explained:

We acknowledge that the correspondence refers to the money being returned to the family in some way. It should be noted the correspondence is from other family members, there is nothing within the correspondence from Phyliss suggesting the money was a loan, and there never would be. The suggestion that the money should be returned to the family in some way was never a term imposed by Phyllis, the person who gifted us the money. It is a subsequent condition based on “doing the right thing” or having a “moral obligation” on our part. This was not the terms attached to the gifting of the money by Phyllis, but rather a subsequent position advanced by us and other family members.

We maintain that the sum of $80,000.00 given to us by Phyllis was never part of her Estate. It was provided to us to purchase a property in New Plymouth and to then cover the costs of Phyllis’ funeral. A later portion was used to

support Ian Beenen in a time of extreme hardship. This was the sum of

$8,000.00 which we provided to Ian after he phoned us on many occasions over the years to request support by way of funds. We had recently sold our house … in New Plymouth and were able to provide financial assistance to Ian of $8,000.00. We considered this to be meeting the “moral obligation” owed on our part. When and if we could assist family members, we would pay it forward, just as Phyllis had done to us. This was always to be at our discretion without any legal requirement to pay the money as it was not a loan and Phyllis had been very clear about that.

Decision

[26]              There is scant documentation in support of either view that the sum of $80,000 was a loan or a gift. There are three aspects of the available evidence that have relevance here.

[27]              First, the earliest correspondence on the issue reveals that the parties understood that Mark and Suzanne had a “moral obligation”, if not a legal obligation, to repay the loan at some point. While a moral obligation is distinct from the legal obligations of a loan, in her affidavit Suzanne acknowledged that the correspondence refers to the money being returned to the family in some way.

[28]              Further, there are four items of correspondence between December 2011 to June 2013 in which Marion, as co-executor of Phyllis’s estate, solicitors for Angela, and both Angela and Marion wrote to Mark and Suzanne recording that they had acknowledged debt in previous emails and had paid Ian $8,000, leaving a balance of

$56,000 to account to Mark’s remaining siblings. Both the co-executors and Angela’s lawyers set out the calculations for the final distribution among the beneficiaries but received no response from Mark and Suzanne recording their disagreement or the basis for it.

[29]              The second factor is the nature of Phyllis’s will. There is no evidence of Phyllis giving any of the other children such a gift, either in life or in her will. As Angela pointed out, in her will Phyllis was determined to allocate her assets evenly between the five children. This accords with Angela’s submission that given Phyllis’s general character, it is unlikely she would prefer one of her children over the others by gifting them such a sum of money. While I can make no conclusions as to the character and likelihood of Phyllis’s intentions, the facts are that in her will, she endeavoured to treat

the children evenly. A gift to one of the children for a large portion of her estate seems out of character. Further, I note that there is no provision in the will forgiving any debt. That said, I note that Phyllis’s last will was dated 13 July 2006 and the advance to Mark and Suzanne was made in May 2008.

[30]              Third, there is the issue of the non-payment of gift duty for such a sum.     Ms Smith for Angela contends that the absence of documentation to support the advance being a gift favours a finding that it was a loan. At the time the advance was transferred to Mark and Suzanne, gift duty applied to amounts in excess of $27,000. Ms Smith submits that on the relevant rates, $7,850 was payable on a gift of $80,000 at the time. I accept there is no documentation exempting the parties from the gifting regime and nor is there any indication that gift duty was understood to be paid.

[31]              However, I also accept that Phyllis’s failure to pay gift duty, if it was a gift, does not necessarily mean it was a loan and the omission is not necessary determinative. As Ms Pascoe submits for the respondents, this requirement is not something they had control over or responsibility for, and many individuals are unaware of such obligations. I do not accept Ms Smith’s submission that, at the relevant time, the family was using accountants to complete the partnership financial statements and such a large sum, if intended as a gift, would have led Phyllis to seek the appropriate accountancy advice. The same argument can be raised if the advance were a loan, where equally, Phyllis could have approached the accountants to record the fact of the loan.

[32]              In a case involving an advance by parents to assist their daughter and her husband to buy a house, Simon France J observed in Zhang v Li that intra-family money matters are often done informally.2 He said:

[16] … It is not uncommon in family settings for money to be advanced without any clear or settled plan as to when and how it will be dealt with in the future – when do payments start, what if the house is sold, what if we come to live with you, what if you split up? Often the implicit answer to any of these is “let’s see what happens in the next few years”.

2      Zhang, above n 1, at [16].

Even in the absence of any plan for repayment, the Court held that the money advanced by the parents to their daughter of a large sum of the parent’s retirement savings was a loan.3

[33]              I view the advance from Phyllis in the same light. There were no clear or settled plans as to how and when the money was to be repaid, but it was understood that Mark and Suzanne had a family and moral obligation to pay it back when they could. On the evidence before me, it appears they too understood that obligation.

Conclusion

[34]              On the balance of probabilities, I find that the respondents understood the advance of $80,000 was to be repaid. I consider the $8,000 gift to Mark’s brother, Ian, was paid in recognition of their moral obligation to the family. This supports Angela’s position that all parties understood and accepted Mark and Suzanne had an obligation to repay $80,000.

[35]              On balance, I find the $80,000 was a loan, and should be repaid out of the net proceeds for the sale of the Northland Property, divided among the five children equally, with an adjustment for the $8,000 already paid to Ian. This means that each of the five children effectively receive $16,000 each.

Distribution of settlement monies

[36]The two further issues as to the distribution of the settlement monies are:

(a)whether Angela needs to account to the respondents for the rent received from the Taylors from 2014 to 2020; and

(b)whether the respondents need to account to Angela for not contributing to paying the joint mortgage off from 2011 to 2020.

[37]              In her affidavit in reply, Angela annexed a schedule of rental income received from 2014 to 2020. In the compilation of figures by Angela’s accountant from her

3 At [20].

annual financial statements, a total net surplus figure was reached from the rent received of $34,469, of which Angela’s proportion is $22,979.33 and the respondents’ is $11,489.67. The amounts of tax payable on the surplus of income over the years 2014 to 2019 is detailed as is the service of the BNZ joint bank loan account payments for the period 2014 to 2020. Finally, in the summary of adjustments for the respondents, deductions are taken for unpaid contributions to the joint loan and the respondents’ proportional share of tax payable on the surplus, leaving a net share of income to the respondents of $1,356.89.

[38]              Ms Pascoe submits that Angela’s management of the Northland Property was unsatisfactory, and the documentation provided by Angela confirms the intermingling of her own personal income and tax details with the Northland Property. This, the respondents say, has made it a difficult and onerous task to properly account for finances and determine the appropriate distribution of settlement funds.

[39]              Ms Pascoe was also critical of Angela’s schedule. She submits that it contains anomalies and deficiencies and points specifically to two matters that she submits should be adjusted in the respondents’ favour. The first is that the net surplus figure inappropriately accounts for interest payments on Angela’s personal loan, which have been deducted from the net surplus figures. If the interest payments on Angela’s loan from 2014 to 2020, totalling $14,901.27, are added to the net surplus figure, the more accurate net surplus total is $49,370.

[40]              The second matter is that the net surplus figure fails to account for the principal deductions on the joint mortgage during the rental period, which totals $21,247.46. Thus, the respondents contend that the appropriate net surplus figure is $28,122.54. If that is upheld, this would result in a one third payment to the respondents in the sum of $9,374.18 and $18,748.36 to Angela, of which she has already received the sum of

$14,901 paid on interest on her personal loan.

[41]              Among the other discrepancies highlighted by Ms Pascoe, the respondents do not accept that they should pay a third share in respect of the tax payable on the surplus income, as that figure includes Angela’s personal income as opposed to the rental income only.

[42]              Ms Pascoe acknowledged that the true situation relating to the financial position would not be certain unless a forensic accounting audit is undertaken. In the circumstances, that would be both a waste of considerable time and expense. The respondents’ seek a payment from Angela, out of the sale proceeds, of $10,000, which they say would compensate them for the proper share entitlement they would be due if the calculations were conducted appropriately.

[43]              In response, it was not accepted by Angela that the tax figure in the schedule includes her personal income, as the financial statements record the specific PAYE and resident withholding tax deductions that have already been made from Angela’s salaried wages and accrued interest. Ms Smith also rejected the claim that Angela had used the rental payment to pay off the interest on her personal loan. Ms Smith points to the fact that Angela is the majority owner and there is no reason why she could not commit her two thirds share to both the joint loan and her personal loan, because both had to be serviced in order to maintain the Northland Property.

[44]              It is unfortunate that such minimal sums occupy this Court, with all its attendant expense. As I advised to the parties, I cannot resolve this dispute with any precision, because of the absence of evidence of audit or forensic accounting. From the arguments presented to me and from the figures in the schedule, I am not satisfied that the payments on Angela’s loan from 2014 to 2020 were not deducted from the net surplus total, when those personal interest payments should have been paid out of Angela’s proportional share of the surplus.

[45]              Having checked the calculations completed by Ms Pascoe and taken into account her other submissions, I have reached the conclusion that the fair and equitable distribution should be that Mark and Suzanne should receive the sum of $9,374.18 as their proportional share of the surplus.

[46]              Of the other matters raised by Ms Pascoe, I make no further order as to compensation, given that the respondents have taken no interest in the Northland Property and have made no financial contribution to the payment of the joint mortgage since 2011. It follows that I do not consider Mark and Suzanne need to account to Angela for not contributing to paying the joint mortgage. They paid all the joint

mortgage payments and outgoings from 2006 to 2011 and Angela had sole occupation of the Northland Property from 2011 to 2014, when she then tenanted it. No compensation is owed to Angela by the respondents.

Orders and directions

[47]I make the following declarations, orders and directions:

(a)The sum of $80,000, paid by Phyllis Beenen to the respondents, was a loan and is to be taken into account in the distribution of the proceeds of sale of the Northland Property. The respondents, from their one third share, shall pay:

(i)$16,000 to the executors of the estate of Laurie James Beenen;

(ii)$16,000 to the executors of the estate of Marion Janice Beenen;

(iii)$16,000 to the applicant; and

(iv)$8,000 to Ian Beenen.

(b)The following payments are to be deducted from the proceeds of sale of the Northland Property on settlement:

(i)the costs of sale and conveyancing; and

(ii)the repayment of the joint BNZ bank loan.

(c)The following payments are to be made from the applicant’s two thirds share as follows:

(i)repayment of her personal BNZ bank loan;

(ii)payment of all outstanding rates and penalties on the Northland Property as at the date of settlement of the Property;

(iii)payment of the tax on the rental income in accordance with the tax summaries;

(iv)payment to the respondents of the sum of $9,374.18; and

(v)payment of any liabilities or outgoings incurred during the applicant’s occupancy of the Northland Property and the third- party tenancy.

(d)Following settlement and the payments as outlined above in these orders, the balance of the proceeds in the parties’ respective proportional shares may be distributed to the parties accordingly.

Costs

[48]               In the absence of reaching agreement, Counsel are to file memoranda of no longer than five pages to address the question of costs, with the applicant to file a memorandum within 20 working days of this judgment and the respondent to file a further 10 working days from the date of receipt of the applicant’s memorandum.

Cull J

Solicitors:

Tailored Legal Solutions Ltd, Dargaville for the applicant Nicholsons Lawyers, New Plymouth for the respondents