Brown v Brown
[2017] NZHC 350
•2 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2518 [2017] NZHC 350
BETWEEN RAYMOND WILLIAM BROWN
First Plaintiff
RONALD TERENCE BROWN Second Plaintiff
AND
RONA TERESA BROWN First Defendant
SANDRINE ANDERSON trading as
SANDI ANDERSON Second Defendant
Hearing: 2 March 2017 Appearances:
No appearance for the First Plaintiff A Gilchrist for the Second Plaintiff M C Kilham for the First Defendant
No appearance for the Second Defendant
Judgment:
2 March 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Malcolm Mounsey Clarke (Thomas Mounsey), Taupo, for the First Plaintiff
Kiely Thompson Caisley (Peter Kiely), Auckland, for the Second Plaintiff
Anderson Creagh Lai Ltd (Michelle C Kilham), Auckland, for the First DefendantMorgan Coakle (Briar R Webster) Auckland, for the Second Defendant
Counsel:
D M O’Neill, Hamilton, for the First Plaintiff
Andrew R Gilchrist, Barrister, Auckland, for the Second Plaintiff
BROWN v BROWN [2017] NZHC 350 [2 March 2017]
[1] Teresa Brown, the first defendant, applies for security for costs against Ron Brown, the second plaintiff, her father. She does not apply for security for costs against Ray Brown, the first plaintiff, her uncle. Mr Ron Brown’s proceeding arises out of an agreement for sale and purchase made in August 2013 under which he agreed to sell his half-share in a property at 5 Rawene Avenue, Westmere, Auckland, to Teresa. At the same time, Ray entered into a similar agreement under which he sold his half-share in the property to Teresa. Ray and Ron sue Teresa separately, but in the same proceeding. They allege a range of causes of action but their essential case is that Teresa owns the property at Rawene Avenue on their behalf, and they seek orders for the property to be transferred back to them. Their claims are distinct. They have separate statements of claim, distinct causes of action and separate representation.
[2] Ray and Ron inherited their mother’s property at 5 Rawene Avenue in 1999. They took it as tenants in common in equal shares. Ray lived in Turangi. Ron lived in the Westmere property. In 2008, Ron faced criminal charges, specifically for serious drug offending. In October 2010, he pleaded guilty to importing, possessing and supplying drugs, using a false passport and money laundering. He was sentenced to 11 years’ imprisonment.
[3] In 2008, the Crown began a proceeding under the Proceeds of Crime Act
1991. It came on for hearing in 2011.1 By then Ron had been sentenced. The Crown assessed the profits that Ron had made from his offending at some $4.5 million. It sought forfeiture and pecuniary penalty orders under s 25 of the Proceeds of Crime Act. Under that section the court can assess the value of benefits derived and order the offender to pay to the Crown a pecuniary penalty not greater than a penalty amount assessed under s 25(2). Under s 51 the Official Assignee may sell
the defendant’s property to discharge pecuniary penalty orders. Woolford J gave two
1The Proceeds of Crimes Act has been repealed and replaced by the Criminal Proceeds (Recovery) Act 2009. The more recent Act does not apply in this case because the Crown’s proceeding was started in 2008.
decisions: one on 20 June 2011 and the other on 4 August 2011. In the judgment of
20 June 2011 he made forfeiture orders against various assets of Ron Brown.2 The Crown applied for a pecuniary penalty order in respect of the Rawene Avenue property, but Woolford J deferred any decision on that and sought further information and evidence before he dealt with Ron’s interest in the property.
[4] At the second hearing Ron’s counsel submitted that the order sought by the Crown would in effect take away Ron’s interest in the Rawene Avenue property, and Ron would be destitute when released from prison. He would have nothing, and would have to rely on his family and the State. There was a submission that the home had real spiritual significance for the wider family because it was bought by his parents over 40 years ago. Other mitigating factors were also advanced.
[5] In his judgment of 4 August 2011, Woolford J acknowledged that he had a discretion under s 25 of the Proceeds of Crime Act to order payment of a lesser sum than the benefit received.3 But he said that in the circumstances of drug offending, the starting point must be that the pecuniary penalty should be fixed at a level to take away the respondent’s share in the property.4 He held that making a pecuniary penalty order at a level to take away the respondent’s share of the property would not be disproportionately severe treatment under s 9 of the New Zealand Bill of Rights Act 1990.5 He regarded it as a proportionate response to the significant benefits Ron had received from his drug dealing. He also found that the fact that Ron may be released from prison destitute and reliant on his family and the state was not persuasive. He said:6
In conclusion, I have taken the view that there are no compelling reasons why the pecuniary penalty amount ordered by the Court should be less than the respondent’s share in the property. Even at this level there is still a significant shortfall between the benefits received by the respondent and the sum to be realised by the Crown from the sale of the forfeited cars and jewellery, the forfeited cash, and the pecuniary penalty order.
2 Solicitor-General v Brown (No 1) HC Auckland CIV-2008-404-006760, 20 June 2011.
3 Solicitor-General v Brown (No 2) HC Auckland CIV-2008-404-006760, 4 August 2011, at [16].
4 At [16].
5 At [19].
6 At [21].
He was not persuaded that he should depart from the starting-point that the pecuniary penalty order should at least equate to Ron’s share in the property. He made these orders:7
(a) The respondent is to pay a pecuniary penalty order of a sum
equivalent to the respondent’s half-share in the property situated at
5 Rawene Avenue, Westmere.
(b) The respondent’s half-share in the property situated at 5 Rawene Avenue, Westmere, is to be made available to meet the pecuniary penalty order.
(c) The Official Assignee is to sell the property situated at 5 Rawene Avenue, Westmere, in satisfaction of the pecuniary penalty order subject to a condition that the Brown family be given the right to purchase the respondent’s half-share in the property by paying the sum of $600,000 to the Official Assignee (being approximately half the value of the property less the mortgage and real estate agent’s commission).
(d) The Official Assignee is to pay the Crown a sum equivalent to the respondent’s half-share in the property situated at 5 Rawene Avenue, Westmere, after deduction of the mortgage and real estate agent’s commission, with the remainder to be paid to the respondent’s brother or, alternatively, pay the Crown the sum of $600,000 received from the Brown family as payment for the respondent’s half-share in the property.
[6] A copy of the certificate of title shows that a statutory land charge under s 55
of the Proceeds of Crime Act was registered shortly after Woolford J’s decision.
[7] Teresa took up the option provided by Woolford J to buy her father’s interest in the property. It took time to arrange the sale. It did not take place until August
2013. Ron Brown was still serving his sentence of imprisonment. To be able to pay the $600,000 under Woolford J’s judgment, Teresa needed to raise a loan. Her father’s half-share in the property would not ordinarily be adequate security. As a result, her uncle Ray also agreed to sell his interest in the property to her. That resulted in two written agreements for sale and purchase of the property. The second defendant, Sandi Anderson, is the lawyer who acted for Teresa on both agreements.
Ron does not sue her.
7 Solicitor-General v Brown (No 2), above n 3, at [22].
[8] The agreement under which Teresa bought her father’s interest in the property is in evidence. Ron is the vendor, Teresa is the purchaser, and the asset sold is his one-half share of 5 Rawene Avenue. The agreement provides that it is interdependent with the agreement under which Ray sold his half-share to Teresa.
[9] The agreement has this special condition:
Purchase price
The purchase price of the one half share has been determined by agreement between the parties. The consideration payable by the purchaser shall be deemed to be paid by her assuming responsibility for the release of the statutory land charge 8853413.1 registered on the title pursuant to s 55 of the Proceeds of Crime Act 1991 which sum has been agreed as $600,000.
[10] The parties used the Auckland District Law Society form. Apart from the terms as to the interdependent agreements and the purchase price, there are no other special terms. Ron says that he signed the agreement in prison and he did not have legal advice. There is nothing in the agreement that provides that Ron is to retain any interest in the property, and there is no buy-back arrangement under which Teresa was to convey the property back to Ron.
[11] The agreement with Ray is not in evidence. Ray’s statement of claim pleads that the sale was for $600,000, and that Teresa gave him a deed of acknowledgment of debt, under which she undertook to pay him $600,000 on demand.
[12] Both Ray and Ron say that when they agreed to sell their respective interests in the property to Teresa, there was an understanding that, when asked, she would transfer the property back to them. Teresa denies this and points out that she has occupied the property since August 2013 and has paid the mortgage, rates, insurance and other outgoings on the property ever since.
[13] Before this proceeding Ray and Ron lodged caveats against the title. Initially, Ray began the proceeding as the only plaintiff. At a case management conference in July 2016 Associate Judge Sargisson noted that both Ray and Ron had separately lodged caveats against the title. She considered it appropriate that Ron be informed of the proceeding and be given the opportunity to be joined as a plaintiff as
well. Ron was served in prison, apparently shortly before he was released. The application for security for costs was made very shortly after he took steps in the proceeding.
[14] Ron pleads a number of causes of action against Teresa: resulting trust, constructive trust, equitable estoppel, unjust enrichment, agency, breach of fiduciary duty, undue influence, deceit and negligent misstatement. All causes of action, including those in tort, seek orders for Teresa to transfer the property back to Ron. A factor that Ron strongly relies on is that between Woolford J’s judgment in August
2011 and the sale of the property in August 2013, the Rawene Avenue property rose substantially in value. There is also evidence that it has continued to increase markedly as well. That reflects the buoyant Auckland market. It appears that the value of the property may have doubled since August 2011.
[15] Ron accepts that Teresa has made out the threshold ground under r 5.45(1)(b) of the High Court Rules. He would not be able to pay any order for costs of any significance if he is unsuccessful. Effectively, on release from prison, he had no assets. He receives superannuation but appears to have no other assets of any significance or any other means of support.
[16] The matter turns on the exercise of the discretion. In AS McLachlan Ltd v
MEL Network Ltd the Court of Appeal said (as to the exercise of discretion):8
[13] Rule 60(1)(b) [of the] High Court rules provides that where the Court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if successful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.
I bear in mind also the guidance given by Kós J in his decision in Highgate on
Broadway Ltd v Devine, that it is a serious matter to set security in such a way as to deprive a litigant of access to the court.9
8 AS McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].
9 Highgate on Broadway v Devine [2012] NZHC 2288, [2013] NZAR 1017.
[17] A consideration of the merits is required, even if it is only a matter of impression. Mr Gilchrist submitted that many of the issues were really matters for trial. On the other hand, Ms Kilham submitted that some matters could be readily understood at this stage and would not turn on contested evidence later.
[18] Ron’s case relies on an oral agreement that the property was to be transferred
back to Ray and himself. His evidence on the point is:10
17.The oral agreement that was reached between us was that my daughter would obtain sufficient loan finance to meet the obligation to the Crown and the ANZ Bank, and would thereafter either reside in the property without further payment, other than meeting rates and normal outgoings, or would let the property out to third parties, and use the rental proceeds to meet the loan obligations. It was agreed that, at a future date, being no later than the time when I was released from prison, that the property would then be transferred back to the First and Second Plaintiffs.
18.The agreement was that when the property was transferred back to myself and my brother, such was to be transferred back to us as tenants in equal shares, subject to both of us assuming a liability of $40,000 each (being the amount of the original ANZ bank loan), and subject to me assuming an additional liability of
$600,000.
19.At no time did I sell my half-interest in the property to my daughter. She holds the property on Trust for me and my brother, subject to my obligations in respect of my share of the ANZ borrowing, and the statutory land charge.
20.All of these discussions took place whilst I was an inmate at Springhill Correctional Facility. I was informed by my daughter that I would be receiving papers to implement the agreement that had been reached, and I needed to sign the papers quickly due to the imminence of a sale by the Crown.
[19] I note again that the agreement for sale and purchase does not refer to any arrangement of the sort described in his evidence. While discovery has been carried out, there is apparently no written record of any arrangements described by Ron. Ron has not included in his causes of action a claim under a contract or any claim under an express trust. If he were to make any such claims he would need to have
documentary support for that.11 He has instead chosen causes of action which circumvent these formal requirements.
[20] Ms Kilham submits that there is a lack of merit to Ron’s claim on two principal grounds. First she says that all causes of action must fail because they rely on Ron having an interest in the property. Formerly, Ron did have an interest in the property as a registered proprietor, but he conveyed it by signing as vendor and also transferring the property on settlement. The effect of the order of Woolford J was that any interest Ron had was subject to the pecuniary penalty order which was formulated so as to use up Ron’s entire interest. If the property were not to be sold to a member of the Brown family, Ron’s interest would be sold by the Official Assignee and the proceeds would be disbursed so as to ensure that there was nothing for Ron. Ray would have his half-share recognised but anything that would otherwise have gone towards Ron would instead be paid to the Crown.
[21] Second Ms Kilham submits that Ron’s claim must fail because his causes of action purport to seek the intervention of the court in its equitable jurisdiction where Ron does not approach the court with clean hands.
[22] While I understand the submission, I see the matter slightly differently. As I have described, the pecuniary penalty order was formulated to ensure that Ron would not have any interest in the Westmere property. His half-share had to be available to meet the pecuniary penalty order. The provision for the Brown family to buy an interest in the property acceded to Ron’s plea to allow the Brown family to maintain a connection with the property. That was with a view to another member of the Brown family owning the property, not for the property to be restored to Ron.
[23] That means that any arrangement under which Ron was to retain an interest in the property or have it restored to him would run counter to Woolford J’s judgment. His interest was always going to go to the Crown unless it was sold to a member of the family – and a sale to a member of the Brown family meant that Ron would not retain an interest in it. That is what the agreement for sale and purchase of August 2013 provided. Ron is now trying to say that the agreement for sale and
purchase cannot be read as providing what it does, and that there is another underlying purpose to the transaction. The underlying purpose that he is trying to set up would defeat the order of Woolford J.
[24] In general, when property is made over to another person and a resulting trust is claimed, that claim will succeed if the person claiming the trust is asserting some illegal, fraudulent or dishonest purpose. That approach can be seen in decisions such as Gascoigne v Gascoigne,12 Re Emery’s Investments Trusts13 and Tinker v Tinker.14
Those are cases of alleged resulting trusts where the claimant was not allowed to set
up a dishonest purpose to rebut a presumption that a conveyance was intended as a gift. The same approach is available when a claim is made to set aside a concluded transaction supported by consideration. In Gascoigne v Gascoigne a husband had put a lease in his wife’s name to protect it from his creditors. He was not allowed to use this fraudulent purpose to rebut the presumption that he was making a gift to her. In Re Emery’s Investments Trusts a husband had securities registered in his wife’s name to escape paying US tax on the bonds. He was not allowed to rebut the presumption of advancement by saying that his purpose was to defeat a foreign revenue law. In Tinker v Tinker a husband was planning to set up a risky business venture. He bought a house and put it in the name of his wife so that it would not be available to creditors if his business failed. When the marriage failed and he sought directions that he was the owner of the house, he was unsuccessful. He was not allowed to rebut the presumption of advancement by saying that he did it to defeat
creditors. Lord Denning MR said:15
… I am quite clear that the husband cannot have it both ways. So he is on the horns of a dilemma. He cannot say that the house is his own and, at one and the same time, say that it is his wife’s. As against his wife, he wants to say that it belongs to him. As against his creditors, that it belongs to her. That simply will not do. Either it was conveyed to her for her own use absolutely: or it was conveyed to her as trustee for her husband. It must be one or other. The presumption is that it was conveyed to her for her own use: and he does not rebut that presumption by saying that he only did it to defeat his creditors. I think it belongs to her.
12 Gascoigne v Gascoigne [1918] 1 KB 223.
13 Re Emery’s Investments Trusts [1959] Ch 410.
14 Tinker v Tinker [1970] P 136 (CA).
15 Tinker v Tinker, above n 14, at 334.
[25] In a similar way, Mr Brown sold his interest in the Rawene Avenue property to his daughter for her to own. He did that in compliance with Woolford J’s judgment. It cannot be open to him to say that he did not really intend to sell it to her and it was always meant to be his. That would be a dishonest purpose, calculated to evade the effect of Woolford J’s judgment. There was consideration for the transaction. In a transaction where there has been consideration, it must be even harder for Ron to say that the transaction is other than what it in fact was.
[26] Insofar as Ron is relying on arrangements said to defeat the court order, it is illegal and unenforceable under s 6 of the Illegal Contracts Act 1970. Teresa has not pleaded the illegality in her statement of defence, but once the court becomes aware of the illegality it should not condone it. Accordingly, it seems to me that Teresa has a quite formidable argument that when Ron sold the property to her the transaction had that effect. It cannot be defeated by the kind of arrangement which Ron now tries to assert.
[27] One factor that Mr Gilchrist has emphasised is that Teresa has done very well out of this transaction. She bought the property at what appears to be a significant under-value, with the added bonus that Ray left money in on his sale. But on the authorities that I have stated, that may not carry much weight. In Gascoigne, Emery and Tinker, the wives in every case did very well out of the transactions. It is to no point that they had contributed little, if anything, to the properties transferred into their names. The increase in value between 2011 and 2013 is likewise irrelevant because, whatever the value of the property, Ron was never to have any interest in it. With that, I assess Ron as having a weak case.
[28] Ron submits that his impecuniosity is attributable to Teresa. Mr Gilchrist accepts that there is some circularity in that argument because the submission relies on Ron’s claim being right – that is, if Teresa would only recognise his claim then he would have some assets, and it is her denial of his claim that makes him impecunious. I do not accept that submission. Ron’s destitution - not just impecuniosity - is a direct result of his criminal offending which led to the forfeiture orders and the pecuniary penalty orders. He was already impoverished before he entered into the agreement with Teresa. She has done nothing to add to his
impecuniosity. If Teresa had not entered into the agreement, the Official Assignee would have sold Ron’s interest in the property under Woolford J’s orders. Ron was already poverty-stricken from the orders made in August 2011.
[29] My view is that Ron has very remote chances of success in this case. Because of that view of the merits I can have proper regard to Teresa’s claim to be protected against a barren order for costs.
[30] At this point, Ray’s claim also requires some consideration. Teresa has not asked for security for costs against Ray. Ray’s case is markedly different from Ron’s. His case is certainly much stronger. Among his causes of action is a claim in debt for the $600,000.00 that he left in. Ms Kilham conceded that Ray is entitled to the $600,000.00 even if Teresa resists the other causes of action, such as resulting trust, constructive trust and breach of fiduciary duty. A very likely outcome is that Ray will obtain relief against Teresa, at least for $600,000.00, and if she continues to resist that cause of action she may have to pay costs. On the other hand, if Ron’s claim continues, she may succeed against him but not receive anything for his having sued her unsuccessfully.
[31] The fact that the two claims are being heard together does create efficiencies. That goes to the amount of security as well. Ms Kilham calculated notional costs for a hearing at $18,955.00. I have done my own calculations which differ slightly from hers. I have calculated the costs right from the commencement of the defence. I have applied some discounting because there will be efficiencies in the two claims being heard together. Even so, I have come to a figure of about $18,000. It is unusual to order security for costs for the entire amount of costs that might be ordered to a successful defendant. Some discounting is standard.
[32] In this case, while I regard Ron’s claim as weak, some discounting is appropriate to give him some chance of raising funds to take part in the hearing. The amount I am going to fix security at nevertheless may be considered stiff on his side and probably inadequate on Teresa’s side. As a balancing exercise, I fix the amount of security for costs at $10,000.00 I give these directions:
(a) The proceeding is not immediately stayed – that is to give Ron the opportunity to raise funds.
(b) The security is to be paid by the close of pleadings date, 12 April
2017.
(c) If the security is not paid by that date, Ron’s claim against Teresa will be stayed and the pre-trial directions that Associate Judge Sargisson gave on 26 January 2017 will not apply to Ron’s claim against Teresa.
(d) Ray will still be entitled to continue with his claim against Teresa.
(e) If Ron pays security after 12 April 2017, the stay will be lifted. In that event new case management directions case will be required.
(f) I reserve leave to apply further.
(g)Ron is to pay Teresa’s costs on the security for costs application, category 2 band B. Counsel should confer and agree costs, but if they cannot agree I reserve leave to file memoranda and I will fix costs on the papers.
………………………............
Associate Judge R M Bell