CA Trustees (Tillemans) Limited v Tillemans
[2024] NZHC 3945
•19 December 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2020-419-000348
[2024] NZHC 3945
UNDER the Property Law Act 2007 IN THE MATTER OF
an application to set aside a disposition of property under s 348 of the Property Law Act 2007
BETWEEN
CA TRUSTEES (TILLEMANS) LIMITED and MICHAEL JOHN TILLEMANS as
trustees of the LEO TILLEMANS FAMILY TRUST
Plaintiffs
AND
SUZANNE MARIEA TILLEMANS and DIPROSE MILLER TRUSTEES 2015
LIMITED as trustees of the TILLEMANS FAMILIE TRUST
First DefendantsGARTH WILLIAM O’BRIEN as executor of the Estate of LEONARDUS
WILHELMUS MARIE TILLEMANS
Second Defendants
Hearing: 25 & 26 November 2024 Appearances:
E R Anderson & S K Poborowski for Plaintiffs R P Sutton for First Defendants
P A Depledge for Second Defendant
Judgment:
19 December 2024
JUDGMENT OF TAHANA J
This judgment was delivered by me on 19 December 2024 at 4.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
CA TRUSTEES (TILLEMANS) LIMITED v TILLEMANS [2024] NZHC 3945 [19 December 2024]
Introduction
[1] The trustees of the Leo Tillemans Family Trust (the Leo Trust) apply under s 348 of the Property Law Act 2007 (the PLA) to set aside the sale of a property by Leo Tillemans (Leo) to his daughter’s family trust, the Tillemans Familie Trust (the Suzanne Trust).
[2] Leo sadly passed away in 2015. Leo is the father of Suzanne Tillemans (Suzanne) and Michael Tillemans (Michael). Michael is now a trustee of the Leo Trust. Leo was also the husband of Judith Tillemans (Judith) who is not the mother of Suzanne and Michael. Prior to his death, Leo, Judith and a corporate trustee were the trustees of the Leo Trust. Given the shared family name, I refer to the parties by their first names.
[3] Leo had cancer and knew that he was dying. He prepared a will dated 5 December 2014 (the Will). The Will records his intention to transfer his property at Tauwhare (the Tauwhare property) to Suzanne and for her to enter a deed of acknowledgement of debt for $1 million. If this occurred, then on his death, he forgave any monies she owed to him. If this had not occurred, then on his death, he transferred the Tauwhare property to her. The Will records that he had done this because he considered that this “equalises the benefit I have given to my son Michael…during my lifetime.” Michael disputes that he received a benefit of this value.
[4] After executing the Will, Leo entered into arrangements with the Suzanne Trust to transfer the Tauwhare Property as follows:
(a)the parties agreed a deed of acknowledgement of debt and agreement to mortgage dated 19 January 2015 (the Deed) pursuant to which Leo advanced $1 million to the Suzanne Trust and forgave $700,000. Payment of the $300,000 was secured by a mortgage over the Tauwhare property; and
(b)the parties agreed a sale and purchase agreement for the Tauwhare property dated 21 January 2015 at a purchase price of $1 million (the SPA).
[5] At the time of the sale, Leo was a trustee and a discretionary beneficiary of the Leo Trust. The financial statements for the Leo Trust recorded a current account deficit owing by Leo. The Leo Trust alleges that by selling the Tauwhare property to the Suzanne Trust, Leo (as a debtor to the Leo Trust) was unable to repay the current account deficit.
[6]The issues I need to determine are therefore:
(a)Was the sale of the Tauwhare property to the Suzanne Trust a disposition to which s 348 of the PLA applies?
(b)If yes, did the sale prejudice the Leo Trust?
(c)If yes, is the Suzanne Trust entitled to any of the protections under s 349 of the PLA?
(d)If no, should the Court exercise its discretion and make orders setting aside the disposition of the Tauwhare property or otherwise requiring the Suzanne Trust to pay compensation?
Background facts
[7] Leo settled the Leo Trust on 22 May 2006. He was a trustee along with his wife, Judith and an independent trustee. The discretionary beneficiaries of the Leo Trust are Leo, Judith, Michael, Suzanne, Michael and Suzanne’s children, and Leo’s great-grandchildren.
[8] Suzanne settled the Suzanne Trust on 12 April 2012. The original trustees were Leo and Sharron Amy Young. The current trustees are Suzanne and her husband, David John King.
[9]On 11 June 2013, Leo purchased the Tauwhare property.
[10] On 14 November 2014, Leo entered into a deed of acknowledgment of deed with the Leo Trust pursuant to which he advanced $130,000 to the Leo Trust (being
the balance of Leo’s share in the home at Morrinsville). On the same day Leo and the Leo Trust entered into a deed of forgiveness of debt pursuant to which Leo forgave the
$130,000 he had advanced to the Leo Trust.
[11] On 5 December 2014, Leo executed the Will recording his wish to leave the majority of his estate to Suzanne as he considered he had provided a substantial benefit to his son, Michael. The Will records that his contact with his son for the last two to three years had been minimal and he considered that the terms of his Will equalised matters between his son and his daughter.
[12] That same day on 5 December 2014, Leo signed a memorandum of wishes indicating that he wished that Judith remains living in the Leo Trust property and that he had left monies in the Leo Trust so that any maintenance required to be completed on the home could be completed and paid for by the Leo Trust. Judith was to pay the rates for the Morrinsville property.
[13] In December 2014, Leo also signed the financial statements for the Leo Trust. Those financial statements record Leo’s current account balance of $528,430 as a current asset. They also record beneficiaries’ current accounts of $108,249 as a current liability.
[14] On 19 January 2015, Leo and the Suzanne Trust entered into the Deed which provided that Leo would advance $1 million for the purpose of assisting the Suzanne Trust to purchase the Tauwhare property. Leo would forgive $700,000 and the
$300,000 would remain owing as a debt payable by the Suzanne Trust to Leo. Interest of 4.5 per cent per month was payable. The Suzanne Trust was to pay $1,200 per month to Leo as loan repayments.
[15] On 21 January 2015, Leo and the Suzanne Trust entered into the SPA for the sale and purchase of the Tauwhare property for $1 million.
[16] On 4 February 2015, the sale of the Tauwhare property settled and the title was transferred to the trustees of the Suzanne Trust.
[17] The financial statements for the Leo Trust for the year ended 31 March 2015 were not signed by Leo. The accountants signed a copy on 10 February 2016. The gift of $130,000 is recorded in the financial statements and the current assets include Leo’s current account of $774,736. The current liabilities include beneficiaries’ current accounts of $115,107.
[18]On 18 November 2015, Leo passed away.
[19] On 17 December 2015, in response to a request from Suzanne, the estate’s solicitor confirmed that the monthly payments (to repay the $300,000) did not need to be made. The Suzanne Trust therefore ceased making those payments.
[20] On 2 March 2020, the estate served a PLA notice on the Suzanne Trust for default on payments for the secured sum to the value of $62,400.
[21] On 16 December 2020, the Estate made a payment of $20,036.59 to the Leo Trust as payment towards Leo’s current account deficit.
[22]On 22 December 2020, Michael was appointed as a trustee of the Leo Trust.
[23]On 23 December 2020, the Leo Trust commenced these proceedings.
Was the transfer of the Tauwhare property a disposition to which s 348 applies?
[24] Section 348(1) of the PLA empowers the Court to set aside the disposition of property if satisfied that the applicant has been prejudiced. The types of dispositions captured by s 348 include a disposition of property by a debtor with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.1 The debtor must be insolvent at the time, or become insolvent as a result, of making the disposition.2
[25] The Leo Trust’s position is that the transfer of the Tauwhare Property to the Suzanne Trust was made without receiving reasonably equivalent value in exchange.
1 Property Law Act 2007, s 346(1).
2 Section 346(2)(a).
Counsel for the Leo Trust argued that Leo owed the current account deficit to the Leo Trust and that he was either insolvent at the time of the sale or became insolvent as a result of the sale.
[26] It is therefore relevant to determine Leo’s financial position as at the time of the transfer in January 2015.
[27] On 18 December 2014, Leo signed his financial statements for the period ending 31 March 2014. Those financial statements record, as a current liability, a current account deficit owed to the Leo Trust of $528,430. The financial statements also record current assets of $108,249 (being Leo’s current account balance owed by the Leo Trust). It is unclear why those two amounts were not set off against each other and there is no documentation indicating the terms on which the monies were paid to or from Leo. The financial statements record non-current assets (property) of
$1,138,608. Leo’s capital (assets less liabilities) is recorded as $713,330.
[28] While there are financial statements for Leo for the financial year ending 31 March 2015, they were not signed by Leo. They were prepared after his death.
[29] Based on the 31 March 2014 financial statements, Leo was solvent at the time he entered into the Deed and then the SPA for the sale of the Tauwhare property.
[30] The question is then whether by selling the Tauwhare property, Leo became insolvent? A debtor must be treated as insolvent if the debtor is unable to pay all their debts, as they fall due, from assets other than the property disposed of.3
[31] The only financial statements signed by Leo are those for the 2014 financial year. He would have therefore been aware that he had a current liability to the Leo Trust of $528,430 when he entered into the Deed and SPA.
[32] Leo’s assets after disposal of the Tauwhare property included the loan to the Suzanne Trust ($300,000 plus interest) and the $108,249 recorded as owing from the Leo Trust (total assets being $408,249). If the Leo Trust demanded payment of the
3 Property Law Act 2007, s 345(1)(d).
current account deficit of $528,430, then there would have been a shortfall of $120,181 ($528,430 less $408,249).
[33] Ms Anderson for the trustees argued that the current account balance was immediately repayable in the absence of any terms to the contrary and referred to DFC New Zealand Ltd v McKenzie.4 In DFC, the Court noted that “[i]t has been the law for centuries that if the contract of loan is silent about repayment, the lender’s right to repayment arises at the time the money is advanced and time for limitation purposes commences to run forthwith.”5 There is no deed of acknowledgement of debt between Leo and the Leo Trust. There is no evidence from the accountants for the Leo Trust or the solicitors for the Leo Trust at the relevant time as to the terms of any advances to Leo, or from Leo to the Leo Trust. I accept that Leo was at least aware that his financial statements for the 2014 financial year recorded a current liability of $528,430 to the Leo Trust.
[34]It is relevant that on 14 November 2014, Leo had agreed to gift the Leo Trust
$130,000. Had that gift not occurred, that would have increased Leo’s assets by
$130,000 and he would have had sufficient assets to pay the current liability as at 31 March 2014 of which, he was clearly aware.
[35]I accept however, that based on the 2014 financial statements, by gifting the
$700,000 to the Suzanne Trust for the purposes of enabling the Suzanne Trust to buy the Tauwhare property, Leo became insolvent because his assets were insufficient to meet the current account deficit owing to the Leo Trust.
Did the transfer of the Tauwhare property to the Suzanne Trust prejudice the Leo Trust?
[36] Under s 345, a disposition of property prejudices a creditor if it hinders, delays or defeats the creditor in the exercise of any right of recourse of the creditor in respect of the property.
4 DFC New Zealand Ltd v McKenzie [1993] 2NZLR 576 (HC) [DFC].
5 At 582.
[37] I accept that at the time Leo transferred the Tauwhare property to the Suzanne Trust, this hindered the Leo Trust’s ability to recover the full amount of the current account deficit specified in the 2014 financial statements but only by a shortfall of just over $120,000. I consider that it is relevant that Leo had forgiven debt owed by the Leo Trust in the amount of $130,000. Had that amount been set off against the current account deficit, Leo’s assets after the sale of the Tauwhare property would have exceeded the current account deficit.
[38] It is clear that Leo’s intention was not to defeat the Leo Trust for which he was the settlor, a trustee and a discretionary beneficiary. His intention was to give effect to his testamentary wishes. This is not a case where a debtor is attempting to defeat a creditor’s ability to recover. Had that been the case, there would have been no reason for Leo to forgive money owing to him by the Leo Trust a few months earlier in November 2014. While Leo’s intention is not relevant to whether the Leo Trust was hindered in its ability to recover the current account deficit, I consider this context is relevant when considering whether the Court should exercise its discretion to set aside the disposition of the Tauwhare property. I consider that issue after considering whether the Suzanne Trust is entitled to any protection.
Is the Suzanne Trust entitled to protection under s 349(2) of the PLA?
[39] Under s 349(1)(a), the Court must not make an order against a person who acquired the property for valuable consideration and in good faith without knowledge that the disposition was subject to s 348.
[40] Ms Anderson argued that the protections in s 349 are not available to the Suzanne Trust because of Leo’s knowledge of his current account deficit and referred to Regal Castings Ltd v Lightbody.6 In Regal Castings, Mr Lightbody and his wife had transferred their family home to a family trust in consideration for a debt that was progressively forgiven. At the time, Mr Lightbody had guaranteed borrowings by his business, Capro Three Ltd, owed to its supplier Regal Castings Ltd (Regal). Regal sought to set aside the transfer of the property to the family trust on the basis that it hindered its ability to recover the debt owed by Mr Lightbody under the guarantee.
6 Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 [Regal Castings].
[41] Regal Castings was determined under s 60 of the Property Law Act 1952 where intent to defraud was relevant. The Supreme Court considered the circumstances at the time of the transfer of the property to the family trust. Those circumstances included that the transfer was kept secret from Regal Castings and there was no adequate explanation for the transfer apart from its protection from creditors. Mr Lightbody had guaranteed borrowings from Regal and the home was his only substantial asset. The Supreme Court considered that intent to defraud was the only realistic conclusion to draw from the evidence. The knowledge of Mr Lightbody as a trustee therefore tainted the family trust as the recipient of the property.
[42] The circumstances here are quite different. Leo was a trustee of the Leo Trust. The transaction was not kept secret from the Leo Trust. Further, there is a reasonable explanation for the transfer. It was to give effect to Leo’s testamentary intentions as set out in the Will.
[43] To the extent that the knowledge of the trustees of the Suzanne Trust is to be tainted by Leo’s knowledge of his current account deficit, so is the knowledge of the trustees of the Leo Trust (as creditor) tainted. The Leo Trust (by reason of Leo being a trustee) had knowledge that Leo had a current account deficit exceeding $500,000 and was transferring his sole property such that this would likely impact the ability to recover the deficit. There is no evidence that the Leo Trust had ever taken any steps to recover any current account deficit prior to Leo’s death.
[44] This is not a case where the debtor was seeking to move assets out of the reach of creditors. Here, the transferor (Leo) and debtor was the settlor, trustee and a beneficiary of the creditor. That context is very relevant to whether the Tauwhare property was transferred and/or received in bad faith. Further, as settlor of the Leo Trust, Leo had the power to add or exclude beneficiaries so he could have excluded Michael (and his children) from being beneficiaries of the Leo Trust if he so wished. Leo could also have refused to forgive the $130,000 owed by the Leo Trust if the Leo Trust had demanded repayment of the current account deficit.
[45] Further, the trustees of the Leo Trust could have wound up the Leo Trust, forgiven the current account deficit owed by Leo or treated the current account deficit
as a beneficiary distribution. I accept that this did not occur but the fact that these options were available to Leo and the Leo Trust is relevant when considering whether the Suzanne Trust has acted in good faith. I am satisfied that the Suzanne Trust acted in good faith in the circumstances.
[46] The Tauwhare property was sold for $1 million. The gift of $700,000 was in effect, Suzanne’s inheritance. The Suzanne Trust agreed to repay the $300,000. I accept that there was valuable consideration for the Tauwhare Property.
[47] I consider that it would be unjust to set aside the disposition and ignore this obvious family context and the knowledge of the Leo Trust by reason of Leo being the settlor, a trustee and a beneficiary.
[48] In the alternative to setting aside the sale of the Tauwhare property, the Leo Trust seeks an order that the trustees of the Suzanne Trust pay reasonable compensation to Leo’s estate. The trustees knew that the Suzanne Trust was liable for
$300,000 (plus interest). They had agreed that as soon as they were in a position to, they would arrange their own mortgage finance secured over the Tauwhare property and repay the whole of the debt. Had that occurred, then that amount would have been available to Leo’s estate to repay the Leo Trust if the trustees demanded repayment of the current account deficit (as they have now done). I consider that orders should be made under s 348(2)(b) requiring the Suzanne Trust to pay the estate (as debtor under s 350(2)(b)) the amount owing under the Deed with interest at the rate specified in the Deed. I have set out orders accordingly at the end of this judgment.
Affirmative defence
[49] The Suzanne Trust pleaded as an affirmative defence a breach of trustee duties. At the hearing, Mr Sutton for the Suzanne Trust accepted that this was more in the nature of a counterclaim than an affirmative defence. I do not accept that the pleaded defence is relevant to the application under s 348 of the PLA. It raises issues that are relevant to a counterclaim for breach of trustee duties. No relief is pleaded other than a request for an order that the application against the Suzanne Trust and the estate be struck out. I am not satisfied that the alleged breaches of trust are grounds for striking out the application by the Leo Trust under s 348 of the PLA.
[50] On the evidence before the Court, I decline to make any findings as to the conduct of the trustees. I have already explained above why I consider the context is relevant and important but that does not necessarily give rise to a breach of trustee duties in circumstances where the Leo Trust’s financial statements record a current account deficit and Leo’s financial statements (signed by him in December 2014) record a current liability of the same amount.
[51] Finally, I note that there is a real question as to the conduct of the professional advisers of Leo, his estate and the Leo Trust. This application (and the significant legal and professional fees incurred by the Leo Trust) could likely have been avoided given that Leo was settlor, trustee and a discretionary beneficiary of the Leo Trust as creditor. Leo was also the debtor. This could also have avoided hardship to Judith who appears to have been caught in the middle of a dispute between Suzanne and Michael over their father’s estate. The transfer of the Tauwhare property to the Suzanne Trust only became an issue because of the current account deficit recorded in Leo’s financial statements as a liability and recorded in the Leo Trust’s financial statements as an asset. The accountants have not provided any evidence and there is no loan documentation to corroborate the terms on which monies were advanced. I need not make any findings as to the conduct of the professional advisers as they are not parties to this proceeding and have not had an opportunity to be heard. I do however, acknowledge the unnecessary stress caused to Judith.
Result
[52]For the reasons above, I order that:
(a)the trustees of the Suzanne Trust are to pay to the estate of Leo the amount outstanding under the Deed (including interest calculated in accordance with the Deed) by 28 February 2025;
(b)the trustees of the Suzanne Trust are to continue to pay all amounts owing to the estate of Leo under the Deed until the borrowings are repaid in full;
(c)the estate of Leo is to advance the monies received from the Suzanne Trust to repay the current account deficit as at 31 March 2014 (less any monies owing by the Leo Trust to the estate); and
(d)leave is granted to the parties to apply to the Court for such further orders as are necessary to give effect to the above orders including if necessary to vary the timeframe for repayment under [[52](a)] if finance is required to meet the terms of that order.
Costs
[53] The parties are encouraged to avoid further legal costs by agreeing costs. The Leo Trust has been partially successful in obtaining orders and my preliminary view is that the Leo Trust is entitled to costs on a 2B basis. If costs cannot be agreed, costs memoranda of no more than three pages are to be filed with the Leo Trust filing a costs memorandum by 21 February 2025 and the respondents filing any costs memoranda by 28 February 2025.
Tahana J
Counsel/Solicitors:
Braun Bond & Lomas, Hamilton Swarbricks, Te Awamutu
Garth O’Brien & Associates, Te Awamutu R P Sutton, Hamilton
Riverbank Chambers, Hamilton
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