Cartwright v Joseph

[2018] NZHC 2867

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE

CIV-2016-488-000058

[2018] NZHC 2867

IN THE MATTER

of the Family Protection Act 1955

AND

IN THE MATTER

of the estate of John Boyd Harrison

BETWEEN

CATHERINE DAILE CARTWRIGHT and SARAH BEVERLEY HARRISON

Plaintiffs

AND

NITA WAIRANGI JOSEPH, BARRIE AGAR, BRETT HOGAN and TREVOR

DRAFFIN as trustees and executors of the estate of John Boyd Harrison

Defendants

Hearing:

(On the papers)

Counsel:

Alex McDonald and Courtney Rutledge for the Plaintiffs Johanna Robertson for Nita Joseph

Juliet Golightly for the Executors

Judgment:

6 November 2018

JUDGMENT OF MOORE J

This judgment was delivered by me on 6 November 2018 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar Date:

CARTWRIGHT & ANOR v JOSEPH & ORS [2018] NZHC 2867 [6 November 2018]

Introduction

[1]    On 11 September 2018 I found John Boyd Harrison (known as “Tim”) had breached his moral duty to his daughters Catherine Cartwright (“Cathy”) and Sarah Harrison (“Sarah”), the applicants.1 I indicated an award of about 10 per cent would be sufficient to remedy the breach, noting any percentage based division needed to be flexible to accommodate the practical considerations involved in making an award out of the estate.2

[2]    The main asset in the estate is a large block of land in Pataua South, comprising two sections I referred to in the judgment as “609” and “610”. A number of options for making an award out of the estate were proposed, most of which involved the subdivision and sale of at least one of the blocks. In the judgment, after canvassing the various options, I indicated a preference for “Option C”, which would involve:3

(a)the subdivision of the most valuable part of 609, “S11/1” (where the camping ground run by Tim and his partner Nita Joseph is located), from the remainder of the section; and

(b)the title of the residue of 609 being joined with the title of 610 and sold, with the proceeds going to Cathy and Sarah.

[3]    I did not make final orders at that stage. I had reservations about doing so, as well as hope the parties could resolve the matter themselves, for reasons I expressed in the judgment:4

“However, I am conscious that this course attracted relatively little attention at the hearing. I am also conscious that not having had the opportunity to hear planning evidence, my orders might have unintended and/or unseen consequences. Alternatively, the parties, guided by my findings in this judgment, may agree to proceed with subdivision of the remainder of 609 and 610 before sale in order to maximise their joint returns or indeed some other option not specifically addressed in argument. Given the reasonable and realistic approach taken by Nita, and the lack of avarice on the part of Cathy and Sarah, I am confident that with the benefit of my finding on quantum the

1      Cartwright v Joseph [2018] NZHC 2383.

2 At [36].

3      At [50], [52].

4      At [54]-[55].

parties may well be able to agree on a mutually acceptable course. To their considerable credit, this is not a case of deep seated family division.

For these reasons I have decided not to make final orders at this stage. I intend to grant the parties an opportunity to comment on this proposal before doing so. The parties should not treat the invitation for further submissions to relitigate the breach of moral duty or the share of the estate I have decided Cathy and Sarah are entitled to. Any submissions should be focused on the feasibility of Option C, and/or any other development options they consider are consistent with the views I have expressed in this judgment which would have the effect of releasing or realising funds sufficient to meet the 10 per cent quantum I have determined Cathy and Sarah are each entitled to. If they consider it necessary, the parties may commission a further joint valuation and/or subdivision report on this option or any others they consider necessary to determine the most appropriate mechanism to give effect to my orders as to quantum.”

[4]    There is agreement between the parties that the basic structure of the proposal I made in my judgment should be made final. However, the parties were unable to agree on its exact form. Accordingly, this judgment makes final orders for the award to Cathy and Sarah.

The position of the parties

[5]    The executors and Nita are in agreement; they advise that the costs of subdivision (estimated at $70,000) and the costs of creation of an easement along Mahanga Road (estimated at $10,000) can be met by the estate, particularly if:

(a)Nita defers demand of repayment of the $73,400 loan she made in 1989 to Tim (which she has agreed to do);

(b)the costs of constructing the road required to support the subdivision are deferred until after the 2018-2019 campground summer trading season;

(c)Cathy and Sarah’s 20 per cent contribution I indicated would be appropriate5 is paid to the estate upon receipt of invoices relating to the required advice and works; and

5 At [53].

(d)the costs awarded to Cathy and Sarah are modest, or an order is made that costs lie where they fall.

[6]They also request orders that:

(a)the executors may create an easement servient to NA51D/609 along the northern boundary of NA51D/610 adjacent to Mahanga Road, of sufficient width to host a legal vested road, either before or simultaneously with the subdivision of 609;

(b)the transfer of the amalgamated title of 610 and the remainder of 609 to Cathy and Sarah as tenants in common is sufficient to remedy the breach of moral duty, without the estate itself conducting sale of the amalgamated title; and

(c)leave is reserved to approach the Court for further orders in the event subdivision is impeded for reasons outside the control of the executors, or if unforeseen costs arise.

[7]By contrast, Cathy and Sarah seek the following orders:

(a)judgment be entered in their favour, each in the sum of $380,000, with the estate bearing the burden of making up the shortfall should proceeds of sale fall short of $760,000;

(b)the estate bear the responsibility for financing the amalgamation and sale without further deduction from Cathy and Sarah’s share;

(c)interest run at the rate of five per cent on the judgment sum from the date of judgment; and

(d)the award to be paid in full with interest no later than 1 December 2019.

[8]    The reasons for their difference of opinion are as follows. The executors, with support from Nita, argue sale on the open market will incur additional costs, including

real estate fees and legal fees of transfer. Given the proceeds of sale are to vest in Cathy and Sarah, they are best placed to maximise net proceeds including, if desired, further subdivision of the amalgamated title into six lots.

[9]    Cathy and Sarah meanwhile argue that the award should strike the right balance between the fact the executors are best placed to manage and implement the amalgamation of the title, and the fact that they must be incentivised to realise the best price in a timely manner. Their concern is that if responsibility for subdivision and sale is left with the executors, with the proceeds to be paid to Cathy and Sarah, they have little incentive to sell at a competitive price. However, they maintain the executors should be responsible for sale, because Cathy and Sarah should not bear the risk of the amount awarded being substantially less than contemplated, and because the executors have the best knowledge of the property and existing relationships with local service providers.

Analysis

[10]   The proposal I made in my judgment contemplated that the work undertaken by the estate would include sale of the amalgamated title.6 I referred to estimated costs of $112,000, which relied on the following evidence from the executors:

“Sale of NA51D/610 with residue of NA51D/609:

i.Subdivision costs including creation of road - $70,000

ii.Estimated real estate agent’s commission - $32,500

iii.Legal costs of subdivision, transfer and creation of easement to serve S11/1 – up to $10,000.”

[11]The proceeds of sale would then be paid to Cathy and Sarah.7

[12]   As set out above, none of the parties is attracted to that course. Nita and the executors want the amalgamated title transferred to Cathy and Sarah, along with responsibility for sale. Cathy and Sarah are more amenable to it, although they want an order for a fixed cash award in order to incentivise the executors to maximise the

6 [52].

7 [50](b).

returns of sale. Ms Golightly, counsel for the executors, submits that a fixed cash award is outside the scope of the submissions I called for. I disagree, but for reasons I come to I do not consider a cash award is necessary.

[13]   I remain of the view that the responsibility for sale should reside with the executors. As Ms McDonald submits for Cathy and Sarah, throughout this proceeding the executors have indicated up to $200,000 in lending may be available from the ANZ Bank to effect any award. If necessary, the executors should be able to draw on that lending facility in order to effect subdivision and sale of the amalgamated title.

[14]   However, I do not consider an incentive of the sort proposed by Ms McDonald is required. I accept that the executors have some legitimate concerns about the order Cathy and Sarah propose, in particular the risk it will require sale of the camping ground land.

[15]   More fundamentally, I do not share Cathy and Sarah’s concerns that without a cash award the executors will not have an incentive to maximise the sale price of the amalgamated title. The executors are subject to the duty to act fairly by all the beneficiaries of the estate and a duty to act in the beneficiaries’ best interests, particularly their financial interests.8 Were the executors to act in a way which was not in the best interests of Cathy and Sarah because it favoured Nita or for any other reason, they would be in breach of their duties as executors. In discharging those duties, they should be expected to complete the subdivision and sale of the land in a cost-effective and timely way, without the need for further “incentive”.

[16]   Subject to the foregoing, because (as I indicated in the judgment) the exact amount Cathy and Sarah would be awarded was always contingent on practical considerations, I am not concerned by the possibility the sale of the amalgamated title will result in an award of slightly less than 10 per cent of the estate each. It is equally plausible that the sale will net Cathy and Sarah slightly more than 10 per cent of the estate each. The important point is that, given the estimated value of the amalgamated block, the award will be in the vicinity of 10 per cent per plaintiff.

8      Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [5.3.1].

[17]   Finally, to avoid possible hardship to Nita, I am content to order that the costs of constructing the road required to support the subdivision are deferred until after the 2018-2019 campground summer trading season.

Orders

[18]Accordingly, I make the following orders:

(a)The executors are to arrange for the subdivision of NA51D/609 by separating the S11/1 area from the residue of the title, and amalgamating the residue with title of NA51D/610.

(b)The executors may create an easement servient to NA51D/609 along the northern boundary of NA51D/610 adjacent to Mahanga Road, of sufficient width to host a legal vested road, either before or simultaneously with the subdivision of 609.

(c)The executors are responsible for the sale of the amalgamated title, and are to distribute the proceeds of sale to the plaintiffs, Cathy and Sarah.

(d)The costs of steps (a)-(c) are to be borne as follows: 80 per cent by the estate, and 20 per cent by the plaintiffs. The plaintiffs are to pay their contribution to the estate upon receipt of invoices relating to the required advice and works.

(e)The costs of constructing the road required to support the subdivision, step (b) above, are deferred until after the 2018-2019 campground summer trading season.

(f)Leave is reserved to approach the Court for further orders in the event subdivision and/or sale is impeded for reasons outside the control of the executors, or if unforeseen costs arise.

Costs

[19]   As noted, the executors have asked that the costs awarded to the plaintiffs be modest, or costs lie where they fall, given the expense the estate will be put to in carrying out the Court’s orders. Cathy and Sarah have asked to be heard separately on the issue of costs.

[20]   Given the foregoing, I reserve the question of costs to allow the parties to negotiate and reach agreement, which it is hoped they will be able to do. If agreement cannot be reached on costs the parties are to file submissions within 30 working days of the date of this judgment. Memoranda are not to exceed five pages in length, excluding any invoices attached to the memoranda.

Moore J

Solicitors/Counsel:

Ms McDonald, Auckland Ms Rutledge, Auckland Ms Robertson, Auckland

Marsden Woods Inskip Smith, Whangarei