Clayton v Nothling
[2022] NZHC 387
•8 March 2022
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2021-463-000099
[2022] NZHC 387
IN THE MATTER OF an application to sustain a caveat under the Land Transfer Act 2017 BETWEEN
MARK ARNOLD CLAYTON
Applicant
AND
LYNN ALTHEA NOTHLING
First Respondent
AND
ZAK EDWARD NOTHLING
Second Respondent
Hearing: 16 February 2022 (via VMR) Appearances:
David Hayes for the Applicant
Geoff Jenkin for the First and Second Respondents
Judgment:
8 March 2022
JUDGMENT OF MOORE J
This judgment was delivered me on 8 March 2022 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar / Deputy Registrar Date:
CLAYTON v NOTHLING & ANOR [2022] NZHC 387 [8 March 2022]
Introduction
[1] Mark Clayton applies under s 143 of the Land Transfer Act 2017 for an order that Caveat 12308581.1 (“the Caveat”) not lapse. The Caveat is lodged against a property on Gwendoline Street, Rotorua (“the Gwendoline Street property”). It is currently inhibiting his former de facto partner, Lynn Nothling, from settling a sale and purchase agreement on the property.
[2] Mr Clayton previously applied on a without notice basis for an interim order that the Caveat not lapse. He required the interim order to preserve the position until his substantive application was heard. On 22 December 2021, Associate Judge Sussock made an interim order that the Caveat not lapse until further order of the Court.1 This proceeding concerns Mr Clayton’s substantive application.
[3] The application is opposed by Ms Nothling and her son, Zak Nothling (together “the Nothlings”). They further apply for orders that:
(a)the interim order of Associate Judge Sussock be rescinded;
(b)the Caveat be removed;2 and
(c)Mr Clayton pay costs to the Nothlings.
Factual background
[4] Mark Clayton and Lynn Nothling began their de facto relationship in 2009. At the time Mr Clayton was reshaping New Zealand trust law through relationship property litigation with his former wife.3 He understandably wished to avoid that reoccurring. After settling the litigation with his former wife, and about seven years into their relationship, Mr Clayton and Ms Nothling entered into an agreement under
1 Clayton v Nothling HC Auckland CIV-2021-463-99, 22 December 2021 (Minute of Associate Judge Sussock).
2 This application is brought under s 142 of the Land Transfer Act 2017.
3 See for example Clayton v Clayton [2016] NZSC 30, [2016] 1 NZLR 590; Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551; Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293; and Clayton v Clayton [2013] NZHC 309, [2013] 3 NZLR 236.
s 21 of the Property (Relationships) Act 1976 (the “Contracting Out Agreement”). The Contracting Out Agreement is dated 20 December 2016.
[5] At some point between August 2019 and February 2020,4 Mr Clayton and Ms Nothling’s relationship ended. Ms Nothling continued to occupy the Gwendoline Street property for some time.
[6] At that time the Gwendoline Street property was owned by Mr Clayton, Ms Nothling and the NPT Clayton Nothling Trustee Ltd,5 as trustees of the Clayton Nothling Trust (“the Trust”). On 31 December 2019, however, Mr Clayton was removed as a trustee and a beneficiary of the Trust. He signed a document titled “Deed Recording the Retirement of a Trustee, the Transfer of a Power of Appointment, and the Removal of a Beneficiary of the Clayton Nothling Trust”. The record of title notes that ownership of the land later transferred to Ms Nothling and Mr Nothling on 16 June 2020.
[7] Ms Nothling subsequently entered into an agreement to sell the Gwendoline Street property. Mr Clayton discovered that the property was to be sold. On 22 November 2021, he lodged the Caveat. He claims an interest in the property described by the Caveat as follows:
“The above named caveator [Mark Arnold Clayton] claims a beneficial interest in the land contained in the above RT SA38A/747 as cestui que trust of which the registered owners Lynn Althea Nothling and Zak Edward Nothling are trustees.”
[8] The Caveat has prevented Ms Nothling from settling the agreement for sale and purchase of the Gwendoline Street property. This has understandably caused her significant distress.
Application to rescind the interim order of Associate Judge Sussock
[9] The Nothlings apply for an order rescinding the interim order of Associate Judge Sussock.
4 Ms Nothling says that the relationship ended at the earlier date. Mr Clayton claims that it was the latter. Counsel were agreed nothing hangs on that factual difference.
5 NPT Clayton Nothling Trustee Ltd was an independent trustee company.
[10] Rule 7.23 of the High Court Rules 2016 requires an applicant who makes an application without notice to, among other things, file a memorandum setting out all information known to the applicant that is relevant to the application.6 This includes any known grounds of opposition or defence/s that any other party might rely on, or any facts that would support opposition to the application or defence of the proceeding by any other party.7
[11] Mr Jenkin, for the Nothlings, submits that Mr Clayton failed to provide the Court with relevant information adverse to his application. In particular, he submits that Mr Clayton should have disclosed the Contracting Out Agreement; the deed ratifying that agreement; the Trust deed; and the deed recording his retirement as a trustee, the transfer of his power of appointment to Ms Nothling, and his removal as a beneficiary of the Trust.
[12] There is considerable merit in Mr Jenkin’s argument. For the reasons which will be discussed below, I consider it to be entirely likely that if the Associate Judge had been presented with these documents, she would not have made the interim order. No criticism can properly be made of the Judge for doing so. However, I consider that the non-disclosure was both material, and contrary to the well settled obligations of candour and full disclosure which apply to a party making a without notice application. It is plain to me that the Associate Judge was denied key and relevant information on which to make the interim orders.
[13] However, as I pointed out to counsel in the course of oral argument, my view is that this aspect of the proceeding is moot. That Associate Judge Sussock’s order was intended by her to be interim is explicit in the wording of the order, which states:8
“I make an interim order that the caveat not lapse until further order of the Court.”
6 Rule 7.23(3)(d). This rule applies to with all necessary modifications to proceedings commenced by originating application, pursuant to r 19.10(1)(e).
7 Rule 7.23(3)(d).
8 Clayton v Nothling HC Auckland CIV-2021-463-99, 22 December 2021 (Minute of Associate Judge Sussock) at [5(i)].
[14] In other words, it would endure only for as long as it was not superseded by either an order that the Caveat be sustained or that it be removed. Unless the Caveat otherwise lapsed, such orders could normally only be made following full argument.
[15] Mr Jenkin’s submissions principally focussed on the proposition that the interim order should be rescinded because there was never a proper basis for the Caveat to be on the title in the first place.
[16] However it is expressed, that is the substantive issue which falls to be determined on this application. Either the Caveat will be sustained because the grounds for making the interim order are made out, or the grounds justifying its making will not be made out, with the effect that the interim orders will expire or otherwise cease to have effect on the making of new orders. Whether that consequence is best framed as rescission, lapse, removal, or some other term, is of little practical consequence in my view. I shall thus proceed on that basis.
Legal principles – applications to sustain or remove a caveat
[17] The principles upon which the jurisdiction to remove or extend a caveat is to be exercised are well settled:
(a)The onus is on the caveator to show a reasonably arguable case for the interest claimed.9 If the caveator does not establish a reasonably arguable case, the caveat must be removed or allowed to lapse.10
(b)A caveat must state with sufficient certainty the nature of the estate or interest claimed.11 This includes a beneficial estate or interest in land under an express, implied, resulting or constructive trust.12
9 Sims v Lowe [1988] 1 NZLR 656 (CA) at 660.
10 Bank of New Zealand v McLachlan HC Christchurch CIV 2009-409-2545, 7 December 2009.
11 Land Transfer Act 2017, s 138; and Land Transfer Regulations 2018, sch 2.
12 Section 138(1)(b).
(c)A caveat will be defective where the caveator claims a particular estate or interest but, on a challenge to the validity of the caveat, the caveator is found to have a different estate or interest.13
(d)Disputed facts cannot be determined on applications to remove a caveat.14 To order a caveat to lapse, it must be “patently clear” the caveat cannot be maintained because there was no ground for lodging it at the time it was registered, or because such ground no longer exists.15 Where the parties’ rights depend upon the interpretation of a contract and the factual matrix is not disputed, the Court may be prepared to rule that a particular interpretation is untenable.16
(e)Even if the caveator establishes a caveatable interest, the Court retains a residual discretion to remove the caveat.17 That discretion must be exercised cautiously.18 The Court must be “completely satisfied” that the legitimate interests of the caveator will not be prejudiced.19
[18]I now turn to consider each of the questions which flow from these principles.
Does Mr Clayton have a reasonably arguable case to a caveatable interest in the Gwendoline Street property?
[19] Mr Clayton claims that he has a reasonably arguable case to a caveatable interest, as beneficiary of a trust, in the Gwendoline Street property. Mr Hayes, for Mr Clayton, submits Mr Clayton originally owned the land through a trust structure, and never intended to cede ownership to Ms Nothling. He submits that Mr Clayton’s evidence is that his position as a beneficiary of the original trust (of which Chelmsford Holdings Ltd was initially the trustee, before being replaced by MCRT Trustee Ltd,
13 Hawken Lane Development LP v Property Sales Direct Ltd [2021] NZHC 1410 citing Francis v Taradale West End Ltd (1998) 3 NZ ConvC 192,762 (HC) at 192,766. See also Joy v Roskam HC Hamilton CIV 2003-419-331, 12 June 2003; and Athena Professional Trustees Ltd v Foundation Custodians Ltd (2009) 11 NZCPR 239 (HC).
14 Lindsay v Noble Investments Ltd [2015] NZCA 588 at [12].
15 At [12].
16 At [40].
17 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
18 At 656.
19 At 656.
and finally by Mr Clayton, Ms Nothling and NPT Clayton Nothling Trustee Ltd) has not been altered. Mr Hayes submits that Mr Clayton’s evidence thus supports a reasonably arguable case to the interest stated in the caveat.
[20] Mr Jenkin submits that this cannot be correct. He submits that Mr Clayton, on his own evidence, accepted that the Trust is the owner of the Gwendoline Street property. He submits that Mr Clayton, pursuant to the Contracting Out Agreement, was removed as a beneficiary of that Trust. He therefore submits that Mr Clayton cannot show a reasonably arguable case to the interest stated in the Caveat.
[21] Mr Clayton’s case is solely based on his own affidavit evidence. As Mr Hayes properly and candidly accepted at the hearing, Mr Clayton’s evidence is unsupported by any contemporaneous documentary record. Ms Nothling’s evidence, however, is well supported by such evidence.
[22] The context of the making of the Contracting Out Agreement is important here. The contemporaneous documentary record reveals that Mr Clayton and Ms Nothling contemplated that they would need to deal with their property in the event of a relationship breakdown. The agreement was made seven years into their decade or so long relationship, at a time when it is common ground relations between the couple were cordial and co-operative, and before any animus intruded. It is plain that when read as a whole, the purpose of the agreement was, in the event of separation, to protect Mr Clayton’s assets and make specific provision for Ms Nothling. This is apparent from the terms of the agreement that identify and list an extensive portfolio of valuable assets owned by Mr Clayton which were to remain his separate property. Collectively, their value was very considerable. They included, among other things, his business, a property in Fiji, and apartments in Auckland. It is against that backdrop that the provision made for Ms Nothling in cl 18 needs to be viewed.20
20 I note in this context that the Court is empowered under s 21J of the Property (Relationships) Act 1976 to set aside a contracting out agreement if it is satisfied that giving effect to that agreement would cause serious injustice.
[23] Clause 18 of the Contracting Out Agreement sets out a procedure to deal with the Gwendoline Street property through the establishment of a trust:
“18. Provision for Lynn
18.1Within 30 working days from the date of this agreement Mark and Lynn will settle a trust on the following terms:
(a)The trustees will be Mark, Lynn and an independent trustee. The trust must at all times have at least one independent trustee who is not a beneficiary of the trust.
(b)The beneficiaries of the trust will be Mark, Lynn and Lynn’s son Zach.
(c)Mark and Lynn shall jointly hold the power of appointment and removal of trustees and beneficiaries (“the Power”).
(d)In the event Mark and Lynn separate Mark or Mark dies, Mark or his estate will, within 30 days from the date of separation or death, resign as a trustee and as a beneficiary, and Mark’s interest in the Power shall vest in Lynn as the remaining trustee. On separation or upon Mark’s death Mark and/or any other trust associated with Mark will have no further interest in or any claim against the trust irrespective of any direct or indirect contributions he or any trust associated with him may have made to the trust during the relationship.
(e)In the event Lynn dies before Mark the provision in clause 18.1(d) above shall not apply and Mark shall remain as a trustee and as a beneficiary of the trust.
(“the proposed trust”)
18.2The Mark Clayton Rotorua Trust (“MRCT”) owns a property at 2 Gwendoline Street, Rotorua (‘Gwendoline Street’) which has a rating valuation of $575,000 as at 1 July 2014. The trustee of the MCRT has agreed to transfer Gwendoline Street unencumbered to the proposed trust by way of capital distribution within 30 working days of the date of this agreement and upon settlement of the trust. The trustee of the MCRT has ratified the provisions of this agreement, as confirmed by the deed of ratification annexed at appendix 5.
18.3In the event that Mark and Lynn separate or Mark dies:
(a)Mark or his estate shall, will in 90 days from the date of separation or death gift a lump sum of $300,000 to the proposed trust in order for renovations to be undertaken on Gwendoline Street.
(b)Mark or his estate shall make a lump sum payment to Lynn within 120 days following his death or separation which is equivalent to the present value of an annuity of $40,000 per annum for a period of 15 years (with the $40,000 annuity to
be inflation adjusted from the date of this agreement until the date of separation). The discount rate to be used to calculate the present value of the annuity will be the aggregate of the official cash rate and 1.4%.
(c)In the event Lynn dies before Mark the provisions in clause 18.3(a) and (b) above shall not apply and Mark will not be required to make the payments set out in those clauses.”
(emphasis original)
[24] It is not in dispute that the trust referred to in the Contracting Out Agreement is the Clayton Nothling Trust. The Trust deed congruously provides that:
“8.2 Relationship breakdown:
Immediately on receipt of written notice from a Settlor, given to the Trustees and the other Settlor, that there has been an irreconcilable breakdown of the relationship of the Settlors:
(a)Mark shall be deemed to have retired as a Trustee; and
(b)Mark shall be deemed to have been removed as a Discretionary Beneficiary of the Trust (without prejudice to any benefit to which Mark has become indefeasibly entitled prior to the notice); and
(c)Mark’s power to appoint and remove Trustees pursuant to clause 17.1 (“Mark’s power”) shall vest in Lynn and neither Mark nor any transferee of Mark’s power (whether pursuant to clause 17.2 or otherwise), shall have any right to exercise such power in relation to the Trust.”
[25] It is common ground that the transfer of the Gwendoline Street property provided for in cl 18 occurred. Mr Clayton was party to and co-executed a document titled “Trustee’s Deed of Ratification of Relationship Property (Contracting Out) Agreement”. He and another signed that deed as the directors of MCRT Trustee Ltd, the trustee of MCRT. The deed states that:
“Pursuant to the contracting out agreement Mark and Lynn have agreed to settle a new trust and the Trustee has agreed to transfer Gwendoline Street unencumbered to the new trust to be settled by Mark and Lynn”
[26] The record of title for the Gwendoline Street property records a transfer to the MCRT on 31 March 2016. The subsequent transfer of the property, dated 31 August 2017, is to Mr Clayton, Ms Nothling and NPT Clayton Nothling Trustee Ltd. This is consistent with an agreement for sale and purchase between those parties. It is further
supported by a resolution by the directors of MCRT Trustee Ltd, which describes the transfer as a “capital distribution”.
[27] Mr Clayton deposed, however, that there was never any agreement for the Gwendoline Street property to be actually owned by Ms Nothling. He claims that the agreement was limited to permitting her to reside in the property for as long as she required. He says he further agreed to contribute $300,000 towards renovations of the property and a lump sum payment of $600,000 for Ms Nothling to live on. His intention, he claims, was that at all times the final beneficiaries of the property were to be his grandchildren.
[28]Mr Clayton’s claim is to some extent consistent with the Trust deed. Clause
2.1 defines the “Final Beneficiaries” as “the grandchildren of each Mark and Lynn”. The trustees must therefore act for the benefit of Mr Clayton’s grandchildren, in accordance with the terms of the Trust. But this does not provide Mr Clayton with a caveatable interest.
[29] It is apparent from the plain wording of the documents produced by the Nothlings that Mr Clayton is not presently a beneficiary of the Trust:
(a)cl 18.1(d) of the Contracting Out Agreement provides that in “the event Mark and Lynn separate …, Mark … will, within 30 days from the date of separation … resign as a trustee and as a beneficiary”; and
(b)cl 8.2 of the Trust deed provides that where there has been an “irreconcilable breakdown of the relationship” then “Mark shall be deemed to have been removed as a discretionary beneficiary of the trust”.
[30] These documents are unequivocal – that since separation Mr Clayton has been removed as a beneficiary of the Trust. This, of course, supports Ms Nothling’s case that Mr Clayton is no longer a beneficiary of the Trust that owns the Gwendoline Street property.
[31] Her account is further supported by the broader context behind the Contracting Out Agreement. Clause 18 is fittingly titled “Provision for Lynn”. The clause provides for the Gwendoline Street property to be transferred to the Trust. The clause then describes the procedure by which Mr Clayton agreed to separate himself from the Trust if their relationship ended. The overarching purpose of him doing so is evidently to provide for Ms Nothling. To then claim an interest in the Gwendoline Street property as a beneficiary of a trust is at odds with that intention.
[32] Mr Clayton’s evidence is that in December 2019, Ms Nothling told him that she had been advised that his involvement with the Trust was putting “us”21 at risk of losing the Gwendoline Street property and that he should resign as a trustee and beneficiary. He claims that at the time he was not in a proper mental state and as he had no reason not to trust Ms Nothling, he told her he was happy to go along with what she thought was best to save preserve the Trust’s assets. He said that Ms Nothling told him that if he was off the property title, she could borrow funds to assist in their cashflow and renovate the property for them to live in more comfortably. Thereafter, he claims that after “a lot of pestering and persistence from Ms Nothling” on New Year’s Eve of 2019, he signed the Trust resignation papers prepared by Ms Nothling’s lawyer. He said that normally he would have his lawyers go over such papers and would not sign anything until that had happened. However, given his fraught mental state at the time and the trust he reposed in Ms Nothling, he said he signed them with his mother as a witness. Later, during January and February 2020, he says that Ms Nothling was very insistent that he execute a transfer of the Gwendoline Street property to ensure that he was removed from the title. He said that by that time, he had a feeling that she might not be acting in his or the Trust’s best interests and refused to agree to the transfer. He claims that at all times since the original purchase of the property in 2009, he has been the true owner and at no time in his dealings with the property did he intend that his underlying ownership of the property be lost.
21 Presumably a reference to Mr Clayton and Ms Nothling.
[33] On the material before me, I simply do not accept that account. It is unsupported by any other, independent evidence and is contradicted not only by Ms Nothling’s evidence, but also the contemporaneous documentary record.
[34] On the question of competing factual accounts, Mr Hayes submits that the “overarching principle” is to be found in a decision of this Court in Harrison v Harrison.22 On that authority he submits that the summary procedure for the removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. I accept that is a correct statement of general principle. However, it is not an immutable concept. I am satisfied it does not apply in this case where one of the accounts is simply untenable when considered against the whole of the available evidence. It does not apply where, as in this case, the caveator’s account is inconsistent with the undisputed documentary record and the broader context of how and why the Contracting Out Agreement came into existence. Mr Clayton received legal advice concerning the Contracting Out Agreement. He must be aware of the plain meaning of its terms, and particularly how cl 18 directly contradicts his evidence purporting to explain his removal from the Trust. It is always open to the Court to decide that one party’s interpretation of the law or facts is untenable.23 That is the case here.
[35] Furthermore, it is for Mr Clayton, as the caveator, to satisfy me that he has an interest in the land sufficient to support a caveat. On the material before me, he has fallen well short of meeting that onus to the necessary evidential standard. The overwhelming preponderance of evidence points the other way.
[36] For those reasons, I am not satisfied that Mr Clayton has a reasonably arguable case that he has a caveatable interest in the Gwendoline Street property and therefore, the application to remove the caveat must be granted.
Result
[37]The Nothlings’ application that Caveat 12308581.1 be removed is granted.
22 Harrison v Harrison [2016] NZHC 574 at [18].
23 Lindsay v Noble Investments Limited [2015] NZCA 588.
[38]For the avoidance of doubt, the interim order is now of no legal effect.
Costs
[39] The Nothlings, as the successful parties, are entitled to costs. Mr Jenkin advised that in the event of success they would seek costs. My preliminary view is that the Nothlings are entitled to costs on 2B scale basis. I encourage the parties to confer and reach agreement as to costs. If the parties are unable to reach agreement, leave is reserved to file memoranda. No memorandum is to exceed three pages (exclusive of tables or appendices). I make the following timetabling directions:
(a)any memorandum of the Nothlings is to be filed and served no later than 5:00 pm on Friday, 1 April 2022;
(b)any memorandum by Mr Clayton is to filed and served no later than
5:00pm on Thursday, 14 April 2022; and
(c)any reply memorandum is to be filed and served no later than 5:00 pm on Tuesday, 19 April 2022.
Moore J
Solicitors:
Mr Hayes, Taupo Mr Jenkin, Auckland
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