Emslie v Walker

[2021] NZHC 3230

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2021-441-59

[2021] NZHC 3230

IN THE MATTER OF

an application pursuant to s 143 of the Land Transfer Act 2017 that Caveat 1216093.1 not lapse

BETWEEN

MARIAN FAULKNER EMSLIE

Applicant

AND

IAN MARK WILFRID WALKER

Respondent

Hearing:	4 November 2021
Appearances:	M J Wenley for Applicant J L Bates for Respondent
Judgment:	30 November 2021

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1]    This is an application for an order pursuant to s 143 of the Land Transfer Act 2017 that a caveat lodged by the applicant, Mrs Marian Emslie, against a property registered in the name of the respondent, Mrs Emslie’s son, Mr Ian Walker, not lapse. It arises against the background of a series of tragedies that have beset the family.

[2]    The substantive issue in the case is whether Mr Walker owns the property legally and beneficially, subject to a contractual obligation to pay an amount of

$42,000 calculated to have been his mother’s equity in the property when he purchased it from her, or whether he is a mere legal owner of the property which is beneficially owned by Mrs Emslie.

EMSLIE v WALKER [2021] NZHC 3230 [30 November 2021]

[3]    This being an application for an order sustaining a caveat, it is well settled that Mrs Emslie, as the applicant, needs to demonstrate that she has a reasonably arguable claim to a propriety interest in the property which the law will recognise by way of an institutional trust.1 Because this is a summary procedure, not well suited to the determination of disputed questions of fact, an order sustaining a caveat will only be refused if it is clear that the caveat cannot be maintained.2

[4]    The factual background is not controversial. Mrs Emslie is a widow. She is in her mid 80s. She and her late husband had five children, including Mr Walker. She was a Methodist Church Minister. In January 2004, the Public Trust — which I am assuming was Mrs Emslie’s late husband’s executor and trustee — and Mrs Emslie, purchased a property at 95 Bledisloe Road, Napier.

[5]    In June 2006, Mrs Emslie was convicted on a charge of theft by a person in a special relationship. As I understand the position, she had stolen money from one of her parishioners. The sentence of the Court included an order that she pay reparations reflecting the amount stolen — $90,815.86. Mrs Emslie did not have this money. She asked her children to assist. Only Mr Walker was in a position to do so.

[6]    One firm of solicitors acted for both Mrs Emslie and Mr Walker in relation to the transaction. From the certificate of title to the property and other documentation, the  way  in  which  the  arrangement  was  structured  is  clear.  Mrs  Emslie  sold  95 Bledisloe Road to Mr Walker outright. Her indebtedness secured over the property was repaid. Mr Walker borrowed the funds necessary to purchase the property and that loan was and remains  secured  over  the  property.  It  was  agreed  between  Mrs Emslie and Mr Walker that, as at the date of the transaction, Mrs Emslie’s equity in the property was $42,000, and she and Mr Walker agreed that that would be a debt owed to her by him.

1      See Philpott v Noble Investments Ltd [2015] NZCA 342 at [26], approved in Melco Property Holdings (NZ) 2012 Ltd v Hall [2021] NZCA 184 at [19] and [36].

2      At [26](c).

[7]    The only material differences between the parties’ description of the arrangement concern the beneficial ownership of the property from the date of the transaction and how long the arrangement was to last.

[8]In her principal affidavit Mrs Emslie says:

The basis of this agreement what that I would pay the rates, mortgage, and maintenance on 95 Bledisloe [Road], and would continue to live there upon the basis that Ian was holding the property on trust for me and that it would be transferred back to me once the mortgage was paid.

[9]Mr Walker in his affidavit in reply says:

The arrangement between myself, my mother and David [one of Mrs Emslie’s other children who has lived at the property with her] was that they were each to pay 50% of the Westpac mortgage and David was to pay Napier City Council and Hawkes Bay Regional Council rates. This arrangement was only meant to last for 2 years, as my mother and David were supposed to organise their own refinance within that time.

[10]   Mrs Emslie’s case, then, is that while the arrangement was structured as an absolute sale of the property by her to Mr Walker together with an acknowledgement of debt on Mr Walker’s part in respect of an agreed amount of equity in the property as at the date of the transaction, in fact the formal structure disguised an informal family arrangement pursuant to which she remained the beneficial owner of the property with a right to live in the property for the rest of her life, subject only to meeting the costs of ownership. This would have meant that the transaction was a neutral one from Mr Walker’s point of view, and that all he was doing was lending his creditworthiness to the arrangement.

[11]   Mr Walker’s case is that the formal structure reflected the actual arrangements between the parties so that his mother was selling the property to him and on settlement he became the legal and beneficial owner of the property, but assumed a debt to his mother which was the agreed amount of her equity in the property. In addition, he says that the understanding was that the arrangement would only last for two years to give Mrs Emslie and his brother, David Walker, time to make arrangements to buy the property back from him. I  mention  also  that  there  is  correspondence  in  which Mr Walker says that on a sale of the property, he will account to his mother for the full net proceeds of sale.

[12]Fifteen years have passed since the parties entered into these arrangements.

[13]During that time:

(a)At least three attempts have been made by the parties (and the family) to arrange financing to enable Mrs Emslie (and David Walker) to buy the property back from Mr Walker;

(b)Mr Walker has had not one but two extremely serious road accidents, the first of which left him a paraplegic and the second of which left him a tetraplegic; and

(c)By and large, Mrs Emslie and David Walker have paid the property holding costs. There have been occasions when, for one reason or another, some of these costs have not been paid. This has resulted in the mortgagee, Westpac, demanding payment of the amounts involved from Mr Walker and even going so far as to threaten the commencement of a mortgagee sale. My sense from the correspondence is that there has never been a serious threat of a mortgagee sale, essentially because the amounts involved have not been significant. From the correspondence it would seem that the outstanding amount due under the mortgage as at the date of the most recent threat was $1,644.58. Although this is not entirely clear on the evidence, it would seem that as matters currently stand, all holding costs are up to date.

[14]   In February of this year Mr Walker indicated to his mother and David Walker that he wished to bring the arrangement to an end. He has given more than one reason for this, including referencing Westpac’s threat to move to a mortgagee sale, the threat to his credit rating and his wish to rid himself of the risk involved.

[15]   Mrs Emslie says that as the beneficial owner of the property she is entitled to insist on the arrangement continuing so that she (and David Walker) can live in the property for the rest of her life. While she has not put it in quite these terms in her

affidavit evidence, her case must logically be that the house may only be sold with her agreement or on her death, at which point the net proceeds of sale would go to her or her estate.

[16]   In my judgment, there are serious difficulties with the positions advanced on behalf of both parties in this case.

[17]   In so far as Mrs Emslie’s position is concerned, if indeed the arrangement was as she maintains then, why was it documented in the way that it was, why was it necessary as part of the arrangement to identify the equity and include that by way of an acknowledgement of debt owed to her by Mr Walker, and is it really credible to suggest that Mr Walker would agree to such an arrangement, exposing himself to the risk that this involved for the balance of his mother’s life when he would derive no benefit?

[18]   As to Mr Walker’s position, given the context in which the transaction was entered into, it seems doubtful that the relationship between the parties is simply that of debtor and creditor. It seems open, at least at this stage, to Mrs Emslie to assert that Mr Walker simply assisted his mother when she was in need, temporarily taking on the risk and that once the mortgage had been repaid, Mrs Emslie was to remain the beneficial owner of the property. That relationship may give rise to a relationship in the nature of trustee/beneficiary and an institutional constructive trust which would necessarily focus on the unconscionability of Mr Walker denying Ms Emslie’s interest because of a previous understanding either between the parties or imposed by the law.

[19]   In the end, I see this case as a finely balanced one, and not one in which the substantive issue is realistically capable of being determined on the basis of untested affidavit evidence.

[20]   That leads inexorably to the conclusion that Mrs Emslie’s contention is an arguable one that can only be dealt with at trial where the evidence can be properly tested.

[21]   The Court retains a residual discretion to decline to uphold a caveat notwithstanding that an arguable case has been made out. Mr Bates suggested that there would be no practical benefit to Ms Emslie here by upholding the caveat when Mr Walker accepts that he would be obliged to account to her for the net proceeds of sale. He also pointed to the fact no substantive proceeding has been initiated. Against this is the presumption that once a caveator has established an arguable case, that the caveat is the appropriate means of protecting the caveator’s interests.3 I have found there is an arguable case, but there is in any event a clear need here to uphold the caveat given, amongst other things, the impending sale and purchase of the property to a third party.

[22]   I therefore make an order sustaining Mrs Emslie’s caveat, subject to the following conditions:

(a)Mrs  Emslie  is  to  commence   a   substantive   proceeding   within 20 working days of the date of this judgment and prosecute the same diligently.

(b)Once a statement of defence is entered to that claim, the matter is to be set down for a case management conference at which I would expect the Court to be able to make whatever interlocutory directions are necessary, set the matter down for trial and make all necessary pre-trial directions, so as to bring this matter on for trial as soon as possible.

[23]   Costs are reserved. My preliminary view is that the applicant as the successful party is entitled to an award of scale costs on a 2B basis. If counsel are unable to resolve costs, they may come back by memorandum in the usual way.

Associate Judge Johnston

Solicitors:

Willis Legal, Napier for Applicant Brown and Bates, Napier for Respondent

3      Neil Campbell “Caveats” in DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [10.003(c)].