Fitzgerald v Smith
[2024] NZHC 951
•26 April 2024
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2024-454-17
[2024] NZHC 951
UNDER the Property Law Act 2007 IN THE MATTER
of an application under sections 339 and 343
BETWEEN
HANNAH ROSE FITZGERALD AND DAVID CHARLES NEWELL
Applicants
AND
TERENCE JOHN SMITH
Respondent
Hearing: 24 April 2024 Appearances:
G L Duncan for Applicants
T J Smith self-represented Respondent (by AVL)
Judgment:
26 April 2024
JUDGMENT OF McHERRON J
Introduction
[1] A half share in a fire-damaged house property in Sanson is the main asset of the estate of Kathleen (Kathy) Fitzgerald, who died in January 2022.
[2] The other half share in the property is owned by the respondent, Terence (Terry) Smith, Kathy’s widower.
[3] The executors of Kathy’s estate, Hannah Fitzgerald and David Newell (the applicants), apply for orders:
(a)for the sale of the property; and
FITZGERALD v SMITH [2024] NZHC 951 [26 April 2024]
(b)to use the proceeds to discharge the mortgage, clear the land of debris, pay valuation/real estate fees; and then to
(c)hold the remainder on trust.
[4] I allow the application, and make the orders sought, with modifications, as set out at [36], for the following reasons.
Background
[5] Kathy and Terry purchased the property as joint tenants in 2010. They lived there together until Kathy’s death.1 Hannah, who is Kathy’s daughter and Terry’s step- daughter, also lived there until 2014. After Kathy’s death, Terry continued living there until 10 October 2023.
[6] Kathy’s health issues prompted her to rearrange her property affairs in 2018. She instructed her lawyer that she wished to leave her half share in the property to Hannah. The lawyer arranged for the joint tenancy over the property to be severed. Kathy’s will dated 10 August 2018, which was probated on 7 June 2022, reflects Kathy’s wishes. The will provides that Hannah is the sole beneficiary of the estate.
[7] Kathy also wished to provide for Terry after her death. The will records that Kathy made no provision for Terry because he would receive the proceeds of her life insurance “which will more than equate to the amount that I have left to my daughter.” Mr Newell deposes that Terry has received $143,218 in proceeds from Kathy’s life insurance.
[8] However, Terry is seeking a share of the estate in a separate Family Protection Act 1955 (FPA) proceeding, claiming that Kathy failed to provide for his proper maintenance and support.2
1 In this judgment, I use first names for the family members for ease of reference and to avoid any confusion in relation to those who share surnames.
2 I have no further information about this proceeding. Ms Duncan advised that a judicial conference is scheduled for the week of 29 April 2024.
[9] The house caught fire on 10 October 2023, the same morning that a judicial settlement conference was scheduled to occur in the FPA claim. It is alleged that the fire was deliberately lit.3
The application
[10] The applicants seek orders that the property be sold and that the proceeds of sale be applied in the following order:
(a)all debts in respect of the property including the mortgage in favour of the Cooperative Bank to be fully and finally paid and discharged;
(b)payment of fees and costs associated with the sale of the property, including clearing the land of debris, and any valuation/real estate fees; and
(c)the remainder (the net proceeds) to be held on trust in the applicants’ solicitor’s trust account pending final determination of Terry’s FPA claim.
[11]The applicants seek these orders on the following grounds:
(a)The property has been significantly devalued as a result of Terry’s alleged actions and will continue to devalue as the Cooperative Bank loan falls deeper into arrears.
(b)The estate is not in a position to repay the loan, as Kathy’s share of the property is the main and only substantial asset in the estate. Terry’s FPA proceedings prevent the applicants from freely dealing with Kathy’s share of the property.
(c)It is unclear how long it will take before the FPA claim is finally determined, especially given Terry is currently in custody and is no
3 A matter I understand is currently before the District Court.
longer engaging with his lawyer in that proceeding, resulting in that lawyer seeking an order from the Family Court declaring that he is no longer acting for Terry.
(d)Hardship that would be caused to the applicants by the refusal of the order has potential to be significant, and far greater than any hardship which may be caused to the respondent by the making of the order given, the applicants say, the property is currently uninhabitable.
(e)As Terry is in custody and given the history to this matter, involving considerable animosity between the parties, it is not feasible for the applicants to obtain Terry’s consent to the sale of the property. Even if it were feasible, it would certainly not be given.
Terry’s response
[12] In written submissions filed before the hearing, Terry described the application as frivolous and vexatious. He referred to an offer he had made to resolve the matter if charges were dropped against him in respect of the fire, in return for which Terry said that he would be prepared to forego his interest in the entire property. In his written submission, Terry said that if the Court wished to proceed with the application he sought time to obtain counsel and fully respond to the documentation served.
[13] However, at the hearing, Terry indicated that his attempts to obtain counsel from within prison had been unsuccessful. Terry indicated he was willing to proceed with the hearing as a self-represented litigant in order to get the matter resolved.
Terry’s capacity
[14] During the hearing, I asked Terry whether he understood the nature of the current application and the possible outcome as sought by the applicants. By his responses, Terry appeared to have a full grasp of the nature of the application and what is being sought by the applicants. Although it has been indicated in materials filed in support of the application that Terry has been subject to an order under the Mental
Health (Compulsory Assessment and Treatment) Act 1992, he confirmed in the hearing that he was not currently under any order under that Act.
[15] I start from the presumption that Terry is competent. I then consider whether he is able to understand the nature of the litigation to which he must respond, its possible outcomes and the risks associated with it.4 If the answer to these questions is “no”, the presumption is that the litigant must be represented by a litigation guardian unless the Court orders otherwise.
[16] From my consideration of the material filed by Terry, and his lucid and cogent submissions and responses to my questions in the hearing, I formed the view that he is able to understand the nature of the current litigation, and the possible outcomes and risks associated with it.
[17] Accordingly, I am satisfied that Terry is capable of representing himself in this proceeding and that it is not necessary to appoint a litigation guardian for him. I indicated that was my conclusion in the hearing. Terry did not raise any objection. Nor did he seek additional time to attempt to obtain counsel.
Terry’s affidavit
[18]Terry filed an affidavit, sworn by him on 9 April 2024. In the affidavit, Terry:
(a)takes issue with a number of portions of Mr Newell’s affidavit filed in support of the application;
(b)deposes that he paid for Kathy’s funeral expenses and a number of outstanding bills amounting to approximately $3,500. Terry says that he had advised the applicants’ lawyers that these funds were to be used to cover mortgage arrears but there was no engagement with this proposal;
(c)asserts that it is still feasible for him to live on the property;
4 Erwood v Maxted [2008] NZCA 139 at [26].
(d)objects to Mr Newell’s involvement in any demolition of the structures on the property; and
(e)emphasises his view that the present application is a frivolous, vexatious waste of the Court’s time and should be struck out.
[19] At the hearing, Terry emphasised that he intends to reside at the property once he is released from custody. He also expressed concerns about some of his possessions which he believes have gone missing from the property. When I asked Terry about what he proposed to do to facilitate the payment of money owed to the Cooperative Bank, he said that he intended to find employment for that purpose.
[20] Terry made it clear that he had never opposed the application. Indeed, he indicated that he understood an outcome in favour of the applicants to be inevitable. However, he questioned its fairness.
Applicable law
[21]Section 339 of the Property Law Act 2007 provides:
339 Court may order division of property
(1)A court may make, in respect of property owned by co-owners, an order—
(a) for the sale of the property and the division of the proceeds among the co-owners; or
(b) for the division of the property in kind among the co-owners; or
(c) requiring 1 or more co-owners to purchase the share in the property of 1 or more other co-owners at a fair and reasonable price.
(2)An order under subsection (1) (and any related order under subsection (4)) may be made—
(a) despite anything to the contrary in the Land Transfer Act 2017; but
(b) only if it does not contravene section 340(1); and
(c) only on an application made and served in the manner required by or under section 341; and
(d) only after having regard to the matters specified in section 342.
(3)Before determining whether to make an order under this section, the court may order the property to be valued and may direct how the cost of the valuation is to be borne.
(4)A court making an order under subsection (1) may, in addition, make a further order specified in section 343.
(5)Unless the court orders otherwise, every co-owner of the property (whether a party to the proceeding or not) is bound by an order under subsection (1) (and by any related order under subsection (4)).
(6)An order under subsection (1)(b) (and any related order under subsection (4)) may be registered as an instrument under—
(a) the Land Transfer Act 2017; or
(b) the Deeds Registration Act 1908; or
(c) the Crown Minerals Act 1991.
[22] Section 342 then sets out the mandatory relevant considerations for a Court considering whether to make an order under s 339(1):
342 Relevant considerations
A court considering whether to make an order under section 339(1) (and any related order under section 339(4)) must have regard to the following:
(a) the extent of the share in the property of any co-owner by whom, or in respect of whose estate or interest, the application for the order is made:
(b) the nature and location of the property:
(c) the number of other co-owners and the extent of their shares:
(d) the hardship that would be caused to the applicant by the refusal of the order, in comparison with the hardship that would be caused to any other person by the making of the order:
(e) the value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property:
(f) any other matters the court considers relevant.
[23] The Court has a “broad discretion” to order the sale, division or purchase of co-owned property.5 The Court also has the jurisdiction and power to order a co-owner transfer their share to the other co-owner, even though this is not explicit on the face of s 339.6
Assessment
(a)Extent of share in property
[24] The co-owners of the property are the estate and Terry, who each have equal shares. There are no other co-owners. This is a neutral factor in the decision whether to make an order.7
(b)Nature and location of the property
[25] Mr Newell describes the house that is located on the property as a “burnt-out shell”. I accept the applicants’ submission that the house is effectively uninhabitable. It has been extensively damaged by the fire and is substantially destroyed. Mr Newell’s evidence, supported by the annexed photographs, is that the rooms at the rear of the house, namely the kitchen, living room, bathroom, laundry and back porch were burnt down to floor level and that the central hallway and that the front rooms have been gutted. The roof structure is extensively damaged; the rear half of the roof has collapsed.
[26] In the meantime, repayments of the loan advanced by the Cooperative Bank are in arrears. As at 29 December 2023, arrears of $3,139.34 have accrued in respect of a total loan balance of $158,106.94. Neither Hannah nor Terry is in a position currently to pay these arrears. However, Terry says that, when he is released from custody, he will seek employment with the view to resuming mortgage repayments.
[27] No imminent risk of foreclosure by Cooperative Bank is apparent. However, the longer the current situation continues the greater that risk must become. In
5 De La Varis-Woodcock v Thomaes [2017] NZHC 1041, (2017) 18 NZCPR 686 at [8] citing Bayly v Hicks [2011] NZHC 920, (2011) 13 NZCPR 568 at [25].
6 See Minehan v McGuigan [2020] NZHC 1686 at [29]–[30], citing Keery v Thomas [2015] NZHC 113, (2015) 16 NZCPRR 117.
7 Whimp v Bigham [2016] NZHC 1261 at [12]; Fuller v Smeets [2013] NZHC 1284 at [15].
addition, accumulating debt and associated overpayment charges are eating away at the net value of the property.
[28]Overall, this is a factor that is in favour of sale.
(c)Number of co-owners and extent of their shares
[29] The estate and Terry own the property in equal shares. Where there is animosity between equal shareholders, as in the present case, equal ownership can result in a deadlock, which is certainly an apt description of what has occurred in the present case.8 This is another factor in favour of sale.
(d)Hardship
[30] I accept that a sale order in the present case may result in hardship to Terry when he is released from custody. He expressed his intention to live on the property (though not in the burnt down house). There is therefore some risk that if the property is sold he will not have a place to live and there will be uncertainty about his future living arrangements.
[31] However, there are also clear, ongoing, and long-term hardship ramifications for Hannah if a sale order is not made. The fire damage to the property has likely substantially reduced any benefit the estate’s primary asset can provide her.
[32] Apart from sale of the property potentially jeopardising his living arrangements, there is no other material risk of future hardship for Terry if the net proceeds of the sale are held on trust while his FPA claim is dealt with.
[33] Balancing out these respective hardships, I consider that the hardship to Hannah outweighs the hardship to Terry and that this factor supports making a sale order. However, I propose to make it a term of the sale order granted that Terry is not to be prevented from inhabiting the property prior to settlement after any sale.
8 “Deadlock” was also used to describe a similar situation in Wimp v Bigham, above n 7, at [12].
(e)Other relevant considerations
[34] Terry’s submission that he paid for expenses relating to Kathy’s funeral and other bills in the approximately sum of $3,500 ought to be a matter that is included in the proposal for distribution of the money, subject to him being able to prove to the applicants that those expenses were incurred by him. At the hearing, Terry said that he did not have access to relevant receipts. He will need to provide some form of objective verification that those costs were incurred by him. Otherwise, it will not be reasonable to expect the estate to reimburse him.
Conclusion on sale
[35] On the basis of the evidence before me, I conclude that the property should be sold in the manner outlined by the applicants. Otherwise, there is a risk of further delay and decline in value. The parties have historically not been capable of working together to resolve their disputes.9 Nothing emerged in the context of the present proceeding to suggest the acrimony between them has lessened; in fact, the opposite is likely. In these circumstances there is a considerable risk that the value of the property will continue to decline as the mortgage arrears continue to increase, which will ultimately be to the detriment of all parties.
Orders
[36] I am satisfied that the sale order sought by the applicants is appropriate. I direct that the property at 50 Cemetery Road, Sanson (Lot 4 DP398337) be sold under the Registrar’s supervision, with leave to refer to the Court where necessary and that the proceeds of sale be applied in the following order:
(a)All debts in respect of the property, including the loan by the Cooperative Bank be fully and finally paid and the mortgage discharged, with a record of the amount paid to be provided to the Court and to Terry.
9 See, for example, Fitzgerald v Smith [2022] NZHC 405, a dispute between the parties to the present dispute, about the right to possess Kathy’s ashes, which was resolved by the Court in favour of the applicants.
(b)Payment of fees and costs associated with the sale of the property, including clearing the land of debris, and any valuation/real estate fees, with receipts for fees and costs to be provided to the Court and to Terry.
(c)Reimbursement to Terry for any funeral costs and bills associated with Kathy’s estate for which he can provide the applicants adequate verification by 30 June 2024 that he incurred those fees.
(d)2B costs and disbursements for this application, subject to prior approval by the Court.
(e)The remainder (the net proceeds) to be held on trust in the applicants’ solicitor’s trust account pending final determination of the respondent’s Family Protection Act 1955 claim (FAM-2023-054-19).
McHerron J
Solicitors:
BV+A, Palmerston North for Applicants
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