Heeg v Heeg HC Nelson CIV-2011-442-000129
[2011] NZHC 1025
•29 August 2011
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2011-442-000129
UNDER the Land Transfer Act 1952 section 145A
IN THE MATTER OF an Originating Application to Sustain a
Caveat
BETWEEN ULRIKE GABRIELLE HEEG Plaintiff/Applicant
AND CHRISTIAN OTTO ALFRED HEEG Defendant/Respondent
Hearing: 26 August 2011 (by telephone) (Heard at Christchurch)
(Heard at Christchurch)
Appearances: P C Maciaszek for Plaintiff
D J Ballantyne for Defendant
Judgment: 29 August 2011
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to application for stay of execution
The application
[1] Ulrike Heeg and Christian Heeg are mother and son. By judgment in this proceeding dated 19 August 2011, Associate Judge Matthews directed that a caveat registered by Ulrike against a Brightwater property owned by Christian be removed.
[2] Ulrike makes application for an order staying the enforcement of the 19
August 2011 judgment.
[3] Immediately following the judgment of 19 August 2011, Ulrike filed the application. The first ground of application was that an appeal would be
immediately made to the Court of Appeal against the judgment. That appeal was
HEEG V HEEG HC NEL CIV-2011-442-000129 29 August 2011
promptly filed ahead of the hearing of this application. Mr Maciaszek informed me that the Court of Appeal has hearing time available for such an appeal in November.
Ulrike’s substantive claim
[4] In her caveat, Ulrike claimed:
an estate by way of constructive trust whereby the registered proprietor, Christian Otto Alfred Heeg, holds the property on trust for the caveator pursuant to certain payments made by the caveator in 2001 by way of loan advances for the benefit of the registered proprietor which funds have in whole or in part been applied by the registered proprietor in 2005 for the purchase of the above property following the sale of two earlier properties at Princes Drive, Nelson.
[5] A more detailed history of the allegations and counter-allegations is contained in the Associate Judge’s judgment of 19 August 2011. Ulrike’s husband (Christian’s father) died in Germany in 1998. Ulrike was declared his sole heir but under German law both Christian and two other children had statutory and legal entitlements in relation to the estate. By 2000 Ulrike and Christian were considering permanent residence in New Zealand. Two adjoining Nelson properties were purchased by Ulrike and Christian as joint tenants in 2001. In 2003 the properties were transferred to Christian alone. Shortly afterwards he sold them both and purchased the Brightwater property over which the caveat was lodged. The dealings between the parties were added to in the meantime by sales of German properties made by Christian to Ulrike. In their evidence they disagreed as to whether some of their property dealings involved Christian’s surrendering of claims he had in relation to his father’s estate.
[6] Associate Judge Matthews reviewed the conflicting evidence and found Ulrike’s claim of a constructive trust to be inconsistent with the dealings and some of the records of the parties. Ulrike was found not to have an arguable case of an interest under a constructive trust stemming from the initial purchase of the property or from her transfer of her interest to Christian in 2003.
The jurisdiction
[7] Ulrike’s application purported to rely on r 20.10 High Court Rules. That rule,
being in Part 20 of the High Court Rules, applies to appeals to the High Court: see r
20.1. The correct jurisdiction for an order staying execution of a judgment of this
Court pending an appeal to the Court of Appeal is r 12 Court of Appeal (Civil) Rules
2005. Nothing turns on counsel’s erroneous reference to the High Court Rules as the principles applicable, and the authorities relied on in relation to each rule, are similar. In the case of an appeal to the Court of Appeal, r 12(3) Court of Appeal (Civil) Rules empowers this Court to deal with an application of the present kind and this judgment proceeds on that basis.
Stay of execution – the principles
[8] A convenient and up to date summary of the general approach under r 12
Court of Appeal (Civil) Rules is that set out by the authors of McGechan on
Procedure CR 12.01(1) which I adopt –
Principles
(1) General approach
(a) An application under r 12(3) requires the Court to balance the competing rights of the party who obtained the judgment appealed from (ie the benefit of that judgment) against the need to preserve the appellant’s position against the event of the appeal succeeding: Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at p 87.
(b) “The object, where it can be fairly achieved, must surely be so to arrange matters that, when the appeal comes to be heard, the appeal Court may be able to do justice between the parties, whatever the outcome of the appeal may be”, per Buckley LJ, at 676, in Minnesota Mining and Manufacturing Co v Johnson & Johnson [1976] RPC 671 (CA), cited by the Court of Appeal in New Zealand Insulators Ltd v ABB Ltd (2006) 18 PRNZ 459, at para 13.
(c) Factors to be taken into account in the balancing exercise include:
(i) Whether the appeal may be rendered nugatory by the lack of a stay;
(ii) The bona fides of the applicant as to the prosecution of the appeal;
(iii) Whether the successful party will be injuriously affected by the stay;
(iv) The effect on third parties;
(v) The novelty and importance of questions involved; (vi) The public interest in the proceeding; and
(vii) The overall balance of convenience.
Keung v GBR Investment Ltd [2010] NZCA 396 at [11]; Dymocks
Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999)
13 PRNZ 48 (HC) at [9].
(d) While not included in this list, the apparent strength of the appeal now appears to be generally recognised as an additional factor: Keung v GBR Investment Ltd at [11].
Stay of execution – principles as they affect caveat cases
[9] Counsel did not refer me to any cases which had particularly dealt with stay of execution in the context of a judgment which had ordered removal of a caveat. I explored with counsel the appropriateness of considering such a case at two levels, and counsel both accepted that approach as appropriate.
[10] At the first level, namely the specific proceeding before the Court (for removal of the caveat), the consequence of refusing a stay would be to permit the registered proprietor to enter into and to complete a sale of the Brightwater property to a third party. In such an event an appeal would be rendered nugatory by the lack of a stay.
[11] The second level of the applicant’s intent in bringing litigation against the registered proprietor is to protect a claimed interest. In the present case Ulrike claims an interest as a beneficiary under a constructive trust. In such a case, a second tier of analysis requires the Court to consider whether the lack of a stay would or might likely make it difficult or impossible for the applicant, if successful in substantively establishing her equitable interest, to recover that interest or its monetary equivalent.
[12] In one of the leading Court of Appeal decisions, namely Duncan v Osborne Building Ltd (1992) 6 PRNZ 85 the refusal to grant a stay meant that a house property which was involved in the litigation would likely be sold through a writ of sale. The Court, in refusing a stay, considered the true subject matter of the applicant’s claim. It rejected a submission that if no stay was granted, the right of appeal would be rendered nugatory. Gault J, for the Court, said at [87] -
The subject matter of the appeal is not the house but a contract sum acknowledged by deed (the mortgage) and otherwise to be payable. Sale of the house and satisfaction of the judgment will not prevent the applicants pursuing their claim in respect of the alleged defects (meeting any cross- claim the builder might raise as to loss of profits)
[13] Duncan v Osborne Building Ltd is not directly parallel to this case. In Duncan’s case the property in question would be disposed of through the writ of sale process; in this case, the property involved would be disposed of by the registered proprietor because a caveat is removed.
[14] What is possible in both cases was or is that the applicant could continue to pursue a monetary claim.
[15] Something similar was observed by Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd [1999] 3 NZLR 239. His Honour having referred to the decision of the Court of Appeal in Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257, summarised at [12] –
The case, for present purposes, is authority for the proposition that the fact that one remedy – specific performance – may not be available as a result of the refusal of stay, does not make a case nugatory. Other relief – such as damages – may still be available. (Emphasis added).
[16] Having regard to the way in which proceedings concerning caveated property usually arise, it would involve something in the nature of semantic gymnastics to suggest that in a case such as the present an appeal would not be rendered nugatory by refusal of a stay. The importance of considering the recourse that remains open to the applicant, after an order to remove her caveat, to establish her substantive claim remains as important in this sort of case as in Duncan’s case. The nature of the procedure simply means that so far as the caveat itself is concerned, the applicant’s
appeal will be rendered nugatory if the property is sold before an appeal hearing. The applicant’s continuing ability to pursue her substantive claim can relevantly fall for consideration as part of the general balancing of the competing rights of the party to enforce the judgment against the need to preserve the appellant’s position.
Discussion of the principles as applicable to this case
Might an appeal be rendered nugatory?
[17] This is clearly a case where the appeal on the (refused) application before the High Court – for an order sustaining caveat – might be rendered nugatory by the lack of a stay. If Christian proceeds to sell the property before the appeal is heard, there remains no point to the appeal in relation to the caveat itself.
[18] The fact that, through refusal of a stay, an appeal right may be rendered nugatory does not necessarily of itself justify the imposition of a stay: see the discussion of Hammond J and the authorities referred to in Dymocks Franchise Systems at [13] – [15].
[19] Although this first factor for consideration is generally considered in relation to whether the appeal will be rendered nugatory, consideration of many of the cases indicates the understandable focus of Courts upon the substance of the applicant’s case as a whole. This is, of course, because the various factors are simply factors which enable to Court to address the overall interests of justice.
[20] In the present case, the applicant, having been refused an order sustaining her caveat, is left fully with her entitlement to pursue her substantive claim. Significantly, Ulrike has now done exactly that by filing on 24 August 2011 a statement of claim. She pursues two courses of action. First she claims a constructive trust in relation to the Brightwater property. Secondly, she claims that monies provided to Christian were loans.
[21] The bringing of her substantive proceeding in that way indicates that Ulrike’s
case itself will not be rendered nugatory. It happens that her substantive claim is
procedurally filed as a separate proceeding. Nothing in the refusal of the stay cuts
across Ulrike’s right to have her substantive claims determined.
[22] Consideration of whether such a determination will be meaningful at the time it is obtained is a matter which can conveniently be considered under the heading of other factors, to which I will return.
Factors not materially relevant in this case
[23] Beginning with the bona fides of the applicant as to the prosecution of her appeal, there are a number of factors which counsel did not press in this case and which have no direct application. These include the bona fides as to appeal, the effect on third parties, the novelty and importance of questions involved, and public interest in the proceeding.
[24] This leaves two factors which in my judgment most inform the decision in this case as to the just outcome.
Will the successful party be injuriously affected by a stay?
[25] Christian gave evidence as to his financial situation. He is married with two young children. He runs a firearms machinery business from a workshop at the Brightwater property which is also their home. He is the principal breadwinner. His wife is raising the children but also assists in the business. The business generates a fluctuating monthly income. He has a mortgage debt of some $230,000.00 to his bank and a secured finance debt of some $83,000.00 in relation to his business. In
2010 he made a decision that, with monthly expenses exceeding income, he needed to sell the property to effectively downsize. He also intended in the course of downsizing to allow for new machinery (a lathe) which would allow him to very substantially increase his production of rifle silencers.
[26] With the caveat registered by Ulrike in February 2011, he has been unable to sell the property. He fears that either his bank or his financier may move to mortgagee sale if defaults occur and continue. He has exhibited a loan statement
from his financier which indicates that he has been in default of interest obligations from April 2011 at the latest. In addition to those finance obligations, Christian identifies the legal costs which he has been incurring in what has become substantial litigation as a further burden.
[27] He notes the effect of his mother’s caveat is that he has not been able to access the equity in his interest in the property.
[28] He deposes –
We do not intend to hide or dissipate any of the funds that we might have after selling our home. Especially since we know we have a defence to every one of my mother’s claims and the evidence to defend her claims. We just need to be given sufficient funds to defend these frivolous claims and establish an income from our business to support the costs associated with defending these claims.
[29] Christian in consultation with his solicitor addressed also a possible “half- way house” should the Court be minded to provide some form of order protecting Ulrike’s position. While Christian’s stance remained that a stay should not be granted, he explored the “half-way house” in this way –
We require the property to be sold and we intend to purchase a replacement property from which to run our business from. We would seek the property to be sold and the caveat to be removed to allow that to occur, with the ANZ National Bank Limited to be repaid its loan advances and Fico repaid its loan advances as well. We would then purchase our new property and allow the applicant to place a caveat on that property with the decision of the Court of Appeal ultimately deciding whether that caveat is sustained. That would allow us to release sufficient funds for defending my mother’s appeal to the Court of Appeal and also sufficient monies to allow us to reduce our indebtedness and purchase the necessary machinery to continue to expand our business to provide sufficient income to meet our ongoing expenses.
[30] I do not find anything in the evidence to justify a doubt as to Christian’s integrity in what he says he wishes to achieve through the sale of the property. The wish to sell the property predates the caveat and the financial rationale for sale is clear.
[31] Mr Maciaszek, in submission, made some criticisms of the level and timing of information provided by Christian. Mr Maciaszek referred, for instance, to the lack of supporting financial statements in relation to the business’s performance and
its assets/liability position. I do not consider the criticism valid. As the person entitled to the benefit of the judgment of 19 August 2011, Christian has put a reasonable level of detail before the Court supported by financial statements from the two key financiers which indicate that defaults are occurring. The risk of mortgagee sale is evident.
[32] Mr Maciaszek referred also to the fact that this sort of financial information is being made available for the first time. Again, I see no valid criticism in that. The issue until now has been whether Ulrike can establish her claimed constructive trust. Christian has provided information as to his personal financial position when it has become material.
[33] I am also impressed with the making of the “half-way house” proposal. By offering his consent to the lodging of a caveat against the replacement property, he exhibits a focus on preservation of property in everyone’s interest rather than a purely selfish focus on his own interest.
[34] Mr Maciaszek expressed a concern as to the prospect that a part of the proceeds of sale will be committed to the purchase of machinery worth some
$300,000.00. A caveat over the replacement land would not extend to that machinery (unless, which seems unlikely, the machinery became a fixture). For reasons I will come to, I do not intend to impose a “half-way house” solution upon Christian. It is therefore academic to consider whether a caveat on the replacement property would fail to cover a significant proportion of the proceeds of sale of the Brightwater property.
[35] In short, Christian has made out a compelling case as to an immediate need to receive the benefit of the 19 August 2011 judgment.
Balance of convenience
[36] Under this heading, I turn having considered Christian’s position to focus particularly on Ulrike’s position.
[37] I recognise for the reasons stated that at a technical level Ulrike’s appeal in relation to the removal of the caveat would be rendered nugatory if the caveat is removed and the Brightwater property sold before an appeal hearing.
[38] That said, I see a strong parallel between this case and a case such as Savill v Chase Holdings (Wellington) Ltd, where the Court of Appeal was ultimately untroubled by the fact that a claimant would have to substitute a claim for damages for the claim for specific performance which had previously been the focus. In relation to the issues between the parties, Ulrike has already (on 24 August 2011) taken the step of filing the substantive proceeding which will afford her the legal route to establishing her claim, if she can.
[39] What then remains is any issue as to whether Christian at that point would still hold assets from which to satisfy a judgment in favour of Ulrike. For the reasons I have already referred to, there is no reason in the evidence before the Court to question the integrity of Christian with regard to the steps he is taking to rationalise the property and business ownership. There is no suggestion that he and his wife and their young family are about to cash up and flee the jurisdiction. The evidence all points the opposite way.
Prospects of the appeal
[40] Neither counsel addressed submissions as to the relevance of the prospects of a successful appeal to the granting or refusal of a stay. It was implicit in Mr Maciaszek’s submissions for Ulrike, by reference to the grounds of appeal set out in the Notice of Appeal as filed, that the Court should treat the appeal as having prospects of success. For the purposes of my weighing of the relevant factors, I have treated Ulrike’s appeal as having a prospect of success. I do not consider it appropriate, in the absence of any developed submission as to the strengths of the appeal to regard the appeal as strong.
[41] Even treating the appeal as having prospects of success, that does not cut across my over-riding conclusion that the competing interests of the parties in this case are best addressed through refusing a stay.
Standing back – the overall discretion
[42] Christian has been the successful party in this Court. His rationalisation of his assets and debts, effectively blocked by the February caveat, should justly be able to proceed. A risk of deterioration in the asset position, which Mr Maciaszek addressed at some length, exists precisely because Christian has been operating and will continue to operate his business from his home but it remains in his very best interest to preserve (as he has been seeking to do) and to enhance the value of his overall asset position.
[43] Ulrike chose to enter into her arrangements with Christian in the way she did. That involved placing Christian in the position of a registered proprietor with power to deal with the assets. The evidence does not indicate any particular attachment of Ulrike for particular land. The very nature of the statement of claim which she has filed, asserting the existence of both a constructive trust and a contract of debt, indicates that the justice of this case is likely to be met, if Ulrike can substantively establish a constructive trust, by an accounting of money rather than by a vesting of land.
[44] I conclude that the justice of the case requires that the application for a stay of execution be refused.
[45] I do not overlook the offering of a “fall-back” position by Christian, whereby Ulrike would be permitted to lodge a caveat against the title of the replacement property to be purchased by Christian. That was however as Mr Ballantyne indicated an alternative proposition and not Christian’s primary position. His primary position remained that the stay should be refused unconditionally.
[46] Mr Ballantyne submitted, correctly in my view, that to impose some obligation in relation to the lodging of a second caveat might be seen as akin to granting a (pre-judgment) freezing order (under Part 32 of the High Court Rules) in circumstances where the pre-conditions to such an order (particularly under r 32.5(4) High Court Rules) have not been established. In particular, he submits (with which I
agree) that there is little or no evidence to entitle the Court to see a real danger that
Christian will abscond or remove assets or diminish their value.
[47] I conclude that it would be inappropriate in the circumstances of this case to contemplate a condition relating to the lodging of a second caveat. Counsel did not address me as to any basis of jurisdiction for the making of such directions where the Court has already concluded that a stay ought not to be granted. Rule 12(4)(b) Court of Appeal (Civil) Rules permits the Court to attach conditions to any stay but that assumes a stay is to be granted in the first place. Even had I been attracted to the view that it was appropriate for Ulrike to be able to file a caveat on the title to the replacement land (which I am not), I find no jurisdictional basis for doing so.
Costs
[48] I asked counsel to address me on the appropriate costs orders at the conclusion of the hearing. Mr Maciaszek accepted that in the event the stay were declined, the appropriate order would be that costs follow the event on a 2B basis. Mr Ballantyne did not seek otherwise.
Orders
[49] I order –
1.The application for an order for stay of enforcement of a judgment is dismissed.
2.The applicant in any event is to pay the costs of the application and this order on a 2B basis together with disbursements to be fixed by the
Registrar.
Associate Judge Osborne
Solicitors:
Geddes & Maciaszek, PO Box 13467, Christchurch (Fax: 03 366 6207)
C & F Legal, PO Box 1049, Nelson 7040 ([email protected])
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