Henry v Henry
[2023] NZHC 1601
•26 June 2023
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2022-488-000102
[2023] NZHC 1601
BETWEEN LENA MELANIE HENRY, HELEN ELIZABETH SUSAN TE HIRA, and
TAUPUHI PIRIPONO HENRY as trustees of the Awhi TrustPlaintiffs
AND
LIANE TRACY HENRY
Defendant
Hearing: 6 June 2023 Appearances:
T K Cunningham-Adams for the Plaintiffs S Wroe for the Defendant
Judgment:
26 June 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 26 June 2023 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
AJO Legal Ltd, Auckland Evolution Lawyers, Auckland
S Wroe, Auckland
HENRY v HENRY [2023] NZHC 1601 [26 June 2023]
Introduction
[1] The trustees of Awhi Trust (Lena Henry, her partner Helen Te Hira, and Lena’s son Taupuhi Henry) bought a property in Whangārei from Lena’s mother, Elizabeth Anaru,1 and her husband Morgan Peeni. Lena’s sister, Liane Henry, occupied the property under an informal arrangement with Elizabeth and Morgan. The trustees apply for an order that Liane vacate the property, saying they have asked her to leave, and she has refused. They also seek judgment against Liane for loss of rental profits, and their pre-litigation legal costs.
[2] The trustees apply for summary judgment of their claim. To succeed, they must establish that Liane has no reasonably arguable defence.
[3]The issues are:
(a)Does Liane have a reasonably arguable defence being:
(i)an in personam claim against the trustees for knowing receipt; or
(ii)a claim for set-off of amounts paid by her to Elizabeth and Morgan and passed on to the trustees?
(b)Should summary judgment be refused because it would be unfair to deny Liane the benefit of discovery and the opportunity to cross-examine the trustees; and her third-party claims against Elizabeth and Morgan should be determined at the same time as the trustees’ claim against her?
Background facts
[4] In January 2015, Elizabeth and Morgan lent Liane funds to enable her to purchase a property on Cooke Street in Whangārei for her to live in with her daughter. Liane did not have enough money to buy the property herself at that time.
1 Formerly Elizabeth Henry.
[5] Originally Liane was to become the legal owner of the property. The agreement for sale and purchase records the purchaser as Liane. The agreed purchase price was $220,000. Liane paid the deposit of $20,000 with funds lent to her by Elizabeth and Morgan.
[6] For reasons that are unclear, Liane later nominated Elizabeth and Morgan to be the purchasers. Elizabeth says that she does not understand how or why that occurred. She says that she did not realise that she and Morgan jointly owned the property until five years later, in 2020. Elizabeth paid the balance of the purchase price i.e., $200,000.
[7] Liane arranged for substantial renovations to be done on the property before she moved into it. In her first affidavit she deposes that she paid a total of around
$220,000 in relation to the property, made up of $130,000 for improvements, $11,000 in council rates and water bills, $20,000 towards the purchase of the property, $57,000 in interest payments (to Elizabeth and Morgan), and $2,600 in legal fees. Elizabeth and Morgan have adduced their bank account records that appear to show payments for improvements from their bank account of $75,732. They say they were unaware that Liane was using their funds to improve the property and they only discovered this fact recently.
[8] Between 7 August 2015 and 21 March 2021, Liane made weekly payments to Elizabeth and Morgan for the Cooke Street property. Liane says that these were interest payments. Elizabeth says that they were rental payments. There is no tenancy agreement. It is not disputed that Liane has paid Elizabeth and Morgan a total of
$56,910 through these payments.
[9] Elizabeth and Morgan say that they repeatedly asked Liane to repay the loan so they could buy a property to live in themselves. They say that between 2015 and 2020 they identified several properties they would have liked to purchase, but they were unable to proceed because Liane would not repay the loan. Throughout this time, Elizabeth and Morgan were forced to rent a property to live in. Liane denies that Elizabeth and Morgan ever asked her to repay the loan.
[10] In August 2020, Elizabeth and Morgan asked Lena for help with their situation with Liane. They had identified a property in Maungatapere that they very much wanted to buy. They say they asked Liane to repay the loan so they could purchase the property and that Liane refused. Liane denies this.
[11] Lena, Morgan and Elizabeth agreed that the trustees would purchase the Cooke Street property from Elizabeth and Morgan, with the purchase price being paid by vendor finance from Elizabeth and Morgan. The trustees would use the Cooke Street property to secure the finance necessary to complete the purchase on the Maungatapere property. After completing the purchase, and to repay the vendor finance, the trustees would grant an ongoing licence to Elizabeth and Morgan to occupy the Maungatapere property.
[12] On 9 September 2020, Elizabeth and Morgan as vendors, and the trustees as purchasers, entered into an agreement for the sale and purchase of the Cooke Street property. The purchase price was $440,000. All parties received independent legal advice. Settlement of the sale and purchase was completed on the settlement date, at which time the vendor finance was fully drawn down.
[13] A mortgage was registered on the title to the Cooke Street property in favour of ASB Bank Limited, to secure the trustees’ obligations to the bank. Those obligations included debt that the trustees had taken on to acquire the new property at Maungatapere.
[14] Liane was not told that Elizabeth and Morgan had sold the property to the trustees. She continued making weekly payments to Elizabeth and Morgan until March 2021 when she became aware of the sale after inquiring with the council about why she had not received a rates invoice.
[15] The trustees say that they have asked Liane to vacate the property and she has refused.
[16] On 28 July 2021, Liane registered a caveat on the title to the property. The caveat purported to protect a constructive trust that arose in 2015 in favour of Liane.
Subsequently, Liane withdrew this caveat following correspondence between the parties’ counsel.
[17] On 20 August 2022, Liane lodged a second caveat, purporting to protect a constructive trust arising in 2020. She withdrew this caveat following correspondence between the parties’ counsel.
Legal principles
[18] There is some confusion about the legal basis for the trustees’ cause of action for recovery of land. At paragraphs 14 to 16 of the statement of claim the trustees plead that Liane is unlawfully occupying the property. From this Ms Wroe apprehended, as did I, that the trustees were invoking the summary procedure for recovery of land from an unlawful occupier under Part 13 of the High Court Rules 2016. During the hearing Ms Cunningham-Adams clarified that this was not the case, but the alternative jurisdiction the trustees seek to invoke for the order for vacant possession remains unclear. I note that the trustees also apply for removal of chattels, restoration costs, mesne profits, market rent, and pre-litigation costs as damages. While this confusion creates some awkwardness it does not prevent me from being able to determine this application for summary judgment.
Summary judgment
[19] The trustees have filed an interlocutory application for summary judgment of this claim. Rule 12.2(1) of the High Court Rules provides:
The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[20] The relevant principles governing a summary judgment application are well established:2
The question … is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26] (citations omitted).
is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.
An in personam claim against the trustees for knowing receipt?
[21] The trustees rely on their interest as registered owners of the property to apply for an order that Liane vacate the property. They say that they acquired indefeasible title to the property on the settlement date free of any unregistered interests, including any unregistered interest Liane claims to have.
[22] The principle of indefeasibility of title under the Torrens system is enshrined in s 51 of the Land Transfer Act 2017 (LTA). When a person is registered as the owner of an estate or interest in land under the LTA, that person obtains a title to the estate or interest free of interests that are not registered or noted on the title, unless one of the recognised exceptions is satisfied. The exceptions are contained in ss 52 to 56 and 204 of the LTA. One exception is if the estate or interest is acquired by the registered owner through fraud.3
[23] Liane does not presently raise any of the exceptions to indefeasible title in the LTA, including fraud. Ms Wroe indicated that should summary judgment be declined, Liane may plead “land transfer fraud” by the trustees, considering the evidence adduced for this hearing. Fraudulent registration occurs where a purchaser has actual knowledge of the vendor’s intent to cheat the unregistered party out of their interest in the land; or the purchaser suspects at the time of contracting that the vendor was acting in a way which would defeat the unregistered party’s interest in the land, and the purchaser intentionally takes advantage of the vendor’s conduct.4
3 Land Transfer Act 2017, s 52(1)(a).
4 Waimiha Sawmilling Co Ltd (in liq) v Waione Timber Co Ltd [1926] AC 101 (PC) at 106 per Lord Buckmaster; most recently affirmed by the Supreme Court in Nathan v Dollars & Sense Finance Ltd [2008] NZSC 20, [2008] 2 NZLR 557
[24] Presently, Liane opposes the trustees’ application on the basis that she has an arguable in personam claim against them for knowingly receiving trust property (“knowing receipt”). The law concerning the level of knowledge required to establish a claim of knowing receipt is somewhat unsettled but is likely to be lower than that for establishing land transfer fraud, encompassing constructive knowledge.5
[25] The in personam jurisdiction is expressly preserved by s 51(5) of the LTA. An in personam claim is based on the registered owner’s personal obligations rather than a claimed proprietary right. As the Supreme Court stated in Regal Castings Ltd v Lightbody:6
An in personam claim against a registered proprietor looks to the state of the registered proprietor’s conscience and denies him the right to rely on the fact he has an indefeasible title, if he has so conducted himself that it would be unconscionable for him to rely on the register. Such a claim is concerned with the personal obligations of the registered proprietor rather than with the sanctity of their title. A successful in personam claim indirectly affects the registered proprietor’s title, such as when a decree of specific performance is made; but the claim is not a claim to the land as such. It is a claim that the registered proprietor perform the contract of sale.
[26]In C N & N A Davies Ltd v Laughton the Court of Appeal said: 7
It is well settled that the doctrine of indefeasibility of title does not deprive the Courts of their equitable jurisdiction. A claim in personam against the registered proprietor may be maintained in respect of a transaction involving the claimant and the registered proprietor. Providing no conflict with the title exists, the recognition of an in personam remedy is not inconsistent with the concept of indefeasibility and the objective of protecting persons who deal with the registered proprietor on the face of the register.
…
Lord Russell of Killowen pointed out that the Privy Council in Frazer v Walker, while recognising that the registered proprietor is immune from adverse claims because of the concept of indefeasibility inherent in the system of registration under the Land Transfer Act, made it clear that “this principle in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a Court acting in personam may grant”…
…
5 Equiticorp Industries Group Ltd v The Crown [1998] 2 NZLR 481 (HC) at 636; Westpac Banking Corp v Savin [1985] 2 NZLR 41 (CA) at 53 (per Richardson J), 60 (per McMullin J) and 70 (per Sir Clifford Richmond).
6 Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 at [148] (footnotes omitted).
7 C N & N A Davies Ltd v Laughton [1997] 3 NZLR 705 (CA) at 711–713.
The express reservation in Frazer v Walker, now endorsed by the further declaration in Oh Hiam v Tham Kong at p 9454, that the concept of indefeasibility does not interfere with “the ability of the court, exercising its jurisdiction in personam to insist upon proper conduct in accordance with the conscience which all men should obey” leaves no room for doubt. Rights in personam may be enforced against a registered proprietor notwithstanding the doctrine of indefeasibility of title.
…
In our view, therefore, indefeasibility of title does not interfere with the personal obligations of a registered proprietor, and the principle that contracts, or trusts, or any personal equity can be enforced against the registered proprietor merely serves to indicate the limits of the doctrine.
...
Properly perceived, the principle sits comfortably with the concept of indefeasibility. Designed to protect a transferee from defects in the title of the transferor and not to release him or her from the burden of interests which they may have undertaken, the principle has as its basis the enforcement of personal claims arising out of the registered proprietor's conduct. It is essentially non- proprietary in nature. The key element is the involvement in or knowledge of the registered proprietor in the unconscionable or illegal act or omission in issue. It is such involvement or knowledge which gives rise to the equity or legal right in the innocent party as against the registered proprietor in person. Indefeasibility is no answer to a claim based on such an equity or legal right. When granted, it is true, a remedy may restrict the registered proprietor in what he or she can do or require them to give up in whole or in part their registered interest, but until that event occurs the title remains conclusive as against third parties…
[27]In Duncan v McDonald the Court of Appeal observed:8
In personam claims must be recognised causes of action. The causes of action may be legal or equitable but the relief is equitable. Although the precise limits of in personam claims have not yet been determined, it would be plainly inconsistent with the Land Transfer Act to allow such a claim against a registered proprietor in all circumstances in which an owner’s rights could be defeated under a deeds system. It is a question of fact and degree when a registered proprietor’s behaviour will give rise to an equity of sufficient strength to support an in personam claim.
…
Before a registered proprietor is susceptible to an in personam claim it must be shown that he or she has acted or is acting unconscionably in obtaining or taking advantage of the registered interest, but the registered proprietor’s conduct need not have involved actual dishonesty towards the in personam claimant. An attempt by the registered proprietor to enforce an interest knowingly obtained by his or her unlawful behaviour may be found to be unconscionable.
8 Duncan v McDonald [1997] 3 NZLR 669 (CA) at 683–684 (citations omitted).
[28] There are three elements to an in personam claim against a registered owner of an interest in land:9
(a)a recognised legal or equitable cause of action against the registered owner;
(b)unconscionable conduct by the registered owner such that it would be contrary to good conscience for them to rely on their indefeasible title to defeat the claim; and
(c)that depriving the registered owner of the protection of indefeasibility would not be contrary to the policy and purposes of the Torrens system.
[29] Liane claims that the first element is satisfied, as she has a recognised equitable cause of action against the trustees for knowing receipt. The basis for the cause of action is that the undisputed facts are sufficient to give rise to a constructive trust between herself and Elizabeth and Morgan in relation to the Cooke Street property. Further, the trustees had knowledge of circumstances which would indicate Liane had a proprietary interest in the property to an honest and reasonable person; or they would have known of her proprietary interest had they made the enquiries a reasonable and honest person would make. Liane says that rather than making the appropriate enquiries, the trustees deliberately bought the property without informing her before or afterwards.
[30] Liane submits that the evidence establishes a reasonable basis for her to argue that it would be unconscionable for the trustees to rely on their indefeasible title to require her to vacate the property; and that allowing the matter to go to trial will not deprive the trustees of the protection of indefeasibility so as to offend the Torrens system.
[31] The trustees submit that the first element is not satisfied. They say that the arrangement between Liane and Elizabeth and Morgan was “not certain enough” to give rise to a constructive trust, and to the extent Liane made any contributions to the
9 Regal Castings Ltd v Lightbody, above n 6, at [157]–[160].
Cooke Street property, they were paid for with Elizabeth and Morgan’s money or were made voluntarily by Liane. The trustees say that they did not have actual or constructive knowledge of the arrangement between Liane and Elizabeth and Morgan, and they were unaware of Liane’s alleged contributions.
[32] The trustees rely on the authority of JEB Management Ltd v Grubz United Whanau Trust.10 In that judgment, Toogood J considered that a claim of knowing receipt of trust property could not be brought as an in personam exception to indefeasible title. He reasoned that although a claim in knowing receipt satisfies the first two limbs of the three limbs identified in Regal Castings, the third (that the remedy cannot be used to undermine the fundamental concepts of the Torrens system) is problematic.11 Liane submits that this decision is wrong or confined to its facts.
[33] In my view, the trustees have not discharged the onus on them of establishing that Liane has no defence to their claim that she is an unlawful occupier and must give up possession of the property. I consider that Liane has an arguable claim against them for knowing receipt that prevents them from relying on their status as registered owners of the property as against her; and that claim should go to trial.
[34] First, the undisputed facts arguably give rise to a trust relationship between Liane, Elizabeth, and Morgan. It is undisputed that the Cooke Street property was purchased for Liane and her daughter to live in. Elizabeth and Morgan’s only involvement was to provide a loan to enable Liane to purchase the property. There is no dispute that Elizabeth and Morgan advanced funds to Liane as a loan to enable her to buy the property because she was not able to buy it herself at the time. There is disagreement about when the loan was to be repaid. Elizabeth and Morgan say that it was a short-term loan for three months only. Liane says that they agreed that the loan would be repaid when Elizabeth and Morgan needed the money to buy a house for themselves. She says that at that point she would take out a mortgage and transfer the property into her name.
10 JEB Management Ltd v Grubz United Whanau Trust [2015] NZHC 157, (2015) 15 NZCPR 705.
11 At [44].
[35] Yet this dispute about when the loan was to be repaid does not alter the fact that it is common ground between Liane, Elizabeth, and Morgan that the house was purchased for Liane’s purposes. Elizabeth’s evidence that she had not appreciated that they had been nominated to become the registered owners rather than Liane as originally planned, only reinforces that the intention was always that the property would be Liane’s. Neither Elizabeth nor Morgan suggests anywhere in their evidence that the house was purchased for them to live in or use as a rental property.
[36] It is also not disputed that Liane arranged for substantial renovations to be done to the property. While the extent of Liane’s financial contributions is unclear, the undisputed fact that she arranged and paid for all the improvements either from her own funds or from Elizabeth’s bank account is not; and those facts are consistent with the undisputed common intention that the property was purchased for Liane.
[37] In my view it is arguable that, whether they thought of it in these terms or not, it was intended and understood that Elizabeth and Morgan held legal ownership of the property on trust for Liane. Alongside that, they had an informal unsecured loan arrangement with Liane.
[38] The focus then falls on the extent to which the trustees knew of Liane’s arguable equitable interest in the property when they purchased the legal interest from Elizabeth and Morgan.
[39] Lena sets out what she knew in her reply affidavit. She says that at a family gathering on 1 August 2020, Elizabeth and Morgan explained, amongst other things, that they had agreed to advance a “large loan” to Liane, in return for which Liane agreed to help Elizabeth and Morgan find a new property. She says she was told that the loan was intended to be short-term and was necessary due to Liane having temporary cashflow issues. She says she was told that Elizabeth and Morgan had found several properties they wanted to purchase over the years, but Liane had refused to repay the loan to facilitate those transactions. She says Elizabeth and Morgan told her that they owned the Cooke Street property, but Liane would not allow them to live there, and that Liane was paying rent, or something akin to rent, to live in the property under an informal arrangement.
[40] Lena says that she told Elizabeth and Morgan that they should give Liane a final opportunity to repay the loan, and, if necessary, arrange the sale of the Cooke Street property to achieve that. She states that she had no reason to doubt Elizabeth and Morgan’s advice that they owned the property, and that it seemed to her that as Liane had defaulted on the arrangement she had with them by failing to repay the loan, they were entitled to sell the property in response to the default, much like a mortgagee would do.
[41] I consider Lena’s evidence that she understood that Elizabeth and Morgan had loaned Liane money to buy the property to be important. And her evidence that she knew that Liane had been living in the property for five years since its purchase. In my view it is reasonable to infer that Lena (and by implication the other trustees) knew, or ought to have known from these circumstances, that the property was originally intended by Liane, Elizabeth, and Morgan to be Liane’s; with Elizabeth and Morgan simply providing the finance.
[42] It is unclear exactly when or how Elizabeth and Morgan discovered that they were the registered owners of the property, but it was not until around five years after its purchase. Their evidence that they treated payments from Liane from 2015 as “rent” and expected Liane to pay for water “as any tenant would” is difficult to reconcile with their evidence that they were unaware that they owned the property all this time. There was no tenancy agreement in place.
[43] It is also undisputed that Elizabeth and Morgan sold, and the trustees purchased, the property without informing Liane. This seems odd, when Liane was living in the property and had been living there for five years, and when everyone involved understood that the property was originally purchased for her use.
[44] In these circumstances, I consider that Liane has an arguable claim that the trustees received legal title to the Cooke Street property knowing that Elizabeth and Morgan held legal title on trust for the benefit of Liane. The true extent of the trustees’ knowledge can only be determined at trial.
[45] If the trustees did receive legal title to the property knowing of Liane’s equitable interest in the property, the second element of an in personam claim, being unconscionability, is met.
[46] In terms of the third element, I respectfully disagree with Toogood J’s approach in JEB Management Ltd v Grubz United Whanau Trust.12 In principle, recognising a claim for knowing receipt of property impressed with a trust does not involve undermining the concept of indefeasibility and threatening the land transfer system. As noted above, knowing receipt results in a personal liability on the registered owner of the property arising out of their unconscionable conduct in acquiring ownership. That personal liability may prevent them from relying on their registered interest in the property as against the claimant. But liability for knowing receipt does not create a proprietary right for the claimant; the registered owner still acquires indefeasible title in land transfer terms. In contrast, when land transfer fraud is established, the registered proprietor does not acquire indefeasible title.
[47] My interpretation of the third element of the Regal Castings test is that the Court considers whether, on the facts of the case before it, depriving the registered owners of the protection of indefeasibility would be against the policy and purposes of the Torrens system. In my view, it cannot be said that equity will never intervene to deprive the knowing recipient of trust property of the protection of indefeasibility of title because that would offend the policy and purposes of the Torrens system. Instead, each case must turn on its own facts.
[48] Regal Castings concerned Mr and Mrs Lightbody’s transfer of their family home to a trust of which they and one other were trustees, for no substantial consideration, to defeat creditors. Regal Castings, a creditor, sought to invoke s 60 of the Property Law Act 1952, which provides that the alienation of property with the intent of defrauding creditors is voidable at the instance of the person prejudiced by it. Tipping J imputed the knowledge of the Lightbodys to the third trustee and concluded that the first two elements of an in personam claim were met. In terms of the third element, Tipping J considered it important that no innocent party was involved. He
12 JEB Management Ltd v Grubz United Whanau Trust, above n 10, at [44]–[46].
concluded that the registered owners were simply being told that because they were knowingly implicated in a voidable transaction, they could not rely on the register to resist that consequence. That was not considered to offend the policy or purpose of the Torrens system.
[49] Similarly, if Elizabeth understood that she and Morgan held legal ownership of the property on trust for Liane (even if they did not think of it in those legal terms), and the trustees received legal title to the property knowing that they were receiving trust property, or in circumstances where they ought to have known or at least inquire, I cannot see why depriving them of the ability to rely on indefeasibility would offend the policy and purpose of the Torrens system. They are not innocent parties. They received legal title through their own unconscionable conduct. Furthermore, the indefeasibility of their title against the world is not affected by equity’s intervention; rather, they are simply prevented from relying on indefeasibility as against the very person whose interest they have sought to defeat.
[50] I hasten to add that the extent of the trustees’ knowledge of the arguable trust arrangement between Liane, Elizabeth and Morgan is unresolved. I am unable to make factual findings on disputed matters in this summary context. Those facts will be determined at trial.
[51] As I have found that Liane has a reasonably arguable defence based on a claim against the trustees for knowing receipt, it is unnecessary to consider the alternative defences advanced by Liane.
Result
[52]The trustees’ application for summary judgment is dismissed.
[53] Costs are reserved in accordance with the principle in NZI Bank Ltd v Philpott.13
13 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
[54] I direct counsel to confer and file a joint memorandum within 15 working days proposing the next procedural directions to progress the trustees’ substantive claim through to trial. Any differences between them should be set out in the memorandum.
[55] The trustees will need to amend their statement of claim to make explicit the legal authority they seek to invoke for their orders. The correct procedural pathway also needs to be resolved. In view of the desirability of a swift resolution and the extensive affidavits already filed, it may be appropriate for the claim to be deemed a Part 18 proceeding, with evidence to be by way of affidavit and the parties to give notice of any intention to cross-examine. The joint memorandum should address this point, and a timetable for pleadings/amended pleadings, any further evidence to be filed, and estimated trial duration, so the matter can be set down for trial.
Associate Judge Gardiner
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