Hollands v Sorensen

[2021] NZHC 103

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2019-441-025

[2021] NZHC 103

UNDER

Law of Equity and Constructive Trust

IN THE MATTER

of Claim for Beneficial Interest against Trust-owned Property

BETWEEN

PETER KEVIN HOLLANDS

Plaintiff

AND

MICHAEL IAN SORENSEN AND SONYA SORENSEN AS TRUSTEES

First Defendant

TRUDY HOLLANDS

Second Defendant

Hearing:

1-3 and 14 December 2020

Appearances:

P Ross for the Plaintiff

S Robertson QC and A Harris for the First and Second Defendants

Judgment:

5 February 2021

JUDGMENT OF GRICE J

Contents

Introduction[1]

Background[18]

The Sorensen’s Trust Arrangements[36]

Relevant law[40]

Property (Relationships) Act 1976[40]

Constructive Trust[41]

Proprietary Estoppel  [57]

Knowing receipt  [59]
Summary of legal claims[61]

Reformulated claim[70]

Trust arrangements and structures[76]

Issues[86]

HOLLANDS v SORENSEN [2021] NZHC 103 [5 February 2021]

What did Sonya and Michael Sorensen say to Peter and Trudy about providing assistance to them

for housing?[88]

Kereru farm[92]

Gift of $200,000/$230,000[99]

What contributions did Peter and/or Trudy make to the Surrey Street property?[121]

What benefits did Peter and Trudy receive from the trustees in the form of free housing or

otherwise?[131]

Is Peter's expectation of an interest in the property reasonable or alternatively is there any
unconscionability in the trustees retaining ownership of Surrey Street?[150]

Assessment of benefits and contributions[156]

Conclusion[160]

Constructive trust[160]

Proprietary estoppel[162]

Knowing receipt[165]

Acquiescence[167]

Summary of conclusions[168]

Costs[169]

Introduction

[1]                 Peter and Trudy Hollands were in a relationship for nearly 20 years. They met in April 1999 and married in February 2002. They have two children now aged 14 and 12 years.

[2]                 They separated in October 2018. The children remain in the care of their mother, Trudy, in the home the family lived in until separation on Surrey Street, Napier. Peter is seeking a share of that house in these proceedings.

[3]                 That house is owned by the Trudy Hollands Family Trust (the Trust). Neither Trudy nor Peter is a trustee of the Trust, nor did they settle it. The first defendants are Trudy's parents, Michael and Sonya Sorensen, who settled the Trust in June 2007 and are its trustees. They are sued in their capacity as trustees of that Trust. Trudy is the principal beneficiary of the Trust. There are a number of discretionary beneficiaries listed by class in the trust deed, including her children and grandchildren and spouse or partner.

[4]                 When the parties separated  following  an  altercation  to  which  Mr  and  Mrs Sorensen were summoned by Trudy, a trespass notice was issued by the Trust, against Peter, at the suggestion of the police who had been called to the incident. As a result, Peter left the property.

[5]                 Trudy and Peter’s relationship property claims were  resolved  by  the  Family Court.1 Consent orders were made dividing the chattels that they had built up in the course of their marriage, including motor vehicles. At the same time, orders were made by consent about the arrangements for the care of the children.2

[6]                 Peter initially took the view that the Surrey Street property was relationship property. He filed his applications in the Family Court for the division of relationship property and referred to the Surrey Street property. It is common ground the Trust has always owned the property as well as an earlier property they lived in.

[7]                 In 2007, the first home (Trinity Crescent) was purchased by the Trust. In 2008, the Trust purchased the next home in Surrey Street, which was a larger house, at Peter and Trudy’s request.

[8]                 Peter claims that various representations were made by the trustees that he and Trudy were the owners of the first Trinity Crescent property and subsequently the Surrey Street property.

[9]                 Peter says he and Trudy contributed to the outgoings on the properties as well as working on the properties, particularly in the garden. In addition, he says they forwent the opportunity to buy their own home in reliance on the representation that Trinity Crescent, and subsequently Surrey Street, would be theirs.

[10]             Peter claims an interest in the property by way of constructive trust and also pleads proprietary estoppel. In addition, he says Trudy is now living in the property with the assistance of the Trust and so he sues her and the trustees based on “knowing receipt”. Initially he pleaded a claim under s 44 of the Property (Relationships) Act 1976, but that was abandoned at trial. Mr Ross, for Peter, also reformulated the claim in his closing submissions. In his closing, Mr Ross focused his case on the alleged representation  by  the  trustees  that Trudy  and  Peter  would  be  given  $200,000 or

$230,000 from the Trust to use as a deposit on a home. Peter had initially alleged that that promise of $200,000 or $230,000 had been overtaken by the representation that

1      Under the Property (Relationships) Act 1976.

2      PKH v TH FC Napier FAM-2018-041-000248, 28 January 2020.

the Trust would provide the funding for the purchase of Trinity Crescent and then for the Surrey Street properties.

[11]             Michael and Sonya (as trustees) say they offered to purchase the property in which Peter and Trudy and their children would live on the basis that Peter and Trudy would meet the expenses and outgoings in lieu of paying rent. They say Peter and Trudy accepted this arrangement.

[12]             Michael and Sonya say there was never any promise or representation made or encouragement given by any of the defendants to Peter or to Peter and Trudy that any money would be given to them to have or acquire any interest in any property owned by the Trust, which Peter also alleges, nor that the title to any property would be transferred to them.

[13]             The trustees say that Peter and Trudy made minimal improvements to the Surrey Street property. They say the work they did on the property was routine and involved maintenance, gardening and rubbish clearing, planting a few trees and cosmetic work, which did not add significantly to the value of the property. The trustees also say the Trust advanced or financed various amounts for capital improvements to the property, including paying for contractors to lay a driveway and the installation of gates.

[14]             Michael and Sonya say there is nothing unconscionable about Peter and Trudy (and therefore Peter) not having any interest in the property. Peter has not acted to his detriment in any way but in fact benefited by the rent-free housing and various substantial gifts and financial advances made to Peter and Trudy by the Trust and the Sorensens personally. They further say that there has been no breach of trust and therefore, there can be no knowing receipt of Trust property.

[15]              The defendants have also pleaded the affirmative defence of acquiescence. The trustees say they gave Peter and Trudy substantial financial assistance during their marriage. Michael and Sonya say Peter and Trudy took this assistance without ever suggesting they would also be expecting to receive an interest in the Surrey Street

property, and it is now unconscionable for Peter to assert a right to an interest in the property.

[16]             Trudy corroborates her parents’ evidence and says she and Peter were never led to expect the house would be theirs. She says Peter and her both agreed to the arrangements with the Trust, which were to their substantial benefit.

[17]              It is now common ground that the Trust bought and financed the acquisition of the houses. It is also agreed that Peter and Trudy made contributions to the loan payments and outgoings from their finances. The trustees however say that any contributions they made were far exceeded by the benefits they received from living rent-free in the properties throughout the marriage and from the significant additional financial support the couple received from the Trust and the Sorensens personally.

Background

[18]              In October 1996, Trudy's parents settled both the Michael Sorensen Trust and the Sonya Sorensen Trust. The trustees of the  Michael  Sorensen  Trust  are  Michael Sorensen and Michael Allen, a chartered accountant who is Michael and Sonya's business adviser and friend. The trustees of the Sonya Sorensen Trust are Sonya and Michael Allen. On the same day they settled these Trusts, the trustees of the Michael Sorensen Trust and Sonya Sorensen Trust established a partnership (the Trust Partnership). The Trust Partnership contributed the funds and financed the purchase of the Trinity Crescent and the Surrey Street houses by the Trudy Hollands Family Trust as well as advancing and gifting amounts of money to Trudy and Peter throughout their marriage.

[19]             Michael and Sonya say they first assisted the couple by offering Peter a job, which included a home for Peter and Trudy to live in, at the Trust Partnership's Patoka farm in 2001, about a year after Trudy and Peter had started to live together. Both Peter and Trudy were employed by the Trust Partnership. In addition, they received subsidised accommodation and other benefits that are not uncommonly received by farm workers.

[20]             Peter says he only moved to the farm to please Trudy because she had been brought up on a farm. He was not from a farm and called himself a “flatlander”. However, he said he threw himself into learning how to be a dairy farmer. He was initially a farm hand but said he was promoted.

[21]             About a year after moving to the farm Peter came off a farm bike and seriously injured his back. He was off work for six months. During that time, he received accident compensation. In addition, the Trust Partnership voluntarily topped up those payments to make up his full wage. When he returned to work, he and Trudy moved to and worked on an associated dry stock farm owned by the Trust Partnership at Kererū.

[22]             At the hearing there was some time devoted to the farm and Peter’s role. He said he still suffers from the effects of the accident. He blames his employment and took the view that all the benefits of the time the couple spent on the farm were outweighed by the long-term effects of the accident. Nevertheless, he returned to work for the Trust Partnership on its farms.

[23]             There was some evidence about whether Peter took well to farming. It was common ground that Peter did not see himself as a farmer for life. However, when the farms were sold by the Trust Partnership in 2006, Peter and Trudy were upset about the loss of the job, and associated accommodation and lifestyle. This led to a rift with Michael and Sonya that was to last almost six months. Trudy was three months pregnant when they moved off the farm into rented accommodation.

[24]             After leaving the farm Trudy and Peter moved into town: first, into a rental at Havelock North and then, through his father’s employment contacts at the local council, into a council rental at Lagoon Farm. This was rented from the Napier City Council at approximately $180 per week.3 This was the home they were living in when Peter and Trudy's first daughter was born on 16 September 2006.

3      This is an estimate by Peter Hollands.

[25]             Sonya Sorensen had made contact with her daughter before the birth. She attended a baby shower for Trudy before the baby was born. Neither Peter nor Michael attended this.

[26]             Somewhere in late 2006 or early 2007 the Sorensens say they began discussing between themselves the prospect of providing some assistance through the Trust for housing for Trudy, Peter and the baby. Sonya particularly was concerned about the conditions in the Lagoon Farm rental. She said the house was damp and cold with mould on the walls, which she noted Trudy was regularly having to clean off. Sonya said the house has since been demolished, although the evidence does not disclose when. She said she wanted Trudy and her family to be living in a “secure and warm” home.

[27]             Sonya went to stay with Trudy to help with the new-born for a week or so when Peter was in the bush. By that time Peter had a job in pest control and was spending 10 days in the bush and four days at home.

[28]             Peter, in his evidence, said he did not think the Lagoon Farm rental was too bad but he agreed that the house later bought by the Trust at Trinity Crescent, into which they moved from the Lagoon Farm rental, was better.

[29]             Nevertheless, Peter said he would have been happy to stay in the Lagoon Farm rental if he had known that he would move from paying rental of $180 per week there to making outgoing payments amounting to some $270 a week, which was the initial outgoings they paid on the Trinity Crescent property.

[30]             Peter says it was about March and April 2007 when the Sorensens promised that the Trust would provide the sum of $200,000 or $230,000 to purchase a house.

[31]             Peter, Trudy and the baby moved into Trinity Crescent, which was purchased by the Trust using funds advanced by the Trust Partnership ($230,000) and borrowing money for the balance purchase price of $326,000 from the ANZ/National Bank. The amount from the bank was $120,000, of which $96,000 was put toward the purchase

and $2,500 for a heat pump. The balance was used by Trudy and Peter to pay off loans, including their car loan.

[32]             On 24 March 2008, Peter and Trudy's second daughter was born. The couple wanted a bigger home. Trudy spoke to her parents about purchasing a bigger home for their family.

[33]             On 30 September 2008, the Trudy Hollands Family Trust purchased 28 Surrey Street, Taradale. The purchase price was $425,000. The Trust Partnership advanced to the Trudy Hollands Family Trust funds toward the purchase and it borrowed the rest from the Sorensens’ banker, the ANZ/National Bank. Peter, Trudy and their children moved into Surrey Street where they stayed until Peter and Trudy separated in October 2018.

[34]             Meanwhile, Trinity Crescent was rented out at $300 per week for a year. The housing market was depressed due to the Global Financial Crisis. The market did not improve but the Trust eventually sold Trinity Crescent in October 2009, at a sale price of $285,000: a loss on the purchase price of some $41,000. The proceeds of sale were then used to repay part of the loan advanced to the  Trudy  Holland  Trust  for  Surrey Street and reduce the bank loan, so reducing the amount that Trudy and Peter were paying in outgoings.

[35]             For the year or so that Trinity Street was still owned by the Trust after Trudy and Peter had moved to Surrey Street, part of the rental income was applied towards the home loan, which remained outstanding. The other half ($150 per week) was paid by the Trust into Peter and Trudy’s joint account for their use.

The Sorensens’ Trust Arrangements

[36]             In June 2007, the Sorensens had incorporated the Trust, in which Trudy was the primary beneficiary with other classes of discretionary beneficiaries being her spouse and children. The funds that were put into the two properties, were lent to that Trust by the Trust Partnership. The Sorensens had set up the same arrangement for the benefit of each of their other two daughters.

[37]             The Sorensens and the Trust Partnership say they advanced monies to Trudy and Peter on numerous occasions. These payments included advances from the Trust Partnership to pay debts and for personal use for Trudy, Peter and their family. These payments were made into Trudy and Peter’s joint bank account.

[38]             The Trust Partnership was effectively controlled by three trustees: Sonya, Michael and Michael Allen, who is an independent trustee and the Sorensen’s business adviser. Mr Allen, a chartered accountant, had provided consultancy services to the Sorensens for many years. He continued to advise them on their finances and related matters and had become a family friend. Mr Allen left the day-to-day operational matters and authorisation, of small advances to Sonya and Michael, to the family. These were subsequently ratified by the trustees. He said for larger sums, such as the advances to purchase the houses, the three trustees would formally consider the matter before making the advances.

[39]I now turn to consider the law relevant to the claims by Peter.

Relevant law

Property (Relationships) Act 1976

[40]             The Property (Relationships) Act does not apply to property in which the parties to the relationship have no interest. That is the reason these claims are brought based on constructive trust and equitable (proprietary) estoppel. Section 182 of the Family Proceedings Act 1980 gives the Family Court power to adjust the division of property where there has been a nuptial settlement.4 However, no claim is brought under that provision.

Constructive Trust

[41]             In his statement of claim, Peter claimed a constructive trust based on the contributions by Trudy and Peter to the acquisition, improvement or maintenance of the Trinity Crescent and the Surrey Street properties.

4      It applies only to division of property in the case of marriage, not de facto relationships. For example, see Little v Little [2020] NZHC 2612 at [26].

[42]             If the following elements are established, it will be unconscionable in equity for a plaintiff to be denied an interest in the property in question and a court will declare a constructive trust:5

(a)direct or indirect contributions to the property in question;

(b)the expectation of an interest in the property;

(c)that such an expectation is a reasonable one; and

(d)that the defendant should reasonably expect to yield the claimant an interest.

[43]             Where the plaintiff claims an interest in the property, the legal title of which is held by the defendant, the starting point is that the plaintiff has no beneficial interest and must demonstrate that the contributions justify an entitlement to one.6

[44]             Whatever the nature of the contributions, it is generally accepted that they must have added significant value to the property.7 They must have also “manifestly exceed[ed]” any benefits received so that there is “a situation of sufficient disproportion to merit equity's intervention”.8

[45]             Much of the jurisprudence on constructive trusts was developed in cases where claims were made by one partner against the other following the breakdown of a     de facto relationship. These date back to the period when the relationship property regime did not extend beyond marriages to de facto relationships. Therefore, when one partner to a relationship had contributed to property owned by the other during the relationship in circumstances that met the criteria set out above, the Court was willing to intervene to recognise the contribution by way of a share in the property.

5      Lankow v Rose [1995] 1 NZLR 277 (CA) at 294.

6      KP Malcolm Ltd v Malcolm [2012] NZCA 230 at [55](b).

7      Vervoot v Forrest [2016] NZCA 375, [2016] 3 NZLR 807 at [75].

8      Blumenthal v Stewart [2017] NZCA 181, (2017) 4 NZTR 27-009 at [53]; citing Lankow v Rose,

above n 5, at 282.

[46]             Constructive trust claims against properties owned by a trust, even where one of the partners is a trustee or settlor, raise different issues. Particularly in a situation where the trust is a third party whose trustees and settlors do not include parties to the relevant relationship, as is the case here.

[47]             In Hawke’s Bay Trustee Company Ltd (Trustee) v Judd,9 the Court of Appeal considered an appeal from a successful constructive trust claim by Ms Judd against a trust of which her husband was a trustee, settlor and beneficiary. Mr Hodgkinson, her husband, had set up the trust following the breakdown of his first marriage to protect the assets which he settled on the trust. The other, and independent, trustee was a corporate trustee.

[48]             The trust owned the home in which the couple lived during their seven-year marriage. The Court of Appeal accepted that Ms Judd had made a specific capital contribution to the home in the sum of $50,000, following the sale of her home at the time of the marriage. She also gave up her full-time business to devote herself to looking after the children (each had children from previous relationships who lived with them) as well as undertaking housekeeping and gardening duties in the extensive gardens. She estimated that she worked in the house and gardens approximately 20 to 40 hours a week. The property was one and a half hectares with substantial gardens, mostly ornamental, and a vegetable garden. It was common ground that Ms Judd’s work on the property saved Mr Hodgkinson the cost of employing people to do housekeeping and gardening.

[49]             The usual rule that the trustees must act unanimously as it applied to the acceptance of the contributions on its behalf was not an obstacle to the Court in recognising the constructive trust. The Court of Appeal agreed with the trial Judge that the independent trustee had abjured, in that the trustee had handed over authority to the co-trustee husband, who accepted the capital contributions and other contributions by Ms Judd on behalf of the trust. Therefore, the conscience of both trustees was affected. The trial judge had found that given the husband’s “carte

9      Hawke’s Bay Trustee Co Ltd (Trustees) v Judd [2016] NZCA 397, (2016) 4 NZTR 26-019.

blanche” to do as he wished with the assets of the trust, he had allowed trust property to be improved without first resolving the basis of receipt.10

[50]             In those circumstances the Court found it would be unconscionable for the Trust not to recognise the benefits freely accepted by it. The Court of Appeal noted that concerns may arise about the impact of that approach on the property rights that form a key part of the trust concept. However, it took the view that the successful claim simply reversed or disgorged the benefit of the defendant’s enrichment. In other words, “a part of the value of the trust’s property which should not accrue to the trust does not accrue to it”.11 Secondly the Court of Appeal noted that it had been open to the trustees to take steps to preserve the position they now sought to maintain by taking advice on the issue at the time of the marriage and adjusting Ms Judd’s expectations as the contributions made to the matrimonial home had been encouraged or permitted by the trustees. Finally, it said the question was not whether a party’s action is in breach of their trustee duties but, rather, the focus is on the reasonableness of a third party’s expectation of an interest in the property and the reasonableness of requiring the legal owners to yield an interest or to pay compensation in lieu. In those circumstances the Court was of the view that the High Court had appropriately awarded the relatively modest amount of $65,000, being $10,000 per annum for each year of the marriage, to Ms Judd by way of equitable compensation.

[51]             In this case the defendants say that even if the trustees did tell Trudy and Peter that the Trust would give them money or a share in the houses, at best it was a promise which was never perfected by action. The circumstances giving rise to a constructive trust must be distinguished from those giving rise to a gift.

[52]             If a proposed gift has not been perfected by a transfer of property to complete the gift it fails.

10     Hawke’s Bay Trustee Co Ltd (Trustees) v Judd, above n 9, at [46].

11     At [47]; citing Murrell v Hamilton [2014] NZCA 377, (2014) 3 NZTR 24-012 at [30].

[53]             An incomplete gift may be revoked by the donor at any time.12 If no consideration has been provided, there is nothing unconscionable in the donor changing their mind at any time before the gift is complete.

[54]             To establish a constructive trust requires more than an intention to gift. Such an intention expressed is not enforceable unless more is established, for instance a contribution or some other factor.13 That contribution or other factors must be such as to make it unconscionable not to perfect the gift by transfer. In the absence of significant contributions to the property an orthodox constructive trust will not be established.14

[55]             In Harvey, the Court was required to consider whether or not the facts established a “common intention” constructive trust as opposed to an orthodox constructive trust: with counsel for Mr Beveridge arguing that the former does not require establishing the plaintiff made contribution or suffered a detriment.15 The Court concluded that it was doubtful whether a “common intention” constructive trust existed at all, but in any event it was not established on the facts.16 In that case the plaintiff sought to enforce against the executors a promise by the deceased that he would be given an estate property. There were no significant contributions by the plaintiff to the property and the transfer had not been effected in the lifetime of the deceased.

[56]             The Court reiterated that to establish a constructive trust based on the “reasonable expectations” of the parties, evidence of significant contributions, direct or indirect to the property in question, was necessary.17   The Court referred to the   de facto relationship cases in which constructive trusts claims had succeeded. For instance, in the case of Lankow v Rose reference was made to the successful claimant,

12     Harvey v Beveridge [2014] NZCA 72, (2014) 15 NZCPR 205 at [32]; citing Standing v Bowring

(1885) 31 Ch D 282 (CA) at 290.

13 At [46].

14 At [34].

15 At [37].

16     At [45]–[46].

17 At [46].

the de facto partner, as having put “her all” into the relationship, making significant direct and indirect contributions to the property in her partner’s name.18

Proprietary Estoppel

[57]The second claim is based on proprietary estoppel.

[58]             The law on estoppel is now regarded as settled. Historically there were three strands of estoppel: estoppel by representation, promissory estoppel and proprietary estoppel. The New Zealand courts now recognise a unified doctrine of equitable estoppel.19 There are four elements required to establish this:20

(a)The person alleged to be estopped has created or encouraged by words or conduct a belief or expectation in the claimant of the estoppel.

(b)The claimant has reasonably relied on the belief or expectation.

(c)The claimant will suffer detriment if the person alleged to be estopped departs from the belief or expectation.

(d)It would be unconscionable for the person alleged to be estopped to depart from the belief or expectation.

Knowing receipt

[59]             The elements of knowing receipt, which has also been termed “unconscionable receipt”, are:21

(a)a transfer of the plaintiff's property in breach of fiduciary obligations;

(b)receipt by the defendant of that property; and

18     Lankow v Rose, above n 5, at 289 per McKay J and at 299 per Tipping J.

19     Sutherland v Lane [2020] NZHC 721 at [129].

20     Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44]; and Hansard v Hansard [2014] NZCA 433, [2015] 2 NZLR 158 at [63].

21     McLennan v Livaja [2017] NZCA 446, [2018] NZAR 405 at [38].

(c)knowledge by the defendant that the transfer involved a breach of fiduciary obligations.

[60]             As will be apparent, in order to establish knowing receipt the plaintiff must first establish that the property wrongfully transferred or retained is that in which the plaintiff has or had an interest – whether at law or at equity.

Summary of legal claims

[61]             In order to succeed in a claim, Peter (on behalf of Trudy and himself) must show that a representation or promise was made by the trustees (by word or action) on which he relies or bases his expectations.

[62]             In addition, to succeed in the constructive trust claim, Peter must show he and Trudy made contributions to the property which have “manifestly exceeded” any benefits received,22 and/or added significant value to the property.

[63]             Peter must also show that Trudy and he reasonably relied upon the encouragement, and in reliance suffered detriment because the Surrey Street property was not transferred to them, nor were they given an interest in it. It must be established that it was unconscionable for the Trust to depart from that expectation or belief.

[64]             To establish “knowing receipt” against Trudy and the trustees, Peter must establish that the transfer of the property, or an interest in the property, was made to Trudy with the co-operation of the trustees, in breach of the fiduciary obligations to Peter. The plaintiff’s case was that Trudy, with the agreement of her parents, the trustees, has taken the benefit of Surrey Street where she has remained in residence with her children. To establish the prerequisite that Peter and Trudy had a proprietary interest in the property that Trudy is now denying Peter, Peter needs to succeed in the constructive trust or the proprietary estoppel claim. Otherwise, he has no interest in the property which can be transferred.

22 See [17] above.

[65]             As I have mentioned, there is no claim under the Property (Relationships) Act. Initially there was a claim based on s 44 of that Act, however, that was abandoned, quite properly, by Mr Ross in his opening submissions. However, as I have noted above, Mr Ross submitted that the Property (Relationships) Act had relevance in this case because of the social policy behind that legislation, which intended that spouses should share in the matrimonial home and carried an assumption of equal sharing in the home, however acquired. He submitted that the Trust had taken steps to ensure that in the event of Trudy and Peter separating, Peter would not have a share in the property because it was not the matrimonial home. Otherwise Trudy or he would have had an interest in a matrimonial home that would have been subject to the equal sharing regime.

[66]             Mr Ross also placed considerable emphasis on the fact that Peter had received no independent legal advice. He said the circumstances at the time the Trust bought Trinity Crescent and Trudy and Peter started paying the outgoings on the property was such that Peter should have been offered the opportunity to take independent legal advice as to his rights. The analogy was drawn with the requirement for parties to a relationship property agreement under s 21F(c) of the Property (Relationships) Act to be provided with independent legal advice on signing.

[67]             In support of this submission, Mr Ross pointed to the fact that the detriment to Peter, which necessitated the legal advice, was that Peter left a relatively cheap rental home to move to the Trinity Crescent house where the couple made higher payments by way of outgoings on a home in which they would never receive an interest. If Peter had known this, the argument goes, he would never have entered into the arrangement.

[68]             In this case it is difficult to see how Peter or Trudy were disadvantaged. In relation to the Trinity Crescent property, they were moving to a better house without having to outlay any capital for what was market or probably below market rates. The move to Surrey Street similarly did not disadvantage them. In fact, if they had owned Trinity Crescent, they would have lost a substantial capital amount on the sale of it.

[69]             In any event Peter was not asked to compromise any rights. The argument based on detriment to Peter because he was required to pay higher outgoings than the

below market rental the couple were paying was not pleaded. There was no evidence that Peter conveyed his expectations based on paying the house outgoings to the trustees. In those circumstances I do not accept that the fact that Peter did not take legal advice adds anything to his case.

Reformulated claim

[70]             Mr Ross reformulated the claim, following the evidence, in closing submissions as follows:23

(a)A representation was made to Peter by the trustees that the Trust would give to him and Trudy the sum of $200,000, which turned into

$230,000, for a deposit on the house.

(b)The $230,000 was paid by way of deposit for Trinity Crescent. Peter says the initial promise was $200,000 but later discovered after settlement (or some time after 30 September 2008) that in fact the Trust had advanced $230,000 toward the purchase. He says that is the amount of “the gift” from the Trust.

(c)The $230,000 gift deposit was a “protected” sum that can be followed or traced into Surrey Street as being part of the equity in that property giving rise to the present constructive trust claim over that property.

(d)The protected $230,000 was paid into Surrey Street on the sale of Trinity Crescent, which settled a year after the Trust had bought the Surrey Street property.24

(e)The protected  sum  of  $230,000  forms  part  of  the  equity  in Surrey Street.

23   Dated 7 December 2020, but the full development of the reformulation did not take place until    Mr Ross made his oral submissions.

24 This is despite the fact that the evidence of the trustees, which was not contradicted, was that the proceeds of the Trinity Crescent sale was used to pay  off  part  of  the  bank  debt  and  the  Trust Partnership debt over the Surrey Street property.

(f)Peter says he is entitled to a half share of the equity in Surrey Street at the date of separation, together with a half share of the growth in equity in Surrey Street since October 2018. He claims that increase can be estimated at 18 to 20 per cent per annum but allows that deductions for contributions since the date of separation should be made from the increase in value. This share that he says should be yielded to him, less the relevant debts, totals $204,875.

[71]             The initial claim had been that the trustees, or one of them, had made a general representation to Peter that he and Trudy would receive the house bought by the Trust in due course. However, the evidence did not establish such a representation.

[72]The reformulation of the claim to concentrate on a promise to gift $200,000 or

$230,000 gives rise to a number of issues that were not explored in detail. The first is that Trinity Crescent was sold for less than it was purchased for. Therefore, the Trust funds recovered from the sale of Trinity Crescent were eroded by $41,000. In addition, the funds from the Trinity Crescent sale were largely used by the Trust toward repayment of part of the Trust Partnership loan on the Surrey Street property, as well as paying down the bank loan to bring the outgoings payable by Trudy and Peter down.

[73]             The plaintiff did not suggest the mechanics by which the $230,000 gift remained “protected” equity in the Surrey Street property. There was no evidence of any further representations by the trustees, nor indeed any representations that indicated that a sum of $200,000 or $230,000 would be “protected” and form part of the equity in Surrey Street. It is well-established law that there is generally little scope for proprietary relief by way of tracing where the money has been used to discharge a debt.25

[74]             I do not consider that it is possible to trace the $230,000 into the Surrey Street property. As I noted, the “protected sum” was not raised until closing submissions and

25 Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Thompson Reuters, London) at [44–112]. See also Re Registered Securities Ltd [1991] 1 NZLR 545 (CA) at 554–555.

not pleaded, therefore, the defendants have had no proper opportunity to respond. In any event, as will become apparent, the claim fails for other reasons.

[75]             I now consider the trust arrangements and structures that the Sorensens put in place.

Trust arrangements and structures

[76]             The plaintiff takes no issue with the legality, establishment or operation of the Trudy Hollands Family Trust and the Trust Partnership. He accepts that the trust records were properly kept and the entries that were in the minutes and the transactions recorded in the financial statements are accurate.

[77]             The records indicate that the Trust was settled on 5 June 2007. Michael and Sonya were and remain the trustees as well as the settlors. Trudy is the primary beneficiary and her husband or de facto partner is a beneficiary by class only.

[78]             The Trust settled the purchase of 4 Trinity Crescent, Pirimai, on 20 August 2007. The purchase price of $326,000 came from a loan of $230,000 from the Trust Partnership and $120,000 from the ANZ/National Bank, which was the Sorensen’s bank. The Trust used $96,000 of the ANZ/National Bank loan towards the purchase of Trinity Crescent and the balance (excluding approximately $2,150 for a heat pump) was paid to the benefit of Peter and Trudy.

[79]             The Trust also bought the Surrey Street property using funds advanced by the Trust Partnership and the ANZ/National Bank. When the Trinity Crescent property was sold by the Trust, a year after Surrey Street was purchased, the proceeds went to repay part of the Trust Partnership loan and the ANZ/National Bank loan was reduced. This reduced the interest payments required to be paid by Trudy and Peter. At the request of Trudy and Peter subsequently the Trust arranged further loans from the bank, to enable renovations to be done to the house and to pay the couple’s debts. For instance, one loan of $15,000 was to be used for dental work for one of the children. Peter and Trudy used that money for other purposes, so the Sorensens later paid a second time for that dental work.

[80]             The Sorensen’s evidence was that they had set up  trusts  and,  using  the Trust Partnership advances, had bought houses for each of their three daughters. Each of the daughters were primary beneficiaries of a trust that the Sorensens had settled. Each trust had bought a house for the daughter and her family to live in. The Sorensens say that they were looking for security for their daughters, grandchildren and great-grandchildren. They wanted to preserve the family wealth and make sure that the children always had somewhere to live. That was the driver behind the arrangements of the Trudy Hollands Family Trust.

[81]             One daughter did later buy a property in half shares with her partner. However, the Trust had financed that daughter’s initial home. Michael said that the daughter’s partner had also owned a home, so both the Trust house and the partner’s home were sold to buy a new house that was held by them as tenants in common. He emphasised that the Trust loan, which had been used to purchase that daughter’s first home, remained outstanding.

[82]             I do not consider that this arrangement adds any support to Peter’s claim that the couple had received a gift of $230,000. The Sorensens were entitled to treat their daughters differently according to their respective circumstances.

[83]             In addition, all the Trust and bank records support the Sorensens’ evidence that the Trust was established with the intention that it would own the properties acquired by it. Mr Allen, the independent trustee involved in the Trust Partnership, was not involved directly in any of the discussions with Peter and Trudy but he confirmed that his advice to the Sorensens at all times had been to use the Trust as a vehicle for the purchase of the house for Peter and Trudy. It was the Trust Partnership which advanced the money for the deposit. As a trustee of those trusts he said he would not have agreed to make the advances other than through the Trust structures. He said he had given that advice consistently. While it was unclear exactly when the Trust Partnership trustees agreed to the funding of the Trust to buy Trinity Crescent, there had been earlier similar arrangements for another daughter and the Sorensens were alive to the need for Trinity Crescent to be bought in a Trust’s name before the trustees (including Mr Allen) would agree to advance funds to buy the house.

[84]             Mr Allen recalled the formal discussion about the Trust Partnership making the advance. He thought it had occurred around the end of June 2007. This would be consistent with the need for the Trust to be incorporated in time for settlement in September 2007.

[85]             Peter does not dispute the figures advanced by the Trust or Trust Partnership and the Sorensens or the bank account records for the joint accounts operated by him and Trudy. He said he knew nothing of the couple’s finances but trusted Trudy to look after them. He said he was surprised when he became aware of the amount of money they had received from the Trusts and the Sorensens over the years. Nevertheless, he does not dispute the figures.

Issues

[86]The parties agreed that the Court will need to determine:

(a)What did Sonya and Michael Sorensen say to Peter and Trudy Hollands about providing assistance to them for housing? This has now narrowed as the representation alleged is solely that Michael Sorensen promised to provide $200,000 (but actually provided $230,000) to Peter and Trudy as a deposit on a house in March/April 2016.

(b)What contributions did Peter and/or Trudy make to the Surrey Street property?

(c)What benefits did Peter and Trudy receive from the trustees in the form of free housing or otherwise?

(d)Is Peter's expectation of an interest in the property reasonable or alternatively is there any unconscionability in the trustees retaining ownership of Surrey Street?

[87]I now turn to consider each of those issues.

What did Sonya and Michael Sorensen say to Peter and Trudy Hollands about providing assistance to them for housing?

[88]             Peter said there were numerous representations made by the Sorensens directly to him, which led him to believe that he and Trudy would be transferred property by the Trust Partnership: first a section to be subdivided off the Kererū farm, then the Trinity Crescent house and finally the Surrey Street property. The focus is now on the allegation that, when Trudy and he had first been looking for a house in early 2007, the Sorensens offered to give them $200,000 toward the purchase of a house.26

[89]             Sonya and Michael Sorensen deny that any of the representations were made. They say they wanted to help Peter and Trudy to have a secure home for the children, the Sorensen’s granddaughters, and to help the family as much as possible and had done the same for all their three daughters. The Sorensens said they wanted Trudy and Peter to be responsible for their expenditure but that they intervened over the years, giving or advancing money themselves or through the Trust Partnership, so that the couple kept their heads above water financially. The Sorensens said they made sure the couple only paid what they could afford. Therefore, over the years various advances and gifts were made, including at times regular payments into the couple’s bank account. Many of these contributions could be isolated by a review of the financial records but there were also many not recorded in the bank statements.

[90]             Trudy also says that no representations were ever made by her parents to her, or to them both, that the Trust would give them anything outright, nor that it would transfer the house to them. She said that Peter knew the arrangement about the house and was happy with it although he did show some bitterness about the fact that Trudy’s parents had money and would not give them a house.

[91]             Peter said there were numerous representations by the Sorensens. For completeness I deal with these although in closing Mr Ross indicated the only one now relied on is the representation the Trust would provide a deposit of $200,000 ($230,000) for a house for Trudy and Peter.

26     He said  this was actually a  gift of $230,000 as that was the actual cash contribution by the  Trust Partnership to the Trinity Street property.

Kererū farm

[92]             The first promise according to Peter was by Michael Sorensen promising to Peter and Trudy that the Trust Partnership would subdivide off six hectares from the Kererū farm to give the couple a building site that they could use for collateral for a loan to build a house.

[93]             Peter says he and Trudy were excited about the thought of having a piece of land. In his evidence he said he first spoke to Michael Sorensen about it and when he and Trudy had selected a site, he went back to Michael to tell him they had found a piece of land that they would like to build on.

[94]             Peter’s father, Brian Hollands, who gave evidence, said he recalls Peter and Trudy showing them where they would like to build on the farm when he visited them at some stage.

[95]             However, Peter said nothing came of it and the farm was sold shortly afterwards. Peter, under cross-examination, resiled from his initial position. He said it must have been Trudy who spoke to her father and she relayed the promise to Peter, rather than Michael making the promise.

[96]             Michael Sorensen and Sonia Sorensen deny there was ever any suggestion that the Trust Partnership would subdivide off a section. Trudy corroborates that and indicates that they would have liked a section on the farm, but her parents never offered one, nor did they discuss it at all.

[97]             Michael said he never even “floated” the idea that there would be a section subdivided for Peter and Trudy on Kererū farm. The Sorensens further note that the Partnership Trust at that stage owned a number of farms and they were all were heavily mortgaged. In addition, it would not have been up to them to subdivide a section off the farm as it was Trust Partnership property. Mr Allen, the independent trustee, would have had to have been part of that decision.

[98]             I conclude that the Sorensens made no promise to give a section from the Kererū farm to Peter and Trudy.

Gift of $200,000/$230,000

[99]             The second representation that Peter referred to was that the Sorensens agreed to give Peter and Trudy $200,000 (later increased to $230,000) for a deposit on a house. Peter says he and Trudy, armed with the alleged promise, went to Baywide Credit Union to talk about borrowing the balance. Peter thought they received a good audience from the bank officer. However, after they had found the Trinity Crescent house, he received news that the company he was working for had gone into receivership so he would be losing his job. He said the Sorensens then stepped in and offered to purchase the property on behalf of Peter and Trudy, which they did by obtaining a loan from the Sorensens’ bank (the ANZ/National Bank) and advancing money from the Trust Partnership. This was the representation relied upon when the claim was reformulated in closing.

[100]         However, the evidence on this point is inconsistent and unconvincing. Peter on the one hand said that the offer of the deposit was “life changing” but he had trouble remembering the details.

[101]         Peter gave various accounts of the promised gift of $200,000/$230,000 as follows:

(a)Peter pleaded that “[t]he first defendants indicated a wish to assist the plaintiff and the second defendant to purchase a home. They indicated that they would gift the sum of $230,000 which would provide a deposit and substantial equity so that the plaintiff and the first defendant could raise a loan for the balance”.

(b)Peter provided further particulars in June 2020, that: “[d]uring March 2007, the plaintiff was working in the bush … During this month, the first defendants indicated verbally and communicated with the second defendant their willingness to assist the plaintiff and second defendant in a home with a gift to assist them buying a house. … Initially the advice that the plaintiff received from the second defendant during March 2007 was that there would be a gift of $200,000. … A further

$30,000…was gifted afterwards and was applied to the existing loan

balance”. There was no mention of any conversation directly between Peter and the trustees.

(c)In his brief of evidence Peter said “[a]t the christening they [the first defendants] spoke to us and proposed they assist us in obtaining our own house. Specifically, they suggested that they would gift us the sum of $200,000 which would provide both the deposit and substantial equity…”. Peter did not give that version of events when he gave evidence. However Peter’s father gave evidence in chief in support of a conversation occurring at the christening when Michael Sorensen said the Trust would assist, help or buy a house for Peter and Trudy. He could give no detail as he said he only overheard the conversation.

(d)Peter said in his evidence that his mother had photos of the christening and he had realised that it took place in June 2007, so the conversation had to have taken place earlier than the christening.

(e)During cross-examination, Peter said:

(i)The conversation, which was “a changing point of my life”, occurred in March or April, when he and Trudy were offered a gift of $200,000. He said this conversation took place at Ruth’s (Trudy’s sister’s) place and that Trudy, himself, Michael and Sonya were present.

(ii)Then he said there had been other suggestions before that and that there were “lots of promises made”.

(iii)Subsequently, Peter said he could not recall the first time when Michael and Sonya Sorensen made an offer to Peter personally to give Peter and Trudy $200,000. He said it may have been over the phone to Trudy and it was reiterated by Peter at a later date.

(iv)Under questioning Peter said he did not recall whether he was present when Michael and Sonya offered the $200,000 or whether Trudy had relayed it to him. However, later he did firmly recall but, on at least one occasion, he was told directly by Michael and Sonya Sorensen about the $200,000 gift.

(v)Peter repeated on a number of occasions during his evidence that he had relied on Trudy and her family to look after him because he loved, trusted and respected his wife and her parents and believed they had his best intentions at heart, so he had no reason to query those things or remember specific times and dates.

[102]The defendants deny there was ever a promise to gift to Trudy and Peter the

$200,000 or $230,000 for the deposit on a house.

[103]         Michael and Sonya Sorensen say they spoke to Trudy and Peter before the purchase of Trinity Crescent. That conversation would likely have taken place at the Lagoon Farm rental. They suggested to Peter and Trudy that the Trust would buy a house for them to live in as long as the couple paid the outgoings. At that stage they said they did not know what the exact outgoings would be but in general terms outlined the likely loan costs.

[104]         Peter said it made no sense for him to move from paying $180 rent to pay approximately $270 per week outgoings on Trinity Crescent if he was never to receive the benefit of any increase in the value of the property. However, even on his grudging admission, the Trinity Crescent property was a better property. It appears that the Lagoon Farm rental was not a long-term proposition in any event given it was later demolished. Mrs Sorensen noted it was cold and damp. She was concerned that the couple were living in the property with a new-born. There is no suggestion that the outgoings paid on the Trinity Crescent property were above what market rent would have been on that property.

[105]         Trudy says her parents sat both her and Peter down and proposed the Trust buy a property for them to live in with the new baby. The couple had the final say in what was purchased. The Sorensens say at the time they thought Trinity Crescent was too small but nevertheless respected the couple’s choice. The agreement was that Peter and Trudy would pay the outgoings. Trudy says she miscalculated and thought the outgoings would be about $220, but they were higher than that, with rates and insurance at about $270 per week. Nevertheless, they managed with regular assistance from the Sorensens.

[106]         Mr Ross pointed to a comment by Michael Sorensen that he says supports a concession of an offer of a gift. The relevant evidence that Mr Ross pointed to was in his cross-examination of Mr Sorensen as follows:

Q. That’s why I suggest to you that the first talk about the possibility of buying a house was when there was mention of a sum of $200,000 for a deposit?

A. No. We may have said that we could put somewhere around 200,

$250,000 into the deposit for the house and we would finance the rest through the bank. He may have understood that the 200, or 250,000 that we were going to put towards the house was going to be given to him and it was never proposed as such. It wouldn’t have been. We don’t do that.

Q.       Well, you might not do that –

A.       We had no intention of gifting any money or a deposit.

Q. – you might not do that, but if he were to understand that, that might explain why he might go for a deal that was otherwise very much to his disadvantage, don’t you think?

A.       I’m not really understanding what you’re saying with that.

Q.What I’m saying is that it would explain, wouldn’t it, that if he thought that he was going to end up having title or some interest in the title to a house, that might explain what would be attractive about a deal which would see him paying quite a lot more than he was paying where he was living?

A.He might have thought that, but that wouldn’t have been the proposal that was put to him.

Q. Well, I suggest to you that you may never have intended to advance 200,000 but you were quite happy for him to believe that you were?

A. No, Iwould not  have been happy for him to believe  that we  were  going to give him 200,000 because we would never have suggested

that. We may have said we’re going to put 200,000 or slightly more towards a deposit on a house. It wasn’t suggested that it was going to be given to them at any stage.

[107]         Mr Sorensen had earlier said that that any discussion would likely have taken place at the Lagoon Farm rental property that Peter and Trudy were renting at the time their first child was born in September  2006.  Mr Sorensen  said  that  he  and  Sonya Sorensen were suggesting to Trudy and Peter that the Trust buy a house that they could occupy if Trudy and Peter paid the outgoings. Mr Sorensen said that while they did not know the amount of the actual outgoings because the house had not been purchased at that stage, they knew what level of funding the Trust could afford. They would have had rough figures on the cost to service the mortgage. The rates and other outgoings, however, would not be known until a purchase was made.

[108]         Peter was also inconsistent in his evidence concerning the arrangements to buy Trinity Crescent.  He said he and Trudy had intended to buy the house and had  credit union finance to purchase it based on a deposit to be given to them of $200,000. On 23 May 2007 Trudy signed an agreement on behalf of the Trust, or nominee, to buy the Trinity Crescent property. Peter says he saw the house before it was bought but was not present on the day the agreement was signed by Trudy to purchase the house on behalf of the Trust. He says he thought the Trust buying it was a temporary measure and it would be transferred into his and Trudy’s name personally in due course. He said he had heard on 22 May that his employer was going into receivership, which made him nervous about the security of his employment. That was the reason at the last moment he had agreed to the Trust buying the property rather than he and Trudy buying it.

[109]         Peter’s evidence about the couple intending to buy the house themselves, and the arrangement changing at the last moment, is unconvincing for the following reasons:

(a)Peter suggested that when the company for which he worked went into liquidation, he thought he had lost his job and that at this time he spoke with Baywide Credit Union and Michael and Sonya Sorensen. This is consistent with the evidence of Peter’s father, Brian Hollands.

However, the company for which Peter worked went into liquidation on 6 August 2007. The Agreement for Sale and Purchase of Trinity Crescent was dated 23 May 2007 and the Trust was designated purchaser on the Agreement. The Trust obtained financing in late July. This all occurred before the company for which Peter worked went into liquidation.

(b)In his oral evidence, Peter changed his evidence. He said he realised he had lost his job when he saw that the company had gone into receivership on the news on the evening of the day the receivers were appointed. The company went into receivership27 on 22 May and the Agreement for Sale and Purchase was signed into on 23 May. It would have been virtually impossible to make arrangements to formulate a “new” plan for Michael and Sonya Sorensen to purchase the property using a mortgage from their bank in that short time, particularly as Michael and Sonya Sorensen were in the Wairarapa visiting Sonya’s father at that time.

[110]         Peter made no attempt to obtain records to support his contentions that the couple were intending to, and would have bought, a house if the Trust had not done it for them. He said the credit union had agreed to lend them money to buy Trinity Crescent back in late 2006/early 2007 Trudy said she had sought records from the bank of the discussion they had with someone from the bank around early 2006. She said the discussion was very general to see whether they might get a loan but there was no loan offer. The bank no longer held any notes of that discussion. If, as Peter says, something firm had come out of the discussion, such as a loan offer, I would have expected some details or records of the loan offer to be held by the bank. Even if notes of an informal interview such as Trudy outlined might not be available any longer it is likely a record of a formal offer might be. Peter did not suggest they had taken any steps such as speaking to a lawyer about buying a house. Nor was there any evidence that a real estate agent had assisted them in looking for a house on their own account.

27     I accept that Peter may not have understood the difference between receivership and liquidation. However, that is not key to the fact that his evidence on this point is unconvincing.

[111]         In my view Peter’s evidence is unreliable. His version of the events leading to the purchase is improbable.

[112]         I do not accept that any representations were made, including any representations in relation to a gift of $200,000, to be used as a deposit for the house.

[113]The Sorensens and Trudy have consistently said that:

(a)The    Trustees    never    offered   or    agreed    to    gift   the    sum    of

$200,000/$230,000, or any other sum, to Peter or Trudy.

(b)The Trustees agreed with Peter and Trudy that the Trust would purchase a property in which Peter and Trudy would live and meet the expenses and outgoings, in lieu of paying rent to the first defendants. I note the Trust was yet to be formed at the time the arrangement was entered into. However, it was subsequently ratified by the Trustees after the Trust was formed.

(c)Peter and Trudy found a property at 4 Trinity Crescent for the first defendants to purchase. The Trust, which was yet to be settled, entered the sale and purchase agreement on 23 May 2007. A loan from the ANZ/National bank was obtained to assist with the purchase of Trinity Crescent. The loan was to the first defendants as trustees of the Trust.

(d)Subsequently, on 17 July 2008 the first defendants as trustees for the Trust entered into an agreement for sale and purchase of the property at 28 Surrey Street, Taradale, for $425,00, with the intention that Peter and Trudy would occupy Surrey Street and meet the expenses and outgoings, in lieu of paying rent to the first defendants.

(e)The first defendants never, at any time, offered or agreed to transfer ownership of Trinity Crescent or Surrey Street to Peter and Trudy.

[114]         Neither the Sorensens nor Trudy were shaken in their evidence under cross-examination. Overall, I prefer their evidence to that of Peter. As I have pointed

out, his evidence was vague and inconsistent. Their evidence is supported by the records, including the fact that Trudy signed the Trinity Crescent agreement for sale and purchase as agent or nominee.

[115]         Brian Hollands, Peter’s father, gave evidence purporting to corroborate Peter’s story in three respects. First, in relation to being shown a site on the property at Kererū that Trudy and Peter thought they might build on. However, I do not think this adds anything to the case. It appears that Peter and Trudy both would have liked to have had a section of the farm but the evidence of the Sorensens is clear that that was not ever an option. Trudy said there was no offer of a section on the farm. Peter could not say who made the offer or when it was made.

[116]         The second area in which Brian Hollands’ evidence was intended to corroborate his son’s version of events was that Brian said he overheard Michael Sorensen talking to Peter about “assisting”, “buying” or “helping” them get a house at the christening. Brian Hollands indicated he rarely socialised with the Sorensens but that was a family occasion. He heard no further details and indicated that it was in a crowded room when he was not part of the conversation. This conversation occurred, he said, at the christening in October 2007. First, that means it would have taken place after the agreement for sale and purchase of the house in Trinity Crescent was signed in May 2007. Secondly, Peter has now abandoned the claim that the Sorensens said they would buy Peter and Trudy a house. In addition, the conversation was overheard in what was apparently  a  crowded  room  and  Brian Hollands’ recounting of it is in very general terms. I do not think any weight can be placed on that as corroboration of Peter’s version of events.

[117]         Brian Hollands also said that he heard Michael Sorensen say that Peter should just take his half of the house and go. This apparently occurred when both sets of parents were called  to  break  up  an  altercation  between  Trudy  and  Peter. Michael Sorensen denies he said that. He says it had not even been on his mind at the time. He said he was worried about the children and Trudy and all he was concerned about was getting Trudy and the children away from the home. It is difficult to understand why Michael Sorensen would refer to a half-share of the house in the fraught situation described. In any event, the reported comments are vague.

[118]         I am not satisfied that any representations or promises of the nature that Peter suggests were ever made by the Sorensens, or by Trudy on their behalf. I do not consider that Brian Hollands’ evidence adds any weight to Peter’s version of events.

[119]         Accordingly, I am not satisfied on the facts that such representations or promises were made.

[120]         Therefore, the claims based on constructive trust and proprietary estoppel fail at the first hurdle. There was no basis for an expectation of an interest in the property, nor was there any encouragement which could give rise to an expectation of an interest.

What contributions did Peter and/or Trudy make to the Surrey Street property?

[121]         In relation to Surrey Street the payments Trudy and Peter made for outgoings payments were less than market rent. The couple also continued to receive regular assistance from the Sorensens by way of lump sums, as well as the weekly payments of $150 from the Trinity Crescent rental for one year and later, in the period 2015 to 2018, payments of $350 per week.

[122]         Peter did not claim that he or Trudy made any capital contributions to the properties. Peter’s evidence was that they undertook extensive landscaping, tree planting, and work mainly around the gardens in Surrey Street. On the evidence they planted a number of trees, Trudy said this involved around five to ten trees. Peter says it would have been closer to 20, including the kākābeak they planted. In addition, he said they cleaned out a lot of rubbish and put up some fences.

[123]         A registered valuer, Mr Harvey, gave evidence. He produced a full registered valuation of the Surrey Street property as at 31 October 2018. He concluded the value was $615,000 (inclusive of $5000 chattels and GST). Mr Harvey was asked to consider the improvements claimed by Peter to have been made to Surrey Street. The valuer reviewed the statement of claim and Peter’s brief of evidence, as well as information from Brian Hollands’ brief of evidence to obtain detail of the claimed work and improvements. He summarised the claims from those sources as follows:

(a)Peter and Trudy had regularly improved and maintained the property (Surrey Street), which had an extensive backyard and they had invested considerable time and effort in gardening and landscaping.

(b)They planted more than 20 trees and maintained them regularly.

(c)They constructed a new gate, new driveway, wooden fence (to provide privacy for their patio), new pavers, purchased a new shed, arranged power supply to the shed and carried out various house maintenance tasks.

(d)With the assistance of Brian Hollands, Peter and Trudy removed trees, rubbish removal and other work.

[124]         Peter, in his brief of evidence, also said he had rewired the house. The valuer, based on his inspection, concluded the house had not been rewired. Peter acknowledged this in evidence and said that in fact he had been referring to wiring the shed, which he considered was part of the house.

[125]         The valuer was unable to identify any alleged improvements  made  to  Trinity Crescent based on Peter’s evidence.

[126]         In relation to the Surrey Street improvements he said the added value for the alleged improvements was difficult to ascertain as the claims by Peter were vague.

[127]         In relation to the landscaping and general site maintenance, which was described in the evidence, the valuer took the view that any reasonable and responsible tenant would have undertaken such work. From the photographs provided and historical street view of the original landscaping, the valuer noted there had been flower beds and tree plantings on the site. These were removed in the landscaping works done by Peter and Trudy and there was replanting. He did not consider the landscapes were well-tended, nor did he consider the work done had added a lot of

value.28 While the landscape had changed, his view was that any change in value was negligible. He found the plantings were not extensive and could not identify 20 trees. He said the trees there were not well-tended or good specimens and added little value to the property.

[128]         Mr Harvey also identified some gates, wooden fencing and new concrete between the cobbled paving stones and the boundary fence which replaced a garden bed, which he considered added no value to the property.

[129]         The valuer did identify an added value in the form of a new garden shed and a new driveway adding a value of $8,375. These items were built by contractors and materials funded by the Trust. The valuer concluded that in relation to Surrey Street, any changes apart from the new shed and driveway had caused a neutral shift in value.

[130]         The renovations and work that did add any value to the property were paid for by the Trust.

What benefits did Peter and Trudy receive from the trustees in the form of free housing or otherwise?

[131]         I attach the analysis of financial contributions as Attachment 1. This details the contributions for outgoings to the properties made by Trudy and Peter during their period of occupation. It also sets out the benefits they received from the Sorensen interests including:

(a)regular payments to Trudy and Peter, being a share of the Trinity Crescent rental of $150 a week for approximately 12 months and payment of $350 a week for a subsequent period;

(b)payments to Trudy and Peter for payment of bills, personal use and outgoings; and

28     I note the inspection took place some years after separation, but this would not affect the assessment of the value of improvements.

(c)notional rental payments calculations for Trinity Crescent and Surrey Street.

[132]         In addition, the following payments were made to Trudy and Peter by the Sorensens/the Trust Partnership:

(a)The Trust Partnership advanced the sum of $100,000 (in October 2012). Repayment has not been sought.

(b)Other amounts were paid by the Sorensen Trust Partnership toward the capital owing on the home loans and for improvements on the property.

[133]         Peter accepted the figures and that the sums were accurate but said a number of contributions should not be counted including the regular payments of $140 and

$350 per week paid to the couple at various times. Peter says:

(a)Peter says the $150 share of rental can be seen as a return for Trudy and him managing the letting of the Trinity Crescent property. Peter said he went around on at least one occasion and told the tenants they had to put back a vegetable garden that they had dug up. I do not accept that Peter and Trudy would have been paid $150 to manage the property. They produced no evidence of that arrangement and it would have been an extraordinary sum in return for the minimal services they provided.

(b)Peter acknowledged the payments of $350 per week were paid into the couple’s joint account and used for their joint living expenses (as is apparent from the joint bank account statements). But he said that the Sorensens paid this money to the couple in return for Trudy not working. Trudy had been working at a café and the Sorensens were concerned that she worked late and did not see the children. The Sorensens agreed that they had helped out with these payments so that Trudy could stop working. However, there is no contest that it was paid into the couple’s joint bank account and Peter, as well as Trudy and the

girls, benefited from the payments. I see no reason to discount that payment as a benefit received by the couple.

[134]           The market rentals of the properties covering the relevant years in which Trudy and Peter lived in the respective properties were assessed by an independent valuer briefed for that purpose. The rentals were adjusted over the relevant periods.

[135]         The rental assessed for Trinity Crescent, Napier, for the period of occupation, was 20 August 2007 to 30 September 2008, totals $17,114.29

[136]         The rental assessment for Surrey Street, Napier, for the period of occupation, 30 September 2008 to 31 October 2018, totals $232,408.30

[137]         The outgoings (rates, insurance and interest on the loans serviced over the property) paid by Trudy and Peter amount to a total sum of $96,068: a sum well under the rental for the relevant properties assessed by the valuer.

[138]         The “significant contribution”, indirect or direct, to the value of the property as required to establish a constructive trust is not established here.

[139]         Peter submitted that the notional rental on Trinity Crescent and Surrey Street assessed by the valuer was an inappropriate estimate of contribution by the Trust. First, because he had been happy renting the council-owned house at Lagoon Farm of a rental at approximately $180 a week in 2007. He said he would not have moved if he had known they would have to pay $270 in outgoings and not receive an interest in the Trinity Crescent property. Secondly, he says there was no formal tenancy arrangement, so Trudy and he were licensees. While they were allowed occupation, they did not have the benefits or rights of tenants. He therefore said the rental

29  The Trinity Crescent weekly rental for the period 20 August 2007 to 20 February 2008 was $290 for 26 weeks, from  21 February 2008  to 19 August 2008, $298 for 26  weeks  and  the period 20 August 2008 to 30 September 2008, $306 for six weeks. As I noted earlier, the property was in fact rented (from late 2008 until it was sold in 2009), at a market rental of $300 per week of which $150 was provided by the Trust to Trudy and Peter.

30    The   valuer   assessed   the  rental  for  each  period  of  six   months  from  1 October 2008  to    31 October 2018. The average rental in that period was $447. This compared to the mean rental for four-bedroom houses in the period of a minimum of $317 per week to a maximum of $547 per week. It is apparent that the rental was within the two mean rental figures.

calculation was an inappropriate proxy for rights of occupation, which were less than tenancy rights.

[140]         Notional rental is a generally accepted proxy for costing the benefit accrued by providing housing or accommodation.31 In this case it is an appropriate proxy to recognise the benefit that Peter and Trudy received through having accommodation and housing provided for them and their children by the Trust. While there was no tenancy arrangement the benefits of the Trust providing the home were equal to, or outweighed, any rights that would have been provided by a formal tenancy arrangement. Peter and Trudy had selected both houses. A larger house was purchased at their request shortly after the Trust house had been purchased. The Trust funded renovations to Trudy and Peter’s specifications. In addition, the Trust later reduced the mortgage in order to reduce the outgoings that Peter and Trudy were paying. The Trust also paid outgoings when Trudy and Peter fell into arrears rather than, as would occur under a tenancy arrangement, putting them on notice for failure to pay the rental. In any event the outgoings they paid on the properties amounted to well under market rental, in total.

[141]         Additionally, both properties were better quality than the rental at the  Lagoon Farm property. Peter agreed that this was the case.

[142]         I also note that while Peter and Trudy may have stayed in the Lagoon Farm home at cheap rental for a short period of time, it was never likely to be a long-term arrangement. The evidence is that the Lagoon Farm property was unsuitable for a new-born baby. Mrs Sorensen noted it was cold and mould was growing on the walls. Those conditions suggest that it was probably not appropriately insulated. The Lagoon Farm rental was ultimately demolished. While it is not in evidence when exactly it was demolished, it is likely that it was kept at a low rental because the intention was that the tenancy would only be short-term pending demolition. It is unlikely that the council would have been willing to expend money on insulation or

31 For instance, in K P Malcolm Ltd v Malcolm [2012] NZCA 230 at [62], notional rental was calculated and deducted for the purposes of calculating direct financial contributions in a constructive trust claim.

renovation of the property, at least without increasing the rental. In my view, it is unlikely that the couple could have stayed in the Lagoon Farm rental long-term.

[143]         In the circumstances I am of the view that the assessed market rentals provided an appropriate proxy for a figure as a contribution by the Trust for the provision of accommodation for Peter, Trudy and their family.

[144]         Peter says he left all their finances to Trudy. She was also the one who liaised with her parents to get money from them when they fell short. All the payments from the Trust and Trudy’s parents were made to the couple into their joint account. Peter, in his evidence, said he could not now work out where all their money went. Peter acknowledged that they lived quite well, ate well and had holidays. He said he wanted for nothing and Trudy would just pay the bills. They both had access to the joint bank accounts on which they each drew funds from that account through their respective bank cards. In addition, a number of the advances were made primarily for Peter’s benefit. For instance, the Sorensens, as trustees, made the money available for the improvements and renovations on Surrey Street and the Trust then borrowed additional funds with which Peter and Trudy bought a car and a boat. Peter had wanted these.

[145]         The couple’s financial position was not strong at any stage. Their earliest bank account statements produced were from August 2007 and indicate that they then had an overdraft in excess of $8,000 on one of their accounts and nothing in the other. Peter was aware of this but says he thought it had been paid off by a personal loan at the time of purchase of Trinity Crescent. It was paid off, but by the Trust advancing the couple money from the bank loan raised at the time it purchased Trinity Crescent.

[146]         I am of the view that Peter knew more about their finances than he is now admitting to. He seemed to indicate it was Trudy who controlled everything, which was why he thought initially that they owned the Surrey Street property.32 He was however aware of an approach by Trudy to his father to borrow money, including

$3,000, when they failed to pay some outgoings on the house and had debts to clear.

32     This was reflected in his affidavit in support of applications for property division filed in the Family Court.

This was repaid from monies raised by the Trust to refinance the Surrey Street property at Peter and Trudy’s request.

[147]         Peter said earlier in their marriage, at around the time they married, they did have $16,000 and said they could have used that as a deposit for a house. This was at the time they were living and working on the Trust Partnership farm and well before there were any alleged discussions about the Trust promising them any money or property. Peter says Michael and Sonya discouraged the couple from buying a house. No details of that were given. What is apparent is that the money had been spent and by the time they were looking at purchasing houses in early 2007 they were in debt to the amount of at least $8,000 with little in the way of assets. Peter said the money saved had been spent on a trip to Australia and other things.

[148]         I do not consider Peter has established he and Trudy suffered any detriment by moving into the Trust houses.

[149]         As set out in Attachment 1, I find that benefits to the sum of $383,596.51 were provided by the Sorensens to Peter and Trudy. This includes the $100,000 advance/gift which was spent by Peter and Trudy and never repaid to the Trust Partnership.

Is Peter's expectation of an interest in the property reasonable or alternatively is there any unconscionability in the trustees retaining ownership of Surrey Street?

[150]         The Sorensens say that the purpose of the Trust was to protect the Sorensen family wealth and ensure that their daughter, grandchildren and generations beyond were secure. They said they had concerns about Peter and Trudy’s financial management. Trudy indicated in her evidence that these concerns were well-placed. It is also apparent from the couple’s financial situation that they had difficulty saving money.

[151]         The records indicate Peter and Trudy were never in a position to purchase their own home using their own resources. Even with the substantial amounts advanced or given to them by the Sorensens and their Trusts, Peter and Trudy did not amass significant assets or savings. They spent their money on a comfortable lifestyle and bought assets such as cars and a boat. These rarely appreciate in value.

[152]         Peter and Trudy could have bought their own home, and there is a suggestion that at one stage they were looking to do so. Michael Sorensen said that they could have used the $100,000 advanced to the couple by the Trust Partnership in October 2011 to buy a rental property but instead they spent that money and have nothing to show for it.

[153]         The fact appears to be that Trudy and Peter had difficulty saving money, or even living on the income they received, and needed regular financial assistance from the Sorensens.

[154]         Trudy also said that on two occasions they went to the ANZ/National Bank to try and get some advances out of the bank without having to go to her parents. Peter wanted to try this as he said Trudy was “on the Trust Deed”. However, the bank officer indicated they could not get advances without the approval of the trustees who owned the property and who funded the banking facility. At that stage Trudy said one of the bank officers told Peter to get legal advice – presumably about the right of the couple to arrange loans against the Trust property. It is apparent that if Peter was not aware earlier, he would have been made aware as a result of his visits to the ANZ/National Bank that neither he nor Trudy owned the property. Nothing seems to have come of those discussions – there is no suggestion that the Sorensens were then confronted by Peter about the situation.

[155]         The Sorensens took steps consistent with their strategy of family wealth-building to give their daughters and grandchildren some security. They were prepared to help their children but not give away their money where it could be likely lost. There is nothing unconscionable about that arrangement in the circumstances.

Assessment of benefits and contributions

[156]         Attachment 1 clearly shows the contributions by Trudy and Peter on the one hand, and the benefits they received from the Sorensens/Trust on the other. It is apparent the Sorensen benefits far outweigh any contributions by Peter and Trudy.

[157]         Overall, there is no contribution by Peter and Trudy to the properties that would amount to the “significant contributions” required to establish that element of a constructive trust.

[158]         Similarly, I can find no detriment to Peter and Trudy whether personally or otherwise that satisfies the “detriment” requirement to establish proprietary estoppel.

[159]         Therefore, even if there was a representation established the claim fails at the second hurdle. There has been no significant contribution to the properties, or any detriment to Peter and Trudy.

Conclusion

Constructive trust

[160]         In relation to the four elements required to establish a constructive trust I find as follows:

(a)Direct or indirect contributions to the property in question: although Peter made contributions, they were no more than the level of general repairs and maintenance of a cosmetic nature. They did not add to the value of the property. The contributions are not significant. The payment of outgoings was not a relevant contribution to the property in the circumstances.

(b)The expectation of an interest in the property: no representation was made, which would reasonably have led Peter to expect an interest for him and Trudy in the property. Trudy, Peter and their family had the benefit of quality accommodation, which was renovated to their requirements, over a number of years as well as substantial financial contributions from the Sorensens/Trust. There was no basis upon which to base a reasonable expectation that Peter and Trudy would also benefit from ownership of the property in any form.

(c)That such an expectation is a reasonable one: I am of the view that words or conduct on which to base an expectation have not been established. Accordingly, if Peter had an expectation it was not reasonable.

(d)That the Sorensens/the Trust should reasonably expect to yield the claimant an interest: in view of my findings above it would not be reasonable to expect that the Sorensens or the Trust to yield Peter or Trudy an interest in the property.

[161]         As Peter is claiming an interest in the property, of the legal title of which is held by the Trust, the starting point is that Peter has no beneficial interest and it was up to him to establish an entitlement to one. He has not established any interest.33

Proprietary estoppel

[162]         The Sorensens, in their capacity as trustees, did not create or encourage by words or conduct the belief or expectation in Peter (or Peter and Trudy) that they would have a share in the property or receive a benefit from it, either for Peter and Trudy’s contributions to the property, or because the couple suffered detriment in reliance of the expectation by not buying a house themselves.

[163]         In any event I have not found, even if an expectation had been created, that Peter and Trudy suffered any detriment by the failure of the Trust to meet that expectation. They were never in a position to purchase a property. When they did receive $100,000 from the Trust they did not use it to buy a property – even though they could have bought one and rented it out. There was nothing stopping Peter and Trudy from buying a property at any stage. At its highest, Peter’s allegation was that he was discouraged from doing so. I have not found evidence to support that allegation but, in any event, that would not establish a claim of estoppel without more.

33 In view of my findings above it is not necessary to consider the position of the trustees or whether they objected their discretion to allow the establishment of a constructive trust. I merely note that for the Trust to have to accept contributions sufficient to give rise to a constructive trust, the trustees must do so unanimously or act such as to allow one trustee to act on behalf of the Trust: Hawke’s Bay Trustee Co Ltd (Trustees) v Judd, above n 9, at [46]. Submissions were not directed at this issue.

[164]Accordingly, the claim of proprietary estoppel is not made out.

Knowing receipt

[165]         As I have found that Peter and Trudy did not acquire any interest, equitable or otherwise in the property nor any right to compensation, it follows that Trudy cannot have knowingly received the Surrey Street property in which she and the children live under arrangement with the Trust.

[166]Therefore, that cause of action also fails.

Acquiescence

[167]         In view of my findings it is not necessary to consider the defendants’ defence of acquiescence.

Summary of conclusions

[168]         As will be apparent, I have found that none of the causes of action have been made out. The claims fail.

Costs

[169]         In closing submissions, it was agreed the appropriate category would be 2B. Ordinarily, subject to further submissions on the matter, there would be no reason why the successful party should not be awarded costs. However, Mr Hollands is legally-aided, and in the circumstances, the provisions of s 45 of the Legal Services Act 2011 apply.

[170]         Any application should be made together with a supporting memorandum on or before seven working days of the date of this judgment and any response within a further five working days.

[171]Any reply should be filed and served within a further three working days.

Grice J

Solicitors:

Cathedral Lawn Law, Napier, for the Plaintiff.

Gifford Devine Lawyers, Hastings for the First and Second Defendants.

Attachment 1

SUMMARY OF CONTRIBUTIONS BY PETER AND TRUDY VERSUS BENEFITS PROVIDED BY SORENSEN INTERESTS

CONTRIBUTIONS BY PETER AND TRUDY

1.Home Loan Repayments (interest only):

a.First home loan, taken out on purchase of Trinity Cres on 2 Sept 2007. Payments by Peter and Trudy to that home loan.

$56,396.12

b.Second home loan taken out of $15,000 on 9 March 2017, (intended for dental work for Peter and Trudy’s daughter). Payments by Peter and Trudy.

$535.08

c.Third home loan taken out on 29 September 2017, everything consolidated at that time, home loan 1, 2 and 3 (balance was $144.454.82). Payments by Peter and Trudy.

d.Flexible facility of $50,000 for home improvements. Payments by Peter and Trudy.

$7,460.46

$463.92

Total Home Loan Repayments:  $64,855.58

2.Rates:

a.Rates paid and recorded in bank statements:

$11,585.48

b.Rates that may have been paid by EFTPOS as Napier City Council (based on $70 per fortnight from 2 September 2007 to 22 July 2012 ($9,525) and $84 per fortnight from 11 November 2012 to 7 July 2013 ($1,512), plus Hawkes Bay Regional Council annual rates between April 2008 and April 2013 (estimated $1,376.16)

$11,628.16

Total Rates Payments:  $23,213.64

3.Insurance payments that are known to be for home insurance (by way of estimate of home insurance apportionment):

TOTAL OF ABOVE CONTRIBUTIONS BY PETER AND TRUDY:

$7,999.22

$96,068.44

4.Improvements: (estimated costs: $39,000) value added $8,375. [Defendants say they provided the finance for these improvements, that contractors did most of the work and that Peter and Trudy had the benefit of these improvements while occupying Surrey St].

TOTAL INCLUDING FIGURE FOR IMPROVEMENTS:

$8,375.00

$104,443.44

5.On 16 August 2007 the bank advanced $120,000, of which $96,000 was used to purchase Trinity Cres and the balance used by Trudy and Peter to pay off a personal loan ($11,486.42), purchase a heat pump ($2,150), and the balance ($10,363.58) for day to day living expenses.

Excluding heat pump (a capital item):

6.Occupation – Trinity Cres (20 Aug 2007 to 30 Sept 2008): Market rental assessment:

7.Occupation – Surrey St (30 Sept 2008 to 31 Oct 2018): Market rental assessment:

8.Funds received from Trust:

a.$150 per week while Trinity Cres rented out

b.From 1 March 2015 Trust paid Peter and Trudy $350 per week

c.One off payments from Trust Sched A column 4

9.Trust Partnership payments towards the Home Loan:

a.           Made for Peter and Trudy when difficulty meeting interest payments: Total of benefits received from the Trust:

$21,850.00

$17,114.00

$232,408.00

$10,050.00

$62,300.00

$18,500.00

$2,159.11

$364,381.11

In addition, Peter and Trudy received:

10.Gift / advance October 2012 (not repaid and used for personal purposes):

11.Assistance with unexpected bills and appliances:

7/6/11:	T Hollands (Royston Hospital for Samantha):	$3,000.00
9/6/11:	Bay Ford (Loan for Trudy Hollands):	$11,000.00
29/6/11:	T Hollands (Samantha Specialist):	$535.00
30/6/11:	T Hollands (Samantha Operation):	$980.00
21/9/11:	Washing Machine Oven etc:	$1,367.59
18/10/11:	Farmlands (Groceries & Dogfood):	$200.47
14/11/11:	Farmlands:	$45.29
16/11/11:	Dentist:	$224.00
20/12/11:	Trudy (Vet Services for dogs):	$72.26
23/3/12:	T Hollands (Vet Bill Duke):	$791.29
15/5/12:	T Hollands (Cash):	$1,000.00

Total of Items in example above:

Added:

$100,000.00

$19,215.90

$119,215.90

TOTAL BENEFITS RECEIVED BY PETER AND TRUDY (INCLUDING NOTIONAL RENTAL):

$483,597.01

OTHER CONTRIBUTIONS BY TRUST WHICH ARE NOT QUANTIFIED (CONTRIBUTIONS NOT TAKEN INTO ACCOUNT)

To reduce Peter and Trudy’s on Surrey Street the Trust made a capital contribution to equity in Surrey St:

$70,927.85

[BENEFITS RECEIVED BY PETER AND TRUDY – NO FIGURES ALLOCATED]

1.Employment and Accommodation for Peter and Trudy – 2001 to 2006

2.Peter and Trudy’s Credit Card Debt Paid

3.Holden Club Sport Debt Repayments

4.Chattels lost in burglary replaced

5.Top up to 100% of approximately six months of ACC payments