LDS v MFG

[2024] NZHC 499

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2023-409-228

[2024] NZHC 499

BETWEEN

LDS

Appellant

AND

MFG

First Respondent

AND

MGA, MMC and

LANDSBOROUGH TRUSTEE SERVICES

NO 1 LIMITED as Trustees of the G&MM FAMILY TRUST

Second Respondents

Hearing:

19 February 2024

Appearances:

A S P Tobeck for the Appellant

D R Mills-Godinet for the First Respondent C R Johnstone for the Second Respondent

Judgment:

8 March 2024

JUDGMENT OF HARLAND J

Introduction

[1]    This is an appeal against a judgment of the Family Court1 dismissing an application by LDS to join the trustees of the G&MM Family Trust (the Trust) to proceedings between LDS and his former wife MFG concerning the division of their relationship property.2 The parties agree that a dwellinghouse, located on land owned

1      LDS v MFG […]

2      The appeal is brought pursuant to rr 20.4-20.9 of the High Court Rules 2016 and s 174 of the Family Proceedings Act 1980.

LDS v MFG [2024] NZHC 499 [8 March 2024]

by the Trust, is relationship property but they disagree about whether all or part of that land, comprising some 41 ha, is relationship property.

[2]    It is accepted that the value of the dwellinghouse and land are key issues in the proceedings, including how the appellant’s interest, whatever it might be, is to be realised. The appellant’s case is that the trustees would need to be involved should an order for sale be required. This seems to be the rationale for asking the Court to join the Trust as a party to the relationship property proceedings.

[3]    The appellant submits that the dwellinghouse is a fixture to and therefore part of the land. He also submits that both respondents have admitted that the partners to the relationship have an equitable interest in the land, the trustees should be joined to the proceedings and the appeal allowed.

[4]    The respondents oppose the appeal. They submit the Judge was correct to determine that, as the trustees are not one of the relationship partners, the Family Court cannot make determinations as to the land owned by the Trust, as this would need to be the subject of separate civil proceedings in the High Court. They further submitted that the dwellinghouse is not a fixture in the sense contended for by counsel for the appellant but, even if it is, that does not affect the fact that the land has never been held by the first respondent and is therefore outside the jurisdiction of the Property (Relationships) Act 1976 (PRA).

[5]    I have decided to dismiss the appeal. This judgment sets out my reasons for doing so.

Background

[6]    The dwellinghouse is situated on 41.764 ha of land that is held by the trustees pursuant to a Deed of Trust executed on 29 June 2004. The first respondent is one of the three daughters of the settlors of the Trust and one of the discretionary beneficiaries under cl 1.1.3 of the Trust Deed.

[7]    The 41.764 ha formed part of a larger farm block known as “[the property]”, which included the […] family home. For many years, the [MFG’s late father] farmed

[the property] in partnership with another of his daughters, who lived on the farm in a separate house with her husband and children.

[8]    In about 2004, the first respondent asked her parents if she could build a home “at the back of the farm”. They gave verbal permission for this to occur. The first respondent commenced building a dwellinghouse, which she funded personally and with the help of her parents. It appears LDS contributed some funding to make the house liveable when the pair met, but the amount he contributed is disputed. At any rate, MFG claims to have been living there before the parties met.

[9]    Some years later, the decision was made to wind up the [the property] partnership and sell the farm. Steps were first taken by the trustees to establish two areas of conservation land under Queen Elizabeth II covenants to protect areas of native bush that had been planted and maintained by [MFG’s late father]. An area of land, primarily forest and including the site of the first respondent’s constructed house and access track, was subdivided. A new title issued in January 2015. The land was then transferred to the second respondents on 2 March 2016. The trustees have since changed following [MFG’s father’s] death last year, with one of the respondents’ sisters replacing her father as a trustee.

[10]   The appellant and first respondent formed a relationship in 2005. They moved in together and their son was born in October 2007. It appears from the documents filed in the PRA proceedings that an extension to the home was agreed to by the couple, with $150,000 obtained via mortgage to do so in 2008.3 Some years later, when $30,000 had been paid off the mortgage, it is contended that the first respondent’s parents offered to pay the remainder of it and entered into a private lending arrangement with the appellant and respondent for the balance owing. These events will be dealt with in the PRA proceedings before the Family Court and are simply mentioned here as background.

[11]   The appellant and first respondent married in March 2010 and separated on 1 November 2018.

3      MFG’s evidence notes she was happy with the state of the house but the subsequent mortgage obtained in both their names suggests eventual agreement.

[12]   The respondents’ case is that the first respondent was granted a bare licence by the Trust to build a dwellinghouse on the land owned by the second respondents, as well as a licence to access that dwellinghouse over the Trust’s land. They say the licence was granted before the appellant and first respondent’s relationship began. The licence was not recorded in writing.

[13]   The appellant’s case is that the dwellinghouse is “a family home” or chattel as defined in the PRA because it is fixed to the land and therefore a part of it.

[14]   The initiating proceedings and affidavits filed in the Family Court reveal that the appellant is also claiming an interest in the land as relationship property. He contends that the respondents have admitted that he and the first respondent have an equitable interest in the land. The respondents deny any such admission.

Family Court decision

[15]   The appellant applied to the Family Court for an order joining the trustees to the parties’ relationship property proceedings.4

[16]Rule 133(1)(b) provides:

133 Striking out and adding parties

(1) The court may, on its own initiative or on an interlocutory application for the purpose, at any stage of the proceedings, and on any terms that the court considers just,—

…

(b) order that the name of a person who ought to have been joined, or whose presence before the court may be necessary to enable the court effectually and completely to adjudicate on and settle all questions involved in the proceedings, be added, whether as applicant or as respondent.

[17]   The Judge noted the approach to joinder is a liberal one, with the object of the rule being to provide for the inclusion of the necessary party.5

4      Under Family Court Rules 2002, r 133(1)(b).

5      O’Brien v Parkinson [2021] NZHC 1193 at [19].

[18]The Judge outlined the argument by the parties as follows: :6

[13]      The applicant argues that the house (being the “family home”) is now part of the land, because it is a fixture and cannot be moved. He says that because the trustees concede the house is relationship property, that makes part of the land relationship property, and on that basis the parties have an equitable interest in the land and the trustees who own the land, ought to be joined to the proceedings.

[14]      The trustees and the respondent say it is not necessary to join the trustees as parties, because there is an absence of any legal basis that the land or any part of it is relationship property under the PRA. Essentially they say that the land is unequivocally owned by the Trust, which is undisputedly a third party, and that the extent of the applicant’s and respondent’s interest in the land is a bare licence to occupy and access the house on the land.

[19]   The Judge then considered what constitutes a family home under s 2 of the PRA. With reference to the definition, he decided that, although the definition includes land “appurtenant” to a dwellinghouse and used wholly or principally for the purposes of the household, the meaning of appurtenant was something that has to belong to or be part of that which is claimed to be appurtenant to it. The Judge accepted a submission from counsel for the Trust that whether the dwellinghouse was a fixture or not was irrelevant because the land does not belong to the house.

[20]   The Judge concluded that the Court could not make orders under the PRA in respect of the land as it was not relationship property as defined in any of the subparagraphs of s 8(1) and neither was it either party’s separate property. He noted that s 44C (referred to as the “trust-busting” section) did not apply because the land was never relationship property prior to it being transferred to the Trust. Neither, he found, did the evidence establish that the land was property owned by one of the parties to the relationship that was disposed of to a Trust during, or in contemplation of, the relationship.

[21]   Referring to Yeoman v Public Trust’s citation of Johanson v Johanson,7 and referring to s 37 of the PRA, the Judge held that this was not a case where a third party should be heard because the Trust’s interest in the property was not at stake in the proceedings. The Judge noted that a constructive trust claim, or any other argument

6      LDS v MFG, above n 1.

7      Yeoman v Public Trust [2011] NZFLR 753 (HC), citing Johanson v Johanson (1993) 10 FRNZ 578 at 580 (CA).

against the Trust to obtain an interest in the land it held, would be a separate civil proceeding in a separate jurisdiction, namely the High Court.

[22]   The Judge declined to join the Trust as a third party to the PRA proceeding between the appellant and first respondent.

Principles on appeal

[23]   Section 174 of the Family Proceedings Act 1980 provides a party with the right to appeal a decision of the Family Court to this Court. The appeal has been lodged pursuant to rr 20.4–20.5 of the High Court Rules 2016. In Whyte v Whyte, this Court made the following observations in relation to appeals under s 174, namely that:8

(a)the appeal is by way of rehearing;

(b)the appellate court has the responsibility of considering matters afresh;

(c)the appellate court must be persuaded that the decision is wrong;

(d)the weight the appellate court gives to the reasoning of the court below is a matter for the appellate court’s assessment; and

(e)those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment.

[24]   Notwithstanding the above, this Court will not interfere with the exercise of a discretion by the court appealed from unless the Judge acted on wrong principle, took into account some irrelevant matter, failed to account for a relevant matter, or was plainly wrong.9

8      Whyte v Whyte [2022] NZHC 2607 at [15]

9      May v May [1982] 1 NZFLR 165 (CA) at 170.

Discussion

Is the family home a fixture or chattel and therefore part of the land?

[25]   Mr Tobeck relied on the definition in s 2 of the PRA to support this argument, which was bolstered, he submitted, by the first respondent accepting that the family home is not removable because of its location and its cladding.

[26]   Mr Tobeck then referred to Action Fencing Ltd & Ors v Ark Contractors Ltd & Ors as authority for this proposition.10 In that case, the trustees of a family trust were being sued in conversion in relation to trust-owned land. They were alleged to have converted chattels after the plaintiff’s tenancies had terminated. The trustees sought summary judgment on the basis the claim against them could not succeed. The argument concerned whether three items which remained on the property, a concrete toilet block, security fencing panels and guard rails, were affixed to the land so that they passed by operation of law from the owner of the chattel to the owner of the land.

[27]   After noting the legal principle that, if a chattel becomes a fixture, the chattel passes by operation of law from the owner of the chattel to the owner of the land because its legal identity as a chattel had been lost, the Judge said:

[13]      An article not attached to land other than by its own weight is presumed to be a chattel unless the contrary is established. Conversely, an article attached to the land, even slightly, is presumed to be part of the land unless circumstance reveals it was intended to continue as a chattel. Purpose of annexation is important. And assessed objectively. Consequently, an item is a fixture if it is brought onto land for the land’s permanent and substantial improvement. An item remains a chattel if it is brought onto land for a temporary purpose, or for more complete enjoyment and use as a chattel.

(footnotes omitted)

[28]   The Judge found that the toilet block was a fixture because the plaintiff had advanced nothing to rebut the presumption that it was a fixture. The Judge determined that the removal of the toilet block would be difficult if not impossible and would cause substantial damage. The Judge noted that while removal may have been “technically possible”, that fact alone was not determinative. He therefore decided that the toilet block was a fixture and that it could not be converted.

10     Action Fencing Ltd & Ors v Ark Contractors Ltd & Ors [2017] NZHC 3248.

[29]   By way of analogy, Mr Tobeck submitted that the dwellinghouse in this case includes the land by virtue of it being a fixture to the land, creating an equitable interest in the land itself held by both parties.

[30]   I am not persuaded that the Action Fencing Ltd case is on point. It relates to an entirely different factual scenario which includes the nature and context of the claim being considered by the Court. For example, under the PRA, family home and family chattels are separately defined. It is therefore arguable that the dwellinghouse, being a family home, cannot also be defined as a family chattel. But, in any event, this Court has not been furnished with fulsome submissions as to the chattel/fixture question from either respondent. That is because an interlocutory application appeal from the Family Court is not the appropriate proceeding in which to determine the issue substantively. It was submitted to the Family Court in the initial proceedings that “whether the house is a fixture or not is irrelevant, because the land does not belong to the house”.11 As far as this Court is concerned, and absent any proceeding to indicate otherwise, the land is owned by the Trust and that is the end of the matter.

[31]As Associate Judge Bell observed in Yeoman v Public Trust:12

[39]   Claims for division of relationship property are heard between and bind only partners in marriage, civil unions and de facto relationships. When the Family Court determines which assets are relationship property, its decision binds only the partners. It does not make determinations that bind third parties.

[40]  If one party contends that there are assets which belong in the relationship property pool, but those assets are in the apparent ownership of a third party, in the absence of agreement from the third party, proceedings against the third party may be required to establish relevant beneficial ownership. The Family Court cannot hear disputed claims that assets in the apparent ownership of a third party are beneficially owned by one of the parties in a property relationship proceeding. This is shown by the limits on the scope of s 37 of the Property (Relationships) Act….

…

[44] The increased use of family trusts today will give rise to questions in identifying relationship property. These can include whether assets are held in a trust or by the parties, whether the relationship property includes debts back from the trustees, whether beneficial interests in property held under trusts are relationship property. These questions are determined as between the parties to the relationship. The Family Court will apply general property law. It will

11     LDS v MFG, above n 1, at [16].

12     Yeoman v Public Trust, above n 7.

declare the extent of rights held; it will not create new rights. In cases where the trustees are not the relationship partners and the trustees do not accept that a relationship partner has a relevant beneficial interest in a trust asset, the Family Court cannot make determinations at the inventory stage that will bind the trustees. Proceedings in another court are required. However, where the legal owner of an asset said to be subject to a trust is one of the relationship partners, there can be no jurisdictional objection to the Family Court deciding whether the asset is held on trust. In doing so, the Family Court is undertaking its normal function of identifying relationship property for applications under s 25(1) and (3) of the Property (Relationships) Act. It is exercising powers inherent in its jurisdiction to decide applications under that Act.

(emphasis added)

[32]   On that basis, I decline to make a finding regarding the status of the dwellinghouse as a fixture or chattel. The Family Court Judge was correct to reject the first respondent’s argument on this point.

Has an equitable interest in the land been admitted?

[33]   Mr Tobeck submitted that the respondents have admitted that the partners to the relationship (the appellant and first respondent) have an equitable interest in the land.

[34]   Neither respondent accepts this submission. The notice of opposition filed by the second respondent clearly outlines the Trust’s position, that neither the appellant nor first respondent, jointly or separately, have any interest, either legally, beneficially or equitably in the Trust land on which the house has been built other than by way of a bare licence.

[35]   I cannot see any compelling evidence that the respondents admit that the parties to the relationship have an equitable interest in the land.

[36]   That leaves the appellant in the position of needing to establish such an interest. In this regard, I refer to the Court of Appeal in Johanson v Johanson where, over- ruling the High Court judgment and disallowing an application for joinder, Richardson J held:13

13     Johanson v Johanson, above n 7, at 4-5.

Notice under the section is a procedural step to allow third persons with interests in the property before the court in the matrimonial property proceedings the opportunity to come into the proceedings so that their views may be heard when the court is resolving the matrimonial property issues and making the necessary ancillary orders. But the section does not allow the introduction of third parties whenever one or both of the spouses have an unresolved claim against third persons. If a notice is issued the third person is entitled to appear which indicates that it is an election; that the third party can take advantage of the opportunity and not that his or her basic interests in the property are at stake. It is a precondition to the exercise of the jurisdiction under ~37 that the third person has an interest in the property which would be affected by an order if made at that time under the Matrimonial Property Act. The section fairly covers cases where a third Party has a security interest over property of the spouses or has a joint interest along with them. In my view it does not extend to the converse case where it is the third party who owns the property and the spouses are simply in the position of claimants. It is prejudging such a claim to conclude that the interest of the third party owner “would be affected” by a matrimonial property order. In this case unless and until a constructive trust or other equitable interest is acknowledged or declared it cannot be said that the Browns’ land would be affected by a matrimonial property order. An application to issue a notice under s37 is premature.

(emphasis added)

[37]   The above italicised section of the Court of Appeal’s judgment applies in this case.

Conclusion

[38]   I cannot find any error in the Judge’s decision about joinder. As things currently stand, the presence of the second respondents as a party is not necessary to enable the Court to “effectually and completely adjudicate on and settle all questions” involved in the relationship property proceedings between the appellant and first respondent. In this Court, Mr Johnstone advised that neither the appellant nor first respondent have paid rent for the use of the land, neither have they contributed to any of the outgoings such as payment of rates, insurance and the like. The Trust is able to provide evidence for the first respondent about its arrangements with her and/or the appellant.

[39]   As noted above, any equitable interest in the land claimed by the appellant to be relationship property would need to first be established in this Court.

Result

[40]The appeal is dismissed.

Harland J

Solicitors:

Menzies Marshall Law Limited, Winton Trollope & Co, Christchurch

Cameron & Co, Christchurch.