Lieven v Grieve

[2023] NZHC 1034

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-757

[2023] NZHC 1034

IN THE MATTER OF

the Trusts Act 2019

BETWEEN

TANYA MARIA LIEVEN

Plaintiff

AND

GRAEME STEPHEN GRIEVE

Defendant

Hearing:	22 February 2023
Counsel:	D G Hayes for the Plaintiff D S Lester for the Defendant
Judgment:	3 May 2023

JUDGMENT OF GWYN J

[1]    This is a claim by the plaintiff, Ms Lieven, relating to two bare trusts. The plaintiff alleges that the defendant, Mr Grieve, as trustee of the trusts, has used trust funds or funds derived from borrowing against trust properties, for his own purposes.

Background

[2]    Ms Lieven and Mr Grieve were married in 2000 and separated in 2021. They have two children together. Ms Lieven has another daughter from her first marriage.

[3]    The parties purchased a property in Roseneath, Wellington (the property), in February 2004 for $2,003,000. The purchase was in both the plaintiff and defendant’s names. They obtained first mortgage funding  from  the  then-National  Bank  of New Zealand Ltd, for $1,700,000. Mr Grieve says that the balance of the funding, or most of it, was met from the proceeds of his prior share investments. The mortgage

LIEVEN v GRIEVE [2023] NZHC 1034 [3 May 2023]

was also in the parties’ joint names. Tenancy agreements in respect of the properties were also in the parties’ joint names.

[4]    The acquisition of the property was as a result of a Court order to complete the purchase. The parties incurred significant legal fees as a result of those proceedings. They undertook subdivision of the property, creating three separate titles, with the new titles being issued on 7 January 2005. Further work was done on the properties to complete two townhouses and obtain code of compliance certificates. It appears that this process involved significant legal costs for the parties.

[5]    On 7 January 2005 title in the subdivided properties was transferred to the defendant. Mr Grieve says that the registration of the property in his name was because Ms Lieven was potentially pursuing her father’s estate for further provision and did not want her name on the property as that might have the effect of lessening or diminishing her claim.

[6]    The evidence for both parties is that they struggled financially after buying the property, principally because of the costly legal battle. In addition, the applicants in the proceedings relating to the purchase was a developer who had been the prime source of work for Ms Lieven’s real estate business. She lost work as a result.

[7]    Mr Grieve said that in 2003 and 2004 he sold properties in another Wellington suburb, to assist with the legal costs.

[8]    Over time the parties continued to buy and sell property. It appears that neither party has a complete record, or recollection, of all of the properties involved and the costs incurred and income received. Mr Grieve’s evidence is that the purchase of various properties was conducted through companies. He typically owned the shares of the companies and was a director. These arrangements were to maximise tax efficiency. Ms Lieven was the CEO of the controlling company.

[9]    One of the properties involved was at an address on the  Kāpiti  Coast  (Kāpiti house), which the parties purchased in 2013 for $660,000. Ms Lieven continues to live at the Kāpiti house.

[10]   Ms Lieven undertook tenancy management of the properties, as well as her real estate work. Mr Grieve focussed on his full-time job and doing accounts and dealing with tax returns for the properties. Mr Grieve says that he and his companies provided business and office support to Ms Lieven and her companies.

[11]   It is clear from the evidence of both parties that they struggled financially to meet the costs of the property and reached a stage where, because they could not raise further funds on existing mortgages over the property, they resorted to credit card finance to assist.

[12]   They proceeded with a partial refinance with Sovereign to assist. Prior to the Covid-19 pandemic, they were considering refinancing the remainder, as ANZ (previously the National Bank of New Zealand Ltd, the mortgagee), would not lend them anything further. However, that refinancing did not occur.

[13]   Mr Grieve’s evidence is that they took a mortgage holiday during Covid-19 so they could pay down the more expensive debt, particularly the credit card debt. His evidence is that Ms Lieven diverted the rental money from a joint account into an account that only she could access and control, leaving Mr Grieve with a high level of expenses and debt servicing, along with other costs.

[14]   The Sovereign mortgages are in significant arrears. As at 7 November 2022, that was in the sum of $55,223.13. As at that date, rates arrears were $7,690.

[15]   From March 2021 Mr Grieve was prevented from entering the Kāpiti house by court orders.

Declarations of trust

[16]   There are two declarations of trust relating to the property. They were entered into by the parties on 20 December 2004, in respect of the first, and 26 April 2005 in respect of the second. The first deed was in respect of the property prior to subdivision. It refers to the certificate of title, which was cancelled when the subdivision of the property was completed. The second deed was entered into after the subdivision was completed and refers to the three current titles. The parties differ as to why the second

deed was signed — Ms Lieven says because they reflect two different payments.   Mr Grieve says that is not correct and it was simply because of the subdivision of the property. Neither deed refers to any monetary sums.

[17]   The two declarations of trust are in substantially similar form. They contain a mutual acknowledgement that the beneficial shares in the property continue to be held by the parties as joint tenants. Both declarations also state that the defendant as the Trustee has agreed to act as a custodian of the Beneficial Owner’s Half Share in the Land on the terms contained in the deed. The plaintiff, Ms Lieven, is the Beneficial Owner.

[18]   On 1 February 2023 a transfer of one half-share or interest in the property, registered in Mr Grieve’s name was completed in the favour of Rebecca Maria Gates and Clarence John Nicholl.

Statement of claim

[19]The statement of claim pleaded three causes of action:

(a)A failure by the defendant to concede his removal or retirement as trustee, pursuant to ss 112 and 114(1) of the Trusts Act 2019 (the Act). The statement of claim sought an order removing Mr Grieve as trustee of the trusts and appointing replacement trustees.

(b)The defendant was recorded on the title of the property as sole proprietor. The plaintiff sought orders that the Registrar-General of Land amend the titles to record Rebecca Maria Gates and Clarence John Nicholl as owners of 50 per cent as tenants in common in equal shares of the properties.

(c)Breach of trust, pursuant to s 13M of the Act, seeking declaration of a breach of trust and an enquiry into loss and damage.

Claims before me

[20]   In the written submissions filed and served on behalf of the plaintiff  on      20 February 2023, counsel advises that the plaintiff no longer wishes to proceed with the first and second causes of action as the outcomes sought had been achieved under s 117 of the Act.

[21]The remaining, third cause of action is framed as:

(a)a failure by the defendant to maintain proper accounts in his role as trustee; and

(b)breach of trust by the defendant in that he has used trust funds for his own purposes and/or failed to account for trust funds.

Counterclaim

[22]   The defendant counterclaims in relation to rental income for the properties still owned by the parties. Mr Grieve says that Ms Lieven took control of the rental income from and including December 2019 and has retained that control to his exclusion. He seeks her to account for the rental income since the parties’ separation in March 2021. Mr Grieve says that Ms Lieven failed to apply rental income to property expenses, has failed to account to Mr Grieve for his share and has used funds which ought properly to have been applied to expenses and/or to Mr Grieve, for her own purposes.

Financial records

[23]   Mr Grieve says he had no access to the Kāpiti house from the date of separation until 28 February 2022. When he tried to access the house, he was served with a trespass notice.

[24]   Mr Grieve says that all his financial records relating to the various transactions identified by Ms Lieven in her evidence were held at the Kāpiti house. This includes his workings, reconciliations,  background  and  supporting  records  and  similar.  Mr Grieve gives evidence of many requests to Ms Lieven, through their respective solicitors, seeking access to his records.

[25]   Mr Grieve says he cannot comply with Ms Lieven’s request to “see where money went” unless and until he has access to the material he requires. He says it is not possible for him to usefully and accurately comment on the transactions raised by Ms Lieven in this claim without access to that material, given the transactions occurred some time ago and his recollection of them is limited. In his affidavit of documents Mr Grieve sets out the various categories of information that he believes are relevant to the proceeding and to which he requires access. While some of the relevant records could be obtained from the bank or financier concerned, his workings and reconciliations are fundamental to providing the information that Ms Lieven seeks. The only copies of that material are held at the Kāpiti house.

[26]   To date, Ms Lieven has refused to provide access to the Kāpiti house or the records.

[27]   Ms Lieven says in response that Mr Grieve can access the computer files remotely, he in fact did this and deleted various files. Mr Grieve denies this. As a result of noting that files had been deleted, Ms Lieven says she thought it was a virus. She then disconnected the computer and took it to a repairer. When she went to collect it, the repairer was no longer working for the business and had taken the computer when the business closed down. Ms Lieven also says she has reviewed the boxes of documents left by Mr Grieve at the home and has not discovered any relevant documents.

Duty to maintain accounts of trust

[28] As I have recorded at [16] above, there are two relevant declarations of trust, dated 20 December 2004 and 26 April 2005. Under each of the trusts Ms Lieven is recorded as the beneficial owner and Mr Grieve as the trustee. In each, the beneficial owner appoints the trustee as custodian and bare trustee of the beneficial owner’s half share in the land.

[29]The trustee’s obligations under the declarations include:

(a)The Trustee acknowledges and declares that it is a bare trustee of the Land and holds the Half Share on trust for the Beneficial Owner.

(b)The Trustee will comply with all directions given to it by the Beneficial Owner in connection with the Beneficial Owner’s Half Share in the Land.

(c)Every act, matter and thing done by the Trustee in connection with the Beneficial Owner’s Half Share in the Land is done on behalf of the Beneficial Owner.

(d)The Beneficial Owner agrees with the Trustee to indemnify the Trustee in respect of any loss or liability that is incurred by the Trustee as a result of the Trustee holding the Beneficial Owner’s Half Share in the Land on behalf of the Beneficial Owner.

[30]   The submission for the plaintiff is that, in breach of his obligations, Mr Grieve has failed to maintain accounts for the Trusts. Mr Hayes relies on Kirkpatrick v Burns,1 where the Court, having reviewed the obligations of bare trustees, said:2

Although consideration of whether the trustees are “bare trustees” may be helpful in some contexts, there is a risk of becoming overly concerned with nomenclature to the point where the nature of the duties and discretions of the trustees may be obscured. Where the expression “bare trustee” is used in statute, the courts are of course obliged to give some meaning to it. But in the absence of a statutory reference of this kind, the real task is to ascertain the nature and extent of the trustees’ obligations and discretions by reference to the terms of the instrument establishing the trust, assessed in the context of all the relevant surrounding circumstances and the obligations imposed on trustees by the general law or by statute.

[31]   Ms Lester for the defendant responds to this aspect of the claim in the following terms.

[32]   First, as counsel observes, the statement of claim contains no pleading that the defendant had a duty to keep accounts and breached that duty. The matter was raised for the first time in the plaintiff’s submissions of 20 February 2023.

1      Re the Estate of Kirkpatrick; Burns v Steel HC Christchurch CIV-2005-409-1349, 22 December 2005 at [62].

2 At [62].

[33]   There is no clear authority that a bare trustee must keep accounts, although counsel accepts that there are some obligations on a bare trustee. However, Ms Lester says there is no specific duty in this regard.

[34]   Even assuming such a duty, Mr Grieve rejects the submission that he has failed to keep accounts. Ms Lester notes, first, the more than 100 pages of transaction records contained in the defendant’s disclosure of documents. Second, Mr Grieve has repeatedly said through counsel, and in his evidence before the Court, that he requires access to his business computer, copies of accounts, reconciliations and so on, which would enable him to provide further information relating to the trust accounting.

Breach of trust

[35]   As to the second allegation, breach of trust, the plaintiff says that in the period 2011–2016:

(a)On 31 March 2011 the property was recorded as security for a loan of

$1,339,000 from the National Bank.

(b)During 2011 the defendant and/or his companies borrowed $245,000 from unknown sources and recorded the transaction in the financial accounts for the partnership.

(c)On or about 31 March 2012 the properties were security for a loan of

$1,700,000 from the National Bank.

(d)On drawdown the National Bank loan repaid the $245,000 referred to in (b) above.

(e)In the year to 31 March 2012 the defendant recorded the plaintiff had withdrawn $371,899 from the partnership.

(f)The defendant did not withdraw or receive any funds from the partnership.

(g)During the year to 31 March 2014 the plaintiff and defendant borrowed a further $150,000 from the ANZ Bank.

(h)The defendant loaned the $150,000 referred to in (g) to his company, Boston Property Group Ltd, for property development or share purchase purposes.

(i)During the year to 31 March 2014, the defendant’s various companies wrote off or converted to capital $474,000 of the debt owed to the partnership and accepted liability for the debt of $150,000 related to the ANZ loan referred to above.

(j)On or about April 2016 the defendant borrowed $150,000 from Mortgage Holding Trust Company Ltd (Sovereign Home Loans) using the properties as security.

[36]   Ms Lieven says that Mr Grieve used these funds for his own purposes and none of them has been repaid to the partnership. The allegation is that Mr Grieve has either used funds for his own or his companies’ benefit and not invested the funds prudently. Ms Lieven’s affidavit in support of the claim sets out further details of these alleged transactions, although it is difficult to reconcile that detail with what is pleaded in the statement of claim.

[37]   The essence of Ms Lieven’s claim is that the defendant had sole electronic control of all the partnership’s banking facilities and she is unable to ascertain what has happened to the monies arising from various transactions.

[38]   Mr Grieve admits the terms of the Declaration of Trust documents. He acknowledges that he and the plaintiff were partners in a partnership which was formed for the purpose of administration of the properties they acquired. He says the partnership was utilised for a limited period, following which the parties reverted back to reporting and filing financials through their respective personal tax returns.

[39]   He admits that he prepared financial accounts for the partnership up to approximately 2014.

[40]   He admits that as, at 31 March 2011 the property was subject to a registered first mortgage in favour of then-National Bank of New Zealand Ltd but says he has insufficient knowledge of the amount secured by the mortgage.

[41]   He admits that lending was obtained from Mortgage Holding Trust Co Ltd and that the lending was secured by way of a registered first mortgage dated 21 April 2016 over two of the subdivided properties (the then current mortgage in favour of the National Bank of New Zealand Ltd being discharged also on 21 April 2016 in relation to those properties, but remaining in place over the third subdivided property).

[42]   Otherwise, the defendant denies the allegations of breach of trust. He reiterates that he has repeatedly sought access to the various files at the Kāpiti house so he can prepare an accounting. Without that access he says it is difficult, if not impossible, for him to provide details of the various transactions referred to by the plaintiff in order to provide the accounting that the plaintiff seeks.

Discussion

Failure to keep accounts

[43]   This was not a cause of action pleaded by the plaintiff in her statement of claim. I am not minded to grant leave to amend the statement of claim at this point, given the potential prejudice to the defendant.

[44]   In any event, I accept the submissions from Ms Lester that there is no evidence to support the allegation that Mr Grieve “failed” to keep accounts. The documents provided by him in discovery suggest that some accounts were kept and, as Ms Lester submits, the plaintiff’s continued refusal to allow the defendant  access  to  the  Kāpiti house and the materials which Mr Grieve says would enable him to explain the transactions in question, mean that this aspect of the claim must fail.

[45]   As to the allegation of breach of duty of trust, again, it is simply not possible for the Court to reach a conclusion on the claim in the absence of full evidence, where it appears that absence has at least in part been caused by the plaintiff’s own actions.

Counterclaim

[46]   The defendant’s counterclaim pleads a failure by the plaintiff to account for the rental income since the parties’ separation in March 2021 and failure to apply rental income to property expenses and/or to account to the defendant for his share of rental income.

[47]   The plaintiff says in response that she has correctly applied the rental revenue to expenses on the properties and, because there is a deficit in revenue, the defendant is not owed any funds and in fact should contribute funds in proportion to his interest in the property.

[48]   In response, the defendant says the plaintiff has not provided any source documents and in particular any receipt for payment of Wellington City Council rates on the properties.

First and second causes of action

[49]   Although these claims were not pursued by the plaintiff, Ms Lester made submissions directed at the costs implications of pleading and then abandoning those claims.

[50]   First, Ms Lester says, these causes of action could never have succeeded. The plaintiff pleads that on or about 20 June 2021 she served written notice on the defendant (through his solicitor) removing or retiring him as trustee and replacing him with Rebecca Maria Gates and Clarence John Nicholl as trustees. The plaintiff says the defendant took no steps to transfer the trust assets (being the 50 per cent share of the properties) or the trust records to the new trustees.

[51]   Mr Grieve however says no such notice was served on him and therefore he was under no obligation and/or direction to transfer the trust assets.

[52]   In her affidavit in reply, Ms Lieven says it was “my understanding” that the defendant was served by her previous lawyers but that she has not been able to confirm that.

[53]   I agree that the failure to serve is critical to these causes of action proceeding and there is no evidence that Mr Grieve was in fact served. The causes of action could not have succeeded without that evidence.

[54]   Second, Ms Lester notes that it was only  in  the plaintiff’s submissions  of  20 February 2023 that she advised that the first and second causes of action were not being pursued.

[55]   For those reasons, Ms Lester seeks costs in relation to the first and second causes of action.

[56]   I accept that the defendant is entitled to wasted costs for time incurred in preparing to defend the first and second causes of action. Calculation of those costs can be included in ultimate costs awards at the conclusion of the proceeding.

Part 16 — accounts and inquiries

[57]   Both parties have sought an account and inquiry into the revenue and borrowings relating to the property held under the trusts and other property the parties have held.

[58]   Part 16 of the High Court Rules 2016 (Rules) provides for the Court to order an account or inquiry. As the Court of Appeal noted in Nicholls v Nicholls, “the process of account … is neither a cause of action nor a remedy, but rather a preliminary exercise by …which means a claimant can establish an evidentiary basis for the imposition of some form of liability on a defendant.”3

3      Nicholls v Nicholls [2020] NZCA 346 at [76].

[59]   The jurisdiction requires the Court to first be satisfied that there is a liability to account.  I accept that Mr Grieve, as trustee, has an obligation to account and that  Ms Lieven has an obligation to account for the rental income from the property

[60]   Ms Lester for the defendant has set out a series of steps which, in her submission, are a necessary prelude to any directions pursuant to pt 16 of the Rules. These entail Mr Grieve having access to the Kāpiti house to collect the material he says is there and is relevant to explaining the transactions at issue. Mr Grieve would then have a period of time to reconcile the material and provide it to Ms Lieven, through counsel. Within the same timeframe, Ms Lieven would provide supported accounting in respect of the counterclaim. Once those steps had been completed, if the issues are not resolved either party should have leave to apply to the Court to seek further directions, which may include directions pursuant to pt 16 of the Rules.

[61]   I am satisfied that there is a duty on the defendant, as bare trustee in relation to the property, to account. As I have set out above, I am not satisfied on the evidence before me that there has been a breach of that duty. A further inquiry is necessary if the Court is to reach a conclusion on that claim and on the defendant’s counterclaim.

[62]Accordingly, I make the following directions:

(a)The plaintiff shall provide the defendant with access to the Kāpiti house at an agreed time, in order for him to collect items required by him to explain the transactions that the plaintiff has called into issue. The defendant is to attend at the Kāpiti house in the company of a support person, whose identity shall be notified to the plaintiff in advance of the visit.

(b)On acquiring all necessary material, the defendant shall have a period of 60 days to reconcile the material and provide it to the plaintiff, through counsel.

(c)Within the same timeframe, the plaintiff is to provide a supported accounting in respect of the defendant’s counterclaim and is to provide that to the defendant through counsel.

(d)Once those steps are completed, if either party is not satisfied with the material provided by the other, leave is granted to return to the Court to seek further directions, which may include directions pursuant to pt 16 of the Rules.

Gwyn J

Solicitors:

Hunwick Law Limited, Hamilton McCabe and Company, Wellington