Lo v Lo
[2021] NZCA 693
•16 December 2021 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA418/2020 [2021] NZCA 693 |
| BETWEEN | HO SHING LO |
| AND | HO CHEONG LO |
| Hearing: | 29 July 2021 |
Court: | Goddard, Thomas and Wylie JJ |
Counsel: | M D Lloyd for Appellant |
Judgment: | 16 December 2021 at 3.00 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed.
BOrder permitting the respondents to buy out the appellant’s share in the property on the terms set out in the Appendix to this judgment.
CLeave is reserved to the parties to file submissions in relation to the terms of the orders to be made to govern the scenario where a buy-out does not proceed, in accordance with the timetable directions set out at [106].
DCosts are to lie where they fall.
____________________________________________________________________
Table of contents
Para No
Overview
Background
Relevant legislation
High Court judgment
Concerns about procedure and evidence
Applicant’s share in the property
Nature and location of the property
Interests of other co-owners
Comparative hardship to parties
Contributions to the improvement and maintenance of the property
Overall assessment
Result
Appellant’s submissions
Respondents’ submissions
Discussion
Use of originating application procedure
Was the evidence inadequate?
The nature of the appeal
Ascertaining the parties’ ownership interests
Giving effect to Chi Na’s equitable interest in the Flat Bush property
Result
REASONS OF THE COURT
(Given by Goddard J)
Overview
The appellant (Ho Shing) and the first respondent (Ho Cheong) are twin brothers. They are the registered proprietors of a six-bedroom property in Flat Bush, Auckland.
Ho Shing no longer lives at the property. He considers it should be sold. Ho Cheong lives at the property with his mother (Chi Na), the second respondent; his grandmother, Yan Yi Wang (Yanyi); and younger brother, Ho Kwan Lo (Ho Kwan). Ho Cheong does not agree that the property should be sold: he wants it to be retained as a home for the family. So does Chi Na. Chi Na says she also has an interest in the property. She wishes to remain in it with all the other family members who currently live there.
Ho Shing applied for an order under s 339(1) of the Property Law Act 2007 (PLA) for sale of the property and division of the proceeds between him and Ho Cheong, or alternatively, an order requiring Ho Cheong to purchase his share in the property. That application was dismissed by Jagose J.[1]
[1]Lo v Lo [2020] NZHC 1614 [High Court judgment].
Ho Shing appeals to this Court. He says there is an impasse between himself on the one hand, and his brother and mother on the other hand, which can only be resolved by the Court making appropriate orders.
We have concluded that Ho Shing and Ho Cheong have equal shares in the property, subject to a constructive trust in favour of their mother, Chi Na. That constructive trust protects Chi Na’s reasonable expectation that this property, or some other suitable home, will be available for her and her mother, Yanyi to live in.
However that reasonable expectation does not require the brothers to retain a six-bedroom property for Chi Na and Yanyi to live in. Rather, we consider that the equity arising from Chi Na’s reasonable expectation could be satisfied in a number of ways, including:
(a)Awarding Chi Na a one-third share in the Flat Bush property, leaving each of Ho Shing and Ho Cheong with a one-third share, and Chi Na and Ho Cheong buying out Ho Shing’s one-third share.
(b)Alternatively, sale of the Flat Bush property on terms that enable Chi Na and Ho Cheong to purchase a smaller and less expensive replacement property. We grant leave to the parties to make submissions on the terms of an order for sale of the property, to apply in the scenario where Chi Na and Ho Cheong do not buy out Ho Shing’s share in the Flat Bush property.
Background
Chi Na separated from her husband in 2001. At that time Ho Shing and Ho Cheong were 12 years old. Their younger brother, Ho Kwan, was 8 years old. Agreement on division of relationship property was reached in 2010, with Chi Na receiving $300,000. At that time, Chi Na, her three sons, and Yanyi were all living together in two-bedroom rental accommodation.
In 2010 Ho Shing and Ho Cheong each obtained a scholarship to support their study towards doctorates in engineering. The scholarships would pay their academic fees and provide each of them a stipend of $25,000 per annum over the subsequent three and a half years, extendable to four years. Chi Na was keen to purchase a home for the family. She proposed that the scholarship funds, amounting to $100,000 for each of the two sons over the four years, would be used in support of a mortgage application to acquire a property she had identified. She would provide the balance of the purchase price.
A three-bedroom property in Papakura was purchased for $385,000. It was registered in the names of Ho Shing and Ho Cheong. The National Bank provided mortgage finance to the brothers of $300,000. The advance was conditional on — among other things — “[a] signed Certificate of Gifting being held by the Bank for an amount of $85,000.00 prior to loan drawdown.”
By email of 23 September 2010 to the twins, their mortgage broker proposed wording for the gifting certificate, which was adopted: “I, Guo Zi Qi, confirm that I will give my nephews, Ho Cheong Lo and Ho Shing Lo, $85,000 to purchase the property without paying back”. Guo Zi Qi is Chi Na’s brother; her sons’ uncle. Guo Zi Qi’s name is written in Chinese characters above his name typed in English characters at the foot of the certificate. The source of the $85,000 was in fact Chi Na’s relationship property settlement funds. The reason for the reference to her brother in this arrangement is obscure. We return to this in more detail below.
The family moved into the three-bedroom Papakura property. Ho Cheong shared a bedroom with Ho Kwan, and Yanyi slept in the lounge. Over subsequent years, contributions to the household’s expenses (including mortgage payments, and expenditure on improvements and maintenance) continued to be made by Ho Shing, Ho Cheong, and Chi Na. Yanyi also made some contributions to household expenses.
In May 2015 Ho Shing and Ho Cheong purchased the Flat Bush property. The purchase was funded by a mortgage secured over the Flat Bush property and the Papakura property. The Papakura property was retained as a rental property, with the rental income assisting with servicing the mortgage over the two properties.
The Papakura property was sold in July 2018. The proceeds were applied to reduce the mortgage over the Flat Bush property.
Ho Shing and Ho Cheong completed their doctorates. Both are now employed as engineers. Ho Shing was the first to obtain paid employment, in April 2014. Ho Cheong spent a period living away from the Papakura property from May 2013 to February 2014, then went overseas to pursue work opportunities with his father in Hong Kong from July 2014 to January 2015. Ho Cheong returned to New Zealand in January 2015 to complete his doctoral oral examination, and obtained paid employment.
Ho Kwan obtained a master’s degree in engineering in 2015, but has not since worked in paid employment. The family supported his efforts to develop an online gaming product, which it appears he has been working on from his bedroom for the past five or so years.
Chi Na has not worked in paid employment. She has devoted her time and energy to raising her children and looking after her mother. The balance of her relationship property settlement has reduced over time as funds were used for the benefit of the household, as well as for her own purposes. Yanyi’s contributions to the household budget came from minor domestic work she carried out for others, and from her pension.
Ho Shing and Ho Cheong initially met all mortgage repayments and other direct property-related expenses themselves, albeit in unequal shares. Ho Cheong’s contributions were reduced on his absences from the property, and while he was overseas. During this period it appears Ho Shing met all property-related outgoings.
Some years ago, Ho Shing formed the view that it was not reasonable for him to bear the financial burden of owning a six-bedroom house without any material financial contribution to ownership costs from Chi Na or Ho Kwan. He pressed Ho Cheong and Chi Na to agree to buy him out, or to sell the Flat Bush property and move to a smaller and less expensive one. But agreement could not be reached. Ho Shing found living in the same house while the differences between them remained unresolved to be stressful, and unworkable. His relationship with his brother Ho Cheong broke down irretrievably.
Ho Shing moved out of the Flat Bush property in December 2018, and ceased contributing to any of the household’s expenses (including mortgage payments, which have been met since then by Ho Cheong, initially on an interest-only basis and more recently on an interest and principal basis). Ho Shing’s subsequent attempts to be bought out of his share of the property were also unsuccessful, despite his willingness to proceed on the basis that he had a one-third share rather than a half share.
Against that backdrop, Ho Shing applied to the High Court seeking either an order for sale of the Flat Bush property and division of its proceeds, or an order requiring Ho Cheong to purchase his share in that property.
Relevant legislation
Sections 339 to 343 of the PLA set out a regime for the court to resolve differences between co-owners of property. The court may make orders of the kinds set out in s 339(1), and ancillary orders under s 343. Section 339 provides (as relevant) as follows:
339 Court may order division of property
(1)A court may make, in respect of property owned by co-owners, an order—
(a)for the sale of the property and the division of the proceeds among the co-owners; or
(b)for the division of the property in kind among the co-owners; or
(c)requiring 1 or more co-owners to purchase the share in the property of 1 or more other co-owners at a fair and reasonable price.
(2)An order under subsection (1) (and any related order under subsection (4)) may be made—
(a)despite anything to the contrary in the Land Transfer Act 2017; but
(b)only if it does not contravene section 340(1); and
(c)only on an application made and served in the manner required by or under section 341; and
(d)only after having regard to the matters specified in section 342.
(3)Before determining whether to make an order under this section, the court may order the property to be valued and may direct how the cost of the valuation is to be borne.
(4)A court making an order under subsection (1) may, in addition, make a further order specified in section 343.
…
Section 340 provides that no order for division of property in kind may subdivide land contrary to s 11 or pt 10 of the Resource Management Act 1991.
Section 341 provides that any co-owner of the property may apply for an order under s 339(1). The application must be served on every other co-owner, any person with an estate or interest in the property that may be affected by the granting of the application, and any person claiming to be a party to, or entitled to a benefit under, an instrument relating to the property.
Section 342 sets out a non-exclusive list of relevant considerations that a court must take into account when considering whether to make an order under s 339(1):
342 Relevant considerations
A court considering whether to make an order under section 339(1) (and any related order under section 339(4)) must have regard to the following:
(a)the extent of the share in the property of any co-owner by whom, or in respect of whose estate or interest, the application for the order is made:
(b)the nature and location of the property:
(c)the number of other co-owners and the extent of their shares:
(d)the hardship that would be caused to the applicant by the refusal of the order, in comparison with the hardship that would be caused to any other person by the making of the order:
(e)the value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property:
(f)any other matters the court considers relevant.
Section 343 sets out the ancillary orders that may be made by a court when making an order under s 339(1):
343 Further powers of court
A further order referred to in section 339(4) is an order that is made in addition to an order under section 339(1) and that does all or any of the following:
(a)requires the payment of compensation by 1 or more
co-owners of the property to 1 or more other co-owners:(b)fixes a reserve price on any sale of the property:
(c)directs how the expenses of any sale or division of the property are to be borne:
(d)directs how the proceeds of any sale of the property, and any interest on the purchase amount, are to be divided or applied:
(e)allows a co-owner, on a sale of the property, to make an offer for it, on any terms the court considers reasonable concerning—
(i)the non-payment of a deposit; or
(ii)the setting-off or accounting for all or part of the purchase price instead of paying it in cash:
(f)requires the payment by any person of a fair occupation rent for all or any part of the property:
(g)provides for, or requires, any other matters or steps the court considers necessary or desirable as a consequence of the making of the order under section 339(1).
Sections 339 to 343 of the PLA confer a broad discretion on the court to make orders that resolve an impasse between co-owners.[2] The court may make an order sought by one or other party, or a different order that it considers more appropriate. As this Court said in Bayly v Hicks:[3]
Under this new broad discretionary regime it is appropriate for a judge to stand back from the submissions and proposals of the parties, and consider what, on an overview, taking into account the relevant considerations, is the most just and practical way through the impasse before the court, even if the answer may not reflect the orders sought by the parties. By definition the cases that come before the court arise where parties are locked into an ownership position which they cannot resolve because of the positions they have taken, and where a way out may be by a path neither has to that point contemplated.
[2]Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [25] and [32].
[3]At [32].
In that case, this Court observed that a Judge should not lightly come up with a different proposal from that of the parties. Any alternative must be triggered by a relevant consideration. A final decision should not be reached until the parties have had a full opportunity to test the proposal and offer evidence and submissions. The Judge must act in accordance with principles of natural justice and fairness.[4]
High Court judgment
Concerns about procedure and evidence
[4]At [41] and [46].
Ho Shing’s application for orders under s 339(1) was brought as an originating application, with the permission of a Judge who granted it on a without notice application. Evidence was given by affidavit. But there was extensive cross‑examination of Ho Shing, Ho Cheong and Chi Na, and the hearing ultimately took three days.
The Judge considered that (with the benefit of hindsight) the originating application procedure was singularly inappropriate for this dispute.[5] There had been no discovery. There were gaps in the evidence about the circumstances in which the Papakura property was acquired in 2010. The evidence about financial contributions in respect of the properties, and to the household more generally, was incomplete. There was no comprehensive or independent accounting of the parties’ intermingled finances.[6] The Judge declined to undertake a reconstruction of the parties’ finances from scratch based on raw information from bank statements.[7]
[5]High Court judgment, above n 1, at [20].
[6]At [16]–[21].
[7]At [22].
After identifying these concerns about the procedure adopted, and the adequacy of the evidence before the Court, the Judge turned to consider the mandatory considerations set out in s 342 of the PLA.
Appellant’s share in the property
The Judge noted that Ho Shing and Ho Cheong were registered as owners of a half share each in the Flat Bush property. But Chi Na’s equitable interest (if any) needed to be taken into account. There was disagreement about that interest.[8]
Nature and location of the property
[8]At [24].
The Judge next considered the nature and location of the Flat Bush property. He referred to valuation evidence as at June 2019 describing the property as a modern 312 m² two‑storey, six-bedroom home, including “relatives accommodation” with an attached double garage on a 423 m² residential lot. The “relatives accommodation” is on the ground floor, comprising a living room, a kitchenette, two double bedrooms with built-in wardrobes and a bathroom. Yanyi, whose mobility is affected by her age and a fall, occupies the ground floor accommodation. The general living area is also on the ground floor. There are four bedrooms (two each with an ensuite bathroom and walk in wardrobes, and the other two with built-in wardrobes) and a bathroom on the upper level.[9]
Interests of other co-owners
[9]At [25]–[26].
The Judge went on to consider the number of other co-owners and the extent of their shares. The evidence established that Chi Na had provided the $85,000 deposit towards the purchase of the Papakura property in 2010. Although the “Certificate” recorded that these funds were a gift to the twins from her brother, he did not have a close relationship with the twins and had no reason to make a gift to them. Ho Shing’s suggestion that Chi Na provided the funds by way of a repayment of a debt she owed her brother, and that this was indeed a gift from the brother, was not supported by any other evidence and was not accepted by the Judge.[10]
[10]At [19].
The Judge noted that there was no direct evidence Chi Na intended to make an outright transfer to Ho Shing and Ho Cheong of the $85,000 she provided in 2010. There were conflicting rebuttable presumptions: the presumption of advancement, by which a parent is presumed to gift sums of money provided to a child; and the presumption of a resulting trust, by which contributors to a property’s purchase price are presumed not to have relinquished beneficial ownership of the funds provided.[11] The Judge considered that there were factors pointing against a gift by Chi Na in this case:
[28] The [presumption of advancement] may be rebutted on the evidence here by Chi Na’s determined identification of at least the Papakura property as suitable for her extended family’s residence, her design of the financial scheme by which it could be acquired including her contribution of the non‑mortgage balance, and possibly (if regard is permitted for post-transfer rebuttal evidence) the properties’ continuous provision since October 2010 of accommodation for the extended family. The [presumption of a resulting trust] is reinforced by Chi Na’s dogged pursuit of financial support for her extended family, through her sons’ adolescence supported by government assistance prior to their age of majority and receipt of her relationship dissolution settlement, and subsequently by the twins’ contributions of at least ‘board’ and the scholarships’ funding stream to support their residences’ mortgages. Her steady diminution of her relationship dissolution’s settlement, while not entirely selfless, also illustrates the extended family’s financial intermingling for mutual support. But, while there are grounds to presume a resulting trust in favour of Chi Na, I am not satisfied there may not be at least third-party evidence capable of rebutting it.
[29] It is artificial in those circumstances to seek to isolate the properties’ funding, whether or not including other expenditure exclusively on the properties, as appropriately defining the extent of the parties’ respective shares here.
(Footnote omitted.)
Comparative hardship to parties
[11]At [27].
The Judge then turned to the comparative hardship to one or other party, depending on the outcome of the application. The hardship identified by Ho Shing, if the application was refused, was denial of his desire “to be able to buy [his] own property free and clear of [Ho Cheong] and [Chi Na] … [and] to lead an independent life”, in his early 30s.[12]
[12]At [30].
Ho Cheong’s response was that Ho Shing is already leading an independent life, and retains his interest in the Flat Bush property. However if the application was granted, Ho Cheong said, he could not support the borrowing required to acquire Ho Shing’s share. He is now the only income earner in the household. By reference to online mortgage calculators he argued that even with proceeds from his or his and Chi Na’s shares in the Flat Bush property, if sold, they would be unable to support borrowing sufficient to acquire another home for its remaining four occupants. They would have to return to the sort of cramped accommodation the Papakura property had been acquired to escape, whether acquired or rented.[13]
[13]At [31].
Ho Shing disputed the consequences advanced by Ho Cheong. He accepted that a substitute four-bedroom property would not be within reach on the basis of Ho Cheong’s income alone. But that would not be the case if either Ho Kwan and/or Chi Na obtained even minimum wage employment. Ho Shing said he should not be required to support their non-productive lifestyles for so long as he is prevented from realising his share of the Flat Bush property.[14]
Contributions to the improvement and maintenance of the property
[14]At [32].
The Judge noted that the parties’ evidence did not clearly distinguish between contributions to the improvement and maintenance of the properties, and contributions to family expenses overall. There was evidence of contributions falling into both categories from each of Ho Shing, Ho Cheong and Chi Na. The Judge was not able to segregate the parties’ expenditure on improvement and maintenance of the properties, which could be attributed to co-ownership interests, from expenditure generally incurred by them for the benefit of the household. Much of the expenditure appeared to be referable to broader family interests, rather than to particular
co-ownership interests.[15]
Overall assessment
[15]At [33]–[34].
Finally, the Judge considered “the most just and practical way through the impasse”. Ho Cheong and Chi Na had initially contended for a “family home agreement” under which the properties were acquired in the twins’ names, subject to Chi Na’s interest, to ensure the family “would always have a home to live in”. Under cross-examination Ho Cheong had accepted there was no agreement as such, but said there was an “understanding” the properties would be “family property” of which Chi Na would have (in Chinese) “a part”.[16]
[16]At [37].
There was no evidence from third parties involved in the transactions to provide any greater or more objective certainty in relation to the formulation of the arrangements, or the rationale for Chi Na not appearing on the title.[17]
[17]At [37].
The Judge did not consider that he was able to determine the terms on which the property was held:
[38] Standing back, it is plain there was no detailed understanding of — still less, agreement on — the parties’ individual interests in the properties, or how any such may be realised. The evidence is more supportive of the properties’ collective acquisition for the extended family’s longer-term accommodation, to be supported by each party according to their respective means. Critically, that included application of Ho Shing’s and Ho Cheong’s scholarship funds, without which — as much as Chi Na’s capital — the Papakura property could not have been acquired. The balance of application of the parties’ money is consequential on establishment of that starting position. I do not know if such collectivity is reflective of any Chinese cultural approach to family and/or property, such as may have commended itself to Chi Na in proposing the initial arrangement, or if there is a basis to enforce it in New Zealand law. I am hesitant to impose a black letter solution to what may be a more rainbow problem.
[39] Nonetheless, nothing bound any party to another, but particularly neither Ho Shing nor Ho Cheong to each other and Chi Na, to remain in the family residence or to contribute to the extended family's finances when not in residence. The evidence of their respective absences and corresponding
non-contribution illustrates Ho Shing’s assertions of his and Ho Cheong’s equal and exclusive obligations to support the mortgages is unsound. While Chi Na’s contribution of at least the Papakura property’s capital may deny Ho Shing’s and Ho Cheong’s exclusive ownership of the Flat Bush property, I cannot go further to create terms for the parties’ joint ownership of it or its termination.The Judge considered the financial evidence was inadequate to determine fair division, whether in terms of the parties’ contributions to the extended family unit, or their contributions to the properties’ acquisition, improvement and maintenance.[18]
[18]At [42].
The Judge did not consider that he could identify grounds to justify the sale of the Flat Bush property without a foundation for making findings about the terms on which it would be realised.[19]
[19]At [40].
The Judge noted that Ho Shing’s resort to the self-help remedy of departure from the family home and cessation of contributions to associated expenses had, since December 2018, relieved him of his perceived burden. Achievement of financial independence for him, by realisation of his equity in the property, would come at the expense of accommodation for his 58-year-old mother and 85-year-old grandmother:[20]
Had resulting questions of hardship only to be addressed between the three adult brothers, each qualified engineers in the early years of their careers, the contest may have been more evenly matched. But to insist his mother’s forced assimilation into New Zealand society — after some indeterminate but extended period living here: enveloped in her own culture and language while bringing up her children and caring for her mother — and his grandmother’s loss of appropriate certain accommodation at her stage of life are “just and practical” concessions to his ambition goes too far.
[20]At [41].
Finally, the Judge observed that he was uncertain there was presently an “impasse” he should overcome. He considered that any “impasse” was founded on the proposition that Ho Shing was entitled to realise his share in the Flat Bush property, as a consequence of being one of the two registered proprietors. But the position shown on the register inadequately recorded the position as between the parties. And registration does not, under the PLA, give a co-owner any right to division or sale.[21]
[21]At [43].
The Judge did however consider that it would be unjust and impractical if his judgment was taken to prevent any of the parties from making a fresh application for s 339 orders, even without any material change in circumstances, in ordinary proceedings with better evidence.[22]
Result
[22]At [46].
The Judge dismissed the originating application for orders under s 339 of the PLA. The Judge ordered that “[e]ach party has leave to issue ordinary proceedings seeking relief under that provision in relation to the co-ownership of the Flat Bush property.”[23] The Judge expressed a preliminary view that costs should lie where they fell.[24]
Appellant’s submissions
[23]At [48].
[24]At [49].
Ho Shing’s primary position is that he seeks a 50 per cent share of the equity in the Flat Bush property, on the basis that he is one of two legally registered
co-owners. He says that the initial contribution Chi Na made to the purchase price of the Papakura property from her relationship property settlement was either a gift from her brother, as the gifting certificate suggested, or possibly from her. Either way, it was not provided on the basis that Chi Na would have an ownership interest in the property.But Mr Lloyd, counsel for Ho Shing, emphasised that Ho Shing would rather have orders made giving him a lesser share and/or Chi Na a share and/or giving the respondents a reasonable length of time to downsize or refinance and/or any other orders the Court considers just, rather than have no orders made at all. The primary focus of Ho Shing before this Court, Mr Lloyd said, was to obtain orders dividing the property in whatever shares and on whatever terms the Court considers just, without any form of property sharing between him and his brother. He would like a definitive outcome, whatever that might be. He does not want to be compelled to bring an ordinary proceeding, which he says neither he nor the respondents can afford.
Mr Lloyd submitted that there was sufficient evidence to enable the Court to determine the parties’ respective interests in the Flat Bush property. He accepted that in a perfect world, more documentary evidence from 2010, and evidence from independent third parties, might have been helpful. However it was not likely that any additional helpful evidence of these kinds could be obtained, some 10 years after the purchase of the Papakura property.
He submitted that so far as the funds provided by Chi Na for the purchase and improvement of the Papakura property were concerned, the presumption of advancement applied as between her and her sons. This was reinforced by the gifting certificate, albeit in the uncle’s name, in relation to the initial $85,000 that came from her funds. Mr Lloyd accepted that this certificate was not definitive evidence that the money was a gift, but submitted it was supportive of that proposition.
If Chi Na had intended to have an interest in the house, Mr Lloyd submitted, that could readily have been documented in 2010 when the Papakura property was first purchased, or in 2015 when the Flat Bush property was purchased.
Detailed evidence about financial contributions would be relevant only if Chi Na did have an interest in the house. Otherwise, it was common ground that ownership was divided equally between Ho Shing and Ho Cheong.
If it was necessary to assess Chi Na’s financial contributions in order to determine her share in the property, the only contribution by Chi Na that was substantiated by bank records and invoices was the original $85,000 contribution to the purchase of the Papakura property. That would correspond to a 22 per cent interest in that property, and a lesser interest in the more expensive Flat Bush property. All parties made contributions to general household expenditure: there was no reason for any of those contributions to affect the parties’ shares in the relevant properties. The approach adopted by the respondents, who claimed that based on financial contributions over time Chi Na should have a 50 per cent share and each of the twins a 25 per cent share, was based on an artificial and inconsistent treatment of a wide range of financial contributions.
Mr Lloyd submitted that it would be unfair to Ho Shing to leave the status quo in place. He is now 32 years old, and wants to start his life as an adult independently of his family. He wants to buy his own house, and start a family of his own. To do so he needs his share of the equity in the Flat Bush property. And he needs not to be jointly liable in respect of the mortgage over the Flat Bush property, as this debt will affect the willingness of a bank to lend to him to purchase another property. He “has an entitlement to move on with [his] life for which realisation of [his] capital in the property is necessary”.[25]
[25]Pene v Pene [2018] NZHC 3140 at [24].
Conversely, Mr Lloyd says, the respondents overstate the hardship they would suffer if the property was sold. They do not need a new two-storey, six-bedroom home: an ordinary, comfortable, four-bedroom home would suffice. Such a home could be purchased by Ho Cheong and Chi Na with Ho Cheong’s 50 per cent share of the equity in the Flat Bush property and a mortgage no greater than the mortgage that Ho Cheong is currently servicing. Mr Lloyd accepted that on Ho Cheong’s current salary, a bank would probably not lend the funds required. However if Ho Kwan, their 27-year-old brother, obtained even a minimum wage job, they would be able to borrow at the level required to get a comfortable four-bedroom home in the area. And if Ho Kwan were to get a job as a graduate engineer, that would provide a combined income sufficient to enable the other members of the family to buy Ho Shing out and remain in the property, if they wished to do so.
Respondents’ submissions
Mr Keall, counsel for the respondents, supported the analysis of the Judge. He submitted that the originating application procedure adopted by Ho Shing was inappropriate. The evidence before the Court was inadequate.
Chi Na was entitled to an interest in the Flat Bush property to protect her reasonable expectation of having a home for herself and her family, including her elderly mother. Ho Shing could not claim a 50 per cent share in the property. The analysis provided by Ho Cheong at first instance indicated that Chi Na had a 50 per cent share, and the brothers a 25 per cent share each. But as the Judge concluded, no finding on ownership interests could be made in this proceeding: further evidence and analysis would be required.
The Judge was right, Mr Keall said, to find that there was no real impasse between the parties. Ho Shing has unilaterally avoided the burden about which he was complaining, by leaving the property and ceasing to make any financial contribution to the mortgage and other outgoings. It was unreasonable for Ho Shing to proceed on the basis he was entitled to an order for sale merely by virtue of being a registered proprietor.
Mr Keall submitted that the appeal related to the exercise by the Judge of a discretion, so should be approached on the basis set out in May v May.[26] In this case, the Judge made no error of law or principle, took into account relevant matters, did not take into account any irrelevant matters, and was not plainly wrong. So the appeal should be dismissed. The “self-centred ambitions” of one family member cannot reasonably outweigh the proper accommodation of the remaining group, especially the older and more vulnerable members.
[26]May v May (1982) 1 NZFLR 165 (CA) at 170.
In response to questions from the Court, Mr Keall confirmed that Ho Cheong wishes to continue to live with his mother. His preference, which corresponds to Chi Na’s preference, is that they would live together with Yanyi and Ho Kwan. He said that Chi Na’s expectation was that she would have a home for her family.
Mr Keall emphasised there are vulnerable people in the household, in particular Yanyi, who need to be looked after and were meant to be looked after under these arrangements.
Discussion
Use of originating application procedure
With the benefit of hindsight, we agree with the Judge that it would have been better if this proceeding had been brought as an ordinary proceeding rather than by originating application. Permission to use the originating application procedure was granted on the basis of an over-optimistic view about the likely complexity of the proceeding.
However we do not consider that the use of that procedure has caused any unfairness to any party. Ho Cheong and Chi Na were able to participate in the proceedings. They gave oral evidence. They and Ho Shing were cross-examined at some length. The parties continued to provide further documentary evidence right up to the conclusion of the hearing before the Judge.
We asked Mr Keall if he could identify any prejudice that had been caused by use of the originating application procedure. He said that there had been no discovery. But as he accepted in response to our questions, any party could have sought discovery if that was seen as necessary. None did.
We therefore consider that the use of the originating application procedure, while not ideal, is not a factor that counts against the grant of relief in this case.
Was the evidence inadequate?
All the parties claiming an interest in the Flat Bush property were before the Court. Each was able to provide evidence and make submissions through their counsel. If they had wished to call evidence from others, they could have done so.
We very much doubt that any independent third-party advisers involved in the 2010 purchase of the Papakura property would have been able to provide any material assistance. It is unlikely that they would remember much about this unexceptional purchase of a modest property. Nor is it likely that they would have had any significant documentary records beyond those that the parties were able to provide.
There are some aspects of the transaction that are opaque, in particular the reference to Chi Na’s brother as the source of the $85,000 in the gift certificate. But ultimately it was common ground that the $85,000 came from Chi Na’s relationship property settlement. The suggestion made by Ho Shing that the gift did come from her brother as a matter of substance, because Chi Na provided the funds by way of repayment of a debt owed to him, seems speculative. We will proceed on the basis most favourable to Chi Na, and treat her as the provider of these funds. Similarly, we accept her evidence that she provided other contributions to maintenance and improvement of the properties.
The concerns that the Judge expressed about the adequacy of the financial information available to the Court, and the absence of any forensic accounting evidence, reflect the parties’ attempt to force this case into the Procrustean bed of establishing percentage contributions to the properties, or to overall household expenses. We agree that if it was necessary to establish with precision the percentage contribution each had made to the properties, or to the household finances, the evidence would be insufficient for that purpose. But as we explain below, we consider that this is the wrong way to approach this case. It seems to us that if the correct question is asked, the evidence is sufficient to provide an answer.
The nature of the appeal
We do not accept Mr Keall’s submission that this is an appeal from a discretion, to which May v May applies.[27] Rather, the Court is engaged in making an evaluative judgment about the appropriate resolution of the differences between the parties, having regard to the various factors identified in ss 339–343 of the PLA. There is therefore a general right of appeal, and this Court must form its own view on whether an order should be made under s 339. If this Court is persuaded that the High Court decision was wrong, the appeal must be allowed.[28]
[27]May v May, above n 26.
[28]Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32], referring to Austin Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
This is not a case which turns on findings of credibility made by the trial judge. We consider that we are as well placed as the Judge to review the evidence, and reach an evaluative judgment about the appropriateness of an order under s 339.
Ascertaining the parties’ ownership interests
At the beginning of the hearing before us, we suggested to counsel that the attempt to ascribe precise percentage ownership interests based on contributions to the properties, or to the household, was misconceived. Rather, we suggested, an analysis that would fit better with the evidence given by the parties and the documentary record would proceed on the basis that:
(a)The legal owners of the Papakura property, in equal shares, were Ho Shing and Ho Cheong.
(b)Chi Na had made substantial contributions to the purchase of that property, and to its improvement and maintenance. She also made significant contributions to the household, both financial and in kind, including cooking and caring for the house and for family members.
(c)Chi Na made these contributions, and in particular the original contribution to the purchase price of the Papakura property, in the expectation that the property would provide a home for her and her mother indefinitely. They would have a secure home that was owned by the family, and available for use by the family.
(d)The brothers were aware of that expectation. They understood that the purpose of the purchase, which was driven by Chi Na and to which all three were contributing, was that she and her mother would have a secure home for life.
(e)That expectation was a reasonable one, from which it would be inequitable for the brothers to resile.
(f)In those circumstances, the Papakura property was subject to a constructive trust under which Chi Na held an interest sufficient to protect her reasonable expectation.
(g)That interest in the Papakura property would then translate into an interest in the Flat Bush property, either at the time the Flat Bush property was purchased, or perhaps at the time the Papakura property was sold and the proceeds applied to the Flat Bush property.
This approach would in our view be an orthodox application of the test set out by this Court in cases such as Gillies v Keogh[29] and Lankow v Rose.[30]
[29]Gillies v Keogh [1989] 2 NZLR 327 (CA).
[30]Lankow v Rose [1995] 1 NZLR 277 (CA).
Mr Lloyd accepted that Chi Na might well have an equitable interest based on a constructive trust. He said that it was still necessary to determine what interest that might be. He suggested that it would be a 15 per cent to 22 per cent interest in the Flat Bush property.
Mr Lloyd suggested that a generous approach to Chi Na would be to treat the 22 per cent contribution to the initial acquisition of the Papakura property as flowing through into a 22 per cent interest in the more valuable Flat Bush property. That would give Chi Na a 22 per cent interest in that property, and each of the brothers 39 per cent.
For his part, Mr Keall accepted that an approach under which Chi Na had a life interest in the property would broadly reflect her expectation as described in her evidence. But he emphasised, as noted above, that the expectation was that Chi Na would have a home for herself and for her family. So if an approach along these lines was to be adopted, it would need to give effect to that reasonable expectation.
Having heard counsel on this issue, we are satisfied that the evidence clearly establishes that the interests of the parties in the Papakura property were along the lines described at [73] above. That property was jointly owned by Ho Shing and Ho Cheong in equal shares, subject to a constructive trust protecting the reasonable expectation of Chi Na, founded on the financial and other contributions she made, that she would have an interest in the property enabling her to live there securely for life with her mother and other family members.
We do not consider that the purchase of the Flat Bush property, and the contributions made since it was purchased, have any material effect on that analysis. While the parties were in a better financial position, they were able to upgrade the house in which they were living. Each contributed, and each benefited from that arrangement. There is no evidence of any contribution by Chi Na during that period of a kind that so clearly outweighs the benefits she received from living in the Flat Bush property that some further interest in that property came into existence.
If the family still owned the Papakura property, it would be consistent with the parties’ respective interests for the Flat Bush property to be sold, and for Chi Na to occupy the Papakura property together with any other family members who wished to do so.
However the Papakura property has been sold. The proceeds — which Chi Na had an equitable interest in under the constructive trust described above — were applied to reduce the mortgage over the Flat Bush property. We are inclined to think that Chi Na had an equitable interest in both properties from the time the Flat Bush property was purchased in reliance on the equity in the Papakura property. But in any event, the use of the proceeds of sale of the Papakura property to reduce the mortgage over the Flat Bush property was itself a contribution by Chi Na to the cost of owning that property, against the backdrop of the same reasonable expectation that she would have a home for life, with her mother and family. That reasonable expectation was, from that time onwards at the latest, protected by a constructive trust over the Flat Bush property.
As Mr Keall was constrained to accept in the course of argument, Chi Na’s reasonable expectation did not extend to a six-bedroom house. The family does not need a house of that size. There could not be an expectation that the Flat Bush property would never be sold, provided suitable accommodation for the family consistent with Chi Na’s expectation could be purchased in its place.
We agree. We consider that Chi Na’s reasonable expectation is that she would have an interest in the current house sufficient to ensure a home for her and for her mother. We do not consider that she could have a reasonable expectation that both twins would contribute indefinitely to the cost of housing their youngest brother. Nor would her reasonable expectation extend to requiring one or other brother to provide a home for the other, without any contribution from that other brother.
It would be inequitable for Chi Na to be left without an appropriate home for herself and for her mother. If she wishes to live with other family members, and they wish to live with her, that result can be reached by agreement: but the additional adults in that house can be expected to meet the costs associated with purchasing and owning the larger property that is required in order to accommodate them.
We go on to consider what that means in practice, in terms of the interest that Chi Na should be treated as having in the Flat Bush property, and the implications of this interest for the making of an order under s 339 of the PLA.
Giving effect to Chi Na’s equitable interest in the Flat Bush property
There are two ways in which this question could be approached. One would be to attempt to define an equitable interest that tracks, as closely as possible, the expectation that it seeks to protect. So, for example, a life interest on the part of Chi Na in the Papakura property might have been an appropriate conclusion, if that property was still owned by Ho Shing and Ho Cheong. But it is not.
In those circumstances, an alternative approach would be to identify a percentage ownership interest in the Flat Bush property that would provide Chi Na and Ho Cheong with a sufficient level of capital to purchase a house that would, in turn, fulfil Chi Na’s reasonable expectation. This would be a simpler approach to give effect to under s 339 of the PLA. But the difficulty we face is that we do not have
up-to-date evidence about the value of the Flat Bush property, and the likely cost of purchasing a more modest replacement property.We are also conscious that although we raised the concept of a life interest with counsel at the hearing, we did not explore with them the details of any orders that might be made under s 339 of the PLA to give effect to such an interest. We return to this below.
Against that backdrop, we turn to the factors set out in s 342 of the PLA.
We have set out above the extent of Ho Shing’s share in the property. He is the equal owner of the Flat Bush property in law, together with his brother. They hold the property subject to the constructive trust described above in favour of Chi Na.
The salient feature of the nature of the property in this case is that it is larger, and of a higher standard, than is required to give effect to Chi Na’s reasonable expectations. Those expectations take the Papakura property as their point of reference.
We have already identified the other co-owners, and the extent of their shares: Ho Cheong is also a 50 per cent owner as a matter of law. Chi Na holds an equitable interest under a constructive trust.[31]
[31]Property Law Act 2007, s 342(a) and (c).
That brings us to the relative hardship that would be caused by making, or declining, an order under s 339.[32] We consider that there is a significant element of unfairness in the current arrangement so far as Ho Shing is concerned. His capital is tied up in a house in which he is not living. That state of affairs is the product of family differences in respect of which it is neither possible nor constructive to seek to attribute blame. Ho Shing’s ability to purchase his own home is significantly compromised by his inability to access his capital and, perhaps more importantly, by the fact that he remains as a debtor in respect of the mortgage advance secured by the property. That makes it difficult for him to borrow any further substantial amount to purchase a property of his own. He is tied into a co-ownership arrangement with his brother, and that relationship has deteriorated severely. Ho Shing expresses a desire to be reconciled with his family, but is not optimistic that that will be possible vis‑à‑vis his brother. This is a difficult situation for Ho Shing, and his desire not to remain in it indefinitely is in our view entirely reasonable.
[32]Section 342(d).
It would cause unacceptable hardship to Chi Na and her mother, and would be inconsistent with the terms of the constructive trust that we have found to exist, if she were to be deprived of a home of acceptable size and quality. But on the evidence before us, a smaller and more modest replacement home could be purchased that would meet her expectations and avoid hardship. There would be the ordinary inconvenience associated with selling a house and buying another: but that does not in our view amount to relevant hardship.
We note that if the wider family wishes to continue to live together, and Ho Kwan is willing to make a reasonable economic contribution to that shared home, it may well be possible for Chi Na and her family to stay in the Flat Bush property. That would avoid any hardship to Chi Na and the other members of the family.
Put another way, the preference of Chi Na and Ho Cheong to remain in the Flat Bush property can be met if one of the other occupants, Ho Kwan, makes a reasonable contribution to the cost of owning that property. In that scenario, there would be no hardship to any relevant person.
Our analysis of the terms of the constructive trust takes into account the value of contributions made by each co-owner to improvements to, and maintenance of, the property.
Standing back, we consider that there is an impasse in the relevant sense between the co-owners of the property. One wishes to sell. The others wish to retain the property. We consider that the Court can, and should, make orders that resolve that impasse in a way that is consistent with the parties’ ownership interests, and that accommodates their reasonable expectations and interests.
The simplest solution would be for Ho Cheong and Chi Na to buy out Ho Shing. On the basis of the limited evidence before us, it seems likely that Chi Na’s reasonable expectation could be satisfied if she is found to be entitled to a one-third share in the Flat Bush property, with Ho Shing and Ho Cheong also each owning a one‑third share. It is reasonable for Ho Shing to receive a one-third share, rather than the half share he is entitled to in law, because he would be paid out immediately and his interest in the property would no longer be burdened by a life interest (or equivalent) on the part of Chi Na. The orders we make will provide for this as one available outcome.
However the lack of up-to-date evidence before us does not leave us confident that this option will be able to be implemented. Our preliminary view is that if Chi Na and Ho Cheong cannot buy out Ho Shing’s share in the Flat Bush Property, that property should be sold and the proceeds distributed in a manner that protects Chi Na’s reasonable expectations. That may require ancillary orders to be made under s 343 of the PLA. But it would be premature to make such orders without first hearing from the parties.
We will make an order giving Chi Na and Ho Cheong approximately three months from the date of this judgment to elect to buy out Ho Shing’s share in the Flat Bush property. If they elect to proceed with this option, the buy-out must be implemented within a further three months based on a valuation that is current at that time.
We will seek submissions from the parties on the orders that should be made to address the scenario where Chi Na and Ho Cheong do not elect to buy out Ho Shing. We envisage that those orders would provide for sale of the property, and division of the proceeds. Ancillary orders might also provide for purchase of a smaller replacement property consistent with the size and value of the Papakura property.
The parties have not had an opportunity to address the terms of the orders that should be made to address the scenario where a buy-out does not proceed, in light of our conclusions about the parties’ interests and reasonable expectations. Natural justice requires that they should have that opportunity. This is therefore an interim judgment. We reserve leave to the parties to file submissions in relation to those orders. A timetable for those submissions is set out below.
Result
The appeal is allowed.
The respondents may purchase the appellant’s share in the property on the terms set out in the Appendix to this judgment.
We propose to make an order for the sale of the property in the event that a buy‑out does not proceed. It may also be appropriate to make ancillary orders under s 343 of the PLA. If any party wishes to make submissions on whether such orders should be made, and the terms of those orders, they may do so in accordance with the following timetable:
(a)Any party may file submissions by Friday, 28 January 2022 on the orders to be made governing the scenario where a buy-out does not proceed.
(b)Any submissions by the other parties, responding to those submissions, must be filed by Friday, 11 February 2022.
(c)In light of the submissions received, the Court will consider whether a further oral hearing is required, or whether any remaining differences between the parties can be resolved on the papers.
Ho Shing has been successful in his application for orders under s 339(1) of the PLA. On the other hand, the orders that have been made reflect a different approach from that advanced by him in the High Court and in this Court. In those circumstances, and having regard to the nature of the dispute between the parties — which we see as resolution of an impasse for which neither party is solely to blame — we consider that costs should lie where they fall.
Solicitors:
Muller Law, Auckland for Appellant
Duncan King Law, Auckland for Respondents
Appendix: Buy-out orders
AChi Na and Ho Cheong may, at any time prior to 1 April 2022, give a written notice to Ho Shing electing to purchase Ho Shing’s share in the Flat Bush property.
BThe value of Ho Shing’s share in the property is to be calculated on the basis of a one‑third share in the net equity in the property. The property should be valued as at the date of notice of election, and the net equity should be assessed by deducting the amount of the mortgage as at December 2018. Ho Shing is entitled to be paid one-third of this amount.
CIf Chi Na and Ho Cheong elect to buy out Ho Shing, they must do so within three months of their election.
DThe reasonable costs of the valuation and the sale and purchase of Ho Shing’s one-third share in the property are to be met as to one-third each by Ho Shing, Ho Cheong and Chi Na.
ELeave is reserved to apply for directions in relation to any matters arising in connection with the implementation of these orders.
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