Locke v Locke HC Auckland CIV 2007-404-5312
[2008] NZHC 2522
•22 August 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2007-404-5312
IN THE MATTER OF Section 145A of the Land Transfer Act
1952
AND IN THE MATTER OF Caveat Number X7416292.1
BETWEEN TANIA ELISE LOCKE Applicant
ANDGAVIN GERALD LOCKE Respondent
Hearing: 4 March 2008
Counsel: T Banbrook for Applicant
K W Fulton for Respondent
Judgment: 22 August 2008 at 4.30 pm
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by Associate Judge Sargisson on 22 August 2008 at 4.30 pm pursuant to
Rule 540(4) of the High Court Rules
Registrar/Deputy Registrar
Date ………………………..
Solicitors:
B C Hong, P O Box 233, Shortland Street, AucklandWood Ruck Manukau, PO Box 76 014, Manukau City
LOCKE V LOCKE HC AK CIV2007-404-5312 22 August 2008
[1] This is an application by Tania Elise Locke under s145A of the Land Transfer Act 1952 for an order that a caveat not lapse. She lodged the caveat to protect an interest she claims to have in a property at Mangere.
[2] Ms Locke was a registered proprietor of a half share in the property but that share was transferred to the respondent, Gavin Gerald Locke, who is her brother, after she signed a transfer instrument that on its face transferred all of her interest in the property to him. However, she relies on a resulting trust that she says arose at the time whereby she retained a beneficial interest in the property. She contends that notwithstanding her execution of the memorandum of transfer she has a claim that her brother holds her half share in trust for her benefit until such time as the share is either re-vested in her or he agrees to compensate her for it.
[3] Currently, there is an interim order the caveat not lapse pending further order. The order was made by consent on 13 September 2007.
[4] Mr Locke opposes the application. His position is the caveat was lodged without reasonable cause in breach of s 146, because the transfer instrument extinguished all proprietary interest in the land if indeed Ms Locke ever had such an interest and therefore leaves no basis for a finding that there may be a resulting trust.
[5] The overarching question I have to decide is whether the interim order should continue pending the outcome of a proceeding Ms Locke proposes to bring to determine the parties’ substantive rights in the property. For the purpose of deciding that question, the primary issues for determination are:
a) Has the applicant established a genuinely arguable case that the memorandum of transfer evidenced not only a voluntary transfer of an interest in the land, but that it gave rise to a resulting trust? Or is the respondent correct in his contention that, even if the transfer was a voluntary transfer, no resulting trust could arise?
b)If the applicant has established such a case, should the application be declined and there be an order that the caveat be removed anyway, by reason of the applicant’s delay?
[6] This position is arrived at because at the hearing:
a) Counsel for the applicant made clear that although the application was made on several bases, it is now pursued solely on the ground of a resulting trust based on a voluntary transfer of an interest in the land. The key elements relied on are:
i)The transfer was a voluntary transfer or conveyance of property or, in other words, a transfer of property in that it was unsupported by any consideration.
ii)Accordingly, the transfer falls into a traditional category of resulting trust where the law presumes that the transferor does not intend the transferee to acquire a beneficial interest in the property.
iii)The evidence is sufficiently confused to make arguable that it does not support a contrary intention or a presumption of advancement.
iv)Therefore it would be wrong to find, in the context of the present application, that there was an intention to give away her share.
b)Counsel for the respondent made clear that the respondent’s opposition is advanced on the basis that he:
i)Accepts for the purpose of the application that the transfer may have been a voluntary transfer and that in some circumstances a voluntary transfer of land would give rise to a resulting trust that would create a caveatable interest in land;
ii)Does not accept that a resulting trust arose in the circumstances of this case and argues rather that the memorandum of transfer was determinative and extinguished any possible interest in the property that Ms Locke may have had vested in her ;
iii)Contends that Ms Locke’s delay in lodging the caveat justifies refusing the application in any event and that she should in the circumstances be left to rely on what rights if any that remain under a property agreement the parties entered into when she
originally acquired the half share.
Background
[7] Tania Locke and her brother, Gavin Locke, entered into to a property agreement on 28 November 2002 that records their agreement to acquire a property at 10 Sealand Place, Mangere and their rights and obligations with respect to the property.
[8] Mr Locke had formerly owned the property with his girlfriend, but when their relationship ended he and his sister agreed to become the joint owners.
[9] Each party gives a different account of the underlying circumstances for their joint purchase of the property. Mr Locke says it was to help Ms Locke to get a foot on the property ladder. By Ms Locke’s account, it was to assist Mr Locke with the refinancing of the property so that he could pay out his girlfriend’s share. To do that he needed to provide Ms Locke’s personal covenant under the mortgage to satisfy Westpac he could sustain the level of borrowing.
[10] Whatever the real motivation each had for the joint purchase, the written terms of the property agreement record their agreement was to:
a) Complete the purchase of the property and register their respective interests in the title as tenants in common in equal shares.
b)Meet the purchase price of the property plus legal fees and disbursements by borrowing $278,000 from Westpac to be secured by a registered first mortgage over the property and Mr Locke’s contribution of $66,600.
[11] The terms also provide for termination of the agreement, by unilateral termination or mutual termination. The mutual termination provisions provide that where the parties agree to end their sharing arrangements in the property, they must first agree whether one will buy the interest of the other in the property and agree on the terms. Under the latter, a party may, after 3 years, give written notice to the other party terminating the sharing arrangements in the property, and upon receipt of notice the non-terminating party is entitled to exercise an option to purchase the other’s interest. Failing the exercise of that option the terminating party has an option to purchase the interest of the other. The party who ultimately exercises an option is obliged to repay any mortgage over the property and to pay the other party a sum equivalent to one half of the net value of the property. The agreement states that the net value is the value of the property agreed between the parties, or in the event of disagreement, the value less the amount owing under any mortgage over the property.
[12] The termination provisions specify certain clauses that will apply for the purpose of effecting the mutual agreement or unilateral termination. The agreement contains apparent errors in its cross references to these particular clauses but it seems that the intention is that settlement must take place no later than two months after agreement on terms is reached or after notice of unilateral termination.
[13] At the end of February 2004 the parties fell out and their property arrangement came to an end when Ms Locke signed a transfer instrument recording her half share in the fee simple estate of the property was to be transferred to her brother. They disagree about the circumstances that led to that event. Ms Locke says she signed the memorandum of transfer at a family meeting where Mrs Locke, the parties’ mother, witnessed her signature. Ms Locke says the meeting was tense and she was persuaded under pressure to sign the transfer. She infers there was no room for any discussion about payment or other consideration. She alleges that she
went along with the family’s requirements because she was unwell and recovering from kidney disease, and she believed her brother would discharge his obligations under the property agreement. She says he never did pay any consideration to her for the transfer of her half share.
[14] While not suggesting that there was consideration, Mr Locke says that when he telephoned his sister and told her he was going to transfer her share to himself she made no objection at all and said that was fine. He says that he did not see that she had any interest that he was obliged to recognise or to pay for, as she never paid him anything for the original transfer of a half share into her name. He also says his sister benefited from the transfer of the share back to him when some months after Ms Locke signed the transfer, he secured Westpac’s agreement to release her from her personal covenant under the mortgage over the property. That was in August 2004 and it was at that time that he registered the transfer of her half share to him against the title to the property.
[15] It is not possible in the context of this proceeding to know whose account of the factual circumstances giving rise to the transfer is right. However, it does appear that Ms Locke was given to understand that she had little or no choice about the transfer to Mr Locke. Mr Locke describes in his own evidence how he decided to “take the property back” on his return from overseas. Evidence of both sides indicates the situation between the parties was not a happy one. Ms Locke, who was working for a real estate company in its rental division, had responsibility for managing the rental of the property while Mr Locke was overseas. He claims when he returned, he was unimpressed with the state of the property and decided to get back the share that he claims Ms Locke nominally held. It is apparent on the evidence that the parties’ parents were also set on achieving this outcome.
[16] Oddly, however, it was not until approximately 4 years after Ms Locke signed the memorandum of transfer, on the 13 June 2007, that Ms Locke lodged a caveat against the title. She does not give any real explanation for the delay.
[17] The estate or interest claimed in the caveat is described as follows:
The Caveator claims a half-share interest in the land herein pursuant to a property agreement dated 28th November 2002 between the Caveator and the registered proprietor of the said land, Gavin Gerald Locke in which the registered proprietor vested one half share of the land unto the Caveator and the Caveator cestui que trust in respect of that half.
[18] The Registrar General served a notice on Ms Locke notifying her that the caveat would lapse if she did not obtain an order of the Court to the contrary. She applied for and obtained the necessary order on an interim basis.
[19] Ms Locke now seeks that the interim order made on her application 13
September 2007, be extended so that the relevant caveat (caveat X7416292.1 lodged against certificate of title NA22B/1336 (North Auckland Registry)) is not allowed to lapse.
[20] That brings me to the sole ground Ms Locke relies on based on a resulting trust and the particular issues that require determination. There is no dispute that if Ms Locke has established an arguable case for a resulting trust then she will have established that she has a caveatable interest for the purpose of the Act: s 137.
[21] Before dealing with the issues that require determination it is helpful to set out the general principles relating to the applications of the present kind.
Relevant Principles
[22] Section 145A of the Land Transfer Act 1952 provides:
145A Early lapse of caveat against dealings
(1) The registered proprietor of any estate or interest in the land protected by a caveat against dealings (other than a caveat lodged by the Registrar) may apply to the Registrar for the caveat to lapse.
(2)The Registrar must give the caveator notice of an application under subsection (1).
(3)The caveat lapses with the close of the prescribed period after the date on which the notice under subsection (2) is given unless—
(a) the caveator has earlier given to the Registrar notice that an application for an order to the contrary has been made to the High Court; and (b)
an order to that effect has been made and served on the Registrar within the prescribed period after the date on which the notice under paragraph (a) is given to the registrar.
[23]
In Swetman
v Corinthius Limited HC HAM, CIV2005-419-001571, 9
December 2005 at [13] Associate Judge Faire summarised the principles which apply in considering applications pursuant to ss143, 145 and145A of the Land Transfer Act 1952 as follows:
(a)The sections of the Land Transfer Act 1952 give no guide as to the circumstances in which the Court may make an order that a caveat be removed: Catchpole v Burke [1974] 1 NZLR 620 at 623;
(b)If it is clear that there was no valid ground for lodging a caveat, or that the interest which in the first place justified the lodging of the caveat no longer exists, such a caveat should be removed: Sims v Lowe [1988] 1 NZLR 656, 659;
(c)The onus under the sections of the Land Transfer Act 1952 lies on the caveator to show a reasonably arguable case for the interest claimed: Castlehill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104-106;
(d)The caveat, being a creature of statute, may be lodged only by a person upon whom a right to lodge it has been conferred by statute. It is not enough to show that the lodging and continued existence of the caveat would be in some way advantageous to the caveator: Guardian Trust & Executor Co of New Zealand Ltd v Hall [1938] NZLR 1020 at 1025;
(e) A right to lodge a caveat is conferred on a person who claims to be entitled to, or to be beneficially interested in, the estate referred to in the caveat by virtue of an unregistered agreement or an instrument or
transmission or of any trust expressed or implied: s 137, Land
Transfer Act 1952;
(f)What the caveator must establish is an arguable case for claiming an interest of the kind in s 137;
(g)Even if the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously: Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 at 656;
(h)Delay is a relevant factor to be weighed in the exercise of the Court’s wide discretion under s 143. Delay is more important where there is specific prejudice. What is required is a consideration of all the circumstances: Varney v Anderson [1988] 1 NZLR 478 at 480;
(i)The summary procedure for removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. Accordingly it has been said:
. . that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so. Sims v Lowe [1988] 1 NZLR 656 at pp 659-660.
Discussion
Was the Transfer a Voluntary Transfer?
[24] Both sides accept, for the purpose of the current application at least, that the transfer is to be treated as a voluntary transfer for which there was no consideration.
[25] This situation is not surprising given that the evidence indicates that Ms Locke was persuaded or told to sign the memorandum of transfer by Mr Locke in circumstances where:
a) The parties did not follow either termination procedure in the property agreement;
b)The agreement itself is silent as to what Ms Locke would be entitled to, if anything, if the termination provisions in the agreement were not followed;
c) The parties did not enter into any other agreement as to price or other consideration, or about gifting. It appears there was simply no discussion on these matters.
d)There is no evidence to show that Westpac’s agreement to release Ms Locke from her personal covenant under the mortgage was the agreed basis for the transfer. Counsel for Mr Locke readily acknowledged he would have difficulty showing on evidence as it currently stands that it was the agreed consideration for the transfer.
[26] The real dispute relates to the following question: given that the transfer was, or arguably was, a voluntary transfer did it give rise, or arguably give rise, to a presumed resulting trust, or did the transfer instrument extinguish the possibility of any such presumption?
Is a presumed resulting trust arguable or does the transfer instrument extinguish that possibility?
[27] The category of resulting trust Ms Locke relies on to show a presumption that she did not intend her brother to acquire all her interest in the land is based on one of the three categories of resulting trust referred to in Blanchard on Civil Remedies at page 427 as follows:
9.3 Resulting Trusts
In recent years there has been something in the nature of a renaissance of interest in the resulting trust... The preferable view is that the resulting trust arises in response to the presumed intention of the transferor or settlor.
The fundamental inquiry in the three traditional categories of resulting trust (where there is a voluntary conveyance of property, where property is purchased in the name of another, and where the beneficial interest under a trust is not completely disposed of) is whether the transfer of property to B is intended by A, the transferor, to be beneficial to B. In all three categories it is presumed that A did not intend B to acquire a beneficial interest in the property. This presumption as to A’s intention operates unless either the evidence establishes that A intended to make an outright gift to B or the alternative presumption of advancement is invoked (and is not itself overtaken by actual evidence to the contrary) effectively to trump the presumption as to A’s intention. Thus the question as to A’s beneficial interest is answered, in the absence of evidence of actual intent (which would be conclusive), by a presumption.
All cases of resulting trusts, therefore, are properly regarded as arising as a consequence of the transferor’s or settlor’s intention... All resulting trusts are more accurately termed “presumed trusts”. [emphasis added]
[28] Relevantly, the learned authors also state:
What then is the function of the resulting trust? The resulting trust and its fundamental presumptions operate as part of the law of property simply as a series of default rules to locate the beneficial interest in property when the transfer of the property is itself either ambiguous as to the location of that interest or ineffective to dispose of the interest. This is exactly the insight offered by Dean J in Calverley v Green: “The relevant presumptions are… too well entrenched as land-marks in the law of property… to be simply discarded by judicial decision.”
. . .
The resulting trust arises as a response to, and in order to vindicate, subsisting equitable property rights that predate the court’s declaration of the resulting trust.”
[29] Counsel for Ms Locke submitted that this case is plainly a case of a resulting trust that arises as a matter of law, in terms of the above principles. He relied on two key reasons. First, the transfer was not supported by consideration. Accordingly therefore the legal presumption that the applicant intended to retain her beneficial interest arose. Secondly, there is no clear evidence of factual circumstances or of intention that contradicts the presumption the law makes where a transfer is voluntary. Therefore the presumption stands without any real rebuttal or contradiction.
[30] Counsel for Mr Locke referred to arguments in the latter’s evidence that seek to explain why the transfer lacked consideration but he recognised they are disputed, and would not be sufficient to rebut or contradict the presumption. These included that when the applicant signed the memorandum of transfer she knew that she was always a bare trustee of her share in the property, for the reason that she gave no consideration for her share. Another was an alternative argument that she intended to make an outright gift of her share even if she thought she had a beneficial interest in it. The arguments face difficulties, not the least being that, by their property agreement, the respondent had earlier vested a half share of the property in the applicant in consideration for which she accepted joint liability under a mortgage security over the property. This is not consistent with her being a bare trustee. The assertion also runs counter to the termination provisions in the property agreement that require the terminating party to purchase the half share of the other party. The agreement would not need such provisions if the parties’ intention had been that Ms Locke was merely a bare trustee. Yet a further difficulty is that Mr Locke behaved in a way that does not remotely suggest he believed Ms Locke was making an outright gift and there is nothing in his evidence that lends support for the possibility that he thought she was. He says he thought she had nothing to give away. Clearly, he was not interested in any enquiry that was directed to what her intention was.
[31] Although counsel recognised the difficulties with the arguments and acknowledged that there could be no conclusive findings on them in the context of the present application, he submitted that it does not matter whether the voluntary transfer can or cannot be explained by the applicant’s being a bare trustee or by her having an intention to make an outright gift (if indeed she had a beneficial interest). This was because the memorandum of transfer itself is unambiguous as to the location of the beneficial interest. He argued if the applicant was a bare trustee then the memorandum relinquishes all of the trustee’s interest; if she was a beneficial owner then the memorandum must have carried with it and extinguished any interest she had of a proprietary kind.
[32] Counsel made the further submission that the other consequence of the memorandum of transfer was to preserve only such rights, if any, to damages or compensation for the value of any proprietary interest transferred as may have arisen
under the parties’ property agreement. He relied on Willigers v McFarlane (HC Wellington CIV 2005-485-88 23 September 2005). There, the beneficiary had transferred land to a trustee on the basis of the parties’ agreement to co-operate to sell the land with any sum realised over a certain figure to be divided between the trustee and the beneficiary. The beneficiary lodged a caveat against the land that the trustee sought to remove. Frater J agreed with the trustee’s arguments that the beneficiary had disclaimed any interest in the land and that his interest under the trust was in the proceeds of sale only, and so held there was no caveatable interest.
[33] I do not accept the arguments advanced for Mr Locke. My reasons follow.
[34] I accept the starting point is the transfer instrument and that it expressly states that the transfer is to be a transfer of Ms Locke’s half share in the fee simple estate. While that means, on its face, her entire estate in the half share, the matter does not end there. Where, as here, the transferor is apparently not a bare trustee and his or her transfer would therefore ordinarily be for some consideration, the law makes a presumption as to intention if there is no obvious explanation why there is an absence of consideration. The law presumes an intention that appears not consistent with the bare words of the transfer instrument. I do not therefore accept that a resulting trust could not arise. A trust could arise based on a presumption that Ms Locke did not intend the transfer to be beneficial to Mr Locke and conversely did intend her half share of the property to be held in trust until such time as compensation was agreed on.
[35] Put another way, I accept that it is arguable that the transfer instrument was ineffective to transfer the beneficial interest that Ms Locke has, or arguably has, in the property, notwithstanding that on its face the instrument was unambiguous as to the location of the beneficial interest. The reasons are that the memorandum does not contain any statement that discloses or explains what was the basis for the voluntary transfer, and there is no conduct or other document that points unambiguously to the basis.
[36] As far as the parties’ conduct is concerned, it appears that Mr Locke was intent on taking back Ms Locke’s share and she had little or no choice in the matter.
To acquiesce in that situation is not the same as to intend to gift. To delay, as Ms Locke did, may be a factor that points to an intention to gift but it is but one factor, and it was not relied on by Mr Locke as a determinative factor.
[37] In those circumstances the law will not attribute to the transferor an intention to gift outright where there is no reliable evidence to support that intention and the transfer is arguably incomplete to effect an outright divesting of the beneficial interest. Rather, the law calls for the basis of the transfer to be supported by an explanation failing which it presumes an intention to retain the beneficial interest.
[38] That brings me to counsel’s submission that the transfer instrument, while effective to dispose of Ms Locke’s beneficial interest, nevertheless preserved any rights to compensation under the property agreement. The argument was advanced to identify the full legal consequences of the transfer and not to show the existence of a concurrent agreement that might explain the basis of the transfer. Had it been advanced for that purpose it would fail because counsel was unable to point to any provision in the agreement that preserves such rights when the prescribed termination procedures are not followed. The submission does nothing to support Mr Locke’s challenge to a resulting trust. The fact the agreement is silent as to what if any compensation will be payable where the parties do not follow those procedures simply serves to highlight that the transfer lacked consideration and to raise the real possibility that a resulting trust did arise.
[39] I also do not accept that this case is comparable to Willigers or that the decision there supports the contention here that the only remaining interest is in rights for compensation under the agreement, if any. In Willigers, it was clear on the evidence that the beneficiary did intend to divest himself of his interest in land. The parties’ agreement made clear that the intention was that the beneficiary’s interest was in the proceeds of sale. In this case it is not possible to identify any such agreement or intention. Counsel for Mr Locke recognised this difficulty. Here there was no agreement apart from the original property agreement and that does not assist the respondent whose own professed intention was effectively that Ms Locke should get nothing. The point where they had any discussion as to what Ms Locke was to
receive in return for the transfer or what her interest would be in the proceeds of any future sale.
[40] For the above reasons I reach the conclusion that there is an arguable case that there is a resulting trust. Arguably, a trust arises as a matter of law based on the presumed intention.
[41] As the authors in Blanchard note, if such a presumption is to be rebutted, it must be rebutted by:
a) Evidence that demonstrates an actual intention to gift. b) A presumption of advancement.
[42] Mr Locke’s case was not advanced on either basis and I need not consider the issue of rebuttal further. Any argument based on rebuttal is one that must be had at trial.
[43] In these circumstances I am satisfied that Ms Locke is entitled to an order on terms that her caveat continue, unless for reasons of delay, this is a case where the Court should exercise its discretion against her.
Discretion
[44] That brings me to the remaining issue for decision and the question of delay. [45] Mr Locke contends the Court should exercise its discretion to order that the
caveat lapse. His argument is that irrespective of any arguable interest under a resulting trust, Ms Locke raised no concerns about the transfer of the property to his sole name until she had lodged a caveat some 3 years after she signed the transfer. It would therefore be just that she should be left to pursue such rights as she has, if any, to compensation under the agreement or damages.
[46] I do not accept that sufficient reason has been advanced for the exercise of the Court’s discretion, at least not at this stage. I accept that the delay on Ms
Locke’s part has been considerable. It needs to be explained at trial. As against that, if the caveat is allowed to lapse, she may lack any remedy if her claim should be successful. Certainly, counsel for Mr Locke was unable to point to any real basis for a remedy if the property were to be sold before a determination is made as to Ms Locke’s interest if any. On the other hand counsel for Mr Locke was also unable to point to any immediate prejudice to Mr Locke. He referred to the possibility of sale, but at the hearing there was no suggestion of a binding contract for sale with a third party that Mr Locke had to complete. Had there been such a contract then a different outcome may have been justified. The same can be said had Mr Locke been willing to hold the net proceeds of any sale in trust until the parties’ dispute is resolved at trial or pending further order, but a proposal to that effect was rebuffed when counsel for Ms Locke made it at the hearing.
Result
[47] I make the following orders:
a) There is an order that caveat number X7416292.1 is to remain and not lapse, pending further order.
b)The applicant shall file and serve her statement of claim for restoration of the title, or for a declaration that she has a beneficial interest in the property and that Mr Locke holds a half share in a resulting trust. She is to do so within 14 days of the date of issue of this judgment.
c) Leave is also reserved to Mr Locke to apply on two day’s notice by way of memorandum for an order to vary or rescind the above orders made in the event that:
i)Ms Locke’s proceeding is not filed within the 14 days or that prosecuted with diligence.
ii)If other circumstances arise which justify the release of the caveat.
d)The application is to be re-listed on 25 September 2008 at 2.15pm or such other time as the Registrar allocates for the purpose of reviewing the steps the applicant has taken. If Ms Locke has not filed a proceeding, or has filed a proceeding that does not disclose a proper basis for relief, she can anticipate that the order that the caveat not
lapse will be rescinded.
Costs
[48] The applicant is entitled to her costs in the normal way. Accordingly, I make an order for costs on a category 2B basis together with disbursements to be fixed by
the Registrar.
Associate Judge Sargisson
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