McFadyen v Styles HC Auckland CIV 2010-404-2387
[2010] NZHC 1580
•9 August 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-002387
UNDER Section 145A of the Land Transfer Act
1952
IN THE MATTER OF an application by ALVA DOREEN MCFADYEN and MANFRED MUNRO MCFADYEN
BETWEEN ALVA DOREEN MCFADYEN AND MANFRED MUNRO MCFADYEN Plaintiffs
ANDBRUCE TREVOR STYLES AND DAWN MARILYN STYLES
Defendants
Hearing: 9 August 2010
Appearances: J D Atkinson for Plaintiffs
P Moodley for Defendants
Judgment: 9 August 2010
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors/Counsel:
Jackson Solicitors, PO Box 21584, Henderson Waitakere
Brookfields, PO Box 76 004, Manukau
J D Atkinson, PO Box 105750, Auckland
A D MCFADYEN AND M M MCFADYEN V B T STYLES AND D M STYLES HC AK CIV-2010-404-
002387 9 August 2010
[1] In this case, the plaintiffs apply for an order that caveat 8446948 not lapse. Associate Judge Abbott made an interim order that the caveat not lapse pending further order of the Court on 4 May 2010. The matter before me today is the substantive argument whether the caveat should lapse.
[2] I am advised that one of the plaintiffs, Mr Manfred Munro McFadyen, has now died and his widow is his executrix and sole beneficiary under his will. Accordingly, from now on Mrs McFadyen is suing not only in her own right but also as executrix of her husband’s estate.
[3] A decision about a caveat is necessarily an interim decision because, even when a decision about a caveat is made, there can be left further matters for determination. That is, my decision today is not going to be a final decision about matters in this case. If matters remain in contention, there can be further proceedings, whether the caveat is upheld or not, and that can give rise to more legal costs and more disharmony. I say that because in this case the parties are related. Mrs Styles, one of defendants, is the daughter of Mr and Mrs McFadyen and it is distressing to see that unhappiness has come into the family to the stage where matters have had to come before this Court for determination.
[4] Mr Atkinson was careful to describe all the parties as good, sensible people. That showed respect to the Styles and I hope that that respect can continue to be shown by all members of the family towards each other because, at the end of the day, it is more important that the family be able to resolve the matters themselves, rather than to have outsiders, such as courts, tell them what the rights and wrongs are.
[5] Accordingly, even though I am going to give a decision on this matter today about the caveat, I urge the family as a whole to look for a solution which will be workable for the whole family and which will continue to preserve goodwill in the family with all members of the family showing respect to each other. That would be a far better outcome for everyone rather than having the parties’ rights asnd wrongs determined in this Court.
[6] When an application is made under s 145A of the Land Transfer Act, the test that the Court follows is similar to the test described by Associate Judge Faire in his decision GR Swords & G W Savery v Bob Tails Ltd HC Auckland CIV-1997-404-
678, 9 July 1997. In that case, Associate Judge Faire set out the test for applications under s 143 – the test under s 145 is substantially the same:
a) section 145A gives no guide as to circumstances in which the Court may make an order that a caveat be sustained or removed;
b)if it is clear that there is no valid ground for lodging a caveat, or that the interest which in the first place justified the lodging of a caveat no longer exists, the caveat should be removed;
c) the onus is on the caveator to show that he or she has a reasonably arguable case for the interest claimed;
d)the caveat, being a creature of statute, may be lodged only by a person who is given the right to lodge a caveat by the 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;
e) the caveator has to show that he or she is entitled to a beneficial interest in the estate referred to in the caveat by virtue of an unregistered agreement or an instrument of transmission or any trust expressed or implied;
f) the caveator has to establish an arguable case in claiming an interest of the kind in s 137 of the Land Transfer Act;
g) the Court will not make final determinations on disputed questions of fact;
h)even if the caveator establishes an arguable case in the land claimed, the Court retains a discretion to make an order removing the caveat although that discretion is exercised cautiously;
i)delay can be a relevant factor in the exercise of the Court’s discretion whether to remove a caveat; and
j)there is room for the exercise of the discretion on the questions of balance of convenience, even if the Court does find that there is a caveatable interest.
[7] The background to the matter is that in 2004, Mr and Mrs McFadyen, a retired couple, had sold their existing house property. They agreed with their daughter and son-in-law to build a house on the Styles’ property at 40A Stratford Road, Alfriston, Manurewa. That property is described in Identifier NA94C/174., North Auckland Registry. The house cost Mr and Mrs McFadyen about $250,000 to build. On 5 November 2004, Mr and Mrs McFadyen and Mr and Mrs Styles signed a written property sharing agreement. The agreement was prepared by a lawyer acting for Mr and Mrs McFadyen. Mr and Mrs Styles had legal advice before signing the agreement. The main parts of the agreement say:
1.That the owners have a mortgage in favour of the ASB Bank Limited and will guarantee and keep the parents in law/parents [the McFadyens] indemnified against all outstanding loan obligations to the ASB Bank Limited.
2. All rates, insurance and other outgoings for the property shall be paid by the owners as to Seventy-five percent (75%) and the parents in law/parents as to Twenty five percent (25%) respectively.
3.Neither party shall without the prior written consent of the other parties, mortgage or charge their interest in the property or any part of that interest.
4.The parties shall each occupy each property that they currently reside in.
5. Neither party shall, without the prior written consent of the other party, sell, transfer or otherwise dispose of their legal or beneficial interest in the property or any share or part of that interest.
6. Neither party shall, without the prior written consent of the other party, grant a lease or tenancy or a licence to occupy the property or any part of it.
7.In the event that the parents in law/parents wish to sell or dispose of their interest in the property they will, firstly, in writing offer their share to the owners at the sum of Two hundred thousand dollars ($200,000.00).
8.The remaining party must accept in writing to purchase the departing party’s share pursuant to the above clause within three months of the offer to sell being made and must pay the departing party’s held in the property being Two hundred thousand dollars ($200,000).
9.That if the owners do not wish to purchase the parents in law/parents property then the owners can elect to have the parents in law/parents property removed and sold at the best price available.
10.The provisions of this agreement are binding on the parties in all circumstances including the death of one of the parties.
[8] From 2004 to 2008, both Mr and Mrs McFadyen lived in the house. In 2008, Mr McFadyen had Alzheimers and required fulltime care and had to move out. Mrs McFadyen continued living in the house.
[9] In December 2009, Mrs McFadyen moved out to live in a retirement village.
[10] There appear to have been discussions about what should happen to the property but these were inconclusive. Mr and Mrs Styles say that Mrs McFadyen gave them an oral offer to sell their share in the property for $200,000. The Styles’ lawyers wrote to Mrs McFadyen in March 2010. That letter said that the Styles declined to buy the property at the price of $200,000 in clause 7 of the agreement. The Styles’ letter says that they had obtained a valuation and they say that the valuer had said that the McFadyen’s house was worth $103,000. The letter also says that the Styles had got one firm of land agents to appraise the property and an appraised value was given of between $70,000 and $80,000. Another firm of land agents has appraised the property at $100,000. The Styles offered to pay the McFadyens
$103,000 for the house.
[11] Following this, the McFadyens lodged their caveat which is at issue in this proceeding. The caveatable interest claimed is this:
The caveators have an interest in the land pursuant to a property sharing agreement dated 5 November 2004, signed by the caveators, in which the proprietors are the cestui que trust.
[12] On 6 April this year, the Styles gave notice to the Registrar General for the lapse of the caveat and the present proceeding was filed on 22 April 2010.
[13] The case for Mr and Mrs Styles is that Mr and Mrs McFadyen had no more than a licence to live on the property at Manurewa, but that has now come to an end because both of them have moved out. They may have an interest in the proceeds of sale of the house but they do not have an interest in the property as such. The Styles say that these matters do not give Mr and Mrs McFadyen a caveatable interest.
[14] The argument about licence arises from the fact that at law a licence is a permission to go on to a property or to use a property but it does not give a proprietary interest in the property as such. To sustain a caveat, the normal approach is to look for some beneficial interest in the property. In his submissions, Mr Moodley drew the distinction between a remedial constructive trust and an institutional constructive trust. This distinction is relevant to determining whether there is a caveatable interest. Reference was made to the passage of Tipping J in Fortex Group Ltd (In Receivership and Liquidation) v McIntosh [1998] 3 NZLR 171 at 172, referring to the distinction between an institutional constructive trust and a remedial constructive trust. Caveatable interests are available only for interests which already exist. If the caveatable interest claimed is one which depends on an order of the Court to create it, that is not a caveatable interest within s 137 of the Land Transfer Act.
[15] In this case, it is useful to begin the consideration of any interest claimed by the plaintiffs by considering the position before the parties entered into the agreement of November 2004. Mr and Mrs McFadyen had agreed with Mr and Mrs Styles that the McFadyens could build the house on the Styles’ property at Stratford Road and that that would provide them with a home for their retirement years.
[16] In a family arrangement like this, equity will protect people in the position of the McFadyens. That is clear from the authorities relied on by the McFadyens, in particular cases such as Pearce v Pearce [1977] 1 NSWLR 170, and Stevens v Stevens (unreported decision) HC Auckland M1260/89, 4 December 1981, Barker J.
[17] The approach followed in these cases is now governed by the leading decision of the Court of Appeal in Lankow v Rose [1995] 1 NZLR 277 per Tipping J at 294:
... In order to be awarded a beneficial interest in property owned in law by the defendant, the claimant must first show some contribution, direct or indirect, to the property at issue. A contribution to the relationship will not qualify unless it is also, as will often be the case, a contribution to that property. This is not as restrictive an approach as it may appear. I will return to the ambit of qualifying contributions a little later.
The second thing the claimant must establish is that she expected an interest in the property. If, for any reason, she had no such expectation, a constructive trust cannot be imposed in her favour. Thirdly, the claimant must show that her expectation of an interest was reasonable in the circumstances. The fourth step is for the claimant to show that the defendant should reasonably expect to yield her an interest. The fact that the defendant is not willing to yield an interest or did not expect to have to do so is no bar to her claim if he should reasonably expect to do so. In that respect the Court stands as his conscience.
The imposition of a constructive trust in such circumstances can be seen as a development of concepts of resulting trust and proprietary estoppel. A resulting trust arises when property is owned at law by one person and another person has provided all or some of the consideration for its acquisition. Traditionally a resulting trust did not arise when one person improved the property of another: see the speech of Lord Reid in Pettitt v Pettitt [1970] AC 777 at p 794B. The reason why the person with the legal title is required to yield a beneficial interest to the claimant is that equity will not allow the owner of the legal estate to deny the claimant a beneficial interest. In equity the conscience of the legal owner is required to acknowledge the other party’s beneficial interest in the property. A refusal to do so is regarded as unconscionable conduct on the part of the legal owner justifying the intervention of equity.
This, in my judgment, is the most convincing rationale for the intervention of equity in this field. Equity cannot alter or interfere with the defendant’s legal estate. However, on the premise that the defendant is acting unconscionably by denying the claimant a beneficial interest, equity treats the defendant as a constructive trustee of the legal estate to the extent of the claimant’s assessed interest. By this means equity requires the defendant to account to the claimant for her interest.
The constructive trust so imposed can be executed, ie put into practical effect, by such means as the justice of the case requires. The two most likely means are either a vesting order or an order for the payment to the claimant of the assessed value of her beneficial interest. I do not myself regard it as necessary to classify such a payment as equitable damages or equitable compensation. I regard the payment as the means whereby the constructive trustee is required to implement the trust. The payment satisfies the trust.
Before discussing further question of contributions, I summarise what the de facto claimant must show:
1. Contributions, direct or indirect, to the property in question.
2. The expectation of an interest therein.
3. That such expectation is a reasonable one.
4.That the defendant should reasonably expect to yield the claimant an interest.
If the claimant can demonstrate each of these four points equity will regard as unconscionable the defendant’s denial of the claimant’s interest and will impose a constructive trust accordingly.
[18] That was a case about a de facto relationship but the same approach applies in cases of inter-generational claims, that is where the younger generation may move on to a property belonging to the older generation and make improvements or, as in this case, where the older generation move on to property belonging to the younger generation and make improvements. Other cases recognising such inter-generational claims include Stratulatos v Stratulatos [1988] 2 NZLR 424, a decision of McGechan J.
[19] Under this approach, the McFadyens would succeed in a constructive trust claim for an interest in the property at Stratford Road. At the very least, they have a reasonably arguable case for a beneficial interest in the land. Clearly, they have made contributions to the property by building the house on the land. Their expectation was that by building the house on the land, they would have an interest in the land, and such an expectation is a reasonable one. It is implausible that they would invest $250,000 in providing permanent accommodation for themselves without being protected by way of an interest in the land. Likewise, it is reasonable to expect the Styles to recognise that interest. That meets the test as set out by Tipping J in Lankow v Rose.
[20] When Mr and Mrs Styles and Mr and Mrs McFadyen entered into their agreement of November 2004, they did so against this background, that the law would protect the McFadyens’ interests by upholding a constructive trust, and that is reflected in the way that this agreement has been drawn up. There are, admittedly, difficulties with the way that the agreement has been written. In discussions with counsel, it was agreed that there were difficulties with drafting in that words were omitted from clause 8, there is apparently an inconsistency between clause 8 and clause 9. Clause 9 does not say where the proceeds of sale of the property were to go to. Another difficulty was that “property” is used in different meanings at different parts of the agreement. In some parts of the agreement the word “property”
is used to refer to the entire property at 40A Stratford Road, Alfriston, but in other parts it clearly refers just to the particular residence occupied by each couple. Nevertheless, these difficulties in the way the agreement was drawn up do not prevent the Court giving a sensible interpretation to the agreement.
[21] Firstly, the property was called a property sharing agreement and that suggests that the parties intended that interests in the property would be shared. It goes beyond simply the grant of a licence by the Styles to let the McFadyens use the property.
[22] Under clause 1, the Styles promised to pay the ASB mortgage and keep the McFadyens indemnified against the loan obligations to the ASB Bank. This indemnity suggests that the McFadyens themselves could be exposed to liability to the ASB Bank. If they were simply licensees they would not be exposed to any liability. On the other hand, if they are held to have a beneficial interest in the property, then they could be exposed to liability if they were to become registered proprietors with the ASB Bank’s mortgage already registered on the title.
[23] Clause 3 prevents all parties from mortgaging or charging their interest in the property. That provision is also consistent with the McFadyens having an interest in the property as owners. Ordinarily, if the McFadyens were only licensees, the Styles would be entitled to give mortgages and charges over the property without affecting the interest of a licensee. The restraint against giving mortgages and charges is one given to co-owners, not one given to licensees.
[24] In clause 5 there is the restraint on transferring or disposing of interest in the property. By that means, the McFadyens can restrain the Styles from selling their interest in the property. That is also a matter consistent with the McFadyens having an interest in the property themselves. It is inconsistent with the McFadyens simply being licensees.
[25] In the same vein under clause 6, neither party shall without the consent of the other party grant a lease or tenancy or licence to occupy the property or any part of it. That recognises that the McFadyens had a beneficial interest. That is because the
McFadyens are given the right to stop the Styles giving a licence to other people to use the property.
[26] Clause 10 provides that the agreement will also bind the parties in all circumstances, including the death of one of the parties. “In all circumstances” covers not only the death of one of the parties, but also one of the parties ceasing to live on the property. That is, the interests protected under this agreement survive death and they survive one of the parties no longer living there.
[27] In my judgment, these considerations are enough to point to the McFadyens taking a beneficial interest in the property. The interest given to them is more extensive than a mere licence.
[28] The Styles also argue that whatever interest the McFadyens might have in the property has now expired with their departure from the property.
[29] There is no provision in the agreement that the McFadyens’ interest ceases on their no longer living in the property. Indeed, the provisions of the agreement are consistent with their interest continuing beyond the period when they stop living there. Here I refer again to clause 10.
[30] The difficulties for the parties lie in the way that clauses 7, 8 and 9 operate. Those matters are largely undetermined at this stage and it is preferable that I not express concluded views about that because these matters are still to be resolved between the parties. So what I say now is provisional only. At this stage, there is no evidence that the McFadyens have yet made an offer in writing to the Styles to sell. Mr Moodley, in his submissions, suggested in the context of a family arrangement the requirement that the offer be in writing should be disregarded. I regard his submission as over optimistic. Clearly the Styles want to avoid paying $200,000 set out in paragraph 7. For what it is worth, I regard clause 9 as overriding clause 8, so the Styles are not bound to buy at the price of $200,000. The position has not been reached where the Styles can compel a sale of McFadyens’ house. At present, Mrs McFadyen is entitled to refrain from offering to sell their interest in the property and to await developments.
[31] In an application to sustain a caveat, it is not necessary to resolve all the problems at present. Because of that, I decline to exercise any discretion to remove the caveat, having found that the McFadyens do have a continuing caveatable interest in the property. In Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 at 656, the Court of Appeal said that a cautious approach was applied to removing a caveat. It has to be perfectly clear to the court that no practical purpose could be served by continuing a caveat. In this case, I am satisfied that the discretion should not be exercised to remove the caveat. I see a real prospect of prejudice to Mrs McFadyen if the caveat were removed. There will be no means of protecting her interest in the property and there would be a risk of her not receiving anything in the event of a sale and becoming simply an unsecured creditor of Mr and Mrs Styles.
[32] An order sustaining a caveat recognises only that the caveator has a reasonably arguable case for a caveatable interest. It will be necessary to attach conditions to ensure that if the parties are unable to resolve differences, proceedings are taken for Mrs McFadyen to uphold her interest in the property. I am going to allow a reasonably lengthy period before Mrs McFadyen is required to start proceedings in this Court. My purpose in doing so is to allow the parties a reasonable time within which they can look at the situation and try to resolve matters themselves without the need for matters to be brought back to Court. In a case like this, I do repeat that it is far better for the family to resolve the matter peaceably without argument in Court because that would be for the better harmony of all members of the family.
[33] Accordingly, I make these orders:
a) That caveat No. 8446948 shall not lapse;
b)Mrs McFadyen shall issue proceedings in this Court within 40 working days of this decision seeking orders declaring her beneficial interest in the property at 40A Stratford Road, Alfriston, Manurewa, Auckland, being Lot 2, Deposited Plan 157349, described in Identifier NA94C/174 and will prosecute that proceeding diligently;
c) Leave is reserved to the Styles to apply to this Court for further directions, in particular if the proceeding is not pursued expeditiously;
d)There is an order for costs in favour of the McFadyens on this application for $3,840 and disbursements of $400.
R M Bell
Associate Judge
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