Parry v Parry

[2019] NZHC 2388

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-001047

[2019] NZHC 2388

UNDER

the Land Transfer Act 1952

IN THE MATTER

of an application under section 145A of the Land Transfer Act 1952

BETWEEN

MAXINE ALEXANDRA PARRY

Applicant

AND

MICHAEL PARRY

Respondent

Hearing:	9 September 2019
Appearances:	N R Holdaway for Applicant W Andrews for Respondent
Judgment:	20 September 2019

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me at 4.00 pm on 20 September 2019 pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

………….

PARRY v PARRY [2019] NZHC 2388 [20 September 2019]

Introduction

[1]    The applicant (“Mrs Parry”) applies to sustain a notice of claim of interest (“the notice”) lodged pursuant to s 42(2) of the Property (Relationships) Act 1976 (the “Act”). She lodged the notice against the interest of her former husband (“Mr Parry”) in a property that he purchased, after the parties separated, with his present wife (“Kathleen”) at 69 Mahana Rd, Waimauku (“Mahana Rd”).

The late filing of affidavits

[2]    Objection was taken by Ms Holdaway to the late filing of a second affidavit of Kathleen of 21 August 2019 and by Ms Andrews to the filing of a third affidavit of Mrs Parry of 29 August 2019. I heard submissions on the matter. Neither counsel identified any significant prejudice resulting from the filing of the affidavits. I have decided to receive them.

Facts

[3]    Mr and Mrs Parry were married on 31 October 2004. They have one child, born in August 2004.

[4]    Mrs Parry owned a property at Ellerslie, Auckland. She sold it and Mr and Mrs Parry together purchased a property at Mt Eden. The Mt Eden property was sold, and Mr and Mrs Parry purchased 191 Waikoukou Valley Rd (“the Waikoukou Valley Rd property”) in the name of a Trust.1 It is accepted that Mrs Parry contributed

$400,000 to the purchase. Mr Parry did not have funds to contribute at that time, but later he received $39,700 from the resolution of an employment dispute, which was used to install a pool at the property. The Waikoukou Valley Rd property was the family home.

[5]    Mr and Mrs Parry incorporated a company called Waimauku Childcare Centre Limited (“the Company”).2 They were the only directors and shareholders. In October

1      There is no evidence as to when the Mt Eden property was sold.

2      Accounts of the company were exhibits to Mrs Parry’s affidavit of 29 August 2019. A Companies Office extract was submitted by Ms Andrews with her submissions, without objection from Ms Holdaway. It appears that in 2012 the company changed its name to Maxmik Ltd.

2006, the Company acquired the Waimauku Day Care Centre. The purchase price was entirely funded by a loan from ANZ Bank. The loan was secured by mortgage over the Waikoukou Valley Rd property and Mr and Mrs Parry acted as guarantors of the loan.

[6]    Mr and Mrs Parry worked throughout the marriage. Mrs Parry was a flight attendant. Mr Parry held several positions. He worked for DHL, TNT Freight Company (“TNT”) and from July 2007 he began working fulltime at the childcare centre.3

[7]    Mr and Mrs Parry separated in around July 2009. The Waikoukou Valley Rd property was sold. The proceeds of sale were applied to repay debt. There is no evidence that, other than their shares in the Company, Mr and Mrs Parry had any substantial relationship property following the sale of the Waikoukou Valley Rd property.

[8]    Following separation, Mrs Parry continued to reside as at tenant at the Waikoukou Valley Rd property. She entered a relationship with her present partner in around December 2010. They later purchased a property together at 160 School Rd,

Waimauku.4

[9]    Mr Parry continued to work at the childcare centre and he moved into a flat at its premises. He did not pay rent or outgoings. He lived at the childcare centre until March 2011 when he and Kathleen purchased Mahana Rd.

[10]   Mahana Road was purchased in the joint-names of Mr Parry and Kathleen. The purchase price was $425,000. The evidence of Mr Parry and Kathleen is that Kathleen alone contributed the deposit of $39,000 and a further $48,220 towards the purchase price, with the balance advanced on mortgage by ANZ Bank.5 Mrs Parry does not accept that evidence.

3      I note that at [4] of her affidavit of 6 August 2019, Mrs Parry says that Mr Parry worked for Rural News and not DHL.

4      At [17] of Mrs Parry’s affidavit of 6 August 2019.

5      See statement of Duthie Whyte, Lawyers, which is exhibit B to the affidavit of Mr Parry of 16 July 2019.

[11]   Mrs Parry’s evidence was that Mr Parry purchased Mahana Rd while they were separating.6 As Mr and Mrs Parry separated in or around July 2009 her evidence is incorrect.

[12]   Mr Parry wished to acquire the childcare centre notwithstanding the business was operating at a loss. On 18 November 2011, Mr and Mrs Parry entered into a written agreement (“the agreement”) pursuant to which Mr Parry agreed to acquire the business.

[13]   The agreement does not, except by implication, recognise that the business was owned by the Company. Mr Parry was to pay Mrs Parry $330,500 for the business by instalments between November 2011 and 2015.

[14]   There were terms dealing with the on-going management and funding of the business. It was to be under the “overall directorship” of Mr Parry but the management of Kathleen. Mrs Parry was to remain a director and shareholder until she was paid. She retained access to internet banking for the business account and her eftpos and visa cards (again until she was paid). Shareholder insurance was to remain in place.

[15]   There were terms also that in the event of a forced sale of the business debts owed to the Inland Revenue and the Bank would be paid in priority to other debts, with the consequence that should there be a shortfall Mrs Parry might receive less than the full purchase price. In that event, she was not to “seek further compensation from either [Mr Parry] or his estate in anyway.”7

[16]   Mr and Mrs Parrys’ signatures to the agreement were witnessed by a Justice of the Peace not a lawyer. The agreement does not purport to be a compromise of Mr and Mrs Parry’s relationship property rights.

[17]   Contemporaneously with the signing of the agreement, Mr Parry took up employment with Singapore Post. He stopped drawing a salary from the Company. Kathleen managed the childcare centre.

6      At [5] and [13] of Mrs Parry’s affidavit of 7 June 2019.

7      Exhibit D to the affidavit of Mrs Parry of 6 August 2019.

[18]   Under the agreement, Mr Parry was to pay Mrs Parry $1,000 per month towards the purchase price from November 2011 until December 2014. Mr Parry made no payments under the agreement.

[19]Mr and Mrs Parry’s marriage was dissolved on 19 December 2011.

[20]   On 5 April 2012, Mrs Parry lodged her notice of claim of interest in Mahana Rd. This was shortly before Mr Parry and Kathleen married.

[21]    The business of the childcare centre was sold in mid-2012 following advice from an accountant that the directors might be accused of trading recklessly. Mrs Parry acknowledges that the business was operating at a loss and was in a “parlous state.”8 She was an equal shareholder and a director of the Company and she agreed to the sale; albeit, she says, she had no choice but to do so.9

[22]   The Company was placed into liquidation on 10 August 2012 by special resolution of the shareholders. The Company had substantial debts in the liquidation that remained unpaid.

[23]   Mrs Parry has not filed any proceedings under the Act or to enforce the agreement in the more than seven years since she lodged the notice.

Removal of notices of claim

[24]   A notice of claim must relate to an unresolved claim to an interest in land pursuant to the Act. Whether a notice of claim can be sustained is to be determined in accordance with the same principles that apply to applications to sustain caveats lodged under the Land Transfer Act. Counsel agreed that the correct principles were set out by the Court of Appeal in Philpott v Noble Investments Ltd as follows:10

8      At [31] of Mrs Parry’s affidavit of 6 August 2019.

9      At [29] of Mrs Parry’s affidavit of 6 August 2019.

10     Philpott v Noble Investments Ltd [2015] NZCA 342 at [26].

[26] The applicable legal principles which governed the application to sustain the caveats, and which now govern this appeal, are as follows:

(a)   The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;

(b)   It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;

(c)   The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and

(d)   When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.

Discussion

[25]   Ms Holdaway attempted to support the notice in reliance upon the agreement, certain provisions in the Act and, upon the basis of a constructive trust. I will deal with each in turn.

The agreement

[26]   Mrs Parry’s position is that the agreement is valid and binding upon Mr Parry and that Mr Parry is in breach of his obligation to pay the full purchase price. Throughout her affidavits, Mrs Parry states that the notice was lodged to protect her rights under the agreement.11 There are two immediate problems with this. First, any claim that Mrs Parry has under the agreement is not a claim to an interest pursuant to the Act, as is required by s 42(1). Second, the agreement creates only contractual rights and makes no mention of Mahana Rd. It does not create any proprietary interest in Mahana Rd.12 It follows that the agreement does not sustain the notice.

11     At [15] and [21] of Mrs Parry affidavit of 7 June 2019 and [8], [18], [21], [26], [32] and [34] of Mrs Parry’s affidavit of 6 August 2019.

12     Philpott v Noble, above n 10, at [28] and Hinde McMorland & Sim Land Law in New Zealand

(looseleaf ed, LexisNexis) at [10.010].

The Act

[27]   Throughout her submissions, Ms Holdaway noted that Mr Parry’s interest in Mahana Rd was his separate property. At [16] of her submissions, she identified the issue in this case as being whether Mrs Parry “has a justified claim to an interest in the separate property acquired by…[Mr Parry] post separation.” When asked to identify any section in the Act giving rise to Mrs Parry’s interest in Mahana Road, Ms Holdaway referred only to ss 44 and 44C.

[28]   Section 44 protects the claim of a non-owing spouse or partner where there is an actual or threatened disposition of property to defeat his/her claim or rights under the Act. Section 44C empowers the court to order one spouse or partner to compensate the other if there has been a disposition of relationship property to a trust that has the effect of defeating the rights or interests of that other spouse or partner.

[29]   Mr Parry’s acquisition of Mahana Rd was not a “disposition of property” for the purposes of s 44 nor was it a “disposition of relationship property” to a trust for the purposes of s 44C.13 Neither section has any application in this case. I understood Ms Holdaway to accept that was the case and to withdraw her reliance upon those sections of the Act. Mrs Parry has, therefore, not advanced any claim under the Act to sustain the notice.

Constructive Trust

[30]   Ms Holdaway then argued that Mrs Parry has an interest in Mahana Rd under a constructive trust in reliance upon the principles in Lankow v Rose.14 Again, such an argument faces the immediate difficulty that it is not a claim to an interest pursuant to the Act, as is required by s 42(1).15

13 Ms Holdaway correctly withdrew any reliance upon arguments in her written submissions that Mahana Rd was purchased intending to defeat Mrs Parry’s rights or that it had the effect of defeating her rights. There was no evidence to support these submissions.

14 Lankow v Rose [1995] 1 NZLR 277.

15 Buxtone v Butler [2017] NZHC 131 at [44].

[31]   In Heazlewood v Joie De Vivre Canterbury Ltd, the Court of Appeal noted that a claimant’s interest in land under a constructive trust “...may sustain a caveat under the Land Transfer Act but it will not sustain notices of interest under the PRA.” 16

[32]   Whilst that is enough to dispose of this matter, for completeness, I will deal with the substance of the argument that Mrs Parry has an interest in Mahana Rd under a constructive trust.

[33]   Arising out of property disputes between de facto couples, the courts developed principles to prevent the unconscionable assertion of ownership by one partner in the relationship to property to which the other partner had contributed. The courts have responded by imposing a constructive trust on the property to which the contributions were made. The leading case, setting out the principles upon which the court will act, is Lankow v Rose.17

[34]In Lankow v Rose, Hardie Boys J stated:18

It is however important that whatever the legal rubric there should be clear criteria for the imposition of constructive trusts in the area of de facto relationships. These will necessarily involve a value judgment, but there is nothing unusual about that.

The essential requirements I see to be twofold: that the plaintiff contributed in more than a minor way to the acquisition, preservation, or enhancement of the defendant’s assets, whether directly or indirectly; and that in all the circumstances the parties must be taken reasonably to have expected that the plaintiff would share in them as a result.

[35]In his judgment, McKay J put the matter this way:19

The claimant must show a direct or indirect contribution to the property in question, an expectation of an interest, and that the circumstances are such that it is reasonable for the claimant to have an expectation of an interest and for the respondent to expect there to be such an interest. The test of reasonableness relates to the expectation of an interest in the property, not to the extent of the particular interest claimed.

16     Heazlewood v Joie De Vivre Canterbury Ltd [2015] NZCA 213 at 38. The court referred to RL Fisher (ed) Fisher on Matrimonial Property (looseleaf ed, LexisNexis) at [9.28].

17     Lankow v Rose, above n 14.

18     At 282.

19     At 289.

[36]   Tipping J found that a claimant asserting an interest in property by way of a constructive trust had to establish four key features, which he set out as follows:20

Before discussing further the 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.

[37]   Tipping J stated that direct financial contributions as well as indirect contributions to the acquisition of property will qualify and that:21

I would allow as a contribution any payment or service by the claimant which either:

(1)of itself assists in the acquisition, improvement or maintenance of the property or its value or

(2)by its provision helps the other party acquire, improve or maintain the property or its value.

[38]   In Wakenshaw v Wakenshaw the Court of Appeal provided further guidance on what will amount to a qualifying contribution. It held that a claimant’s contributions must be: 22

(a)a more than minor contribution to the acquisition, preservation or enhancement of the defendant’s assets, whether directly or indirectly;

(b)       causally related to that acquisition, preservation or enhancement; and

(c)manifestly exceed any benefits that the claimant derives from the arrangement.

20     At 294.

21     At 295.

22     Wakenshaw v Wakenshaw [2017] NZCA 252 at [25]. See also Vervoort v Forrest [2016] NZCA 375 at [74]-[75].

[39]   Related to the analysis in Wakenshaw, the authors of Equity and Trusts in New Zealand note that relevant contributions must be to the claimant’s detriment. 23 Contributions to the property of another that are adequately compensated will be no basis for the imposition of a constructive trust.

[40]   Mrs Holdaway argued that Mrs Parry made an indirect contribution to the acquisition of Mahana Rd “through…the business while the parties were separated.” That submission does not take matters very far in identifying Mrs Parry’s contributions but confirms that what are relied upon are benefits Mr Parry is said to have received from the business of the childcare centre following separation.

[41]At paragraph 15 of her first affidavit, Mrs Parry states:

I believe that I have a beneficial interest in the property as this was acquired through my financial backing of the [childcare centre] and the business drawings made by him, funded through me

[42]At paragraph 7 of her third affidavit Mrs Parry puts the matter this way:

Even though the Respondent and Kathleen Parry claim that the deposit and the balance of funds came from Kathleen Parry’s separate account, however, they could not have paid the deposit or raised a mortgage without showing [childcare centre] salary and wages and drawings. The Respondent did not have any rental or personal expenses to pay as he was living on the business premises and was drawing wages and salary. The property was acquired before our relationship property matters were resolved.

[43]   Mrs Parry’s case then is that her contributions to the acquisition of Mr Parry’s interest in Mahana Rd are represented by:

(a)Her “financial backing” of the childcare centre;

(b)Mr Parry’s earnings (however characterised) from his work at the childcare centre;

(c)The rent and expense free accommodation Mr Parry enjoyed at the childcare centre; and

23     Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thompson Reuters, Wellington, 2009) at 1203-1204.

(d)The benefit that Mr Parry obtained from being able to “show” the Bank his earnings from the childcare centre to obtain a mortgage to purchase Mahana Rd.

[44]   In my assessment Mrs Parry made no qualifying contribution to Mr Parry’s acquisition of his interest in Mahana Rd.

[45]   Mrs Parry has provided no evidence of her “financial backing” of the business. Specifically, there is no evidence of when it was provided, what it consisted of or how it was causally connected with the purchase of Mahana Rd.

[46]   I have no reason to doubt the evidence of Mr Parry and Kathleen that Mr Parry made no immediate financial contribution to the acquisition of Mahana Rd. But if he did, Mrs Parry argues this contribution was from his post-separation earnings at the childcare centre. Mrs Parry made no contribution to Mr Parry’s earnings. He was paid by the Company not by Mrs Parry. He was entitled to be paid for his labour. The Company (and, incidentally, Mrs Parry as a shareholder) benefited from his labour.

[47]   Likewise, in so far as Mr Parry lived cost-free at the childcare centre, this was a benefit derived from the Company not from Mrs Parry and she suffered no detriment as a result.

[48]   The proposition that Mrs Parry contributed to the acquisition of Mahana Rd because Mr Parry was able to prove earnings from the childcare centre to obtain a mortgage is fanciful. There is no evidence that Mr Parry relied upon his earnings to obtain the mortgage. If he did, that involved no service by the Company or Mrs Parry for his benefit nor did it result in any detriment to either of them.

[49]   The next issue is whether because of her alleged contributions Mrs Parry had an expectation of an interest in Mahana Rd. As Tipping J noted in Lankow v Rose, if for any reason a claimant has no expectation of an interest in the property a constructive trust cannot be imposed in his or her favour.24 Whilst Mrs Parry asserts an expectation to an interest in Mahana Road arising from her contributions, it is

24     Lankow v Rose, above n 14, at 699-700.

demonstrably the case that she lodged the notice because Mr Parry made no payments under the agreement.

[50]   If Mrs Parry had such an expectation of an interest in Mahana Road it was not reasonable in the circumstances. She made no qualifying contribution to the purchase of Mahana Rd. Furthermore, this is not a case where it is alleged that qualifying contributions to the acquisition of property were made during the life of a domestic relationship. When Mahana Rd was purchased Mr and Mrs Parry had been separated for around 1 year and 8 months. Their marriage was over. They were getting on with their lives apart from one another. Both had new partners. Mrs Parry could not reasonably have expected to share in Mr Parry’s property acquired with a new partner long after separation.

[51]   Ms Holdaway argued that not only was it just that Mr Parry yield an interest in Mahana Rd property to Mrs Parry, but that it was “imperative” that the court recognise her entitlement. I do not agree. Mrs Parry has no arguable claim to an interest in the property. There is nothing at all unconscionable in Mr Parry’s denial of her claim.

Result

[52]   Mrs Parry has failed to establish an arguable case to an interest in Mahana Rd to sustain the notice.

[53]   I order that notice of claim 9017319.1 lodged against identifier NA 1319/100 is to be removed.

[54]Mr Parry is entitled to his costs on a 2B basis.

O G Paulsen Associate Judge

Solicitors:

Norwest City Law Limited, Auckland Vodanovich Law, Auckland