Perpetual Trust Limited v Bolton

[2023] NZHC 1108

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2022-470-000158

[2023] NZHC 1108

UNDER

the Declaratory Judgments Act 1908

IN THE MATTER

of an application for an order discharging a mortgage by declaration that the mortgage was unjustifiably executed

BETWEEN

PERPETUAL TRUST LIMITED as

administrator and trustee of the Estate of REGINALD WILLIAM BOLTON

Applicant

AND

JOHN GRAHAM KENNETH BOLTON

Respondent

Hearing:	8 May 2023
Appearances:	M Ward-Johnson for the Applicant No appearance for the Respondent
Judgment:	11 May 2023

JUDGMENT OF WALKER J

This judgment was delivered by me on 11 May 2023 at 10 am Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

PERPETUAL TRUST LIMITED v BOLTON [2023] NZHC 1108 [11 May 2023]

Introduction

[1]                  Perpetual Trust Ltd (Perpetual) is administrator of the Will of Reginald William Bolton and the Will of his daughter, Wendy Robyn Diana Bolton.1 The respondent, John Bolton (known by his preferred name, Ken), was formerly administrator of Reginald’s Will.2 Perpetual applies for a declaration that a mortgage executed by the respondent was unjustifiably executed. It asks this Court to direct that the Registrar of the High Court execute a discharge of mortgage to give effect to that declaration.3

[2]                  The mortgage (Instrument No 5507179.1) is registered against the title of a property located at 84 Sutherland Road, Tauranga being an estate in fee simple with an area of 1,695 square metres more or less with legal description of Lot 3 deposited plan South Auckland 5061 with Identifier SA54A/689 (the Property). The Property was part of Reginald’s estate (the Estate). The mortgage was lodged by Ken on or about 4 March 2003. I set out the material circumstances in which it was lodged below.

[3]                  Ken has been served with this application and has not taken any steps or responded to it. The application therefore proceeds by way of formal proof under Part 19 of the High Court Rules 2016 (the Rules).4

Background

[4]                  Reginald passed away in 1975. Reginald was separated from his wife, the mother of his three children. Reginald’s Will provided that aside from specific gifts to his two children, Wendy and Alan, he left the rest of his property to all three children: Alan, Ken and Wendy in “joint ownership”. This included the Property. He appointed Wendy as the executor of his Will. Probate was granted on 22 April 1976.

[5]                  In 1986, Wendy, Alan and Ken as the three beneficiaries of the Estate agreed that the Estate would sell the Property to Alan for $85,000. Alan deposes as follows:

1      The applicant was appointed as administrator and trustee by the High Court on 8 October 2012:

Re Bolton [2021] NZHC 2692.

2      I will refer to the parties by their preferred names to avoid confusion with their common surname.

3      The applicant was granted permission to bring the application for declaration under Part 19 of the High Court Rules by Minute of Associate Judge Sussock: Perpetual Trust Ltd v Bolton HC Tauranga CIV-2022-470-158, 14 February 2023.

4      Perpetual Trust Ltd v Bolton HC Tauranga CIV-2022-470-158, 28 March 2023.

Ken said he would take care of the paperwork and would arrange for the transfer of the property into my name to save the legal expenses.

I paid a $20,000 deposit to my mother. I had around $80,000 in gold bars. Ken said he would take them to Auckland cash them in, distribute the remaining $65,000 amongst the beneficiaries, and return the balance to me. He decided to transfer it to Gold Corporation, insisting it would bring a better return for the family. Instead Gold Corp went into liquidation and the money was lost. I later discovered that Ken had not registered the house in my name.

[6]                  The family agreement that Alan was to purchase the Property is confirmed by Adelia Finlay, mother of Alan, Ken and Wendy. Ms Finlay recorded matters in affidavit form before her death in 2020 in view of the discord within the family.

[7]                  Sadly, Wendy died at a young age. She was survived by her only daughter, Rachel, aged only 16 years at the time. Rachel is a beneficiary of the Estate by virtue of her entitlement to benefit from her mother’s estate. She has filed an affidavit in support of Perpetual’s application.

[8]                  In 1993, Ken was appointed as Rachel’s guardian. On 8 April 1993, Letters of Administration in respect of Reginald’s Estate were granted to Ken in place of Wendy. The Property was transmitted to Ken in that capacity on 11 March 1994.

[9]                  On 2 April 2001, Ken transferred the Property to Minka Company Ltd (Minka) of which Ken was the sole director and shareholder. On 4 March 2003, Ken registered a mortgage over the property. The mortgagor is Minka. The mortgagee is Ken. The family had no idea this had occurred.

[10]              Following the discovery of this and other transactions by Ken in respect of other Estate property, Alan and Rachel sought to remove Ken as the administrator of the Estate. The High Court made an order dated 6 October 2021 removing Ken and appointing Perpetual as the administrator of the estate.5 The judgment of Moore J recorded:

[17]      Having reviewed the uncontradicted evidence advanced in support of Alan and Rachel’s claim, I am well satisfied an order to remove Ken as administrator meets the s 21 test. My reasons follow.

5      Re Bolton, above n 1.

[18]      First, in relation to 264 Bellevue Road, Ken held that property as an administrator of Reg’s estate. He used the property as security for a loan from ASB bank to pay a personal debt. He failed to service that loan. This led to ASB serving a notice under the Property Law Act 2007 requiring payment and threatening a mortgagee sale if the funds were not paid. At no time did Ken consult with or obtain the consent of the other beneficiaries. In fact, they had no knowledge of the encumbrance or the threatened actions of ASB. Plainly, a mortgagee sale would risk a sale at below market value.

[19]      Secondly, in 1986 the beneficiaries agreed that the estate would sell 84 Sutherland Road to Alan for $85,000. However, the property was never transferred into Alan’s name. In 1993 Ken promised to transfer it into Alan’s name. He failed to do so. Instead, he transferred the property to Minka Company Ltd, of which Ken was the sole director and shareholder. Ken then registered a mortgage in his name over the property. As with 264 Bellevue Road, Ken never disclosed this loan to the other beneficiaries. He never consulted with them nor did he ever attempt to secure their consent. In fact, his actions in relation to 84 Sutherland Road were in complete conflict with what the beneficiaries had expressly agreed.

[20]      Thirdly, as Ken was the registered owner of both 264 Bellevue Road and 84 Sutherland Road, the Tauranga City Council (“the Council”) sent Ken rates invoices. He failed to pay them. As a consequence, he exposed both properties to the risk of a rateable sale. The Council threatened Ken with a forced, rateable sale of 84 Sutherland Road. It was only through Alan’s active intervention that a settlement was brokered with the Council, under which Alan paid the full amount of the arrears, which exceeded $5,000, and the penalties were waived. Furthermore, this is not a case where Ken’s failure to meet the rates was due to his own impecuniosity. The evidence is that over some time Alan had been paying Ken on account of the rates, but Ken had not applied those sums for that purpose.

[21]      Fourth, Ken’s personal position and evident self-interest prevents him from administering the estate by selling its properties. He is living at 264 Bellevue Road and has done on a rent-free basis since 1986. There is an obvious failure to pay outgoings as evidenced by the Council’s action against him for unpaid rates. It is clear that Ken’s personal interests are in direct conflict with the interests of the other beneficiaries.

[22]      Fifth, Ken has wholly failed to administer Reg’s estate in a timely, efficient and orderly manner over the past 28 years. This has undoubtedly deprived the other beneficiaries of the benefits due to them under their parents’ estates.

[23]      Sixth, Ken’s removal would not be contrary to the wishes of either Reg or Wendy. Ken was granted letters of administration for both estates when Wendy died. His appointment was not something Reg nor Wendy had contemplated. In fact, Wendy’s estate’s sole beneficiary was Rachel; Ken was only appointed administrator because Rachel was underage when her mother died. She is now 49 and it is she, with her other uncle, who now seeks Ken’s removal.

[24]      Finally, I am of the general view that the administration of the estate cannot progress efficiently while Ken remains as the administrator. As will be clear from my reasons, I am of the view that the evidence reveals not only that

Ken’s interests as beneficiary and administrator are demonstrably and seriously conflicted, but that he has also administered the estate in a fashion which is, at best, negligent and, at worst, arguably fraudulent.

[11]              Notably, Ken did take some steps in that proceeding. He attended the first call and was granted extensions of time to file a notice of opposition and evidence. In the end, he did not file an opposition or evidence and the application proceeded by way of formal proof.

[12]              The judgment of Moore J vested the Property in Perpetual as sole administrator of the Estate.

[13]              Perpetual has made many requests to Ken to discharge the mortgage over the Property in person and by email between October 2021 and 2 November 2022. Alan deposes that Ken has come to his home on three occasions in 2022. The contact has not been welcome or conflict free. Alan deposes that he asked Ken to remove the mortgage on each occasion, but Ken has refused.

[14]              Perpetual claims that Ken’s transfer of the Property to Minka and the registration of mortgage:

(a)breached his duties as administrator of the Estate

(b)was carried out without consulting with or obtaining the consent of the beneficiaries

(c)was contrary to the express agreement between the beneficiaries that the Estate was to sell the Property to Alan.

[15]              In essence, Perpetual contends that the mortgage was a fiction. Mr Ward- Johnson, counsel for Perpetual, relies on the findings of Moore J in the earlier proceeding. Perpetual seeks:

(a)a declaration under ss 2 and 3 of the Declaratory Judgments Act 1908 that the mortgage was unjustifiably executed by Ken.

(b)an order that the mortgage be discharged.

(c)an order directing a registrar to execute a discharge of the mortgage to give effect to the above order; and

(d)the costs and disbursements in relation to this application be paid by Ken on a solicitor/client basis.

[16]As discussed, Ken has not engaged with the Courts on these proceedings.

[17]              Rachel and Alan have filed uncontradicted affidavits setting out the background, the discord with Ken and explaining the delay in seeking redress. Stephen Eriksen, a client manager at Perpetual has also provided an affidavit deposing to his contact with Ken.

Issues

[18]These are two-fold:

(a)Was the mortgage unjustifiably executed?

(b)If so, what orders can/should the Court make?

Analysis

[19]              A mortgage may be discharged by the High Court by way of declaratory judgment.6 In Cardow v Auckland Electro-Plating Co Ltd, the Court made a declaration that a mortgage had been executed unjustifiably.7 The plaintiffs had sold their business to the first defendant. The parties also entered into an agreement to mortgage granting the first defendant the ability to register a mortgage over the plaintiff’s land to secure performance of warranty obligations owed to the first defendant. A dispute arose. Utilising an irrevocable power of attorney, the first

6      Laws of New Zealand Mortgages (online ed) at [300].

7      Cardow v Auckland Electro-Plating Co Ltd HC Auckland CP644/93, 2 February 1994.

defendant executed and registered a mortgage to secure what it saw as the plaintiffs’ obligations under the agreement to mortgage.

[20]              The Court granted a declaration that registration was unlawfully executed pursuant to the power of attorney and was unjustified. It ordered the first defendant to execute and deliver a registerable discharge of mortgage.

[21]              Mr Ward-Johnson draws an analogy between the misuse of a power of attorney and misuse of power as administrator of an estate. He refers to Re Stewart in which this Court said:8

The obligation to perform these duties arises within the special fiduciary relationship which exists between a trustee as a fiduciary to whom property is entrusted, and the beneficiaries entitled to that property. The most obvious element of that relationship is the requirement imposed in equity that the trustee will deal with those assets with the utmost probity which, in turn, requires that the trustee will not on any account allow him or her to have or acquire any personal interest in those assets without the express and informed consent of the beneficiary.

[22]I accept that submission.

[23]In the antecedent case involving these parties, Moore J said:9

…the evidence reveals not only that Ken’s interests as beneficiary and administrator are demonstrably and seriously conflicted, but that he has also administered the estate in a fashion which is, at best, negligent and, at worst, arguably fraudulent.

[24]              Mr Ward-Johnson is careful before me not to go as far as to allege fraudulent conduct. Nor does he need to do so. I respectfully agree with Moore J and am satisfied that the respondent wrongly executed the mortgage in breach of the duties he owed as administrator of the Estate.

[25]I turn to the second issue.

8      Re Stewart [2003] 1 NZLR 809 (HC) at [25].

9      Re Bolton, above n 1, at [24].

[26]              Section 34 of the Senior Courts Act 2016 sets out the powers of Registrars of the Senior Courts. Section 44A replaces the former s 3 of the Judicature Amendment Act 1910 vesting an express power to appoint the Registrar to act:

44A Execution of instruments by order of High Court

(1)  This section applies if a person fails to comply, before a date specified by the court or, if no date is specified, within a reasonable time, with a judgment or order of the High Court directing the person to—

(a)  execute a conveyance, contract, or other document; or

(b)  endorse a negotiable instrument.

(2)  The High Court may, on application and on the terms it thinks just, make an order directing another person, who it nominates for the purpose, to—

(a)  execute the conveyance, contract, or other document; or

(b)  endorse the negotiable instrument.

(3)   The nominee must execute the conveyance, contract, or other document, or endorse the negotiable instrument, before the date specified by the court, or, if no date is specified, within a reasonable time.

(4)  A conveyance, contract, document, or instrument executed or endorsed by the nominee operates and is effective as if the person referred to in subsection

(1) had made the execution or endorsement.

(5)  The exercise of the High Court’s power in subsection (2) does not—

(a)  affect a proceeding already commenced in a court; or

(b)  invalidate anything that was previously lawful; or

(c)  validate anything previously declared invalid in any proceeding.

[27]              The section has the purpose of enabling a successful party to secure the benefit of a Court order where the other party has failed or refused to execute a document such as a memorandum of transfer to enable perfection of the decree. A recalcitrant mortgagee who refuses to comply would also be caught.10

[28]              In Bruns v Freeth, a case under the predecessor legislation, Thorp J authorised the Registrar to sign a transfer of land to give effect to an order for specific performance of the sale of land, where the defendants, whilst aware of the proceedings

10     Barge v Freeport Development Ltd (No 2) (2006) 7 NZCPR 414 (HC).

and the hearing, had taken no part.11 Justice Thorp accepted that there was no limitation either on the class of document, which the Court could order to be executed, or on the purpose to which the document so executed could be used.

Result

[29]              I am satisfied that Ken’s execution of the mortgage is unjustified as a breach of his fiduciary duty as the administrator of his late father’s estate and in conflict with agreements within the family to sell the Property to Alan. I make the following declarations:

(a)The mortgage with Instrument Number 5507179.1 was unjustifiably executed by the respondent on 4 March 2003, as the then administrator in the estate of Reginald Bolton.

(b)The mortgage with Instrument Number 5507179 on the property located at 84 Sutherland Road, Tauranga being an estate in fee simple with an area of 1695 square metres more or less on Record of Title with Identifier SA54A/689 in the South Auckland Registry lodged by the respondent be discharged.

[30]              The most expedient remedy for the applicants is to have the Registrar execute the discharge of mortgage. However, s 44A requires in the first instance an order or direction that Ken execute the discharge. In view of his non-compliance to date and his failure to engage in this proceeding or the antecedent proceedings, I consider it appropriate to make the following further orders/directions:

(a)The respondent is to deliver to the applicant a registerable discharge of the mortgage over the property at 84 Sutherland Road, Tauranga being an estate in fee simple with an area of 1695 square metres more or less on Record of Title with Identifier SA54A/689 in the South Auckland Registry within 14 days of the date of this judgment.

11     Bruns v Freeth HC Auckland No 990/85, 9 March 1987.

(b)In the event the respondent fails to do so, I direct the Registrar or Deputy Registrar of the High Court at Tauranga to execute a discharge of mortgage with Instrument Number 5507179.1, registered in respect of the property located at 84 Sutherland Road, Tauranga being an estate in fee simple with an area of 1695 square metres more or less on Record of Title with Identifier SA54A/689 in the South Auckland Registry

[31]              Leave is reserved to the applicant to apply by memorandum for any directions which may be necessary to secure the implementation of the above.

Costs

[32]              The applicant seeks solicitor-client costs on the grounds that the application ought to have been unnecessary.12 I am inclined to make that order however no evidence of the costs incurred have been placed before the Court. I therefore direct the applicant to file a memorandum as to costs incurred no later than 30 May 2023.

............................................................

Walker J

12     High Court Rules 2016, r 14.6(4).