Pisidia Holdings Ltd v Darby
[2019] NZHC 1216
•30 May 2019
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2019-425-47
[2019] NZHC 1216
BETWEEN PISIDIA HOLDINGS LIMITED
Applicant
AND
KRISTEN MARY DARBY
First Respondent
AND
CABO LIMITED
Second Respondent
Hearing: 29 May 2019 Appearances:
J W A Johnson and J J Anson-Holland for the Applicant D A T Chambers QC for the First Respondent
No appearance for the Second Respondent
Judgment:
30 May 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
Background
[1] Pisidia Holdings Ltd (“Pisidia”) applies to remove seven notices of claim registered by the first respondent, Kristen Darby (“Kristen”) from titles in Central Otago.
[2] Kristen is married to John Darby (“John”) but their relationship has come to an end.
PISIDIA HOLDINGS LIMITED v DARBY [2019] NZHC 1216 [30 May 2019].
[3] John is the sole director of Pisidia. The shares in Pisidia are held by a company called Island Ltd which is a corporate trustee for the Karearea Trust. Alan Richardson is the director of Island Ltd.
[4] AJR1 Trust Company Ltd is the shareholder in Island Ltd. Again, Alan Richardson is the director of that company and he is also the sole shareholder of that company.
[5] The Trust Deed for the Karearea Trust is not before the Court and Ms Chambers QC for Kristen expressed her disappointment at what she characterised as a lack of co-operation in relation to the provision of information. I will return to this below.
[6] Pisidia is the registered proprietor of a two-fifth interest in the seven Lots identified in the application. The second respondent, Cabo Ltd, owns the balance. The second respondent by memorandum has advised that it will abide the decision of the Court in respect of this application.
[7] This application was heard on relatively short notice given two of the seven Lots are subject to contracts of sale; one of which is an unconditional contract due to settle on 31 May 2019.
The notice of claim
[8] The notice of claim in respect of all seven properties is in the same terms. Under the heading “Derivation from registered owner” there appears:
John Gerard DARBY as the sole director of the registered proprietor Pisidia Holdings Limited (as to a 2/5 share) and beneficially interested under a constructive trust, which is relationship property pursuant to s 8(1) of the Property (Relationships) Act 1976, and sections 44 and 44C of that Act.
Principles applicable to an application to remove notice of claim
[9] There was no dispute as to the applicable principles relating to sustaining caveats. As set out by the Court of Appeal in Philpott v Noble Investments Ltd:1
1 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26].
(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.
[10] Ms Chambers emphasised the caution exercised taken by the Court in this context and she mentioned the absence of full disclosure.
[11] John has never owned the land subject to the applications personally. John first acquired shares in Pisidia on 25 May 1992 and brought his ownership up to 100 per cent on 2 October 1996. Pisidia was incorporated on 21 February 1992. It was Pisidia that entered into an agreement for the sale and purchase of the land which was eventually subdivided into the seven Lots that are subject to the notice of claim. That agreement for sale and purchase was dated 18 October 1996.
[12] The shares in Pisidia were settled on the Wyuna Trust on 1 August 1997. The trustees of the Wyuna Trust transferred 100 per cent of the shares to the Kareara Trust on 1 November 1997.
[13]There is a dispute as to when the relationship between John and Kristen began.
[14] Section 42 of the Property (Relationships) Act 1976 (“the PRA”) permits a notice of claim to be lodged where there is a claim to an interest, pursuant to the PRA to land subject to the Land Transfer Act 2017.
[15] The primary issue is whether John’s directorship of Pisidia and his presumed beneficial interest through the Karearea Trust means that he has an interest in the land
owned by Pisidia. Kristen says John does have an interest in the land and that interest is relationship property and therefore the notice of claim should remain.
Principles
[16] It is common ground that a notice of claim pursuant to s 42 of the PRA requires more than a spouse having a shareholding in a company which owns the land subject to the notice. Ms Chambers in her submissions accepted the statement of law in Mr Johnson’s submissions, and I adopt those paragraphs as an accurate statement of the law. I set these out below:
28.Strait Views Ltd v Hannaway is also relevant here.2 The High Court held that due to the company being the registered owner of the land, the shareholders in that company had no beneficial interest in the land owned by that company.
29.As a result, Ronald Young J held there were no grounds on which the notice of claim was properly registered on the certificate of title. Neither aspects of the first limb of s 42 could be satisfied (being, ownership or interest in the land).
30.This position draws support from the earlier decisions in Beric v Beric Holdings Ltd; Cliffers v Cliffers (sic); and Arrow Farms Ltd v Jackson, which all support the proposition that ownership of shares in a company that includes land is not sufficient to support the lodging or sustaining of a notice of claim against that land.3 That this is correct is self-evident.
[17] Similar statements of the law can be found in Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd:4
It is suggested that the registered proprietor bought the land in circumstances in which Bowlarama was to have an interest as shareholder in Ten Pin Properties Ltd and then it is said that by virtue of the intended shareholding of Bowlarama, Bowlarama as shareholder was entitled or is entitled to a share in the land.
This seems to me to run quite contrary to the well established rule that a shareholder has no proprietary interest whether legal or equitable in the assets of the company in respect of which he holds his shares… It seems to me that the caveat would have to go, simply on the basis of the way in which
2 Strait Views Ltd v Hannaway (2005) 6 NZCPR 725 (HC).
3 Beric v Beric Holdings Ltd (1986) 2 FRNZ 522 (HC); Cijffers v Cijffers (1989) 5 FRNZ 694 (HC); and Arrow Farms Ltd v Jackson (1991) 7 FRNZ 561 (HC).
4 Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd HC Christchurch M655/89, 18 December 1989 at 2-3, cited in Mahon v The Station at Waitiri Ltd [2017] NZCA 387, (2017) 18 NZCPR 760 at [35].
it is claimed to exist because it runs quite contrary to that rule and no submission has been made to me to demonstrate why the rule should not apply in these particular circumstances.
[18] Although Ms Chambers does not dispute these statements of the law, the essence of her submission is that Clayton v Clayton5 has redrawn the landscape as to what is caught by the expression “interest in land”.
[19] Ms Chambers emphasised the purpose and principles of the PRA as set out in ss 1M and 1N and said the intent of the legislation called for a broad interpretation of interest to be adopted.6
[20] In terms of post Clayton cases, Ms Chambers relied in particular on Bourne v Baker.7 In that case, the land in question was owned by a company. The facts, however, were rather different. The applicant seeking to sustain the notice of claim in that case had made financial and non-financial contributions to the property and lived in the apartments on the property for a number of years. Judge Pidwell said:
[15] I accept that there is no provision to lodge a s 42 Notice of Claim against land owned by a third party, a trustee of a family trust or a company merely on the ground that the spouse is a settler or shareholder. However, if the applicant has an arguable case that the respondent has a personal beneficial interest in the land, then a Notice of Claim is available. [Emphasis as per original]
[21] In that case, Her Honour adopted a robust approach. The respondent was the sole director and shareholder of the company which was claimed to be the trustee of a trust holding no land. Her Honour said in those circumstances there was a need for “worldly realism”.8 Her Honour concluded:9
The fact that the respondent is the sole director and shareholder of the company which owns the land establishes in my mind that he has a personal interest in it in some form.
5 Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551.
6 In this regard she relied particularly on Clayton v Clayton, above n 5, at [38].
7 Bourne v Baker [2016] NZFC 2668, [2016] NZFLR 944.
8 At [17], referencing Clayton v Clayton, above n 5, at [79].
9 At [22].
[22] Her Honour also referred to a theme that Ms Chambers adopted that the Court should be alert to situations where a party has structured their affairs in such a way as to divest themselves of legal ownership of property.
[23] I consider Bourne to be a case decided on its own facts. None of the authorities referred to at [16] and [17] above were referred to by Her Honour.
[24] Keane J in Unkovich v Marbeck, recognised that where a spouse’s interest lay only in the shares in the company that owned the land and not the land itself, that can be fatal to the validity of a s 42 notice.10
[25] The high point for Kristen would be for her position to be assessed on the basis that the companies and trusts that hold the shares in Pisidia are stripped away and John is treated as if he were the shareholder himself.
[26] If that assumption is made then Kristen has to confront the legal principles outlined at [16] and [17] above.
[27] The involved funding structure entered into by Pisidia and other entities associated with John for the development of the land goes back many years. There was a joint venture agreement dated 10 June 1998 (“the JV”) referring to the development. None of the steps in relation to the land are recent constructs or devices to frustrate or defeat Kristen’s rights. Again, John at no point personally owned the land.
[28]Ms Chambers noted that the JV contains the following clause:
7.5 …
(d) [John] or any entity in which he has an interest other than Boffa Miskell shall not be entitled to charge the Joint Venture for services provided to the Joint Venture as Manager and/or Director.
[29] Ms Chambers said the effect of this clause is that John had been working since the late 1990s on this subdivision, not drawing an income which would otherwise have
10 Unkovich v Marbeck [2015] NZHC 742 at [24].
been relationship property, with all the potential upside being paid out by way of a profit share in the joint venture. Pisidia’s profits then flow to John’s trust (that is the Karearea Trust) meaning Kristen will not benefit.
[30] Ms Chambers said that in reality Kristen was being cut off from the benefits of John’s work which she had supported and had made possible through her efforts in the home.
[31] Ultimately, I consider that is an argument for another day. Whether cl 7.5(d) of the JV is viewed as a clause intended to defeat a relationship property claim to income that John might otherwise have received is not an argument that can give Kristen an interest in the land held by Pisidia.
[32] Mr Johnson, confronting the argument that Clayton has opened the door to bringing trust or company assets into the relationship property pool, said that the significance of Clayton was that it broadened the category of rights that can be treated as property, such as powers of appointment. Such rights were valued by reference to the property in a trust, but a successful application of the Clayton principle did not collapse a trust so as to make property in a trust relationship property. Ms Chambers did not in her submissions submit that Mr Johnson had mischaracterised the effect of Clayton.
[33] Mr Johnson’s submissions about Clayton are of course in the context of the Trust Deed not being before the Court, but even drawing the inferences Ms Chambers invites me to draw that the non-disclosure means that the Karearea Trust is a Clayton-type trust, Mr Johnson says that of itself does not make the Karearea Trust property (the Pisidia shares), or Pisidia’s land, John’s property. Thus, Mr Johnson says that the high point for Kristen is that the effect of Clayton is that in certain circumstances the value of property in a trust, or potentially in a company can be included in the relationship property pool but that does not give Kristen an interest in the assets of the Karearea Trust or Pisidia.
[34] Accordingly, I do not consider that John’s status as sole director of Pisidia gives him an interest in the assets of Pisidia. Nor would I have held that if John had been the only shareholder of Pisidia that that of itself gave him an interest in its land.
[35] Ms Chambers in her submissions referred to John being the effective owner of Pisidia. Referring to him as the effective owner does not, in my view, take matters any further. On the authorities at [16] and [17] above, even if John was treated as the sole shareholder of Pisidia, he would not have an interest in Pisidia’s land.
Constructive Trust
[36] The notice of claim refers to John being beneficially interested under a constructive trust in the land with that interest held by John being relationship property.
[37]The four elements of a constructive trust are:11
(a)direct or indirect contributions to the properties;
(b)the expectation of an interest in the properties;
(c)that this expectation is reasonable in the circumstances; and
(d)that the legal owner would reasonably expect to yield an interest.
[38] It is not in dispute that John made both direct and indirect contributions to the property over an extended period.
[39] Ms Chambers, referring to cl 7.5 from the JV, says that given John had no ability to charge for the services he provided, it would be unconscionable for the joint venture owners, being Pisidia and Cabo Ltd, to retain full beneficial ownership.
[40] I do not accept this submission. I read cl 7.5 of the JV as cutting across any suggestion that John could have an expectation of an interest in the properties. The
11 Lankow v Rose [1995] 1NZLR 277 (CA) at 294.
two legal owners of the property and John spelt out what their respective entitlements and obligations were. John agreed he was not to be remunerated for his work in the joint venture. However, a share of the ultimate profits would flow to Pisidia.
[41] With John having expressly contracted that he would not receive remuneration for his work on the joint venture, I cannot see how it could be said that it is reasonably arguable that he had an expectation of an interest in the properties.
[42] I do not consider it reasonably arguable that John has a constructive trust interest on the basis put by Ms Chambers being as a result of his direct or indirect contributions to the properties the registered proprietors could be expected to yield an interest in the land to John. John’s benefit will come in the form of Pisidia’s profit share (if any) subject to the terms of the Karearea Trust to which the benefit will ultimately pass.
Interest under ss 44 or 44C of the PRA
[43]These are the last sections referred to in the notice of claim.
[44] Ms Chambers’ argument is that Kristen’s evidence is that the relationship commenced in 1995, prior to the purchase of the properties and prior to the disposition of the shares in Pisidia to the Wyuna Trust, and later to the Karearea Trust.
[45] Ms Chambers’ submission is that the disposition by John of his shares in Pisidia has the effect of defeating Kristen’s claim to any claim or rights to the shares “and the associated assets held by the company to which the shares relate”.
[46] I accept Mr Johnson’s submission that assuming ss 44 or 44C are applicable, then what they apply to is to disposition of the shares, not to the land which was always held by Pisidia. Had John retained the shares throughout, neither he nor Kristen would have an interest in Pisidia land. John transferring the shares cannot improve that position. A successful s 44 or 44C claim by Kristen could not result in her gaining an interest in Prisidia’s land.
[47] Further, Mr Johnson makes the point that before ss 44 or 44C apply, the effect of the transaction must have been intended to or have had the effect of defeating Kristen’s rights.
[48] Mr Johnson points out that in 1996 the present rights of de facto couples to be treated equally under the PRA did not exist. While the amendments to the PRA extend its benefits to de facto couples, whenever their relationship began, Mr Johnson’s submission is that John cannot have had the subjective intention to defeat Kristen’s PRA rights in 1996 as at that time no such rights existed. I am inclined to agree that this would also be fatal to a s 44/44C argument, but I need not make a finding in that regard.
Section 9A
[49]Section 9A is not referred to in the notice of claim.
[50] Ms Chambers argues that s 9A was encompassed within the reference to ss 44 and 44C. However, I accept Mr Johnson’s submission that the separate property that would be subject to the increase in value for the purposes of s 9A are the shares themselves, not the land. A s 9A claim may well exist, but it does not give Kristen a claim to the land or an interest in the land equivalent to its increase in value. Kristen’s argument is that her contributions to the land enhanced the value of the land. Accepting that, such increase in value is reflected in the increase in the shares.
Conclusion
[51] The fundamental difficulty for Kristen’s notice of claim is the way in which the land is held.
[52] In Sarfarazi v Spota, Judge McHardy noted that Clayton has changed the landscape in respect of PRA claims.12 The Judge said:
[36] The first respondent only holds the shares in [the] company. These share[s] are her separate property. It would seem to be stretching “worldly realism” to say that that in itself would be sufficient to go further and say that there is per se an interest in the property. In my view there would have to be
12 Sarfarazi v Spota [2018] NZFC 6453.
more. There is a real issue as to how Clayton has impact on the lifting of the corporate veil. There needs to be more than an assertion that a claimant may succeed.
[53] Ms Chambers did not argue for the lifting of the corporate veil and I can understand why. The company has existed for an extended period, has entered into the JV with an independent party, has involved funding arrangements with third parties, and participated in the development of the land over many years.
[54] In substance, Kristen complains of the effect of the land being held in a company.
[55] Assuming Judge McHardy’s approach is correct then “there would have to be more” before “worldly realism” could come to Kristen’s assistance in justifying a departure from the principles at [16] and [17] above or lifting the corporate veil.
[56] I do not consider Kristen’s complaints about non-disclosure amount to something more as I have approached John’s interest in Pisidia as if he was the shareholder and not a beneficiary of a trust that held the shares. Nor do I consider cl 7.5 of the JV as being something more. Kristen has arguable remedies in respect of that provision as I have touched on above.
[57] Ultimately, I do not accept that Clayton has created the type of flexibility that Ms Chambers urged me to adopt. In cases where the approach in Clayton has applied, the result is a valuation of the assets in a trust, not a finding that the trust does not exist, or that the assets in the trust have become relationship property. At the end of the day Kristen complains about a normal consequence of the use of a company, that is that the shareholder does not have an interest in the company’s assets.
Disposition
[58] It follows that I do not accept that Kristen has an interest in Pisidia’s land and that the notices of claim are to be removed. There is an order in terms of para 1(a) of the originating application dated 17 May 2019. There is also an order in terms of para 1(b) of the application if such is still required.
[59] Ms Chambers urged me to restrict the orders to only those two Lots which are subject to contracts of sale. She emphasised that this hearing had been brought on, on short notice, and again noted the lack of disclosure.
[60] I do not see the other Lots created as part of the subdivision carried out pursuant to the JV as being in any different position from Lots 8 and 11. All the Lots are part of a subdivision of the original land acquired by Pisidia.
[61] In the event that further disclosure brings entirely new information to light then Kristen can apply for leave to lodge a new notice of claim. However, on the material that has been put forward by Kristen so far, all Lots in the subdivision fall to be treated alike.
Objection to evidence
[62] Prior to the hearing, Mr Johnson raised an issue with paras 42-45 of Kristen’s affidavit sworn 24 May 2019. I directed that those paras not be read, and that affidavit is not to be searched without leave of a Judge for the reasons set out in Mr Johnson’s memorandum of 7 May 2019.
Costs
[63]Costs are reserved.
Associate Judge Lester
Solicitors:
Wynn Williams, Christchurch LeeSalmonLong, Auckland
Copy to counsel: Deborah Chambers QC, Barrister, Auckland
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