Preston v Preston
[2018] NZHC 185
•19 February 2018
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KOTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2017-470-185 [2018] NZHC 185
BETWEEN GRANT LEE PRESTON
First Applicant
GRANT LEE PRESTON AND FISHER PARTNERS TRUSTEES LTD (as trustees of the Grant Preston Family Trust)
Second Applicant
AND
KATHERINE ELIZABETH PRESTON Respondent
Hearing: 15 February 2018 Appearances:
J M McCleary for Applicants
S A Keall for RespondentJudgment:
19 February 2018
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
19.02.18 at 4.30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
PRESTON v PRESTON [2018] NZHC 185 [19 February 2018]
Background
[1] The applicant, Mr Preston, applies to remove the respondent’s (Ms Preston’s) Notice of Claim of Interest registered pursuant to s 42 of the Property (Relationships) Act 1976 registered against the title of the property at 35 The Fairway, Whakatane (The Fairway) registered in the name of the second applicant (the Trust).
[2] Mr Preston has filed Property (Relationships) Act (PRA) proceedings in the
Family Court which have now been transferred to the High Court.
[3] Ms Preston claims an equitable interest in The Fairway claiming constructive trust and unjust enrichment causes. She has lodged the aforesaid notice of claim and has also registered a caveat against The Fairway pursuant to a claim of an institutional constructive trust.
[4] The Trust wishes to sell The Fairway to purchase another property at 35
Karenza Lane, Whakatane (Karenza Lane). It says that property is better suited for Mr Preston to run his business. The Trust proposes to purchase Karenza Lane and to lease the premises to Mr Preston’s business Eastern Bay Thrusting Limited (EBT). The applicants’ claim the benefits of Karenza Lane would provide significant cost savings for EBT (approximately $5,000 per month) and ensure secure storage for EBT’s machinery.
[5] The application is for the removal of both the notice of claim and caveat on terms permitting the Trust to sell The Fairway in order to apply the sale proceeds to the purchase of Karenza Lane with Ms Preston being permitted to lodge a further caveat on Karenza Lane in order to reasonably accommodate her interests as caveator. The offer for the purchase of Karenza Lane is subject to it being confirmed by 28
February 2018 as an unconditional offer.
[6] While the applicants dispute Ms Preston’s claim in constructive trust and/or unjust enrichment they accept, for present purposes that there is no reason why a constructive trust claim could not proceed in respect of the property owned by the Trust and say that any interest Ms Preston may prove in the result is financial only and
therefore her interest as caveator can be adequately accommodated through a caveat being registered against Karenza Lane.
[7] It is the applicants’ position that if Ms Preston is successful in her claim for constructive trust/unjust enrichment the measure of that claim will be quantified through a valuation of her direct and/or indirect contributions against The Fairway’s value. Section 42 of the Property (Relationships) Act 1976 (PRA) provides that a claim of an interest to any land should be deemed to be registerable interest for the purposes of the PRA and every notice lodged shall have the effect as if it were a caveat lodged pursuant to s 137 of the Land Transfer Act 1952 (LTA).
[8] Section 123 of the LTA enables the registered proprietor to apply for an order that the caveat be removed.
[9] Ms Preston claims an interest in the property. By her constructive trust argument she claims a percentage of the increased value in The Fairway as a result of her direct or indirect contributions to the property during that period she and Mr Preston were married. Clearly her claim will not be affected by the fact that property in which the parties lived as husband and wife was owned by Mr Preston’s family Trust.
Relevant principles
[10] It is the applicants’ position that the Court has a clear discretion to withdraw a caveat even if a caveator demonstrates an arguable case to sustain a caveat to protect legitimate interests. It is for an applicant to show why the Court’s discretion should be exercised to remove the caveat. It is clear a Court will only exercise that discretion where it is satisfied that removal will not prejudice the caveator’s interests – and that the caveat provides no practical advantage to the caveator or that the caveator’s interests can reasonably accommodated in some other way.1 In this case there is no suggestion Ms Preston wants any more of the home than to be paid for the value of
her interest in it. It is her position that the value of The Fairway has increased on
1 The exercise of this discretion is discussed at paragraph 21 of the Court of Appeal decision of Stewart v Kaipara Consultants Limited (2000) 3 NZLR 55 with reference to Pacific Homes Limited v Consolidated Joineries Limited [1996] 2 NZLR 652.
account of her direct and indirect contributions during the course of her relationship with Mr Preston.
[11] The applicants wish the caveat and Notice of Claim to be removed on an interim basis to allow The Fairway to be sold with suitable undertakings for the proceeds to be held without distribution in their solicitor’s trust account and applied to the purchase of Karenza Lane by the Trust with no challenge being taken to a further caveat and/or Notice of Claim being lodged by Ms Preston against that property. The position for Ms Preston in opposition is that there is substantial evidence of detriment.
Ms Preston’s reasons opposing caveat/notice of claim
[12] Mr Keall submits the Karenza Lane property is qualitatively different to The Fairway it being a rural lifestyle block which cost twice the value of the caveat property ($1,250,000 compared to say $615,000) requiring the applicants to load it up with debt and because the new property would be put to commercial use that will change the nature of the security. Karenza Lane will become a workplace.
[13] For present purposes the Court accepts Ms Preston has a reasonably arguable case for her claim of an interest in The Fairway although that is forcibly challenged on behalf of Mr Preston. Therefore an order for removal should only be made where the Court is completely satisfied that the legitimate interests of Ms Preston will not be prejudiced. The Court needs to be cautious to ensure Ms Preston’s interest will be protected. The onus lies on Mr Preston to satisfy the Court that Ms Preston’s claims of an interest can be reasonably accommodated in some other way. It is not this Court’s present purpose to assess whether Ms Preston’s claim of an interest will succeed. She and Mr Preston began living together at The Fairway in late 2009 with their respective children from previous relationships. They married on 4 December
2010 and Ms Preston became a beneficiary of Mr Preston’s Trust. She says she made substantial contributions to the property and was involved with his business which enabled Mr Preston to take drawings which were used to pay mortgage commitments. She says she also made other direct and substantive contributions to the property.
[14] Ms Preston says she contributed a greater amount than did Mr Preston to the purchase of another property of the relationship in Pauanui which was originally registered in the name of the Trust until a family trust was created for Ms Preston and following which the property was transferred to both trusts.
[15] The parties separated in September 2015. Ms Preston said Mr Preston summarily stopped payment of her wage with Mr Preston’s company. She says she was evicted from The Fairway. She asserts a claim to a half share in The Fairway.
[16] Ms Preston says in September 2017 she indicated an interim distribution application under the PRA was contemplated. At that time Mr Preston’s lawyer stated he wished to acquire a new property and that all of the equity in The Fairway would be utilised in the purchase of the new property.
[17] On 20 October 2017 Ms Preston filed an amended statement of claim in her equity proceeding to plead an institutional constructive trust claim in respect of The Fairway. Also at that time she lodged a caveat against the title of The Fairway.
[18] On 9 November 2017 Mr Preston committed to the purchase of Karenza Lane. He says he did so believing Ms Preston would agree to remove the caveats.
[19] Mr Keall complains that Mr Preston has not provided sufficient discovery in his defence of Ms Preston’s claim regarding the Pauanui property and there remains a dispute as to how that should be valued. Mr Keall submits there is good cause to consider the Pauanui property partnership accounts unreliable; that issues remain regarding the valuation of chattels in The Fairway and in the Pauanui property and as regarding the valuation obtained of Mr Preston’s boat.
[20] Mr Keall complains there is little or no evidence of Mr Preston’s financial position. The Karenza Lane property is to be purchased for $1,250,000. Mr Keall calculates that the applicants will need to borrow $722,280, leaving an equity in that property of $527,720. Further because that equity is subject to Trust indebtedness of
$271,660 this leaves a net effective equity of $256,060.
[21] Ms Preston values her claim in the family home at $330,000 which is half of the real estate appraisal.
[22] More money will have to be borrowed to fund the purchase of Karenza Lane and Mr Keall submits there is a higher risk of default. The quality of the property is different he says. By counsels calculations Ms Preston will end up in a worse monetary position; that the dealing proposed is the very dealing a caveat was intended to guard against namely a detrimental erosion of her interest. There is counsel submits a risk of default in terms of the money being borrowed which puts Ms Preston’s security at risk. The Court cannot, Mr Keall submits be “completely sure” that there is no detriment.
[23] Mr Keall submits that because a Notice of Claim under s 42 of the PRA may only be lodged against a title in respect of an interest “pursuant to this Act” then land means that land that is specifically subject to the provisions of the PRA; that a substituted Notice of Claim is not capable of being lodged against the title to Karenza Lane because this property is not relevant property pursuant to the PRA.
[24] It is submitted that Mr Preston’s evidence about what his intentions are need to be viewed cautiously. He submits Mr Preston is highly motivated to ensure that Ms Preston is prejudiced. Counsel also challenges the reliability of reports provided by the applicants’ accountants. Counsel submits that if the applicants wish to purchase the new property then they may do so by satisfying Ms Preston’s claim for if they are not financially in a position to do so then this is reason for them not to be permitted to sell the caveated property.
[25] In issue counsel states is the extent of that property which comprises relationship property.
[26] On the day prior to the hearing of these applications Ms Preston filed a further affidavit in support of her opposition.
[27] She deposes believing there is a serious commercial risk if the Trust is allowed to proceed with the purchase of Karenza Lane. She said the Trust might come under
pressure to complete the purchase and therefore would drop the sale price on The Fairway to make it happen. The ANZ Bank has a first mortgage on The Fairway and also provides security for loans to EBT and if the bank security over The Fairway was transferred to Karenza Lane she believes the bank would increase its priority pursuant to the mortgage and as a result disadvantage her in respect of her claim.
[28] Ms Preston believes EBT’s industrial activity would be non-ancillary to the main farming activity on the Karenza Lane site. She says therefore the company would need to make a resource application for which she believes to be a non- complying activity – a process she comments would be expensive and time- consuming.
[29] Ms Preston has done her own calculations of the maths involved with the sale and purchase based on her estimates of value of the properties. She believes The Fairway market value is $615,000. There is a mortgage of $132,750. The company has she says loans totalling approximately $130,000.
[30] Ms Preston calculates that if the purchase price of Karenza Lane is $1,250,000 and if the equity in The Fairway (including the transfer of the company indebtedness) is $482,730 then an amount of $767,000 approximately is required to complete the purchase of Karenza Lane.
[31] Mr Keall submits the applicants do not deserve the opportunity of the applications sought because insufficient information has been provided by discovery to enable the respondent to more accurately comment on the financing and the accounts related.
Response on behalf of the applicants
[32] Mr McCleary’s response on behalf of the applicants is that more than 1000 pages of discovery were provided to Ms Preston on 17 September 2017. He says criticism on behalf of Ms Preston is offered by general statements without particular reference to documents the respondents claim have not have been discovered. Mr McCleary says Ms Preston’s counsel has been invited to bring the parties
accountants together to discuss claims of further information required but that invitation has not been sufficiently responded to. Also no further steps have been taken at all to seek the Court’s assistance to address those issues it is claimed exist.
[33] It appears from the Court’s assessment of the evidence that Mr McCleary’s submission on behalf of the plaintiffs is appropriately made.
Considerations
[34] Ms Preston appears to believe the plaintiffs are endeavouring to downgrade the value of The Fairway for the purpose of minimising any return she might receive from it by her current applications. It is difficult to make sense of that opposition when the plaintiffs’ sale and purchase proposal compels them to sell The Fairway for the best price they can.
[35] Ms Preston’s claim will in due course be quantified. At least half of the equity will be protected even if, as is likely it appears, Ms Preston will succeed in a sum less than half, and possibly much less than half. Similar claims of this kind frequently succeed in sums much less than 25% of the equitable value of the property.
[36] Significantly the only judicial assessment of conduct made to date in this proceeding was made by the High Court in the recently heard interlocutory application for interim distribution on 11 December 2017. Justice Muir observed both parties had demonstrated some poor conduct. His Honour drew a particular reference to
Ms Preston’s conduct in refusing to release the caveats, because there was no “upside”
for her.
[37] Mr McCleary submits the Court should be cautious of Ms Preston’s motivation in defending this application. It is this Court’s assessment that submission is not unreasonably made.
[38] Except with regard to speculative assessments of financial risks associated with the purchase of Karenza Lane it is difficult to perceive what disadvantage
Ms Preston faces in her mission to secure the best money value payment available.
The property is not important to her otherwise. Also it seems her PRA claims are about compensation and therefore would not be payable by the Trust owner but by Mr Preston. Likewise with Ms Preston’s constructive trust interest claim.
[39] Ms Preston does not need both her caveat and her PRA notice registered against The Fairway. For present purposes this Court’s assessment has proceeded on the basis that there is an arguable claim in equity that supports a caveatable interest under the Land Transfer Act. The PRA and constructive trust proceedings are joined and are to be heard together. The Court agrees therefore that if only the LTA caveat is registered then Ms Preston’s position remains well protected.
[40] Mr Keall has strongly submitted throughout that this Court should be cautious in exercising its consideration of the caveat release applications. But it is clear there is nothing special pleaded about The Fairway that demands that it must be specifically retained for Ms Preston’s ownership.
[41] Ms Preston claims her interest in The Fairway to be worth $330,000 on the basis of the appraised value of $660,000. However while her sum equals half the value it does not equal half the equity. The equity is $528,000 only.
[42] Also her pleading is for 50 percent of the equity pursuant to a constructive trust. As earlier noted, such claims are usually resolved by decisions awarding less and often much less than 50 percent of the equity.
[43] There is it seems little available precedent dealing with issues of the kind before this Court presently. Regardless, it seems clear to the Court that claims that Mr Preston might be motivated to ensure Ms Preston is prejudiced are without foundation. He does not appear to have acted for the purpose of prejudicing her interests and why would he.
[44] Mr Preston is not going to pay more for Karenza Lane than he should and, why would he do anything likely to affect the value of that property negatively.
[45] The purchase is subject to bank finance. The Court agrees with Mr McCleary that the bank will not lend the funds if there is risk in doing so. The bank also funds EBT and have undoubtedly reviewed the equity and cashflow of the business. The bank needs to be satisfied that there is sufficient security.
[46] It seems clear that the equity in both properties would be exactly the same. The owners include a professional trustee. Mr Preston has deposed wanting to make the change because his business will be $5,000 per month better off for not having to pay rent.
[47] There is clear authority available to the Court to remove the caveat. Claims this should not be done unless the Court is completely satisfied the interests of the caveator will not be affected, require consideration in context. In this case the Court can be satisfied that Ms Preston’s caveatable interest in The Fairway will not be any less than will be available to her by that caveat being transferred registration against the title of Karenza Lane.
[48] Ms Preston’s caveat would be as powerful a weapon by its registration against
Karenza Lane as it is against The Fairway.
Judgment
[49] In the Court’s view the applications should be granted.
[50] The Court directs that the notice of claim of interest registered pursuant to s 42 of the Property (Relationships) Act 1976, instrument number 10377458.1 and the caveat registered pursuant to s 137 of the Land Transfer Act 1952 (claiming a beneficial interest in the property pursuant to an institutional constructive trust), instrument number 10936818.1 (the caveat), both registered against the title of the second applicant’s property at 35 The Fairway, Whakatane, legal description being Lot
18 deposited plan South Auckland 83603, Identifier SA66B/965 shall be removed on the following terms:
(i) That the second applicants are permitted to sell The Fairway;
(ii)That the net proceeds of sale should be held in the second applicant’s solicitor’s trust account, and shall not be dispersed other than for the funding of the second applicant’s purchase of Karenza Lane;
(iii)That the respondent may then register a notice of claim against the title of Karenza Lane after the second applicant’s lendor has registered its mortgage to secure lending for the purchase of Karenza Lane.
[51] Because the applicant’s purchase of Karenza Lane is subject to the second applicant confirming the purchase unconditional by 28 February 2018, the Court will in the circumstances require the removal of the Notice of Claim and the Caveat to take effect as at 23 February 2018.
Costs
[52] Costs on the applications are awarded to the applicants on a 2B basis (in one award for both applicants), together with disbursements as approved by the Registrar.
Associate Judge Christiansen
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