Reader v Reader
[2018] NZHC 3038
•22 November 2018
IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY
I TE KŌTI MATUA O AOTEAROA TŪRANGANUI-A-KIWA ROHE
CIV-2018-416-29
[2018] NZHC 3038
UNDER Section 145A of the Land Transfer Act 1952 BETWEEN
COLIN FREDERICK READER and MARIE ELIZABETH READER
Applicants
AND
LEONIE JANE READER
Respondent
Hearing: 13 November 2018 Appearances:
J Bunbury for applicants
N Weatherhead for respondent
Judgment:
22 November 2018
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] This is an application pursuant to s 145A of the Land Transfer Act 1952 for an order sustaining a caveat registered by the applicants, Mr Colin and Mrs Marie Reader (Colin and Marie), over a property situated at 703 Back Ormond Road in Gisborne owned by Mr Andrew Reader and Mrs Leonie Beattie (Andrew and Leonie).
[2] Much of the background can be summarised reasonably succinctly. The property was formerly owned by Colin and Marie, having originally been inherited by Marie. They lived in a three bedroom house on the property. Andrew is one of Colin and Marie’s children. In about 2007, Andrew and Leonie, who were, and still are, a married couple, though they have now separated, moved a small cottage onto the front half of the property. They renovated the cottage and lived there with Leonie’s daughter. Subsequently, they had two children. By 2013 all five of them were living
READER and v READER [2018] NZHC 3038 [22 November 2018]
in the cottage. Colin and Marie offered to swap homes with Andrew and Leonie, that is they offered to allow Andrew and Leonie to move into the house and they would move into the cottage. That offer was accepted.
[3] The key issue in the case, and the point of radical departure between the affidavit evidence filed and served on behalf of Colin and Marie, on the one hand, and Leonie, on the other, is the terms of the arrangements relating to this. This difference arose after Andrew and Leonie separated.
[4] Colin and Marie, in their joint affidavit, say that they agreed with Andrew and Leonie:
(a)they would move into the main three-bedroom house,
(b)we would stay in the Cottage for as long as we liked,
(c)that the back section (divided from the front section by a fence) would remain ours,
(d)we might build a new home on the back section at some stage,
(e)if we built on the back section, we would move out of the Cottage,
(f)Andrew and Leonie needed to pay us something,
(g)we needed enough to at least repay our debts.
[5] They go on to say that when it turned out that Andrew and Leonie were only able to borrow $200,000 from Kiwibank, and that Kiwibank required them to demonstrate that they had a substantial deposit, and to pay off a car loan, Colin and Marie agreed to an arrangement whereby Andrew and Leonie would buy the property, which was valued at $480,000, for $200,000 and that Colin and Marie would lend Andrew and Leonie $25,000 in order to enable them to repay the car loan.
[6] Colin and Marie’s evidence goes on to describe how they sought advice from their solicitor, who acted for all parties in the matter. Exhibited to their affidavit is what appears to be a complete copy of their solicitor’s file. This includes the loan documentation between Kiwibank and Andrew and Leonie and the documentation relating to the transfer of the property. All of this documentation proceeds on the basis that the arrangement involved an absolute sale of the property by Colin and Marie to
Andrew and Leonie. Amongst it is a letter from Colin and Marie addressed to Kiwibank, which was apparently sought by Kiwibank, expressly saying that they were gifting $280,000 to Andrew and Leonie, being the difference between the estimated value of the property of $480,000 and the amount of $200,000 that was to be paid by Andrew and Leonie.
[7] Their evidence is that, despite the terms of the documentation, they agreed with Andrew and Leonie that they would retain beneficial ownership1 of half of the property. They say that in the course of dealing with the matter they asked their solicitor whether there should be some sort of record of this aspect of the arrangements. He, they say, told them that they could not do that because it would be inconsistent with the position being presented to Kiwibank. To use their words, they “… decided to sign the legal documents on the basis that we could trust Andrew and Leonie to keep to the Arrangement”.
[8] Andrew’s affidavit offers some support for his parents’ version of the arrangements. He says that the arrangement was implemented in the way it was because he and Leonie were only be able to borrow $200,000 from Kiwibank, and that in order to do so they would have to:
(a)show a deposit; and
(b)repay one of our car loans.
[9]He continues:
The guy at Kiwibank said that we could show a deposit by Colin and Marie signing a letter to Kiwibank saying that they would gift the deposit.
[10] Andrew says that he and Leonie “… knew that the Property was worth a lot more than $200,000”; “… knew that [they] were not buying the whole Property for
$200,000”; “… always knew that the back section was Colin and Marie’s”; and “… knew that [Colin and Marie] might build on the back section”.
1 My term rather than theirs.
[11] In stark contrast, Leonie’s evidence is that Colin and Marie were, at the time, in “extreme financial difficulty” and that “there was a risk they would lose the property”. She says that she and Andrew “proceeded to sign an agreement to purchase the property on the understanding that [they] would purchase the property at a figure of $480,000. Andrew and I were to borrow $200,000 from a bank and Colin and Marie would gift us the remaining $280,000”.
[12] Leonie exhibits to her affidavit examples of text and email correspondence between Andrew and her which she says show that in post-separation exchanges Andrew made no reference to his parents retaining any interest in the property.
[13] The clash between Colin and Marie’s description of the arrangements on the one hand, and Leonie’s on the other, could hardly be more direct. On the former version of events, Colin and Marie were to agree to their son and daughter-in-law taking legal title to the property, subject to them retaining a beneficial interest equating to a 58 per cent interest in the property, which the parties viewed as reflecting the back half of the section. On Leonie’s version of things, Colin and Marie gave them
$280,000 to secure a sale and get themselves out of a tight spot.
[14] The legal position is not at all complicated. As Mr Bunbury submitted, the starting point is that the Property Law Act 2007 requires transactions relating to real property to be evidenced in writing and only recognises legal – as opposed to equitable
– interests in real property.2 But the common law – or, rather, equity – will recognise
beneficial interests – and compel the legal owners of property to recognise such interests – where they can be established by parol evidence.3 Moreover, s 137 of the Land Transfer Act 1952, under which Colin and Marie have registered a caveat against the title to the property, recognises that equitable interests may be sustained by caveat.4
[15] As to applications pursuant to s 145A of the Land Transfer Act, whilst the onus is on an applicant to establish that he, she or it is entitled to maintain the caveat in question, all they are required to do is to establish a prima facie or arguable case.
2 Property Law Act 2007, ss 24 and 25.
3 Land Transfer Act 1952, s 137(1)(a); Tipping J in Regal Castings Ltd v Lightbody [2009] 2 NZLR 433 (SC) at [151].
4 Hu v Zhang (2007) 2 NZTR 17.010, (2007) 26 FRNZ 501, (2007) 8 NZCPR 587 and [19]–[21].
[16] Here, as Mr Weatherhead emphasised, the formal record of the transaction contains nothing which would suggest that it involved anything other than an absolute sale of the property by Colin and Marie to Andrew and Leonie. As I have already indicated, amongst the documentation there is the letter from Colin and Marie in which they expressly represented to Kiwibank, in order to induce Kiwibank to lend $200,000 to their son and daughter-in-law, that that is exactly what was happening. In such circumstances, Colin and Marie could not set up their claim to having retained a beneficial interest against Kiwibank. But, as against Andrew and Leonie, they may.
[17] As against the documentary evidence, and Leonie’s evidence, there is the evidence I have outlined from Colin, Marie and Andrew as to the parties’ arrangements, bolstered to some extent by the context in which the transaction took place. Colin and Marie had some debt, but their position could hardly be described as one of extreme financial difficulty. In order for the Court to dismiss their evidence as having insufficient weight to establish a prima facie claim, the Court would have to conclude that a couple nearing the end of their working lives, who were in a reasonable financial position with a significant asset with a value of $480,000, and comparatively modest debt of approximately $136,000, agreed to give $280,000 to one of their children, thus placing themselves in a position where they had less than $40,000 (which is all they would have had after discharging their debt of $136,000 and lending Andrew and Leonie $25,000), owned no home and were effectively liable to be put out on the street at any time.
[18] Mr Weatherhead for Leonie submitted that for the Court to go beyond the written material, would be unnecessarily to complicate a situation which appeared on its face to be clear.
[19] My assessment of the situation is this. At the time of these arrangements, three generations of a family were living harmoniously on the property in two dwellings. As everyone agrees, at the suggestion of Colin and Marie, they decided to rearrange the way in which they were doing so. They headed off down this path without giving a great deal of thought to what the consequences might be if, for any reason, the family began to disintegrate. They all took the path of least resistance in terms of putting the new arrangements in place, and do not appear to have had the benefit of the best
advice. I find it difficult to accept that, in doing so, Colin and Marie imagined that they were alienating their only significant asset absolutely without retaining any interest and placing themselves in a position of having preferred one of their children to the others. In the end, I have no doubt that it was their intention to retain an interest in the property, that they believed they were doing so and that that was part of the understanding between all four participants in the arrangement.
[20] Without embarking upon any analysis of how that interest might be identified and calculated when one is dealing with an unsubdivided section, it seems to me that that is enough, prima facie at least, to provide a foundation for a claim by Colin and Marie –based on constructive or resulting trust – to an interest in the property. That, in my judgment is a sufficient basis to enable them to sustain a caveat.
[21]On that basis, I am prepared to make the order sought sustaining the caveat.
[22] I do so with one qualification. The parties need to get this matter resolved. I therefore direct that, within 20 working days of the date of this judgment, Colin and Marie are to commence a substantive proceeding seeking appropriate orders from the Court to the effect that they have an equitable interest in the land, and consequential orders for its disposal or subdivision. If such proceedings are not commenced within that period of time, then their caveat is to lapse.
[23] I did not hear from the parties on costs and I reserve them. Prima facie Colin and Marie are entitled to their costs, having succeeded in their application. However, I expect they may wish to reflect on whether they should seek costs at this stage, or whether doing so may further exacerbate the difficulties within the family. That of course is a matter for them. If they do seek costs, and counsel are not able to agree as to these, as I would expect them to do, they may file and serve memoranda and I will deal with them on the papers.
Associate Judge Johnston
Solicitors:
Grey Street Legal Ltd, Gisborne for the applicants Wilson Barber & Co for the respondent
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