Rutherford v Rutherford
[2015] NZHC 878
•30 April 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000282 [2015] NZHC 878
IN THE MATTER OF Section 145A of the Land Transfer Act
1952
BETWEEN
STEPHEN DEREK RUTHERFORD First Applicant
ANNE ELIZABETH RUTHERFORD Second Applicant
JENNIFER MARGARET RUTHERFORD
Third Applicant
AND
JOHN DAVID RUTHERFORD, JOYCE MARY RUTHERFORD AND MARK ROLAND WINGER AS TRUSTEES OF THE ESTATE OF RALPH KENNETH RUTHERFORD
Respondents
Hearing: 27 March 2015 Appearances:
K M Quinn for the Applicants
J E McLennan for the RespondentsJudgment:
30 April 2015
JUDGMENT OF WOOLFORD J
This judgment is delivered by me on Thursday, 30 April 2015 at 3.00 pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors/Counsel: Ayres Legal, Auckland Holmden Horrocks, Auckland K Quinn, Auckland
RUTHERFORD & ORS v RUTHERFORD & ORS [2015] NZHC 878 [30 April 2015]
Facts
[1] Mr and Mrs Rutherford purchased a property together in 2009. They each owned a half share in the house. Mr Rutherford died in 2011. In terms of his will, Mr Rutherford’s share in the property (the “residence interest”) was given to his executors and trustees on trust, to allow Mrs Rutherford to occupy, use or obtain income from it for the rest of her life. Upon the death or remarriage of Mrs Rutherford, the residence interest was to be bequeathed to the children of Mr Rutherford’s first marriage, as beneficiaries of his estate as a whole (the applicants).
[2] Mr Rutherford’s will also provided that the executors and trustees could sell the residence interest at Mrs Rutherford’s request and use the net proceeds to purchase a replacement residence which would be held in trust on the same terms. If, in purchasing a new property, there was a surplus of funds then the surplus was to be invested and the net annual income arising was to be given to Mrs Rutherford.
[3] Mrs Rutherford now wishes to sell the property and purchase a unit in a retirement village. However, the applicants, as final beneficiaries, have placed a caveat on the title of the property to prevent its sale. They say that the proposed sale will diminish the material value of the residence interest which they will ultimately receive. The executors and trustees (the respondents) challenge the caveat. The issue in these proceedings is whether the caveat should remain on the title.
Law
[4] If a caveator is able to show an arguable case for the existence of a legal or equitable interest sufficient to support a caveat, the caveat must generally remain on the title until the merits of the whole matter have been determined in substantive proceedings. In Orams Marine (Auckland) Ltd v Ports of Auckland Ltd, Ellis J said:1
Other cases in this Court Castle Hill Run Ltd v NZI Finance Ltd [1985] 2
NZLR 104; Holt v Anchorage Management Ltd [1987] 1 NZLR 108; and Shell Oil NZ Ltd v Wordcom Investments Ltd [1992] 1 NZLR 129 confirm that while consideration of the balance of convenience may be required in exceptional cases, once a reasonably arguable case has been established,
1 Orams Marine (Auckland) Ltd v Ports of Auckland Ltd (1994) 6 TCLR 88 (CA) at 7.
justice will require the maintenance of the caveat. However, where the evidence shows that on the evidence before the Court the caveator cannot succeed at trial, the caveat should be allowed to lapse, or be discharged.
Submissions
Submissions in support of caveat not lapsing
[5] The applicants submit that the administration of the estate has ended, and that from August 2012 the respondents have been holding the property on trust for them as residual beneficiaries. They say there is no uncertainty that the residence interest will be divided amongst the three applicants on Mrs Rutherford’s death or remarriage.
[6] They submit that the residence interest is capable of supporting a caveat, because a non-discretionary beneficiary of a trust who can point to a beneficial interest in specific land has a caveatable interest in that land. The applicants argue that the effect of the will was to create two distinct equitable interests in respect of the residence interest: a life estate to Mrs Rutherford, and the remainder of the estate to the applicants as residuary beneficiaries, and tenants in common equally.
[7] They acknowledge that it must be a vested remainder to support a caveat, not a contingent remainder. Since the residence interest transfers to the applicants on the death or remarriage of Mrs Rutherford, they submit it will automatically vest as the persons who are to take the estate are ascertained and no condition precedent attaches to the distribution of the estate.
Submissions in support of caveat lapsing
[8] The respondents submit that, while probate has been granted, and some assets have been distributed, the administration of the estate will not be finalised until after Mrs Rutherford’s death or remarriage, when the residue of the estate is finally distributed.
[9] They submit that what the applicants have is a beneficial interest in
Mr Rutherford’s estate as a whole, and not a proprietary interest in land capable of
supporting a caveat. They argue that a general beneficial interest is insufficient to support a caveat.
[10] The respondents submit that an interest in a share of estate residue is not a proprietary right, but merely confers a right to have the estate properly administered and applied for the benefit of the beneficiaries when administration is complete. Similarly, in the case of mutual wills – where each will leaves the property to the survivor, who in turn leaves the property to a set beneficiary – the beneficiary obtains an equitable interest in the property. Where this is land transfer land, the interest is caveatable, but if it is merely an obligation to leave the residue of the estate to the beneficiary it is not.
[11] They argue that Mr Rutherford did not have an interest in a fee simple title, but only a half share as a tenant in common in the property. The will provides that the residence interest can be used to purchase any type of house or residence for Mrs Rutherford from the sale of the property.
[12] The respondents also submit that if the court accepts the applicants have an interest in the property, they have only a contingent interest because any interest remains contingent on the termination of Mrs Rutherford’s interest. At the termination of her interest, the residue of the estate may be a completely different property or interest to the subject property. The effect of the life interest renders the residue too non-specific to be caveatable.
[13] They submit there is a distinction between the present case and the vested interests described by the applicants, which refer to situations in which there is an actual defined, specific property. Since there is a full life interest in the residence interest (not a life estate in a particular property) it cannot be said that the applicants’ interests vest now.
[14] The respondents argue that if the applicants are seen as having a caveatable interest, it would mean that any instance where the respondents sought to sell the property pursuant to their powers under the will could be blocked. The court should therefore use its discretion to remove the caveat or allow it to lapse.
Caveatable Interests
[15] Section 137 of the Land Transfer Act 1952 sets out the types of interests which can support a caveat:
137 Caveat against dealings with land under Act
(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person—
(a) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; …
[16] Rather than just limited to registerable interests, the Act allows a beneficiary under a trust to claim a caveatable, beneficial interest in specific land.2
[17] Contrarily, in Guardian Trust and Executors Company of New Zealand v Hall, the holder of a beneficial interest in land under a will was denied the ability to caveat the property. 3 The Court of Appeal held that although a beneficiary under a trust who can point to specific land and claim an interest in that land has a caveatable interest, an interest conferred upon the purported caveator through the will to share in the residue of an estate, including the value of the property, did not. This was because the process was not yet complete:4
The legatee of the share in residue has no interest in any of the testator’s property until the residue has been ascertained … his right is to have the estate properly administered and applied for his benefit when the administration is complete.
[18] This highlights the basic point that there must be a fixed and ascertainable interest in land to support a caveat. For this reason, a beneficiary of a discretionary trust has no caveatable interest in land as there must be a specific proprietary right or
interest in the land to sustain a caveat, not a mere equitable interest.5
2 See for example, Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 114.
3 Guardian Trust and Executors Company of New Zealand v Hall [1938] NZLR 1020.
4 At 1026.
5 Napier City Council v Residual Health Management Ltd HC Napier CIV-2004-441-35, 30 March
2004 at [20].
[19] It also suggests the infra position that once administration is completed, the residuary legatee can have a beneficial, caveatable interest in specific land.6 I will discuss below whether administration can be completed before any real distribution has occurred.
[20] However, the position with regard to whether specific devisees of land under a will (rather than the general residue of the estate) prior to administration have a sufficiently certain right to caveat is not entirely clear. Although Hinde and McMorland suggests the position is “likely” to be that the specific devisee has a caveatable interest,7 the analysis of the same cases by Lindsay, in Caveats against Dealings in Australia and New Zealand, suggests that these cases were based on the now discredited proposition that interests in proceeds of a sale could amount to a caveatable interest in land.8
[21] In Australia, the Supreme Court of Western Australia in Dean v Lloyd rejected the idea that a beneficiary of specific property was in any better position to caveat than a beneficiary with an interest in the residue.9 However, in a New Zealand context, the High Court in a later case Fisher v Mansfield, in the context of mutual wills, directly approved the earlier New Zealand authority suggesting that specific devisees could have sufficient rights to support a caveat.10 The correct position is therefore somewhat uncertain.
[22] Whether the applicants have a caveatable interest depends, in my view, on whether the administration of the estate is or is not complete. If it is, the question is then whether the interest in the property, held under trust, is specific and certain enough to be capable of sustaining a caveat.
[23] If the administration is not complete, the question is whether the interest is either:
6 Shannon Lindsay Caveats against Dealings in Australia and New Zealand (Federation Press, New
South Wales, 1995) at 93.
7 G W Hinde, D W McMorland and others Principles of Real Property Law (2nd ed, LexisNexis, Wellington, 2014) at 10.009.
8 Lindsay, Caveats against Dealings, above n 6, 93.
9 Dean v Lloyd (1992) ANZ Conv Rep 279.
10 Fisher v Mansfield [1997] 2 NZLR 230 (HC).
(a) A general interest in the estate residue, and thus incapable of supporting a caveat under the principle in Guardian Trust; or
(b)An interest as a specific legatee, in which case the law is uncertain as to whether a specific legatee can support a caveat.
What is the nature of the applicants’ interests here?
Is administration complete?
[24] Under the terms of the will, the precise types of interest assigned to the applicants and to Mrs Rutherford are somewhat ambiguous. However, the preliminary question, as outlined above, is whether the administration of the estate is complete.
[25] In the case of Re Eagle (dec’d), Cartwright J stated that:11
The term "distribution" is not defined in the Act. It is clearly the case that an asset is distributed when it has been paid, transferred or appropriated to a beneficiary (In re Anderson [1956] NZLR 657, affirmed in [1957] NZLR
401 (CA)). The situation is, however, not so clear cut when physical payment or transfer to the residuary beneficiary has not occurred. In Lilley v Public Trustee [1981] 1 NZLR 41, [1981] AC 839 the Privy Council held that final distribution of the estate occurs when the executor of the deceased has completed the administration of the estate and begins holding the assets as trustee. Whether the executors' duties have been completed is a question of fact. In Sullivan v Brett [1981] 2 NZLR 202
Somers J adopted the following approach in determining whether there had in fact been a final distribution:
a)had the executor completed all the activities which it was his or her function to perform and had the residue of the estate been ascertained
b)if so, then assent can be inferred if there was no formal assent
c)if there was assent, then had the estate been distributed when the applicant filed for leave.12
(emphasis added)
11 Re Eagle (dec’d) HC Auckland M721/97, 21 November 1997.
12 The reference to filing for leave is because in the relevant cases, the date of “final distribution”, and the end of the administration period are relevant for ascertaining whether the filing of leave to extend the time necessary to oppose the estate was within time.
[26] The Judge went on to consider the distinction between an executor and trustee. Her Honour commented that once the executor’s duties (proving the will, burying the deceased, getting in the assets and paying the debts, funeral, testamentary expenses and death duties) are completed, the residuary is transferred to the beneficiaries or the executor assents to vesting property in him or herself as
trustee.13 The period of administration therefore ceases at that point, even without
distribution, when there is a “transition to the office of trustee” who holds the property either on any specific trust in the will or on trust for the beneficiaries according to their rights and interests under the will until a specified event occurs.14
[27] In this case, much of the administration clearly has occurred. Final accounts had been rendered in respect of the estate. They were entitled “Final Distribution”. All monies (and presumably, other assets) left in the estate have been distributed to the final beneficiaries, all expenses and other liabilities having being paid out. The only remaining asset is the residence interest, which forms the residue of the estate.
[28] The executors argue that administration of the estate will not be finalised until after the death or remarriage of Mrs Rutherford, when the residue of her estate will be distributed. However, it is clear from the case law discussed above that actual distribution does not need to have occurred for the administration to have ended. It appears clear that the executors have completed the typical duties associated with administration, in that they were able to issue final payments of residue. As contemplated by Sullivan v Brett and Re Eagle, if the remaining “residue”, being the residual interest in the property, was ascertained then it is highly likely on these facts that assent to administration would be inferred. The result of this would be that the residence interest is being held on trust for the applicants.
[29] The ability for Mrs Rutherford and the executors to deal with the house, by buying a new property, and with the option of transferring some of the value into capital (as outlined at [2]), could be conceived of as meaning the residue was not entirely settled. Although the residue is currently a half interest in the specific
property, at a later stage it could have an entirely different form. That form might
13 At 5.
14 At 5.
not even necessarily be entirely in the form of real property, but could be partially capital.
[30] Despite this, I consider that the “residual interest” in the property is likely sufficiently certain to be capable of being ascertained. This is because the subject of the trust is not the specific property, but the ongoing interest in property.15 This is sufficiently certain to found a trust, and correspondingly must be an ascertainable residue capable of being transferred from being held by the respondents as executors to being held by them as trustees.
[31] This is because, like an interest in an investment portfolio, in which the value or form of shares which are held by a third party investor and able to be invested and re-invested over a period of time, the share in property can be identified as part of the estate even though it is not one, specific object. The respondents are, therefore, able to identify the residence interest and are capable of holding it on trust even though the specific object that will come to the applicants is not necessarily precisely determined.
[32] If the administration period has ended, the residual interest is being held on trust for the applicants. The standard trust principles relating to beneficiaries of trusts will be determinative of whether the interest is capable of supporting a caveat. It is well established that although a beneficiary of a trust can caveat property held
by the trust, they must be a fixed beneficiary, with a right to specific property.16
[33] There is no question about who the trust is designed to benefit. Evidently, the applicants are fixed, not discretionary, beneficiaries. However, they must also have a sufficiently specific interest in land to be able to caveat the property.
[34] The applicants submit that they have an interest as remaindermen from a life estate granted to Mrs Rutherford, as when her life estate ends, the remainder of the estate falls back to them. A remainder can either be vested or contingent, and only if
it is vested does it constitute a present and immediate right to the beneficial
15 Greg Kelly and Chris Kelly, Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at
65.
16 Merbank Corporation v Price (1978) 1 NZCPR 24 at 28.
enjoyment of the land.17 That would make it capable of supporting a caveat. They submit it is a vested interest because there are no other requirements for the land to vest in the applicants following one of the specified events which causes the life estate to end (Mrs Rutherford’s death or remarriage).
[35] Although, generally, the automatic passing of the residual interest would be a specific vested interest capable of supporting a caveat, I am of the view that a remainder reasonably cannot be considered vested if it is capable of being exchanged for other property, or other property and some capital. The proposition in Guardian Hall, that the beneficiaries with an interest in the residue of an estate cannot caveat a property that forms part of that estate, demonstrates the same principle that an interest must be a more than a general interest in the proceeds from a property to support a caveat.
[36] The applicants submit that the power to exchange properties merely means the vested remainder and life estate shift from one property to the next, but that the “estate” exists in whatever current property is held.
[37] If the “estate” can shift between houses, it does not appear, in my view, to be a vested interest in sufficiently specific property to create a trust. An estate, generally, is an interest in a specific piece of land: it is “neither more or less than a bundle of rights which may be exercised in respect of the piece of the land in which
it is held”.18 This suggests that it must refer to a specific piece of land. Similarly, in
Holt v Anchorage Management, McMullin J held there was “no doubt” that the appellant had a caveatable interest in the property because it was “not in dispute that the appellant can point to the Picton property as being one which is held for him under the trust.”19 Hinde and McMorland’s Principles of Real Property Law re- emphasises that to support a caveat, the interest must be a “specific parcel of land”.20
[38] The respondents submit that the interest is in the nature of a life interest, rather than a life estate in a particular property. This submission describes more
17 Hinde and McMorland, above n 7, at 5.008; see, on the nature of future interests Johns v Johns
[2004] 3 NZLR 202 (CA).
18 Hinde and McMorland, above n 7, at 3.001.
19 Holt v Anchorage Management [1987] 1 NZLR 108 at 114.
20 Above n 7, at 10.009(b).
accurately the nature of the interest held by Mrs Rutherford, and the range of options available for dealing with the land, including the possibility of acquiring new estates and interests in new parcels of land. For example, the fee simple interest currently owned could become a stratum estate in an apartment, if that was how Mrs Rutherford chose to downsize.
[39] The interest in question is not a specific interest in a particular property. It appears to be a vested residual interest in the value of the property, which can be changed into either other property, or to a property and some investment value, which the applicants are unconditionally entitled to at a fixed point (on death or remarriage) in whatever form and combination it appears. The powers given to the respondents to deal with the property suggest that Mr Rutherford did not intend to vest a specific interest in a particular property in his children. It is more similar to the situation in Willigers v McFarlane, in which an interest in a share in the proceeds
of a sale could not support a caveat.21
[40] Because the interest is a transferrable interest in something other than a fixed piece of land, it is not “fixed”, and the interest is not, in my view, sufficiently specific to create a proprietary right capable of supporting a caveat.
[41] In Treadgold v Treadgold, Associate Judge Osborne found that a beneficial interest in a property that was traced into another property was capable of supporting a caveat.22 In that case, the half interest in an Auckland property was left to the testator’s children as a remainder from a life interest assigned to her husband. The proceeds from the sale of the Auckland property were used to purchase a Christchurch property, as had been allowed under a “deed of family arrangement”
between the husband and the children. Associate Judge Osborne found that, as beneficiaries the children could ask the Court to trace through the interest in the Auckland property into other property (under Fisher v Mansfield).
[42] Although this suggests that, if the children were able to caveat the traced property they also logically ought to have been able to caveat the original property,
21 Willigers v MacFarlane (2005) 6 NZCPR 885 (HC).
22 Treadgold v Treadgold [2013] NZHC 2639.
the Associate Judge did not consider what the nature of the interest was to determine whether it was appropriate to create a caveat in the first instance. Whether the Judge was proceeding on the assumption that there was a specific interest in land held on trust, or a beneficial interest in specific property prior to administration creating a caveatable interest, is unclear.
[43] The applicants do not have a vested interest in specific property, and their interest is therefore insufficient to sustain a caveat.
Discretion
[44] Turning then to the issue of discretion, the respondents submit that to allow a caveat, even if technically correct, would frustrate the intention of the will to allow Mrs Rutherford to use the residence interest to move to a more liveable property. This is because if a caveat could be supported in the present case, it can be lodged in the case of any sale and could prevent any sale of the property. This would frustrate the intent of the will.
[45] The case law demonstrates that even if there is an arguable case for supporting a caveat, it will not be sustained if there is no point in doing so.23 In a recent case, Williams J exercised his discretion to remove the caveat because, even if an arguable case that the plaintiff had contributed to the property could be made out, he would only receive a portion of the value of the land so it would still need to be sold.24 The plaintiff’s interests were adequately protected without the caveat.
[46] In Pacific Homes Ltd (in receivership) v Consolidated Joineries Ltd, the
Court stated:25
In such circumstances the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an
23 Pacific Homes Ltd (in receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).
24 Blumenthal v Stewart [2014] NZHC 1924.
25 At 656.
agreement or if the caveator's interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.
[47] I agree with the respondent’s submission that to allow a caveat to stand would be contrary to the clear intent of the will, which was to allow Mrs Rutherford and the executors to deal with the property in ways that suited Mrs Rutherford’s needs before transferring it to the applicants.
[48] In my view, the applicants can make other claims against trustees for not considering their interests in decision-making, and do not require the ability to caveat the property as an added mechanism of control.26 In this case, the respondents have offered to protect the interests of the applicants in the value of the residence interest by offering that Ryman’s (the rest home provider) 20% deduction of the capital sum be covered entirely by Mrs Rutherford’s share of the property, ensuring that the applicants still receive 50% of the value of the property. The only possible detriment will therefore be the lack of any capital appreciation of the retirement village unit. Given that the applicants are not entitled to any capital
appreciation on any “leftover” money from purchasing a new house (as leftover capital is to be invested and applied to the benefit of Mrs Rutherford), I am of the view that their interests are adequately protected. The executors have also offered a mortgage over Mrs Rutherford’s interest in the retirement village unit, which should give added comfort to the applicants.
Conclusion
[49] I am of the view that the applicants’ interest is not an interest in specific property sufficient to support a caveat, even on the low standard applicable of a reasonably arguable case. But if I am wrong on that issue, then I am of the view that the caveat should nonetheless be removed as a matter of discretion. The application to sustain the caveat is therefore dismissed and the caveat should be lapsed by the
Registrar.
26 See Re Mulligan (dec’d) [1998] 1 NZLR 481.
[50] Costs are payable by the applicants to the respondents on a 2B basis.
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Woolford J
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