Steele v Dallas
[2018] NZHC 2184
•28 August 2018
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2018-463-000023
[2018] NZHC 2184
BETWEEN ANTHONY JAMES STEELE
Applicant
AND
VALERIE DALLAS and ROBERT RALPH DALLAS
Defendant
Hearing: 22 May 2018 Appearances:
F Wood for the Applicant
J Hosking for the Defendants
Judgment:
28 August 2018
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 28 August 2018 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Rodgers & Co, Rotorua Tompkins Wake, Rotorua
J Hosking, Rotorua
STEELE v DALLAS [2018] NZHC 2184 [28 August 2018]
Introduction
[1] At issue is a caveat lodged by the applicant, Anthony Steele, over a property at Te Ngae Road, Rotorua.
[2] Mr Steele applies to sustain the caveat pursuant to s 145A of the Land Transfer Act 1952. His application is opposed by Valerie and Robert Dallas, the parents of Mr Steele’s wife, Keri Steele — though the Steeles are now separated, and Mrs Steele has taken no part in these proceedings.
[3] The central question is whether Mr Steele has a caveatable interest in the property as beneficiary of a constructive trust. Mr Steele’s claim — made in reliance on the principles established in Lankow v Rose1 and Wakenshaw v Wakenshaw2 — is that he has contributed to the property, and has a reasonable expectation of an interest in the property that equity must recognise.
[4] For the reasons that follow, I am not persuaded Mr Steele has made out a reasonably arguable case for the interest he claims.
Background
[5] It is not disputed the Dallases purchased the property in their own names in November 2012. They purchased the property for $172,000, with 100 per cent financing from Westpac. Their intention was for the Steeles — in financial strife at that time and needing accommodation — to live in the property with their two children, in exchange for making weekly payments towards the mortgage, insurance and outgoings.
[6] Mr Steele’s position is there were oral discussions, beginning before the purchase of the property, culminating in an oral agreement which he describes in the following terms:
[The Dallases] agreed we could live [in the property] long term until such time as we are able to transfer the property into our names. Alternatively if we wanted the property to be sold sometime in the future, we would receive the
1 Lankow v Rose [1995] 1 NZLR 277 (CA).
2 Wakenshaw v Wakenshaw [2017] NZCA 252.
net proceeds from sale which would provide some equity we could put towards another house. So any increase in the value of the Property over time would be owned by [Mrs Steele] and me.
The underlying purpose of the agreement was so that we had a roof over our heads when we were in this precarious financial situation, and as long as there was no cost to the [Dallases], they were prepared to have the property registered in their name, but recognising that it was essentially “our house”.
This is, of course, denied by the Dallases who maintain they were merely finding a quick-fix-solution for their daughter’s family who were in need of accommodation. They say they had no long-term plans for the property, but they retained the same rights as any legal owner to do with the property as they pleased.
[7] In any case, the Steeles moved into the property in December 2012. They promptly began making weekly payments which covered the mortgage, insurance and outgoings, as well as paying off a $30,000 private loan from the Dallases by instalments. Mr Steele has provided his bank statements in evidence, which show the weekly payment increased over time to keep pace with increases in outgoings.
[8] The Steeles were both adjudicated bankrupt in July 2014, after the collapse of their business, and both were only discharged three years later, in July 2017. Before then, however, the Steeles separated in February 2017, and Mrs Steele found alternative accommodation. They did not enter into any relationship property agreement on their separation, seemingly because they were both still bankrupt.
[9] Mr Steele sought confirmation from the Dallases he could continue to live at the property with his youngest daughter. Confirmation was given, both orally and in writing (in the form of the March 2017 letter discussed below). The specifics, however, are disputed. Mr Steele says the Dallases gave assurances the original agreement relied on by Mr Steele remained unaffected by the Steeles’ separation; the Dallases reply they did no more than allow Mr Steele to keep renting on the same terms as before.
[10] The parties’ disagreement was exposed in July 2017 when, to Mr Steele’s apparent shock, he was contacted by real estate agents informing him the Dallases had put the property on the market. Lawyers were soon instructed, and on 22 August 2017,
Mr Steele lodged the caveat pursuant to s 137 of the Act. On 5 March 2018, the Dallases replied with an application for the caveat to be removed under s 143.
[11] The present application was filed shortly after, on 21 March 2018. An interim order was granted on 9 April 2019 to the effect the caveat not lapse pending a hearing of the application.
Applications to sustain caveats
[12]The pertinent legal principles are not in dispute.
[13] The onus lies with the caveator, Mr Steele, to demonstrate he has a reasonably arguable case for the interest he claims.3
[14] In this case, the interest relied upon by Mr Steele is his status as beneficiary of a constructive trust over the property. There is no dispute this interest, if proven, is caveatable: the legislation is clear caveatable interests can include “any trust expressed or implied”.4
[15] But a caveat will only be removed if it is patently clear the caveat cannot be maintained because:5
(a)there was no valid ground for lodging it; or
(b)such valid ground as then existed no longer does so.
[16] This high bar recognises that “[c]aveat applications are summary and are therefore not suitable for deciding disputed questions of fact”. But as Associate Judge Bell continues:6
… On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with
3 Sims v Lowe [1988] 1 NZLR 656 at 660
4 Land Transfer Act 1952, s 137(1).
5 Sims v Lowe, above n 3, at 659-660.
6 Body Corporate 329331 v Escrow Holdings Forty-One Ltd [2017] NZHC 754 at [8]-[9].
undisputed contemporary documents or other statements made by the same deponent or inherently improbable it may be.
…
To establish a reasonably arguable case there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavit, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts.
[17] Even if Mr Steele establishes a reasonably arguable case, the Court retains a residual discretion, exercised on the balance of convenience, to nonetheless remove a caveat or allow it not lapse.7 This discretion is usually exercised in circumstances where the caveat could serve no useful purpose or alternative safeguards are available.
A fatal flaw in Mr Steele’s pleading
[18] As stated earlier, Mr Steele’s pleaded agreement with the Dallases is two-pronged. Mr Steele was supposedly entitled to either:
(a)reside in the property long-term with the understanding the title could be transferred to him and Mrs Steele eventually; or
(b)pocket any equity arising from any increased value of the property in the event of a sale.
[19] The pleaded agreement is beset by troubling ambiguities. On the first prong one is led to ask: how long were the Dallases required to ‘hold’ the property until the recently bankrupted Steeles could secure a mortgage for purchasing in their own names? Or did the weekly payments constitute some kind of advance towards that purchase?
[20] Ultimately, however, it is the second prong that is at issue. Mr Steele’s pleading impliedly accepts the Dallases had the election to choose to sell, irrespective of his own preferences (which would be to continue residing at the property). He is not seeking to enforce a right to continue residing there.
7 High Court in Mahon v Station at Waitiri Ltd [2017] NZHC 631.
[21] So stripped back to its core, his claim is really a contractual right, on behalf of himself and Mrs Steele, and as against the Dallases personally — a claim for the increased value of the sale proceeds to be transferred to them as relationship property. In other words, his interest is that of an unsecured creditor. And in the words of Hinde, McMorland and Campbell:8
A person seeking to establish the right to lodge and maintain a caveat must have an interest in land; a lesser right, such as a contractual or personal right, will not suffice.
Mr Steele may have grounds for an action against the Dallases in contract — whether to enforce the pleaded agreement; or for damages, after the proceeds are distributed
— but even if proved his claim gives no grounds for sustaining his caveat over the property.
Constructive trust
[22] In any case, quite apart from this fatal flaw I do not consider Mr Steele can make out his claim for a constructive trust, at least not on the evidence he has put before me.
Legal principles
[23]Again, there is no dispute over the relevant law.
[24] I must determine whether the circumstances of this case demand a constructive trust be imposed; and to that end, it is agreed the applicable test is laid out in Lankow v Rose and rearticulated more recently in Wakenshaw v Wakenshaw.9
[25] Stated briefly, before this Court will impose a constructive trust, Mr Steele must show:10
(a)he had an expectation of an interest in the property;
8 Hinde, McMorland and Campbell (eds) Principles of Real Property Law (2nd ed, LexisNexis NZ, Wellington, 2014) at [10.010] (internal citations omitted).
9 Lankow v Rose, above n 1; Wakenshaw v Wakenshaw, above n 2.
10 Lankow v Rose, above n 1, at 294.
(b)that expectation was reasonable;
(c)the Dallases should reasonably be expected to yield the interest; and
(d)he made a direct or indirect contribution to the property.
I address each issue in turn.
Did Mr Steele have an expectation of an interest in the property?
March 2017 letter
[26] Mr Steele’s primary evidence is a letter he received in March 2017, hand-written by Mrs Dallas following the Steeles’ separation. He accepts this is the only written document substantiating the parties’ alleged oral agreement. The letter is expressed with the informality one might expect in a familial context. It reads as follows:
Mortgage 505 2 weekly Insurance
50.30.
Rates
95.84/651.14
Weekly
$325
There is also another loan of $5,000, this was paid to you when I was in Napier not sure when I think this is being paid but I will have to check the loan of
$30.000 is now down. This was done through the bank as a loan.
Tony [Mr Steele], I want you to pay the weekly mortgage of $325 if you want to stay in the house as I have said to Keri [Mrs Steele] the house is yours and Keri’s as it was done for originally. If you don’t want to stay the house will be sold and the $3,000 I paid for the heat pump will be deducted from the sale and paid to myself.
Tony, I don’t want to be mean but the mortgage, rates and insurance have to be paid.
I’m sorry that you and Keri are separating. It can’t be easy for any of you.
[27]On my reading, the letter clearly establishes:
(a)the Dallases originally purchased the house with the express purpose of supporting their family;
(b)the Steeles were to pay a weekly sum towards the ‘mortgage, rates and insurance’, and Mr Steele would have to continue to pay that amount to stay on in the property post-separation;
And it palpably does not evidence:
(c)an explicit promise from the Dallases that the Steeles could enjoy continued use of the property long-term;
(d)some right to eventual ownership of the property at some later date.
I am not willing to read such weighty contractual terms into imprecise phrases such as “the house is yours”. On the whole, the letter is readily explicable within the context of a landlord-tenant relationship.
[28] But the most striking phrase is Mrs Dallas’s statement that the cost of the heat pump would be “deducted from the sale and paid to [her]self”. This gives rise to the strong inference the Steeles would receive at least some of the proceeds in the event of a sale (as this would be the amount from which the heat pump purchase would be deducted). Yet the statement remains unhelpfully vague, and while consistent with Mr Steele’s account, it provides no indication of the amount the Steeles were to receive from the proceeds — except that it must logically exceed $3,000.
[29] In short, the March 2017 letter is far from determinative in establishing Mr Steele’s contractual claim.
Circumstantial evidence
[30] In addition to the March 2017 letter, Mr Steele attempts to build a case from circumstantial evidence.
[31] He submits, in effect, the parties’ conduct is inconsistent with a tenant-landlord relationship, giving corroborative support for a more long-term arrangement of the kind articulated by Mr Steele.
[32] The apparent strength to this argument largely breaks down, however, in discussing the specifics relied upon by Mr Steele.
[33] It revolves primarily around the legal import of the Steeles’ weekly payments to the Dallases. The parties accept the payments were pegged to outgoings. It appears those payments also contributed to paying off the principal on the mortgage as well as the interest. In evidence is a bank statement dated 1 March 2017 showing the Dallases’ mortgage had by that time reduced from $174,000 (the purchase price plus $2,000 for legal fees) to $158,560.04 — the $15,000 difference presumably owing solely to those weekly payments.
[34] But it is standard practice for landlords to charge outgoings plus a certain amount of profit. The Dallases assert the weekly amounts were less than market rate throughout the entire period those payments were made. Mr Steel accepts that position for the final 12 to 18 months of payments. But for the balance of the period, he avers they could have done better financially in an alternative renting arrangement, but they stayed put because the property provided “security for [their] future”. Despite his protestations, he produced no evidence to support his position.
[35] Moreover, I do not consider anything turns on the fact the Dallases were upfront about where the weekly payments were going, or (as Mr Steele contends) the Dallases provided the Steeles with regular bank statements to show the reduction of the mortgage over time. Such transparency and informality is not unusual for a family arrangement, and does not fundamentally challenge the tenant-landlord characterisation. Furthermore, I see nothing of legal significance in the fact the Dallases purchased the property purely on the Steeles’ recommendation, without viewing the property independently. The Dallases lived in a different city, they trusted the Steeles, and their main motivation was to help their family out of a tight spot.
[36] Mr Steele further submits he undertook ‘maintenance work’. This is verified in Mrs Dallas’ affidavit, which notes that in her tax return she deducted the cost of materials Mr Steele purchased for such maintenance work in her tax return. The nature of this work remains unspecified and unevidenced. Mr Steele merely deposes:
Since moving into the Property we have done all of the maintenance and work required as and when funds permit. The house is in a poor state of repair simply because I have not had any surplus money to pay to get things repaired and the [Dallases’] position throughout is that it was essentially [Mr Steele’s] and my house and it was our responsibility to attend to and pay for these things.
[37]But the examples he provides of maintenance work are underwhelming:
(a)he says the Steeles were required to replace an old, failing stove at their own expense. The Dallases counter the oven was in perfect working condition, and they had no obligation as landlords or otherwise to replace it. Once again, there is no evidence to refute that statement;
(b)it appears Mr Steele also erected new fence around part of the property. But he concedes Mr Dallas helped put the fence up, and the Dallases (on Mr Steele’s calculations) paid $614.22 of the approximately $1,500 to 2,000 expended for this work;
(c)more generally, the Dallases readily concede Mr Steele kept the property in (what his counsel describes as) ‘a reasonably tidy condition’, but I have no reason to consider he went above and beyond what is required of a tenant in this regard.
[38] In the round, Mr Steele may be able to make out his claimed contractual right upon marshalling more compelling evidence - I make no predictions in that respect – but the claimed interest is not tenable on the evidence presently before me. Even were Mr Steele to revive his contractual argument, the other Lankow factors present even larger hurdles to his attempt to establish a constructive trust over the property.
Was it reasonable for Mr Steele, and the Dallases, to expect the former had an interest in the property?
[39] I address both factors concerning reasonableness together, as the same arguments are run for each. Mr Steele’s submissions essentially boil down to two:
(a)the Dallases’ denials of the arrangement, in the face of the apparent oral conversations and the March 2017 letter, amount to an unevidenced and self-serving attempt to get out of their agreement because of the Steeles’ separation; and
(b)by contrast, his pleaded arrangement is typical for family members wanting to help each other out and the parties’ expectation in his interest is perfectly reasonable.
[40] Neither submission carries much weight in my view. The former attempts to shift, rather than discharge, the onus that rests by law on Mr Steele. Absent more compelling evidence from Mr Steele, I see no justification for doubting the Dallases’ account, let alone impugning their motives. Which leads onto the latter submission: the arrangement invoked by Mr Steele would not be surprising for a family context. But neither would the Dallases’ account: that they just wanted to give their daughter and her family secure rental accommodation during a time of financial strife, without making any greater promises about the property’s long-term ownership.
[41] Against these points, the Dallases present their own submissions. They note, first, Mr Steele admits that when he and his wife were adjudicated bankrupt in July 2014 he did not disclose his interest in the property. To cite his own words, Mr Steele deposes in his 21 March 2018 affidavit:
At the time I completed the documents for the Official Assignee I had not taken legal advice. As nothing was in writing confirming the agreement I thought it too problematic to go into details about the agreement. Also at the time we had been paying all of the outgoings on the Property and the real estate market was very depressed. I did not believe there was any equity in the Property and so there was no need to disclose my interest in the Property.
Second, the Dallases also pick up on the fact (not denied by Mr Steele) the Dallases provided the Steeles with letters confirming their rental arrangement to Work and Income New Zealand. Mr Steele’s explanation is more or less the same here as well.
[42] In both cases, the Dallases invite me to make findings of fraud: to indict Mr Steele for not being transparent with a government agency in the latter case; and in the former, to say he has committed an offence under the Insolvency Act by making “false or misleading statements”.11 This is not the appropriate context to make such findings, and I decline to do so. I also see no need to consider the equitable doctrine of clean hands, asking whether Mr Steele should be allowed to benefit from his own apparent fraud.12
[43] But I do agree Mr Steele’s explanations ring a little hollow, and his non-disclosure of his alleged interest on both occasions provides strong counter circumstantial evidence against his pleaded arrangement.13
Did Mr Steele contribute to the property?
[44] The final issue is whether Mr Steele adequately contributed to the property, so as to take him beyond the legal position of a mere volunteer.
[45] The Court of Appeal in Wakenshaw v Wakenshaw recently clarified the legal position on contribution. A claimant seeking the protection of a constructive trust must establish their alleged contribution was:14
(a)a ‘more than a minor’ contribution into the acquisition, preservation or enhancement of specified assets;
(b)causally related to that acquisition, preservation or enhancement; and
(c)manifestly in excess of any benefits derived from the arrangement.
11 Insolvency Act 2006, s 440.
12 For these submissions based on fraud and clean hands, the Dallases rely on Potter v Potter [2003] 3 NZLR 145 and Horsfall v Potter [2017] NZSC 196 at [75] and [89].
13 Buxton v Buxton [2017] NZHC 131 at [47] provides some limited analogy.
14 Wakenshaw v Wakenshaw, above n 2, at [25].
[46] The contributions alleged by Mr Steele are those discussed above under the heading ‘circumstantial evidence’, in particular the weekly payments and the property ‘maintenance’. There is no need to repeat myself here. For the reasons already discussed, I do not consider there is sufficient evidence to find these would qualify as ‘more than minor’ contributions in excess of the benefit Mr Steele derived from residing at the property. Or, in the alternative framing, I do see how the Dallases materially benefitted from the arrangement, except for the satisfaction of helping family members in need.
Result
[47] The caveat numbered 10879011.1 lodged against the property located 519 Te Ngae Road, Owhata, Rotorua is allowed to lapse.
[48] As the Dallases are the successful party my preliminary view is they are entitled to costs from Mr Steele on a 2B basis.
[49] If that is not accepted by the parties, and they cannot come to an alternative agreement, costs will be determined on the papers. In that event, counsel are to file and serve on the other party short memoranda of no more than five pages:
(a)Mr Steele within ten working days of this judgment;
(b)the Dallases within another five working days of service of Mr Steel’s memorandum; and
(c)Mr Steele strictly in reply within five working days of service of the Dallases’ memorandum.
Memoranda are to annex a single-page table setting out any contended allowable steps, time allocation, and daily recovery rate.
Associate Judge Sargisson
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