Tauevihi v Manukia

[2024] NZHC 1192

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-1281

[2024] NZHC 1192

BETWEEN

JOYCELYN TAUEVIHI as Executor of the Estate of TAONEFOOU FALESIMA

Plaintiff

AND

JARED JUNIOR MANUKIA and TAPUAKI MANUKIA

First Defendants

JARED JUNIOR MANUKIA and

TAPUAKI MANUKIA as Trustees of the MANUKIA FAMILY TRUST

Second Defendants

TO’OTO’O TO’OALA
Third Defendant (struck out by consent)

KIWIBANK LIMITED
Fourth Defendant

TAVITA FESOLA’I

Fifth Defendant

Hearing:	8 May 2024
Appearances:	J A Clark for Plaintiff
Judgment:	14 May 2024

JUDGMENT OF O’GORMAN J

This judgment was delivered by me on 14 May 2024 at 4 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

…………………………………

TAUEVIHI v MANUKIA [2024] NZHC 1192 [14 May 2024]

[1]    This is a claim brought  by  the  Estate  of  Taonefoou  Falesima  against  Jared Manukia and Tapuaki Manukia for undue influence. The Estate claims that  Mrs Falesima was unduly influenced to part with her half-share in a property in Ranui, Auckland (the Property). As a result of that transfer, she has suffered the loss of the beneficial interest of a half-share of the Property. Judgment is sought in the sum of $288,830. Jared and Tapuaki Manukia are defendants in two different capacities. They are named as first defendants in their personal capacity, and they are named as second defendants in their capacity as trustees of the Manukia Family Trust.

[2]    The claim against the third defendant has been struck out by consent. The plaintiff does not seek any separate orders as against the fourth and fifth defendants in the event that relief is granted against the first and second defendants.

[3]    The first and second defendants have not taken any steps in this proceeding. On 28 July 2023, Associate Judge Taylor granted orders permitting substituted service by sending the relevant documents to the last known email addresses of the defendants, and to Jared Manukia’s sister, and by sending messages on social media accounts of the first and second defendants. An affidavit of service has been filed to confirm those steps were taken. The defendants have not filed any documents or appeared. This hearing took place as a formal proof hearing.

Formal proof hearings

[4]    Under r 15.9(4) of the High Court Rules 2016, the plaintiff must, before or at the formal proof hearing, file affidavit evidence establishing, to a judge’s satisfaction, each cause of action relied on and, if damages are sought, providing sufficient information to enable the judge to calculate and fix the damages.

[5]    The plaintiff is only required to prove a cause of action so far as the burden of proof lies on the plaintiff. The plaintiff is not required to engage with any matters of affirmative defences, set-off or counterclaim.1

1      Ferreira v Stockinger [2015] NZHC 2916 at [36].

Factual background

[6]    Mrs Falesima purchased the Property in 1979, when she was 32 years old. She had five children whom she supported as a single parent. She was a woman of modest means and commercially inexperienced. The Property was her only significant asset.

[7]    Mrs Falesima retired in 2012 at the age of 67. She had no savings to draw upon in her retirement and lived on her national superannuation. She continued to live at the Property, which was mortgaged to two different lenders to secure debts.

[8]    In 2010, Mrs Falesima suffered a heart attack and her health deteriorated from that time. By October 2016, Mrs Falesima suffered from type 2 diabetes complications and was in end-stage renal failure.

[9]    Jared and Tapuaki Manukia (the Manukias) married in or  around  2013.  Jared Manukia is Mrs Falesima’s grandson. Upon marriage, the Manukias moved in to live with Mrs Falesima at the Property.

[10]   During 2014, Mrs Falesima wished to discharge her liabilities secured by the Property. The  parties  were  independently  advised  on  a  transaction  whereby  Mrs Falesima agreed to transfer a half-share in the Property to the Manukias, so their interests would be held as tenants in common. In return, the Manukias agreed to repay Mrs Falesima’s debts and to purchase her a good quality used car.

[11]   That transaction settled on 13 March 2014. The Manukias borrowed $300,000 from Southland Building Society (SBS) to fund the transaction. This was secured with a loan against their half-share of the Property. Mrs Falesima was also a guarantor of the SBS loan; she provided a mortgage over her half-share of the Property as security. In July 2014, it transpired that one of the mortgages discharged in March 2014 had been discharged without paying the secured sum of $11,170 (in error). On 29 July 2014, that lender lodged a caveat against Mrs Falesima’s half-share of the Property.

[12]   Throughout this time, the Manukias continued to live with Mrs Falesima at the Property. They had three children whom Mrs Falesima also cared for. From her

superannuation, Mrs Falesima paid $400 fortnightly to the Manukias to contribute towards the SBS mortgage repayments and household expenses.

[13]   In late 2015, the Manukias sought to refinance their SBS loan. SBS was unwilling to extend any further lending unless security could be provided over the whole of the Property, but the caveat lodged over Mrs Falesima’s half-share prevented that. Those are the background circumstances to the events that are the subject of the undue influence claim.

[14]   With the advice and assistance of their lawyer and mortgage broker, the Manukias devised a plan to transfer both half-shares in the Property into a trust that they controlled. On 27 November 2015, the lawyer acting for the Manukias visited the Property and presented Mrs Falesima with a trust deed and asked her to sign it. She queried why her name was not in the trust name but was told everything was OK because  she  was still included as half-owner of  the Property.  This was untrue.  Mrs Falesima did not obtain independent legal advice. In email correspondence on 30 March 2017, the lawyer acting  for  the  Manukias  states  that  he  did  advise  Mrs Falesima to seek independent legal advice. In an affidavit of Mrs Falesima sworn on 16 October 2018, she deposed that “[a]t no time was [she] asked to seek legal advice”.

[15]   On that day, without her understanding the nature of the trust document (the effect having been misrepresented to her), she signed the trust deed to establish the Manukia Family Trust (“the Trust”). The terms of the Trust Deed provided that:

(a)The Manukias and Mrs Falesima were the settlors of the Trust.

(b)The settlors would transfer their respective half-shares of the Property into Trust.

(c)The Manukias were the trustees of the Trust (Trustees). Only the Trustees were empowered to appoint additional or replacement trustees.

(d)Mrs Falesima was not a trustee. She and the Manukias were discretionary beneficiaries of the Trust. However, the Manukias as Trustees had the right to distribute or apply the Trust property as they saw fit, to the exclusion of any other beneficiary.

[16]   On 3 December 2015, the Manukias drove Mrs Falesima to their lawyer’s offices. Without her understanding the consequences, Mrs Falesima was told to sign an authority and instruction form to transfer her half-share of the Property into the Trust. Again, she did not obtain independent legal advice. The lawyer acting for the Manukias did not obtain a signed waiver from Mrs Falesima regarding independent legal advice. Mr Manukia exerted direct pressure on his grandmother to sign the documentation saying, “Just sign it — everything is in order and it will be fine”.

[17]   On 4 December 2015, title to the Property was transferred to the Manukias as Trustees of the Trust. On the same day, the Manukias obtained a loan of $504,000 from Kiwibank secured against the entire Property. Kiwibank assessed the value of the Property at the time to be $630,000, so $504,000 represented 80 per cent of the value of the Property.

[18]   The Kiwibank loan documentation recorded that the loan funds were expected be used as follows:

(a)$320,000 would be applied to repay and discharge the Manukias’ loan with SBS (including break fees);

(b)$5,000 would be applied to repay debt owed by the Manukias to Instant Finance;

(c)$120,000 would be applied to “pay out Grand’s [sic] share of the property”. This appears to have been a representation by the Manukias to Kiwibank that they had an agreement to purchase Mrs Falesima’s half-share of the Property for $120,000. There is no evidence of any such agreement and that sum was never paid to Mrs Falesima; and

(d)$59,000 would be used for minor renovations at the Property.

[19]In reality, the loan funds were applied as follows:

(a)the Manukias’ loan with SBS ($320,000) was repaid;

(b)$11,170 was applied to repay and discharge Mrs Falesima’s mortgage with Paddy Orr & Co, who removed the caveat on the title;

(c)the Manukias retained the balance of the loan moneys for their personal use (approximately $170,000), including some minor renovations to the Property only; and

(d)Mrs Falesima did not receive any payment.

[20]   Mrs Falesima did not appreciate the significance of the events that had occurred with and without her knowledge in 2015 resulting in her not having any remaining legal interest in the Property.

[21]   In or around April 2017, the Manukias absconded to Australia and ceased to make repayments under the Kiwibank loan. When the Kiwibank mortgage fell into default, Kiwibank  undertook  a  mortgagee  sale  process  that  was  completed  on  9 November 2018, achieving a sale price of $600,000.

[22]   Following the mortgagee sale of the Property and repayment of the Kiwibank debt, a surplus of $42,426.64 remained. By that stage, Kiwibank had serious concerns about the treatment of Mrs Falesima and applied to the District Court for orders directing payment of that surplus into the District Court to be held on  trust.   On    19 March 2019, Judge Harrison granted those orders. After a deduction for legal costs, on 25 March 2019, the remaining surplus of $33,445.49 was paid into the trust account held at the District Court, pending further Court order.

Legal principles — undue influence

[23]   Equity provides a remedy for undue influence when the free will of a person who enters into a transaction has been overborne or impaired by the improper influence of another person, typically the other party to a transaction. The principles have been summarised as follows:2

(a)The overall burden of proof rests on the person seeking to establish the undue influence.

(b)The burden of proof is the balance of probabilities.

(c)The person asserting undue influence must show the alleged influence led to the making of the impugned transaction, and the influence was undue in the sense that the transaction was not the result of the free exercise of an independent will on the part of the person at whose expense the transaction was made.

(d)The question of whether a transaction was brought about by undue influence is a question of fact. A party can succeed in establishing this either directly by proving “actual undue influence” or recourse to an evidential presumption which arises where it is established that:

(i)the person said to have been subject to undue influence placed trust and confidence in the other; and

(ii)the transaction called for an explanation.

(e)Whether there is a relationship of trust and confidence can either be established factually or by reference to a class of specific relationships such as lawyer/client; parent/child; doctor/patient. In the latter category, the law presumes irrefutably that one party had influence over the other. The presumption is only as to proof of influence. The person

2      Green v Green [2015] NZHC 1218 at [100]. The principles were approved in Green v Green

[2017] 2 NZLR 321 (CA) at [35]; and in Hingston v Hingston [2022] NZCA 568 at [47].

alleging will still need to establish a transaction calling for an explanation.

(f)Whether a transaction calls for an explanation depends on the circumstances of the case. The question is simply whether failing proof to the contrary, the transaction was explicable only on the basis that undue influence had been exercised to procure it.

(g)Once the person claiming undue influence has established both the relationship of trust and confidence and a transaction calling for explanation, the evidential burden shifts to the person seeking to uphold the transaction to show that the transaction was not the result of undue influence. This, however, should not obscure the position that the overall burden of proof will always rest on the person alleging undue influence.

(h)The presence of independent advice is one of many factors that may be considered in determining whether undue influence is proved. Whether the independent advice helps to establish that the transaction was the result of the person’s free will depends on the facts of the case. Independent advice can help establish that a person fully understood the decision they were making. But establishing that a person fully understood the act is not the same as establishing that the act was not brought about by undue influence. A person can fully understand an act and still be subject to undue influence.

Application to facts

[24]   The plaintiff has discharged the onus of establishing its undue influence cause of action.

[25]First, this is a situation where the presumption of undue influence arises:

(a)Mrs Falesima placed a high degree of trust and confidence in the Manukias;

(b)the 2015 transaction calls for an explanation; and

(c)Mrs Falesima did not receive independent legal advice which could have negated the Manukias’ influence over her.

[26]   The age, health situation and close familial relationship made Mrs Falesima vulnerable to pressure from the Manukias who were living with her. Furthermore, Jared Manukia held a “priesthood” in the Mormon faith, which places a particular emphasis on deference to men with that authority and title. Although there is no automatic presumption of influence by children or grandchildren over parents, the factual circumstances are analogous to other cases where the Court has started with such a presumption because of the factual circumstances.3

[27]   Second, Mrs Falesima was financially reliant upon the Manukias. As a result of the legitimate borrowing by the Manukias in 2014, significant monthly mortgage repayments were secured over the Property, but Mrs Falesima had no means herself of meeting those obligations, so she was totally dependent on the Manukias to meet their commitments.

[28]   Given Mrs Falesima’s age and deteriorating health, and the fact she was commercially unsophisticated, she was vulnerable and not in a position to appreciate the significance of the transactions she was asked to sign up to in 2015, particularly in the absence of any independent legal advice.

[29]   On the facts outlined above, the transaction clearly calls for an explanation. There was no consideration paid for the transfer that occurred when Mrs Falesima’s half-share was placed into the Trust and outside of her control. This was contrary to the intention that Mrs Falesima had previously expressed to her solicitors that she wished to distribute her share of the Property under her will upon her death. The discrepancies in the Kiwibank documentation substantiate that this was an improper transaction in terms of the impact on Mrs Falesima.

3      Round v Round [2017] NZHC 428 at [84]; and Cheese v Thomas [1994] 1 All ER 35 (CA) at 38.

[30]   In light of all of the above, I find there is a clear presumption of undue influence and no evidence rebutting that presumption.

[31]   The usual remedy for undue influence is to set aside the impugned transaction and provide restitution of any benefits transferred, so as to restore the status quo ante.4 However, where the transaction cannot be reversed, the Court may achieve practical justice by awarding monetary compensation.5

[32]   In this case, I accept that the transaction cannot be reversed, given that the Kiwibank mortgagee sale transferred the Property to an innocent third party. The sum sought of $288,830 is appropriate monetary compensation, calculated as follows:

(a)The Property was sold in November 2018 for $600,000. Had the transfer to the Trust not occurred, Mrs Falesima would have retained a half-share in the Property valued at $300,000 based on this sale price.

(b)It is accepted that, had Mrs Falesima’s half-share not been transferred into the Trust, there would still have been the original SBS loan to the Manukias, secured by a mortgage over the Property. However, as between Mrs Falesima and the Manukias, the responsibility for all that debt and any interest accruing on it,  lay  with  the  Manukias,  not Mrs Falesima, so I accept no deduction is necessary for that.

(c)Mrs Falesima received the benefit of $11,170 repaying her residual debt, so that this is appropriately subtracted from the $300,000 value.

[33]   Under s 81(1) of the Trusts Act 2019, a trustee is personally liable for any liability incurred by the trustee when acting as a trustee. Accordingly, it is appropriate that judgment is entered against the Manukias in their personal capacity and also in

4      Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [22.11]. For example, in Round v Round, above n 3, a property transfer from an elderly father to his son was found to have been procured by undue influence. At [99], Palmer J held that the “obvious relief” was to vest the property in the father again.

5      Mahoney v Purnell [1996] 3 All ER 61 (QB) at 91; and Ganderton v Behre HC Rotorua CIV-2004-463-614, 23 September 2005 at [80].

their capacity as Trustees who received Mrs Falesima’s interest in the Property as a result of the undue influence.

Result

[34]   I award judgment on the fourth cause of action against the first and second defendants in the sum of $288,830.

[35]   I record the expectation that the plaintiff intends to execute this judgment against the proceeds of the mortgagee sale from the Property, currently held on trust by the District Court. I regard that as entirely appropriate.

[36]   No costs or disbursements were sought because counsel acted pro bono and a fee waiver was granted for hearing fees.

O’Gorman J

Solicitors/Counsel:

Smith and Partners, Auckland J K Goodall KC, Auckland

J A Clark, Auckland