Trainor v Leotuki

[2020] NZHC 1574

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-2536

[2020] NZHC 1574

IN THE MATTER

of an application under ss 339(1)(a), 339(4) and 343 of the Property Law Act 2007

BETWEEN

RONGOPAIWAHINE LOIS TRAINOR

(formerly known as RAEWYN LOUISE TOFILAU and also known as RAEWYN TRAINOR

Plaintiff

AND

TIMOTHY JUNIOR LEOTUKI

First Defendant

STEVE TOFILAU

Second Defendant

NICOLAU ALEX TOFILAU

Third Defendant

Hearing:

24 June 2020 (and further memoranda received 26 June 2020 and

1 July 2020)

Appearances:

N W Wood for the Plaintiff

First and Second Defendants in person
No appearance by or for the Third Defendant

Judgment:

3 July 2020

JUDGMENT OF GAULT J

This judgment was delivered by me on 3 July 2020 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

TRAINOR v LEOTUKI [2020] NZHC 1574 [3 July 2020]

[1]    The plaintiff, Ms Trainor, seeks an order for sale (and associated orders) of a property at 29 Lever Place, Weymouth, Manukau.1 Ms Trainor is the registered proprietor of a one-quarter share of the property. The defendants, three of her four sons, are each also registered proprietors of a one-quarter share.

[2]    The defendants did not file statements of defence and the proceeding was allocated a formal proof hearing, to take place on 24 June 2020.

[3]    At the hearing, however, the first and second defendants (Timothy and Steve) appeared in person. Thus, the formal proof hearing became an application for leave to defend out of time.

Factual background

[4]    Ms Trainor and her then husband, Mr Tofilau, purchased the property in 1975. In about 1983/1984, they separated and Ms Trainor moved to Australia.

[5]    On 2 July 2008 Mr Tofilau died. Ms Trainor inherited the property by survivorship.

[6]    On 21 July 2008 Ms Trainor and the four sons entered into an agreement for sale and purchase whereby she agreed to sell a one-quarter interest in the property to each of them for a total of $273,000, being half the market value. They each signed a deed of acknowledgement of debt acknowledging an on demand loan in respect of one-quarter of the total price, with provision for interest to be payable if demanded.2

[7]    Timothy and Steve have been living in the property. The third defendant, Nicolau, lives in Melbourne.

[8]    On 4 September 2017, Ms Trainor demanded repayment. No repayments were made, and proceedings were commenced in the District Court seeking repayment.

1      Identifier NA27A/657, Lot 42 Deposited Plan 70363.

2      Commonly referred to as a Marshall clause.

[9]    On 27 March 2018 the fourth son, Taroi, transferred ownership of his one-quarter share back to Ms Trainor in satisfaction of his debt.

[10]   On 25 June 2018 Ms Trainor’s solicitor notified the defendants that she required interest to be paid from 1 April 2018.

[11]   Following service of this proceeding in November 2019, the parties attended a mediation in December 2019 and agreed terms of settlement whereby the defendants agreed to pay Ms Trainor $200,000 (including GST if any). However, this was conditional on Timothy and Steve using all reasonable efforts to obtain finance by  28 February 2020. Payment of the settlement sum was then to occur within a further 21 days.

[12]   Timothy and Steve did not obtain finance by 28 February 2020. They sought an extension of time for the finance condition until 16 March 2020. Ms Trainor’s solicitor agreed to extend time on the condition that interest accrued from 20 March 2020 until settlement. At least expressly, that condition was not accepted.

[13]   On 15 April 2020 Ms Trainor’s solicitor wrote to the defendants’ solicitor seeking information regarding reasonable efforts to obtain finance within five working days. No response was provided.

[14]   On 4 May 2020 Ms Trainor’s counsel filed a memorandum seeking a formal proof hearing. About the same time, an application for a simplified trial was also filed in the District Court. Subsequently the defendants’ solicitor sought leave to withdraw in the District Court proceeding.

[15]   On 4 June 2020 Lang J directed that the proceeding be listed for a formal proof hearing on 24 June 2020 and directed the filing of evidence in support by 17 June 2020. These documents were also served on the defendants.

Leave to defend out of time

[16]   The three considerations relevant to the Court deciding whether to grant leave to defend out of time are set out in the judgment of Kós J in Neumayer v Kapiti Coast District Council:3

(a)whether the defendant has a substantial ground of defence;

(b)whether the delay is reasonably explained; and

(c)whether the plaintiff will suffer irreparable injury if leave to defend is belatedly granted.

Substantial ground of defence?

[17]   Timothy and Steve seek to defend the claim on the basis that the settlement agreement is still live. They explained that they went to the mortgage broker but could not obtain finance because Nicolau would not sign documents.

[18]   They explained that Nicolau has recently changed his position. They seek further time to perform the settlement agreement.

[19]   Mr Woods, for Ms Trainor, submitted that the finance condition was a condition precedent that finance be obtained by 28 February 2020. As the response to the defendants’ request for an extension imposed a condition which was not accepted, the settlement agreement ceased to have effect as between the plaintiff and defendants after 28 February 2020. In any event, the letter of 15 April 2020 made time of the essence, and any extension expired after the five working days.

[20]   During the hearing, Ms Trainor indicated through counsel that she was open to discussing proceeding with the settlement agreement within tight timeframes. In order to give the parties time to confer, I directed the parties to file a memorandum (ideally joint) by 26 June 2020 setting out appropriate conditions if leave to defend were

3      Neumayer v Kapiti Coast District Council [2014] NZHC 417, [2015] NZAR 1185 at [8]; citing Russell v Cox [1983] NZLR 654 (CA) and Shoye Venture Ltd v Wilson [2013] NZHC 2339.

granted. Mr Woods filed a memorandum on 26 June 2020 indicating that Ms Trainor had made an open settlement offer after court on 24 June 2020. It was open for acceptance by 5.00 pm on 25 June 2020. It appears that offer was not accepted.

[21]   I accept Mr Woods’ submission that the settlement agreement has ceased to have effect following the expiry of the condition precedent. Therefore, full and final settlement never occurred and the settlement agreement does not provide a defence.

[22]   Mr Woods acknowledged that the defendants had filed a defence in the District Court proceeding, which alleges that the arrangement in 2008 was that the debts would never be required to be repaid. The acknowledgements of debt reflected the gift duty regime (although the defendants do not say that deeds of forgiveness of debt were subsequently executed). The defence also alleges that the 2008 agreement contains a common mistake as $273,000 was the market value, not half the market value.      Mr Woods submitted that the substantive issue (repayment) remains to be determined in the District Court where Ms Trainor seeks recovery of the debts, and that this proceeding is limited to seeking a sale order, with the disputed net proceeds of sale being held in Court pending resolution of the District Court proceeding. Mr Woods submitted that the defence raised in the District Court proceeding is not relevant to the exercise of this Court’s discretion in relation to the sale order. He submitted that the authorities confirm that the exclusion of one party from a property upon a breakdown of relationships is sufficient justification for the separation of interests, citing Coffey v Coffey,4 and Whimp v Bigham,5 and that the continuous use of property without paying occupation rent is grounds for a property to be sold and justifies an award of fair occupation rent, citing Dyas v Elliott,6 and Thorpe v Hannam.7

[23]   There is no doubt the Court has power under s 339(1)(a) of the Property Law Act 2007 to order sale of a property on the application of a co-owner. But an order is not automatic – consideration of the circumstances is required. The matters to which the Court must have regard when considering whether to make an order under s 339(1) are set out in s 342 of the Act:

4      Coffey v Coffey [2012] NZHC 1765.

5      Whimp v Bigham [2016] NZHC 1261 at [19].

6      Dyas v Elliott [2010] 11 NZCPR 252 (HC) at [18].

7      Thorpe v Hannam [2010] 11 NZCPR 471 (HC) at [48].

342     Relevant considerations

A court considering whether to make an order under section 339(1) (and any related order under section 339(4)) must have regard to the following:

(a)the extent of the share in the property of any co-owner by whom, or in respect of whose estate or interest, the application for the order is made:

(b)the nature and location of the property:

(c)the number of other co-owners and the extent of their shares:

(d)the hardship that would be caused to the applicant by the refusal of the order, in comparison with the hardship that would be caused to any other person by the making of the order:

(e)the value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property:

(f)any other matters the court considers relevant.

[24]   Similarly, the Court has power under s 343(f) to order payment of fair occupation rent, but this is also discretionary and requires consideration of the s 342 factors.8

[25]   Here, Ms Trainor holds a one-quarter share following Taroi’s transfer back in March 2018; the defendants hold three quarter shares and have done so since July 2008. Two of the defendants still live in the property. Their hardship in having to move if a sale is ordered is relevant, just as Ms Trainor’s hardship if a sale order is refused is relevant. Her hardship may include the lack of occupation rent (since 2018) as well as her need to realise her share given her financial situation. There is currently no evidence as to the defendants’ contributions to the property. There is also little detail in the evidence about Ms Trainor’s exclusion from the property at least since March 2018 when she regained an interest.

[26]   Although at the hearing Steve and Timothy did not rely on their District Court defence to repayment, I consider it may also be relevant to this Court’s decision as to whether to order a sale and if so on what terms, which Mr Woods seemed to accept at least if there had been a statement of defence filed in this proceeding. Ms Trainor in her statement of claim seeking a sale order pleads that she “requires to realise the loans

8      Dyas v Elliott [2010] 11 NZCPR 252 (HC) at [10] and [18].

owed her by the defendants”, which on her case were loans to pay for transfer of quarter shares to the defendants in 2008. The defendants dispute those same loans in their District Court defence. If the relative hardship of the parties is to be assessed for the purpose of determining whether to order a sale in advance of substantive determination of whether the loans are repayable, with disputed proceeds held in the meantime, I consider the sale order should be assessed on the basis that Ms Trainor is only seeking to realise her one-quarter interest and not realise the loans she claims are owed to her by the defendants.

[27]   Even so, if the arrangement in 2008 was that the debts would never be repaid as pleaded in the District Court defence, Ms Trainor’s one-quarter share might also be in question since Taroi transferred ownership of his one-quarter share back to her in satisfaction of a debt which is now denied by the defendants – albeit that he is not a party to the proceeding. Whether or not that affects Ms Trainor’s right to apply for a sale order, it will be a relevant consideration.

[28]   I do appreciate Ms Trainor’s need for speedy resolution. I observe that, given this overlap between the two proceedings, it may be preferable for the issues to be dealt with in a single proceeding. I acknowledge that Mr Woods was not acting in the District Court proceeding when it was commenced, and the parallel proceedings in this Court arose when it was said that High Court proceedings were required to obtain a sale order given the value of the property.

[29]   At this stage, despite not accepting the settlement agreement provides a defence, I am not prepared to rule out a defence to the claim for a sale order as sought.

Delay reasonably explained?

[30]   The defendants’ failure to file a statement of defence when due was understandable given the settlement agreement. However, once the settlement agreement ceased to have effect following the expiry of the condition precedent (and irrespective of the steps taken to obtain finance), the defendants were at risk of judgment being entered against them by way of formal proof. Having been served with the papers, it appears the defendants wrongly thought they could just turn up at the formal proof hearing. It appears their lawyer ceased acting around the time of the

4 May 2020 application for a formal proof hearing as he had been unable to get instructions in late April 2020, which may have contributed to the failure, but Steve and Timothy acknowledged their part. I also acknowledge the timing has partly coincided with the COVID-19 lockdown. Even so, I consider the delay at least since April (if not February) has not been reasonably explained. It was not reasonable for the defendants to take no steps following receipt of the papers relating to the formal proof hearing except to appear in person on the day. That is consistent with a lack of engagement until the last moment. It has put Ms Trainor to unnecessary cost, including at least in relation to preparation for the scheduled formal proof hearing.

Irreparable injury?

[31]   Whether Ms Trainor will suffer irreparable injury if leave is granted to defend belatedly is a key consideration. Mr Woods submitted that the delay is particularly acute for Ms Trainor. She has retired and needs funds to purchase a modest property out of Auckland to live in. She has mental health difficulties and would like to move on. Mr Woods also submitted that the defendants have no plan except to reactivate the settlement agreement.

[32]   I accept that further delay is particularly unsatisfactory for Ms Trainor given her circumstances. I have also accepted that the settlement agreement is not a defence given its expiry. The plan to reactivate it  requires Ms Trainor’s further agreement.  In addition, even assuming Nicolau is now cooperative, the availability of finance remains uncertain.

[33]   On 1 July 2020 a memorandum of counsel for the first and second defendants was referred to me. Inder Lynch has been reinstructed to act for them (but not the third defendant). Mr Kuddus advised that they are currently in the process of obtaining finance to purchase Ms Trainor’s one-quarter share in accordance with the settlement agreement. However, there are delays caused by the surge in loan applications post COVID-19. The third defendant’s position must also be dealt with – and Melbourne is  still  under  COVID-19   restrictions   and   delays   are   being   experienced.   The memorandum also advised that in addition to Timothy and Steve, Steve’s son also resides at the property when he is in Steve’s care. The property has been within the

family since it was purchased by the defendants’ father, and Timothy and Steve have lived there since their childhood. Counsel submitted that they are taking pro-active steps to resolve matters and requested time to resolve these issues to prevent their family home being sold.

[34]   I appreciate these difficulties but Ms Trainor’s desire for tight timeframes is reasonable. Unless she agrees to an updated settlement agreement, the application for leave to defend must be determined and the proceeding progressed one way or the other without delay.

[35]   I consider there should not be irreparable injury if further delay is minimised and Ms Trainor recovers her wasted costs. The relevant injury to be considered is injury caused by granting leave – the counterfactual is what will occur if leave is declined. For the reasons already given, on a formal proof application a sale order is not guaranteed. The delay if leave to defend is granted should be limited provided Timothy and Steve are required to cooperate towards an early fixture of the application.

[36]   Leave would enable Timothy and Steve to evidence the hardship they would suffer if a sale order is granted and also their contributions to the cost of improvements to, or the maintenance of, the property.

[37]   On balance, I consider that leave to defend should be granted but on strict conditions to enable speedy resolution (in the event that settlement is not reached, which would be in all parties’ interests) and on Ms Trainor’s wasted costs being paid. Based on Mr Woods’ memorandum of 26 June 2020, I assess the wasted costs as being

1.5 days preparing for and attending the formal proof hearing on a 2B basis, totalling

$3,585. I understand there was no hearing fee.

[38]   Based on the limited information available at this stage, I am not prepared to make leave to defend conditional on interim payment of occupation rent.

Result

[39]I grant the first and second defendants leave to defend on condition that they:

(a)pay to the plaintiff costs of $3,585 within 14 days;

(b)file and serve a statement of defence within 14 days;

(c)confer with the plaintiff’s solicitor and file a memorandum (preferably joint) addressing the case management matters referred to in r 7.3 of the High Court Rules 2016 within a further 14 days; and

(d)consent to applications, if made by the plaintiff, for priority fixture, transfer of the District Court proceedings to this Court and/or determination of the application for sale order as a preliminary issue, within 7 days of service of such applications.

[40]   If conditions (a) and (b) are satisfied, the proceeding is to be allocated a case management conference to take place as soon as possible after the joint case management memorandum referred to in (c) is due.

[41]   If either condition (a) or (b) is not satisfied within 14 days, the plaintiff is to file a further memorandum within a further 7 days, to be referred to me, updating the Court and indicating whether the application for formal proof requires a further one hour hearing or can then be determined on the papers.

Gault J

Solicitors:

Mr N W Woods, Rice Craig, Papakura Copy to:

Mr U A Kuddus, Inder Lynch, Papakura