Treadgold v Treadgold
[2013] NZHC 2639
•10 October 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-001292 [2013] NZHC 2639
UNDER THE Land Transfer Act 1952 IN THE MATTER
of an Application to sustain Caveat 9210814.1
BETWEEN
GARY REX TREADGOLD
Applicant
AND
GRACE AUDREY TREADGOLD
Respondent
| Hearing: | 7 October 2013 |
Appearances: | G P Tyrrell for Applicant M J Wallace for Respondent |
Judgment: | 10 October 2013 |
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to application for order that caveat not lapse
Introduction
[1] The applicant (Gary) caveated the title to a property at Akaroa. The registered proprietors of the Akaroa property are Gary’s father (Rex) and Rex’s second wife (Grace).
[2] Rex and his first wife (Ivy) are the parents of Gary and Mark Treadgold. When Ivy died in 1971 she left her half interest in the Auckland property she owned with Rex on will trust. Rex was given a life interest in Ivy’s half share of the property. The remainder was vested in Gary and Mark.
TREADGOLD v TREADGOLD [2013] NZHC 2639 [10 October 2013]
[3] The family in 1976 entered into a deed of family arrangement which allowed Rex as trustee to sell the Auckland property and invest the proceeds elsewhere on the same trusts.
Key issue
[4] The key factual issue in this case is whether the proceeds of sale of the Auckland property can be traced through a Christchurch property into the Akaroa property. If they arguably can be, then Gary and Mark have a beneficial interest in the Akaroa property. A second issue relates to the proper construction and effect of a deed by which Rex has recently retired as trustee to be replaced by Gary and Mark. The final matter for the Court’s determination is whether the Court should exercise its discretion to order removal of the caveat on terms.
Application that caveat not lapse – the principles
[5] The principles which I apply in relation to Gary’s application are these:
[a]The burden of establishing that the applicant has a reasonably arguable case for the interest claimed is upon the caveator;
[b]The caveator must show an entitlement to, or beneficial interest in, the estate referred to in the caveat by virtue of an unregistered agreement or an instrument or transmission, or of any trust expressed or implied: s 137 Land Transfer Act 1952;
[c]The summary procedure involved in an application of this nature is wholly unsuitable for the determination of disputed questions of fact
– an order for removal of the caveat will not be made unless it is clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so;
[d]When an applicant has discharged the burden upon the applicant, there remains a discretion as to whether to remove the caveat, which will be exercised cautiously;
[e] The Court has jurisdiction to impose conditions when making orders.
Chronology
[6] The sequence of events disclosed on the affidavit evidence is:
Until11 August 1971 – Rex and Ivy own an Auckland property as tenants in common in equal shares.
11August 1971 – Ivy dies. Ivy bequeaths a life interest in her property to Rex with the remainder to Gary and Mark equally. Rex is appointed trustee.
1 March 1976 – Rex buys a Christchurch property settling the purchase in April (purchase price $37,750).
15 April 1976 – the family enter a deed of family arrangement to vary the will trusts, empowering Rex as trustee to sell Ivy’s half share and invest the proceeds either in a new residence or in other investments, preserving Rex’s life interest and Gary’s and Mark’s interest in the remainder.
30 August 1976 – Rex sells the Auckland property (sale price
$39,000).
18 September 1976 – Rex and Grace marry.
3June 1993 – Rex’s Christchurch property is settled as a Joint Family Home upon himself and Grace.
13March 2002 – Rex and Grace sell the Christchurch property (sale price $240,000).
1May 2002 – Rex and Grace purchase from Grace’s son (Hugh Shearer) the Akaroa property for $150,000 subject to an option in favour of Hugh Shearer and his personal representatives to repurchase at $150,000. Rex and Ivy take title as joint tenants.
23 July 2002 – Hugh Shearer lodges a caveat on the Akaroa title.
23 October 2012 – Gary and Mark lodge a caveat on the Akaroa title. 29 January 2013 – Grace and Rex separate. Rex remains in
occupation of Akaroa.
13June 2013 – Rex, Mark and Gary execute a deed whereby Rex retires as trustee of Ivy’s estate, appoints Gary and Mark trustees in his place, vests all his powers in them and Gary and Mark discharge Rex from the Trusts imposed upon him.
Additional material in the affidavit evidence
The current position
[7] Rex is unwell. He has separated from Grace. At this point he remains the occupier of the Akaroa property. The relationship property rights of Rex and Grace are the subject of current proceedings in the Family Court.
[8] It is Grace who has initiated the caveat lapsing procedures. She has filed a brief affidavit in which she explains the arrangements entered into with her son, Hugh Shearer, when the Akaroa property was purchased.
[9] She gives brief evidence as to the couple’s move to Christchurch and subsequent property dealings. She does not identify the source of funds for each
purchase (although she refers to funds from a property she had sold going into renovations in the Christchurch property).
[10] She concludes:
Until November 2012 I had no idea about any of these issues between Rex and his sons arising out of their mother’s estate. I, and my son Hugh, have become caught up in this dispute that I strongly believe has nothing to do with us.
[11] Hugh Shearer has provided a brief affidavit in support of his mother’s opposition. He states that he also had no idea about issues between Rex and his sons relating to their mother’s estate until November 2012. He confirms that he is ready, willing and able to complete a purchase of the Akaroa property at $150,000.
Current valuation of Akaroa
[12] In evidence is a property overview from QV.co.nz which records an estimated value of $506,000 for the Akaroa property at 15 August 2013 (compared with a current rating valuation of $562,000 set in August 2007).
Hugh Shearer’s option to purchase the Akaroa property
[13] In their agreement to purchase the Akaroa property from Hugh Shearer, Rex and Grace gave to Hugh Shearer and his personal representatives an option to purchase the property from Grace and Rex or their personal representatives for
$150,000 should it be offered for sale during Grace or Rex’s lifetime, on the death of the survivor of them, or at such time as Rex and Grace have permanently vacated the property, whichever is the earlier (those events being called “the termination date”). The option has to be exercised by Hugh Shearer within four months of the termination date.
[14] It is common ground in the present application that the termination date has not yet arrived. At this point, Hugh Shearer does not have the right to exercise the option. Nor has he purported to do so.
[15] While the current value of the Akaroa property suggests it is highly improbable that the option will not be exercised, that outcome cannot be put at the level of a certainty. It remains possible that the proceeds of a market sale by Rex and Grace might be more than the $150,000 which they would receive on the exercise of Hugh Shearer’s option.
Rex Treadgold’s position
[16] Rex was served with this proceeding, but has elected not to take part. He has entered an appearance through his solicitor, Mr B D Kinley, through a memorandum filed by Mr Kinley.
[17] Mr Kinley records:
Mr Treadgold is currently suffering from ill-health, for which he has recently been hospitalised, and he will not be taking part in the proceedings.
Mr Treadgold supports the sustaining of the Caveat.
I also act for Mr Treadgold in relation to Relationship Property matters. Cavell Leitch Law act for Mrs Grace Treadgold.
At paragraph 8 of Mrs Grace Treadgold’s affidavit of 6 August 2013, I note that she asserts that she and Mr Treadgold agreed “as to a fair equal division of our relationship property, including Rue Cachalot at $150,000.”
My instructions are that there was no such agreement as to the value of Rue Cachalot; any agreement being as to the division of the parties’ cash resources and as to where each of them should live after separation.
The Family Court proceedings remain on foot but have yet to be progressed.
The tracing of trust property
[18] Gary and Mark were beneficially entitled as remaindermen to their mother’s half-interest in the Auckland property. Rex had an obligation as trustee to hold and preserve that entitlement for them.
[19] As beneficiaries, Gary and Mark are entitled to ask the Court to trace the Auckland property to other property if that other property represents in part the proceeds of the Auckland property.1
[20] The evidence of the treatment of the proceeds of sale on this application unsurprisingly is incomplete. In support of the application, Gary says that he and Mark became aware of the potential problem surrounding their beneficial interest when their father handed them a 3 June 2011 letter from his solicitor. The solicitor advised that Gary and Mark should be made aware of the present situation surrounding the Akaroa property and the previous treatment of their half-interest. Gary has provided some historical detail of the sale of the Auckland and subsequent purchases but can add little beyond that. For her part, Grace (and her son) have deposed that they were until very recently unaware of Rex’s trust obligations. Grace does not give evidence to indicate that proceeds of sale did not flow between the Auckland, Christchurch and Akaroa properties.
[21] Rex is the one person who from his own records or with the help of prior solicitors might have direct evidence of the treatment of proceeds. He has not provided any evidence on this application.
[22] I therefore look at what is arguable – in other words what is factually and reasonably possible – on the evidence provided.
[23] It is possible, indeed probable, that proceeds from the Auckland sale ultimately provided the means (in part at least) of acquiring the Christchurch property. The acquisition of the Christchurch property and the execution of the deed of family arrangement were virtually contemporaneous. The main purpose of the deed was to enable Rex as trustee to sell the Auckland property and to reinvest its proceeds.
[24] It happened that the Auckland property was not sold until some five months after the purchase of the Christchurch property. Gary, in his evidence, refers to an understanding that his father may have covered the costs of the Christchurch
1 Fisher v Mansfield [1997] 2 NZLR 230 (HC).
property through bridging finance from a brother. The source of the understanding is not properly attributed. But given that the deed of family arrangement was entered into in the month the Christchurch property was purchased, there is an inference that the Auckland proceeds were going to go into the Christchurch purchase, with some bridging arrangements required.
[25] As the Auckland property sold for $39,000 and the Christchurch property cost $37,000, it is arguable that Gary and Mark became beneficially entitled either to one half of the Christchurch property or (depending what Rex did with the $2,000 difference) possibly more than one half of the Christchurch property.
[26] Their father’s decision to vest the property as a joint family home in himself and Grace in 1993 was almost certainly a breach of trust. The creation of a joint tenancy had the potential, through survivorship, to see the Christchurch property pass to Grace entirely. But for the time being, Rex retained an interest in the property and was entitled (with Grace) to the proceeds on sale.
[27] Grace deposes to having introduced her own funds subsequently to meet the cost of extensive renovations undertaken at the Christchurch property. Mr Wallace did not suggest in his submissions for Grace that that would have entitled Grace, upon the basis of relationship property law, to anything more than a half share in any event.
[28] It is then common ground that when the Christchurch property was sold in 2002 the sale proceeds were applied in part to the purchase of the Akaroa property (a balance of proceeds being freed up to assist the couple in their retirement years).
[29] The use of trust funds from the Auckland property can therefore arguably be traced through to the Akaroa property.
The nature of the Trust
[30] In their caveat, Gary and Mark claimed a beneficial interest in the land as cestui que trust, the trust being either express, constructive or resulting. They asserted that the trustees were Rex and Grace.
[31] In his application to sustain the caveat, Gary relied on the equitable interest held on trust by Rex specifically. The application referred back to the will trust established under Ivy’s Will. Mr Tyrrell, for Gary, similarly developed his submissions on the basis of the will trust as an express trust. In the application itself and in Mr Tyrrell’s submissions, no reliance was placed on the express, constructive or resulting trust.
[32] Mr Wallace did not take issue with the applicant’s supporting the caveat by reference to a narrower formulation than that contained in the caveat itself. Although the claims were framed more broadly in the caveat, the key ingredients (Gary and Mark as beneficiaries, Rex as trustee, and an express trust) were each identified in the caveat.
A settlement of Gary’s and Mark’s interests
[33] Gary produced a letter written by Grace’s (relationship property) lawyers in November 2012. The letter contained this statement:
A few years ago, Rex received an inheritance from his mother, believed to be between $18,000 and $20,000. He had divided that sum equally between your clients [Gary and Mark] and our client [Grace] understood that the payment was a settlement of their interest in their late mother’s estate.
[34] Gary deposed that Rex’s mother (his grandmother) had died in March 1994; that she had made a request to Rex that the majority of her estate should be passed to Gary and Mark; and that is what Rex did, giving Mark $10,000, Gary $8,000 and Rex retaining $2,000 for himself. There is no evidence to support the suggestion in the lawyer’s letter that the $18,000 or $20,000 payments were somehow a settlement of the interest Mark and Gary had under their mother’s will trust.
[35] Mr Tyrrell referred to the lawyer’s letter as indicating that Grace must have had more understanding of the trust arrangements at an earlier point than her evidence discloses.
[36] I am not called upon on this application to decide when Grace became aware of the beneficial interest of Gary and Mark and do not do so. It is clear from Mr Tyrell’s submissions that Gary and Mark have issues with the way in which the
$150,000 option was granted to Hugh Shearer, thereby potentially freezing Rex and Grace’s equity in the Akaroa property to the disadvantage of the interest which Rex held for Gary and Mark. Those matters may become the subject of separate litigation and the respective states of knowledge will be a matter for that litigation if it eventuates.
[37] As it is, Grace in her evidence did not place any reliance upon the allegation of a settlement of Gary and Mark’s beneficial interest in their mother’s estate through the inheritance received from their grandmother’s estate. The concept of such a settlement is therefore a bare assertion contained in correspondence. I disregard it.
[38] Gary and Mark’s beneficial interests are to be dealt with unaffected by any suggestion of prior settlement.
Discharge of Rex from trusteeship
[39] Mr Wallace submitted that the provisions of the September 2013 deed by which Rex retired from his trusteeship were fatal to the present application.
[40] Mr Wallace succinctly put that submission in one paragraph –
It is submitted that from 10 September 2013 any claim that Rex held his interest in Rue Cachalot on trust must have been extinguished by that deed. Rex was from that date discharged from the trusts imposed upon him by the Will and the deed dated 15 April 1976. It is pursuant to those very trusts that the applicant claims to have a caveatable interest. That caveatable interest (which is denied) must have also been discharged by the Deed of Retirement and Appointment of Substituted Trustees as at 10 September 2013.
[41] Mr Wallace’s submission invites a misunderstanding of what has occurred in relation to the will trust. The will trust for Gary and Mark (and Rex) remains. One trustee (Rex) retires and is replaced by two new trustees (Gary and Mark). If a transmission of the Akaroa title is attended to, Gary and Mark will become registered on the title in place of Rex. For the time being, that cannot occur because Hugh Shearer also has a caveat against the title. Rex remains registered proprietor, possibly with an implicit obligation to complete a transmission of his registered proprietorship.
[42] The caveat is against the title rather than against the registered proprietors. The caveat correctly identified Rex’s trusteeship at the time it was lodged. Given the apparent prior breaches of trust, it was understandable if not inevitable that Rex would step aside in favour of Gary and Mark. If and when a transmission is completed, Gary and Mark’s claim of a beneficial interest will remain and can be protected through the same caveat or a second caveat lodged with permission of the Court. The fact that Rex is no longer trustee does not affect the validity of the interest claimed – the person for the time being who is a registered proprietor is the trustee of the interest.
Conclusion – tracing
[43] The caveators held an undeniable beneficial interest in Ivy’s one half of the Auckland property which can arguably be traced into the Akaroa property. Unless there is any reason, within the Court’s residual discretion, to order removal of the caveat, Gary is entitled to an order that the caveat not lapse.
The discretion to remove a valid caveat
[44] Grace’s remaining ground of opposition is that it would be inequitable for the Court to allow the caveat to remain against the title. She says that this is so for two reasons:
[a]An innocent third party, Hugh Shearer, has a prior equitable interest in the land the subject of the caveat;
[b]The caveat has the effect of precluding her from selling the property and resolving relationship property matters with Rex.
Hugh Shearer’s interest
[45] Hugh Shearer has an interest in the property through his option. The existence of Hugh Shearer’s interest does not necessitate the removal of the caveat lodged by Gary and Mark. Hugh Shearer’s interest is protected by the prior caveat he has lodged.
[46] For the time being, Hugh Shearer has no interest beyond his option. Hugh Shearer deposes simply that he is ready, willing and able to complete a purchase at
$150,000. He does not suggest that the termination date, as defined in his option agreement, has occurred. For her part, Grace deposes that she and Rex agree as to a fair division of their relationship property including the Akaroa property at
$150,000. However, she provides no documentary evidence to support that statement. Rex’s position, as relayed to the Court by his solicitor,2 is that there is no such agreement on a figure of $150,000 for the Akaroa property.
Grace’s interest in resolving her relationship property issues
[47] In her affidavit evidence, Grace says simply that:
… now that Rex’s sons have lodged the caveat and commenced this proceeding it is impossible for those relationship property matters [with Rex] to be resolved. This is causing me great anxiety.
She adds:
I, and my son, Hugh, have become caught up in this dispute that I strongly believe has nothing to do with us.
[48] Mr Wallace’s submissions for Grace adopted her evidence as indicating that the operation of the caveat is inequitable. Mr Wallace submitted that an appropriate exercise of the discretion would be for the Court to order removal of the caveat on
condition that Rex’s share of proceeds (meaning on Mr Wallace’s submission
$75,000 less costs of sale) is held on trust.
[49] Mr Tyrrell submitted that there is an absence of evidence to justify a conclusion that it would be inequitable to maintain the caveat. Mr Tyrrell noted that Grace has produced no evidence of any documented agreement or Court order. Grace has not produced evidence of even a draft settlement agreement of the nature one might expect to be the subject of correspondence if both Grace and Rex are assuming that they will receive only $150,000 for the Akaroa property.
[50] On the evidence provided, I cannot treat Grace’s desire to resolve her relationship property entitlements with Rex as clearly compromised by the existence of the caveat.
Other possibilities
[51] If the interest of Gary and Mark had been invested in the Akaroa property without the restriction of an option granted to Hugh Shearer, the valuation evidence suggests that a $75,000 half share might now equate to $250,000.
[52] The terms of the sale from Hugh Shearer appeared to produce an uncommercial result for Rex and Grace. Grace has explained that situation in her evidence by stating that the Akaroa property was purchased at a price that she and Rex could afford which was significantly below its market value. No valuation evidence has been given to support that contention. Hugh Shearer in his affidavit did not deal with the issue.
[53] For Gary, Mr Tyrrell does not accept in this summary jurisdiction that Grace’s explanation of a seemingly uncommercial deal should be accepted at face value. He wishes to preserve for the caveators the right to explore the possibility that Grace and her son were knowingly obtaining for their side of the family the benefit of gains in equity to the disadvantage of Rex’s side of the family and in particular his sons who had vested beneficial interests.
[54] In this context, Mr Tyrrell again emphasised the contents of the letter from Grace’s solicitors in November 2012 in which there is reference to her earlier understanding of arrangements relating to the grandmother’s estate as involving a settlement of Gary and Mark’s interest in their mother’s estate.
[55] There is also a strong suggestion in the correspondence written between solicitors in 2012 that there may be further (and different) explanation for the option arrangement than Grace’s evidence discloses. Rex’s solicitor explained the situation thus in a 2 February 2012 letter:
Mrs Treadgold’s son, Hugh, was in financial trouble. He owned a property in Rue Cachalot, Akaroa. Mrs Treadgold took her husband and son to the office of a different solicitor, Ian McNish, where they signed the enclosed agreement to purchase the Akaroa property for the sum of $150,000.00 with an agreement, supported by caveat ... that Hugh could buy it back for the same consideration. Once again, there was no recommendation to my client that he take independent advice. Mr Treadgold expended labour and cash on the property, a total spend, he estimates, of around $30,000.00. The Ryeland Avenue property was sold and the nett proceeds, after the Akaroa Purchase, divided equally between the couple. ...
[56] There is no evidence on this application from Rex to support the statements contained in his lawyer’s letter save that the sale and purchase agreement for the Akaroa property, incorporating the option agreement, has been produced in evidence and on the face of it there is confirmation that one lawyer acted for all parties in the transaction. Beyond that, I cannot treat Rex’s lawyer’s statements as evidence in this proceeding. What they do indicate is that, should there be a substantive investigation into the circumstances of the granting of the option, there may be evidence of explanations other than that provided by Grace.
[57] In Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd, Blanchard J (delivering the judgment of the Court) spoke of the exercise of the discretion:3
... only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced.
[58] The apparent purpose of Grace’s intention to have the caveat removed is to enable the completion of a sale of the Akaroa property to Hugh Shearer for
$150.000. If the caveat is removed and the sale proceeds on that basis rather than a market value, I am not completely satisfied that the legitimate interest of the caveators will not thereby be prejudiced.
Conclusion as to the discretion
[59] Grace has not provided evidence which establishes with sufficient clarity elements of inequity through the continuation of the caveat. I take into account the fact that Hugh Shearer is not a party to this present proceeding and is entitled to careful consideration as a person affected by a caveat. For the reasons I have stated, I am not satisfied that he is so affected by the sustaining of the caveat that the caveat should be removed.
Need for resolution
[60] The parties and Mr Shearer have been alert to the issues which have been the subject matter of this proceeding for at least a year. Correspondence between the various parties or their solicitors have explored possible resolutions unsuccessfully. There is some recognition in the correspondence that there may have been breaches of trust. It is also inescapable that if Hugh Shearer’s option is to be exercised there will have been a significant transfer of asset value from one side of the family to the other. But there is no common ground as to whether there was any substantial economic justification for the option arrangement.
[61] The record of instructions provided in Rex’s lawyer’s February 2012 letter4 point to a line of enquiry which Gary and Mark may wish to pursue in order to undermine the option agreement.
[62] In these circumstances, Mr Wallace understandably submitted that if the caveat is to be sustained, it should be sustained on conditions as to the prompt pursuit of any claim by Gary and/or Mark.
[63] The imposition of conditions would follow the approach adopted by the Court in cases such as Duff v Hopkins5 and TE Group of Companies Ltd (in liq) v Lin.6
[64] The tracing claim of Gary and Mark is readily apparent and justifies the caveat for the reasons I have given. But the sustaining of the caveat could in the future work an injustice upon Grace and/or Hugh Shearer if the option contract is to stand and the termination date is activated. Precisely how Gary and Mark might become involved in a challenge to the option contract was not addressed by counsel in their submissions and may well be legally complicated. But it is appropriate, having regard to the period already spent by the parties discussing the issues, that Gary and Mark be required to decide whether they will take steps in relation to the option agreement or not. If they are not going to take such steps, then the registered proprietors of the Akaroa property should be left in a position to proceed with a sale to Hugh Shearer in terms of his option, with the proceeds of sale to be held on trust pending determination of Gary and Mark’s trust claim therein.
[65] There is the potential for at least one but possibly two sets of litigation, namely one on the option contract and the second for a determination of the respective interests in the Akaroa property held by Ivy’s will trust on the one hand and Grace on the other.
[66] That potential complexity and cost suggests that the parties should have a final opportunity to negotiate an outcome without incurring avoidable litigation costs and delay. That period needs to be followed by a reasonable period in which a proceeding might be commenced.
[67] The conditions which I impose upon the order I will now make sustaining the caveat reflect those needs.
5 Duff v Hopkins (1994) 2 NZ ConvC 191,816.
6 TE Group of Companies Ltd (in liq) v Lin HC Auckland CIV-2003-404-6777, 10 March 2004.
Costs
[68] I will be reserving costs in accordance with the request of counsel. My present view is that costs must follow the event, the respondent having argued unsuccessfully that the applicant held no beneficial interest in the Akaroa property. If the parties cannot agree on costs, counsel are to file submissions (four page limit) sequentially, the applicant’s submissions first and the respondent’s submissions second.
Orders
[69] I order:
[a]There is an order that caveat notice of claim 9210814.1 (“the caveat”) in relation to CB 29A/778 shall not lapse, but on conditions.
[b] The conditions to this order are:
[i] In the event that on or before 6 December 2013 –
(a)the applicant and the respondent and other parties affected do not agree upon a settlement which enables the caveat to be discharged unconditionally, and the applicant opposes the sale of the Akaroa property (CB 29A/778) to Hugh John Shearer for $150,000; and
(b)Gary Rex Treadgold or Mark Malcolm Treadgold do not commence a proceeding to establish the invalidity of Hugh John Shearer’s option (or for other relief in relation to such option), then –
the respondent may by memorandum, supported by affidavit evidence, request the Court in this proceeding to make an order that the caveat lapse on condition that the full proceeds of any subsequent sale to Hugh John Shearer shall be paid into
a solicitor’s trust account on stakeholding for the registered proprietors pending agreement or determination as to the respective interests of the registered proprietors and/or Gary Rex Treadgold and Mark Malcolm Treadgold in such proceeds.
[c]Leave is reserved to the parties to seek further orders in accordance with the above conditions.
[d] Costs are reserved.
Associate Judge Osborne
Solicitors:
Weston Ward & Lascelles, Christchurch for Applicant I McNish for Respondent
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