EMSLIE v WALKER [2021] NZHC 3230

EMSLIE v WALKER [2021] NZHC 3230 [30 November 2021]IN THE HIGH COURT OF NEW ZEALANDNAPIER REGISTRYI TE KŌTI MATUA O AOTEAROAAHURIRI ROHECIV-2021-441-59[2021] NZHC 3230IN THE MATTER OF an application pursuant to s 143 of theLand Transfer Act 2017 that Caveat1216093.1 not lapseBETWEEN MARIAN FAULKNER EMSLIEApplicantAND IAN MARK WILFRID WALKERRespondentHearing: 4 November 2021Appearances: M J Wenley for ApplicantJ L Bates for RespondentJudgment: 30 November 2021JUDGMENT OF ASSOCIATE JUDGE JOHNSTON[1] This is an application for an order pursuant to s 143 of the Land Transfer Act2017 that a caveat lodged by the applicant, Mrs Marian Emslie, against a propertyregistered in the name of the respondent, Mrs Emslie's son, Mr Ian Walker, not lapse.It arises against the background of a series of tragedies that have beset the family.[2] The substantive issue in the case is whether Mr Walker owns the propertylegally and beneficially, subject to a contractual obligation to pay an amount of$42,000 calculated to have been his mother's equity in the property when he purchasedit from her, or whether he is a mere legal owner of the property which is beneficiallyowned by Mrs Emslie.[3] This being an application for an order sustaining a caveat, it is well settled thatMrs Emslie, as the applicant, needs to demonstrate that she has a reasonably arguableclaim to a propriety interest in the property which the law will recognise by way of aninstitutional trust.1 Because this is a summary procedure, not well suited to thedetermination of disputed questions of fact, an order sustaining a caveat will only berefused if it is clear that the caveat cannot be maintained.2[4] The factual background is not controversial. Mrs Emslie is a widow. She is inher mid 80s. She and her late husband had five children, including Mr Walker. Shewas a Methodist Church Minister. In January 2004, the Public Trust — which I amassuming was Mrs Emslie's late husband's executor and trustee — and Mrs Emslie,purchased a property at 95 Bledisloe Road, Napier.[5] In June 2006, Mrs Emslie was convicted on a charge of theft by a person in aspecial relationship. As I understand the position, she had stolen money from one ofher parishioners. The sentence of the Court included an order that she pay reparationsreflecting the amount stolen — $90,815.86. Mrs Emslie did not have this money. Sheasked her children to assist. Only Mr Walker was in a position to do so.[6] One firm of solicitors acted for both Mrs Emslie and Mr Walker in relation tothe transaction. From the certificate of title to the property and other documentation,the way in which the arrangement was structured is clear. Mrs Emslie sold95 Bledisloe Road to Mr Walker outright. Her indebtedness secured over the propertywas repaid. Mr Walker borrowed the funds necessary to purchase the property andthat loan was and remains secured over the property. It was agreed betweenMrs Emslie and Mr Walker that, as at the date of the transaction, Mrs Emslie's equityin the property was $42,000, and she and Mr Walker agreed that that would be a debtowed to her by him.1 See Philpott v Noble Investments Ltd [2015] NZCA 342 at [26], approved in Melco PropertyHoldings (NZ) 2012 Ltd v Hall [2021] NZCA 184 at [19] and [36].2 At [26](c).[7] The only material differences between the parties' description of thearrangement concern the beneficial ownership of the property from the date of thetransaction and how long the arrangement was to last.[8] In her principal affidavit Mrs Emslie says:The basis of this agreement what that I would pay the rates, mortgage, andmaintenance on 95 Bledisloe [Road], and would continue to live there uponthe basis that Ian was holding the property on trust for me and that it would betransferred back to me once the mortgage was paid.[9] Mr Walker in his affidavit in reply says:The arrangement between myself, my mother and David [one of Mrs Emslie'sother children who has lived at the property with her] was that they were eachto pay 50% of the Westpac mortgage and David was to pay Napier CityCouncil and Hawkes Bay Regional Council rates. This arrangement was onlymeant to last for 2 years, as my mother and David were supposed to organisetheir own refinance within that time.[10] Mrs Emslie's case, then, is that while the arrangement was structured as anabsolute sale of the property by her to Mr Walker together with an acknowledgementof debt on Mr Walker's part in respect of an agreed amount of equity in the propertyas at the date of the transaction, in fact the formal structure disguised an informalfamily arrangement pursuant to which she remained the beneficial owner of theproperty with a right to live in the property for the rest of her life, subject only tomeeting the costs of ownership. This would have meant that the transaction was aneutral one from Mr Walker's point of view, and that all he was doing was lending hiscreditworthiness to the arrangement.[11] Mr Walker's case is that the formal structure reflected the actual arrangementsbetween the parties so that his mother was selling the property to him and on settlementhe became the legal and beneficial owner of the property, but assumed a debt to hismother which was the agreed amount of her equity in the property. In addition, hesays that the understanding was that the arrangement would only last for two years togive Mrs Emslie and his brother, David Walker, time to make arrangements to buy theproperty back from him. I mention also that there is correspondence in whichMr Walker says that on a sale of the property, he will account to his mother for the fullnet proceeds of sale.[12] Fifteen years have passed since the parties entered into these arrangements.[13] During that time:(a) At least three attempts have been made by the parties (and the family)to arrange financing to enable Mrs Emslie (and David Walker) to buythe property back from Mr Walker;(b) Mr Walker has had not one but two extremely serious road accidents,the first of which left him a paraplegic and the second of which left hima tetraplegic; and(c) By and large, Mrs Emslie and David Walker have paid the propertyholding costs. There have been occasions when, for one reason oranother, some of these costs have not been paid. This has resulted inthe mortgagee, Westpac, demanding payment of the amounts involvedfrom Mr Walker and even going so far as to threaten thecommencement of a mortgagee sale. My sense from thecorrespondence is that there has never been a serious threat of amortgagee sale, essentially because the amounts involved have notbeen significant. From the correspondence it would seem that theoutstanding amount due under the mortgage as at the date of the mostrecent threat was $1,644.58. Although this is not entirely clear on theevidence, it would seem that as matters currently stand, all holdingcosts are up to date.[14] In February of this year Mr Walker indicated to his mother and David Walkerthat he wished to bring the arrangement to an end. He has given more than one reasonfor this, including referencing Westpac's threat to move to a mortgagee sale, the threatto his credit rating and his wish to rid himself of the risk involved.[15] Mrs Emslie says that as the beneficial owner of the property she is entitled toinsist on the arrangement continuing so that she (and David Walker) can live in theproperty for the rest of her life. While she has not put it in quite these terms in heraffidavit evidence, her case must logically be that the house may only be sold with heragreement or on her death, at which point the net proceeds of sale would go to her orher estate.[16] In my judgment, there are serious difficulties with the positions advanced onbehalf of both parties in this case.[17] In so far as Mrs Emslie's position is concerned, if indeed the arrangement wasas she maintains then, why was it documented in the way that it was, why was itnecessary as part of the arrangement to identify the equity and include that by way ofan acknowledgement of debt owed to her by Mr Walker, and is it really credible tosuggest that Mr Walker would agree to such an arrangement, exposing himself to therisk that this involved for the balance of his mother's life when he would derive nobenefit?[18] As to Mr Walker's position, given the context in which the transaction wasentered into, it seems doubtful that the relationship between the parties is simply thatof debtor and creditor. It seems open, at least at this stage, to Mrs Emslie to assert thatMr Walker simply assisted his mother when she was in need, temporarily taking onthe risk and that once the mortgage had been repaid, Mrs Emslie was to remain thebeneficial owner of the property. That relationship may give rise to a relationship inthe nature of trustee/beneficiary and an institutional constructive trust which wouldnecessarily focus on the unconscionability of Mr Walker denying Ms Emslie's interestbecause of a previous understanding either between the parties or imposed by the law.[19] In the end, I see this case as a finely balanced one, and not one in which thesubstantive issue is realistically capable of being determined on the basis of untestedaffidavit evidence.[20] That leads inexorably to the conclusion that Mrs Emslie's contention is anarguable one that can only be dealt with at trial where the evidence can be properlytested.[21] The Court retains a residual discretion to decline to uphold a caveatnotwithstanding that an arguable case has been made out. Mr Bates suggested thatthere would be no practical benefit to Ms Emslie here by upholding the caveat whenMr Walker accepts that he would be obliged to account to her for the net proceeds ofsale. He also pointed to the fact no substantive proceeding has been initiated. Againstthis is the presumption that once a caveator has established an arguable case, that thecaveat is the appropriate means of protecting the caveator's interests.3 I have foundthere is an arguable case, but there is in any event a clear need here to uphold thecaveat given, amongst other things, the impending sale and purchase of the propertyto a third party.[22] I therefore make an order sustaining Mrs Emslie's caveat, subject to thefollowing conditions:(a) Mrs Emslie is to commence a substantive proceeding within20 working days of the date of this judgment and prosecute the samediligently.(b) Once a statement of defence is entered to that claim, the matter is to beset down for a case management conference at which I would expectthe Court to be able to make whatever interlocutory directions arenecessary, set the matter down for trial and make all necessary pre-trialdirections, so as to bring this matter on for trial as soon as possible.[23] Costs are reserved. My preliminary view is that the applicant as the successfulparty is entitled to an award of scale costs on a 2B basis. If counsel are unable toresolve costs, they may come back by memorandum in the usual way.Associate Judge JohnstonSolicitors:Willis Legal, Napier for ApplicantBrown and Bates, Napier for Respondent3 Neil Campbell "Caveats" in DW McMorland and others Hinde McMorland and Sim Land Law inNew Zealand (online ed, LexisNexis) at [10.003(c)].