TRAINOR v LEOTUKI [2020] NZHC 1574

TRAINOR v LEOTUKI [2020] NZHC 1574 [3 July 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-2536[2020] NZHC 1574IN THE MATTER of an application under ss 339(1)(a), 339(4)and 343 of the Property Law Act 2007BETWEEN RONGOPAIWAHINE LOIS TRAINOR(formerly known as RAEWYN LOUISETOFILAU and also known as RAEWYNTRAINORPlaintiffAND TIMOTHY JUNIOR LEOTUKIFirst DefendantSTEVE TOFILAUSecond DefendantNICOLAU ALEX TOFILAUThird DefendantHearing: 24 June 2020 (and further memoranda received 26 June 2020 and1 July 2020)Appearances: N W Wood for the PlaintiffFirst and Second Defendants in personNo appearance by or for the Third DefendantJudgment: 3 July 2020JUDGMENT OF GAULT JThis judgment was delivered by me on 3 July 2020 at 4:00 pmpursuant to r 11.5 of the High Court Rules 2016.Registrar/Deputy Registrar[1] The plaintiff, Ms Trainor, seeks an order for sale (and associated orders) of aproperty at 29 Lever Place, Weymouth, Manukau.1 Ms Trainor is the registeredproprietor of a one-quarter share of the property. The defendants, three of her foursons, are each also registered proprietors of a one-quarter share.[2] The defendants did not file statements of defence and the proceeding wasallocated 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 leaveto 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 bysurvivorship.[6] On 21 July 2008 Ms Trainor and the four sons entered into an agreement forsale and purchase whereby she agreed to sell a one-quarter interest in the property toeach of them for a total of $273,000, being half the market value. They each signed adeed of acknowledgement of debt acknowledging an on demand loan in respect ofone-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 weremade, 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 hisone-quarter share back to Ms Trainor in satisfaction of his debt.[10] On 25 June 2018 Ms Trainor's solicitor notified the defendants that sherequired interest to be paid from 1 April 2018.[11] Following service of this proceeding in November 2019, the parties attended amediation in December 2019 and agreed terms of settlement whereby the defendantsagreed to pay Ms Trainor $200,000 (including GST if any). However, this wasconditional on Timothy and Steve using all reasonable efforts to obtain finance by28 February 2020. Payment of the settlement sum was then to occur within a further21 days.[12] Timothy and Steve did not obtain finance by 28 February 2020. They soughtan extension of time for the finance condition until 16 March 2020. Ms Trainor'ssolicitor agreed to extend time on the condition that interest accrued from 20 March2020 until settlement. At least expressly, that condition was not accepted.[13] On 15 April 2020 Ms Trainor's solicitor wrote to the defendants' solicitorseeking information regarding reasonable efforts to obtain finance within five workingdays. No response was provided.[14] On 4 May 2020 Ms Trainor's counsel filed a memorandum seeking a formalproof hearing. About the same time, an application for a simplified trial was also filedin the District Court. Subsequently the defendants' solicitor sought leave to withdrawin the District Court proceeding.[15] On 4 June 2020 Lang J directed that the proceeding be listed for a formal proofhearing on 24 June 2020 and directed the filing of evidence in support by 17 June2020. 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 leaveto defend out of time are set out in the judgment of Kós J in Neumayer v Kapiti CoastDistrict 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 isbelatedly granted.Substantial ground of defence?[17] Timothy and Steve seek to defend the claim on the basis that the settlementagreement is still live. They explained that they went to the mortgage broker but couldnot obtain finance because Nicolau would not sign documents.[18] They explained that Nicolau has recently changed his position. They seekfurther time to perform the settlement agreement.[19] Mr Woods, for Ms Trainor, submitted that the finance condition was acondition precedent that finance be obtained by 28 February 2020. As the response tothe defendants' request for an extension imposed a condition which was not accepted,the settlement agreement ceased to have effect as between the plaintiff and defendantsafter 28 February 2020. In any event, the letter of 15 April 2020 made time of theessence, and any extension expired after the five working days.[20] During the hearing, Ms Trainor indicated through counsel that she was open todiscussing proceeding with the settlement agreement within tight timeframes. In orderto give the parties time to confer, I directed the parties to file a memorandum (ideallyjoint) by 26 June 2020 setting out appropriate conditions if leave to defend were3 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 Trainorhad made an open settlement offer after court on 24 June 2020. It was open foracceptance 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 tohave effect following the expiry of the condition precedent. Therefore, full and finalsettlement never occurred and the settlement agreement does not provide a defence.[22] Mr Woods acknowledged that the defendants had filed a defence in the DistrictCourt proceeding, which alleges that the arrangement in 2008 was that the debts wouldnever be required to be repaid. The acknowledgements of debt reflected the gift dutyregime (although the defendants do not say that deeds of forgiveness of debt weresubsequently executed). The defence also alleges that the 2008 agreement contains acommon mistake as $273,000 was the market value, not half the market value.Mr Woods submitted that the substantive issue (repayment) remains to be determinedin the District Court where Ms Trainor seeks recovery of the debts, and that thisproceeding is limited to seeking a sale order, with the disputed net proceeds of salebeing held in Court pending resolution of the District Court proceeding. Mr Woodssubmitted that the defence raised in the District Court proceeding is not relevant to theexercise of this Court's discretion in relation to the sale order. He submitted that theauthorities confirm that the exclusion of one party from a property upon a breakdownof relationships is sufficient justification for the separation of interests, citing Coffey vCoffey,4 and Whimp v Bigham,5 and that the continuous use of property without payingoccupation rent is grounds for a property to be sold and justifies an award of fairoccupation 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 LawAct 2007 to order sale of a property on the application of a co-owner. But an order isnot automatic – consideration of the circumstances is required. The matters to whichthe 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 considerationsA court considering whether to make an order under section 339(1) (and anyrelated 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, orin respect of whose estate or interest, the application for the order ismade:(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 ofthe order, in comparison with the hardship that would be caused toany other person by the making of the order:(e) the value of any contribution made by any co-owner to the cost ofimprovements 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 fairoccupation rent, but this is also discretionary and requires consideration of the s 342factors.8[25] Here, Ms Trainor holds a one-quarter share following Taroi's transfer back inMarch 2018; the defendants hold three quarter shares and have done so since July2008. Two of the defendants still live in the property. Their hardship in having tomove if a sale is ordered is relevant, just as Ms Trainor's hardship if a sale order isrefused 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 currentlyno evidence as to the defendants' contributions to the property. There is also littledetail in the evidence about Ms Trainor's exclusion from the property at least sinceMarch 2018 when she regained an interest.[26] Although at the hearing Steve and Timothy did not rely on their District Courtdefence to repayment, I consider it may also be relevant to this Court's decision as towhether to order a sale and if so on what terms, which Mr Woods seemed to accept atleast if there had been a statement of defence filed in this proceeding. Ms Trainor inher statement of claim seeking a sale order pleads that she "requires to realise the loans8 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 ofquarter shares to the defendants in 2008. The defendants dispute those same loans intheir District Court defence. If the relative hardship of the parties is to be assessed forthe purpose of determining whether to order a sale in advance of substantivedetermination of whether the loans are repayable, with disputed proceeds held in themeantime, I consider the sale order should be assessed on the basis that Ms Trainor isonly seeking to realise her one-quarter interest and not realise the loans she claims areowed to her by the defendants.[27] Even so, if the arrangement in 2008 was that the debts would never be repaidas pleaded in the District Court defence, Ms Trainor's one-quarter share might also bein question since Taroi transferred ownership of his one-quarter share back to her insatisfaction of a debt which is now denied by the defendants – albeit that he is not aparty to the proceeding. Whether or not that affects Ms Trainor's right to apply for asale order, it will be a relevant consideration.[28] I do appreciate Ms Trainor's need for speedy resolution. I observe that, giventhis overlap between the two proceedings, it may be preferable for the issues to bedealt with in a single proceeding. I acknowledge that Mr Woods was not acting in theDistrict Court proceeding when it was commenced, and the parallel proceedings inthis Court arose when it was said that High Court proceedings were required to obtaina sale order given the value of the property.[29] At this stage, despite not accepting the settlement agreement provides adefence, 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 wasunderstandable given the settlement agreement. However, once the settlementagreement ceased to have effect following the expiry of the condition precedent (andirrespective of the steps taken to obtain finance), the defendants were at risk ofjudgment being entered against them by way of formal proof. Having been servedwith the papers, it appears the defendants wrongly thought they could just turn up atthe formal proof hearing. It appears their lawyer ceased acting around the time of the4 May 2020 application for a formal proof hearing as he had been unable to getinstructions in late April 2020, which may have contributed to the failure, but Steveand Timothy acknowledged their part. I also acknowledge the timing has partlycoincided with the COVID-19 lockdown. Even so, I consider the delay at least sinceApril (if not February) has not been reasonably explained. It was not reasonable forthe defendants to take no steps following receipt of the papers relating to the formalproof hearing except to appear in person on the day. That is consistent with a lack ofengagement 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 defendbelatedly is a key consideration. Mr Woods submitted that the delay is particularlyacute for Ms Trainor. She has retired and needs funds to purchase a modest propertyout of Auckland to live in. She has mental health difficulties and would like to moveon. Mr Woods also submitted that the defendants have no plan except to reactivatethe settlement agreement.[32] I accept that further delay is particularly unsatisfactory for Ms Trainor givenher circumstances. I have also accepted that the settlement agreement is not a defencegiven its expiry. The plan to reactivate it requires Ms Trainor's further agreement.In addition, even assuming Nicolau is now cooperative, the availability of financeremains uncertain.[33] On 1 July 2020 a memorandum of counsel for the first and second defendantswas referred to me. Inder Lynch has been reinstructed to act for them (but not the thirddefendant). Mr Kuddus advised that they are currently in the process of obtainingfinance to purchase Ms Trainor's one-quarter share in accordance with the settlementagreement. However, there are delays caused by the surge in loan applications postCOVID-19. The third defendant's position must also be dealt with – and Melbourneis still under COVID-19 restrictions and delays are being experienced.The memorandum also advised that in addition to Timothy and Steve, Steve's son alsoresides at the property when he is in Steve's care. The property has been within thefamily since it was purchased by the defendants' father, and Timothy and Steve havelived there since their childhood. Counsel submitted that they are taking pro-activesteps to resolve matters and requested time to resolve these issues to prevent theirfamily home being sold.[34] I appreciate these difficulties but Ms Trainor's desire for tight timeframes isreasonable. Unless she agrees to an updated settlement agreement, the application forleave to defend must be determined and the proceeding progressed one way or theother without delay.[35] I consider there should not be irreparable injury if further delay is minimisedand Ms Trainor recovers her wasted costs. The relevant injury to be considered isinjury caused by granting leave – the counterfactual is what will occur if leave isdeclined. For the reasons already given, on a formal proof application a sale order isnot guaranteed. The delay if leave to defend is granted should be limited providedTimothy and Steve are required to cooperate towards an early fixture of theapplication.[36] Leave would enable Timothy and Steve to evidence the hardship they wouldsuffer if a sale order is granted and also their contributions to the cost of improvementsto, or the maintenance of, the property.[37] On balance, I consider that leave to defend should be granted but on strictconditions 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 being1.5 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 tomake 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 (preferablyjoint) addressing the case management matters referred to in r 7.3 ofthe 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/ordetermination 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 casemanagement conference to take place as soon as possible after the joint casemanagement memorandum referred to in (c) is due.[41] If either condition (a) or (b) is not satisfied within 14 days, the plaintiff is tofile a further memorandum within a further 7 days, to be referred to me, updating theCourt and indicating whether the application for formal proof requires a further onehour hearing or can then be determined on the papers.________________________________Gault JSolicitors:Mr N W Woods, Rice Craig, PapakuraCopy to:Mr U A Kuddus, Inder Lynch, Papakura