ALLEN V GOING AND GOING AS TRUSTEES OF THE ESTATE OF HUGH CHARLES GOING HC WHA CIV-2011-488-550

ALLEN V GOING AND GOING AS TRUSTEES OF THE ESTATE OF HUGH CHARLES GOING HC WHA CIV-2011-488-550 [18 October 2011]IN THE HIGH COURT OF NEW ZEALANDWHANGAREI REGISTRYCIV-2011-488-550UNDER the Land Transfer Act 1952IN THE MATTER OF Sections 145 and 145A that a caveat do notlapseBETWEEN ROSEMARY ANN ALLENApplicantAND ALAN HUGH GOING AND BRUCECHARLES GOING AS TRUSTEES OFTHE ESTATE OF HUGH CHARLESGOINGRespondentsHearing: 18 October 2011Counsel: J P Hickey and D M Roughan for ApplicantJ A Browne for RespondentsJudgment: 18 October 2011INTERIM ORAL JUDGMENT OF ASSOCIATE JUDGE BELLSolicitors:Northlaw (D Roughan) P O Box 4333 Kamo, Whangarei 0141Email: david@norlaw.co.nzHenderson Reeves Connell Rishworth (J A Browne) P O Box 11 Whangarei 0140Email: jeremybrowne@hendersonreeves.co.nzJohn P Hickey, P O Box 100-8-2 North Shore, Auckland 0745Email: john@hickeylaw.co.nz[1] This is an application for an order that a caveat not lapse. The application is made under s 145A of the Land Transfer Act 1952. The caveat is no.8380065.1. It has been lodged against Identifiers NA31A/1171 and NA80B/999.[2] The interest claimed under the caveat is:An estate as a residuary beneficiary (with the registered proprietors) of the 14 May 1979 will of their late father, Hugh Charles Going, probate of which was granted to the registered proprietors (and their late mother, Frances Rona Going) by virtue of which the registered proprietors are so registered as proprietors of the abovementioned land as executors – one of theregistered proprietors being also indebted to the estate of the caveator's latefather – and entitled as caveator to part of the proceeds of any sale or other disposition of the abovementioned land to no less extent than each of the registered proprietors is so entitled.[3] I made an interim order for preservation of the caveat on 19 September 2011.[4] The applicant, Mrs Allen, and the respondents, Alan Going and Bruce Going, are the children of the late Hugh Charles Going. He died on 2 February1996 leaving a will dated 14 May 1979. Probate of the will was granted on 19 April 1996 (P 127/96). In his will, he appointed his widow, Frances Rona Going, and the respondents as executors and trustees. Under clause 3 of his will he left his widow his household effects and personal items. By clauses 4, 5 and 6 he left to each of his children devises of specified real property. Under clause 9 of his will he placed the residue of his estate in trust for the benefit of his widow as a life tenant. She died on 15 August 2008. Clause 9(c) of the will says:Subject to the provisions of the preceding sub-paragraph (a) hereof, I DIRECT my trustees TO STAND POSSESSED of my residuary estate or so much thereof as then remains UPON TRUST for such of them my children as survive me and if more than one in equal shares PROVIDED HOWEVER AND I DIRECT that should any child of mine predecease me leaving a child or children who shall survive me then and in every such case such last mentioned child or children shall take and if more than one in equal shares all that the share or interest in my estate which his her or their parent would have taken had such parent survived me.[5] Clause 10 of the will confers discretionary powers and authorities on the executors and trustees. Clause 10(a) gives the power to sell any real or personalproperty. Clause 10(b) gives the power to postpone the sale and conversion of property. Clause 10(e) gives the power to appropriate real or personal property forming part of the estate towards a share of any beneficiaries. The residuary estate includes the family home on two titles in Marlin Place, Tutukaka.1 The applicant has lodged her caveat against the titles to this property.[6] In her application to sustain the caveat, the applicant says that the respondents have completed their duties as executors of the will and they hold the Tutukaka property and other assets of the estate as trustees for the respondents and herself. She says that the administration of the will is completed.[7] In their notice of opposition, the respondents say that the administration of the estate, and hence determination of the residue of the estate, is not complete and accordingly the applicant has no caveatable interest in the land whose title she has caveated. They further say that there is no proper reason to caveat the properties as the property should be sold and is in the process of sale and there is no dispute as tothe applicant's entitlement under the will.[8] It is common ground that the testator's widow died on 15 August 2008. Therespondents are the surviving executors. There are no proceedings challenging the will as under the Family Protection Act 1955 or the Law Reform (Testamentary Promises) Act 1949.[9] The applicant lodged her caveat on 18 December 2009. The respondents did not use the machinery under s 145A to challenge the caveat until this year.[10] The applicant complains about the conduct of the executorship. I need to make it clear that in this decision I am not making any findings or rulings on whetherthe applicant's concerns are justified or not. I am only concerned with whether shehas a caveatable interest in the property and whether any orders should be made if there is a recognisable a caveatable interest. In undertaking that task, it is not necessary for me to consider other complaints that she has raised which are outside the caveat jurisdiction under s 145A of the Land Transfer Act.1 The property has frontages to Marina Road and Marlin Place, but has vehicle access from MarlinPlace.[11] The respondents have put the Marlin Place property on the market for sale. They have gone through a tender process. The result has been disappointing from the point of view of all parties. The respondents have shown that the value of the property as at June 2009 was $625,000 but the best offer received under the recent tender process was $456,000. The respondents say that in light of that level of market interest they are not disposed to sell the property at that price. The applicant has not contended that the property ought to be sold at that price. I understand that she, like her brothers, is concerned to see whether a better price can be obtained.[12] In applications under ss 145 and 145A of the Land Transfer Act, there are clearly established principles. These principles are largely summarised in Mr Hickey's submissions and I quote them.[a] It is necessary for the caveator to show an arguable case for a serious question to be tried;[b] As to the validity of the claimant having a caveatable interest, if the threshold is reached, balance of convenience considerations are only relevant if there are exceptional circumstances;[c] Unless it is abundantly clear that the caveat cannot be maintained because the caveator does not have a caveatable interest, the caveat should not lapse;[d] The court is not required to give a final determination as to the rights of the parties unless the facts are not in dispute; and[e] The court has a discretion to remove a caveat when it is completely satisfied that the legitimate interests of the caveator will not be prejudiced.[13] For that last proposition, it is also necessary to refer to the decision of the Court of Appeal in Pacific Homes Ltd (In Receivership) v Consolidated Joineries (1966) Ltd.2 In that case, Blanchard J said:An order will be made for removal only where the court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator's interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.[14] I cite that passage to reinforce the Court of Appeal's position that once acaveatable interest is established, any proposals for the removal of the caveat are to be addressed cautiously.[15] In this case there are essentially two issues:[a] Whether the caveator has established a beneficial interest in the land; and[b] If such an interest in the land is established, whether orders should be made for the removal of the caveat.[1] I make the point - which is almost trite in connection with caveat decisions –that it is not sufficient for a caveator simply to have a potential interest in the land which might accrue in the future. The question is whether the caveator has a beneficial interest in the land as at the time the caveat is lodged.[16] In this case, the caveator is claiming as beneficiary in the residue of the estate. The parties agree on the principle that if the respondents hold the land in their capacity as executors, then the caveator does not have a beneficial interest in the property, but if they no longer hold the property as executors, but instead hold the property as trustees for the beneficiaries, then the caveator may have a beneficial interest in the property.2 Pacific Homes Ltd (In Receivership) v Consolidated Joineries (1966) Ltd [1996] 2 NZLR 652(CA) at 656.[17] I refer to some of the authorities that were cited. In Re Bielfeld3 the deceased had left land in his will subject to a life estate with the reversionary interest going to a brother, who lodged a caveat against the title. The executor sold the land, apparently to his son, at an alleged under-value. Williams J upheld the caveat. He said:4If a caveat is lodged which interferes with the rights of a trustee for sale, the trustee has his remedy but if a person beneficially interested in the proceeds of the sale has no power to lodge a caveat in order to protect himself from a collusive or improper sale, then there is no way provided by the Act for preventing such a collusive or improper sale. The object of the Act no doubt was to give registered proprietors full power of disposing of the property but at the same time enabling the beneficiaries by caveating to prevent them from disposing of the land in an improper way.[18] The next is Guardian Trust & Executors Company of New Zealand Ltd v Hall.5 In giving the decision of the Court of Appeal, Callan J said:6A caveat is the creature of statute and may be lodged only by a person upon whom a right to lodge it has been conferred by the statute. It is not enough to show that the lodging and continued existence of the caveat would be in some way advantageous to the caveator. He must bring himself within s 146 of the Land Transfer Act.7 In this case he must bring himself within para (a) of that section—that is to say, he must show that he is a person "entitled to orbeneficially interested in" the land against which he has caveated "by virtueof some unregistered agreement or other interest or other instrument ortransmission, or of a trust express or implied, or otherwise howsoever."[19] In that case the caveator was claiming an interest in the residue of his latefather's estate. The will apparently contained directions for the sale of the property.Callan J went on to say:8The interest conferred upon the caveator by the will of his father was a right to a share in the residue, and the residue was to be arrived at by sale, realization, and a discharge of liabilities. This process is not yet complete. There have been cited against the caveator Lord Sudeley v Attorney-General([1897] AC 11); Dr Barnardo's Homes National Incorporated Association v Special Income-tax Commissioners ([1921] 2 AC 1); and Corbett v Inland Revenue Commissioners ([1937] 3 All ER 808, 809). These cases are clear and high authority for the proposition that the legatee of a share in residue has no interest in any of the property of the testator until the residue has been3 In Re Bielfeld (1894) 12 NZLR 596 (SC).4 At 597.5 Guardian Trust and Executors Company of New Zealand Ltd v Hall [1938] NZLR 1020 (CA).6 At 1025.7 In the present Act, the corresponding provision is s 137.8 At 1026.ascertained, and that his right is to have the estate properly administered and applied for his benefit when the administration is complete. The applicability of these cases to the interpretation of the words "entitled to" and "beneficially interested" where they occur in s 146 of the Land Transfer Act is not weakened or affected by the circumstance that they are all revenue cases. They are examples of the application to revenue problems of a general proposition as to the nature of the legal rights of a person entitled to a share in residue. In Re Bielfeld, a decision of Williams J is distinguishable on the ground that the caveator in that case was entitled by the will of the testator not to a mere share in the residue but to a reversionary interest in specific leasehold of premises.[20] Next is Re Savage's Caveat,9 which was a caveat by a next-of-kin against a title to land forming part of an intestate estate. That decision is to a similar effect as the Guardian Trust decision. McGregor J held that the caveator merely had a right to a share in the surplus of the intestate estate after all liabilities had been discharged and, until those liabilities had been discharged, there was no right to lodge a caveat under s 137 of the 1952 Act.[21] The decision of Somers J in Sullivan v Brett10 explains the underlying rationale of the law. He said:11The whole of the estate of the deceased is available to an executor for the payment of debts and testamentary expenses and his other functions in the administration of the estate. The testator's property reaches the executor as such "in full ownership, without distinction between legal and equitable interests". Those interested in residue under the will have no true beneficial interest in the assets in the hands of the executor during the course of administration — their right is to require and to enforce the due administration of the estate. On all of this see Commissioner of Stamp Duties (Queensland) v Livingston.12... The reason, at least in part, is that until it can be seen what exists as residue after administration there are no specific assets to which a trust can attach.[22] The judgment goes on to consider the question of assent. Somers J continued:13Whether the executor's functions have been completed so that the actual assets which comprise that residue to which the trusts of the will may attach have been ascertained depends upon the course of administration and is normally only within the executor's knowledge. To meet the claims of executor and beneficiary the law evolved the concept of assent as the means9 In Re Savage's Caveat [1956] NZLR 118 (SC).10 Sullivan v Brett [1981] 2 NZLR 202 (CA).11 At 206.12 Commissioner of Stamp Duties (Queensland) v Livingstone [1965] AC 694 (PC).13 At 206-207.by which a personal representative might indicate that he does not require particular property of his deceased for the purposes of administration and that it may pass to the beneficiary: ... But the giving of an assent cannot depend upon the whim of the executor and in an appropriate case equity will compel the personal representative to give his assent ...All this is not to suggest that a formal assent by the executor is necessary; still less that it is other than rare, at least in New Zealand. Its existence is material only to the question of whether an executor has, quoad all or some of the assets of his deceased, lost that character and become a trustee for the beneficiary. The issue is not what the executor believes or intends to be the case. It is what the facts demonstrate. ...Where as is usually the case there is no formal assent the circumstances are considered to see whether an inference of assent can be drawn. In the case of residue that will usually depend upon whether all claims against the estate for debts legacies, testamentary and administration expenses have been paid. For it is not until that stage has been reached that the existence and nature of the residue can be ascertained. ... Actual assent may be viewed as evidence against the executor that such a state of affairs has been reached. But if in fact reached assent will be inferred. Assent is evidence; the actual fact of ascertainment of residue will import assent.14[23] Mr Hickey also cited the decision of the Court of Appeal in Jurkovich v Fortune15 for the proposition that beneficial interests in the particular instance may vest in the residuary beneficiary once the residue is ascertained because there is an identifiable subject matter to which a trust may attach, and also for this proposition:16The true position must be that the residuary beneficiaries would be entitled on the completion of administration to have the assets then remaining transferred to them in specie.[24] The evidence is that there are effectively three assets left in the residue of the estate. The executors give the assets and liabilities of the estate as follows:Funds held in trust account of respondent's solicitors: $17,527.07House property (valued at 11 June 2009): $625,000.00Monies owing by Bruce Going (one of the respondents): $67,589.18Total: $710,116.2514 At 207.15 Jurkovich v Fortune [1988] 2 NZLR 442.16 At 448.[25] I note that Mrs Allen does not necessarily accept the amount owed by Bruce Going and that there may be reason for challenging the calculation of that amount and the rate of interest charged to Bruce Going on the debt. As I have said, I am not concerned to determine whether her concerns are justified or not. In referring toBruce Going's debt, I am not to be understood to be adopting that as a correct figure.[26] The only liabilities noted are legal expenses on the caveat application and legal expenses on final distribution. I think I can also take into account the fact that there may be ongoing costs to the respondents in meeting outgoings on the property in Marlin Place: rates, insurance on improvements and no doubt maintenance costs that come up from time to time.[27] Mr Brown focused on those ongoing costs, to say that the administration of the estate by the respondents cannot be complete because there are these ongoing costs to be met. He referred to passages in Sullivan v Brett where Somers J refers to administration expenses and says:17These are administration expenses that are referable to the execution of the will rather than the administration of the trusts.[28] I do not accept that submission. The estate has reached the point where the property in Marlin Place can be undoubtedly identified as falling into the residue. The role of the respondents is now that of trustees alone. They are holding this property subject to the beneficial interests in favour of themselves and their sister.[29] Mrs Allen is entitled to say that she has a beneficial interest in the Marlin Place property. However the estate is distributed, whether in specie or by sale and distribution of the proceeds, she has a beneficial interest. The beneficial interest is no longer held by the respondents as executors. Their executorship is over. The fact that they have to meet costs relating to the property simply recognises that those are the responsibilities that they have as property-owners in holding the property as trustees while also subject to beneficial interests of others.17 At 207.[30] I note that in Holt v Anchorage Management Ltd,18 McMullin J suggested that there would not be a caveatable interest in an estate where real property was only an undefined part of the subject matter of the trust. That is not the case here. The real property in this case has been clearly defined as part of the subject matter of the trust.[31] On that basis, as Mrs Allen has established a beneficial interest in the property, she is entitled to lodge a caveat against the title. Accordingly, I hold that she does have a caveatable interest.[32] My finding that Mrs Allen has a caveatable interest, however, does not dispose of all matters. If I were to complete my judgment here, while Mrs Allen would be vindicated in having her caveatable interest upheld, it is foreseeable that the parties might have to come back to court to get other matters resolved. It is clearfrom Mr Bruce Going's affidavit that the respondents want to sell the property. There is no evidence that Mrs Allen has any desire to buy her brothers' interests inthe property. The matter to be resolved is to work out a method by which MrsAllen's interest can be protected but, at the same time, the presence of the caveatagainst the title does not operate as a fetter on the trustees exercising their powers of sale which they hold under the will.[33] I have suggested to counsel that it may be possible to devise some formula under which the caveat can be removed without requiring them to come back tocourt, upon the respondents' exercising their power of sale.[34] The decision of Williams J in In Re Bielfeld shows that the caveator is entitled to be protected against sale for an improper or collusive purpose. That means that she is entitled to maintain her caveat to be protected against any improper sale by the respondents. In Re Bielfeld involved, on the face of it, what looked like an improper sale. Mr Browne gives me assurances that the respondents have no desire to make any improper sale of the property and will give assurances that they will consult with their sister. Nevertheless, the approach taken by the Court of Appeal in the Pacific Homes case indicates that a cautious approach is required and18 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA).that the rights of the caveator should be protected if at all possible. Clearly there is equity in the property. Clearly Mrs Allen has a right to a share in the proceeds of sale. What needs to be achieved is a mechanism under which the respondents can sell the property without the caveat operating as a fetter on the exercise of the power of sale.[35] I am all too conscious that it will be difficult to sell a coastal property such as this in the present depressed market, and that purchasers might turn cold if they are informed that the sale of the property may require a determination of the court first. Purchasers may lose interest and abandon a possible purchase.[36] I am accordingly going to adjourn this matter. In the meantime, I want the parties to confer to see if they can work out a mechanism by which the respondents are entitled to sell the property with the assurance that the caveat will be released if the sale is not made improperly or for a collusive purpose, but at the same time Mrs Allen has protection if the exercise of the power is collusive or improper. I trust that engineering such a mechanism will not be beyond the wits of the parties.[37] I also reserve the question of costs. Mr Hickey has submitted for costs for his client and for the respondents to pay their costs personally. I bear in mind that thecaveator's interest has been vindicated but there are going to be questions as to whatpart of the estate should carry the costs and whether the respondents should be able to recover their costs from the estate as well. Counsel have not cited any authorities. I would be grateful to counsel if they could refer to case law which can guide me on the exercise of the costs power in such cases.[38] I propose that the parties file submissions as to the mechanism, and I trust that they will be able to file a joint memorandum. If they are unable to agree they may file separate memoranda and I will hear argument. As to costs, they should file separate memoranda. I suggest that Mr Hickey file his submissions one week before the hearing, with Mr Browne replying by filing submissions two days before the hearing.I will deal with the outstanding issues by way of a 9:00am telephone conference in Auckland. The Registrar is to allocate a date after conferring with the High Court in Auckland. In the meantime the interim order sustaining the caveat remains in force._______________________R M BellAssociate Judge