Y E FULLER as trustee of the Yvonne Fuller's Family Trust v H W SMEETS as trustee of the Herman Smeets Family Trust [2013] NZHC 1284

Y E FULLER as trustee of the Yvonne Fuller's Family Trust v H W SMEETS as trustee of the Herman Smeets Family Trust [2013] NZHC 1284 [31 May 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-000961[2013] NZHC 1284BETWEEN YVONNE ELIZABETH FULLERas trustee of the Yvonne Fuller's FamilyTrustPlaintiffAND HERMANUS WILHELMUS SMEETSas trustee of the Herman SmeetsFamily TrustDefendantHearing: 28 May 2013Appearances: J A Adams for PlaintiffMr H M Smeets, Defendant, in personJudgment: 31 May 2013JUDGMENT OF ASSOCIATE JUDGE MATTHEWSThis judgment was delivered by me at 3.30 pm on 31 May 2013pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:J A Adams Barrister, Manukau City.H W Smeets, Auckland[1] The plaintiff is a trustee of the Yvonne Fuller's Family Trust, and thedefendant one of the trustees of the Herman Smeets Family Trust. The trusts are owners as tenants in common of a property at 160 Ramarama Road, Auckland. At the time it was bought, Yvonne Fuller and Hermanus Smeets were living in a de facto relationship, and the property was used as their family home until theyseparated in September 2012. Yvonne Fuller's trust seeks an order under s 339 of the Property Law Act 2007 that the property be sold under the supervision of the Registrar of the Court, by auction, and ancillary orders to effect that process.[2] Yvonne Fuller's trust seeks summary judgment, that is judgment without trial, for these orders.[3] Summary judgment may be ordered under r 12.2 of the High Court Rules when a plaintiff satisfies the Court that a defendant does not have a defence to a claim. The onus of establishing that rests entirely on the applicant, but if an application is opposed it is for the respondent to demonstrate a tenable defence.1Procedural issues[4] This proceeding should not have been brought by one trustee, and against one trustee, only. Both trusts have two trustees and they must be parties. By consent I direct that Annette Reilly is added as a plaintiff, and Yvonne Fuller as a defendant. Given the issues between Yvonne Fuller and Hermanus Smeets, both will no doubt reflect on whether Yvonne Fuller should remain as a trustee of the Herman Smeets Family Trust. If she ceases to be a trustee a further order removing her as a defendant will be made.Facts[5] Ms Fuller and Mr Smeets formed a de facto relationship early in 2001. In November 2002 and February 2004 Mr Smeets and Ms Fuller respectively set up family trusts. Each was a discretionary beneficiary and final beneficiary in the trust1 Auckett v Falvey HC Wellington CP296/86, 20 August 1986; MacLean v Stewart (1997) 11 PRNZ 66 (CA).of the other, and until November 2012 Mr Smeets was a trustee of Yvonne Fuller'strust. As noted above, she remains a trustee of his trust.[6] Initially they lived at a farm property owned by Mr Smeets but in 2004 he sold the farm and in June that year the property at Ramarama Road was purchased for $750,000. Approximately $200,000 was contributed by Mr Smeets or his trust and $550,000 was borrowed from Westpac. Each trust took title as a tenant in common for an equal share. Ms Fuller sold her residential property and in July 2004 her trust repaid $275,000 of the Westpac mortgage. The following year Mr Smeets received an inheritance of around $55,000 which he too applied in reduction of the mortgage, through his trust. Over the next few years significant further repayments of the mortgage were made from surplus income.[7] In May 2010 the two trusts purchased another property, in Umere Crescent, Auckland for $320,000. All of this was borrowed from Westpac. Ms Fuller's sonrented the property from the trusts. In April 2012 the half share of the Umere Crescent property owned by Mr Smeet's trust was transferred by way of distribution to Ms Fuller's trust, which was then partially distributed by transferring this property entirely to Ms Fuller. She then sold it to the Jackson Rogers Trust, the trust of Ms Fuller's son. All these transactions were agreed on the basis of the property passing at its purchase price, so that in the end the Jackson Rogers Trust owed Ms Fuller $320,000 for the purchase of the property from her. In July 2012 Mr Smeets agreed that this asset of Ms Fuller's was separate property, under theProperty (Relationships) Act 1976.[8] The advance from Westpac used to purchase the Umere Crescent property remained secured on the Ramarama Road property, and no agreement was made thatresponsibility to repay the loan passed to Ms Fuller's trust at the time the propertywas transferred. Repayments continued, and by January 2013 the balance of the advance was $148,000. Mr Smeets continues to live in the property. He told me that he pays the interest on the mortgage, the rates and the insurance. Mr Adams told me his client has made the capital repayments which had reduced the debt, and in her affidavit of 7 May Ms Fuller says she pays "a half share of the mortgagerepayments".The Property Law Act 2007[9] Section 339 of the Act states:339 Court may order division of property(1) A court may make, in respect of property owned by co-owners, an order—(a) for the sale of the property and the division of the proceeds among the co-owners; or(b) for the division of the property in kind among the co-owners; or(c) requiring 1 or more co-owners to purchase the share in the property of 1 or more other co-owners at a fair and reasonable price.(2) An order under subsection (1) (and any related order under subsection (4)) may be made—(a) despite anything to the contrary in the Land Transfer Act 1952; but(b) only if it does not contravene section 340(1); and(c) only on an application made and served in the manner required by or under section 341; and(d) only after having regard to the matters specified in section 342.(3) Before determining whether to make an order under this section, the court may order the property to be valued and may direct how the cost of the valuation is to be borne.(4) A court making an order under subsection (1) may, in addition, make a further order specified in section 343.(5) Unless the court orders otherwise, every co-owner of the property (whether a party to the proceeding or not) is bound by an order under subsection (1) (and by any related order under subsection (4)).(6) An order under subsection (1)(b) (and any related order under subsection (4)) may be registered as an instrument under—(a) the Land Transfer Act 1952; or(b) the Deeds Registration Act 1908; or(c) Part 1 of the Crown Minerals Act 1991.[10] Section 342 of the Act sets out a number of matters to which the Court must have regard when considering an application under s 339. These are:(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 plaintiff 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.[11] Section 343 grants the Court further powers to make orders in addition to an order under s 339(1). Under this section the Yvonne Fuller's Trust sought an order requiring the defendants to pay a fair occupation rent, and various orders on the mechanical aspects of the sale.The Property (Relationships) Act 1976[12] Neither Ms Fuller nor Mr Smeets has brought an application for determination of their rights in respect of relationship property as defined in the Property (Relationships) Act. Their relationship property consists of shares, vehicles and other personal assets, but the Ramarama Road property is not relationship property. It has never been owned by Ms Fuller or Mr Smeets; it was bought and continues to be owned by their respective trusts.[13] Accordingly, notwithstanding the statutory regime for the division of relationship property, this application by Yvonne Fuller's Trust must be considered under the Property Law Act 2007 without reference to the Property (Relationships) Act. Mr Smeets sought consideration of contributions he made to the initial purchase of the Ramarama Road property, and subsequent contributions he made to repayments on account of the Westpac advance on that property. He also said thatthe Court should take into account the benefit derived by Yvonne Fuller's Trust fromthe distribution of the Herman Smeets Trust's half share of the Umere Crescent property, without Yvonne Fuller's Trust having contemporaneously assumed soleresponsibility for repayment of the advance Westpac made to fund its purchase.[14] If the Ramarama Road property were relationship property under the Property (Relationships) Act, a Court charged with considering property rights under that Act might examine the overall relationship property position, including the contributions each party made to its acquisition and repaying advances taken out for that purpose. However, this is not a relationship property division case. It is an application by one tenant in common for an order that co-owned property be sold and the proceeds divided in accordance with the shares in which the title is held. As the Ramarama Road property was the home in which Mr Smeets and Ms Fuller lived it is understandable that Mr Smeets may feel that he is entitled to have this case considered in the way it might have been considered had he and Ms Fuller elected to buy the property in their own names, resulting in it being relationship property. However, that is not the position.Discussion[15] As will be seen above, s 342 sets out a list of matters to which I must have regard in considering this application. I will consider these in turn:(a) The extent of the share of the applicant co-owner in the property. Here, there are two co-owners, owning the property equally, so this factor does not favour either Ms Fuller or Mr Smeets.(b) The nature and location of the property. The property is a lifestyle block with a residence on it, formerly used as Ms Fuller and Mr Smeets' residence. In submissions Mr Smeets emphasised his view that as the property is located close to a substantial industrial development, its present value is below its rateable value, but with the industrial development completed, including landscaping to screen it from view, the value will rise. Mr Smeets also believes that the emphasis in the proposed Auckland City Plan on increasing the density of housing will lead in due course to the property being subdivisible.He says both of these factors will lead to it being worth considerably more, in two or three years time, than it is now. He would like the property to be retained for that time so that these benefits can be reaped. On the other hand, Ms Fuller's position is that the house washer home, and was funded in part from the proceeds of sale of her previous home. She now lives in Sydney, and she wants to take steps to obtain another home.(c) The number of other co-owners and the extent of their shares. As noted, there are two co-owners, with equal shares. This factor does notfavour either the plaintiff's or the defendant's position.(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. In this case the positions to be weighed up are those of Ms Fuller and Mr Smeets, as their respective trusts received monies from their former homes which went into the property at Ramarama Road, and are thus the gateway to provision of residences for them in the future. Mr Smeets says that there will be hardship to him if the property is sold, because he lives there at present, and if the property is retained his trust will receive more money as a result of the property increasing in value for the reasons I have described. He says that Ms Fuller will not suffer hardship if the property is retained because she has a substantial income and can, in effect, provide for herself. She says, however, that her income has dropped as a result of her move to Sydney and that she is caused hardship by the funds representing her home being tied up in a property in this country in which she will not reside again. She left the relationship some eight months ago.(e) The value of any contribution made by any co-owner to the cost of improvements to or the maintenance of the property. There is some evidence that some improvements were carried out to the home by the installation of new carpet and wooden flooring, but Mr Smeets said this was paid for with funds he and Ms Fuller had available in "the trust",which does not assist in assessment of this element. Overall the impression I have from the evidence is that Ms Fuller and Mr Smeets were setting up a home and used monies that were available to them from one source or another to effect a few improvements to the property they had bought, and to equip it with some new fittings. The evidence does not favour one side or the other in this respect.(f) Any other matter the Court considers relevant. The only other factor I consider relevant is the effect of the decision by Mr Smeets and Ms Fuller as trustees of his trust to partially distribute it by transferring the Umere Crescent property to Yvonne Fuller's Trust. As noted, the effect of these steps is that his trust lost the Umere Crescent property but retained liability for the mortgage that was borrowed to buy it.That transaction was documented with the aid of a solicitor, and Mr Smeets had independent legal advice at least in respect of one of the documents, an agreement under the Property (Relationships) Act in relation to the advance Ms Fuller made to her son's trust. Why the transaction was documented in such a way that the distribution of the asset took place without a corresponding transfer of responsibility for repayment of the mortgage to Yvonne Fuller's Trust is not explained. Mr Smeets says that the result of this is that his trust is $320,000 worse off. That is not, in fact, the position. His trust owned only half the Umere Crescent property so at most it is $160,000 worse off. Further, since the transaction took place, the mortgage has reduced from $320,000 to under $150,000, a reduction of some $170,000. Ms Fuller says that since then she has continued to meet her half share of mortgage repayments, but it is not clear on the evidence who has made the mortgage repayments ([7] above).As a result the evidence does not allow me to establish with precision whether or not Mr Smeets would be disadvantaged by a sale of the property and equal division of the net proceeds after repaying the balance of the Westpac mortgage. I therefore find that in deciding whether to order that the property be sold I can give little weight to theconsequences of the transactions the trusts entered in relation to the Umere Crescent property. I return to this point when considering the orders that should be made.Overall assessment of the factors in s 342[16] Overall I find that the matters I am directed to take into account favour the sale of the property. The relationship has been over for some eight months and Ms Fuller has moved to Australia. The reason for which the two trusts became tenants in common has ended. The trusts have different beneficiaries and their respective trustees should now hold assets over which they are able to exercise separate control. Although Mr Smeets is living in the house it was not suggested that he could not afford to live elsewhere. His net income is $762.13 per week and his calculation of his weekly expenses shows a shortfall of some $126 per week. However, the expenses include principal repayments on the mortgage of $230.77 per week which, of course, would not necessarily be incurred if the property were sold and alternative accommodation obtained. His budgeted expenses on this property are well over $500 per week. I find that there would not be a significant hardship to Mr Smeets in having to provide for his housing elsewhere.[17] So far as his views about the potential for the property to increase in value are concerned, he did not lead independent evidence, and whilst I can understand his view that the present nearby industrial development may presently be suppressing the value of properties in the area, and his general expectation that if subdivision becomes possible a greater sum may be able to be realised for the property, these were not analysed nor supported by any independent evidence from any persons who would have expertise in these areas. Again I can give these little weight.[18] Finally, from the personal perspectives of Ms Fuller and Mr Smeets, there are advantages to both of them in separating the financial affairs of their respective trusts so those trusts can provide for their housing or other aspects of their welfare in the future, should the trustees consider that appropriate.[19] Accordingly I am satisfied that I should make an order that the property be sold, and the proceeds of sale divided in the way I will set out.Consideration of appropriate orders[20] It is necessary to decide whether the net proceeds of sale should be divided equally. I have considered carefully whether I should call for further evidence in relation to how the balance of the Westpac advances has been arrived at, and in particular how much either Ms Fuller or Mr Smeets has contributed by way of capital repayments. I have decided not to do so for these reasons. The trusts entered into the transaction by which the Umere Road property was distributed in the knowledge that there was a debt with Westpac relating to its purchase and did not take steps then to reallocate responsibility for repayment of that loan. Herman Smeets explains that by reference to the fact that this transaction was undertaken when he, at least, believed the relationship was ongoing, and he says that he would not have done so had he realised that just a short time after the documents were executed Yvonne Fuller would decide to terminate the relationship. Whilst I can see the basis upon which he holds that view, at a personal level, it must be recognised that this property is owned by two trusts and at the time, both Mr Smeets and Ms Fuller were trustees of each trust and made decisions on legal advice in relation to the trust assets. They did not provide for the debt to be the responsibility of only the Yvonne Fuller Trust when the property was transferred to it by way of partial distribution at a time when they could have done so. The application before the Court does not call for an analysis of the contributions Mr Smeets and Ms Fuller have each personally made to the Westpac debt in order to achieve equality of assets between the two trusts. Rather, the trusts reached an agreement and carried it into effect. As a result Ramarama Road remained in common ownership and the debt incurred for the purchase of Umere Crescent remained secured on it. That is the position which should be reflected in the orders for sale and division of the proceeds.Occupation rent[21] Ms Fuller sought an order that Mr Smeets pay occupation rent. I have power to direct such a payment under s 343(f). There was no evidence before me in relation to a fair rental; nor did the evidence establish that occupation rent should be awarded. Mr Smeets has been in occupation of the property for some eight monthsbut he has contributed to the outgoings, including mortgage payments. I am not prepared to make an order.Other issues[22] Mr Smeets raised a number of other issues, including his view that he should receive spousal maintenance. This is not an issue before me on this application. No orders beyond those directly relating to the sale of the property will be made.Outcome[23] I am satisfied that the Herman Smeets Family Trust does not have a defence to this application for summary judgment. I enter summary judgment in the following terms:(a) An order pursuant to s 339(1) of the Property Law Act 2007 directing the sale of the property at 160 Ramarama Road, Auckland, being all that land comprised and described in Certificate of Title NA135C/681 (North Auckland Registry).(b) The property will be sold by public auction to be conducted under the supervision of the Registrar of the High Court at Auckland.(c) The Registrar is authorised to take such steps as may be necessary to effect the sale, including the engagement of a listing agent. The costs of advertising, signage and promotion, and the expenses of auction, areto be paid to the Registrar by the Yvonne Fuller's Family Trust in thefirst instance. The Registrar at Auckland is empowered to decide all issues arising in relation to the sale and to sell the property at, before or after the auction as he thinks fit.(d) The sale price shall be determined by the Registrar. The Registrar may seek the advice of a registered valuer on issues relating to sale price, at his discretion, including whether a reserve price should be set and if so what that price should be, and in the event that a fee is incurred this,too, shall be paid by the Yvonne Fuller's Family Trust in the firstinstance.(e) A firm of solicitors independent of each party is to be engaged by the Registrar to act for them both in relation to the sale. The Registrar may select the firm to be engaged.(f) The Registrar of the Court is authorised to sign all documents necessary to effect the sale including the agreement for sale and purchase and all authorities and instructions that may be necessary.(g) From the proceeds of sale the following deductions are to be made:(i) Real estate agent's commission, valuation fees and sale expensesthat have not, at that time, already been paid by the plaintiff.(ii) All sums paid by the plaintiff as directed in this judgment which are to be refunded to the plaintiff trust.(iii) Any outstanding rates or insurance premiums on the property.(iv) Legal fees and disbursements attendant on the sale.(v) The reasonable fees of the Registrar for the process required by this order.(h) Pending sale the defendant trust will ensure that the property is kept in a clean, tidy and presentable condition for sale and shall make reasonable access available for viewing as the agent appointed by the Registrar shall require.(i) The next proceeds of sale after payment of all sums referred to in this order are to be paid to the plaintiff trust and to the defendant trust in equal shares.[24] I reserve leave to the plaintiff, the defendant, and the Registrar of the Court to apply for such further orders as may be thought necessary to give effect to the judgment on this application.[25] The plaintiff trust is entitled to costs. The defendant trust will pay to the plaintiff trust costs on a 2B basis plus disbursements fixed by the Registrar._______________________J G MatthewsAssociate Judge