Home | Databases | WorldLII | Search | Feedback High Court of New Zealand Decisions

Atkinson v Berry [2014] NZHC 2318 (18 September 2014)

Last Updated: 29 September 2014

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2014-470-135 [2014] NZHC 2318

_{ORAL JUDGMENT OF ASSOCIATE JUDGE BELL}

Solicitors: Sharp Tudhope, Tauranga

Beach Legal Solicitors, Mt Maunganui

Atkinson v Berry [2014] NZHC 2318 [18 September 2014]

[1] Mr Atkinson has applied to remove the caveat lodged against his property at

50 Pyes Pa Road, Tauranga. The caveat is 7824587.1. Ms Berry lodged it on

22 May 2008. The interest claimed in the caveat is:

Pursuant to a constructive trust, under which the caveator is sole beneficiary of the trust, in respect of which Kester D Atkinson is the registered proprietor and the trust property is the abovenamed land; the trust arising in consequence of the caveator assisting in improving the property by use of her monies in assisting the registered proprietor in acquiring the said property.

[2] There has already been one decision about this caveat. On 24 June 2009, Associate Judge Doogue upheld the caveat on an application to sustain it under s 145A of the Land Transfer Act 1952.¹ Judge Doogue held that at that time, Ms Berry had a caveatable interest in the Pyes Pa Road property. The question on this application comes down to whether she still has a caveatable interest.

[3] To decide that requires a decision whether Ms Berry is still able to continue proceedings in the District Court against Mr Atkinson to sustain the interest she claims. Having explored matters with the parties, I have accepted the proposal by Mr McArthur for Ms Berry that rather than an immediate decision today as to the caveat, the matter ought to be held over for the District Court to determine whether Ms Berry is still able to maintain her proceeding in that Court.

[4] With my encouragement, the parties have agreed on interim arrangements. Those arrangements will allow Mr Atkinson to put the property on the market and, upon settlement of any sale, Ms Berry’s caveat will be removed. In the meantime, Mr Atkinson is to apply to the District Court under r 15.2 of the District Courts Rules

2014 for an order striking out Ms Berry’s proceeding for want of prosecution. It is expected that Mr Atkinson will apply within the next 14 days. It is possible that the strike out application under r 15.2 may be heard in the District Court on

16 December 2014. The parties have agreed that if Mr Atkinson succeeds in having proceedings struck out (whether at first instance or on appeal), he will be entitled to

_{the proceeds of sale. If Ms Berry succeeds in keeping proceedings on foot at first}

¹ Berry v Atkinson HC Auckland CIV-2009-470-368, 24 June 2009.

instance, the funds are to be held in trust to await final determination of the District Court proceeding. If the property sells before the hearing of the strike-out decision, the proceeds of sale will likewise be held in trust. At the end of this decision I will set out more fully the particular terms that the parties have agreed. They will be slightly adjusted because of the discussion I have had with counsel.

Background

[5] I now set out the background to explain why I am taking this course.

[6] Ms Berry and Mr Atkinson were in a de facto relationship for a short period. Mr Atkinson says that he met Ms Berry in 2004. They began living together in 2006 when she moved into his property at 9A Taylor Road, Papamoa. He says that at that time she owned a property at 16 Lincoln Terrace, Gate Pa, Tauranga; that she was trying to sell it; that he helped her by repaying some of her debts; that he carried out work on that property; that in July 2007, he bought the property at 50 Pyes Pa Road; that he intended to carry out renovations on the property (he is a qualified builder) and on-sell it. They moved into the property in July 2007 while he carried out renovations. Their relationship came to an end in November 2007 when Ms Berry moved out.

[7] In May 2008, Ms Berry began a proceeding in the District Court at Tauranga. At the same time, she lodged the caveat against the title to the property. The proceeding in the District Court (under CIV-2008-070-440) contains three causes of action:

(a) A monetary claim for $90,000, plus interest alleging that Mr Atkinson took $90,000 on several occasions between May and October 2007 without her consent.

(b) A claim of a constructive trust, saying that the funds she alleges Mr Atkinson took can be traced into the Pyes Pa Road property because he spent the funds in maintaining and improving the property.

(c) A claim of a constructive trust of the sort recognised in decisions such as Gillies v Keogh² and Lankow v Rose.³ Ms Berry says that she worked on renovating and improving the property and she had a reasonable expectation of having an interest in the property. She seeks a declaration that she has a 50 per cent interest in the property and an order for sale of the property.

[8] While she filed and served the proceeding in 2008, Mr Atkinson did not file any statement of defence. In paragraph 16 of her affidavit, Ms Berry sets out a chronology of steps taken in the proceeding. It begins with Judge Doogue’s decision upholding the caveat. It records that there was an initial grant of legal aid in June

2009. It records a large number of attendances related to legal aid matters. They included: dealing with complaints by Mr Atkinson’s lawyers as to the grant of legal aid, and the steps taken by her lawyer to keep the grant of legal aid, which was eventually provided only for Ms Berry to attend a judicial settlement conference. Otherwise, legal aid was withdrawn in May 2011. In August 2011, Ms Berry’s lawyer wrote to Mr Atkinson’s lawyer proposing a settlement conference. That came to nothing. The last item in the narration is for December 2011 where she says that her lawyer reported to the legal aid authorities. She says that the matter has languished since then.

[9] No action has been taken in the proceeding until this year when Mr Atkinson applied to have the caveat removed. He did so because of a drastic change in his circumstances. He has been diagnosed with prostate cancer. Moreover, a consultant urologist, whose letter has been put in evidence, records that his prostate cancer is 9 on the Gleason Scale. That is a diagnosis of a very aggressive form of prostate cancer. The urologist has written:

Unfortunately, this is a terrible disease and there is no advantage of having surgery or radio therapy at this stage.

Mr Atkinson is having chemotherapy but that is only with a view to extending his life somewhat. In short he is facing imminent death. Mr Atkinson wants

_{to put his affairs in order. To that end, he wants to remove the caveat from}

² _{Gillies v Keogh [1989] NZCA 168; [1989] 2 NZLR 327 (CA).}

³ Lankow v Rose [1995] 1 NZLR 277 (CA).

the title and sell the property. The orders I make today will allow him to sell the property and will also ensure that the proceeds of sale are secured until it is known whether Ms Berry is to continue the proceeding.

Is Ms Berry’s proceeding still pending in the District Court?

[10] The question whether Ms Berry is able to continue the proceeding is not a straightforward one. Today it has required an examination of the provisions of the rules for civil procedure in the District Court. At the time that Ms Berry began her proceeding the District Court Rules 1992 were in force. Those rules contained a r 426A:

(1) If a proceeding has not been set down for hearing and at least 12 months have elapsed since the last step was taken in that proceeding, no further step may be taken in that proceeding without the leave of the Court.

(2) Leave must not be given under subclause (1) unless the Court is satisfied that there is a proper issue to be heard in the proceeding.

[11] It is common ground that following the initial launch of the proceeding in May 2008, no steps were taken for the next 12 months and from that point r 426A applied.

[12] On 1 November 2009, the District Courts Rules 2009 came into force and the District Courts Rules 1992 were revoked. However, there was a saving provision. Rule 17.2.2 of the District Courts Rules 2009 provided:

Despite the revocation of the District Courts Rules 1992 civil proceedings to which this rule applies are to be continued, completed, and enforced under those rules as if those rules had not been revoked.

[13] Mr Berry’s proceeding comes within this rule as it was commenced before the District Courts Rules 2009 came into force. That meant that if Ms Berry were to take any steps in the proceeding, she would still need to apply under r 426A of the

1992 rules.

[14] The 2009 rules have in turn been revoked. They have been replaced by the

District Courts Rules 2014 as from 1 July 2014. Rule 1.6 and sch 1 of the latest

rules contain transitional and savings provisions. I explored with counsel how those provisions apply to Ms Berry’s proceeding. Schedule 1 appears generally to be directed at proceedings started under the 2009 rules. There is no express reference to proceedings started under the 1992 rules. That is understandable. Most people would expect that a proceeding started before November 2009 would have been resolved before July 2014.

[15] I make an assumption as to the way these provisions operate. They are intended to apply to proceedings in the District Court which had not been finally resolved before 1 July 2014. By “finally resolved” I mean discontinued or struck out or a settlement had been entered into or judgment had been given. If none of these things had occurred, then I would treat a proceeding as still pending before the Court. That is because, however theoretical it might be, it may remain open for the proceeding to be kept going. In other words, I regard Ms Berry’s proceeding as pending before the District Court on 30 June 2014. It is accordingly a pending proceeding within cl 2 of sch 1, pt 1 of the District Courts Rules 2014. While it is a pending proceeding, there is only a very narrow basis for it. It survives only because no formal steps under the District Courts Rules have been taken to finally conclude the proceeding. The effect of r 426A of the 1992 rules was to prevent any further steps being taken without leave of the Court on a proper case being shown. But so long as it remained possible to apply under r 426A, it could not be said that the proceeding ceased to exist.

[16] At the same time, it has to be noted that if Ms Berry had applied for leave to continue the proceeding under r 426A of the 1992 District Courts Rules, she would have faced difficulties. The question would come down to this: whether, on an application under r 426A, the District Court would decide that the proceeding should not be allowed to continue because of a lack of prosecution. It becomes clear that the District Court would approach the matter that way when regard is had to the

judgment of Tipping J in Commerce Commission v Giltrap City Ltd.⁴ In that case the

_{Court of Appeal was dealing with a case under the old r 426A of the High Court}

⁴ Commerce Commission v Giltrap City Ltd (1997) 11 PRNZ 573 (CA).

Rules, which was in the same terms as r 426A of the District Court Rules 1992. Tipping J said:⁵

Rule 426A is concerned primarily with case management and the due progress of litigation. Essentially, leave should be granted under r 426A unless the case is such that an order under r 478 striking out for want of prosecution would be justified. If this were not the position, r 426A would become a basis for de facto striking out (by refusal of leave to proceed) in circumstances not justifying a direct order for striking out. The purpose behind r 426A is obviously to promote due diligence and expedition in the progress of litigation; but the rule cannot be allowed to become an indirect basis for striking out unless direct striking out is justified.

[17] Rule 478 of the High Court Rules (allowing striking out for want of prosecution) had a counterpart in the District Courts Rules 1992. There are also similar rules in the current High Court Rules and in the District Courts Rules 2014. That is r 15.2 in the District Courts Rules 2014. What that comes to is that if Ms Berry had applied for leave under r 426A, say, earlier this year so as to continue this proceeding, any opposition to her application would need to show that a strike- out application for want of prosecution would have succeeded. Barring that, the District Court would have given case management directions to ensure that the case would proceed in an orderly fashion. The question of a proper issue to be tried was unlikely to trouble the District Court, given the findings of Associate Judge Doogue on the earlier caveat application.

[18] The question now is: what is to happen to the proceeding now that it is subject to the District Courts Rules 2014? I note that there is no rule equivalent to the old r 426A, but as mentioned there is power to strike out for want of prosecution. The question should be decided by a District Court judge, not by me sitting in a caveat jurisdiction.

[19] Today, Mr McArthur submitted, essentially, that Ms Berry’s proceeding had survived intact and she could proceed unbothered by r 426A. He did not address any questions as to possible strike out under r 15.2. On the other hand, Ms Grice for Mr Atkinson submitted that the proceeding had expired already. In my view, although it was stayed under r 426A, the case has survived as a pending proceeding.

_{But the question of its vulnerability to strike out for want of prosecution remains.}

⁵ At 576–577.

Neither side came equipped with full argument whether the proceeding could be struck out.

[20] The principles to be applied under r 15.2 are well established. There is a useful discussion of the test in McGechan on Procedure at [HR15.2].⁶ A leading authority summarising the principles is the decision of Eichelbaum CJ in Lovie v Medical Assurance Society New Zealand Ltd.⁷

[21] Because counsel have not prepared and Mr McArthur intimated that if that matter were to be argued under r 15.2, Ms Berry would wish to adduce further evidence, and as the matter is a proceeding in the District Court, it is appropriate for that Court to decide whether it should continue. That is preferable to my usurping its jurisdiction by deciding the matter. For these reasons, I am holding this application over to await the determination of the District Court.

Could Ms Berry bring a fresh proceeding?

[22] There are, however, some other matters that I wish to record.

[23] Mr McArthur also argued that even if the claim were struck out under r 15.2, he could start a fresh proceeding. His submission is that the second and third causes of action, being claims by a beneficiary against a trustee, were not subject to any limitation provision. For that he was relying on s 21 of the Limitation Act 1950. It was common ground that that Act continues to apply, not the Limitation Act 2010, owing to the operation of s 59 of the 2010 Act. Section 21 says:

Limitation of actions in respect of trust property

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property

_{or in respect of any breach of trust, not being an action for which a}

⁶ _{McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.2].}

⁷ Lovie v Medical Assurance Society New Zealand Ltd [1992] 2 NZLR 244 (HC) at 248.

period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

(3) No beneficiary as against whom there would be a good defence under this Act shall derive any greater or other benefit from a judgment or order obtained by any other beneficiary than he could have obtained if he had brought the action and this Act had been pleaded in defence.

[24] Section 21(1) provides that there is no limitation period for a claim by a trust beneficiary under subs (a) and (b). For other proceedings by a beneficiary against a trust or trustee, under subs (2) there is a six-year limitation period. Provisions such as 21(1) and (2) have been the subject of quite complex case law, of which the most recent is the decision of the United Kingdom Supreme Court in Williams v Central

Bank of Nigeria.⁸ The leading judgment is that of Lord Sumption. The general

thrust of his judgment, following earlier authorities, is that the law applies a distinction between claims against those who are already trustees and are alleged to have misconducted themselves as trustees, and those whom the law treats as trustees solely by virtue of their misconduct.

[25] Lord Sumption drew support from the judgment of Millett LJ in Paragon

Finance plc v DB Thakerar & Co:⁹

Regrettably, however, the expressions “constructive trust” and “constructive trustee” have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the

⁸ Williams v Central Bank of Nigeria [2014] [2014] UKSC 10, [2014] 2 WLR 355.

trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust... In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.

The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be “liable to account as constructive trustee”. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions “constructive trust” and “constructive trustee” are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are “nothing more than a formula for equitable relief”.

[26] In Williams v Central Bank of Nigeria Lord Sumption outlined the basis for the distinction:¹⁰

It is important to understand why equity adopted this rule, for its rationale will not necessarily apply to every kind of constructive trust. The reason was that the trust assets were lawfully vested in the trustee. Because of his fiduciary position, his possession of them was the beneficiary’s possession and was entirely consistent with the beneficiary’s interest. If the trustee misapplied the assets, equity would ignore the misapplication and simply hold him to account for the assets as if he had acted in accordance with his trust. There was nothing to make time start running against the beneficiary. It will be apparent that this reasoning can apply only to those who, at the time of the misapplication of the assets have assumed the responsibilities of a trustee, whether expressly or de facto. Persons who are under a purely ancillary liability are in a different position. They are liable only by virtue of their participation in the misapplication of the trust assets itself. Their dealings with the assets were at all times adverse to the beneficiaries, and indeed to the true trustees holding the interest.

This point was first articulated by Lord Redesdale, Lord Chancellor of Ireland, in Hovenden v Lord Annesley (1806) 2 Sch & Lef 607, a classic judgment delivered (according to the reporter) after several days of argument around his sickbed at home. Referring to a judgment of Lord Maccelsfield on the application of statutory limitation by analogy to claims against trustees for breach of trust, he continued (at pp 632–633):

“Now I take it that the position which has been laid down, “that trust and fraud are not within the statute”, is qualified just as he qualifies it here: that is, if a trustee is in possession, and does not execute his trust, the possession of the trustees is the possession of the cestui que

trust; and if the only circumstance is, that he does not perform his trust, his possession operates nothing as a bar, because his possession is according to his title... But the question of fraud is of a very different description: that is a case where a person who is in possession by virtue of that fraud, is not, in the ordinary sense of the word, a trustee, but is to be constituted a trustee by a decree of a court of equity, founded on the fraud; and his possession in the meantime is adverse to the title of the person who impeaches the transaction, on the ground of fraud...”

[27] Those principles apply to s 21 of the Limitation Act 1950.¹¹ The question here is to apply them to Ms Berry’s causes of action. In my view, it seems quite plain that in her second and third causes of action claiming a constructive trust, Ms Berry is claiming against Mr Atkinson because he is a person accountable in equity (using Millett LJ’s phraseology) not because he was already a trustee before any misappropriation of assets. I find that the claim by Ms Berry does not come within s 21(1) of the Limitation Act but instead is subject to the six-year limitation period under s 21(2). If Ms Berry were to start a fresh proceeding, Mr Atkinson would have a watertight defence that the proceeding was statute barred. In other words, the matter will turn only on her ability to sue under her present proceeding in the District Court.

[28] In taking that approach, I recognise that a caveator is required to show only an arguable case for an interest in a property. A caveat is interim protection for the caveator until a full hearing when the Court can enquire into the matter and decide finally whether the caveator does have the interest claimed. Once the caveator loses the ability to sue and to have a Court decide that they have the interest claimed in the caveat, then any right to the caveat falls away.

Should the Court remove the caveat in its residual discretion?

[29] Ms Grice also urged me that even if Ms Berry had a caveatable interest, I should nevertheless exercise my discretion to remove the caveat. That submission is directed at exercising the discretion in the context described by the Court of Appeal

_{in Pacific Homes Ltd v Consolidated Joineries Ltd:}¹²

¹¹ The English statute discussed in Williams v Central Bank of Nigeria was in similar terms.

We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation which was then before the Court and were not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. In such circumstances the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. 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.

[30] I cannot help but feel sympathy for Mr Atkinson in his plight. His lot is a very unenviable one and obviously distressing. Nevertheless, the circumstances of this case do not appear to me to come within what the Court of Appeal had in mind in Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd. If Ms Berry’s case does survive a strike-out application under r 15.2 of the District Courts Rules, she will retain a caveatable interest in the property and, notwithstanding Mr Atkinson’s terrible circumstances, they are not matters which would require this Court to order the removal of the caveat under the residual discretion.

Why not a notice of claim under the Property (Relationships) Act 1976?

[31] A final other matter I wish to note that although the parties were in a de facto relationship, a caveat has been lodged under the Land Transfer Act rather than a notice of interest under the Property (Relationships) Act 1976. At first sight, the present proceeding involves a claim relating to a division of property where the parties had been in a de facto relationship. However, I am satisfied that Ms Berry has a way around the provisions of that Act. Ordinarily the Property (Relationships) Act is a code for the division of assets between parties who have been in a de facto relationship. There is, however, an exception in the case of people who have been in

a de facto relationship for less than three years.¹³ The fact that such relationships of

short duration are outside the code provision of that Act allows Ms Berry to pursue claims under the general law rather than under the Property (Relationships) Act.

[32] I have set out these matters by way of record in case it is necessary for this caveat application to come back to this Court.

Orders

[33] I record the orders that the parties have agreed. I make them by consent:

(a) That the caveat be removed upon a notice being given to the

Registrar-General of Land:

(i) that the property has been sold and settlement is pending; and

(ii) that an undertaking has been given by the purchaser’s solicitors that the settlement monies will be paid into the agreed solicitor’s stakeholders’ joint account.¹⁴

(b) That Mr Atkinson will apply to the District Court to strike out

Ms Berry’s claim in that Court within 14 days of today.

(c) That the strike-out application will be heard in the Tauranga District Court on 16 December 2014. But I would prefer to treat that as aspirational, while expecting both parties to ensure that it is disposed of as quickly as possible.

(d) If the strike-out application is unsuccessful, the monies with the stakeholder will be held until final resolution of the District Court proceeding, unless Mr Atkinson appeals within 14 days, in which case the monies are to be distributed to him if he succeeds on the appeal and the proceeding is struck out. Otherwise the monies will be held pending the final resolution of the District Court proceeding.

(e) If the strike-out application is successful, but Ms Berry lodges a notice of appeal within 14 days of the decision, the monies will

¹⁴ It is contemplated the parties will agree on independent solicitors to act as stakeholders.

remain with the stakeholder until that appeal is decided on. If the appeal is unsuccessful, the monies will be paid to Mr Atkinson. If the appeal is successful, the money will be held pending final resolution of the District Court proceeding. If no notice of appeal is lodged, the monies are to be distributed to Mr Atkinson.

(f) The final resolution of the District Court proceeding includes the outcome of any appeal lodged by either party within 14 days of the decision.

(g) The property is to be sold for a reasonable market price.

[34] I also reserve leave to the parties to come back for further directions. [35] I reserve costs.

Associate Judge R M Bell