Family Trust: Rawson v. Prescott

 

Ten days after George Rawson took initial steps to remove spouse Lucinda Prescott as beneficiary under his will, he was found dead at the bottom of stairs at his Auckland Browns Bay home.  Brother Roy Rawson took his suspicions to police, later taking court action as trustee of his brother’s family trust attempting to evict Lucinda from the property.

Associate Judge Sussock put eviction on hold.  Factual detail surrounding George Rawson’s Family Trust ownership of the Redwing Street property had to be sorted out. 

Evidence was given that George put ownership of Redwing Street into a family trust in 2004.  Brother Roy is a trustee.  Named as final beneficiaries are George’s informally adopted son, Jacob, plus any further children George might subsequently have.

George and Lucinda commenced a de facto relationship six years later, marrying in 2013.  

Following George’s unexpected death in 2022, Roy as trustee told Lucinda it was time to leave Redwing Street.

Roy says she was paid some $8500 by Jacob to assist in payment of a bond for alternative accommodation, but then refused to leave.  A trespass notice was issued.  Lucinda countered by saying a ‘memorandum of wishes’ signed by George in 2013 gave her the right to stay at Redwing Street, despite it being Trust property, which together with a ‘protection clause’ in their relationship property ‘contracting out’ agreement entitled her to benefits potentially worth $1.14 million.

The High Court was told George and Lucinda signed a ‘contracting out’ agreement at time of their 2013 marriage acknowledging Redwing Street was not relationship property.  Lucinda says a provision in this agreement, headed ‘protection of Lucinda’ entitles her to a life interest in both the George Lawson Trust assets and George’s estate on his death.

Judge Sussock ruled a detailed court hearing is needed to establish operation of the 2013 memorandum of wishes and the agreed ‘protection’ provision.

As a general rule, a memorandum of wishes directed by a trust settlor to trustees is not enforceable.  Trustees may feel morally obliged to subsequently comply, but they are not legally required to do so.

Brother Roy says George was taking steps before his death to remove all benefits accruing to Lucinda after discovering she was having an affair with a mutual friend.  Lucinda admits to the affair, but says it was brief and that she and George subsequently reconciled.

She claims circumstances surrounding both the memorandum of wishes and signing of their contracting out agreement are such that she has the right to live at Redwing Street and cannot be evicted.

Rawson v. Prescott – High Court (15.07.24)

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Fencing: Jin v. Narayan

 

Dispute between Auckland neighbours over the state of their boundary fence and construction of a replacement led to more than a war of words; police were called more than once to cool tempers.  They ended up in court arguing over compliance with Fencing Act notice requirements.

The Fencing Act general rule is that neighbours are expected to agree over both the form of any boundary fence and how costs are to be split.  Most neighbours do.

When neighbours cannot agree, the Act has a formal procedure for notices and cross-notices, setting out their respective proposals.  In the absence of any agreement, a default rule apples; if there is no response within twenty-one days of the last issued notice or cross-notice, then this last iteration is deemed to be accepted requiring each neighbour pay half the notified construction cost.  

Auckland neighbours wound up in court arguing over what amounted to a valid cross-notice.

The High Court was told Yuchen Jin’s property on Armstrong Farm Drive, East Tamaki Heights, adjoins the Narayans.

When constructing a new home, the Narayans raised concerns about stability of an existing retaining wall on the Jin boundary.  Neighbourly relations did not get off to a good start with Mr Jin alleging Narayans’ construction was causing damage.

He demanded the Narayans make good the alleged damage; they countered, saying Mr Yin caused the damage.

Subsequent to this December 2022 exchange, site meetings by the two neighbours, with building experts in attendance, saw no concluded agreement.

In May 2023, the Narayans had their lawyer send a Fencing Act notice to Mr Yin.  It referred to their previous December exchange and then set out in detail two options for a replacement boundary fence, both fully costed.  Mr Yin was invited to choose one of the two options.

One month later, the Narayans advised Mr Jin they were proceeding with the cheaper of the two, saying they had not heard back from him.  He subsequently refused to pay half the cost: some $10,200.

When sued, Mr Jin claimed he had responded by email within a week to the Narayans’ May 2023 Fencing Act notice, objecting to their proposals and suggesting a fencing upgrade would suffice at a cost of $4000.  The Narayans denied ever receiving such an email. 

Justice O’Gorman ruled that even if this email had been received by the Narayans, it did not comply with Fencing Act formalities for a cross-notice.

This meant the initial May 2023 proposal was deemed to have been accepted.  Mr Jin was liable to pay his half share of $10,200.

Fencing Act procedures are intended to ensure court involvement is minimised as far as possible, Justice O’Gorman said.  Failure to issue a proper cross-notice results in deemed acceptance of an earlier Fencing Act proposal.  This is intended to provide certainty about work to be done and how payment is to be shared.

The Narayans’ May 2023 Fencing Act notice was valid, despite earlier negotiations remaining unresolved.  A new Fencing Act notice offering a new proposal can be issued at any time, Justice O’Gorman ruled.  There is no requirement to wait out stalled negotiations or even wait for the twenty-one day period to expire on an earlier proposal, she said.

Jin v. Narayan – High Court (12.07.24)

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Express Trust: Andrew v. McGinty

 

Working as a solicitor, Jennifer Andrews ensured her 2001 purchase of an Auckland residential property was structured having her two children hold title as trustees for herself and her spouse.  Two decades later, she was in court challenging her estranged daughter-in-law’s claim to an interest in the Panmure property as relationship property.

Daughter-in-law Rebecca Crowe claimed the property had become her family home and was now relationship property.

The High Court was told the Mareth Street property was purchased in April 2001 from a deceased estate.  Ms Andrews arranged for title to be taken in names of her son Mathew McGinty (then flatting elsewhere in Auckland) and daughter Rachel (then working overseas as a professional yachtswoman).  Both children signed written acknowledgements that they held title in trust for their parents.

Mathew and Rebecca took up occupation of Mareth Street four years later, after their 2005 marriage.  They paid rent to Mathew’s parents.  Over time, more than $300,000 was spent upgrading what was a rundown two bedroom state house.  This money came from Mathew’s mother, now widowed.

After Mathew and Rebecca separated in 2017, Rebecca identified that title to Mareth Street was held in the names of estranged husband Mathew and his sibling.  Rebecca lodged a claim against the title, saying Mareth Street was relationship property.

She said any landlord/tenant relationship was a fiction: there was no tenancy agreement or bond; rent paid was below market rates, amounting to a ‘rent to buy’ deal; and the money spent on upgrading the property was not evidence of her parents-in-law beneficial ownership but was a gift to their son.

Justice O’Gorman ruled Residential Tenancy Act rules do not apply properties occupied by a landlord’s family.  No tenancy agreement or bond was required.

The nominal rent paid did not evidence any ‘rent-to-buy’ arrangement.  Rent-to-buy arrangements typically see an above market rent paid; payment for the right to occupy plus contributions towards the purchase price.

Mareth Street was not relationship property, Justice O’Gorman ruled.  It was held in the names of Ms Andrew’s children on an express trust for their parents.  Subsequent to the death of her spouse, Ms Andrew became the sole beneficial owner of Mareth Street.

This express trust came into existence prior to Mathew’s and Rebecca’s occupation of Mareth Street.  Cash to complete purchase of Mareth Street came solely from Ms Andrews and her spouse.  There was clear written acknowledgement by the two children that the property was held by them in trust for their parents.  It was never Mathew’s relationship property.

Andrew v. McGinty – High Court (8.07.24)

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Consultant: TS Training Ltd v. Lee

 

It was only after Toni-Anne Lee parted company with brother Scott that some $66,500 she received from their company TS Training Ltd was disputed as being either payment she could keep for work done or shareholder advances requiring repayment.

The two established Hamilton-based TS Training Ltd in 2020 to provide education and training courses, primarily for Ministry of Social Development.  They were not employees; they contracted their services to TS Training.

Each billed TS Training a little over one thousand dollars each week for consultancy fees.  Further invoices for consultancy fees, most lacking any itemisation, were submitted after provider contracts were negotiated with Social Development: a $100,000 contract in November 2020 and a $340,000 contract in April 2021.

The High Court was told their accounting adviser recommended these payments be recorded as shareholder advances; lump sum payments should not be recorded as payment for work done when in fact the work was yet to be done.  This advice was ignored.

Toni-Anne left TS Training Ltd in 2021, transferring her shareholding to brother Scott at no cost.  Scott, now in sole control of the company, subsequently claimed she had received some $66,500 in shareholder advances now due for repayment.

Financial statements for TS Training drawn up after Toni-Lee left the company recorded, for the first time, the existence of shareholder advances.

Justice Powell ruled there was no contemporary evidence at the time payment was made that that the disputed contract payments were to be treated as shareholder advances.

In addition, Scott argued that repayment was required because his sister had done no work for the company beyond that covered by weekly payments.  She was working for two other companies at the time.

Again, there was insufficient evidence, Justice Powell ruled.  Their practice of submitting pro forma consultancy invoices unsupported by any narrative or timesheet records to justify withdrawal of funds from their company meant there was no evidence of what work was, or was not, done.

Ms Lee was held entitled to retain the disputed $66,500.

TS Training Ltd v. Lee – High Court (3.07.24)

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One Pure: Wang v. Kang

 

Yongnan Kang has gone to ground, current whereabouts unknown, whilst both Jianping Yang, majority shareholder in bottled water exporter One Pure, and offshore company Guangzhou Dongjiang Petroleum lay claim to Mr Kang’s 25 per cent interest in One Pure in satisfaction of money owed.

Mr Yang is owed $22.3 million; damages for Mr Kang’s misrepresentations and misleading conduct on sale of a majority stake in One Pure.  Guangzhou Petroleum is owed $1.7 million; the balance of a loan unpaid by Mr Kang.

Both have charging orders over Mr Kang’s minority interest, entitled to first dibs over proceeds of his stake in One Pure, when sold.

These charging orders have hampered company operations at One Pure.  Mr Yang wants to take full control of One Pure.  His own charging order blocks transfer to him of Mr Kang’s minority holding, a transfer otherwise permitted by their earlier signed shareholders’ agreement.

The Court of Appeal was told this problem has hindered company operations where signature of both shareholders is required; in particular, establishing new bank accounts and dealing with One Pure’s auditors.

Over Guangzhou Petroleum’s objections, the Court of Appeal removed Mr Yang’s current charging order.  Guangzhou said the charging order should not be lifted until the value of Mr Kang’s minority interest in One Pure has been valued.  It wants to clarify the economic value of its charging order.

No valuation is needed, the Court ruled.  Mr Yang is entitled to assume control of One Pure’s total shareholding, with ‘payment’ for the minority interest purchased being set-off against the $22.3 million owed.

Guangzhou Petroleum is no more than an unsecured creditor with the right to prove in Mr Kang’s bankruptcy, should he be bankrupted, the Court said.  The value of Mr Kang’s former minority interest in One Pure only becomes an issue on bankruptcy, with any adjustment between Mr Yang as a potentially part-paid unsecured creditor and Guangzhou as an unpaid unsecured creditor then relevant.

Wang v. Kang – Court of Appeal (2.07.24)

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Duress: Baba Nyonya Ltd v. Loh

 

Signed in haste; repented at leisure: Tze Hwai Loh came to regret a $1.09 million contract buying his business partner out of their Christchurch PappaRich restaurant.  His claim to have signed under duress failed when ordered to pay up.

The High Court was told Mr Loh teamed up with investor Peter Kuok in late 2020 to set up a PappaRich restaurant in Christchurch’s Riccarton Westfield Mall at a time when the Malaysian restaurant chain was expanding in New Zealand.  Mr Loh was described as holding the master franchise for PappaRich in New Zealand.

They set up a joint venture company for the Riccarton business with Mr Kuok’s Baba Nyonya Ltd eventually holding a 51 per cent stake, Mr Loh the balance.

It was not a success.  Mr Kuok wanted out.  A deal was struck in early 2023 having Mr Loh buy out Mr Kuok for $1.09 million.

Manner of payment shifted.  Initially, the $1.09 million was to be settled by Mr Loh transferring two Melbourne properties to Mr Kuok, with a cash adjustment.  That did not happen.  Instead, it was agreed Mr Kuok would leave in vendor finance for the full amount of $1.09 million, repayment to be made on sale of the Melbourne properties with weekly repayments of $10,000 in the interim.     

A failure to keep up weekly payments amounted to default.  The loan fell due, triggering penalty interest at eighteen per cent, compounding daily.

Mr Loh resisted repayment.  Mr Kuok put him under duress by constantly demanding he sign the loan contract, leaving no room for negotiations, he said.  Mr Loh claimed to have not understood his repayment obligations due to the haste in which he signed.

Duress requires proof of illegitimate pressure to sign, or overbearing circumstances forcing signature.

There was no evidence of duress, Associate Judge Sussock said.

Mr Loh was aware of the Riccarton restaurant’s financial position before signing.  He received professional advice about terms of the loan contract.

The contract was enforceable.

Mr Loh was ordered to pay $1.13 million, being amount of the loan plus default interest accruing to date of the court hearing.  He was also ordered to pay $104,500 for guaranteed debts Mr Kuok was required to clear.  As part of the loan contract, Mr Loh had agreed to use his best endeavours to have Mr Kuok released from guarantees previously agreed with restaurant suppliers.

The Riccarton restaurant is currently in liquidation.

Baba Nyonya Ltd v. Loh – High Court (2.07.24)

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Trust: Halliday v. Hannah

 

Shane Hannah stepped in to assist brother Jason refinancing his Rotorua home with the High Court ruling that over a decade later the two were party to a scheme designed to cheat Jason’s estranged de facto partner out of her share of the home.

Justice O’Gorman ruled Kerri-Anne Halliday was entitled to half the equity in the Morey Street property, a home she and their two daughters had left over ten years previously.

Jason and Kerri-Anne first met in about 1999.

At the birth of their first daughter, they were living with Kerri-Anne’s mother and stepfather, later moving into the Morey Street property owned by her stepfather, paying rent.

Borrowing to buy proved difficult.  A fixed term loan from second-tier lender Liberty Finance was the best offer they had.   Her stepfather left in money as vendor finance.  By March 2007 the two were joint owners of Morey Street.

The High Court was told of a tempestuous relationship between the two, escalating over the next three years.  Kerri-Anne moved out, later reconciling.

Against this background, the Liberty Finance loan fell due.  Household income was again insufficient to interest any first-tier lender.  Jason’s brother Shane came to the rescue, lending his creditworthiness to a loan application.

Evidence was given that a loan was secured from BNZ, with ownership of Morey Street restructured: Jason and brother Shane were listed as joint owners, with Shane signing a deed acknowledging he held his half share on trust for Kerri-Anne.  He did not contribute to mortgage payments, but was liable if payments were not kept current.

Eighteen months later, Jason and Kerri-Anne separated permanently.  Jason stayed at Morey Street, paying all outgoings including mortgage payments.

Each contacted separate lawyers to finalise relationship property claims.  Nothing was agreed.

A decade later, Kerri-Anne learnt that Jason now had full ownership of Morey Street, with brother Shane having transferred the half share registered in his name to Jason.  She sued.

Evidence was given that Shane had told lawyers that he held the half share in trust, but said it was in trust for his brother.  This was dishonest, Justice O’Gorman ruled.  Shane knew this was untrue, she said.  The deed signed years previously was clear; the half share was held in trust for Kerri-Anne.  Transferring this half share to brother Jason was in breach of trust.

Jason argued that Kerri-Anne had abandoned any interest in the property.  She had not contributed financially.  Jason said when he asked her post-separation what contributions she was going to make towards the house she replied: ‘Get fucked, your house, your problem.’

Kerri-Anne denied ever saying that.

Justice O’Gorman said that even if any such statement was made it was more an indication of frustration in that she had now had to use her own cash to support herself and their daughters.

Justice O’Gorman ruled Kerri-Anne is to be treated as co-owner of Morey Street, with the property to be sold.

Jason is entitled to a credit for his money spent on outgoings and upkeep of Morey Street, less a notional rent for the years he had sole occupation.  On the court’s calculation this results in a net figure of $9700 in Jason’s favour.

Halliday v. Hannah – High Court (1.07.24)

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Fraud: Sio v. R.

 

The evidence was circumstantial, but the fraud conviction stood.  Cashing cheques totalling some $43,750 drawn on a government funded charity saw high profile Pasifika social activist Betty Leuina Sio convicted of dishonesty and fined $3000.

Subsequent email exchanges with co-offender Tapualii Raewyn Uitime served to highlight their modus operandi of creating false invoices, making out cheques to cash supposedly in payment of these invoices and then pocketing the proceeds.

Ms Sio was CEO of a charity formed in 1995 with the aim of serving Auckland’s Pacific Island community: Pacific Island Safety and Prevention Incorporated.  She received national recognition for her work.  She has been honoured with Samoan matai titles from each of her mother’s and father’s villages in Samoa.

At time of her offending in 2013, the Charity was getting government funding of some $2.5 million annually.

Ms Uitime worked with her at the Charity.  The two were authorised signatories for cheques drawn on the Charity’s bank account.

The High Court was told of four cheques signed by both in August 2013; cheques made out to cash.  The following day Ms Sio cashed two of the cheques at Sylvia Park branch of the BNZ, walking away with $43,750.  Ms Uitime cashed the other two cheques at a Henderson bank, taking $36,250 cash.  Next day they were at Sky City casino.  Records show they lost nearly $2000 gambling.

At trial, Ms Sio claimed not to be present at the casino; someone else was using her card.  The trial judge ruled it ‘more likely than not’ that she was present.

Following a Serious Fraud Office prosecution, both were convicted of dishonesty.  Government funding dried up.  The Charity closed in 2015.

Ms Sio appealed her conviction.  There was no proof she was aware of the fraud, Ms Sio said.  And money paid into her bank accounts and credit card account in the days after she cashed Charity cheques totalling $43,750 could be explained, she claimed.   

Even allowing for slack accounting procedures common at the Charity, Ms Sio should be expected to question why she was signing and then given cash cheques enabling her to walk out of a bank with $43,750 cash, Justice Brewer suggested. 

Also counting against Ms Sio’s claim to innocence was wording in a text exchange months later with Ms Uitime, setting up a pre-Christmas meeting at Sky City.  Comments about a shortage of cash led to the response: ‘Another invoice maybe? LOL!!’  Ms Sio replied: ‘Yeah … Yayyy!!!’

Payments of cash into Ms Sio’s bank accounts and credit card account within hours and then days of cashing the cheques were strong evidence of a link between the fraud and the personal benefit obtained, Justice Brewer ruled.

Sio v. R. – High Court (1.07.24)

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Family Trust: Barrett v. Osborne

 

Lothar Herzog’s family trust specified that on his death assets were to be split between his two daughters: Silke and Sonja.  This equal division could be overridden by his subsequent written instructions as settlor of the Trust.  Sonja failed in a challenge to her father’s directive to the trustee that all go to Silke; his clear express power as settlor to later favour one beneficiary was not open to dispute.

At time of Lothar’s 2021 death, Sonja was expecting to receive half the value of their Hastings family home held in her father’s family trust.

Unbeknown to her, Lothar had transferred the property to her sibling Silke six months prior to death, with arrangements that he remain in occupation paying all outgoings and a peppercorn rental.  He left a letter with his solicitor, to be given to Sonja on his death, explaining why she was not receiving any share of trust assets.

In the High Court, Sonja argued reserve powers retained by her father as settlor could not be used in a capricious manner.  It was a breach of fiduciary duty owed to named beneficiaries to cut her out, she said.    

Justice Lang ruled Lothar was required to act in good faith and in accordance with purposes of the Trust when exercising these reserve powers.  But the welfare or best interests of named beneficiaries was not an express purpose set out in the trust deed.  It is not for the Court to override decisions made to favour one beneficiary over another, he ruled.

The High Court was told Lothar’s letter delivered posthumously to Sonja highlighted as reasons a number of crude comments she made about him at the time of separation from his wife and also at a time when there was a dispute about repayment terms for a loan he made to Sonja for purchase of a Foxton property.

Evidence was given of Sonja having a turbulent relationship with her father since adolescence.  She moved out of the family home to live with a family friend before finishing secondary school.

The bulk of Lothar’s personal assets were left by will to Silke.  Sonja inherited his Mercedes motor vehicle, some listed shares and his stamp collection.

Barrett v. Osborne – High Court (1.07.24)

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Family Trust: Estate Glenn Bowler v. Craig Bowler

 

Described as ‘an unintended consequence of mathematics,’ what was supposed to be a work-around to avoid tax issues for their brother in the United States led to a bitter dispute between his two New Zealand based siblings with the High Court ruling Craig Bowler wrongly purloined some $530,000 family trust money owed his brother Glenn.

At issue was distribution of family trust cash following completion of a 54-lot subdivision on Racecourse Road at Waiuku, near Auckland, following death of their parents.

Litigation was initially settled with an out of court agreement in early March 2016.

Tax complications for their US-based brother led to a revamp four days later; rather than receiving his share directly from their family trust, it was agreed his entitlement would be paid through his two brothers who would then forward payment to him.

The revised agreement saw him being paid some two million dollars, with two tranches of $1.075 million to be received via each of Craig and Glenn.  The balance of family trust funds were to be divided: 72.5 per cent to Craig; 27.5 per cent to Glenn.

However, wording of the revised agreement did not have the two serving as mere conduits.  Instead, the $1.075 million payments were deducted from their respective shares.  Since the two were not sharing the residue equally, Glenn lost a greater proportion of his personal payout than brother Craig – a mismatch totalling just under $530,000.

The High Court was told brother Craig refused to rectify the issue, going so far as later assuming sole control of the corporate trustee managing their family trust and seizing $1.3 million dollars supposedly set aside until the problem was resolved.

Justice Brewer ruled Craig was in breach of trust, both in the manner he acted as director of the corporate trustee holding family trust assets and in taking for his personal benefit the $1.3 million required to be kept untouched until the dispute was settled.

The corporate trustee was ordered to pay Glenn $530,000, with Justice Brewer setting in train procedures to put the trustee into liquidation.  An independent liquidator is needed to remove Craig from trust management and then take steps to recover from him the $1.3 million taken.

Glenn Bowler died in 2023.  Legal action continued in the name of his estate.

Estate of Glenn Bowler v. Craig Bowler & Bowler Investment Trustee Ltd – High Court (1.07.24)

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