IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-0002 [2015] NZHC 742

BETWEEN	ZELJAN ALEXANDER UNKOVICH
Applicant	

AND	
ROGER MURRAY MARBECK AND DEIRDRE MARBECK
First Respondents	

AND	
ANNETTE DELWYN UNKOVICH Second Respondent	

AND	
UNKOVICH TRUSTEE LIMITED Third Respondent	

Hearing:	13 March 2015	

Appearances:	
J L Foster for Applicant
J H Hunter for Respondents	

Judgment:	
24 April 2015	

JUDGMENT OF KEANE J

This judgment was delivered by me on 24 April 2015 at 10am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Davies Law, Newmarket, Auckland
Whaley Garnett, Greenlane, Auckland

UNKOVICH v MARBECK [2015] NZHC 742 [24 April 2015]

[1]       On 25 August 2009 Zeljan and Delwyn Unkovich entered into an agreement dividing their property and contracting out of the Property (Relationships) Act 1976. They had been married for 26 years, had recently been apart for almost a year, and had been reconciled for a further year.  Their agreement, they said, was intended to provide Delwyn with certainty.

[2]       On 29 August 2008, as an agreed consequence, Delwyn settled the Langs Beach Trust and appointed family friends, the Marbecks, as trustees.  On the same day they, in their capacity as trustees, acquired the family’s beach house at Langs Beach from Seaside Homes Limited, in which Zeljan had initially held all the shares but in which Delwyn by then had an equal shareholding under their agreement.  This purchase was financed by two trusts in which Zeljan and Delwyn also had equal rights and interests, either before their agreement or as a result of it.

[3]       On 1 September 2008 Delwyn also settled the Gladstone Trust, and appointed other family friends, the Hills, as trustees.   On the same day the Hills, in their capacity as trustees, acquired the family’s principal residence in Gladstone Road, Parnell, which belonged to Delwyn and was deemed under the agreement not to be the family home but instead to be Delwyn’s separate property.  The Hills acquired as well a vacant section next to the house at Langs Beach, which was also Delwyn’s separate property.

[4]       Zeljan  and Delwyn  separated in 2013.   Delwyn continued to live at the Gladstone Road address.  Zeljan lived partly with relatives and partly at the beach house.  In April 2014 the Gladstone Trust purchased a second Parnell property for Delwyn and the Gladstone Road address was sold.  Zeljan spent three weeks at the new address to help Delwyn move in. After that they separated finally.

[5]       Later in 2014 Delwyn denied Zeljan any further access to the beach house. Then on 11 December 2014 she removed the Marbecks as trustees of the Langs Beach Trust, and appointed in their place Unkovich Trustee Limited, which had apparently been incorporated for that purpose; and, it appears as well, to become the sole trustee of the Gladstone Trust.  The Hills have also apparently been removed as trustees.

[6]       On 14 December 2014, before Delwyn lodged the transfer of title from the Marbecks to UTL then called for, Zeljan lodged a statutory notice of claim, contending that the beach house was relationship property.  On 18 December 2014, after the transfer was lodged, the Registrar-General of Land notified Zeljan that his notice would lapse unless sustained by Court order.   On 20 January 2015 Zeljan made the application that called for. An interim order presently sustains his notice.

Zeljan’s case

[7]       In support of his application Zeljan contends that, despite the fact that he has never had a direct interest in the beach property, and that the contracting out agreement makes it Delwyn’s separate property, to be held by a trust she was to settle, it is still relationship property in which he retains a beneficial interest.

[8]       He contends that, even if the expressed purpose of their agreement was to give Delwyn certainty, its real purpose was to protect their assets from any claims made by clients of his legal practice, who had suffered losses as a result of the Blue Chip collapse.  He and Delwyn agreed at the time of their agreement, he contends, that once that threat ceased the two trusts would be varied to make him an equal beneficiary.

[9]       On that basis, he contends, he agreed that the beach house should become Delwyn’s separate property, to be held by the trust she then settled for that purpose. He also transferred to the Gladstone Trust properties that were his separate property or made equivalent dispositions for its benefit.   He also sold two other properties, also separately his, to meet his and Delwyn’s living expenses after he retired.

[10]     The result is, he contends, that the two trusts now hold or have had the benefit of most of his property and that by her recent exercise of her powers of appointment under the two trusts, substituting UTL as sole trustee, Delwyn has set out to deny him his equal beneficial interest in the properties held by those trusts, reneging on their oral agreement qualifying their contracting out agreement.

[11]     The contracting out agreement, as a result, he contends, has become unjust and should be set aside.   Once that happens, he contends also, the later related

transactions must also cease to have effect, freeing him to advance his claim to claim a beneficial interest in the properties held by the two trusts; in particular, for the purpose of his present application, that held by the Langs Beach Trust.

Three issues

[12]     Zeljan’s application gives rise to three issues, the first of which is this: Is he able to sustain his notice of claim lodged against the beach house title, when it has never been his property and is now held by independent trustees?

[13]     The second and third issues to which his application gives rise are more closely related.  Is he able to assert that the contracting out agreement has become unjust as a result of Delwyn reneging on the qualifying contemporary qualifying agreement he asserts?   Whether or not he is able to have the contracting out agreement set aside, is he able to assert a beneficial interest in the beach house inconsistent with the express trust on which it is held?

[14]     On this present application, I need only decide whether Zeljan’s case as to those three issues is reasonably arguable; and I do so conscious of the fact that the evidence is necessarily incomplete and that the submissions I have received are also necessarily very general.

Notice of claim

[15]     Section 42(1) of the Property (Relationships) Act 1976 says:

A claim to an interest, pursuant to this Act, in any land subject to the Land Transfer Act  1952  shall  be  deemed  to  be  a  registerable  interest  for  the purposes of this Act.

[16]     Section 42(2) says that notice of a claim under subs (1) shall be ‘effected by lodging a duly completed notice … with the District Land Registrar’.  Section 42(3) says ‘Every notice so lodged shall have effect as if it were a caveat lodged pursuant to s 137 of that Act’, subject to some exceptions to which I need not refer.

[17]     Section 137(1) of the Land Transfer Act permits the lodging of a caveat against dealing in any land or estate or interest under the Act if the person claims to be:

claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise.

[18]     A caveatable  interest  includes  equitable  as  well  as  legal  interests.1      The essential question is whether the caveator has a reasonably arguable case, and this is to be assessed conservatively.  In Sims v Lowe, the Court of Appeal by a majority (Somers and Gallen JJ), said:2

… this summary procedure for the removal of a caveat against dealings is wholly unsuitable for the determination of disputed questions of fact.  From this it follows, and has been consistently held, that an order for the removal of such a caveat will not be made … unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so.

[19]     There will not be that patent clarity where the caveator has a reasonably arguable case; a case as to which he or she carries the onus.  As the majority in Sims v Lowe continued to say:3

The caveator seeks to clog or fetter the proprietary interest of another.  As a matter of principle it seems right that he must justify the continued existence of his caveat.  He will do that if he can show he has a reasonably arguable case for the interest he claims.

[20]     In  Eng  Mee  Yong  v  Letchumanan,  Lord  Diplock  described  a  reasonable question to be tried as one which is ‘neither frivolous nor vexatious’,4  and rests on relevant statements in affidavit evidence that ‘have sufficient prima facie plausibility to  merit  further  investigation  as  to  their  truth;’5   not  on  statements  which  are
‘equivocal,   lacking   in   precision,   inconsistent   with   undisputed   contemporary

documents or other statements by the same deponent, or inherently improbable’.6

1           Stables & Co Ltd v Corby (1900) 19 NZLR 517, 536 – 537 (CA); Re Haupiri Courts Ltd (No 2) [1969] NZLR 353, 356; Philpott v NZI Bank Ltd (1989) 1 NZ Conv C 190,246 at 190,248 (CA); Hinde McMorland & Sim Land Law in New Zealand para 10.006.
2	Sims v Lowe [1988] 1 NZLR 656, 659.
3	At 660.
4	Eng Mee Yong v Letchumanan [1980] AC 333 (PC) at 337.
5	At 341.
6	At 341.

Evidential threshold

[21]     That is the immediate issue.  Delwyn denies that she and Zeljan ever entered into any oral agreement underpinning and qualifying their contracting out agreement. She contends that their agreement and all the arrangements by deed that they entered into in the following days, all of which were prepared by Zeljan’s own solicitors, are self evidently definitive.  Nor does it assist Zeljan that the Marbecks have not given any affidavit evidence.

[22]     Zeljan is able to rely, however, on the affidavit evidence of George Hill, one of the two trustees of the Gladstone Trust.  He says that the intent of that trust was always, as Zeljan contends, to place Zeljan and Delwyn’s property beyond the reach of creditors.  It was a temporary expedient.  More compelling still are the transfers of separate property Zeljan made to that trust, and the other dispositions he made for its benefit, as a result of which he relinquished much that the contracting out agreement entitled him to.

[23]     On the present evidence, therefore, I cannot discount the possibility that, as to the beach house, the Marbecks may, if compelled, also give evidence supporting the oral agreement Zeljan contends for.  That being so, I find that his application meets the minimum evidential threshold.

First issue – absence of interest

[24]     The first of the three issues which remain, however, is also of a threshold nature.  It is whether Zeljan has any sufficient interest in the beach house to sustain his s 42 notice of claim.  At the date of the contracting out agreement he may have held all the shares in Seaside Homes Limited, which did own the property.  But his interest lay only in those shares, not in the beach house itself; and that can be fatal to the validity of a s 42 notice.7

[25]     Furthermore, under their agreement, Delwyn acquired half of the shares in that company together with half the related debt, and obtained the beach house as her

7	Straight Views Ltd v Hannaway (2005) 6 NZCPR 725 (HC); Cijffers v Cijffers (1989) 5 FRNZ
694 (HC).

separate property to be held on a trust she was to settle for herself and the children. These terms, and others to which I will refer shortly, are inconsistent with Zeljan’s present claim to any interest in the beach house.

[26]     An interest under s 42, however, like an estate or interest claimed under s 137(1)  can  be  advanced  on  equitable  principles.    It  can,  moreover,  extend  to property in which the claimant may have no direct interest, but which is relevant to a just division of relationship property, including property already subject to a contracting out agreement, which the claimant is seeking to have set aside as unjust.8

[27]     Zeljan  is  also  able  to  assert,  sufficiently for  the  purpose  of  this  present application, that Delwyn’s beneficial interest in the beach house, under the Langs Beach Trust, is capable of being relationship property in this sense.  Her power as settlor of that trust to appoint and remove beneficiaries, quite apart from trustees, is capable of being such property; and its value is to be fixed by reference to the
property held in trust.9

Second issue - collateral agreement

[28]     Zeljan’s  primary  contention,  as  I  understand  it  (that  at  the  time  of  the contracting out agreement he and Delwyn entered into an oral agreement underpinning and qualifying it, which must now be given effect), faces three difficulties, the most obvious of which is that the contracting out agreement appears to conform fully with s 21F of the Property (Relationship) Act 1976, which sets the bar for validity.

[29]     First, in their agreement Zeljan and Delwyn identified the property they then held separately and set out the division that they had agreed on both before the execution of the agreement and afterwards.   They ascribed values to the property they were to divide and confirmed that broadly that division was to be equal.   If
anything Zeljan received marginally more.

8	Coxhead v Coxhead (1989) 5 FRNZ 130, 5 NZFLR 398 (HC).
9	Clayton v Clayton [2015] NZCA 30 at [99] – [114].

[30]     Secondly, they confirmed in their agreement that they had entered into it after independent advice; that its terms were just, fair and reasonable; that they had done so willingly after disclosing all their property and after they had received satisfactory answers to all relevant questions; that they had not relied on each other’s legal advisers and that their agreement represented a compromise.  They confirmed that, as at that date, they had suffered no serious injustice as a result of its terms.

[31]     There are two other terms which are also plainly relevant.  They agreed that they could not obtain any interest in property held by a trust of which the other was beneficiary, by settling their own property on that trust or by improving that trust’s property.  More generally they agreed that their agreement would bind them ‘in all circumstances in which their property rights would, in the absence of this deed, be determined or be affected by the Act or the principles of law or equity’.

[32]     By contrast, the oral agreement that Zeljan contends for as underpinning and qualifying this agreement does not begin to conform with s 24F.  It is not in writing. It is not signed by Delwyn or himself.  It is not one in respect of which they received certified independent legal advice.  It is invalid under s 24F and, to the extent that it was entered into with the intent of defeating creditors, s 47(1) makes it voidable (upon a creditor’s application) independently.

[33]     It follows, to my mind, that Zeljan does not have a reasonably arguable case that the contracting out agreement must be set aside as unjust under s 21J(4)(d), as a result of a change of circumstances since it was entered into founded on Delwyn having reneged on any contemporary qualifying oral agreement on which he relied when entering the contracting out agreement  or making dispositions of separate property in her favour afterwards.

[34]     Thus, as to this head of his argument, Zeljan may be in the predicament the Court of Appeal spoke of in Cox v Cox, referring to contracting out agreements entered into for the purpose of estate planning or tax avoidance, ‘those who agree to an estate planning or tax avoidance bed may well end up lying in it’.10  Analogously, Zeljan may also face that difficulty if he claims a beneficial interest in the beach

house on equitable principles, whether or not the contracting out agreement remains standing.

Third issue - claim in equity

[35]     To rely on the oral agreement he asserts, in the face of the contracting out agreement and related arrangements, Zeljan may well be left only with a claim in equity by way of constructive trust; and in principle at least that appears open to him.

[36]     Halsbury confirms that a constructive trust may be imputed where a ‘property

… (is) properly acquired, legally and beneficially, but then circumstances develop such that it would be unconscionable for the owner to retain full beneficial ownership’.  Typically, it will be unconscionable, Halsbury says, because of ‘some original common intention … that is subsequently denied or reneged on where the law would allow this but equity finds this to be unconscionable.’

[37]     The first difficulty that Zeljan may well face, however, is evidential.  The oral agreement he contends for, qualifying the contracting out agreement, was to defeat creditors and that may well offend the rule the Court of Appeal identified in Potter v Potter, where a transaction was entered into to avoid death duty:11

… a party will not be permitted to adduce evidence that in transferring legal title to another he or she intended to retain the beneficial interest if the effect of the evidence would be to disclose that the transfer had a fraudulent purpose.  For example it would be fraudulent to hold out that a wife was the beneficial owner if in reality the husband had retained the relevant beneficial interest.

[38]     In the examples the Court then gave it identified an agreement to defeat the creditors as caught by this rule. As the Court said:

… in cases where property had been transferred by a husband to a wife to gain revenue advantages premises upon her new beneficial interest, the husband has been precluded from averring in later proceedings that his real intention was to retain the beneficial interest …  The same principle applies where  a  husband  has  put property into  his  wife’s name  as  a  protection against creditors …

[39]     The issue will be to what extent the principle underlying that rule is engaged. That rationale is, as the Court finally expressed it, that where the one claiming a beneficial interest is the architect of the scheme:

… (he) is the unwilling beneficiary of a compliment to his honesty.   It is assumed that he would not have intended to defraud others by pretending that his wife had a beneficial interest when in reality he had intended to retain the beneficial interest all along.

[40]    In this case Zeljan contends that he and Delwyn together agreed to an arrangement in which the contracting out agreement, and the related deeds, were to be qualified by their undisclosed agreement as a stratagem to obtain respite from his creditors.  In short, he contends, she was equally culpable and should not obtain the benefit.

[41]     The same issue may also arise if it were contended, as it will be, that Zeljan is precluded from calling equity in aid because he lacks clean hands.   There too the answer may be less than absolute.   As Tipping J said in Marshall Futures Ltd v Marshall:12

In equity the normal approach is … that someone seeking the assistance of equity  must  come  with  clean  hands.    However  dirty  hands  are  not  an absolute bar and the whole circumstances must be taken into account before consideration is given to defeating an equitable claim on the basis that the plaintiff has unclean hands.

[42]     If Zeljan is able to establish on admissible evidence that he and Delwyn did share the common intention he asserts, the possibility that he may then obtain some remedy cannot be discounted.   In Duncan v McDonald the Court of Appeal noted that there were signs that:13

The tide is flowing in the direction of a flexibility which will enable the Courts in their equitable jurisdiction to make appropriate apportionment of losses amongst wrong doers, much as can be done … under the Illegal Contracts Act.

[43]     It remains to add that if Zeljan does pursue this line of attack the trustees of the two trusts may be parties or, if not parties, witnesses.   Whether he is able to

12	Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 at 331.
13	Duncan v McDonald [1997] 3 NZLR 669 at 684.

pursue it in tandem with his proposed challenge to the contracting out agreement will be something to consider.

Conclusions

[44]     For these reasons I conclude that Zeljan’s notice of claim lodged against the title to the Langs Beach house is viable and ought not to lapse until his claim is determined judicially.  I make that order.

[45]     I am equally conscious that Zeljan has yet to commence any proceeding to have the contracting out agreement set aside, or any asserting a beneficial interest in the  Langs  Beach  property  in  the  face  of  Delwyn’s  express  trust.    That  cannot continue. The order I make will be on the condition that Zeljan must bring any proceeding, presumably in this Court, by 28 May 2015.

[46]     Zeljan has succeeded on this application. But given its contestable basis, I
consider that any issue of costs is better resolved as part of any award made when his claim is resolved definitively.  Costs are accordingly reserved.

P.J. Keane J