IN THE COURT OF APPEAL OF NEW ZEALAND
CA622/2013
[2014] NZCA 361
BETWEEN
GATESHEAD INVESTMENTS
LIMITED
First Appellant
PARANUI PROPERTIES LIMITED
Second Appellant
AND
CHRISTOPHER MICHAEL HARVEY
AS EXECUTOR OF THE ESTATE OF
MICHAEL GEORGE HARVEY
(DECEASED)
Respondent
Hearing:
3 June 2014
Court:
Randerson, Harrison and French JJ
Counsel:
G J Toebes for Appellants
L A Kemp for Respondent
Judgment:
30 July 2014 at 2.30 pm
JUDGMENT OF THE COURT
A
The appeal is dismissed.
B
The appellants must pay the respondent’s costs for a standard appeal on
a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by French J)
GATESHEAD INVESTMENTS LTD v PARANUI PROPERTIES LTD CA622/2013 [2014] NZCA 361 [30 July
2014]
Introduction
[1]
Joint tenancy is a form of co-ownership of property. This appeal concerns the
circumstances in which a joint tenancy may be severed.
[2]
Mr and Mrs Harvey owned their family home (the Coatesville property) as
joint tenants.
[3]
Mr Harvey died and Mrs Harvey was subsequently adjudicated bankrupt.
[4]
Following Mr Harvey’s death, a dispute arose between his estate and
Mrs Harvey’s creditors over ownership of the Coatesville property. The creditors
contended that Mr Harvey’s interest had passed on his death to Mrs Harvey by
survivorship, leaving her the sole owner of the entire property.
Mr Harvey’s
executor, however, claimed that prior to Mr Harvey’s death the joint tenancy had
been severed, with the result that Mr Harvey and Mrs Harvey each owned a half
share as tenants in common.
[5]
If the creditors were correct, the entire property would vest in the Official
Assignee for the benefit of the creditors. If the estate were correct and the joint
tenancy had been severed, then only a one half share would vest in the Official
Assignee and the other half would be part of Mr Harvey’s estate.
[6]
The case was heard in the High Court by Katz J. The Judge upheld the
executor’s claim.1 She found on the facts that the joint tenancy had been severed in
equity either by mutual agreement or by a course of conduct.
[7]
Mrs Harvey’s creditors now appeal that decision.
[8]
The key issues raised by the appeal are:
(a)
whether Mr and Mrs Harvey agreed to sever the joint tenancy under a
relationship property agreement executed prior to Mr Harvey’s death;
and
1
Harvey v Gateshead Investments Ltd [2013] NZHC 2253, [2014] 2 NZLR 79.
(b)
whether s 47 of the Property (Relationships) Act 1976 voids any
severance of the joint tenancy.
Background
Joint tenancies
[9]
We turn first to explain the concept of joint tenancy and the distinction
between joint tenancy and another form of co-ownership called tenancy in common.
[10]
As noted in the decision under appeal, joint tenancy arises where a parcel of
land is vested in two or more persons without any indication they are to take distinct
and separate shares.2 Each has a right to the whole property but not to any particular
share in it. Joint tenancy regards co-owners as, in effect, a single entity.
[11]
In contrast, where co-owners hold land as tenants in common, each has a
defined share in the property.
[12]
There are two key features of a joint tenancy.3 The first is the existence of
the four unities, namely unity of possession, unity of interest, unity of title and unity
of time. The four unities reflect the concept that joint tenants have interests in the
property that are equal in all respects.
[13]
The second key feature is the right of survivorship. On the death of one joint
tenant, his or her interest accrues by operation of law to the survivor or survivors.
There is no vesting or transfer of the deceased joint tenant’s interest. When a joint
tenant dies during the subsistence of the joint tenancy, his or her interest simply
ceases to exist, and the interests of the remaining joint tenants expand by accretion.
Where there is but one survivor, the joint tenancy has run its course and the survivor
becomes the full owner of the whole property.4
2
3
4
At [14].
See GW Hinde and others Principles of Real Property Law (2nd ed, LexisNexis, Wellington,
2014) at [12.004]–[12.006].
Corin v Patton (1990) 169 CLR 450 at 575.
[14]
Again, this can be contrasted with the position of tenants in common. On the
death of one such tenant, that tenant’s proportionate share forms part of his or her
estate to be distributed in accordance with his or her will or under the provisions of
the Administration Act 1969 if there is an intestacy.
As for severance, that has been defined in a leading text as “the process by
[15]
which either unity of interest or unity of title [is] destroyed, resulting in the
conversion of the joint tenancy into a tenancy in common”.5 Severance destroys the
right of survivorship.
[16]
In New Zealand a joint tenancy may be severed either at law or in equity. A
legal severance occurs upon registration of the appropriate instrument under the
Land Transfer Act 1952. This case concerns severance in equity.
The facts of this case
[17]
Mr and Mrs Harvey purchased the Coatesville property in November 2001.
The title was registered in their name as joint tenants.
[18]
Mrs Harvey was involved in three rest home businesses which borrowed
money from the appellants (the creditors). Mrs Harvey personally guaranteed the
loans.
[19]
The businesses defaulted on the loans and on 26 November 2009 the
creditors issued summary judgment proceedings against Mrs Harvey.
The
proceedings were not defended.
[20]
On 16 December 2009 Mr and Mrs Harvey entered into a relationship
property agreement under s 21 of the Property (Relationships) Act. The agreement
contained a schedule listing various items of property that it was agreed would
become separate property as from the date of the agreement. Significantly for
present purposes, the Coatesville property was shown as Mr Harvey’s separate
property, while the items listed as Mrs Harvey’s separate property included shares
held in her name in the rest home businesses.
5
Hinde and others, above n 3, at [12.013].
[21]
Clause 3 of the agreement provided that each party would forthwith:
… execute all transfers, assurances and
yield up possession of such property and
as may be necessary to secure to the
possession of the property to which that
the agreement.
[22]
other documents and deliver and
documents and take all such steps
other party the title to and the
other party may be entitled under
It was a further term of the agreement that it would be binding on the parties
in all circumstances including bankruptcy, the taking of property in execution by
creditors, separation and death.
[23]
It is not disputed that in entering into the relationship property agreement,
Mr and Mrs Harvey’s intention was to remove the family home completely from the
reach of Mrs Harvey’s creditors.
[24]
In January 2010 the creditors obtained judgment against Mrs Harvey for
$1,442,800 together with interest and costs.
Later, on 9 February 2010, they
registered a charging order against the title to the Coatesville property.
[25]
That same month, without knowledge of the charging order, Mr Harvey
entered into an agreement to transfer the Coatesville property to a family trust.
Because of the charging order, neither the transfer of the property into Mr Harvey’s
sole name nor the subsequent transfer to the family trust could be registered under
the Land Transfer Act.
[26]
On 5 November 2010 Mr Harvey made a will appointing his son, the
respondent, as his executor. Under the will, Mr Harvey devised the Coatesville
property to the family trust, reserving a life interest to Mrs Harvey.
[27]
Mr Harvey subsequently died on 3 February 2011.
[28]
Both parties then took steps to protect their competing claims.
The
respondent executor registered a notice of claim against the title to the property,
relying on the relationship property agreement. The creditors sealed a sale order in
respect of Mrs Harvey’s interest in the property.
[29]
The creditors also issued summary judgment proceedings in the High Court
seeking orders declaring the relationship property agreement void, vesting the
Coatesville property in Mrs Harvey by survivorship and removing the notice of
claim registered against the title.
[30]
Associate Judge Faire held that the relationship property agreement was
entered into with the intention of defeating creditors in terms of s 47(1) of the
Property (Relationships) Act.6 Section 47(1) states:
Any agreement, disposition, or other transaction between spouses or partners
with respect to their relationship property and intended to defeat creditors of
either spouse or partner is void against those creditors and the Official
Assignee.
[31]
Associate Judge Faire declared the relationship property agreement void
against Mrs Harvey’s creditors to the extent it had the effect of defeating those
creditors. However, the Associate Judge declined to grant the other applications
sought by the creditors. He considered Mr Harvey’s estate had raised arguable
defences and the proceeding was accordingly sent to trial before Katz J.
The decision under appeal
[32]
The executor accepted at the hearing before Katz J (as he did in this Court)
that the relationship property agreement was void under s 47 of the Property
(Relationships) Act to the extent that it purported to transfer Mrs Harvey’s interest in
the property to Mr Harvey. That is to say, it was accepted that Mrs Harvey’s interest
in the property was still available to her creditors, notwithstanding the relationship
property agreement.
[33]
That concession meant the dispute was limited to whether the creditors
obtained only Mrs Harvey’s share or both shares in the Coatesville property.
[34]
The executor also accepted that there could not have been a legal severance
of the joint tenancy, because of the failure to register the relevant transfers.
6
Harvey v Gateshead Investments Ltd [2012] NZHC 1059.
[35]
It was therefore common ground that the case turned on whether an equitable
severance of the joint tenancy had occurred prior to Mr Harvey’s death.
[36]
In her decision, Katz J said that the starting point for any discussion of the
law of severance was the judgment of Sir William Page Wood VC in Williams v
Hensman, in particular the following paragraph:7
A joint-tenancy may be severed in three ways: in the first place, an act of
any one of the persons interested operating upon his own share may create a
severance as to that share. The right of each joint-tenant is a right by
survivorship only in the event of no severance having taken place of the
share which is claimed under the jus accrescendi. Each one is at liberty to
dispose of his own interest in such manner as to sever it from the joint fund–
losing, of course, at the same time, his own right of survivorship. Secondly,
a joint tenancy may be severed by mutual agreement. And, in the third
place, there may be a severance by any course of dealing sufficient to
intimate that the interests of all were mutually treated as constituting a
tenancy in common. When the severance depends on an inference of this
kind without any express act of severance, it will not suffice to rely on an
intention, with respect to the particular share, declared only behind the backs
of the other persons interested. You must find in this class of cases a course
of dealing by which the shares of all the parties to the contest have been
affected … .
[37]
Justice Katz went on to say that although five possible methods of severance
are now recognised, only two were relevant in the present case, namely the second
and third categories identified in Williams v Hensman; that is, severance by mutual
agreement and severance by a course of dealing sufficient to intimate that the
interests of all were mutually treated as constituting a tenancy in common.
[38]
The Judge noted that many of the modern cases involving severance by
mutual agreement have arisen in the context of the breakdown of a personal
relationship between the joint tenants, which was not the case here. However, the
Judge said she considered the Harveys’ situation to be analogous to a marriage
breakdown in the sense that due to changed circumstances (Mrs Harvey’s
indebtedness) survivorship would no longer serve its usual purpose. It would not
provide Mrs Harvey with a home and a degree of financial security were Mr Harvey
to die first.8
7
8
Harvey v Gateshead Investments Ltd, above n 1, at [19] citing Williams v Hensman (1861) 1 J &
H 546 at 557, 70 ER 862 (QB) at 867.
At [40].
[39]
In the Judge’s assessment, the evidence viewed as a whole (including the
steps taken by Mr Harvey after the relationship property agreement was signed and
Mrs Harvey’s evidence)9 indicated that Mr and Mrs Harvey had a common intention
to sever their joint tenancy and its associated right of survivorship.10
[40]
Alternatively, to the extent that severance by course of dealing is a distinct
method of severance (which some commentators have doubted), the Judge said she
was satisfied Mr and Mrs Harvey engaged in a course of conduct pursuant to which
they treated their interests as several.11 Had it been necessary, the Judge would
therefore have found the Harveys’ joint tenancy was severed in equity by course of
conduct.
[41]
The Judge further held that her conclusion the joint tenancy had been severed
prior to Mr Harvey’s death was not affected by the fact the relationship property
agreement was in breach of s 47 of the Property (Relationships) Act.
[42]
The creditors’ application for an order that the entire estate in fee simple be
vested in the Official Assignee was accordingly dismissed.
Grounds of appeal
[43]
On behalf of the creditors, counsel Mr Toebes submitted that the Judge was
wrong to find the joint tenancy had been severed.
He advanced three main
arguments:
(a)
What Mr and Mrs Harvey agreed under the relationship property
agreement was not to sever the joint tenancy but rather to transfer the
entire property to Mr Harvey.
(b)
Even if the relationship property agreement purported to sever the
joint tenancy, it was void and of no effect due to s 47 of the Property
9
10
11
Mrs Harvey gave evidence that she had agreed with her husband to terminate the joint tenancy
concurrently with a transfer of her interest to him.
At [50].
At [55].
(Relationships) Act. That meant Mr and Mrs Harvey must be held to
have remained joint tenants until the former’s death.
(c)
Any course of dealing must similarly be void and so of no legal effect.
Analysis
Was the only agreement an agreement to transfer rather than sever?
[44]
Mr Toebes developed his argument as follows.
[45]
He took as his starting point two statements of principle. First, the statement
in Fleming v Hargreaves that:12
The absolute assignment of an interest in a joint tenancy operates in equity to
sever the joint tenancy and thereafter the property is held as tenants in
common in equal shares.
Secondly the statement quoted above at [15] that severance is “the process by which
either unity of interest or unity of title [is] destroyed, resulting in the conversion of
the joint tenancy into a tenancy in common”.
[46]
In reliance on those two statements, Mr Toebes submitted it was fundamental
to the concept of severance that the joint tenants remain co-owners. Thus, while
assignment of an interest in a joint tenancy operates in equity to sever the tenancy,
transfer of the entire property (whether to one of the joint tenants or a third party) is
an act of the joint tenants acting together. It cannot be an act of severance.
[47]
In Mr Toebes’ submission, the relationship property agreement in this case
never purported to convert the joint tenancy into a tenancy in common. Rather, the
object was that Mrs Harvey would not retain any share and that Mr Harvey would
become the sole owner. Such an agreement was therefore not a severance. It was a
transfer by both owners of the entire property to one person, as evidenced by the
e-dealing instructions signed by Mr and Mrs Harvey on the day the relationship
property agreement was signed.
These e-dealing instructions described the
transaction as a transfer from Mr and Mrs Harvey to Mr Harvey as “sole tenant”.
12
Fleming v Hargreaves [1976] 1 NZLR 123 (CA).
[48]
In support of this analysis, Mr Toebes referred us to a 1932 decision of the
Supreme Court of Victoria, Re Allingham.13
[49]
In Allingham, a husband and wife owned land as joint tenants. They both
signed an agreement to sell the property to a third person. The purchaser paid the
deposit to the husband, who then paid it into a bank account in his sole name. The
husband died. A dispute then arose between the wife and the husband’s estate as to
the ownership of the sale proceeds. The estate argued that either the sale of the
property and/or the banking of the deposit had effected a severance of the joint
tenancy.
[50]
The Court rejected that argument. It held that there was no reason why the
making of the contract and the change in the form of the property should in
themselves affect an alteration in the nature of the ownership. It further held that the
husband had paid the deposit into his bank account as agent for both himself and his
wife. There had been no severance of the joint tenancy and the sale proceeds were
therefore owned as joint tenants (and so passed to the wife by survivorship).
[51]
In our view, Allingham is plainly distinguishable. The case very much turned
on its own facts, in particular the absence of any evidence of the necessary intention
or agreement to sever the joint tenancy. It is not authority for an absolute proposition
that a sale by joint tenants of the entire property can never in any circumstances
amount to severance of the joint tenancy.
[52]
In every case where it is contended there has been a mutually agreed
severance, the primary question must always be whether the evidence establishes
such an agreement.
[53]
In this case there was, in our view, compelling evidence of a mutual intention
to sever. Unlike the sale contract in Allingham, the agreement at issue dealt with the
reclassification and division of various items of property as between the joint
tenants. The underlying intention was undoubtedly for Mrs Harvey to dispose of or
assign a divided half share interest in the Coatesville property absolutely to
13
Re Allingham [1932] VLR 469 (SC).
Mr Harvey, just as it was the intention that he dispose of his half share interest in the
rest home businesses. Such a disposition made in those circumstances must in our
view amount to a severance in equity of the joint tenancy.
[54]
The agreement to sever was supported by consideration and, apart from the
attempt to defeat creditors, to which we return later, there was nothing improper
about it.
[55]
We also agree with Katz J that the e-dealing form does not detract from that
analysis.
It is the substance of the transaction between the parties that should
prevail, not the form. Or, to put it another way, in the circumstances of this case the
greater (transfer to Mr Harvey as sole owner) must be taken to include the lesser
(severance of the joint tenancy and transfer of Mrs Harvey’s half share as tenant in
common to Mr Harvey).
What is the effect of s 47?
[56]
For convenience, we set out the relevant part of s 47:
(1)
Any agreement, disposition, or other transaction between spouses or
partners with respect to their relationship property and intended to
defeat creditors of either spouse or partner is void against those
creditors and the Official Assignee.
(2)
Any such agreement, disposition, or other transaction that was not
so intended but that has the effect of defeating such creditors is void
against such creditors and the Official Assignee during the period of
2 years after it is made, but only to the extent that it has that effect.
[57]
It was common ground that the present case fell within s 47(1).
[58]
Mr Toebes submitted that because s 47 renders the relationship property
agreement void, that means the position falls to be regarded as if that agreement
never existed. He also referred us to a passage in the Supreme Court decision
Johnson v Felton, where the Court held that on an impugned transaction being
voided under s 47, the property re-vests in the person who disposed of it.14 Thus, so
Mr Toebes argued, if the relationship property agreement in this case did purport to
14
Johnson v Felton [2006] NZSC 31, [2006] 3 NZLR 475 at [21].
sever the joint tenancy, s 47 renders any such severance ineffective and the joint
tenancy remains intact.
[59]
We disagree. As the Court makes clear in the same passage, any voiding and
re-vesting is only “to the extent necessary to meet the [creditor’s] claim”. Further, as
the Court also makes clear, this qualification applies whether the agreement in
question is caught by s 47(1) or s 47(2).
[60]
As a matter of principle and logic, the creditor’s claim for the purposes of
s 47 must be determined as at the date of the impugned agreement. In this case, at
the time the relationship property agreement was entered into the creditors only had
a claim to Mrs Harvey’s interest in the property.
They never had a claim to
Mr Harvey’s interest. As at that time, any right to the entire property by dint of
survivorship was at best inchoate and not available to creditors.
[61]
In those circumstances, we agree with Katz J that voiding the transaction to
the extent necessary to meet the creditors’ claim must mean voiding the agreement in
so far as it provided for a transfer of Mrs Harvey’s half share in the property but not
insofar as it evinced a mutual intention to sever the joint tenancy. The purpose of
s 47 is not to improve the position of the creditors, only to preserve it.
[62]
Such a result also accords with common sense and the justice of the case. In
our view, if the creditors were to obtain the entire property, that would be an
undeserved windfall. So too if the positions were reversed and Mrs Harvey had died
first. It would be unjust if the creditors were to receive nothing. Yet that is the
natural corollary of Mr Toebes’ argument.
[63]
Because of the view we have taken, it is unnecessary for us to consider
whether Katz J was correct to rely on a course of dealing as an independent mode of
severance.
Outcome
[64]
The appeal is dismissed.
[65]
There is no reason why costs should not follow the event and accordingly we
order that the appellants must pay the respondent’s costs for a standard appeal on a
band A basis and usual disbursements.
Solicitors:
JT Law, Wellington for Appellants
Kemp Barristers & Solicitors, Auckland for Respondent