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Agreement for Sale and Purchase, Beneficiaries, Deed of Trust, Land Transfer Act, Relationship Property

Directors are not owners

Pisidia Holdings Limited v Darby relates to an application to lapse notices of claim lodged against the title of seven properties following the end of the relationship between John Darby and Kristen Darby.  The land in question was owned as to a 2/5th share by Pisidia Holdings Limited (Pisidia), the shares in which are held by the trustee of the Karearea Trust (the Trust).  John Darby is the director of Pisidia, but not of the trustee of the Trust.

Section 42 of the Property (Relationships) Act 1976 (the PRA) permits a notice of claim to be lodged where there is a claim to an interest, pursuant to the PRA to land subject to the Land Transfer Act 2017.

The basis for the notice of claim on each title of the land owned by Pisidia was:

“John Gerard DARBY as the sole director of the registered proprietor Pisidia Holdings Limited (as to a 2/5 share) and beneficially interested under a constructive trust, which is relationship property pursuant to s 8(1) of the Property (Relationships) Act 1976, and sections 44 and 44C of that Act.”

John Darby had never owned any of the land in question personally.

As noted at [15]:

“The primary issue is whether John’s directorship of Pisidia and his presumed beneficial interest through the Karearea Trust means that he has an interest in the land owned by Pisidia. Kristen says John does have an interest in the land and that interest is relationship property and therefore the notice of claim should remain.”

As stated at [16] “It is common ground that a notice of claim pursuant to s 42 of the PRA requires more than a spouse having a shareholding in a company which owns the land subject to the notice.”

Kristen’s counsel argued that Clayton v Clayton has “redrawn the landscape” as to what is caught by the expression “interest in land”.

How Pisidia funded and obtained the land in question was an important consideration.  Matters taken into account included:

    • a funding structure that involved other entities
    • an historic joint venture arrangement
    • the fact that “None of the steps in relation to the land are recent constructs or devices to frustrate or defeat Kristen’s rights”
    • the fact that John never personally owned the land

An argument raised was that John had worked without pay, which would have been relationship property; and that this would allow Pisidia’s profits to flow to the Karearea Trust (rather than to John).

The following sets out the primary arguments:

[32] Mr Johnson, confronting the argument that Clayton has opened the door to bringing trust or company assets into the relationship property pool, said that the significance of Clayton was that it broadened the category of rights that can be treated as property, such as powers of appointment. Such rights were valued by reference to the property in a trust, but a successful application of the Clayton principle did not collapse a trust so as to make property in a trust relationship property. Ms Chambers did not in her submissions submit that Mr Johnson had mischaracterised the effect of Clayton.

[33] Mr Johnson’s submissions about Clayton are of course in the context of the Trust Deed not being before the Court, but even drawing the inferences Ms Chambers invites me to draw that the non-disclosure means that the Karearea Trust is a Clayton-type trust, Mr Johnson says that of itself does not make the Karearea Trust property (the Pisidia shares), or Pisidia’s land, John’s property. Thus, Mr Johnson says that the high point for Kristen is that the effect of Clayton is that in certain circumstances the value of property in a trust, or potentially in a company can be included in the relationship property pool but that does not give Kristen an interest in the assets of the Karearea Trust or Pisidia.

Importantly, John’s status as a director of Pisidia does not give him and interest in Pisidia’s assets.  See [34].  Further, the court was of the view that whether or not John worked without remuneration, this did not elevate this to giving him rights under a constructive trust.

The arguments on account of s 44 and 44C of the PRA could have application to the disposition of the Pisidia shares (if the transaction is intended to or has the effect of defeating interests under the PRA), but not the disposition of Pisidia’s assets.

Editor’s note: the proceeds of any disposition of land are the property of the company, whereas the proceeds from the disposition of shares, will be the property of the shareholder.

The fundamental barrier to Kristen’s notices of claim being upheld was the way in which the land in question was held.

In conclusion:

“[56] I do not consider Kristen’s complaints about non-disclosure amount to something more as I have approached John’s interest in Pisidia as if he was the shareholder and not a beneficiary of a trust that held the shares. Nor do I consider cl 7.5 of the JV as being something more. Kristen has arguable remedies in respect of that provision as I have touched on above.

[57] Ultimately, I do not accept that Clayton has created the type of flexibility that Ms Chambers urged me to adopt. In cases where the approach in Clayton has applied, the result is a valuation of the assets in a trust, not a finding that the trust does not exist, or that the assets in the trust have become relationship property. At the end of the day Kristen complains about a normal consequence of the use of a company, that is that the shareholder does not have an interest in the company’s assets.

Disposition

[58] It follows that I do not accept that Kristen has an interest in Pisidia’s land and that the notices of claim are to be removed.”

References:

  • Pisidia Holdings Limited v Darby [2019] NZHC 1216
  • Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551

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