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The Court of Appeal decision Cowan v Cowan [2021] NZCA 31 made headlines earlier this year after the Court held that John Cowan’s children could lodge a caveat over his family home in order to protect their potential interest in their mother’s estate.
Background
Marama and John Cowan were married for nearly 50 years. They had two children, Christine and Te Rahui. During Marama and John’s marriage, they lived in their family home in Lyall Bay. They also owned another property in Carterton.
Over the course of Marama and John’s marriage, they discussed the ownership of their assets and entered into two agreements under the Property (Relationships) Act 1976 (PRA) setting out how their assets would be divided in the event that they separated or one of them died.
Relationship property agreements
In order for a relationship property agreement to be valid under the PRA, both parties must sign the agreement in front of a lawyer who has provided them with advice on the agreement and certified the agreement. If either party to the agreement does not satisfy these requirements, the agreement will be void in accordance with section 21F of the PRA. However, a party can apply to validate a void agreement under section 21H of the PRA if the parties’ interests have not been materially prejudiced as a result of the non-compliance with section 21F.
In May 2002, John and Marama signed an agreement stating that they would no longer jointly own the Lyall Bay property (2002 agreement). They did not receive legal advice in relation to this agreement. The 2002 agreement provided that John would “sell and gift his share” of the “joint family home” at Lyall Bay to Christine, so that Marama and Christine were the joint owners of the Lyall Bay property, rather than Marama and John. However, Marama and John did not update the title of the property to reflect their agreement and continued to hold the property in their joint names.
In March 2019, Marama and John negotiated a second relationship property agreement (draft agreement). The draft agreement provided that the Lyall Bay property was Marama’s separate property and was held on trust for Christine and Te Rahui. It also provided that the Carterton property was John’s separate property.
Marama signed the agreement and had it certified by her lawyer in March 2019. Four days later, Marama passed away. John did not sign the agreement.
When Marama died, both properties passed to John by survivorship because they were still held in Marama and John’s joint names. Christine continued living in the Lyall Bay property, where she had been living with Marama prior to her death. John lived in the Carterton property.
Caveat over the Lyall Bay property
On 25 February 2021, John entered into a sale and purchase agreement to sell the Lyall Bay property to a property developer. When Christine discovered this, she lodged a caveat over the property to prevent John from selling it. John applied to lapse the caveat and Christine and Te Rahui then filed an application in the High Court to sustain it.
High Court decision
Christine applied to the High Court to sustain the caveat on the basis that she had a caveatable interest in the property under the 2002 agreement and the draft agreement. Te Rahui claimed that he had an arguable caveatable interest in the property because of his interest under the draft agreement.
The High Court did not consider that Christine or Te Rahui had a caveatable interest in the property and refused to make an order that the caveat not lapse. Associate Judge Johnston considered that the 2002 agreement may have evidenced an intention to sever the joint tenancy of the Lyall Bay property. However, given the passage of time and the draft agreement, Associate Judge Johnston held that Marama and John must have abandoned the 2002 agreement.
The High Court allowed the caveat to lapse. This meant that, after the High Court decision, John was able to deal with the property as he saw fit and could complete the sale of the property to the property developer.
Court of Appeal decision
Christine and Te Rahui appealed to the Court of Appeal seeking orders to lodge a second caveat against the title of the Lyall Bay property.
The Court held that Christine and Te Rahui’s claim to beneficial ownership was “plainly arguable” because, even if the draft agreement was not found to be a valid relationship property agreement, the 2002 agreement evidenced an intention to sever the joint tenancy of the Lyall Bay property. Therefore, regardless of the draft agreement, the 2002 agreement protected Christine’s interest in the Lyall Bay property.
In making its decision, the Court of Appeal considered it persuasive that both the 2002 agreement and draft agreement showed that Marama had intended to leave the Lyall Bay property to her children and that John had agreed to this. Accordingly, the appeal was successful.
Conclusion
This case is a reminder to parties that draft agreements should not be disregarded, as they could form the basis for a claim against relationship property assets.
Contact Morris if you would like advice on avoiding a situation like this.