When Pei-Ya Liao decided she wanted to make a move into property investment, she went to her parents for help.
Her parents, A-Wang Liao and Tan-Kuei Liao Lu, gave their 30-year-old daughter 10 percent of the purchase price of a Glen Innes house.
But some years later, they asked her to transfer the property to them, saying that it had been purchased “on the basis that it would belong to them and they would be the registered proprietor”.
Liao did not transfer the property, and the battle over ownership went all the way to the Court of Appeal.
The key issue was whether, when the parents transferred the money to their daughter, she held the property on a “resulting trust”, or whether it had been a gift.
Justice Mark Woolford had, in earlier High Court proceedings, determined that because the money was transferred from parents to a child, the presumption of advancement applied – meaning it was a gift.
But the parents argued at the Court of Appeal that Justice Woolford erred when he treated the presumption of advancement as applying to adult children or, in the alternative, to financially independent children.
A battle with the ‘bank of mum and dad’
The Liaos, who are in their seventies, came to New Zealand from Taiwan with their three children in the early 2000s.
They came from modest backgrounds but built up a successful business in Taiwan, and invested in both commercial and residential property there, though preferred to buy for cash rather than accumulate debt.
In 2011, the parents were travelling to and from Taiwan a lot, and asked their daughter to manage their accounts while they were away.
In 2012, Pei-Ya, who is known as Phoebe, was 30, and in a serious relationship with a property developer, whom she married the following year.
She was working fulltime as a waitress and earning about $600 a week, and was living with her parents to save money.
When she decided she wanted to get into property investing, her parents gave her a deposit for a residential property in East Tāmaki. She paid the balance with her savings and a bank loan, servicing the loan with rent from the property and her income.
The Court of Appeal heard that the parents assisted all their children financially over several years.
One of their sons said his parents had given him “$80,000 and approximately $400,000 to purchase houses and a further $200,000 to pay down the mortgage on one of his properties”.
A younger son was given an interest-free loan of around $600,000, which he repaid, and he said his parents had also advanced him $44,000 to a company he owned, and made him another loan of $400,000.
In 2015, a transfer of $25,000 was made by Phoebe to herself, with her mother’s approval, as a gift when her son was born.
That transaction, and others, were brought into the dispute in the High Court as well, with Phoebe’s mother claiming she knew nothing about it.
There was also a property in Ellerslie, but Justice Woolford said that given the different circumstances that surrounded its purchase, he was satisfied the parents were the beneficial owners.
The Glen Innes property remained enough of a sticking point for the parents to take the dispute to the Court of Appeal.
What the court heard
It was agreed that the parents contributed $52,050 towards the purchase price of the Glen Innes house, but Phoebe said it was a gift.
The parents claimed they found the Glen Innes property and thought it suitable as an investment.
Her mother claimed that while they intended to purchase the property with cash, as they didn’t like debt, Phoebe asked that they pay the deposit, and she fund the balance with a mortgage, to improve her credit rating.
The mother said she thought the property would still be registered in her and her husband’s names, with her daughter liable for the mortgage “like a guarantor”.
She told the court she went to the auction and “placed the winning bid”, but did not remember signing any documents after, trusting her daughter to “complete the legal processes in accordance with our wishes and on our behalf”.
Phoebe said her husband found the Glen Innes property, and introduced her to a loan manager at BNZ.
The bank was prepared to lend up to 80 percent of the purchase price on the basis that she moved the borrowing on the property she already owned, combining the loans.
She had enough for 10 percent, but needed a further 10 percent to reach the 20 percent equity required, and asked her parents if they wanted to invest in the property with her.
They weren’t interested, so she asked her brother, but he wasn’t interested either.
She went back to her mother and asked for help to cover the 10 percent deposit for the purchase price – around $50,000 – and she agreed.
Phoebe said she bid at the auction, with both her parents there, and when she went to see her lawyer to complete the purchase documents, her parents came with her then too, and the lawyer spoke in Mandarin.
“He explained the documents and made it clear that it was Ms Liao who was buying the property, would be the registered owner and would be responsible for the bank loan,” the decision reads.
“Ms Liao funded the loan using the rent from the two properties, her own savings and earnings and help from [her husband].”
In the High Court proceedings, Justice Woolford noted there was “a paucity of contemporaneous evidence” as to the parties’ intentions around the time of purchasing the Glenn Innes property.
He therefore turned to the presumption of advancement, which he decided did apply.
He found that Phoebe had not been financially independent and, given the parents’ circumstances, it was not unreasonable for them to assist her.
The Court of Appeal’s decision referred to a number of cases, in New Zealand and abroad, about the different courts’ handling of the presumption of advancement and its application today.
“It is evident that, despite reservations expressed as to the ongoing rationale for the presumption of advancement, the doctrine is still part of the law of equity in New Zealand and applies to adult children,” the decision said.
The “historical rationale” was not limited to an obligation to support.
“Rather, it reflects the unique relationship between parent and child and the fact that the emotional ties underpinning that relationship endure regardless of age.
“While that relationship does involve moral and legal obligations, it is not reducible to them.”
It said the “uniqueness of the relationship” justified a presumption that, absent of any evidence to the contrary, parents who advance money intend it as a gift.
The High Court had considered the specifics of the Liao family, and noted it was relevant that the parents had provided a similar gift to their daughter only a few months before.
The judge found that, “By a slim margin, therefore, I consider that the presumption of advancement has not been displaced with respect to the Glen Innes property and the monies transferred to the defendant for payment of the deposit was likely a gift.”
On appeal, the parents’ lawyer Simon Jeffs argued that the fact they had given their daughter a gift only a few months before, made it “inherently unlikely” they would have made her a further gift so soon after the first.
Given their “aversion to debt”, it was implausible that they would have encouraged their daughter to double her borrowing by purchasing another property.
However, the Court of Appeal rejected this submission and, considering the overall circumstances, thought there was sufficient evidence that the contribution was a gift.
It was noted that even on the parents’ account, Phoebe contributed just as much equity to the purchase as they had.
“Given her relatively modest situation, there was no reason for her to have contributed hard‑earned cash and incurred a substantial liability – or for Mr and Mrs Liao to let her do that – merely for the benefit of “improv[ing] her credit score” (which Ms Liao flatly denied saying),” the decision said.
Another matter they noted was that of the $52,050 the parents advanced to Phoebe, $20,000 had come from their son and, in 2014, the mother asked Phoebe to repay him that amount directly, which she did.
“There was no obvious reason for this request or for Ms Liao to have repaid her brother if she had no interest in the property herself,” the decision said.
The Court of Appeal also recognised that Phoebe had met the shortfall between rent and the mortgage, including through money from her husband.
“It is completely implausible that Ms Liao would take on a liability that could not be met from the rental income alone and that she and her husband would then proceed to meet the substantial shortfall without having a beneficial interest in the property,” the decision said.
It was not considered significant that there was no “contemporaneous document describing the payment as a gift”.
“There was no mention of the earlier gift to buy the East Tāmaki property being documented, so the lack of any contemporaneous documentation in relation to the Glen Innes property is neither surprising, nor significant,” the decision said.
This story originally appeared in the New Zealand Herald.
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