Ace Building, Plumbing & Drainage Services Limited v Dovation Trustees Limited
[2024] NZHC 2225
•31 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-000244
[2024] NZHC 2225
UNDER the Land Transfer Act 2017 and High Court Rules 2016 BETWEEN
ACE BUILDING, PLUMBING & DRAINAGE SERVICES LIMITED
Applicant
AND
DOVATION TRUSTEE LIMITED
Respondent
CIV-2023-404-001085 BETWEEN
ACE BUILDING, PLUMBING & DRAINAGE SERVICES LIMITED
ApplicantAND
DOVATION TRUSTEE LIMITED
First Respondent
ECO-SMART HOMES NORTHWEST LIMITED
Second Respondent
ECO-SMART GROUP LIMITED
Third Respondent
Hearing: 11 June 2024 Appearances:
D Purusram for the Applicants T Bowler for the Respondents
Judgment:
31 July 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
ACE BUILDING, PLUMBING & DRAINAGE SERVICES LTD v DOVATION TRUSTEE LTD [2024] NZHC 2225 [31 July 2024]
This judgment was delivered by me on 31 July 2024 at 4.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Introduction
[1] Ace Building, Plumbing & Drainage Services Ltd (Ace) is a construction company. It contracted to build houses on land at Helensville, Ardmore and Massey owned by a trustee company, Dovation Trustee Ltd (Dovation), for development companies Eco-Smart Homes North West Limited (ESH) and Eco-Smart Group Limited (ESG) (together the Eco-Smart companies).
[2] This judgment determines an application by Ace for summary judgment of its claim for sums said to be owing by the Eco-Smart companies under the building contracts. The Eco-Smart companies oppose summary judgment on the grounds that the claims are disputed, and they have an equitable set-off.
[3] The judgment also determines an application by Ace to sustain caveats against the certificates of title of two of the properties. Dovation opposes this application on the grounds that the building contracts that gave Ace the right to place caveats on the titles were terminated before the caveats were lodged; and the caveats do not state the basis for the beneficial interest claimed.
[4] The issue to determine in the summary judgment application is whether the Eco-Smart companies have an arguable defence including by way of equitable set-off.
[5] The issue to determine in the caveat application is whether Ace has established an arguable case to a beneficial interest in the properties.
Background
[6] Between October and December 2021, Ace entered into 18 Master Builders residential building contracts with the Eco-Smart companies.
[7] Eleven contracts were between Ace and ESH, for the construction of seven homes on properties at Kawariki Road, Helensville, and four homes on properties at Taupata Lane, Helensville, including one of the caveated properties — 12 Taupata Lane.
[8] Six contracts were with ESG for the construction of five homes on properties at Cosgrave Road, Ardmore; and one home on Farmland Road, Ardmore.
[9] Ace entered into a contract with Dovation for the construction of two houses at 6A and 6B Zingaro Place, Massey.
[10] Aside from Zingaro Place, Ace built the houses. All the houses passed their final inspection by Auckland Council between August and December 2022. Many have received code compliance certificates.
[11] Ace began work on Zingaro Place on 20 January 2021, but ceased work when disagreement and delays arose in relation to the works over approval required for the project. It is disputed whether Ace abandoned the site, or the contract was terminated by mutual agreement.
[12] On 1 February 2023, Ace sent an email to the Eco-Smart companies summarising amounts said to be due under the building contracts, and demanding payment. The amounts claimed included payments for practical completion and council final inspection pass certificates, receipt of code compliance certificates, remedial works, and variation invoices, totalling $294,692.
[13] On 14 February 2023, Neilsons Lawyers sent letters to Ace on behalf of each of Dovation, ESG and ESH.
[14] In relation to Dovation they identified issues with Ace’s work, asserted that Dovation had engaged a new builder to complete the work, had incurred additional labour and lending costs, and had a set-off or counterclaim for $175,000.
[15] On behalf of ESH, Neilsons Lawyers set out several items of unfinished work at the Kawariki Road and Taupata Lane properties. Furthermore, ESH claimed that it had been overcharged $39,412.42.
[16] On behalf of ESG, they asserted that Ace had surreptitiously inserted new terms into the signed agreements costing ESG $39,461.41 and set out areas of unfinished work.
[17] On 27 June 2023, ESH, by its solicitors, gave notice to Ace purporting to cancel the building contracts for the seven Kawariki Road properties and the four Taupata Lane properties, including 12 Taupata Lane. The grounds given were that, inter alia, Ace had abandoned the sites and/or refused to carry out any further works at the sites, having not been on site since January 2023.
[18] On the same day, ESG purported to cancel the building contracts for the five Cosgrave Road properties and the one Farmland Road property. The grounds given were that, inter alia, Ace had abandoned the sites and/or refused to carry out any further works at the sites, having not been on site since December 2022.
APPLICATION FOR SUMMARY JUDGMENT
The claim
[19]Ace applies for summary judgment of its claim:
(a)against Dovation for $25,800 for unpaid invoices issued under the contract for 6A and 6B Zingaro Place;
(b)against ESH for $299,000 of the $307,849.50 said to be owing by ESH for invoices issued under the contracts for 1, 3, 7, 9, and 11 Kawariki Road and 12 Taupata Lane (excluding $8,849.50 for variations which are disputed);
(c)against ESG for $30,000 of the $49,925 said to be owing by ESG for invoices issued in relation to 54 and 56 Cosgrave Road (excluding
$19,925 for variations which are disputed).
Legal principles
[20]Rule 12.2(1) of the High Court Rules 2016 provides:
The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[21] The relevant principles governing a summary judgment application are well established:1
(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. The Court must be left without any real doubt or uncertainty.
(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.
(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[22] The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.2
Assessment
[23] Before considering each of the claims against each Eco-Smart company, I address an issue that arose at the commencement of the hearing. On the eve of the hearing, Mr Purusram sought to file an amended application for summary judgment that introduced the assertion that the invoices were payment claims under the Construction Contracts Act 2002. Mr Bowler opposed this late amendment. If the invoices were payment claims, that would change the landscape significantly, as the “pay now argue later” provisions of that legislation would apply.
[24] However, as I indicated at the hearing, the invoices were not issued as payment claims under the Construction Contracts Act 2002. The building contracts gave Ace the ability to submit invoices as payment claims under that legislation, or as ordinary invoices.3 Ace did not submit the invoices to the Eco-Smart companies as payment claims. Payment claims must comply with formal requirements set out in s 20 of the Construction Contracts Act. These include that the claim must state that it is made under that Act.4 Further, a payment claim must be accompanied by an outline of the process for responding to that claim and an explanation of the consequences of not responding to a payment claim and not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).5 The invoices in question did not meet these formal requirements.
Claim against Dovation
[25] Ace claims Dovation owes it $25,800 for two unpaid invoices issued under the contract for 6A and 6B Zingaro Place. Invoice 5317 dated 19 January 2022 is for
$20,000 and is for “works done till date as agreed by Ritesh and Ace Builderz”.
2 Middleditch v NZ Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.
3 Clause 28, Part 6 ‘General Clauses of Contract’.
4 Section 20(2)(f).
5 Section 20(3).
[26] Invoice 5453 dated 14 June 2022 is for $5,800 in drainlayers’ costs relating to “works over pipe change” and “repair existing 150 pipe 6A Zingaro”.
[27] Dovation’s defence is set out in the affidavit of Ritesh Mani. Mr Mani reproduces the 14 February 2023 letter from Neilsons Lawyers, which states:
In relation to the engineered retaining wall you are claiming $20,000.00 from our client for this. However, it has not been built to specification and failed council inspection for reasons set out below:
Not the correct keystone block (straight laid vertical wall with no pins) this is part of the reason it failed. It should be done with the correct keystone with the 25mm setback and two pins per block like shown in the consented council plans.
Existing keystone was backfilled before the keystone wall had been filled with scoria like shown in the keystone specifications, this is also part of the reason it failed.
The existing Keystone wall got back filled with the incorrect back fill (40mm no fines metal) This is also part of the reason it failed. It should have been back filled with 13mpa no fines concrete like shown on the consented Council plans.
Our client was required to arrange for the wall to be removed and replaced with one properly built to specification for a cost in excess of $30,000.00. Please refer to the photographs showing the old keystone wall constructed by you together with the new one.
In addition we are instructed that you abandoned a project at Zingaro Place mid-build. Our client was required to engage a new builder at a cost of
$45,000.00.
In addition to the above, our client has incurred further costs in relation to labour in the sum of $65,000.00 to date (this figure increases by approximately
$6,000.00 per week)
Finally, our client has incurred additional lending costs as a direct result of Ace abandoning this project. These are currently estimated to be in the sum of
$65,000.00.
Your outstanding claim is for $80,000. However, as noted above our client’s current set-off and/or counterclaim amounts to $175,000.
[28] Mr Mani expands on the asserted set-off and/or counterclaim, stating that the new builder Dovation engaged accepted deposits and then fled the country. Mr Mani says that Dovation was required to engage a further builder on a “charge up basis” incurring costs of over $140,000. Mr Mani does not provide any evidence to substantiate the asserted set-off/counterclaim.
[29] Ace’s sole director and shareholder, Roneel Kumar, responds to Mr Mani’s evidence. He states:
The works progressed with erection of temporary fence, delivery of portaloo on site, site clearance and excavation work and machinery (Digger and Truck). The excavation works started on 24/01/2022.
Mr Mani and Dovation was not transparent regarding the works over approval (which were given to Applicant by Mr Mani upon request – Works-over initial approval dates were 22/20/2021) which had the conditions to replace a length of public sewer pipes. The Applicant uncured unnecessary costs and had to face delays given the project could not advance until and unless Dovation dealt with the amendments to the works over approval. Please see the email sent to Mr Mani on 27/01/22.6
…
The Respondent requested Applicant to engage a drainlayer to do the site works in regards to fix these conditions. The drainlayer is yet to be paid an amount of 5,800 including GST. Please see the drainage invoice attached – INV5453.”
In terms of the keystone retaining wall, we are advised:
(a)The structural design engineer’s report clearly states the use of Allan Block retaining wall modular specification. Please refer to the approved Structural Design Report, pages 53 – 55. The Architectural plan had Firth keystone for the retaining wall, therefore, both Firth and Allan Block keystones can be used.
(b)Furthermore, the supplier confirmed by email that the material used by Applicant was adequate for keystone.
(c)As for Respondent’s allegation that Applicant had not properly backfilled the keystone, we have included photo evidence that the keystone was properly laid and in a straight line. We are advised that the excavator engaged by respondent had damaged the keystone while doing foundation work which was picked up by the Council at a later stage. If there was any concern, that should have been brought to Applicant’s attention so that remedial steps could have been taken then. Photo evidence of Applicant’s original Keystone and related info are pasted below.
[30] Mr Kumar then attaches an unreadable page from a building consent, an invoice from Carters and photographs of the retaining wall in question at pages 19–20 of his affidavit.
[31]Mr Kumar continues:
6 The content of this email, pasted into Mr Kumar’s affidavit, is unreadable.
It is only on 6 December 2022 that Mr Mani asked about the details of the keystone used and which we replied to on the same day. On 9 December 2022 we were informed to pick up Allan Blocks which our client had installed. We are advised that Mr Mani and Dovation has unilaterally elected to remove the retaining wall and erect a different one, and that is their sole decision.
[32]In response to the alleged set-off/counterclaim, Mr Kumar states:
…it took Applicant close to 5 months to resolve the works over sewer line issues, and Applicant’s rights are reserved. The initial works over approval for 6A Zingaro was sent to Applicant on 25 January 2022 and 6B Zingaro was sent to Applicant on 28 January 2022. Approved and amended works over approval for 6A Zingaro was received on 13 May 2022. Applicant was busy with other projects, and it was agreed with Mr Mani that they would engage another builder (apparently a friend of Mr Mani) to carry on with the project. Please see the below mail from Mr Mani client dated 14 June 2022 confirming engaging another builder to take over Zingaro build.
…
The Applicant claims the sum of $20,000 which was the agreed sum to be paid to Applicant for works done to date on the site as addressed above. Please see the attached confirmation email dated 14 June 2022 and INV 5317…
[33] The June 2022 email Mr Kumar refers to is from Mr Mani and states (amongst other things:
We have a builder who can take over Zingaro. They will be paying $20,000 for the site works before the roof on stage. We can manage this payment also.
They will also be willing to purchase your cages off you at your costs. Once you confirm to this email ill then get them into a contract tomorrow, Once they have signed then only will the build be taken over.
[34] I am not persuaded that Dovation has a defence by way of equitable set-off. As noted earlier, a defendant is obliged to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition. The bare assertions made by Mr Mani, with no evidence tending to prove the facts relied on, do not suffice.
[35] However, Ace has not satisfied me that there is not a legitimate dispute as to whether the work to which the invoices relate was defective. There is a dispute between Mr Mani and Mr Kumar about whether the retaining wall was built to specification and/or was unsound. They seek to disprove the other with reference to photographs and other technical documents. I am unable to resolve that dispute in this
summary hearing. A dispute of this nature is more suited to adjudication under the Construction Contracts Act 2002, or one of the other dispute resolution procedures that may be invoked under the building contracts.
Claim against ESH
[36] Ace claims that ESH owes it $307,849.50 under invoices issued under the contracts for 1, 3, 7, 9, and 11 Kawariki Road and 12 Taupata Lane.7 Deducting the sums claimed for variations, it applies for summary judgment of $299,000.
[37] Again, ESH’s defence is set out in the affidavit of Mr Mani, who refers to the 14 February 2023 letter from Neilsons Lawyers. Neilsons Lawyers alleges that ESH has been charged for a number of extras and/or exclusions when there was no contractual basis to charge ESH for the same. The extras/exclusions are said to have cost ESH $39,412.42, as set out in a spreadsheet attached to the letter.
[38]Mr Kumar responds in his affidavit:
The spreadsheet that Mr Mani is trying to refer to does not contain any invoices nor description of the works; hence we had sought disclosures of how that figure is arrived at. The spreadsheet lists a number of Council and Geotech invoices that were incurred before signing the contract (i.e. before 10/10/21) which Ace is not liable to pay. It is a spreadsheet which is vague, incomplete and designed to muddy the situation.
[39] Next, Neilsons Lawyers states that several areas of work are incomplete or require remediating, including fencing, downpipes, alarms, a cat door, an en-suite bathroom mirror, a laundry door, and a vanity unit. They state that ESH’s operations manager, Spiro Kovac, had been trying to get Ace to carry out the outstanding works; and that until the outstanding works are completed no monies are due to Ace.
[40] In response, Mr Kumar states that fencing was not part of the signed contract. Mr Purusram took me to Part 4(c) of the building contracts where it describes how
7 Invoices 5632 dated 6 December 2022 for 1 Kawariki Road for $43,000, 5635 dated 8 December 2022 for $44,000 for 3 Kawariki Road, 5637 dated 8 December 2022 for $44,000 for 7 Kawariki Road, 5636 for $44,000 dated 13 December 2022 for 9 Kawariki Road, 5638 dated 13 December 2022 for $44,000 for 11 Kawariki Road, 5672 dated 26 January 2023 for $80,000 for 12 Taupata Lane.
progress claims are to be calculated, and gives a high-level description of the “scope of works.” Fencing is not listed.
[41] However, Part 2, cl 48 of each contract provides that “Details of the Works, including the materials and products to be used are… as included in the drawings and/or specifications (where the Works are subject to a building consent, the details of the Works are included in the consented drawings and specifications)”. Mr Kumar provides specifications for 58 and 60 Cosgrave Road, but drawings and/or specifications have not been provided with any of the contracts between Ace and ESH.
[42]Mr Kumar further responds:
On 22 February 2023, ACE had emailed Spiro requesting all the remedial list for 5 Mill Road properties.
…
On 23 February 2023 Spiro had emailed remedial list to ACE, however, by that time, we had already received the legal notice and all communications were to be done through the lawyers. Regardless, ACE team had attended to the remedials listed in the spreadsheet.
…
[43] Mr Kumar has not provided this spreadsheet or provided evidence to substantiate the assertion that Ace attended to the remedials listed in the spreadsheet.
[44]Mr Kumar continues:
The works have been completed to practical completion stage and all houses have passed Councils Final Inspection, hence why the owners have been able to occupy these completed houses.
Remedials have already been attended to by ACE team after receiving the remedial list from Spiro and later ACE did a courtesy site visit on 5 October 2023 and attended to any further remedials identified by the new home owners.
[45] Again, there are disputes of fact that I am unable to resolve based on the evidence before me. I do not have the detailed specifications for the Kawariki Road or Taupata Lane properties to establish whether fencing was part of the agreed scope of works. I am unable to resolve whether there remain outstanding items of work or issues that need to be remediated as alleged by ESH or whether, as Ace says, they have
all been attended to. I am unable to make any sense of the overcharge asserted by ESH; but Mr Kumar’s response is equally unclear and does not satisfy me that there is no basis for ESH’s purported defence.
Claim against ESG
[46] Ace seeks summary judgment of its claim to $30,000 owed by ESG under invoices issued for 54 and 56 Cosgrave Road.8
[47] Mr Mani, again with reference to the Neilsons Lawyers’ letter of 14 February 2023, alleges that Ace surreptitiously inserted additional terms into the hard copy versions of the agreements before Mr Mani’s signed them. ESG says that the terms were unfavourable to ESG and calculates the cost of the terms as $39,461.41. The additional terms were, I understand, exclusions from the contracts (such as surveyors’ fees, engineer inspection fees, architects’ fees, inspection fees and so on). Neilsons Lawyers attach a spreadsheet to their letter which they say sets out the excluded costs.
[48]Mr Kumar responds in his affidavit:
The amount claimed is made up of surveyor’s fees, engineer’s inspections, CCTV inspections, Council inspections, etc., which were clearly marked as ‘Exclusions’ and signed by Mr Mani.
[49] Mr Kumar provides a spreadsheet responding to each item in ESG’s spreadsheet. In most cases, the response is to point out that the exclusions were signed by Mr Mani.
[50] Mr Mani, again with reference to the Neilsons Lawyers’ letter, challenges the drainage costs charged to ESG, saying that ESG agreed to meet the cost of this on the basis that Ace provided a quotation that was to be approved by ESG before works commenced. He claims that ESG was never given the opportunity to approve the cost but was subsequently invoiced an excessive charge for this work of $11,500.00 per property (compared to a comparable quote of $6,000 from another contractor).
8 Invoice 5600 dated 13 November 2022 for $15,000 for 54 Cosgrave Road, 5599 dated 13 November 2022 for $15,000 for 56 Cosgrave Road.
[51]Mr Kumar responds:
Mr Mani is claiming that they paid $11,500 in excess when other quotes with other drainlayers were lower. Firstly the invoice issued sets out the details of the works. Secondly Dovation contracted for the work to be done and any additional work are charged to Dovation which was reasonable and sensible.
[52] Finally, Mr Mani contends that there are outstanding works and remedials, including for 54 and 56 Cosgrave Road. These are for fencing and landscaping at 54 Cosgrave Road; and at 56 Cosgrave Road a gate and sliding doors requiring fixing and landscaping.
[53]Mr Kumar responds:
I refer to the email sent by Spiro on 25 November 2022 with the remedial list whereby EVERY ITEM was attended to with the exception of paint touch up (which Spiro had to provide) and electrical contractor to attend to alarm on 41 Farmland.
ACE did a courtesy visit to the new owners on 27 September 2023 and attended to further remedials raised by the new owners.
[54] The 25 November 2022 email referred to is copied into Mr Kumar’s affidavit. It is from Spiro Kovac to Sach Deo at Ace. This list is described in the email as “basically the last things we need to do to get completed in Takanini”. It appears to cover remedial works for all six properties in respect of which ESG and Ace had contracted (54, 56, 48, 60 and 62 Cosgrave Road and 41 Farmland Road). There are no outstanding works recorded for 54 or 56 Cosgrave Road.
[55] ESG’s defence based on unfinished works at 54 and 56 Cosgrave Road does not seem reasonably arguable in view of the November 2022 schedule.
[56] However, I cannot be certain, based on the evidence before me, that ESG does not have a defence relating to the exclusions. I acknowledge that it is inherently unlikely that Ace would surreptitiously insert terms into the contracts or that Mr Mani would sign the contracts without noticing such terms. But there is a dispute of fact that cannot be resolved by summary hearing.
[57] Additionally, I am unable to reach a conclusion on ESG’s claim that they were not given the opportunity to approve the quoted drainage costs, as agreed, before they were incurred. Mr Kumar’s reply to this allegation is inconclusive.
CAVEAT APPLICATION
Introduction
[58]On 20 December 2023 Ace registered:
(a)caveat number 12911961.1 against certificate of title 939893 for the property at 12 Taupata Lane, Helensville; and
(b)caveat number 12911884.1 against certificate of title 914888 for the property at 6A and 6B Zingaro Place, Massey.9
[59]Both properties are owned by Dovation.
[60]The wording of the caveats is:
Breach of MasterBuild residential building contract agreement dated 15/12/2021, between parties. Express trust – caveator is the “beneficiary of the trust” referred to as the cestui que trust.
Legal principles
[61] An application to sustain a caveat is determined on summary basis in which the Court has regard to the following principles:10
(a)The applicant caveator bears the onus of demonstrating that they have an interest in the land sufficient to support a caveat. However, they need not establish that definitively. It is enough if they present a reasonably arguable case.
9 The caveat against 6A Zingaro has been removed by consent.
10 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. See also Philpott v Noble Investments Ltd [2015] NZCA 342.
(b)The process by which these applications are determined is ill-suited to resolving disputed questions of fact. An order for a caveat’s lapse will only be made if it is patently clear it cannot be maintained — either because there was no valid ground for lodging it in the first place or, alternatively, that such ground has now ceased to exist. A conflict between affidavits will generally be resolved in the caveator’s favour.11 However, the Court is not bound to accept uncritically statements in an affidavit that are equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable.12
(c)Where the applicant has discharged its burden, the Court retains a residual discretion to remove the caveat where it is satisfied that the caveator can have no reasonable expectation of obtaining a benefit from the continuance of the caveat or if the caveator’s interest can be reasonably accommodated in some other way.13 The Court will exercise this discretion cautiously and must be satisfied removal would not prejudice the caveator’s legitimate interest.14
[62] To establish a reasonably arguable case, there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or an affidavit, is not enough. If there is no evidence to prove the facts, the caveator will not have made out a reasonably arguable case for those facts.15
Submissions
[63] Ace now claims that it has a beneficial interest in the properties as a beneficiary of an institutional constructive trust or pursuant to an equitable mortgage under the
11 Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.
12 Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175, citing Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC 331 (PC) at 341; and Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
13 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656; Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at 60.
14 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd, above n 13, at 656.
15 Body Corporate 329331 v Escrow Holdings Forty-One Ltd [2017] NZHC 754, (2017) 18 NZCPR 466 at [9].
building contracts. Alternatively, that it had a contractual right to lodge the caveats by cl 124 of the building contracts.
[64] Dovation submits that Ace has no beneficial interest under an agreement to mortgage because there was no agreement between Ace and Dovation in relation to 12 Taupata Lane. Furthermore, the caveat did not accurately describe the claimed interest and the contract was cancelled by ESH in June 2023 before Ace registered the caveat in December 2023.
Assessment
[65] I will deal with the claim to a beneficial interest as a beneficiary of an institutional constructive trust first. The first problem for Ace is that the caveat refers to Ace having an interest as a beneficiary under an express trust, not an institutional constructive trust.
[66] The second problem is that the facts do not support a claim to an institutional constructive trust. Mr Purusram was unable to articulate how such a trust is said to have arisen between Dovation and Ace, simply stating that “the evidence before the court supports the existence of an institutional constructive trust in favour of the applicant”. He did not take me to any evidence. Elsewhere he submitted that Ace had “beneficial interests flowing from the breach of the building contract”. In oral submissions he suggested that an institutional constructive trust arose because some owners had paid ESG/ESH for the properties.
[67] It is difficult to follow the logic of these submissions. A breach of contract by one party does not result in a trustee/beneficiary relationship between the parties to the contract or give the innocent party a beneficial interest in the other party’s land. The proposition that Ace acquired a beneficial interest in Dovation’s land because of sums purchasers paid to ESG/ESH is also wrong as a matter of law.
[68] If Dovation does in fact owe Ace money (under the contract for Zingaro Place), the relationship is one of debtor and creditor, not trustee and beneficiary. A debt does not give rise to an interest in land.
[69] Overall, I can see no conceivable basis for Ace having a beneficial interest in the Taupata Lane or Zingaro Place properties under an institutional constructive trust.
[70] As to the claimed interest pursuant to an equitable mortgage and a contractual right to lodge a caveat, I understand Ace to rely on cls 123–125 of the building contracts:
123. If the Owner fails to pay any money payable to the RMB under this Building Contract on the due date for payment, then on demand the Owner will straight away provide the RMB with an executed and registrable memorandum of mortgage over the Land (for the purpose of securing all money owing from time to time by the Owner to the RMB under the Building Contract). That mortgage will be in the form of the All Obligations form produced by the Auckland District Law Society and approved by the Registrar General of Land under number 2011/2200 together with Memorandum number 2011/4300. The Owner also undertakes to complete any Authority and Instruction (“A & I”) form that is necessary to register that mortgage and to instruct their solicitor (or other relevant agent) to take whatever step is necessary to register that mortgage.
124. The Owner also acknowledges that the RMB is entitled to register a caveat or similar charge against the title to the Land in circumstances where the RMB is entitled to demand a registrable memorandum of mortgage.
125. The RMB must notify the Owner in writing and give the Owner five Working Days to remedy the default before demanding a registrable memorandum of mortgage over the Land or registering a caveat over the land.
[71] The difficulty for Ace is that an agreement to provide a mortgage “on demand” if there is default in a payment is not enough to support a caveat unless and until the triggering request or demand or call has been made. It is only at that point that the right to caveat crystalises.16 Ace did not refer me to any demand it had made to Dovation or ESH for a mortgage made under cl 123.
[72] Furthermore, the caveat instrument does not identify a claimed beneficial interest under an agreement to mortgage. A caveator is obliged to identify in the caveat instrument the basis upon which they claim an interest in the land concerned.17 That involves providing “A description of the nature of the estate or interest claimed by the
16 Compound Group Ltd v I’Anson [2024] NZHC 337; and Kilmartin v Monk (2005) 5 NZ ConvC 194,122 (HC) at [10].
17 Section 138(3) of the Land Transfer Act 2017, and Sch 2 of the Land Transfer Regulations 2018.
caveator (which must be stated with sufficient certainty)…” and “Details of how the estate or interest claimed is derived from the registered owner”.18
[73] That leaves the contractual entitlement to lodge a caveat under cl 124. But Ace faces two immediate problems here. First, as Dovation identifies, there was no agreement between Ace and Dovation by which Dovation gave Ace the right to lodge a caveat over its property at 12 Taupata Lane. The contract was between Ace and ESH.
[74] Second, Ace did not state in the caveat instrument that it was registering the caveat pursuant to its contractual right to do so under cl 124 of the building contracts. The Court will apply some latitude to the requirement that a caveator identify the basis for their claimed interest in the land concerned.19 The authorities suggest that the nature of the estate or interest claimed by the caveator need not always be stated in explicit terms. Provided that the wording of the caveat makes the nature of the estate or interest claimed sufficiently clear, the requirement that it be “stated with sufficient certainty” will be met.20 But here Ace identified an entirely different basis for the caveat — for breach of contract and as beneficiary of an express trust.
[75] Therefore, if the intention was to claim an interest pursuant to cl 124 of the building contract, the caveat was defective for non-compliance with the requirement to state the nature of the interest claimed with sufficient certainty and to set out how the estate or interest is derived from the registered proprietor.
Result
[76]The application for summary judgment is dismissed.
[77] In accordance with the principle in NZI Bank Ltd v Philpott costs in relation to the summary judgment application are reserved.21
18 Land Transfer Act 2017, s 138(3); and Land Transfer Regulations 2018, sch 2.
19 Zhong v Wang (2006) 5 NZConvC 194,308 (CA).
20 Zhong v Wang, above n 19; and Buddle v Russell [1894] 1 NZLR 537 (HC) at 539.
21 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
[78] The application for an order that caveats 12911961.1 against certificate of title 939893 and 12911884.1 against certificate of title 914888 not lapse is dismissed.
[79] Ace will pay Dovation its costs in relation to the caveat application on a scale 2B basis and reasonable disbursements to be fixed by the Registrar.
Associate Judge Gardiner
Solicitors:
Neilsons Lawyers, Auckland Victorian Lawyers, Auckland
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