Bary v AB Contracting Nelson Limited

[2022] NZHC 1404

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2021-442-42

[2022] NZHC 1404

UNDER

section 143 of the Land Transfer Act 2017

IN THE MATTER

of an application to sustain a caveat

BETWEEN

DAVID BARY

Applicant

AND

AB CONTRACTING NELSON LIMITED

Respondent

Hearing:	25 May 2022
Appearances:	G Pearson and M Byczkow for Applicant K Hymers for Respondent
Judgment:	17 June 2022

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1]    This is an application by David Bary for an order pursuant to s 143 of the Land Transfer Act 2017 sustaining a caveat registered by him over a property in Nelson, the registered owner of which is the respondent, AB Contracting Ltd (formerly AB & KB Investments Ltd). The shareholder and director of AB Contracting is  Aron Bary, David Bary’s brother.

[2]    To obtain such an order the caveator must be able to establish a reasonably arguable claim to a proprietary interest in the property of a type identified in s 138 of the Land Transfer Act. Materially, pursuant to s 138(1)(b), a person may lodge a caveat against dealings on the basis that he or she has a beneficial estate or interest in

BARY v AB CONTRACTING NELSON LIMITED [2022] NZHC 1404 [17 June 2022]

the land under an express, implied, resulting, or constructive trust. The purpose of a caveat against dealings is to protect the caveator’s claimed interest. In Philpott v Noble Investments Ltd, the Court of Appeal summarised the principles governing applications such as the present:1

(a)the onus is on the applicant to demonstrate an interest in the land that is sufficient to support the caveat, but this need not be established definitively;

(b)it is enough if the applicant is able to establish a reasonably arguable case in support of the interest;

(c)the summary process involved is not suited to the determination of disputed questions of fact;

(d)an order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be sustained — either because there was no valid ground for lodging it in the first place, or because such a ground no longer exists;2 and

(e)even when an applicant can discharge the burden, the Court retains discretion to order that the caveat lapse. This discretion is exercised cautiously. The Court must be satisfied that the caveator’s legitimate interest will not be prejudiced.3

Background

[3]    As long ago as 1994, the property that is the subject of David’s caveat, then bare land at 30 Maire Street in Nelson, was purchased by David and Aron. On the evidence, it is clear that they purchased it on the basis that they were in partnership as

1      Philpott v Noble Investments Ltd [2015] NZCA 342; see also Melco Property Holdings (NZ) 2012 Ltd v Hall [2021] NZCA 184 at [19] and [36]; cited in Wallace v Studio New Zealand Ltd [2021] NZCA 392.

2      Sims v Lowe [1988] 1 NZLR 656 (CA) at 660; and Zwarst v Saxton [2012] NZHC 448 at [12].

3      Stewart v Kaipara Consultants Limited [2000] 3 NZLR 55 (CA) at [23].

that term was then defined in s 4 of the Partnership Act 1908 (repealed) and is now defined in s 8 of the Partnership Law Act 2019.

[4]    It was their joint intention to share the costs of developing the property by building a residential dwelling, selling it, and sharing in whatever net loss or gain eventuated. The brothers contributed to the costs of acquisition. Both also contributed to the development costs. There is some doubt as to the precise amount of each brother’s contribution. That, however, is irrelevant for present purposes.

[5]    On acquisition the property was not registered in the joint names of the partners but in Aron’s name. At the time, David was in the throes of a marriage breakup and matrimonial property dispute, and the brothers did not want this property to become tangled up in that dispute.

[6]    By mid-2001 the house was substantially completed. However, there had been difficulties with the build throughout, and the partnership was unable to secure a code compliance certificate for the property from the territorial local authority.

[7]    For a time, the property was leased, as the partners did not perceive it to be readily saleable without certification as to compliance with the code, and were concerned about the potential cost of achieving that.

[8]    By this time, the relationship between David and Aron was becoming frayed around the edges, which is understandable having regard to the inability to get code compliance for the dwelling and the frustration to which this obviously gave rise.

[9]    This led to discussions about the prospect of one or either of the partners buying the property and the partnership being dissolved.

[10]   From the contemporaneous correspondence it is possible to trace how matters developed.4

4      At one stage there was an issue concerning the admissibility of this correspondence, involving as it does without prejudice exchanges. However, by the time the application was argued neither party objected to it going in. In any event, my preliminary view is that it falls within the exception contained in s 57(3) of the Evidence Act 2006 concerning proving the existence and terms of a settlement agreement.

[11]   On 1 June 2001, Knapps, Aron’s solicitors, wrote to David acknowledging that the brothers were in partnership in relation to the development and asking for certain records as to the operation of the firm.

[12]   On 27 August 2001, Knapps wrote again to David thanking him for providing that documentation, asking him to confirm Aron’s understanding that he — David — had obtained a valuation of the property, seeking a copy of the same, and enquiring whether David was interested in purchasing the property from the partnership.

[13]   There followed some correspondence between Knapps and Aron about the possibility of David buying the property.

[14]   On 18 September 2001, Knapps wrote to David thanking him for providing them with a copy of the valuation and again enquiring whether he was interested in acquiring the property.

[15]   On 28 September 2001, Knapps wrote to David saying that, as he had not said whether he was intending to make an offer to purchase the property, Aron had made an offer of $220,000 (which was within $5,000 of the valuation that David had obtained) and saying: “If we do not hear from you by 5.00 pm Monday 1 October, we will assume that you are happy with that sale price and will proceed with the processing of that transaction”. David did not respond.

[16]   On 5 October 2001, an agreement for sale and purchase was executed by Aron “as trustee for the partnership of Aron and David Bary” as vendors, and Aron in his personal capacity as the purchaser. There was of course no need to register this purported transfer of the property from the partners to Aron because the property was already registered in his sole name. Since the execution of that agreement Aron has proceeded on the basis that the property was transferred to him at $220,000, the bulk of which Aron says he paid by assuming sole responsibility for the debt secured over it at that time of $188,608.38. In the course of settlement, he also paid $31,391.625 to the partnership’s accountants.

5      This being the difference between the debt secured over the property and the purchase price.

[17]   Knapps wrote to David on 9 October 2001 confirming the completion of the sale and purchase transaction. At the conclusion of that letter they said:

Now that the property has been transferred from the partnership, we will need to resolve the numerous differences of opinion between Aron and myself concerning the partnership. Our recommendation is that this be undertaken by way of arbitration. A full audit of the partnership affairs could be undertaken. You could make submission on your own areas of concern and complaint (if any). If you cannot agree on arbitration, then inevitably all points of difference will need to be resolved in the District Court.

[18]   Plainly, what Knapps had in mind was the dissolution of the partnership after a taking of account to ensure that the dissolution took place on a proper basis.

[19]   About this time, and seemingly in response to his brother’s actions, David instructed his then solicitors to lodge a caveat against the title to the property. The caveat drawn up by David’s former solicitors is not before the Court. What is before the Court is a letter from them to David dated the 20 November 2001 which says that they had, on his behalf, lodged a caveat.

[20]   For some reason, the caveat that David’s former solicitors had attempted to lodge against the title to the property was never registered. David’s evidence is that he was not notified of this at the time and remained unaware of it right through until mid-2021, believing during that time that he had the protection of a caveat.

[21]   The correspondence between David on the one hand and Aron and his solicitors on the other did not abate following the purported acquisition of the property by the latter. Far from it. It continued through until March 2002. It will be necessary to return to this correspondence.

[22]   Aron’s evidence is that his intention in purchasing the property was to take sole responsibility for the completion of the development, arrange for the necessary work to be carried out to obtain a code compliance certificate for the house and then sell the property. He says that he has spent approximately $15,000 in order to achieve code compliance. A certificate was eventually issued.

[23]   By a sale and purchase agreement dated 30 March 2005, Aron purported to sell the property to AB Contracting, a company of which he was and remains the shareholder and director. Since then AB Contracting has been the registered owner of the property.

[24]   Over the years, Aron has attempted to sell the property, most recently  in  May 2021. David says that when — during the course of 2021 — he became aware that the property was on the market, and then ascertained that the caveat he believed had been lodged back in 2001 had not been registered, he arranged for his current solicitors to lodge the caveat that is the subject of this proceeding.

[25]   The operative caveat is before the Court by consent. David’s claim to a proprietary interest in the property is described in these terms:

Resulting Trust arising from unincorporated partnership and advance of funds. Caveator (as partner) advanced funds to Registered Owner which was used to purchase land and build dwelling – When advancing funds, Caveator had expectation of having a 50% interest in the estate but land registered in AB & KB Investments Ltd sole name.

[26]   That description of David’s claimed proprietary interest is hardly a model of clarity. However, taking a liberal view of it, which appears to me to be justified in the context of an application such as this, I proceed on the basis that David’s claim is wide enough to cover an interest based on the original arrangements between David and Aron and the contributions — financial or otherwise — that he made to the property; in short a claim based on an institutional constructive trust.

The competing arguments

[27]In their formal written submissions, counsel tended to talk past each other.

[28]   The argument advanced by Ms Byczkow on David’s behalf focussed on the commencement of the partnership back in 1994. David says that the original arrangement was that the partners would share equally in the costs and any profit or loss. He says that Aron had no authority from the partnership to sell the property to himself, and that the purported transfer was therefore a nullity, or at least cannot defeat his claim in equity to a proprietary interest in the property. He says that the subsequent

sale of the property by Aron to AB Contracting can be ignored because, Aron being a shareholder and director of the company, AB Contracting cannot claim to have been a bona fide purchaser for value without notice of equities such as his claim.

[29]   Aron’s contention as I understand it is that David and he reached agreement to the effect that he would acquire the property from the partnership and the partnership would come to an end without any taking of account as between them. On this argument, it would be unnecessary to give any consideration to the subsequent sale of the property by Aron to AB Contracting. Nevertheless, Mrs Hymers also argued that the sale of the property by Aron to AB Contracting was indeed a sale to a bona fide purchaser for value without notice and that AB Contracting was therefore entitled to rely on the indefensibility of its registered title, there being no allegation of fraud.

[30]   Those summaries of the arguments advanced on behalf of the parties point to the major issue coalescing around the proper interpretation of the arrangements between the parties in mid-2001.

[31]   In my view, the evidence does not support the contention that Aron was authorised to act on behalf of the partnership in disposing of the property to himself. Nowhere in the correspondence predating the transaction does David confer on Aaron such authority. In such a situation it is not open to one party to present an offer and bind the other party to it by saying that the first party will assume acceptance if the second party does not object. That the law does not impose liability on an offeree where an offeror has proclaimed that silence shall be deemed consent is axiomatic.6 Nor do I consider that David, by his silence, was granted a benefit of the type that would justify considering his silence acceptance.

[32]   It is difficult to understand how Aron and his solicitors could have concluded that he was in a position to act as a trustee on behalf of both partners in the sale of the only substantial asset of the partnership to himself. In short the conclusion I have reached is that it is clearly arguable that as at the date of the transaction the transfer of the property to Aron was void or voidable.

6      Felthouse v Bindley (1862) 11 CBNS 869; [1862] EWHC CP J35.

[33]   That, however, is not an end of the matter. The correspondence between the parties post-dating the purported sale to Aron (but, as it happens, predating the subsequent sale by Aron to AB Contracting) is different in its nature. This correspondence commenced on 9 October 2001 and concluded on 28 March 2002.

[34]   There is no doubt at all that in this correspondence David said that he wished to have no ongoing involvement, and was proposing that Aron assume full responsibility, financial and otherwise, for the completion of the development. Prima facie at least, that would be sufficient to bring the partnership to an end.

[35]   Both Ms Byczkow and Mrs Hymers referred me to aspects of the relevant correspondence. The starting point is the letter referred to earlier, that is to say Knapps’ letter on Aron’s behalf to David dated 9 October 2001, informing him that the property had been transferred to Aron.

[36]   David replied on 12 February 2002. This was a long letter. It contained a proposal. David begins by making the point that the contributions to the partnership had been uneven but then he says “I am prepared at this point to ‘walk away’”. He continues:

I am no longer prepared to entertain any notions that [Aron] may have regarding financial inequity and am no longer prepared to discuss any matters relating to the property (or anything else for that matter!!) with [Aron].

[37]   From that starting point David sets out his proposal. This extends over most of the balance of the letter. Broadly, David proposed that the parties resolve all matters on the basis that he would have no further financial or any other involvement with Aron, the partnership or the development; that Aron would assume full responsibility from that point on; and if Aron agreed with that proposal he — David — would agree not to share in any gain that the partnership may make. This section of David’s letter concludes:

Let me be clear.

I no longer wish to have any interest whatsoever either financially or otherwise, in the property at 30 Maire Street, Nelson. If Aron accepts these terms and conditions anything associated with the property now and in the future becomes his sole responsibility. I am exhausted having to deal with it.

[38]   Knapps replied on Aron’s behalf on 18 February 2002. It is evident from the terms of the firm’s letter that they did not have Aron’s instructions at that point. As I read the letter, Knapps said no more than that David’s proposal would be likely to find favour with Aron.

[39]   On 25 February 2002, David wrote again. This letter contains a passage in which David, consistently with what he said in his earlier letter, says in effect that the financial burden of the development to date is pretty much even “and therefore [Aron] can have the lot”.

[40]   On 7 March 2002, Knapps wrote to Aron. This letter proceeded on the basis that the partnership between the brothers was continuing and that there was still a financial reconciliation to go through before it could be dissolved.

[41]   A letter that Aron wrote directly to David dated 14 March 2002 proceeds on the same basis, and proposes a resolution of these financial matters.

[42]   David replied on 17 March 2002 levelling a series of criticisms at Aron but ultimately returning to the theme that he did not want anything more to do with his brother, the partnership, or the development. At one point he says:

I am walking away in an endeavour to cut all associations with you (get the monkey off my back as they say) — you caused nothing but grief!! I will be paying nothing more towards costs of 30 Maire Street (other than rent) — these points I have clearly made in previous correspondence.

[43]The letter concludes:

All I am asking is that you accept sole, full, financial and all other responsibility of the property at 30 Maire Street (past, present and future) — just confirm this to me in writing and it is the end of the matter. You are fully able to conclude this matter here and now — I suggest you take the opportunity.

[44]   Obviously, Knapps wrote again to David in connection with the dissolution of the partnership, because, on 27 March 2002, David wrote to Knapps. There is nothing significant in this letter.

[45]   However, in a follow up letter the next day, 28 March 2002, David told Knapps that he had vacated the property and paid the rent up to the date on which he did so. This letter concludes:

Please note that this does constitute a conclusion to this matter and I am currently seeking legal advice as to my next course of action and will contact you shortly.

[46]   In the course of her submissions on David’s behalf, Ms Byczkow suggested that there was a missing word in this letter, that is to say the word “not” between the words “does” and “constitute” in the first line of the paragraph. David did not give evidence to that effect. However, as Ms Byczkow submitted, at very least, the balance of the paragraph in which David says that he is seeking legal advice in order to decide what next to do does not sit comfortably with the earlier part of the sentence in which he says that his letter concludes matters.

Discussion

[47]   As already said, the submission made on David’s behalf that that Aron did not have authority to transfer the property from the partnership to himself is clearly arguable.

[48]   So too is the submission that if, following that transfer, David retained a residual proprietary interest in the property, then that interest was not defeated by the subsequent sale and transfer as between Aron and AB Contracting Nelson. This is because it is arguable that company was not a bona fide purchaser without notice, by reason of the fact that it must be visited with Aron’s knowledge as to the illegitimacy of the earlier transaction, Aaron having been a shareholder and director.

[49]   I also accept the submission advanced on David’s behalf that it is arguable that there was no ex post facto agreement between David and Aron which would have the effect of ratifying the transfers of the property to the latter. The correspondence does not evidence any such agreement.

[50]   Once it is acknowledged that David’s position in relation to those matters is arguable, it appears to me that the issue reduces itself to whether David is estopped

from claiming any interest in the property by reason of the correspondence that took place after the purported transfer to Aron.

[51]For present purposes, the principles involved are not complex. If a party (“A”)

—   in any context, but most particularly in relation to commercial dealings involving land — makes a clear and unequivocal representation to another party (“B”), and party B, in reliance on that representation, acts materially to his disadvantage, then the law will not permit party A to assert a position inconsistent with his representation. The issue in this case is whether, in the correspondence referred to earlier commencing in October 2001 and concluding in March 2002, David clearly and unequivocally represented to Aron that if Aron was prepared to agree to assume full responsibility for the development from that time, including for any ultimate loss, so that he — David

—  would have no ongoing involvement, then he was prepared to waive any right that he might otherwise have had to an interest in the property (existing or future).

[52]   In the course of her submissions Ms Byczkow said that this correspondence was entered into at a time when David was under significant stress and that the correspondence itself demonstrated how emotional he was. I am taking it that that was an invitation to the Court to treat David as having not been able to conduct his affairs at the relevant time. I reject any such invitation. There is no evidence on which the Court could rely in determining that David had a reduced capacity to conduct his own affairs at the relevant time.

[53]   It seems clear that Aron, from that time, proceeded on the basis that the partnership had come to an end, that he was solely responsible for the development and was taking all of the risk. His unchallenged evidence is that he expended $15,000 securing code compliance and that whilst he had some difficulty selling the property he now anticipates that if he does so there will be some net gain. Furthermore, the evidence is that Aron proceeded on that basis for something like 21 years, and that it is only now at this late stage that David has come back and asserted an interest in the property.

[54]   Thus, the issue seems to come down to whether David’s correspondence amounted to a representation to Aron that if Aron assumed responsibility for the

development from February 2002 in the way already described, David would waive any pre-existing proprietary interest in the property or simply any future interest that might accumulate from that point.

[55]   The evidence appears to me to be very finely balanced on this point. On the one hand there are passages in the correspondence which suggest that David may have been telling his brother that he was prepared to forego any proprietary interest that he might have had at that stage. On the other hand, there are also indications that he might only have been agreeing to forgo any interest that he accumulated from that point. Most particularly there is the fact that David concluded the relevant correspondence by saying that he was taking legal advice, and then instructed his solicitors to lodge a caveat. In the absence of David assuming that he would continue to have a residual proprietary interest it is hard to see what purpose would be served by taking either of those steps.

[56]   In the end, the view I have reached is that the matter is sufficiently unclear that it remains open to David to argue that he had some level of proprietary interest in the property.

[57]   In the course of her argument, Mrs Hymers submitted in very strong terms that even if it were arguable that David had a residual claim of one sort or another the Court should treat that as being a claim in personam against his brother and former partner and that that should not prevent AB Contracting from dealing with its own assets.

[58]   In my view that contention cannot succeed for the reasons already outlined, that is to say that the transfer of the property from Aron to AB Contracting Ltd was not a transfer to a bona fide purchaser for value without notice of David’s equitable claim simply by reason of the fact that Aron who was fully aware of the circumstances was at all material times a shareholder and director of (and the guiding mind and will of) AB Contracting Ltd.

Result

[59]   For those reasons, in my view, it is reasonably arguable that David retains an interest that is capable of supporting his caveat. Put another way, I am not satisfied

that it is patently clear that the caveat cannot be sustained. Pursuant to s 143 of the Land Transfer Act 2017, I make a final order that the caveat not lapse until the substantive issue has been determined by the Court, provided that the applicant commences substantive proceedings in support of his claim within 20 working days of the date of this judgment.

[60]   Costs are reserved.    I  expect  counsel  will resolve these.    If that proves impossible then they may file and serve memoranda in the usual way.

Associate Judge Johnston

Solicitors:

Isherwood Le Gros Law Ltd, Nelson for applicant Knapps Lawyers, Nelson for respondent