Batusov v Batusova
[2020] NZHC 1272
•9 June 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-404-002769
[2020] NZHC 1272
IN THE MATTER OF Part 19 High Court Rules 2016 AND
of an application by EVGENY BATUSOV for orders pursuant to S 143 of the Land Transfer Act 2017 in respect of caveat claim 11474659.1
BETWEEN
EVGENY BATUSOV
Applicant
AND
YULIYA BATUSOVA
First Respondent
AND
MARTIN PHILIP DREW
Second respondent
Hearing: 19 May 2020 Appearances:
R J Thompson for the Applicant
No appearance for the First Respondent S Henderson for the Second Respondent
Judgment:
9 June 2020
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 9 June 2020 at 2.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Henderson Reeves Connell Rishworth, Whangarei R J Thompson, Barrister, Auckland
Loughlin McGuire, Auckland
BATUSOV v BATUSOVA [2020] NZHC 1272 [9 June 2020]
Introduction
[1] Evgeny Batusov, also known as John Batusov, applies under s 143 of the Land Transfer Act 2017 for an order that the caveat (11474659.1) he registered in June 2019 against the certificate of title to the property at 8b Oban Road, Browns Bay, Auckland (Identifier NA91A/194 North Auckland) not lapse.
[2] Mr Batusov’s application is not opposed by the first respondent, Yuliya Batusova, who is Mr Batusov’s mother and the owner of a half-share in 8b Oban Road. However, the application is opposed by the second respondent, Martin Drew, who is Ms Batusova’s former husband and the owner of the other half-share in 8b Oban Road.
[3] Mr Batusov asserts his interest in the land on the basis of a constructive trust which he says arises as a result of an unwritten agreement between himself, his mother and Mr Drew to form a joint venture to invest in property. Mr Drew denies there was any such agreement. Ms Batusova supports her son’s account.
[4] Mr Batusov has filed a substantive proceeding in the High Court to enforce the asserted joint venture and seeks to maintain the caveat pending the outcome of that proceeding.
Relevant background
[5] In 2001, Ms Batusova and Mr Batusov emigrated to New Zealand from Russia. Mr Batusov would have been about 14 years old at the time.
[6] In 2003, Ms Batusova commenced a relationship with Mr Drew. She and Mr Drew, as well as Mr Batusov, lived together from around this time. Ms Batusova and Mr Drew married in 2007.
[7] Mr Drew, Ms Batusova and Mr Batusov lived initially at 74 Oaktree Avenue, Browns Bay, which had been the matrimonial home of Mr Drew and his former wife. Subsequently, Mr Drew and Ms Batusova, along with Mr Batusov and Mr Drew’s
parents, moved to 35 Oaktree Avenue that was purchased, at least in part, by Mr Drew’s parents.1
[8] In 2006, Mr Drew’s parents moved to a retirement home and Mr Drew and Ms Batusova purchased the interest of Mr Drew’s parents in 35 Oaktree Avenue, with financial assistance from the parents. Mr Drew says he brought $60,000 to the relationship. He does not say whether those funds were used in the purchase of 35 Oaktree Avenue.
[9] In July 2006, Mr Drew and Ms Batusova formed Yulmar Ltd as a property investment vehicle and purchased a property at 10/3 Glen Road, Browns Bay as an investment. Mr Batusov says following that purchase, Mr Drew and Ms Batusova had reached the limits of their borrowing potential.
[10] Later in 2006, Ms Batusova returned to Russia and, in exercise of a power of attorney granted by Mr Batusov, sold a property in Vladivostok in which Mr Batusov owned a one-third interest. Ms Batusova’s mother apparently owned the remaining two-thirds interest in the property. Ms Batusova brought her mother and the proceeds of the sale back to New Zealand and deposited US$112,000 in a foreign currency bank account.
[11] In January 2007, Yulmar Ltd purchased a property at 7/43 Anzac Road, Browns Bay. The purchase price was $265,250, with a deposit payable of $25,000. Mr Drew paid the deposit from his personal bank account on 30 January 2007. Also on 30 January 2007, before Mr Drew paid the deposit, $38,949.92 was paid from Ms Batusova’s foreign currency account into Mr Drew’s personal bank account. Mr Batusov and Ms Batusova say those funds were Mr Batusov’s one-third share of the proceeds of sale of the Vladivostok property.
[12] Mr Drew does not deny that $38,949.92 came into his account on 30 January 2007 but says the money was probably spent on living expenses. However, since Mr Drew’s account had a balance of $9,853.12 on 30 January 2007 before the deposit
1 Mr Drew’s affidavit, sworn on 31 January 2020, conveys the impression that his parents were the sole purchasers of the property. However, in his affidavit sworn on 11 May 2020, Mr Batusov says that Mr Drew was a part owner of the property from the time of its initial purchase.
of $38,949.92 and since Mr Drew withdrew $25,000 later that day, it is clear that Mr Batusov’s funds were used, at least in part, to pay the deposit on 7/43 Anzac Avenue, as Mr Henderson, Mr Drew’s counsel, acknowledged at the hearing.
[13] Mr Batusov and Ms Batusova say the funds were advanced by Mr Batusov on the basis of an agreement that Mr Drew, Ms Batusova and Mr Batusov were equal partners in a joint venture to invest in property, which was agreed orally among them and was not recorded in writing. Mr Drew denies there was such an agreement.
[14] Between July 2007 and February 2015, Mr Drew and Ms Batusova, either personally or through Yulmar Ltd or the Drew Family Trust, which Mr Drew and Ms Batusova settled in July 2014, purchased various properties in Browns Bay and elsewhere, including the property at 8b Oban Road, which was bought in July 2011 and which became the family home of Mr Drew and Ms Batusova. Initially at least, Mr Batusov and his then partner lived in the downstairs part of the house formerly occupied by Mr Drew’s parents.
[15] In order to fund some of the property purchases, Mr Drew and Ms Batusova also sold previously acquired properties, including the property at 7/43 Anzac Avenue which was sold in October 2007. The funds realised from that sale were not used in the purchase of 8b Oban Road. The money advanced by Mr Batusov was not returned to him and he did not seek its return.
[16] Mr Batusov says he was involved in the purchasing, maintenance and tenanting of the Browns Bay properties acquired by Mr Drew and Ms Batusova, including cleaning upon the departure of tenants and preparing for the arrival of new tenants. He says he also undertook various other tasks such as painting, repairs and the moving of furniture. Mr Batusov says he undertook more extensive work on 8b Oban Road, including removal of a shower and rotten flooring, installing cement board, linoleum and blinds, and cleaning up the section.
[17] Mr Batusov says that, with one exception, all of the work he undertook on the properties was unpaid. The exception was in relation to the renovation of a property at 26 Crestview Place, Browns Bay in late 2014. Mr Batusov says it was agreed by
Mr Drew, Ms Batusova and himself that because he had lost his job and because the interior renovation work being undertaken by contractors was unsatisfactory, he would take over and complete the work and would be paid at 75 per cent of the contractors’ rate. Mr Batusov undertook and submitted invoices for this work but received only some of the payments he had expected.
[18] Mr Batusov says that from February 2015 he and Mr Drew worked full time together on the restoration of a property at 7/5 Glen Road that had been purchased by the Drew Family Trust and subsequently sold. Mr Batusov says he was never paid for his work on that property, despite being promised “a big pay day” by Mr Drew once the property was sold.
[19] Mr Drew does not dispute Mr Batusov’s account of the work undertaken on the various properties but denies that the work was undertaken as part of any property investment agreement with Mr Batusov. Mr Drew says he and Ms Batusova never consulted Mr Batusov on property acquisitions or sales and that Mr Batusov did not sign any loan documents or put any money into outgoings. Mr Drew says Mr Batusov’s work on the properties was part of the family enterprise to which Mr Batusov was expected to contribute if he was not otherwise engaged.
[20]In October 2016, Mr Drew and Ms Batusova separated.
[21] On 10 February 2017, Ms Batusova and Mr Drew exchanged text messages over the money that Mr Batusov had advanced in July 2006:
MsBatusova: We need to sort out John’s money. Are you ready pay it back as it is $23K USD from 2006+ % interest.
MrDrew: … How are we going to do that. I’m ok to do it of course but right now I have no money or income.
…
Ok. Let’s not get into why he was never repaid as it was always about investing in the future. Something that again was your decision. Properties etc. You’re his mother and you always had the final choice. I agree he needs to be repaid. How do you intend to do it.
[22] Subsequently, the relationship between Mr Drew and Ms Batusova deteriorated significantly. It appears Ms Batusova and Mr Batusov tried to wrest control of the family investments and family businesses. The investment portfolio collapsed and, except for 8b Oban Road, all properties acquired by Mr Drew and Ms Batusova, either directly or through Yulmar Ltd or the Drew Family Trust, had to be sold to meet the demands of secured creditors. The only property asset left is 8b Oban Road.
[23] On 29 and 30 April 2019, Family Court Judge I A McHardy heard Mr Drew’s application for orders dividing the relationship property of Mr Drew and Ms Batusova.
[24] On 24 June 2019, Mr Batusov registered a caveat against the title to 8b Oban Road.
[25] On 3 July 2019, Judge McHardy issued his decision.2 Judge McHardy rejected Ms Batusova’s claim for a two-thirds interest in the value of the relationship assets that she had advanced on the basis that Mr Batusov was in a joint venture with herself and Mr Drew.
[26]In his rulings, Judge McHardy:3
(a)Fixed the value of 8b Oban Road at $1,050,000;
(b)Directed that Ms Batusova should have 21 days from the date of the judgment to put an unconditional offer to Mr Drew to purchase 8b Oban Road for $525,000, being half the value of the property, but subject to various adjustments directed by the Court;
(c)Directed that if Ms Batusova did not present an unconditional offer for the purchase of 8b Oban Road, the matter was to be remitted back to the Family Court for the immediate issue of an order for sale of the property.
2 Drew v Batusova [2019] NZFC 3722.
3 At [104].
[27]In the concluding section of his judgment, Judge McHardy stated:
[123] [Mr Drew] accepts that John Batusova [sic] did lend him and [Ms Batusova] US$23,000. There is nothing in writing before the Court which supports the contention that there was a joint venture agreement. Irrespective of this John Batusova is entitled to repayment of US$23,000 plus interest. One would expect that there could be an agreed position in respect of repayment to him of this money. However neither he nor [Ms Batusova] could expect resolution of that issue in these proceedings. If there is no resolution then he has his remedies available to him. The same applies to any argument John Batusova might consider he has as to the existence of a joint venture. …
[28] Ms Batusova did not make an offer to purchase 8b Oban Road following Judge McHardy’s judgment. Mr Drew has been attempting to obtain an order for the sale of the property as envisaged in the judgment.
[29] On 17 December 2019, Mr Batusov commenced a proceeding against Ms Batusova and Mr Drew to enforce the joint venture he says exists among the three parties.
[30] On 19 December 2019, Mr Batusov filed the present application for orders that the caveat against the title of 8b Oban Road not lapse.
The contentions of the parties
[31] Mr Thompson for Mr Batusov says the evidence is sufficient to establish that Mr Batusov has a reasonably arguable case that there is a common intention constructive trust in his favour over 8b Oban Road based on his contributions to the acquisition and maintenance of the properties purchased by or on behalf of Mr Drew and Ms Batusova, including 8b Oban Road which is the last property remaining in their investment portfolio. Mr Thompson relies on the decision of Osborne AJ in Harvey v Beveridge,4 whose conclusions as to the elements required to establish a common intention constructive trust were not disagreed with by the Court of Appeal, which declined to rule on whether a distinction should be drawn between constructive trusts based on reasonable expectations and common intention constructive trusts when it reversed Osborne AJ’s decision on other grounds.5 Mr Thompson submits that
4 Harvey v Beveridge [2013] NZHC 1718, [2013] NZAR 1364.
5 Harvey v Beveridge [2014] NZCA 72, [2014] NZAR 677, (2014) 15 NZCPR 205 at [46].
proof of common intention can provide a broader range of remedies than a constructive trust based on reasonable expectations.
[32] Mr Thompson also says the Court should not exercise its residual discretion to remove the caveat and that because of the contributions that Mr Batusov made to the joint venture and for which he has not yet been recompensed, his interests cannot be adequately protected by an order that a third of the proceeds of any sale be retained on trust pending the determination of Mr Batusov’s substantive proceeding, as Mr Henderson proposes.
[33] Mr Henderson for Mr Drew submits that the caveat should not be maintained because there was no joint venture agreement and nothing in writing to satisfy the requirements of s 25 of the Property Law Act 2007. He submits that, at best, the evidence, in particular, the exchange of text messages on 10 February 2017, establishes that Mr Batusov made a loan to Mr Drew and Ms Batusova. It does not establish that there was a joint venture agreement.
[34] Mr Henderson further submits that the case for a constructive trust has not been made out because Mr Batusov faces an insurmountable obstacle in establishing evidence sufficient to imply a constructive trust and impose fiduciary obligations on Mr Drew and Ms Batusova. He points, in particular, to the decade in which Mr Drew and Ms Batusova acted without consideration or reference to Mr Batusov apart from expecting him to contribute to the family enterprise when he was living rent free with them.6 Mr Henderson says Mr Batusov’s application is a continuation of Ms Batusova’s efforts to retain the major part of the assets of her relationship with Mr Drew for herself and Mr Batusov and to deprive Mr Drew of his capital in the former matrimonial home.
[35] Mr Henderson also submits that even if the court were to accept that Mr Batusov has an arguable interest in 8b Oban Road, the Court should exercise its residual discretion to remove the caveat because Mr Batusov’s interest can be
6 Mr Batusov disputes Mr Drew’s contention that he did not pay rent and says he and his partner paid rent in cash obtained from work performed outside of their normal working hours.
adequately protected by an order that if the property is sold, one third of the sale price is retained on trust to meet any successful claim by Mr Batusov.
Legal principles
Principles applicable to applications to sustain a caveat
[36]As restated by the Court of Appeal in Philpott v Noble Investments Ltd:7
(a)The onus is on Mr Batusov to demonstrate that he holds an interest in the land that is sufficient to support the caveat, but he need not establish that definitively;
(b)It is enough if Mr Batusov puts forward a reasonably arguable case to support the interest he claims;
(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact; an order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists;8
(d)If Mr Batusov discharges the burden upon him, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it removes the caveat, the Court must be satisfied that Mr Batusov’s legitimate interest would not be prejudiced by the removal.9
7 Philpott v Noble Investment Ltd [2015] NZCA 342.
8 See also Sims v Lowe [1988] 1 NZLR 656 at 660 (CA); Zwarst v Saxton [2012] NZHC 448 at [12].
9 See also Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [23].
Law relating to constructive trusts sufficient to sustain a caveat
[37] In accordance with s 138(1)(b) of the Land Transfer Act 2017, a person may lodge a caveat on the basis that the person has an interest in the land under an express, implied, resulting, or constructive trust.
[38] To sustain a caveat, however, the constructive trust must be an institutional constructive trust arising by operation of the principles of equity as distinct from a remedial constructive trust imposed by the Court in circumstances where, without Court intervention, no trust would arise: Fortex Group Ltd (in rec and liq) v MacIntosh10 and Boat Harbour Holdings Ltd v Steve Mowatt Building and Construction Ltd.11
[39] In Almond v Read, the Court of Appeal clarified that what is sometimes referred to as a “common intention constructive trust” simply describes one type of situation in which a reasonable expectation will be found to exist.12 Following that decision, it is clear that there is no conceptual distinction between a constructive trust based on common intention and one based on reasonable expectation. However, proof of a common intention can be sufficient to establish a reasonable expectation.
[40]In Almond v Read, the Court of Appeal noted that:13
(a)As described by the authors of Equity and Trust in New Zealand,14 the common factor in institutional constructive trusts would appear to be the unconscionability of the defendant in denying the plaintiff an equitable interest in the relevant property because of a previous understanding, whether subjectively agreed upon between the parties or more commonly deemed by the law to have been appropriate in the circumstances;
10 Fortex Group Ltd (in rec and liq) v MacIntosh [1998] 3 NZLR 171 (CA) at 172-173.
11 Boat Harbour Holdings Ltd v Steve Mowatt Building and Construction Ltd [2012] NZCA 305, 13 NZCPR 489 at [45].
12 Almond v Read [2019] NZCA 26 at [71].
13 At [66]-[69].
14 Jessica Palmer “Constructive trusts” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers NZ, Wellington, 2013) at [13.21].
(b)One common category of constructive trust is where contribution has been made to the acquisition, improvement or maintenance of property, or its value, by a party other than the registered proprietor;
(c)Following Lankow v Rose,15 the essential requirements of that kind of constructive trust are that the plaintiff contributed in more than a minor way to the acquisition, preservation or enhancement of the defendant’s assets, whether directly or indirectly, and that in all the circumstances the parties must be taken reasonably to have expected that plaintiff would share in them as a result;
(d)As set out by Tipping J in Lankow v Rose,16 in order to establish that equity should regard a defendant’s denial of a claimant’s interest to be unconscionable, a claimant needs to prove:
(i)Contributions, direct or indirect to the property in question;
(ii)The expectation of an interest therein;
(iii)Such an expectation is a reasonable one; and
(iv)The defendant should reasonably expect to yield the claim and interest; and
(e)There will be no difficulty in establishing a reasonable expectation where a contribution is made on the basis of a pre-existing common intention that the contribution will result in a proprietary interest.
[41] The Court of Appeal in Almond v Read also recalled the following observations of Cooke P in Gormack v Scott which added to the principles that had emerged from Lankow v Rose and earlier decisions:17
15 Lankow v Rose [1995] NZLR 277 (CA) at 282.
16 At 294.
17 Gormack v Scott [1995] NZFLR 289, (1995) 13 FRNZ 43 (CA) at 47.
First, … where there has been an express common intention applicable to the circumstances that have arisen, it is unnecessary to fall back on reasonable expectations;
Secondly, if (as the Judge thought here) the common intention was too vaguely expressed to receive implementation as such, the evidence bearing on common intention may still be relevant in considering the reasonable expectation of the parties;
Thirdly, in considering reasonable expectations, attention is not to be confined to the inception of the relationship or the time when any property in question was purchased. The inquiry extends to the whole circumstances and history of the relationship. …
Discussion
Does Mr Batusov have a reasonably arguable claim to an interest in 8b Oban Road?
[42] As Judge McHardy said in the Family Court, there is no documentary evidence to support Mr Batusov’s contention that he, his mother and Mr Drew entered into a joint venture agreement in 2006. Nor does the evidence before the Court provide an adequate basis on which the Court could reach a conclusion on whether the parties had a common intention to enter into such an agreement. At present, there are simply the untested assertions of Mr Batusov and Ms Batusova that there was such a common intention and Mr Drew’s equally untested denial.
[43] However, as Mr Henderson acknowledged, the evidence is sufficient to establish that Mr Batusov has an arguable case that he loaned money to Mr Drew and Mr Drew has acknowledged a responsibility to repay him. That much is clear from the text exchange of 10 February 2017. Furthermore, in his decision in the Family Court proceeding, Judge McHardy records that Mr Drew accepted in that context that Mr Batusov did lend him and Ms Batusova $US23,000.
[44] In Zhong v Wang the Court of Appeal confirmed that, following Attorney- General for Hong Kong v Reid,18 the relationship of debtor and creditor does not prevent the co-existence of a relationship of trustee and beneficiary.19 It follows that the fact that the advance that Mr Batusov made may be characterised as a loan does
18 Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (PC), overruling Lister & Co v Stubbs
(1890) 45 Ch D 1 (CA).
19 Zhong v Wang (2007) NZCPR 488 (CA) at [94].
not preclude the existence of a constructive trust of which Mr Batusov is the beneficiary.
[45] I am also satisfied that the constructive trust asserted by Mr Batusov, if found to exist, would be an institutional trust that arises from the operation of the principles of equity or law as distinct from a remedial constructive trust. Mr Batusov says a trust in his favour arises as a consequence of the common intention of himself, Ms Batusova and Mr Drew in 2006 to establish a property investment joint venture and is supported by the money he advanced at that time as well as his subsequent contributions to the various properties acquired by Mr Drew and Ms Batusova, either directly or through Yulima Ltd or the Drew Family Trust. On that basis, and provided the Court accepts that there is an arguable basis for such a trust, Mr Batusov had a caveatable interest when he registered his caveat in June 2019.
[46] In addition to the text message exchange of 10 January 2017 and Judge McHardy’s finding that Mr Drew accepted that Mr Batusov lent him and Ms Batusova US$23,000, in paragraph 15 of Mr Drew’s affidavit affirmed on 2 June 2017 and filed in the Family Court proceeding, Mr Drew agreed that he and Ms Batusova had an arrangement with Mr Batusov that he could invest his monies with them and that, although there was no set arrangement about what the return would be for Mr Batusov, this was a way of assisting Mr Batusov to build up assets. Furthermore, Mr Drew does not challenge Mr Batusov’s account of the unremunerated work that Mr Batusov says he undertook with respect the maintenance and repair of properties acquired by Mr Drew and Ms Batusova, including 8b Oban Road.
[47] Having regard to that evidence and the considerations discussed in Almond v Read, Lankow v Rose and Gormack v Scott, I am satisfied that it is at least reasonably arguable that Mr Batusov contributed directly to the acquisition, improvement and maintenance of properties, and to the value of those properties, acquired by Mr Drew and Ms Batusova, including 8b Oban Road, and that Mr Batusov’s contributions were more than minor.
[48] The more difficult question is whether it is also reasonably arguable that, in all the circumstances, Mr Drew as well as Ms Batusova must be taken to have expected that Mr Batusov would share in the properties as a result of those contributions.
[49] Mr Henderson submits that the only reasonable expectation was that Mr Batusov would receive interest on the money he advanced and says that interpretation is supported by Ms Batusova’s text message of 10 February 2017, in which she refers to the need to pay Mr Batusov “$23K US$ from 2006+ % interest”, as well as by the absence of any evidence to show that Mr Batusov was involved in or even consulted on any of the property investments made by Mr Drew and Ms Batusova between 2006 and 2016.
[50] That submission has some force particularly when regard is had to the circumstances at the time Mr Batusov advanced the loan and to the way in which Mr Drew and Ms Batusova structured their affairs.
[51] First, Mr Batusov was only about 20 years of age when he advanced the funds to enable payment of the deposit for the purchase 7/43 Anzac Road. It would be unusual for two adults to accept a person of that age with limited funds and an unknown future, as an equal partner in a property investment joint venture, particularly so early in their own relationship and when Mr Drew had only recently finalised his relationship property settlement with his previous spouse.
[52] Secondly, if there had been such an intention it would have been reasonably straightforward for Mr Batusov to have been given an interest in Yulmar Ltd, the vehicle that Mr Drew and Ms Batusova had only recently established for the purposes of property investment. However, Mr Batusov was not included in that company or given an ownership interest by any other means in the properties that Mr Drew and Ms Batusova acquired.
[53] Thirdly, the Drew Family Trust, which was settled by Mr Drew and Ms Batusova in July 2014 and which was used for the acquisition of some of the properties acquired by them, makes no provision for Mr Batusov. While Mr Drew says in the affidavit he swore on 31 January 2020 in the current proceeding that
Mr Batusov was one of the discretionary beneficiaries of the Trust, it is apparent from the definitions of “Discretionary Beneficiaries” and “Final Beneficiaries” in the Trust Deed that Mr Batusov does not come within either class of beneficiary. In terms of the definition of “Final Beneficiaries”, he is not “… a child … of the marriage or relationship of the Settlors”. As a consequence, unless Mr Batusov is appointed a discretionary beneficiary pursuant to cl 7.1(a) of the Trust Deed, he cannot be one of the “Discretionary Beneficiaries” because he is neither a Settlor, nor a Final Beneficiary nor an issue of any Final Beneficiary. In other words, absent an appointment under cl 7.1(a), Mr Batusov has no legal or beneficial interest in the property of the Drew Family Trust.
[54] Fifthly, it is apparent from Judge McHardy’s judgment that he had significant doubts about the claim by Ms Batusova and Mr Batusov that they were in a joint venture with Mr Drew and, more generally, about Ms Batusova’s credibility. Referring to that claim, the Judge stated:
[84] It was these kinds of claims that cast doubt on the credibility of [Ms Batusova] and her modus operandi post separation.
[55] Taken together, these considerations suggest that Mr Batusov may struggle to prove in his substantive proceeding that, in terms of the issues identified by Tipping J in Lankow v Rose, the money he advanced in July 2006 for the purchase of 7/43 Anzac Road and his subsequent work on the maintenance and repair of the various properties acquired by Mr Drew and Ms Batusova gave rise to a reasonable expectation, to which Mr Drew should yield, that Mr Batusov had acquired a one-third proprietary interest in the matrimonial home of Mr Drew and Ms Batusova at 8b Oban Road.
[56] However, it is clear from the third of the principles confirmed by the Court of Appeal in Philpott v Noble Investments Ltd, the Court should order the removal of a caveat only if it is patently clear that the caveat cannot be maintained because, on the facts of the present case, there was no valid ground for lodging it in the first place. On the evidence before me, I cannot conclude that it is patently clear that there was no ground for Mr Batusov to lodge the caveat against the title to 8b Oban Road. My reasons for reaching that view are as follows.
[57] First, it is clear from the evidence that Mr Batusov advanced funds to Mr Drew and Ms Batusova to enable them to expand their investment in real estate. In addition, and bearing in mind Cooke P’s injunction in Gormack v Scott to have regard to the whole circumstances and history of the relationship, it is apparent that the money advanced by Mr Batusov was not specific to the purchase of 7/43 Anzac Road. That money was not returned to him when that property was sold. The obvious inference is that it was reinvested in a further purchase or purchases. Furthermore, in his affidavit affirmed in the Family Court proceeding, Mr Drew agreed that the money advanced by Mr Batusov was an investment and was a way of assisting Mr Batusov to build up assets.
[58] Secondly, there must be a question about whether Mr Batusov undertook the work in the various properties acquired by Mr Drew and Ms Batusova simply on the basis of an expectation to contribute to a family enterprise in which he had no stake. In terms of regularity and content, the work undertaken by Mr Batusov appears to have been substantial and, in the normal course, would have given rise to an expectation of payment or to a share in some future division of profits, assets or both. In this regard and given the ages of the parties, I do not accept Mr Drew’s suggestion that Mr Batusov’s reward would come by way of inheritance, particularly now that it is apparent that Mr Drew has his own natural child.
[59] It is clearly arguable, therefore, that Mr Batusov had an interest in the assets purchased by Mr Drew and Ms Batusova which extended beyond simply securing repayment of the sum advanced plus interest and included the assets themselves and the capital gain they represent. Accordingly, and notwithstanding the doubts expressed by Judge Hardie about the credibility of the claim to a joint venture and of Ms Batusova’s evidence more generally, it is arguable that Mr Batusov has an interest in 8b Oban Road that is more than a right to an undefined part of the constructive trust he asserts and is capable of sustaining a caveat: see Holt v Anchorage Management Ltd.20
20 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 114.
[60] Thirdly, while there may be questions about the credibility of Ms Batusova and, by extension, that of Mr Batusov who is aligned with her in her continuing contest with Mr Drew, there are also questions about Mr Drew’s credibility, having regard to:
(a)The inconsistencies between the affidavit Mr Drew affirmed in the Family Court proceeding, where he acknowledged that he had an arrangement with Mr Batusov for the investment of money, and the affidavit he swore in the current proceeding where he is far more equivocal about whether there was any arrangement with Mr Batusov;
(b)The statement in the affidavit Mr Drew swore in the current proceeding that he has no children other than Mr Batusov when, in fact, he has a son who is much the same age as Mr Batusov and who lived with Mr Drew, Ms Batusova and Mr Batusov for a period. Whatever the reasons for that statement, which Mr Henderson accepted was in error, it casts a doubt on Mr Drew’s credibility.
[61] In summary, therefore, there are questions about the veracity and reliability of the evidence on both sides of the dispute which cannot be resolved in the context of the present application.
[62] For these reasons, and notwithstanding the doubts I have about the strength of Mr Batusov’s claim to have been in a joint venture arrangement with Mr Drew and Ms Batusova, I consider that Mr Batusov has put forward a reasonably arguable case to support his claim to have an interest in 8b Oban Road on the basis of a constructive trust and I do not consider that it is patently clear that the caveat cannot be maintained.
Should the Court nonetheless exercise its discretion to discharge the caveat?
[63] As stated in Philpott v Noble Investments Ltd, while the Court retains a discretion to remove a caveat for which there is a reasonably arguable basis, it should be cautious in exercising that discretion and, before doing so, it must be satisfied that the caveator’s legitimate interest would not be prejudiced by the removal.
[64] In Pacific Homes Ltd v Consolidated Joineries Ltd, the Court of Appeal went further and stated:21
An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of recovery of money secured over the land or specific performance of an agreement or if a caveator’s interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.
(emphases added)
[65] Mr Henderson submits that this is an appropriate case for the exercise of the discretion because the caveat is preventing Mr Drew from obtaining the fruits of the judgment issued by Judge McHardy and from accessing his share of the relationship assets as directed in that judgment. He also submits that Mr Batusov’s claimed interest in the land can be met by an order that if 8b Oban Road is sold, one-third of the proceeds of sale should be held aside to satisfy Mr Batusov’s claim if it is upheld.
[66] I agree that the grounds put forward by Mr Henderson support the exercise of the discretion to remove the caveat, particularly in light of observations made by Judge McHardy in his judgment about the stance taken by Ms Batusova in the events leading up to that proceeding and that taken by Mr Drew. For example, Judge McHardy stated:
[84] … There is an abundance of evidence to demonstrate that [Mr Drew] was trying to resolve matters amicably and that his actions were not illustrative of a person who wanted to take an unfair advantage over [Ms Batusova]. …
[85] There can be no doubt that the actions embarked upon by [Ms Batusova] and her son post separation had the effect of unsettling a finely balanced investment portfolio. There was no justification for the actions they took. The evidence is that [Mr Drew] tried to deal with the property division in an honest upfront way. [Ms Batusova] however formed the rigid view that [Mr Drew] (and it would seem his advisors and the independent trustee) could not be trusted and she acted accordingly to preserve both her interest and that which she considered to be in her son’s interest.
[67] Given the history and consequences of the breakdown of the relationship between Mr Drew and Ms Batusova and the above observations, it would be consistent
21 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
with the interests of justice to order the removal of the caveat to allow Mr Drew to get on with re-establishing his life, provided Mr Batusov’s interests can be adequately protected.
[68] Based on Mr Batusov’s pleading and the submissions of Mr Thompson, however, I cannot be satisfied that Mr Batusov’s interests would be adequately protected by an order such as that proposed by Mr Henderson.
[69] While Mr Batusov claims a one third interest in the asserted joint venture and thus in 8b Oban Road, in his substantive application he is seeking not just that one third interest but also an inquiry into rental income earned by Mr Drew and Ms Batusova from the tenancies of properties that Mr Batusov says formed part of the joint venture, and an accounting of that income. In one of the demands made to Mr Drew in the context of the Family Court litigation, Mr Batusov says he is owed over $659,000 by Mr Drew.
[70] It is not possible in the context of this proceeding to assess the veracity of that assertion or of claims by Mr Batusov that Mr Drew misappropriated funds which passed through his bank account but to which he and Ms Batusova each had a right to a one third share. However, if there is a valid basis to that claim, it is apparent that Mr Batusov may have a claim to a share in the proceeds of sale of 8b Oban Road that is larger than a one third interest. It is not possible in this proceeding, however, to estimate what that share might be.
[71] For that reason, I cannot be “completely satisfied” that the legitimate interests of Mr Batusov would not be prejudiced by removing the caveat and directing that one- third of the proceeds of sale of the property be set aside to satisfy Mr Batusov’s claim if he succeeds in his substantive application.
Result
[72] For all the above reasons, I grant Mr Batusov’s application and order that caveat 11474659.1 registered by Mr Batusov against the certificate of title to the property at 8b Oban Road, Browns Bay, Auckland (Identifier NA91A/194 North Auckland) not lapse.
Costs
[73] Although Mr Batusov’s application does not seek costs, I consider costs should follow the event and that Mr Drew should pay Mr Batusov’s costs on a 2B basis with usual disbursements.
[74] If the parties cannot agree costs, Mr Batusov may file a memorandum of not more than four pages by 6 July 2020. Mr Drew may file a memorandum, again of not more than four pages, by 20 July 2020.
G J van Bohemen J
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