Bedford Developments Limited v Mowat
[2021] NZHC 1294
•3 June 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-000079
[2021] NZHC 1294
UNDER The Land Transfer Act 2017 IN THE MATTER
of an application that caveats not lapse
BETWEEN
BEDFORD DEVELOPMENTS LIMITED
First Applicant
AND
JUANITA ROSA MAREE O’CONNELL
Second Applicant
AND
MURRAY JOHN MOWAT
First Respondent
AND
ROGER SHAW SIMES
Second Respondent
Hearing: 19 May 2021 Appearances:
A J Forbes QC for Applicants
P F Whiteside QC for Respondents
Judgment:
3 June 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 3 June 2021 at 10.30 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
BEDFORD DEVELOPMENTS LTD v MOWAT [2021] NZHC 1294 [3 June 2021]
[1] The applicants Bedford Developments Ltd (Bedford) and Juanita O’Connell (Ms O’Connell) apply for orders pursuant to ss 138 and 143 of the Land Transfer Act 2017 that caveats lodged by each of them against the title of a property at Unit 1, 483 Madras Street, Christchurch (Flat 1) not lapse. The application was made after the Registrar-General of Land had given notice to the applicants that the respondents, who hold a registered mortgage over Flat 1, had applied to lapse the caveats. The application is opposed by the respondents.
Background
[2] 483 Madras Street, Christchurch is a block of four flats sharing party walls. Each flat has its own title. The shared party walls are governed by a registered Easement Instrument 7538274.2 (the registered easement).
[3] The four flats were damaged in the February 2011 Canterbury earthquakes. The damage has not been repaired.
[4] Since 3 January 2013, Flat 1 has been owned by Simon Savill (Mr Savill). There is a registered mortgage over Flat 1 in favour of the respondents as executors of the estate of Peter Moore. The mortgage was registered on 22 August 2011.
[5] Mr Savill is also the director of Bedford. Bedford owns Flat 2. However, at the time of the February 2011 Canterbury earthquakes, Flat 2 was owned by Billie Christine Kaine and Hagley Trustees Ltd. The property was transferred to John Joseph Amirante and Tony William Martin on 19 October 2015 and then to Bedford on 31 August 2018.
[6] Flat 3 is owned by Edward Geoffrey Twiss and Latimer Trustees 2006 Ltd. They have taken no part in this proceeding.
[7]Ms O’Connell owns Flat 4.
[8] Mr Savill says that following the earthquakes, insurance assessors for the owners’ respective insurers concluded that the damage to the flats was irreparable and
they needed to be demolished and reinstated. He relies upon a report from Aurecon to Southern Response Earthquake Services of 3 February 2015 as evidence of this.
[9] On 18 August 2015, Mr Savill wrote to the then owners of Flat 2 giving notice of his intention to reinstate Flat 1 which required the demolition and rebuilding of the shared party wall and its foundations. If the owner of Flat 2 was not prepared to agree to this course and share the costs equally, Mr Savill said he would submit the matter to arbitration in terms of the registered easement.
[10] There is no evidence of any reply to Mr Savill’s letter. Rather, the owners of Flat 2 chose to settle with their insurer and sold Flat 2 in October 2015 to Messrs Amirante and Martin.
[11] On 8 December 2015, Mr Savill wrote to the new owners of Flat 2 in almost identical terms. Again, there is no evidence of any reply to that letter.
[12] However, it appears that a dispute arose between the owners of Flat 2 and the owners of the other three flats concerning whether the flats were damaged so as to require their demolition and reinstatement and as to the obligation to contribute to the cost of rebuilding the party walls.
[13] Mr Peter Whiteside QC was appointed to arbitrate the dispute but the arbitration did not proceed. Instead, Bedford purchased Flat 2 on 31 August 2018.
[14] The next significant event referred to in the evidence is that Flat 1 was the subject of an auction conducted under the instructions of the Registrar of the High Court on behalf of the respondents as mortgagees on 10 December 2020.
[15] Prior to the auction a local lawyer, Christopher Morrall (Mr Morrall), acting on Ms O’Connell’s instructions, wrote to the auctioneers Harcourts Gold Ltd, stating as follows:
Our client has become aware of a proposed mortgagee sale by your company of the front unit.
You may not be aware that the individual owners of all four units agreed to a rebuild of their units as a result of the considerable damage sustained by the earthquakes.
…
As a result we put you on notice that any prospective purchaser should be made aware of the intention of all parties to reinstate their units, which is a matter that has already been the subject of legal proceedings.
…
My client and the other owners intention to reinstate the units will require demolition and rebuilding of all party walls and their foundations.
Please confirm that the matters outlined above will be disclosed to any prospective purchasers or interested parties.
[16] The auction went ahead on 10 December 2020. Mr Morrall’s letter was disclosed to prospective purchasers. Flat 1 was sold at auction to KJI Corp Ltd. KJI Corp Ltd signed an acknowledgement that Mr Morrall’s letter had been disclosed to it and that it was acquiring the property in an “as is where is” condition.
[17] On 14 January 2021, Russell Craigie and Mr Savill filed proceedings against the respondents alleging, inter alia, the auctioneer had refused to accept Mr Craigie’s bids and Flat 1 had been sold at an undervalue.
[18] The sale of Flat 1 to KJI Corp Ltd was to settle on 22 January 2021 but was deferred because of the issue of the Court proceedings.
[19]On 4 February 2021, Ms O’Connell lodged her caveat against Flat 1.
[20]On 5 February 2021, Bedford lodged its caveat against Flat 1.
[21] Apart from typographical errors the beneficial interest claimed by Ms O’Connell and Bedford in Flat 1 is identical and is as follows:
Pursuant to a constructive trust arising from party wall easement 7538274.2 and the partial arbitration and subsequent agreement as to a dispute as to their rights and obligations of the registered owners of Lots 1, 2, 3 and 4, DP 392809, as provided for in clause 17 of the party wall easement, relating to the repair of all shared party walls and the consequent need to demolish and reinstate each of the four units under a Shared Property Project, the owners of
the servient tenements being the trustees of such rights and obligations and the owners of the dominant tenements being the beneficiaries.
[22] On 8 March 2021, Bedford and Ms O’Connell received notice from the Registrar-General of Land that the respondents had applied to lapse both caveats and on 22 March 2021 they filed this application.
The relevant principles
[23] Under s 138(1) of the Land Transfer Act a person may lodge a caveat against dealings if the person has a beneficial interest in the land. Relevantly, the section refers to:
138 Caveats against dealings with land
(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person
---(a)claims an estate or interest in the land, whether capable of registration or not; or
(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or
….
[24]The principles upon which this application is to be determined are set out in
Philpott v Noble Investments Ltd, where the Court of Appeal noted the following:1
[26] The applicable legal principles which governed the application to sustain the caveats, and which now govern this appeal, are as follows:
(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b)It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(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; and
1 Philpott v Noble Investments Ltd [2015] NZCA 342 (footnotes omitted).
(d)When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.
[25] Applications of this kind are not ordinarily appropriate to finally determine the rights of the parties or resolve disputed questions of fact. However, as noted by Thomas J in Bishop Warden Property Holdings Ltd v Autumn Tree Ltd,2 the frequently cited dictum in Eng Mee Yong v Letchumanan applies.3 Lord Diplock said:4
Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.
[26] In Katu v Seth,5 Associate Judge Bell noted that to establish a reasonably arguable case to a caveatable interest there must be evidence tending to prove the facts relied on.6
The evidence
[27] The evidence in support of the application is contained in affidavits of Mr Savill and Ms O’Connell.
Mr Savill’s affidavit
[28] Mr Savill states what is the foundation for the applicants’ case, that they have an interest in Flat 1 on the basis of a constructive trust, in this way:
The registered proprietors of the four flats and their respective insurers entered into a partial arbitration in order to determine the responsibility of the respective owners for repairs to the party walls and as to the proposed damage and repair methodology recommended in the Aurecon report. The appointed
2 Bishop Warden Property Holdings Ltd v Autumn Tree Ltd [2018] NZCA 285, [2018] 3 NZLR 809 at [25].
3 Eng Mee Yong v Letchumanan [1980] AC 331 (PC).
4 At 341.
5 Katu v Seth [2021] NZHC 416 at [8].
6 See for example Melco Property Holdings (NZ) 2012 Ltd v Hall [2021] NZCA 184 where the caveator’s application to sustain a caveat was dismissed due to an absence of evidence relating to its ability to fulfil a special condition of an agreement for sale and purchase.
arbitrator was Peter Whiteside QC. The parties subsequently agreed that as a consequence of the damage to the shared party walls all four units needed to be demolished and reinstated. For this purpose the parties agreed to a Shared Property Project Agreement (SPP).
[29]Related to this Mr Savill also states:
The registered owners of the four units have incurred considerable costs in reaching the agreement consequent on the partial arbitration and the SPP. This has extended over a long period of time. As I have stated, all four units need to be repaired and reinstated.
[30] Mr Savill annexes to his affidavit what he described as “relevant documents related to the partial arbitration and the SPP”. I note the following:
(a)Document 3 is minutes of a meeting on 28 August 20147 of Cunningham Lindsey, who Mr Savill says was appointed the insurance assessor on behalf of the owners’ respective insurers. The meeting was not attended by Mr Savill or Ms O’Connell. The purpose of the meeting was to discuss the implications of the party wall easement, and the obligations and requirements it imposes on the individual owners. The minutes refer to the Shared Property Project (SPP) established by insurers to deal with multi-unit properties “which share common elements such as foundations, walls, roofs etc”. It records the insurers would prepare a scope of works and repair strategy for the site as a whole for the owners to discuss and agree on the way forward.
(b)Documents 5 and 7 are the correspondence between Mr Savill and the owners of Flat 2 in August and December 2015.
(c)Document 6 is undated and headed “Applicants Points of Claim”. The document was prepared by Dale Lester, counsel for the owners of Flats 1, 3 and 4, for the proposed arbitration with the owners of Flat 2. Mr Savill refers to this as “the partial arbitration” and says the owners represented by Mr Lester were successful in obtaining most of the orders sought in the document.
7 Incorrectly dated 2104.
(d)Document 8 is email correspondence between Mr Savill and Aurecon in June 2017. Mr Savill says these record that the flat owners represented by Mr Lester were successful as to the issue of the interpretation of the party wall easement and the liability of adjoining owners to contribute to the rebuild of the shared party walls. He says, also, that the owners of Flat 2 subsequently raised an issue that it might be possible to repair the party walls without having to demolish and rebuild all the flats, however “these owners then agreed that this was not possible and that in order to repair the shared party walls all of the units needed to be demolished and reinstated”.
(e)Document 9 is Mr Morrall’s letter to the auctioneers.
[31] A number of points emerge from these documents. First, from Cunningham Lindsey’s meeting minutes, the term “Shared Property Project” was adopted by insurers when dealing with projects to repair earthquake damage to multi-unit properties. The document records a repair strategy and scope of works would be prepared to be presented and agreed by all flat owners as part of an SPP. There is no evidence any repair strategy or scope of works was prepared in respect of 343 Madras Street.
[32] Second, while Mr Savill refers to a partial arbitration, Mr Forbes QC accepts no arbitration hearing was ever conducted and there was no award issued. There is no apparent basis for Mr Savill’s evidence that the flat owners represented by Mr Lester were successful in obtaining orders in an arbitration with the owners of Flat 2.
[33] Third, the arbitration did not proceed because Bedford purchased Flat 2. Mr Forbes accepts in so far as there was a common view of the owners to adopt an SPP that could have existed from no earlier than August 2018 when Bedford acquired Flat 2.
[34] Fourth, while asserting “the parties” agreed to an SPP there is no written agreement adopting an SPP. Mr Forbes submits the best evidence of an agreement to
adopt an SPP is Mr Morrall’s letter to Harcourts Gold Ltd, but that does not refer to an SPP. It is no more than an assertion on behalf of Ms O’Connell of the intention of the owners to demolish and rebuild the party walls and foundations.
[35] Fifth, at no time prior to lodging their caveats did Bedford or Ms O’Connell assert an interest in Flat 1 under a constructive trust. Importantly, given Mr Forbes’ reliance upon it, Mr Morrall made no such assertion in his letter to Harcourts Gold Ltd.
[36] Sixth, Mr Savill provides no detail or documents to support his evidence that the owners incurred considerable costs reaching agreement to adopt an SPP, such as the nature and amount of such costs or when they were incurred and by whom.
Ms O’Connell’s affidavit
[37] Ms O’Connell says she has read Mr Savill’s draft affidavit and confirms it is correct as far as she is concerned. She does not exhibit a copy of the draft affidavit but I infer it was the same in all respects as the affidavit filed.
[38] Ms O’Connell says she was involved in and has knowledge of the partial arbitration and the SPP but provides no detail of either.
[39] She says she has also lodged a caveat against Flat 3. I note the caveat has been lodged on the same basis as the caveats lodged against Flat 1.
The party wall easement
[40] The Easement Instrument sets out comprehensive terms of the party wall easement including the following matters:
(a)Flats 1 and 2 share party walls which are marked F and G on plan reference 392809. Flat 1 does not share a party wall with Flats 3 or 4.
(b)That any owner could give not less than six months’ notice in writing of their intention to demolish an existing party wall (including any
buildings necessarily involved or required to be demolished) and build upon the party wall area a suitable substitute party wall as required for any building which that party was erecting or intending to erect and for the continued support of all other buildings affected.
(c)If a party wall required demolition for any other reason the owners of the dominant and servient tenements would proceed to build a substitute party wall.
(d)Provisions for the manner of construction of any party wall or substitute party wall and any modification to any party wall.
(e)The owners exercising any rights in respect of the party wall were obliged to make good at their expense any damage caused to the other property and any improvements situated on that property.
(f)Provisions for the payment of costs associated with the erection, maintenance, repair, demolition or modification of any party wall.
(g)That any dispute or difference arising out of or touching or concerning the party wall easement “including in the event of the registered proprietors failing to agree as to the liability for the cost of any work or the apportionment of the cost between them or as to the necessity for work or as to the nature of any work carried out or proposed to be carried out” would be resolved by arbitration.
The applicants’ submissions
[41] The applicants contend they have a reasonably arguable case to a caveatable beneficial interest in Flat 1 pursuant to an institutional constructive trust. The institutional constructive trust is said to arise from the registered easement, the partial arbitration and an agreement in the form of an SPP adopted by the owners of the four flats. In asserting the existence of a constructive trust, the applicants say the registered proprietors of the servient tenements under the party wall easement are trustees of the
rights and obligations of the registered proprietors of the four flats and the registered proprietors of the dominant tenements are the beneficiaries.
[42] Mr Forbes’ arguments in support of this contention can be summarised in the following propositions:
(a)The registered easement creates land covenants and the owners’ rights and obligations under it are proprietary in nature.
(b)The registered easement provides for disputes or differences between the owners to be resolved by agreement or, failing agreement, by arbitration.
(c)A dispute arose between the owners as a result of which there was a partial arbitration and consequent agreement to adopt an SPP. The terms of the partially arbitrated resolution and consequent agreement to adopt an SPP arose directly from the terms of the registered easement.
(d)The rights created by the partially arbitrated resolution and consequent agreement to adopt an SPP are not purely contractual because they are derived directly from the registered easement.
(e)The respondents’ mortgage, being registered later in time, is subject to the registered easement.
(f)The resolution of the dispute between the owners was not a variation or an addition to the easement for the purposes of s 112 of the Land Transfer Act and the respondents’ consent to the resolution is unnecessary.
(g)It would be unconscionable for the respondents to assert their interest in Flat 1 as mortgagees without recognition of the applicants’ beneficial claim.
Discussion
[43] A caveator must show a present entitlement to a beneficial interest in the land subject to the caveat. A purely contractual or personal right will not be sufficient. Here, the crucial question is whether the applicants have shown an arguable case to the claimed caveatable interest in Flat 1. I accept a beneficiary under an institutional constructive trust has an interest in land that may support a caveat. I do not accept it is arguable that the applicants have such an interest.
No partial arbitration and no agreement to adopt an SPP
[44] The evidence is that in 2017 it was intended the owners of Flats 1, 3 and 4 would go to arbitration with the owner of Flat 2 to resolve differences over the party wall easement. However, the arbitration did not proceed and there was no award in favour of the owners of Flats 1, 3 and 4 as Mr Savill contends. The proposed arbitration can have no significance beyond showing that at one time the owners were in dispute over the party wall easement.
[45] As far as it is alleged all owners agreed to adopt an SPP, there is insufficient evidence, even on a summary application of this kind, to find it is arguable such an agreement was ever made. To reach this conclusion I have not had to resolve conflicts in the evidence. There is simply an absence of evidence of an agreement to adopt an SPP.
[46] Mr Forbes accepts there could not have been an agreement of the flat owners to adopt an SPP, as Mr Savill alleges, prior to August 2018. This is because until Bedford acquired Flat 2 in August 2018, the owners were in dispute.
[47] There is no written document before or after August 2018 confirming the adoption of an SPP. Mr Savill’s evidence contains none of the detail one would expect to establish an agreement to adopt an SPP and is silent as to its terms. Ms O’Connell’s evidence takes the matter no further.
[48] There is nothing to support Mr Savill’s evidence that considerable costs were incurred by the owners reaching agreement to adopt an SPP. There is, also, no evidence that the owners incurred any costs in reliance upon the making of an agreement to adopt an SPP.
[49] The agreement to adopt an SPP is alleged to have been made by all owners yet there is no evidence from the owners of Flat 3 they were parties to such an agreement. In those circumstances, the fact that Ms O’Connell felt it necessary to lodge a caveat against the title to Flat 3 but not against Bedford’s title to Flat 2, required explanation.
[50] Notably, also, neither Bedford nor Ms O’Connell lodged their caveats until after the sale of Flat 1 at the mortgagees’ sale. That was 2 years and 5 months after Bedford acquired Flat 2. Mr Forbes submits the caveats were lodged because of concern that KJI Corp Ltd may not accept the SPP. There is no evidence that any such concern existed.
[51] The applicants’ case therefore fails at the very first hurdle because they have failed to establish (even to the level of an arguable case) the existence of an agreement between the owners to adopt an SPP. There are other equally compelling reasons the application cannot succeed.
Any rights under an SPP are not derived from the registered easement
[52] Mr Forbes emphasises that the alleged agreement to adopt an SPP arose from the exercise by the owners of the disputes resolution process under the registered easement. He submits, as the registered easement creates proprietary rights, any resolution of a dispute between the owners touching or concerning the registered easement likewise creates proprietary rights; in this case in favour of the applicants over Flat 1. He further submits, as the respondents’ mortgage is subject to the registered easement, it is also subject to an agreed resolution of any dispute under it. I do not accept this analysis.
[53] The rights the owners of other flats have over Flat 1 is set out in the registered easement which deals with not only party walls but also rights of way, water, sewage
and power. The party wall easement provides for the circumstance that Mr Savill says exists here; where the party walls are so damaged they must be demolished and replaced with substitute party walls. In so far as Mr Savill says all owners agreed to participate in an SPP to demolish and reinstate their flats, that falls outside the terms of the party wall easement for reasons that follow.
[54] While the registered easement creates proprietary rights it is not the case that any resolution of a dispute touching or concerning the registered easement does so. At the hearing, I posited the circumstance where, in settlement of a dispute, Flat owner A agrees to pay Flat owner B a sum of money representing, say, the cost of some repair to a party wall. That payment obligation is contractual and personal to the parties. The sum to be paid is recoverable in debt, it does not give rise to a proprietary interest. Similarly, here, the applicants contend in settlement of a dispute the owners agreed to work cooperatively to reinstate their respective flats and party walls. That, too, is in the nature of a purely contractual arrangement which, in the event of breach, may be enforceable by way of injunction, specific performance or damages.
[55] The disputes resolution clause in the registered easement applies to “any dispute or difference... touching or concerning these presents” referring, of course, to the terms of the registered easement itself. There has never been any dispute or difference between Mr Savill, as the owner of Flat 1, and the other present owners touching or concerning their rights and obligations under the registered easement. I do not accept either the assertion the adoption of an SPP arose from the resolution of a dispute with the former owner of Flat 2. To the contrary, upon Bedford acquiring Flat 2, there was no longer a dispute requiring resolution. Furthermore, neither Ms O’Connell (nor the owners of Flat 3) share a party wall with Flat 1. There could be no dispute or difference between them and Mr Savill, as the owner of Flat 1, touching or concerning the party wall easement.
[56] Even if an agreement between the owners to adopt an SPP could be said to be derived from the registered easement, it does not follow that rights thereby created take priority over the respondents’ mortgage. Any “variation or an addition to, or an exclusion of, the rights and powers that apply to a registered easement” would require
the consent of the respondent mortgagees.8 More fundamentally, in so far as such an agreement created proprietary rights in Flat 1, those rights are created when the agreement is made not when the Easement Instrument was registered. The respondents’ mortgage is immune from attack by the applicants asserting such rights by the principle of indefeasibility.9
No constructive trust
[57] The law of New Zealand distinguishes between the institutional constructive trust and the remedial constructive trust. An institutional constructive trust is not created by the court: it exists in its own right, and the court may just declare its existence. Remedial constructive trusts, on the other hand, do not exist until declared by order of the court.
[58] The distinction between an institutional and a remedial constructive trust is important in caveat cases because a remedial constructive trust becomes effective only at the time that it is recognised by a court order; an assertion of its existence will not give rise to a caveatable interest in land.10
[59] In Commonwealth Reserves I v Chodar, Glazebrook J noted constructive trusts are distinct from other forms of trust in that they are not directly dependent on the intention of the parties but are imposed by operation of a rule of law or, possibly, through the exercise of the court’s remedial discretion.11 She noted, also, that “the object of a constructive trust is generally not to create an ongoing trust relationship, but to force the disgorging of money or property by the constructive trustee”.12
[60] In Fortex Group Ltd (in rec and in liq) v MacIntosh, Tipping J described the distinction in these terms:13
8 Land Transfer Act 2017, s 112(4) and (5).
9 Sections 51 and 52 of the Land Transfer Act 2017.
10 Fortex Group Ltd (in rec and in liq) v McIntosh [1998] 2 NZLR 171 (CA) at 172-173; Metalplas Engineering Pty Ltd v Ellis HC Auckland M 293-IM02, 21 August 2002.
11 Commonwealth Reserves I v Chodar [2001] 2 NZLR 374 (HC) at [37]-[38].
12 At [37].
13 Above, n 10, at 172-173 and see also Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL JO522-2, [1996] 2 WLR 802.
An institutional constructive trust is one which arises by operation of the principles of equity and whose existence the Court simply recognises in a declaratory way. A remedial constructive trust is one which is imposed by the Court as a remedy in circumstances where, before the order of the Court, no trust of any kind existed.
The difference between the two types of constructive trust, institutional and remedial, is that an institutional constructive trust arises upon the happening of the events which bring it into being. Its existence is not dependent on any Order of the Court. Such order simply recognises that it came into being at the earlier time and provides for its implementation in whatever way is appropriate. A remedial constructive trust depends for its very existence on the Order of the Court; such order being creative rather than simply confirmatory.
[61] The applicants provide no insight as to the basis upon which it is asserted an institutional constructive trust (as opposed to a remedial constructive trust) arises. There has been no attempt to relate the facts of this case to any previous decision of the courts or to reason by analogy from the categories of case where an institutional constructive trust has been found to exist.
[62] Mr Forbes relied upon commentary in texts, noting the disparate circumstances in which institutional constructive trusts have been found to have arisen and to the effect that it is impossible to set out a list of all situations where they will arise. That may be so, but there are established categories of case where constructive trusts have been recognised and they share common features. The authors of Equity and Trusts in New Zealand note:14
The common factor in all of these scenarios 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. It is the element of consent or intention (or lack of either of these, as the case may be) that triggers the institutional constructive trust which arises to reverse the defendant’s unconscionability.
[63] Added to the lack of any authority to support the applicants’ case is the artificiality of their position. It is over Mr Savill’s estate in Flat 1 that by their caveat the applicants claim an interest. In his guise as a director of Bedford, Mr Savill brings this proceeding to assert the applicants’ interest in Flat 1 must be recognised, yet in his
14 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at [13.2.1].
personal guise he does not deny that interest. The applicants are not, in fact, concerned with Mr Savill’s estate in Flat 1 at all. They assert an interest in Flat 1 as a means to prevent the respondents from transferring Flat 1 to KJI Corp Ltd. Second, in so far as it is asserted it would be unconscionable not to recognise the applicants’ interest in Flat 1, the circumstances said to give rise to it have been created by Mr Savill himself.
[64] It was not in fact clear to what extent, if at all, the applicants accept that to establish the existence of a constructive trust they must point to some unconscionability in the denial of their claimed interest.
[65] In Elders Pastoral Ltd v Bank of New Zealand,15 Cooke P referred to the judgment of Bingham J in Neste Oy v Lloyds Bank Plc as follows: 16
This, submitted Counsel, was a case falling within the statement of Mr Justice Cardozo in Beatty v Guggenheim Exploration Co, 225 NY 380 (1919) at p 386 and quoted in Snell’s Principles of Equity (28th ed) at p 192:
“ … A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.”
[66] More recently, in Bailey v Angoves Pty Ltd Lord Sumption accepted as a general proposition that a property owner may be a constructive trustee if they cannot in good conscience assert their own beneficial interest as against some other person of whose rights they are aware, but that:17
[this] is not a sufficient statement of the test, because it begs the question what good conscience requires. Property rights are fixed and ascertainable rights. Whether they exist in a given case depends on settled principles, even in equity. Good conscience therefore involves more than a judgment of the relative moral merits of the parties.
[67] As far as the requirement for unconscionability is concerned, Mr Forbes made the following submission:
… [A]s to the need for a party asserting a constructive trust to establish that it would be unconscionable for the respondent to assert an exclusive beneficial
15 Elders Pastoral Ltd v Bank of New Zealand [1989] 2 NZLR 180 (CA).
16 At 185, citing Neste Oy v Lloyds Bank Plc [1983] 2 Lloyds Rep 658 (QB) (Comm) at 665-666.
17 Bailey v Angoves Pty Ltd [2016] UKSC 47, [2016] 1 WLR 3179 at [28].
interest in the relevant property without recognition of the applicants’ beneficial claim, in the present case the respondents, as mortgagee vendors, and the purchaser at the auction all had knowledge of the letter from Mr Morrall, which was made a term of the memorandum of contract following the auction. The purchase was also subject to the easement under the particulars and conditions of sale cl 17.
[68] I do not accept Mr Forbes’ submissions. As noted above, by their caveats the interest the applicants assert is against Mr Savill’s estate in Flat 1. To establish the claimed interest, it is Mr Savill’s conscience that needs to be pricked, not the conscience of the respondents or KJI Corp Ltd.
[69] Furthermore, the respondents do not assert “an exclusive beneficial interest” in Flat 1. Their interest is as mortgagees and, for reasons given above, there is nothing unconscionable in them exercising their power of sale.
[70] As far as KJI Corp Ltd is concerned, it has done nothing but acquire Flat 1 at mortgagees sale on the best terms it could achieve as it was entitled to do.18 Upon registration of the transfer of Flat 1 to it, KJI Corp Ltd will be freed from any liability under the respondents’ mortgage and any other interests save as provided in s 103(2) of the Land Transfer Act.
The mortgagees interest
[71] Had the applicants shown an arguable case for the existence of an institutional constructive trust I would not have sustained the caveats beyond the date the respondents present for registration a transfer of Flat 1 to KJI Corp Ltd. This is because the interest the applicants assert over Mr Savill’s estate in Flat 1 is subject to the respondents’ power of sale.19 In Cantab Management Ltd v Greagh Investments Ltd Master Faire put the matter this way:20
The caveat creates no priority ahead of the rights, which are acquired upon the exercise of the power of sale. As I have earlier said, the Registered Proprietor’s interest in the land ends with the transfer by the mortgagee to the
18 Son v Ko (2006) 7 NZCPR 649.
19 MacDiarmid v Burton (1980) 1 NZCPR 238, Jenssen v Jenssen CA 246/90, 13 December 1990; Cantab Management Ltd v Greagh Investments Ltd High Court Hamilton M 95/02, 20 November 2002.
20 Cantab Management Ltd v Greagh Investments Ltd, HC Hamilton, M 95/02, 20 November 2002 at [29].
mortgagee’s purchaser. From that point, there is no remaining legal interest in the land held by the person who was the former Registered Proprietor and which remains available as an interest to which the caveat can attach. There is simply nothing which will support the caveat. What extinguishes the Registered Proprietor’s interest in the land, however, is the registration of the transfer. Up until that time, the caveator is entitled to maintain the claim against the Registered Proprietor’s interest in the land. That is why I earlier concluded that I should utilise the jurisdiction given to me under s 143 of the Land Transfer Act 1952 to make an order which provides for the lapsing of the caveat only upon the registration of the transfer by the mortgagee to the mortgagee’s purchaser.
[72] The authorities suggest the appropriate procedure for a mortgagee wishing to challenge a caveat in circumstances like these is to apply for an order for the removal of the caveat under s 142 rather than to invoke s 143 of the Land Transfer Act.21 However, here there are no interests, other than the respondents’ interest as mortgagees, that will be extinguished upon registration of a transfer of title to KJI Corp Ltd and there will be no surplus upon sale. I see no reason why an order could not be made on the applicants’ application sustaining their caveats until the presentation for registration of a transfer of title in Flat 1 to KJI Corp Ltd or its nominee pursuant to the respondents’ power of sale. I do not need to finally determine that matter as the applicants have failed to establish a caveatable interest in Flat 1.
Result
[73] The applicants have failed to establish an arguable case to the interest claimed in caveats 12012394.1 and 12004028.1 over the property contained in Record of Title Identifier 372009 (Canterbury Land Registration District), being Lot 1 Deposited Plan 392809 and those caveats shall hereby lapse.
[74] The respondents are entitled to their costs. If agreement cannot be reached as to quantum, memoranda not exceeding five pages shall be filed within 14 days.
O G Paulsen Associate Judge
21 At [29].
Solicitors:
Canterbury Legal (Clive Cousins), Christchurch Purnell Creighton (John O’Connell), Christchurch
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