Gray v Bast Holdings Limited
[2018] NZHC 3116
•29 November 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2018-404-001986
[2018] NZHC 3116
UNDER Section 148 of the Land Transfer Act 1952 IN THE MATTER OF
An application to register second caveats
BETWEEN
JOHN STANLEY GRAY
Applicant
AND
BAST HOLDINGS LIMITED
Respondent
Hearing: 22 November 2018 Appearances:
L E Mannis for the Applicant
G J C Carter for the Respondent
Judgment:
29 November 2018
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by me on
29.11.18 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors
Doug Cowan, TitirangiL Mannis, Richmond Chambers, Auckland Wynn Williams, Christchurch
GRAY v BAST HOLDINGS LIMITED [2018] NZHC 3116 [29 November 2018]
Introduction
[1] The applicant, Mr John Gray, is a licensed building practitioner. He makes application pursuant to s 148 of the Land Transfer Act 1952 to lodge second caveats against two properties owned by the respondent, Bast Holdings Ltd (BAST). The properties are 24A Mellsop Ave, Waiuku, a vacant section, and 26 Mellsop Ave, Waiuku, where the construction of residential units is nearly complete.
[2] Ms Heather Bailey is the sole shareholder and director of BAST, the sole registered proprietor of both properties. Mr Gray argues that he, Ms Bailey and Mr Shane Yuile, Ms Bailey’s partner, entered into a joint venture arrangement for the acquisition and development of the two properties.
[3] The claim of a joint venture is based on a Memorandum of Understanding of 14 November 2016 (the MOU). The MOU provided:
(a)BAST was established solely to purchase the properties;
(b)Ms Bailey provided capital, security and bank guarantees;
(c)Mr Gray and Mr Yuile agreed to work on the rebuild of 26 Mellsop for no pay in return for a one-third share each in BAST;
(d)26 Mellsop Ave was to be developed and sold with any surplus to be capital for BAST and used for the development of 24A Mellsop Ave; and
(e)the shares of BAST were to be re-vested equally between Mr Gray, Ms Bailey and Mr Yuile.
[4] Mr Gray contends for a resulting trust and/or a constructive trust over the properties on the basis of contributions he made to the acquisition and development of the land and in the context of the common intention joint venture. This is said to give rise to caveateable interests in the land.
[5] There is no real dispute that in terms of s 148 of the LTA that there is a valid explanation for the lapse of the original caveats, namely administrative oversight by Mr Gray’s solicitors. The critical issue I must determine is whether there is a reasonably arguable case that Mr Gray has an interest in the land. BAST contends that this case is essentially the same as that in Mahon v The Station at Waitiri,1 and that Mr Gray, as a shareholder has no caveatable interest in the assets of BAST. BAST contends that the MOU, the critical document, expressly provided for the allocation of shares in the company and cannot give rise to any reasonable expectation of an interest in the land.
Relevant legal principles
[6] In a s 148 application the Court has an unfettered discretion, but the application is to be scrutinised carefully and the Court will generally have regard to:2
(a)the strength of the case made by the applicant to support the claimed interest in the land;
(b)any explanation for failing to exercise the caveator’s rights under s 145 of the Land Transfer Act 1952;
(c)whether unavoidable prejudice would be suffered by those who have acted in reliance on the register and in the belief that the caveator was not pursuing to the claim.
[7] In order to sustain a caveat it is not necessary for the caveator to definitively establish his or her right to the estate or interest claimed in the caveat. What is necessary is for the caveator to show a reasonably arguable case for the claim.3
[8] Section 137(1)(a) of the Land Transfer Act 1952 confers the right to lodge a caveat against dealings in any land or estate or interest under the Act upon:
1 Mahon v The Station at Waitiri Ltd [2017] NZCA 387, (2017) 18 NZCPR 760.
2 Lowther v Kim [2003] 1 NZLR 327 (HC).
3 Sims v Lowe [1988] 1 NZLR 656 (CA).
[Any person may lodge with the Registrar a caveat … if the person] claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise.
Background facts
[9]The relevant chronology is as follows:
11 November 2016 BAST registered. 14 November 2016
Memorandum of Understanding – which is silent as to what would happen with 24A Mellsop after the vacant land had been developed.
17 November 2017
BAST became the registered proprietor of 26 Mellsop Ave.
7 December 2016
Agreement for sale and purchase of 24A Mellsop Ave by Mr Gray – subsequently BAST nominated as the purchaser. The agreement for sale and purchase listed BAST’s solicitors as the purchaser’s solicitors.
13 December 2016
Mr Gray confirmed that he wished to nominate BAST as the purchaser of 24A Mellsop Ave.
December 2016 until
June 2018
Residential units constructed at 26 Mellsop Ave.
7 June 2017
BAST became registered proprietor of 24A Mellsop Ave
June 2018
The relationship between the parties began to deteriorate.
25 June 2018
Mr Gray wrote to Ms Bailey saying that the joint venture had come to an end.
25 July 2018
Caveats registered.
19 October 2018
Caveats lapsed inadvertently.
25 October 2018
24A Mellsop Ave listed for sale with Harcourts, Pukekohe.
Decision and analysis
[10] In reliance on Bateman Television Ltd (in liq) v Bateman,4 Ms Mannis submitted that, generally speaking, when a person provides or contributes in some way to the acquisition of land, although the land is subsequently conveyed in the name of another, and that person could reasonably expect to receive an interest in the land, there is a rebuttable presumption that a trust (i.e. resulting trust) will confer on that person a beneficial interest in the land. This presumption may be displaced by evidence showing a contrary intention, such as that the contribution was a loan or a gift.
[11] Ms Mannis further contended that while the MOU contemplates that the share of each party will be received by way of equal shares in BAST, it is arguable that at least “for the time being” each party to the MOU has an interest not only in the ultimate proceeds or the shareholding of BAST, but in the properties themselves, particularly as they are BAST’s only asset.
[12] Ms Mannis emphasised the significant contribution that Mr Gray had made to both the acquisition and enhancement of the properties. It is said that it was Mr Gray who approached Ms Bailey and Mr Yuile when the properties were on the market in 2016 and proposed a joint business opportunity. It was then Mr Gray who purchased 24A Mellsop, having negotiated the purchase price and subsequently nominated BAST to complete the purchase of the property. Mr Gray further committed significant time and skill (he is a licenced building practitioner) in the construction of the units on 26 Mellsop Avenue over an 18-month period. Mr Gray’s skills are acknowledged in the MOU.
[13] I reject the submissions of Ms Mannis and find that there is no arguable case for either a resulting or a constructive trust. The application to lodge second caveats must fail principally because Mr Gray has failed to establish to the threshold of a reasonably arguable case that he had a reasonable expectation of an interest in the properties.
4 Bateman Television Ltd (in liq) v Bateman [1971] NZLR 453 (CA); see also Kim v Jeong (2006) 7 NZCPR 815 (HC).
[14] As Ms Mannis acknowledged, the claim for a resulting trust, as opposed to a constructive trust, is the weaker of the two claims. Any contribution that Mr Gray made to the acquisition of the properties was very modest. At no stage did Mr Gray make any direct financial contribution to the acquisition of either property and it was contemplated at the time he signed the agreement for sale and purchase of 24A Mellsop that he would nominate BAST as the purchaser. This case is quite different from Kim v Jeong, where the applicant had made a direct financial contribution towards the acquisition of the property and carried out work on the property in circumstances that gave rise to a rebuttable presumption of a resulting trust.5
[15]To establish a beneficial interest in the properties under a constructive trust,
Mr Gray would need to establish the following four elements:6
(a)direct or indirect contributions to the properties;
(b)the expectation of an interest in the properties;
(c)such expectation is reasonable in the circumstances; and
(d)the legal ownership reasonably expects to yield an interest.
[16] I accept that it is clearly arguable that Mr Gray did make a significant contribution to the development of 26 Mellsop Avenue, and for that reason the claim to a constructive trust has greater credibility. However, again the problem is that Mr Gray cannot have had a reasonable expectation to an interest in the land.
[17] In rejecting the claim to a constructive trust, I accept the submission of Mr Carter, for BAST, that the Court of Appeal decision in Mahon v The Station at Waitiri7, is directly on point. In that case the participants in a property development agreed that the title to the land would be taken by a special purpose company. That company would hold the land until the caveator was in a position to pay an agreed price for it, at which point the shares were transferred. In dismissing the claim to a caveatable interest, the
5 Above n 4.
6 Lankow v Rose [1995] 1 NZLR 227 at 294 per Tipping J.
7 Mahon v The Station at Waitiri Ltd, above n 1.
Court of Appeal held that the alleged agreement was for a transfer of shares not land. That was fatal to the caveator’s case, because even if the agreement was performed in full, the caveator would not have acquired an interest in land held by the company but only shares.
[18]The Court held:
[37] We find unattractive Mr Glenie’s argument that allowing a caveatable interest in the circumstances of this case would accord with the reality that commercial parties dealing with land often utilise company structures to hold the land. If a commercial party chooses to hold an entity through a company, then that is a choice that they have made and by which they must be bound. A party cannot utilise an incorporated structure for the benefits that it brings them but then disavow the necessary legal consequences of the use of that structure when it suits. To hold otherwise would undermine the basic concepts of incorporation and limited liability. It would run counter to the clear doctrine of separate legal personality as enshrined in s 15 of the Companies Act 1993.
…
[44] We observe immediately that Mr Mahon’s claim based upon a common-intention constructive trust does not appear arguable because, again, the agreement he alleges was for the transfer of the shares in Waiwhakatu. Whether or not Mr Mahon could prove that agreement, the pleaded basis for a caveatable interest suffers the flaw that even had the common intention been given effect by Mr Edney, Mr Mahon would not have acquired an interest in the land held by Waiwhakatu but only the shares.
[19] In this case, the MOU, obviously the critical document, is clear evidence that the parties never intended that Mr Gray would have a beneficial interest in either of the properties. The MOU expressly contemplates Mr Gray and the other two participants would obtain shares in BAST, not the land held by BAST. Indeed, the MOU contemplated that the property at 26 Mellsop Ave would be sold before any party took any shares in the company.
[20] Against the background of the MOU there can have been no reasonable expectation at any stage that Mr Gray would have an interest in either property. It was always intended that BAST would become the registered proprietor and although Mr Gray did sign the original agreement for sale and purchase of the 24A Mellsop Avenue property, he clearly intended at that time (which followed the signing of the MOU) that he would nominate BAST and that BAST would become the registered proprietor.
A return for any contribution that Mr Gray would make would come in the form of shares and not an interest in the land itself.
[21] The claim by Mr Gray that there was a joint venture, while clearly arguable, does not assist in establishing a reasonably arguable claim of an expectation to an interest in the land. The Court of Appeal in Simperingham v Martin held (agreeing with Blanchard J in the High Court) that merely because a project is described as a joint venture between shareholders, it does not mean that there is a beneficial interest in the land created. 8 It all depends on the structure used. In the High Court, Blanchard J held that where a joint venture occurs through a company, the legal and beneficial ownership of each joint venture is restricted to a shareholding in the company.
[22] The decision Symphony Group Ltd v Heritage Developments (Hobson Street) Ltd,9 relied upon by Ms Mannis, can be readily distinguished. In that case the applicant made a direct financial contribution to the acquisition of the property and there was a deed of nomination which expressly obliged the registered proprietor to transfer the property to the beneficiaries. By contrast, in this case, the MOU only provides for Mr Gray to have a one-third shareholding.
[23] It may be reasonably arguable, as Ms Mannis submitted, that Ms Bailey and Mr Yuile failed to consult Mr Gray in their decision to put the properties on the market. This might be said to be in breach of fiduciary duties. However, again, that does not give rise to an interest in the land.
[24] Having concluded that Mr Gray has not made out the grounds for the lodging of a second caveat pursuant to s 148, it is not strictly necessary for me to consider the question of the exercise of my discretion. However, I would observe, that on the basis of the information provided to me, there is a reasonable prospect that upon a sale of both properties, in accordance with the intention of the MOU, that the minimum contribution claimed by Mr Gray could well be realised and become payable to him. Indeed, he might receive more than what he claims is his minimum entitlement. The
8 Simperingham v Martin CA5/95, 2 June 1995 (agreeing with the High Court decision of Blanchard J on the point: Simperingham v Martin HC Auckland CP 316/93, 19 October 1994).
9 Symphony Group Ltd v Heritage Developments (Hobson Street) Ltd HC Auckland M751/98, 6 July 1988.
evidence before me establishes that he clearly agrees that the properties should be sold and the proceeds, following repayment of the funds advanced by Ms Bailey and in accordance with the other terms of the MOU, then be distributed equally (ie one-third each) between the three shareholders. That is the obvious and sensible solution.
Result
[25] The application by Mr Gray to lodge second caveats pursuant to s 148 of the Land Transfer Act 1952 is dismissed.
[26] In the ordinary course, having succeeded, costs should be awarded to the respondent, BAST, and on a 2B basis. If the parties cannot agree on costs then short memoranda are to be filed and served within 14 days.
Associate Judge P J Andrew
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