Green & McCahill Holdings Limited v Ara Weiti Developments Limited

[2021] NZHC 219

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-001375

[2021] NZHC 219

UNDER

Land Transfer Act 2017, s 143

IN THE MATTER OF

An application to sustain caveats 11805563.1 and 11805528.1

BETWEEN

GREEN & McCAHILL HOLDINGS LIMITED

Applicant

AND

ARA WEITI DEVELOPMENTS LIMITED

First Respondent

ARA WEITI BAY DEVELOPMENT LIMITED

Second Respondent

Hearing:

30 November 2020

Appearances:

J W A Johnson, K C Francis and W L Porter for Applicant

D J Chisholm QC, M H L Morrison and Y Wen for Respondents

Judgment:

24 February 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 24 February 2021 at 10.00 am

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date…………………………

GREEN & McCAHILL HOLDINGS LTD v ARA WEITI DEVELOPMENTS LTD [2021] NZHC 219 [24

February 2021]

Introduction

[1]    Green & McCahill Holdings Ltd (GMHL) applies for orders pursuant to s 143 of the Land Transfer Act 2017 that caveats not lapse.1 The properties at issue comprise 29 titles of land (two caveats) in the subdivision development at Weiti Bay, just north of Auckland.

[2]    The two respondent companies, Ara Weiti Developments Ltd (AWDL) and Ara Weiti Bay Development Ltd (AWBDL), are the registered proprietors of the properties. They are sister companies with a common shareholding and common directors, including Mr Evan Williams, solicitor.

[3]    The properties were formerly owned by GMHL. They were sold at a mortgagee sale in June  2020.  As alleged in separate proceedings brought against  Mr Williams, the respondents and others,2 GMHL claims that Mr Williams was in a joint venture with GMHL and owed it fiduciary obligations and that Mr Williams breached those duties by, amongst other things, acting contrary to GMHL’s interests by procuring the sales of the properties by the mortgagee to his own entities, the respondent companies, AWDL and AWBDL. They were incorporated for the purpose of acquiring the properties. Accordingly, GMHL contends AWDL and AWBDL are liable as accessories and hold the properties on constructive trust for GMHL.

[4]    AWDL and AWBDL deny the allegations and contend that GMHL has no caveatable interest in the properties; they hold them as indefeasible titles. In particular, the respondents deny that Mr Williams ever procured the sale of the properties by mortgagee sale and say there was no misapplication of property by him. Further, the respondents say GMHL’s conduct from early 2019 was a breach of the contractual arrangements with the mortgagees and that this included a refusal to recognise the subordination of its indebtedness behind the secured lenders. The respondents also say that GMHL sought to be paid in advance of the mortgagees, and this resulted in the mortgagees subsequently refusing to roll over facilities and resolving to enforce their rights as mortgagees. The respondents say that GMHL’s conduct caused loss not

1      Caveats 11805563.1 (AWDL) and 11805528.1 (AWBDL).

2      Green & McCahill Holdings v Williams HC Auckland CIV-2020-404-1385 (the Substantive Proceeding).

only to itself but to the other entities that had an interest in developing the properties in question.

[5]    The critical issue to address is whether there is a tenable proprietary claim of accessory liability, based on the cause of action of knowing receipt.

[6]    GMHL does not allege actual fraud, although there are some suggestions to the contrary in both the evidence and submissions, which I return to below.

Factual background

[7]    The factual background is complex, with multiple corporate entities involved in the development process. There is extensive contractual documentation and the parties are said to have been legally represented throughout. A number of critical matters are in dispute, including the ownership of one of the key developer entities, and the understanding of Mr Liu of GMHL as to the structure and financing of the development. What follows is a summary. I acknowledge that some facts are contested, and the evidence is yet to be tested.

[8]    In 1991, GMHL was acquired by the family of Tong-Kuang Liu (Mr Liu). GMHL owned a large parcel of land (approximately 900 hectares) in Weiti Bay, 30 minutes north of Auckland.

[9]    GMHL says that it is a passive holding company whose sole purpose was, and continues to be, to hold land in Weiti Bay.

[10]   On 7 December 2005, GMHL and Williams Land Ltd (WLL), a company controlled by Mr Williams, entered into an option agreement (the Option Agreement). GMHL was paid $5 million in exchange for granting WLL an option to purchase the Weiti land. The ultimate purchase price was governed by a set formula with a floor of

$155 million and a ceiling of $295 million. The parties’ intention was to develop the land.

[11]   On the same day, GMHL and WLL entered into an agreement (the Put Option Agreement) under which GMHL could require WLL to purchase the Weiti land.

[12]   The Option Agreement and the Put Option Agreement were subsequently extended on a number of occasions.

[13]   Mr Williams says that the project was extremely sensitive from an environmental point of view. It is surrounded by a marine reserve. Between 2005 and 2010, Mr Williams says they spent approximately $26.5 million on development, design and consent, including a non-refundable deposit of $6 million paid to GMHL.

[14]   Mr Williams’ evidence is that GMHL did not wish to be the developer itself but was willing to work with a developer to maximise its financial return.

[15]   In September 2010, Mr Liu, with WLL, entered into a Master Sales Agreement (the Master Sales Agreement) which GMHL says established a sales programme for the Weiti land and WLL’s obligations to develop it. WLL was to arrange finance and WLL would not receive any return until Mr Liu had been paid at least $180 million.

[16]   In February 2011, GMHL and Williams Capital No 1 Ltd (WCNL, another entity associated with Mr Williams,) entered into an agreement for the development of Weiti Station. Under that agreement WCNL and GMHL agreed that WCNL would purchase the land defined as Village 1A and Village 1B for $25 million.

[17]   In 2012, Mr Williams says he and Mr Liu agreed that, in addition to GMHL owning the land that would be developed and be sold in accordance with the arrangements with WCNL, Mr Liu’s family interests would also have a 60 per cent ownership interest and control in the development entity, Weiti Development Limited Partnership (WDLP).3 By agreement, Mr Williams says that WDLP became the purchaser and developer of the Weiti land (the Development Agreement).

3      Mr Williams also says that it is apparent from the WDLP partnership agreement that Mr Liu’s family 60 per cent ownership interest is held by Weiti Trustee Ltd (now called Weiti Investment Co Ltd). The shares in that company were in turn owned by Peninsula Development Ltd (PDL), a British Virgin Islands company, as the trustee of the Weiti Tuck Trust. Mr Williams further says that the 40 per cent interest of his family (approximately 23 per cent) and other investors (approximately 17 per cent) in WDLP has at all times been held by Weiti General Partner Ltd as the general partner of WDLP. Mr Liu states that in 2013 he sold the shares in PDL to Mr Lee Mao Pin, and that since that time he has had little or no involvement with WDLP. Mr Williams in response says that at no time from June 2012 until these proceedings was any formal or informal

[18]   In June 2012, WDLP was registered as a limited partnership under the Limited Partnerships Act 2008.

[19]   Weiti Development General Partner Ltd (WDGPL), of which Mr Williams is the sole director, was appointed general partner of WDLP. WDGPL was responsible for the day-to-day management. Mr Williams says that the partnership agreement also contemplated an advisory committee of which Mr Liu was “always a member”.

[20]   GMHL says, that in summary, the parties’ relationship changed over the period 2008 to 2013 from that of a vendor and purchaser to joint venturers in the Weiti development with defined roles, as set out in the Master Sales Agreement and Development Agreement.

[21]   GMHL says that in around 2013, Mr Williams asked it to make some of its land available for security for WDLP’s lending. Mr Liu says he was led to believe by Mr Williams that there would be little risk associated with the land being used as security and that the proceeds of the development would be more than sufficient to repay the loan and discharge securities.

[22]   At various times over the next five years GMHL provided mortgages over parcels of the Weiti land to guarantee the obligations of WDLP to creditors. These obligations were incurred for the purposes of financing the development. The financing included loan facilities with Spinnaker Capital Ltd and Killarney Capital Ltd.

[23]   In 2015, the first of three quadripartite deeds were entered into. Under the 2015 quadripartite deed, GMHL, as owner of titles in the Weiti land, granted mortgages in favour of the Bank of New Zealand (BNZ), as security trustee. GMHL was not entitled to recover any amounts owing by WDLP under an earlier GMHL loan agreement until WDLP’s liabilities to the BNZ and another lender, Capital Group

advice given by WTL or received by WDLP or Mr Williams of any transfer of Mr Liu’s interests in WTL, PDL or WDLP. Mr Williams further says that on several occasions between 2013 and 2015 he raised Mr Liu’s 60 per cent ownership and control of WDLP in negotiations with him over the provision of security by GMHL and Mr Liu did not deny that ownership.

(Weiti) Ltd (CGW), were fully discharged. The mortgages in favour of the BNZ and CGW were registered against the Weiti land.

[24]   In July 2018, the financing arrangements were varied. Relevantly, WDLP and WDGPL entered into:

(a)A deed of amendment with BNZ and Williams Management Trustee Ltd, amending an earlier facility agreement dated 26 August 2015. Under the updated facility agreement BNZ was the senior creditor financing the Weiti development; AND

(b)A term loan agreement with Lambton Quay Properties Nominee Ltd (LQPNL) (the Term Loan Agreement), under which LQPNL was the junior credit financing the development.

[25]   Also in July 2018, BNZ, LQPNL, WDGPL and GMHL entered into a quadripartite deed which governed the security arrangements between the parties. In that deed, GMHL agreed, amongst other things, to provide mortgages in favour of the BNZ and LQPNL.

[26]   Mr Williams says that by early 2019, Mr Liu/GMHL had resolved that GMHL wished to withdraw from the arrangement. The parties subsequently made attempts to negotiate an alternative investor for GMHL, but those negotiations were ultimately fruitless. Mr Williams says that within a very short period of “receiving GMHL’s ultimatum in February 2019” physical construction stopped, work on the plan change stopped and the remaining 33 Weiti Bay lots became unsaleable.

[27]   In June 2019, LQPNL was assigned BNZ’s rights under the Facility Agreement and the quadripartite deed.

[28]   Across the same time, in June and July 2019, WDLP and WDGPL did not meet their obligations under the Facility Agreement and the Term Loan Agreement. LQPNL served demands on WDLP, WDGPL and GMHL, and later LQPNL served Property

Law Act 2007 notices on GMHL. A mortgagee sale process followed and LQPNL engaged Bayleys as the real estate agent.

[29]   By email dated 7 August 2019, Mr Williams wrote to GMHL’s advisers as follows:

·We are deeply concerned about the effects of enforcement on the Liu family – GMHL – 100% landowner and grantor of the securities – and WDLP – 60 per cent owned by a Liu family trust. We have been working for over nine months to find a new financier and investor at Mr Liu’s request and GMHL’s request.

·There are a variety of courses of action which [LQPNL] may take, but all have an element of immediate formal action destroying value – two elements of which will be permanent:

-the loss of the Plan Change and loss of Weiti’s position in the queue for infrastructure destroying the rationale for a new investor to come in at any point and thereby destroying much of the value of the villages whether held by [LQPNL] or GMHL; and

-the loss of value in the Weiti Bay sites as sites are sold at deep discounts in the enforcement process (forcing [LQPNL] to recover from the balance of its securities with an immediate consequence for GMHL).

·Unless a solution is found this loss of value is highly likely to be locked in by the end of this month. [LQPNL] will commence taking legal ownership of Weiti Bay, Village 1 and in due course force a sale of Village 2 and the Balance Land (Precinct C) – i.e. all of GMHL’s land holdings, which at that time it will be legally entitled to do via the Mortgage and Encumbrances. While there are alternative views on the outcome of litigation between [LQPNL] and GMHL, the litigation process itself will destroy value.

·Clearwater is willing to offer a settlement payment (now) as an integral part of an orderly buyout of all of the Weiti assets. Clearwater has completed due diligence on the Weiti asset itself. The major outstanding item is whether GMHL wishes to engage to seek to identify a transaction which may proceed. That was the discussion Clearwater asked us to have with you and I wish to brief you fully on Clearwater’s position. I am happy to speak with you or Mr Liu or you can communicate with Alan Paterson on our behalf.

[30]   In October 2019, Mr Williams gave an interview to Stuff. GMHL places some reliance on this interview. Mr Williams is quoted as saying, in relation to the mortgagee sale:4

The sale was in order to resolve an issue related to the shareholding and landownership, and was not a “regular mortgagee sale”, Williams said.

The landowner and development company were separate, he said.

Williams Land was the manager of the development company Weiti Bay, and was assisting the lender with resolving issues with the ownership structure of the property, he said.

The land is owned by Green & McCahill Holdings Ltd.

[31]   In May 2020, the two respondent companies were incorporated. Mr Williams says that this was for the express purpose of purchasing the Weiti properties.

[32]   In June 2020, LQPNL sold the properties to the first respondent, AWDL, which immediately sold some of the properties to the second respondent, AWBDL. The total purchase price was $35 million and funded by Clearwater Capital Partners Direct Lending Opportunities Fund LP (Clearwater). Clearwater now has first mortgages over the properties. In addition to the sale of the properties, LQPNL’s rights under various transaction documents were assigned to Ara Weiti Investments Ltd (AWIL), a sister company of the current respondents.

[33]   In July 2020, AWIL served GMHL with a statutory demand for $20,133,278 alleged to be owed by GMHL to AWIL under personal covenants in the GMHL mortgages granted to LQPNL. The demand was later withdrawn and shortly before the application to set it aside was to be heard. AWIL continues to pursue the alleged debt by counterclaim in the Substantive Proceeding.5

[34]In July 2020, GMHL lodged the caveats at issue.

[35]   In its statement of claim dated 21 August 2020, filed in the Substantive Proceeding, GMHL’s first cause of action is breach of fiduciary duty by Mr Williams

4      Bonnie Flaws “Part of Weiti Bay development in Auckland up for mortgagee sale” Stuff (online ed, Auckland, 14 October 2019).

5 Above n 2.

and knowing receipt by the first and second respondents in these caveat proceedings (and Ara Weiti Investments Ltd, named as fourth defendant). It is alleged that GMHL and Mr Williams were party to a joint venture and that Mr Williams owed fiduciary duties to GMHL and breached those duties by, without limitation:

137

(a)misrepresenting the prospects of the Weiti development and the risks associated with entering into the 2015 Quadripartite deed, 2017 Quadripartite deed and 2018 Quadripartite deed;

(b)procuring GMHL to grant the GMHL mortgages, with increasing liabilities, while taking all possible steps to limit his own liability;

(c)Failing to take all necessary steps to ensure that WDLP did not default on its obligations under the BNZ transaction documents and Lambton Quay transaction documents;

(d)Procuring AWDL and AWBDL to purchase the 2018 Mortgaged Weiti land;

(e)Procuring AWIL to take the purported assignment of the indebtedness of WDLP to BNZ and/or Lambton Quay;

(f)Procuring AWIL to serve GMHL with a statutory demand;

(g)As a result of the acts and omissions listed above, and generally, by preferring his own interests to GMHL.

[36]   By way of remedy, GMHL seeks equitable damages in the sum of $35 million and a declaration that AWDL and AWBDL hold the 2018 mortgaged Weiti land, and any proceeds from the sale of the mortgaged Weiti land, on constructive trust for GMHL. It also seeks a declaration that any debts and securities assigned by LQPNL to AWIL are held on constructive trust for GMHL.

[37]   In in further, related proceedings GMHL has filed in this Court on 5 November 2020,6 GMHL sues Mr Williams in an equitable contribution cause of action. GMHL claims that it paid more than its fair share as co-guarantor of WDLP and WDGPL’s debt. GMHL seeks judgment in the sum of $1.5 million.

[38]   The mortgagee sale pursuant to which the respondents purchased the properties has not been challenged by GMHL.

6 Green & McCahill Holdings Ltd v Williams HC Auckland CIV-2020-404-1247.

Relevant legal principles: equitable interests supporting caveats

[39]Section 143 of the Land Transfer Act 2017 (2017 Act) provides:

Lapse of caveat against dealings

(1)        The following persons may apply to the Registrar for the lapse of a caveat against dealings affecting an estate or interest in land:

(a)a person who wishes to register an instrument affecting the estate or interest protected by the caveat; or

(b)the registered owner or a person acting for or on behalf of the registered owner of the estate or interest affected by the caveat.

(2)        The Registrar must give notice of an application under subsection (1) to the caveator.

(3)A caveat to which an application relates lapses unless, –

(a)within 10 working days after the date on which the Registrar gives notice of an application under subsection (1) to the caveator, the caveator gives notice to the Registrar that an application has been made to the court for an order that the caveat not lapse; and

(b)within 20 working days after the date on which the caveator gives a notice to the Registrar under paragraph (a) (the relevant period), an order of the kind referred to in subsection (4) is served on the Registrar.

(4)The orders are –

(a)an order that the caveat not lapse:

(b)an interim order that the caveat not lapse:

(c)an order adjourning the application.

(5)        The caveat lapses if the court makes an order to that effect before the close of the relevant period.

(6)        If the court makes an order under subsection (4)(b) or (c), the caveat will not lapse if, after the close of the relevant period, –

(a)the court makes a final order that the caveat not lapse; and

(b)the order is served on the Registrar.

(7)        If the court makes an order under subsection (4)(b) or (c), the caveat will lapse if, after the close of the relevant period, –

(a)the court makes a final order that the caveat lapse; and

(b)the order is served on the Registrar.

[40]   In Philpott v Noble Investments Ltd, the Court of Appeal set out the basic legal principles of applications to sustain caveats:7

(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;8 and

(d)    Where 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.9

[41]   Section 138(1) of the 2017 Act provides that a beneficiary under an express or implied trust has a caveatable interest where they can identify specific, ascertainable land and claim a beneficial interest in that land as a cestui que trust.

[42]   For the purposes of sustaining a caveat over land, the beneficiary’s interest must be a proprietary interest in land;10 it must be more than a merely equitable interest,11 but an equitable interest which gives relief against the land in question itself may be sufficient to support a caveat.12 The beneficiary’s interest must also be sufficiently definable: in Zhong v Wang, the Court of Appeal considered the line of case law requiring a lower threshold of simply whether “… the registered proprietor

7      Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. I note that although that case was dealing with the Land Transfer Act 1952, the same approach applies in relation to the 2017 Act.

8      Sims v Lowe [1988] 1 NZLR 656 at 660; Zwarst v Saxton [2012] NZHC 448 at [12].

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

10 Guardian Trust and Executors Co of New Zealand Ltd v Hall [1938] NZLR 1020 (CA); Re  Savage’s Caveat [1956] NZLR 118 (SC); and Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA).

11 Napier City Council v Residual Health Management Ltd HC Napier CIV-2004-441-35, 30 March 2004, at [20]; Willigers v McFarlane (2005) 6 NZCPR 885 (HC); Rutherford v Rutherford [2015] NZHC 878, [2015] NZAR 1303.

12     Wellesley Club Inc v Wellesley Property Holdings Ltd (2007) 8 NZCPR 421 (HC).

and the Court understand the nature of the interest claimed and the basis of that claim

… as a general rule … it is sufficient to identify the form of trust alleged.”13

[43]   Constructive trusts can give rise to equitable interests in land supporting the existence of a caveat.14 At their core, constructive trusts are concerned with unconscionability.15 A claimant must show that conscience requires the respondent to recognise their beneficial claim in the relevant property.16 However, only institutional or orthodox, constructive trusts can support the existence of a caveat because a court is merely recognising existing rights;17 a remedial, or court-imposed, constructive trust cannot give rise to a caveatable interest because a caveator must have a reasonably arguable existing—and not merely potential—interest in land.18

Analysis and decision

[44]GMHL submits as follows:

A dispute arises in a long-running joint venture to develop a property. One party, the landowner, ends up with the joint venture’s debts. The other party, the developer, ends up with the land and the opportunity to profit. That is, in essence, the story of this case.

[45]   However, this case cannot be resolved in my view by broad claims of unconscionability. It is essential to address whether fiduciary duty exists, and the nature of any such duty; whether there has been a breach of fiduciary duty; whether at the time the respondent companies acquired the properties, relevant duties were still alive; and critically, whether there is a tenable cause of action of knowing receipt.

13 Zhong v Wang (2006) 5 NZ ConvC 194,308, (2006) 7 NZCPR 488 (CA) at [53]-[54] per Wild and Heath JJ.

14     Re Bielfeld (1894) 12 NZLR 596 at 597, Re Peychers’ Caveat [1954] NZLR 285 at 286 and Buddle v Russell [1984] 1 NZLR 537.

15 See for example Millet LJ’s articulation of a constructive trust in Paragon Finance Plc v DB Thakerar & Co [1999] 1 All ER 400 (CA) at 409, “A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another.”

16 Elders Pastoral Ltd v Bank of New Zealand [1989] 2 NZLR 180 (CA) at 193.

17 See the distinction as articulated in Fortex Group Ltd (in rec and liq) v MacIntosh [1998] 3 NZLR 171 (CA) at 171-172 per Tipping J. This approach also aligns with Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669. For applications in this Court see for example Philipiah v Ministry of Health HC Auckland M1038-IM01, 5 February 2002 and Metalplas Engineering Pty Ltd v Ellis HC Auckland M293-IM02, 21 August 2002.

18 Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA) at 190,248 per Cooke P.

[46] As noted at [43] above, GMHL must establish an arguable, institutional constructive trust. In addressing that ultimate issue, my analysis that follows addresses the following matters:

(a)Fiduciary duties arising from a joint venture;

(b)Fraud;

(c)The nature of GMHL’s claims;

(d)The competing positions of the parties;

(e)The application of the rule in Keech v Sandford;

(f)Knowing receipt – was the transfer of the properties to the respondents in breach of trust?

Fiduciary duties arising from a joint venture

[47]   GMHL relies upon the Court of Appeal decision Chirnside v Fay19 to argue Mr Williams owed GMHL fiduciary duties in the context where GMHL was reasonably entitled to repose, and did repose trust and confidence, in Mr Williams both generally and in relation to particular transactions.

[48]   This is what is known as a second category of fiduciary relationships which Tipping and Blanchard JJ described as follows:20

… relationships which are inherently fiduciary all possess the feature which justifies the imposition of fiduciary duties in a case which falls outside the traditional categories; all fiduciary relationships, whether inherent or particular, are marked by the entitlement … of one party to place trust and confidence in the other. That party is entitled to rely on the other party not to act in a way which is contrary to the first party’s interests.

19     Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.

20     Chirnside v Fay, above n 19, at [80].

[49]   That is to be contrasted with a situation where the parties have entered into a contractual relationship which requires cooperation but where the parties are nevertheless acting for their own separate advantage.21

[50]   An issue that sometimes arises is the extent to which a corporate structure will be seen to exclude fiduciary duties. The Supreme Court in Amaltal Corporation Limited v Maruha Corporation Limited held:22

… when commercial parties elect to use an incorporated vehicle for a venture that can only loosely be called the joint venture, it is unlikely that their relationship as a whole will be fiduciary in nature.

[51]   In my view, there is some obvious merit in the submission of Mr Chisholm that the basis for a claim to a joint venture is at best uncertain. Mr Chisholm submitted that Mr Williams and GMHL were never acting together in an incorporated venture to jointly share in profits. Rather, they resolved to utilise corporate and limited partnership entities with their rights defined by contracts. Indeed, some of the clauses of the critical contractual documents, including the WDLP partnership agreement, expressly excluded fiduciary duties.23

[52]   However, despite some reservations, I accept that it is reasonably arguable that there was a fiduciary relationship between the parties or at least some aspects of that relationship can arguably be categorised as fiduciary in nature. There are obviously factual matters in dispute and I also accept that it is not necessary for me to determine whether the alleged joint venture falls into either the first or second category of Chirnside v Fay.

[53]   My finding about the nature of the relationship (ie, arguably fiduciary) does not mean that GMHL has tenable proprietary claims to sustain caveats against the properties: a breach of relevant fiduciary duties must be established and also a basis for accessory liability of the respondent companies, now the registered proprietors.

21     Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 2 NZLR 169 at[31].

22     Corporation Limited v Maruha Corporation Limited [2007] NZSC 40, [2007] 1 NZLR 608 at [20].

23     See cl 14.10 of the WDLP partnership agreement.

Fraud

[54]   It is necessary to address the issue of fraud. If fraud were established, that would be a basis for GMHL to impeach the indefeasible titles of the respondent companies (see s 52 of the Land Transfer Act 2017).24

[55]In written submissions, counsel for GMHL contended, in reference to the Stuff

article:

In this case, if the object of the transfer of the Properties was to cheat GMHL of its interests – which, returning to Mr Williams’ public comments … appears to be the case – that would amount to fraud under the Act.

The submissions then refer to Instant Funding Ltd v Greenwich Properties Holdings Ltd,25 in which Venning J held it was reasonably arguable that the exercise of a power of sale under a mortgage, which was designed to defeat a party’s interests but would otherwise have been a legitimate exercise of a contractual right, could constitute land transfer fraud. To this, counsel submitted, “Here, it is Mr Williams himself who appears to have implicated LQPNL.”

[56]In a similar manner, Mr Liu, in his affidavit evidence, states in reference to the

Stuff article:

To me, and looking back on how events have since unfolded, this suggests that Mr Williams was working with the lenders to cut GMHL out of the development and its interests in the land.

[57]   Mr Chisholm took objection to the approach of GMHL and, in particular, its making suggestions of fraud when there is no proper evidential basis for such allegations.

[58]   At the hearing, GMHL made it clear that it was not alleging fraud for the purposes of these caveat proceedings, despite references in its written submissions to

24 Counsel for GMHL referred to the definition of fraud in s 6 of the 2017 Act:“fraud means forgery or other dishonest conduct by the registered owner or the registered owner’s agent in acquiring a registered estate or interest in land”and Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101 (PC) at 106-107, where Lord Buckmaster explained that “If the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent”.

25 Instant Funding Ltd v Greenwich Properties Holdings Ltd HC Auckland CIV-2007-404-6806, 20 December 2007 at [35].

fraud.26. I note also that in its written submissions, GMHL contended that it was not necessary for me to make a finding on fraud since that is an “intensely factual exercise”.

[59]   I proceed on the basis that GMHL does not advance allegations of fraud. In any event, it is clear, in my view, that GMHL has failed to establish a proper evidential foundation for such an allegation. In Schmidt v Pepper NZ (Custodians) Ltd27 it was held that “allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity.” The Court held, “… counsel must not draft any originating process of pleading containing an allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud

…”28

[60]   To the extent that GMHL relies upon Instant Funding Ltd v Greenwich Properties Holdings Ltd,29 its position is misguided. That case involved land transfer fraud.

The nature of GMHL’s claims

[61]   Rather than rely upon fraud, it is clear that GMHL relies upon broader allegations of unconscionability based on cases such as Keech v Sandford,30 and Attorney-General for Hong Kong v Reid.31 I address the application of those cases below.

[62]   GMHL does not plead that the respondent companies, and the registered proprietors of the land, directly owed duties to it. Rather, it is pleaded that they are knowing recipients of GMHL’s property and despite the properties being sold and purchased by mortgagee sale.

26     See above at n 24.

27     Schmidt v Pepper New Zealand (Custodians) Limited [2012] NZCA 565 at [15].

28 At [15]. See also Kiwi Trustee Ltd v Lin [2016] NZHC 598 at [8]-[9] and North Shore Aero Club Inc v Black River Trustees Ltd [2020] NZHC 3070 at [28].

29     Instant Funding Ltd v Greenwich Properties Holdings Ltd, above n 25.

30     Keech v Sandford (1726) Sel Cas t King 61.

31     Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (PC).

[63]   The alleged primary liability for breach of fiduciary duty is said by GMHL (it pleads as such) to be that of Mr Williams. That is not to be conflated with accessory liability, being the claim against the respondents.

[64]   It is settled law that there can be no proprietary claim for knowing receipt unless the accessory/third party receives a trust property in knowledge of a breach of trust in respect of the transfer of the property in question.32 The critical issue is whether there is a relevant breach of fiduciary duty; there is no dispute here about imputing the knowledge of Mr Williams to the respondent companies.

[65]   The primary breach of duty by Mr Williams is alleged in GMHL’s statement of claim in the Substantive Proceeding, namely “procuring” the respondent companies to purchase the Weiti properties.

[66]   As noted above, GMHL does not, and has not, challenged the mortgagee sale. The mortgagee, LQPNL, is not a party to any of the proceedings referred to in the evidence (and including these caveat proceedings). Indeed, in the related proceedings referenced above at [37], GMHL relies on the mortgagee sale as a basis for seeking equitable contribution against Mr Williams. Having said that, I acknowledge that those proceedings might well be an alternative type of claim.

The competing positions of the parties

[67]   GMHL contends, and relies in part, on the comments made by Mr Williams in the Stuff article, that the mortgagee sale was being used by Mr Williams to alienate the properties from the current owner, GMHL, in order to change the future direction of the development. GMHL contends it is reasonably arguable that the acquisition of the properties, as part of an irregular mortgagee sale designed to restructure GMHL’s land ownership, constituted a breach of the fiduciary duty owed by Mr Williams to avoid conflicts  and  to  avoid  unauthorised  personal  profit.  Mr  Johnson  argued  that  Mr Williams effectively took GMHL’s land and has profited from the balance of the development. In reliance on Keech v Sandford and Attorney-General of Hong Kong v

32     Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2012) at 42-023

Reid, GMHL argues that the nature of Mr Williams’ duties were such that he could not take the properties outside of joint venture and that the joint venture could not be unwound (absent proper termination) by one party, namely Mr Williams, taking the opportunity to develop and take the properties outside of the joint venture. Anyone but Mr Williams or GMHL could have bought the land.

[68]   In response, Mr Chisholm submitted that even if a breach of fiduciary duty caused LQPNL to exercise its power of sale (denied), GMHL could not have a proprietary interest in the properties for two reasons, both of which are said to provide a complete answer to GMHL’s application:

(a)GMHL’s claim for knowing receipt cannot succeed because LQPNL’s transfer of the properties was not in breach of trust or any fiduciary duty; and

(b)In accordance with s 103 of the Land Transfer Act 2017, the properties vested in the respondent companies freed and discharged from any interests of GMHL (i.e. they are held indefeasibly).

[69]   It is not enough for GMHL to establish a reasonably arguable case of breach of fiduciary duties. It has to establish an arguable proprietorial claim based on a relevant breach of trust and fiduciary duty, in relation to the properties, tracing an extant equitable interest in those properties, now held by the respondent companies. As Mr Chisholm submitted, breaches of fiduciary duties are not to be conflated with proprietorial claims.

The application of the rule in Keech v Sandford

[70]   As I have noted, GMHL seeks to trace a claimed equitable interest in the properties into the hands of the respondent companies in reliance on the principles of Keech v Sandford and an institutional constructive trust based on the cause of action of knowing receipt.

[71]   The Privy Council in Attorney-General for Hong Kong v Reid discussed the rule from Keech v Sandford as follows:33

In Keech v Sandford (1726) Sel Cas T 61 a landlord refused to renew a lease to a trustee to the benefit of an infant. The trustee then took a new lease for his own benefit. The new lease had not formed part of the original trust property, the infant could not have acquired a new lease from the landlord and the trustee acted innocently, believing he had committed no breach of trust and that the new lease did not belong in equity to his cestui que trust. The Lord Chancellor held nevertheless … that “The trustee is the only person of all mankind who might not have the lease”; the trustee was obliged to assign the new lease to the infant and account for the profits he had received. The rule must be that the property which a trustee obtains by use of knowledge acquired as trustee becomes trust property.

[72]   The authors of Lewin on Trusts articulate the rule in Keech v Sandford this way:34

The rule … is the foundation of a broad general rule concerning profits made by trustees and other fiduciaries from transactions with third parties. A constructive trust is raised by a court of equity, wherever a person, clothed with fiduciary character, without authority, gains some personal advantage by availing himself to a situation as trustee, whether directly or indirectly from the use of property subject to the trust or other fiduciary relationship, or in the course of the fiduciary relationship and by reason of his fiduciary position.

[73]   The context for considering the application of those principles is of course a mortgagee sale carried out in circumstances when it is not disputed that GMHL had defaulted on its mortgage obligations and where the properties, held legally and beneficially by GMHL, were subject to mortgage knowingly entered into by GMHL. At no time was Mr Williams the registered owner of the properties and the sale was brought about by LPQNL as a third party lawfully exercising its rights as mortgagee. Even if it is arguable that the properties were subject to some fiduciary duties because Mr Williams was a custodial trustee and in control of them in a practical, operational, day-to-day sense, their acquisition by the respondent companies was the result of a mortgagee sale which was not under his control.

[74]   There is no probative evidence that Mr Williams somehow manufactured or engineered the sale. As Mr Chisholm submitted, there was very significant mortgage debt (an approximate liability of $55 million) and any claim that the sale was

33     Above n 31, at 4/43.

34     At 45-032.

manufactured casts doubt on the legality of the conduct of LQPNL, a party not before me and not served with the proceeding. It is clear from the evidence that both parties engaged in a extensive negotiations to try and save the development.

[75]   In both Reid and Keech, the trustees were in control of the property in question and it was through each trustee’s direct action of transferring the property that they breached their fiduciary duties: in Reid, Mr Reid received the bribes and used the funds to purchase the properties, and in Keech, the trustee was in control of the lease and took it for his own benefit. The facts here are otherwise and I find that the rule in Keech v Sandford does not assist GMHL in this case. Mr Williams did not require the authority of GMHL to purchase and, in any event, GMHL had lost any authority or control over the properties at issue because of the actions of the independent mortgagee.

[76]   I do not accept that in a commercial case such as this one, that there is some open-ended prohibition on Mr Williams (or entities associated with him) purchasing the properties. To the extent that Mr Johnson suggested to the contrary, I reject it. In my view, any arguable joint venture was clearly at an end well before the respondents acquired the properties and whatever obligations of loyalty that might previously have existed in relation to them, were clearly spent. The development project had come to a halt and the parties’ relationship, despite extensive negotiations, was irreparably broken down. The independent mortgagee was pursuing its rights to the land. It may be arguable that the acquiring of the overhang of the debt and then trying to use that to liquidate GMHL (ie, via the statutory demand process) was a breach of fiduciary duty, or at least unconscionable, but that does not equate to a proprietorial claim necessary to establish a caveat.

[77]   The evidence clearly demonstrates that this is quite a different case from Dickie v Torbay Pharmacy (1986) Ltd,35 where there was a breach of fiduciary duty that amounted to the unlawful transferring away of property. Here, and by contrast, Mr Williams did not “jump ship” in an attempt to defeat the interests of the joint venture partner, but, rather, took significant steps to try and stop the ship from sinking. As I

35     Dickie v Torbay Pharmacy (1985) Ltd [1995] 3 NZLR 429 (HC).

have noted, the parties were involved in extensive negotiations in 2019, with Mr Liu represented by very experienced commercial players, including Mr Michael Stiassny and experienced legal advisers). I do not see how it can credibly be claimed that GMHL was cheated out of any interest in the land, when its interests were always subject to significant mortgage debt and the default caused the sale. It is also far from clear as to what relief might ultimately be granted in the Substantive Proceedings; it could not credibly extend to re-vesting the properties in GMHL free of any mortgage debt.

[78]   The comments made by Mr Williams in the Stuff article need to be read in context and against all of this background. Mr Williams was obviously working with the financiers to avoid a sale. The Stuff article noted that Bayleys had been instructed and that the sales had been publicly advertised.

[79]   I also find that it is simply not credible on the evidence before me that Mr Liu was not actively involved in decisions about the financing arrangements or the challenges faced by the development, as he claims. He may have relied extensively on his advisers but there is no evidential basis for concluding that the advisers somehow failed to inform him, or duped him, at the critical stages of the development including the steps leading to the mortgagee sale. Likewise, I find that there is no probative evidence to support Mr Liu’s claim that Mr Williams procured changes of lawyers engaged by Mr Liu; bald assertions impugning professional integrity are insufficient.

Knowing receipt

[80]   Lewin on Trusts36 identifies the general requirements of liability for knowing receipt as follows:

(i)There is property subject to a trust.

(ii)The property is transferred.

(iii)The transfer is in breach of trust.

(iv)The property (or its traceable proceeds) is received by the defendant.

36     Above n 32, at 42-023.

(v)The receipt is for the defendant’s own benefit.

(vi)The defendant receives the property with knowledge that the property is trust property and has been transferred in breach of trust, or if not a bona fide purchaser of a legal estate without notice, retains the property, or deals with it inconsistently with the trust, after acquiring such knowledge.

(citations omitted)

[81]   In relation to the third requirement, that the transfer is in breach of trust, the authors of Lewin expand:37

It must be established that the property subject to the trust or other fiduciary relationship has been transferred in breach of trust, though it does not matter whether the breach is fraudulent …

It is the transfer itself which must be in breach of trust and it is not enough that the transfer was made following the occurrence of a breach of trust, for in such case the transfer itself would be valid in equity and involve no breach of trust, and so would pass equitable title to the recipient.

(emphasis added)

[82]   It is that second proposition, (i.e. whether the transfer itself is in breach of trust) that is the central and decisive issue in this case.

[83]   In support of that second proposition, Lewin cites the cases of Brown v Bennett,38 and Courtwood Holdings SA v Woodley Properties Ltd.39 Brown v Bennett is also relied upon by the authors of Pettit’s Equity and the Law of Trusts for the proposition that “the receipt must be in direct consequence of the alleged breach of trust or fiduciary duty of which the recipient is said to have knowledge”.40

[84]   The facts of Brown v Bennett are as follows. The plaintiffs were shareholders in and directors of a company, Pinecord Limited, which traded under the name of Oasis. From 1988, the first and second defendants were also shareholders and directors. Between 1988 and 1990, the plaintiffs’ interest was reduced to a minority interest and in 1991, the plaintiffs ceased to be directors. Pinecord Limited then went

37     At 42-044 and 42-055.

38     Brown v Bennett [1999] BCLC 649 (CA).

39     Courtwood Holdings SA v Woodley Properties Ltd [2018] EWHC 2163 (Ch) at [177]–[203].

40     Philip H Pettit Equity and the Law of Trusts (12th ed, Oxford University Press, London, 2012) 2012) at 157.

into administrative receivership. The receivers sold the business to another another company called “Oasis”, in which the first, second and fourth defendants had substantial stakes. The plaintiffs claimed that Oasis obtained the business of Pinecord Limited in consequence of a dishonest and fraudulent design, of which it had notice of the time of such receipt, and in which it assisted with knowledge. On that basis it was said to be liable as a constructive trustee and a co-conspirator with the other defendants in the action.

[85]The plaintiff’s key argument was summarised at as follows:41

Before us [counsel for the plaintiffs] frankly accepted that he could not and did not allege that the acquisition of the remains of the business by Oasis from the administrative receivers was itself a breach of trust. He contended that the judge was wrong [to strike out the knowing receipt claim] because, he said, it was plain that Oasis had the requisite knowledge through the Bennetts as from 21 February 1991 that the breaches of fiduciary duty alleged against the Bennetts gave rise to the sale to Oasis on 7 March, without which it would not have occurred, so that (and this as I understood it, was the alleged consequence) there was a knowing receipt within the principle because Oasis could not in those circumstances be a bona fide purchaser without notice.

[86]   Lord Justice, delivering the judgment of the Court of Appeal, addressed the knowing receipt claim as follows:42

The knowing receipt claim is dealt with in a large number of authorities over many years. I take as a paradigm example of its proper expression the passage in the judgment of Hoffmann LJ in El Ajou v Dollar Land Holdings plc [1994] BCLC 464. It is unnecessary to refer to the facts of that case. It is sufficient to go to the commencement of Hoffmann LJ’s judgment…: :

‘This is a claim to enforce a constructive trust on the basis of knowing receipt. For this purpose the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty.’

It is in my quite plain from that statement of principle (and there are many other similar ones in the books) that the receipt must be the direct consequence of the alleged breach of trust or fiduciary duty of which the recipient is said to have notice.

(emphasis added)

41     At 654.

42     At 655.

[87]   The Court upheld the first instance judgment striking out the knowing receipt claim. Oasis acquired the business of the company in a sale by its receivers and regardless of the knowledge of Oasis’ directors of the earlier alleged breaches of fiduciary duties over the company, Oasis’ acquisition was not the direct consequence of an alleged breach of trust or fiduciary duty. It was held that Oasis therefore could not be liable for knowing receipt and there could be no constructive trust over the assets that it had acquired.

[88]   These same principles were applied in the more recent decision of Courtwood Holdings SA v Woodley Properties Ltd.43 In that case, the plaintiff, Courtwood, had taken an assignment of rights from SFPL (by then in liquidation) as against the first defendant, Woodley.

[89]   SFPL had been a single purpose investment vehicle formed to hold land, Sandford Farm, to improve the planning position and sell the land for profit. SFPL had entered into a Property Advisory Agreement (PAA) with the sixth defendant company, Wharf, pursuant to which Wharf was to advise SFPL in relation to the planning permission, development and sale of Sandford Farm in return for its fee of (effectively) half the profits of the project.

[90]   The Court held Wharf owed SFPL fiduciary duties either as a result of the express term of the PAA or from the way in which Wharf in fact ran SFPL’s business almost entirely itself, the Jersey-based directors of SFPL playing no more than a formal role in the business.

[91]   It was alleged that Wharf had breached the fiduciary duties it owed to SFPL and entered into a scheme to bring about the demise of SFPL by making it effectively insolvent, causing receivers to be appointed and procuring the receivers to sell Sandford Farm to Woodley.

[92]   SFPL’s demise came through its failure to obtain the requisite planning consent, its breach of banking covenance, and Wharf (which had paid interest due on

43     Courtwood Holdings SA v Woodley Properties Ltd, above n 39.

SFPL’s borrowing) then presenting a winding-up petition which prompted SFPL’s banker, Abbey, to appoint an administrator and receivers.

[93]   The receivers exchanged contracts with Woodley for the purchase of Sandford Farm, financed for that facility by Abbey and with joint guarantees from three of the other defendants (who had been investors in SFPL, closely associated with Wharf and responsible for incorporating Woodley on the day that it exchanged contracts with the receivers). Woodley was then able to obtain the planning consent for Sandford Farm and to later sell it for a substantial profit, then distribute it to the other defendants.

[94]   The plaintiff, Courtwood’s, claim was that Woodley received Sandford Farm with knowledge of Wharf’s breach of fiduciary duty such as to make Woodley liable as a constructive trustee on the grounds of knowing receipt; and that the other defendants were also liable as constructive trustees on the grounds that they received monies derived from Woodley’s subsequent sale of Sandford Farm, again with sufficient knowledge of breach of fiduciary duty to make them liable on the grounds of knowing receipt.

[95]   The essential complaint was that the profits from Sandford Farm, which should have belonged to SFPL, and hence the investors, instead ended up in the hands of those who (through Wharf) were supposed to be managing the project for SFPL.

[96]   It was held that Wharf had owed SFPL a fiduciary duty and that Wharf had acted in breach of such duty – in particular, by acting in its own interest when its fiduciary duty required it to serve SFPL’s interests with single-minded loyalty.

[97]   However, the Court held that the sale of Sandford Farm was a matter for the receivers and that they sold the land to Woodley because it was the highest bidder. Therefore, although Wharf had acted in breach of duty, it was held that its breaches were not what had ultimately persuaded Abbey to appoint receivers.

[98]In relation to Brown v Bennett, Nugee J held:44

44 Above n 38, at [190].

… the ratio of Brown v Bennett is that it is a prerequisite of the claim in knowing receipt that the disposition to the recipient is “in breach of trust”, that is that the disposition is itself a breach of trust (or breach of fiduciary duty). It is not enough that the disposition follows, and is caused by, other breaches of trust or fiduciary duty: if it were, it would catch the example given by Morritt LJ … of the disposition to a neighbour of a mansion house, as the former trustees’ breach of trust in failing to repair the property did lead to the sale to the neighbour, but Morritt LJ considered the neighbour would not be liable (despite knowing of the breaches) as the sale itself was not improper.

(emphasis added)

[99]   And, applying that principle to the facts of the case before him, Nugee J concluded:45

…. The relevant disposition is the sale by the receivers to Woodley. That is not a disposition in breach of trust or fiduciary duty: Wharf did on my findings owe SFPL fiduciary duties but the disposition was not a disposition by Wharf at all, so was not a disposition in breach of fiduciary duty by Wharf. Just as in Brown v Bennett it was a disposition by the receivers, but there is no allegation that the receivers acted in breach of their duties …

In those circumstances … the claim cannot, consistently with Brown v Bennett, succeed as it is not suggested that the receipt by Woodley was the result of a disposal of the Company’s assets in breach of trust or in breach of fiduciary duty. Just as in Brown v Bennett, there are allegations of breach of fiduciary duty (there against the Bennetts, here against Wharf) which are said to have led, and been designed to lead, to the appointment of receivers, and to the consequent sale to a company associated with those responsible for the breach of fiduciary duty (there Oasis, here Woodley), but no allegation the disposition itself was a breach of trust. Indeed, one can take the passage cited by Morritt LJ from Rattee J’s judgment in reply, mutatis mutandis, to the facts of this case, as follows:

“In the present case the [Particulars of Claim plead] no breach of trust, as opposed to a breach of duty owed by [Wharf] to [SFPL] … There is no allegation in the … that [Wharf] committed any breach of trust in relation to [SFPL’s] property. Not surprisingly, it is not alleged that the sale of [SFPL’s land to Woodley] was a breach of any trust in relation to [that asset]. It was carried out … by independent receivers. It cannot therefore be said, consistently with the … pleading, that [Woodley] received any trust property as a result of a breach of trust, so to have become a constructive trustee of it under the “knowing receipt” limb of the Barnes v Addy formulation.”

[100]  Justice Nugee also held that the focus in terms of the relevant disposition is on the disposer, not the acquirer:46

45     At [191]-[192].

46 At [199].

…. On my analysis of the ratio of Brown v Bennett, the critical question is whether the disposition under which Woodley acquired the property was in breach of trust. That seems to me to focus on the disposer not the acquirer. [counsel for Courtwood] submitted that in order for the transaction to be valid, both the disposition and the acquisition have to be bona fide. But I do not see how this works as a matter of principle. Woodley was not a fiduciary for SFPL and owed it no duties. The Receivers did owe SFPL duties (of a limited nature) in disposing of the property but admittedly acted bona fide and were not in breach of their duties. It seems to me to follow that the disposition by the Receivers was valid and cannot be impugned – indeed [counsel for Courtwood] said in terms that he was not impugning the transaction. But if he was not impugning the transaction, I do not see how the receipt by Woodley can be said to have been one where the property was conveyed to it in breach of trust.

[101]  Justice Nugee concluded that even if the argument Wharf had procured the disposal to Woodley by breaches of fiduciary duty had succeeded, Courtwood’s claim would remain fatal because the transfer of property itself was not in breach of trust.47

[102]  It appears that the position is the same in Australia, as in Evans v European Bank Ltd, in which Spiegelman CJ in the New South Wales Court of Appeal held:48

… it is an essential aspect of the accessory liability for “knowing receipt” that the act of transfer of the property … must be in breach of a fiduciary obligation.

[103]  I find the present case is in substance the same as Brown v Bennett and Courtwood Holdings. I agree with Mr Chisholm’s submission that, applying the principles of these two cases to this case, GMHL’s claim for knowing receipt cannot succeed because LQPNL’s transfer of the properties as a result of the mortgagee sale was not in breach of trust or any fiduciary duties in relation to the properties. The receipt of the properties by the respondent companies was not in direct consequence of any alleged breach of trust or fiduciary duty but rather, the result of a mortgagee sale, which has never been challenged by the plaintiff and despite having had a reasonable opportunity to do so. Indeed, the PLA notice was served in July 2019, the property was then subject to an open market process and the properties were not sold until June 2020.

47 At [203].

48     Evans v European Bank Ltd [2012] NSWCA 82 at [160].

[104]  The fundamental problem for GMHL’s claim is it has not established the critical element, even to the reasonably arguable case standard, of showing the disposition of the Weiti properties itself was a breach of trust. Mr Williams may have “procured” the respondent companies to purchase the Weiti land, in the sense that he was instrumental in bringing about the acquisition (but not the alienation because he had no ability to do so). However, the focus is on the disposer not the acquirer. The transfer itself was the direct result of the mortgagee sale brought about by default by the plaintiff, GMHL (and arguably others) but that was not a breach of trust. None of the other particulars of breach of fiduciary duty as recorded in the statement of claim in Substantive Proceedings, including the claim of misrepresentation, impugn the disposition itself; they are at best arguably “other breaches of trust or fiduciary duties”49 that might have had some impact on the disposition.

[105]  Brown v Bennett is also instructive in that it provides a direct and fatal answer to GMHL’s reliance on the “corporate opportunity” cases. Morritt LJ, for the Court of Appeal, discussed the corporate opportunity cases as follows:50

… the corporate opportunity cases … are cases in which a beneficial commercial opportunity comes the company’s way and forms knowledge owned or possessed by the directors as agents for the company. Those directors then seek to use that knowledge or opportunity for themselves and are subsequently held to be constructive trustees of it and of its fruits for the company whence they took it. A good example of that is Cook v Deeks [1916] 1 AC 554. But again, it seems to me in cases such as that that there is a distribution or a disposal of the property of the company in breach of trust. At stage 1 the director holds that property as agent for the company. At stage 2 he purports to hold it himself beneficially. If that were to be the case, it would involve a distribution of the property by himself to himself in breach of trust, and a dishonest breach of trust at that.

[106]  In my view, that same rationale should be applied to distinguish other cases that GMHL relies on, such as, for example, Symphony Group Ltd v Heritage Developments (Hobson Street) Ltd.51 In that case the parties signed a joint venture agreement to develop the Heritage Hotel on Hobson Street. Symphony was a property development company. The joint venture set up the company “Heritage Developments” as a bear hut trustee to hold the land. Symphony subsequently

49     Brown v Bennett, above n 38, at [190].

50     At 656-657.

51     Symphony Group Ltd v Heritage Developments (Hobson Street) Ltd  HC Auckland M751/98,     6 July 1998.

incorporated the company “Nelson Street” and transferred the land originally in Heritage Developments’ name to Nelson Street, by first transferring all of the shares in Heritage Developments to Symphony. Symphony subsequently applied to remove caveats registered by Pacific Heritage in response to Symphony’s actions.

[107]  The Court held that there was no entitlement to cancel the joint venture. In response to an argument that the transfer of the properties could not be set aside because of the principle of indefeasibility of title, Hugh Williams J held:

That argument fails on the facts. The relationship between Nelson Street and Symphony is plainly not such that Nelson Street and its shareholders and directors could be regarded as being unaffected by knowledge of the dispute between the joint venturers and the actions taken by Symphony in consequence.

[108]The Court declined to remove the caveats.

[109]  The factual situation here is different. In Symphony Group, Symphony took control of the land-holding entity before the transfer and its disposal to a related entity was a disposal by the alleged errant fiduciary in breach of its obligations of loyalty. In this case, the respondent companies associated with Mr Williams (and, bearing in mind, he never had legal or beneficial ownership of the land), acquired the land from the disposer, being the mortgagee exercising powers of sale. In Symphony Group, Symphony was on both sides of the transfer, whereas in this case Mr Williams was only on the receiving end of the transfer executed by the mortgagee. Furthermore, and as reasoned by Nugee J in Courtwood, even if Mr Williams had procured the disposal to the respondent companies by breaches of fiduciary duty, it is fatal to a claim of knowing receipt that the transfer itself was not a breach of trust, but rather the result of a mortgagee sale which GMHL has not challenged.

[110]  GMHL’s reliance on the High Court decision in Torbay Holdings Ltd v Napier,52 is likewise of no assistance to it. Torbay Holdings is in my view a very clear case of knowing receipt where the defendants, Mr and Mrs Napier, treated the company’s funds as their own and took in excess of $1.9m for their own purposes and for the purposes of the Napier Family Trust. In substance, that case, to use the words

52     Torbay Holdings Ltd v Napier [2015] NZHC 2477, [2015] NZAR 1839.

of Morritt LJ in Brown v Bennett, involved the actions of directors of the company distributing property to themselves in breach of trust. Mr and Mrs Napier, the defendants, were directors and shareholders of Torbay Holdings Ltd and effectively ran the business. There was a clear breach of fiduciary duty in “treat[ing] the company’s funds as their own”.53

[111]  On the extensive evidence before me there is no tenable claim that Mr Williams made an unauthorised transfer of the joint venture properties or that there was some misapplication of those properties resulting in companies associated with him becoming the registered proprietors. In his reply affidavit, Mr Liu has not sought to challenge Mr Williams’ claim that GMHL’s withdrawal of support for the development and the hard-line negotiating position adopted by Mr Liu were critical factors leading to the mortgagee sale.  The  unchallenged  file  note  recording  the  statements  of Mr Stiassny, GMHL’s representative, on 17 May 2019 and clearly setting out Mr Liu’s position, is instructive.54 It reads:

[Mr Stiassny] made clear

1.Impasse with [LQPNL] holding the keys not GMHL (and Williams not part of the game)

2.[Mr Williams] persona non grata with family

3.Break down almost certainly irretrievable – ([Mr Thompson, solicitor]

– ideally this may be an unhappy divorce where two parties have to live under the same roof [Michael Stiassny] – but Liu will not permit that)

4.Liu regards Mark Dunajtschik [of LQPNL] as a high rate, short term opportunistic player who will cut and run – Liu will outlast [Mark Dunajtschik] – [Mark Dunajtschik] too old

5.Liu playing long game here – will outlast everyone and does not care if everyone goes broke including project – Liu takes 50-100 year view

6.[Mark Dunajtschik] needs to take a haircut to make this work for GMHL

7.Liu can hold everyone up due to planning crossover and will not hesitate to block any development V1

53 Ibid, at [3].

54 I also note an email from Mr Thompson, solicitor for GMHL, Mr Alan Paterson (acting for Mr Williams, dated 25 February 2020, contending that the mortgagee accept only 67 per cent of the net sale proceeds).

8.Don’t know what Liu really wants

[112]  I acknowledge that caveat applications are summary and are not suitable therefore for deciding disputed questions of fact. The Court is required to proceed with some caution. However, as Bell AJ noted in Clear White Investments Ltd v Otis Trustee Ltd, “the court is not required to accept uncritically as raising a disputed fact which calls for further investigation, every statement within an affidavit, however equivocal, lacking in precision, and consistent with undisputed contemporary documents or other statements for the same deponent or inherently improbable it may be.”55 At all critical stages of the process Mr Liu has had extensive legal and commercial advice and the claim that Mr Williams somehow took GMHL’s land and has profited from the balance of the development and thus cheating GMHL of its land, is simply not made out. The properties were sold because the properties were subject to significant debt and GMHL and others defaulted on their mortgage obligations.

[113]  I conclude therefore that GMHL has failed to establish a reasonably arguable claim of knowing receipt against the respondent companies.

[114]  I further find that GMHL cannot rely on an in personam claim as an exception to the respondents’ claim to indefeasibility. An in personam claim must be a recognised cause of action.56 As I have just concluded, GMHL has failed to establish to the requisite standard, any recognised cause of action in this case.

[115]  Because GMHL has failed to establish a reasonably arguable case that it holds an interest in the land, it cannot succeed. Its application must therefore be dismissed.

Result

[116]  The application by the applicant, GMHL, dated 20 August 2020, that caveats 11805563.1 and 11805528.1 not lapse, is dismissed. Accordingly, the caveats lapse.

55 Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2823 at [13].

56 Infinity Enterprises NZ Ltd v Kinara Trustee Ltd [2020] NZCA 309 at [42], citing Regal Castings Ltd v Lightbody [2008] NZSC 87, [2002] 2 NZLR 433 at [157]-[160]; see also GW Hinde and Donald William McMorland Hinde McMorland & Sim Land Law in New Zealand (Lexis Nexis Wellington 2020) at 9.063.

[117]  As to costs I am of the preliminary view that, having succeeded, the respondents are entitled to costs, and on a 2B basis. If costs cannot be agreed, then the parties are to file written submissions within 14 days.

Associate Judge P J Andrew