Katu v Seth

[2021] NZHC 416

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1919

[2021] NZHC 416

UNDER

the Land Transfer Act 2017, section 143

IN THE MATTER OF

an originating application for an order that a caveat do not lapse

BETWEEN

VICKI ANN KATU

Applicant

AND

ANMOL SETH

Respondent

Hearing:	8 March 2021
Appearances:	G Stringer and A M Mahoney for the Applicant J Duckworth for the Respondent
Judgment:	8 March 2021

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Sutcliffe Matson (Braden Matson), Auckland, for the Applicant
Jennifer G Connell & Associates (James Duckworth), Newmarket, for the Respondent

Copy for
Greg Stringer, Inder Lynch, Auckland, for the Applicant

KATU v SETH [2021] NZHC 416 [8 March 2021]

[1]                 Vicki Katu applies to sustain caveat 11545722.1 lodged against the record of title NA1008/119 for the residential property at 185 Gray Avenue, Papatoetoe, Auckland. Anmol Seth, the respondent, is the registered proprietor.

[2]The interest claimed in the caveat is:

Fee simple estate the caveator Vicki Ann Katu as one of the vendors by virtue of an agreement for sale and purchase dated 15 October 2014 and Anmol Seth as purchaser and as registered owner.

The caveat was lodged on 9 September 2019. Ms Katu has not yet begun any substantive proceeding to sustain the interest claimed in that caveat. She amended her application in November 2020 to also seek an order under s 146 of the Land Transfer Act 2017 to lodge a second caveat in case the court ordered the first one to be removed. Under her back-up application, she wishes to claim a caveatable interest as a beneficiary under an institutional constructive trust.

Principles on caveat applications

[3]                 In a Court of Appeal case, Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act 1952.  He said:1

Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat"). Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).

1      Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.

[4]                 Although the Holt case was decided under the Land Transfer Act 1952, that statement equally applies to caveats under the Land Transfer Act 2017. The 2017 Act applies in this case, as the caveat was lodged after the 2017 Act came into force.2

[5]                 In caveat applications under ss 142 and 143 of the Land Transfer Act 2017, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. That interest must come within s 138(1):

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

(c)is transferring the estate or interest in the land to another person to be held on trust; or

(d)is the registered owner of the estate or interest in the land and—

(i)has an interest that is distinct from that of registered owner; or

(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.

[6]                 A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land.3 A claim in debt and a claim for damages are personal claims and do not give rise to an interest in land. Something more than a potential or future interest is required. An interest that would arise only upon the court making an order is not an existing interest in the land.

[7]A caveat must contain the “prescribed information”, which includes:4

2      Land Transfer Act 2017 Commencement Order 2018, s 2.

3      Guardian, Trust, and Executors Company of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025; Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA).

4      Land Transfer Act 2017, s 138(3) and Land Transfer Regulations 2018, sch 2.

A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty)…

Details of how the estate or interest claimed is derived from the registered proprietor.

[8]                 Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation any statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same person, or inherently improbable it may be. To establish a reasonably arguable case, there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or evidence, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. As a qualification to the reasonably arguable standard, where there are allegations of fraud or other reprehensible conduct, it is necessary to show a prima facie case.

[9]                 In Schmidt v Pepper NZ (Custodians) Ltd, the Court of Appeal dealt with the importance of pleading properly when allegations of fraud are made. They said:5

Allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity. As the authors of Bullen & Leake & Jacobs Precedents of Pleadings6 emphasise, counsel must not draft any originating process or pleading containing an allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud – that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it. Fraud cannot be left to be inferred from the facts – fraudulent conduct must be distinctly alleged and as distinctly proved.7 General allegations, however strong the words may appear to be, are insufficient to amount to a proper allegation of fraud.8

[10]              For a caveat to be removed it must be patently clear that the caveat cannot stand, either because there was no ground for lodging it at the outset, or because any

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

6      Bullen & Leake & Jacobs Precedents of Pleadings (16th ed, Sweet & Maxwell, London, 2008) vol 2 at [49-02].

7      Davy v Garrett (1878) 7 Ch D 473 (CA) at 489.

8      Wallingford v Mutual Society (1880) 5 App Cas 685 (HC) at 697.

such ground no longer exists. The court also has a residual discretion not to uphold a caveat, but that is exercised cautiously as when the caveat could serve no useful purpose, or alternative safeguards are available.9

Facts

[11]              Ms Katu and Kevin Elliott formerly owned the property. Mr Elliott was her former business partner. They had a company, Meekaton Holdings Ltd. He was the director. They were both shareholders. The Gray Avenue property was Ms Katu’s family home. In 2014, Ms Katu and Mr Elliott were in financial difficulties. Their company, Meekaton Holdings Ltd, was put into liquidation in July 2014 by court order on an application by the Commissioner of Inland Revenue. Ms Katu says that a mortgage broker referred them to Mr Seth, an accountant. They went to him for help. According to Ms Katu, he proposed that Ms Katu and Mr Elliott sell the property to him.  The purchase price could be used to pay off liabilities.  They would leave in

$140,000. Mr Seth proposed that he would develop the property by subdividing it and putting up new dwellings. She would be able to carry on living in the property in the meantime,  and  when  the  development  completed,  Mr  Seth  would  pay  them the

$140,000.

[12]              The evidence shows an agreement dated 15 October 2014 for sale and purchase between Ms Katu and Mr Elliott as the vendors and Mr Seth or nominee as purchaser. By this date, Meekaton Holdings Ltd had already been put into liquidation. The parties used the standard Real Estate Institute and Law Society agreement for the sale and purchase of real estate. Only part of the agreement has been exhibited. There is a due diligence clause. The parties were represented by their own lawyers.

[13]              Settlement was soon afterwards, on 21 October 2014. On the day of settlement, Mr Elliott and Ms Katu signed an authority to their lawyers authorising them to make payments from the proceeds of sale. The authority says this:

9      See the principles stated in Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656 (and repeated in Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [22]).

1We, Vicki Ann Katu and Kevin Anthony Elliott confirm that we have received the sum of $140,000 from Anmol Seth for the sale of our property at 185 Gray Avenue, Papatoetoe (“the property”).

…

2From the sale proceeds of the property, we VICKI ANN LATU and KEVIN ANTHONY ELLIOTT authorise Ghandi Lala Lawyers to make the following payments:

…

[14]              The settlement statement which the lawyers sent after the sale was completed showed that they received from Mr Seth’s lawyer $560,355.54 which was applied in accordance with the authority they signed on 20 October 2014. One of the payments was $5,379.22 paid to a finance company, 360 FS Ltd. $40,000 for “liquidation fees for accountants/barristers” went to Mr Seth’s practice, but Ms Katu says she has no idea what the $40,000 was for. She does not know what services they received for it. It was simply deducted as part of the transaction. Her case is that the $140,000 was left in to be paid later. While the authority they signed on 20 October 2014 does acknowledge having received that sum, she denies that that actually happened, in fact.

[15]              Both sides have attached to their evidence a memorandum of understanding. This was not a document prepared by lawyers. The memorandum of understanding is said to outline debts associated with Kevin Elliott and Meekaton Holdings Ltd,

including personal loans. creditors:	The document provides that Mr Seth is to pay four named
Bhavin Ladani	$70,000
Ketul Joshi	$30,000
Nick Jan-In	$25,000
Troy While	$15,000

[16]              Under the memorandum, the lenders acknowledge that their loans would be paid by Mr Seth, and that would be taken into account in the settlement of the purchase of the Grays Avenue property.  The  document  is  allegedly  signed  by  Mr  Seth, Mr Elliott, Ms Katu and Mr Elliott on behalf of Meekaton Holdings Ltd, and the four named creditors.

[17]              As for Mr Nick Jan-In, Mr Elliott acknowledges that Ms Katu and he, as directors of Tony & Meeka Holdings Ltd, another company, owed Mr Jan-In’s company, 360 Financial Services Ltd. He has produced a statement of account from 360 Financial Services dated July 2015. That statement shows the payment of

$5,379.22 recorded in the settlement statements of the lawyers who acted on the sale of 185 Gray Avenue. There is no record of the $25,000 which Mr Seth says he paid.

[18]              This is not the only document whose authenticity Ms Katu and Mr Elliott dispute.   The evidence includes a document, allegedly signed by Mr Elliott and    Ms Katu on 17 April 2014, addressed to “Whomever it may concern”. The document purports to acknowledge the receipt of $140,000 for the purchase of the property at 185 Gray Avenue from Anmol Seth. Mr Stringer pointed out the implausibility of that document, as it was a receipt given in April 2014 for a payment of a debt which had not yet been incurred.

[19]              Mr Seth has also attached to his affidavit a general security agreement given by Mr Elliott and Ms Katu personally to Anmol Consultants Ltd in May 2014. They deny that they signed that agreement and point out that it was well before the events in issue in this case, and they had not instructed him then.

[20]              They say that there is other evidence which shows Mr Seth’s recognition that he owes them $140,000. Ms Katu has put in evidence a loan document she received from Mr Seth in 2018, which recorded the liability, and text messages where Mr Seth has acknowledged his liability. He, on the other hand, denies that and says that he was in India at the time.

[21]As well as the unpaid $140,000, the evidence also shows a dispute about the

$40,000 which was deducted for “liquidation fees”. Ms Katu and Mr Elliott say that these do not represent the actual value of services provided by Mr Seth. They say that Mr Seth explained that lawyers had appeared at court, but when they made further enquiries they found out that no one had ever appeared in court for their company. The evidence shows that, as a minimum, Mr Elliott and Ms Katu have an arguable claim in debt for the unpaid part of the purchase price – $140,000. The debt was incurred in 2014, but there may be ways around any limitation difficulties. The loan

agreement and the text messages in 2018 might be regarded as starting the limitation period running afresh because they were written acknowledgments of indebtedness.

[22]              The issue for this case is whether any of these matters give an interest in the land. The starting position is that under the agreement for sale and purchase, title to the property passed to Mr Seth, and Mr Elliott and Ms Katu no longer had any interest in the property. That comes with one qualification. Ms Katu continued living in the property under a residential tenancy agreement and there have been differences between her and Mr Seth about the residential tenancy. But the circumstances of the residential tenancy agreement are not relevant to this case.

[23]              The fact that the entire purchase price has not been paid is not, by itself, enough to give an interest in the land. That is made clear by s 67 of the Property Law Act 2007:

A vendor of land has no legal or equitable lien over the land because of unpaid purchase money

[24]              In the caveat, Ms Katu has claimed a fee simple estate in the land. The claim at its highest, is only for $140,000. I cannot see how it can extend to the entire property. But if a lien is not available to cover the unpaid part of the purchase price, it cannot follow that there can be a claim to the entire property. Claims that arise simply out of non-payment of part of a purchase price are not enough to give an interest in the land.

[25]              Mr Stringer, however, submits that is not the end of the matter. Even if the interest under the current caveat cannot be sustained, Ms Katu has an interest as a beneficiary under an institutional constructive trust. That arises because of the fraud or dishonesty by Mr Seth.  That fraud or dishonesty would have to be in inducing  Ms Katu and Mr Elliott to enter into the original agreement. Dishonesty after the sale would not be relevant. Dishonesty in setting up a false defence to a claim in debt is not dishonesty that induces people to enter into an agreement.

[26]              I accept that there is something in the allegations that the contract was induced by Mr Seth’s false promises to pay the $140,000 later, given the steps he has taken

after the event to deny his liability. That evidence suggests actual dishonesty on his part. But even assuming actual misrepresentations by Mr Seth as to his intent when entering into the agreement for sale and purchase, does it follow that an interest in the land automatically arises after the transfer has taken place?   Under the contract,    Mr Elliott and Ms Katu undertook to convey clear title to Mr Seth. The transaction went ahead and was completed, and upon completion Mr Seth had a clear title. The contractual arrangements do not make any provision for Mr Elliott and Ms Katu to retain an interest in the property.

[27]              While there was a transfer, Mr Stringer says that the consent to the transfer was tainted as it was induced by misrepresentations by Mr Seth. But under contract law, the transfer remains effective. For example, if a claim is made for breach of the Fair Trading Act 1986, as well as orders to pay money to the victims of the deception, the court’s remedies also include orders for transfer of property.10 But an interest in land vested under a court order is not an interest that existed at the time of the transfer in 2014. An interest created only by court order cannot support a caveat.

[28]              The position is similar under general contract law. In this regard, general contract law is the Contractual Remedies Act 1979, which was in force at the time of the agreement in October 2014. Section 7 of that Act made it clear that the old law as to rescission of contracts for misrepresentation was no longer in force and was replaced by the rules under the Act. That Act provides that someone who has been induced to enter into a contract by a misrepresentation has a claim for damages.11 It also provides that a contract may be cancelled but, even on cancellation, property does not re-vest. Someone who has received property under a contract that is cancelled is not divested of that property simply by the fact of cancellation.12 Instead, any hope of recovering property must be subject to an application for relief under s 9 of the Contractual Remedies Act. Here, Ms Katu and Mr Elliott have not cancelled the agreement with Mr Seth and no question of transfer back can arise under s 9.

10     Fair Trading Act 1986, s 43(3)(e).

11     Contractual Remedies Act 1979, s 6.

12     Contractual Remedies Act 1979, s 8(3)(b).

[29]              Instead, Mr Stringer said that an institutional constructive trust could arise under the Court of Appeal’s decision in Paugra Holdings Ltd v Harvest Field Holdings Ltd.13 He referred to three categories in that decision. The third category was important for Mr Stringer:14

[W]here there has been a non-consensual transfer of an interest in land from a vendor to a purchaser, as a result of a fraud perpetrated on the vendor by the purchaser, the vendor is able to claim an institutional constructive trust (which may be protected by a caveat) in respect of the vendor’s interest in the property that has been defrauded.

Mr Stringer submitted that applies here.

[30]              It is important however to note the distinction between consensual and non- consensual transfers. The Court of Appeal recognised that distinction:15

In the case of a non-consensual transfer, which is void, the constructive trust arises “upon the moment of transfer”.16 Such cases should be distinguished from cases involving transfers pursuant to contracts which are voidable for misrepresentation and which do not result in a constructive trust unless and until the claimant’s equitable right to rescind is exercised.17

[31]              I would add one qualification to that statement of the Court of Appeal. The reference to voidable contracts and rights of rescission is now out of date, given the passing of the Contractual Remedies Act 1979 and now the Contract and Commercial Law Act 2017. But the point remains that merely because a contract has been induced by misrepresentation does not mean that it is not a consensual arrangement which may be effective to transfer property. The Court of Appeal had in mind something which is quite different. It referred to a “non-consensual transfer which is void”.

[32]The facts in Paugra Holdings Ltd are different from those here. The facts in

Paugra were quite complicated. But the Court of Appeal held that it was arguable that

13     Paugra Holdings Ltd v Harvest Field Holdings Ltd [2014] NZCA 164, (2014) 15 NZCPR 227.

14     At [37](c).

15     At [39](a).

16 Twinsectra Ltd v Yardley [1999] Lloyd’s Rep Bank 438 (CA) at 461; Halley v Law Society [2003] EWCA Civ 97, [2003] WTLR 845 at [47] and [54]; Collings v Lee [2001] 2 All ER 332 (CA) at 336–337; and JJ Harrison (Properties) Ltd v Harrison [2001] EWCA Civ 1467, [2007] 1 BCLC 162 at [25]–[30].

17     Lonrho plc v Fayed (No 2) [1992] 1 WLR 1 (Ch) at 11–12; and Bristol and West Building Society v Mothew [1998] Ch 1 (CA) at 22–23. See also Alistair Hudson Equity and Trusts (7th ed, Routledge, New York, 2013) at 591; and David Fox “Trusts Arising from Wrongs” in John McGhee (ed) Snell’s Equity (32nd ed, Sweet & Maxwell, London, 2010) 771 at [26–013].

there had been a void transaction in that case when the same person controlled both sides of the transaction and the transaction constituted a fraud on one company and on a third party. Those are not the circumstances in this case.

[33]              The simple position is  that there was an effective transfer of property to     Mr Seth, even if he lied to induce the transaction. He took clear title on transfer. It is not possible to treat that transaction as void so as to give rise to any claim to an interest in the property by way of an institutional constructive trust.

[34]              Accordingly, I find that Ms Katu does not have a caveatable interest in the property, either under her initial caveat as lodged, or on the alternative basis she contends for in her application under s 146. As she does not have a caveat under either basis, I dismiss her application. That means that the caveat must be removed from the title.

[35]              Mr Seth is entitled to costs on a 2B basis. I trust that counsel will be able to resolve the question of costs themselves. If they cannot, memoranda may be filed.

…………………………………….

Associate Judge R M Bell