Keemati Ltd v QNZ Ltd

[2020] NZHC 299

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-002341

[2020] NZHC 299

UNDER

Sections 138 and 143 of the Land Transfer Act 2017 and Part 19 of the High Court Rules 2016

BETWEEN

KEEMATI LIMITED

Applicant

AND

QNZ LIMITED

Respondent

Hearing:

11 February 2020

Appearances:

S R Carey for Applicant

L L Fraser and W M Cheyne for Respondent

Judgment:

27 February 2020

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 27 February 2020 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

KEEMATI LTD v QNZ LTD [2020] NZHC 299 [27 February 2020]

The application

[1]    This dispute concerns properties known as 33 Rashni Road, and 3 Skanda Crescent at Flat Bush (the properties). They are owned by QNZ Ltd (QNZ). Keemati Ltd (Keemati) seeks orders under s 143 Land Transfer Act 2017 that caveats it lodged against the properties not lapse. It claims a caveatable interest in the properties arising from an agreement between it and QNZ of 3 September 2018 by which QNZ was to transfer the properties to Keemati.

[2]QNZ opposes the application arguing:

(a)Keemati’s caveats inadequately describe its interest in the properties;

(b)Keemati has no interest in the properties that can support the caveats; and

(c)the Court should not sustain the caveats in the exercise of its discretion.

Background

[3]    QNZ is a property development company. QNZ has a wholly owned subsidiary called MR Civil Ltd (MR Civil). Mr Civil is a construction contractor. QNZ has engaged MR Civil on construction projects both on its own land and as a subcontractor. Tingsong Qiu (Mr Qiu) is the Chief Executive of QNZ and MR Civil.

[4]    Keemati is a project management company. Keemati Angurala (Mr Angurala) is its sole director and shareholder. Mr Angurala has a background in construction project management and civil engineering.

[5]    In August 2016, QNZ, then called Chimbusco International Ltd, employed Mr Angurala. Soon after Mr Angurala was made a director of MR Civil and he managed it construction projects.

[6]    In November 2017, 40% of the shares in MR Civil were transferred to Keemati. There is a dispute about whether the shares were given to Mr Angurala or were “on loan” to enhance his credibility with suppliers and subcontractors.

[7]    Under Mr Angurala’s management MR Civil was engaged on several construction projects including large developments at 114 and 217 Matua Road (the Matua Road projects).

[8]    Bad relations developed between Mr Angurala and Mr Qiu. Each attributes fault to the other. Mr Angurala and Mr Qiu had a meeting on 3 September 2018. The discussion concerned the basis upon which Mr Angurala would exit the business of MR Civil. Mr Angurala wrote down matters that had been agreed. I refer to these as the minutes. Mr Qiu was shown the minutes and he signed them. The minutes read  as follows:

MEETING WITH TIM

Restructure of Mr Civil Ltd

Take our workers from Mr Civil to Keemati Ltd

All project scope of 217 Matua Rd & 114 Matua Rd will be executed by Keemati Ltd under internal contract between Mr Civil and Keemati Ltd at the following points.

Mr Civil will deposit $400,00/- to Keemati Ltd’s account at first place

*New workers coming in at labour rate will be $25/hr min.

*Any other worker / employee employed by Keemati Ltd will be charged at the rate time sheet + 20% + GST

*Mr Civil will cover Keemati Ltd’s financial security of any kind & of any type

*Old workers moving to KL from MRC with three month’s salary plus weekly time sheet + 20% + GST

*All Machines will go to Mr Civil

*Lot 31 with house on it will go to Keemati with no cost to Keemati

*Lot 22 with house on it will go to Keemati @ $1.00 million

*CONST of Lot 31 & 22 will be managed & organised by Keemati

*Lot 27 will be constructed by Mr Civil & managed by Kee

*$250,000/-per annum as salary for first 6 weeks & Latter Keemati Ltd will invoice @ $250,000/12x2 every two weeks till 217 and 114 projects get 224C.

[9]    Keemati relies upon the clauses referring to the transfer of Lot 31 and Lot 22 to Keemati, as creating its interest in the properties. The references to Lot 31 and Lot 22 are to the properties.

[10]   The minutes are not a complete record of what was agreed at the 3 September meeting. It is now accepted that it was also agreed that Keemati was to give up its shares in MR Civil and Mr Angurala was to resign as a director. However, there is a dispute as to the terms upon which the shares would be transferred. Mr Angurala says that the properties were to be transferred in consideration for Keemati’s shares and upon titles becoming available. Mr Qiu says that QNZ was to pay nothing for the shares as they were always on loan to Keemati.

[11]   After the 3 September meeting Mr Qui had Keemati’s shares in MR Civil transferred to QNZ and Mr Angurala removed as a director. Mr Angurala says he protested about this at the time.

[12]   The relationship  between  Mr  Qiu  and  Mr  Angurala  did  not  improve.  Mr Angurala says Mr Qiu made it impossible for Keemati to complete the Matua Road projects. On 5 May 2019, Mr Angurala emailed the representatives of the developers and told them that Keemati was quitting the projects. Keemati stopped work. It has not returned to complete the projects. Mr Qiu’s evidence is QNZ has received notice from the developer of 217 Matua Road terminating its contract.

[13]   Keemati filed other proceedings for interim injunctive relief preventing QNZ from disposing of the properties, freezing orders in respect of machinery belonging to MR Civil and, unorthodoxly, an order that it be allowed to lodge a caveat over the properties (the related proceeding).  No orders were made on that application.  On  31 July 2019, Keemati lodged the caveats.

[14]   QNZ applied under s 143 Land Transfer Act 2017 to lapse the caveats leading Keemati to make this application. Interim orders were made on 4 November 2019 sustaining the caveats and the interim orders remain in place.

The legal principles

[15]   For the Court to sustain Keemati’s caveats it must show a reasonably arguable case in support of the interest it has claimed. An order for removal of the caveats will not be made unless it is clear the caveats cannot be maintained either because there was no valid ground for lodging them or because the ground upon which they were lodged no longer applies.1 The Court retains a discretion to remove the caveats if it is completely satisfied the removal will not prejudice the legitimate interests of Keemati.2 I highlight, because this case brings it into sharp relief, the relatively low threshold to obtain an order sustaining a caveat in comparison to the high threshold that applies where the Court is asked to remove a properly lodged caveat in the exercise of its discretion.

[16]   Applications of this kind are not generally suitable for finally resolving the rights of the parties, resolving disputed questions of fact or deciding disputed questions of law relating to the construction of contracts. In circumstances where there is conflict between the affidavits, the Court will generally prefer the evidence of the caveator.3

Basis for the caveats

[17]   A purchaser of land who is potentially entitled to specific performance has an equitable interest in that land capable of supporting a caveat.4 Keemati submits there is no dispute about the essential facts creating its interest in the properties. It says the undisputed facts are that there was a binding contract made on 3 September 2018 between QNZ and Keemati, by their authorised agents. Pursuant to this contract QNZ was to transfer the properties to Keemati for valuable consideration. Keemati therefore has an equitable interest as purchaser of the properties. Subject to the arguments advanced by QNZ, I accept that Keemati has made out a reasonably arguable case to the interest it claims in the properties on this basis.

1      Sims v Lowe [1988] 1 NZLR 656 (CA) at 659 – 660.

2      Philpott v Noble Investments Ltd [2015] NZCA 342 at [26].

3      Bethell v Rickard [2013] NZCA 68 at [22].

4      Neil Campbell Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at 22.

Is Keemati’s interest sufficiently described?

[18]   Every caveat must describe with enough certainty the nature of the estate or interest claimed by the caveator and how the estate or interest claimed is derived from the registered owner.5

[19]   QNZ argues that while the caveats allude to an agreement of 3 September 2018, they do not describe the nature of the interest derived from the agreement. The estate or interest claimed is an equitable interest as caveator which is circular because a caveat creates no estate or interest in land. It is also submitted that QNZ still does not understand the nature of the interest claimed by the caveats.

[20]   Zhong v Wang is authority that where the nature of the estate or interest claimed is clear from the information provided in the caveat, that estate or interest is stated “with sufficient certainty” even if it is not explicitly stated.6 What is important is that the registered proprietor and the Court understand the nature of the interest claimed and the basis of that claim.7

[21]   I will not unnecessarily lengthen this judgment by setting out the words used in the caveats to describe the estate and interest claimed by Keemati. The composition can be justly criticised as prolix. It is stated that Keemati and QNZ by their duly authorised representatives entered into an agreement on 3 September 2018 pursuant to which QNZ agreed to transfer each property to Keemati and that Keemati has an equitable interest in the land which is derived from the registered proprietor. The nature of Keemati’s claimed estate or interest and how that is derived from QNZ is sufficiently clear. The submission that QNZ does not understand the nature of the interest claimed is unsupported by evidence. This ground fails.

5      Land Transfer Act 2017, s 138 and Land Transfer Regulations 2018, reg 5 and Sch 2.

6      Zhong v Wang [2006] 5 NZ ConvC 194,308, [2006] 7 NZCPR 488 at [53]; Campbell, above n 4, at 50.

7      Zhong v Wang, above n 6, at [53].

Does Keemati have an estate or interest in the properties?

[22]   QNZ has not argued the caveats should lapse because the agreement recorded in the minutes has been cancelled. It is an argument that may have been available.8 I raised this with Counsel. Mr Carey correctly argued that the point was not taken by QNZ and that there was likely evidence not before the Court that had a bearing on it. I must therefore proceed on the basis that the agreement remains on foot.

[23]QNZ advances four submissions as follows:

(a)the only interest claimed under the caveats is an interest based on an entirely written agreement contained in the minutes, but that written agreement is incomplete;

(b)the agreement described by the caveats lacks any sense of commercial realism;

(c)where a caveator chooses to rely on one version of events in lodging its caveat, it cannot save the caveat by reference to additional material; and

(d)the agreement to transfer the properties was conditional upon Keemati completing the Matua Road projects. That condition has not been satisfied and has gone stale. It will no longer support an estate or interest in land.

The first three grounds

[24]   I deal with the first three grounds together as they are variations on a single theme. They concern the principle that where a caveator claims an estate or interest in land on one basis it cannot seek to justify the caveat on some different basis. If it does so the caveat will generally be held to be defective. I was referred to Colin Adams Ltd v Baker where it was held a caveator having chosen to indicate the basis of its

8      Bevin v Smith [1994] 3 NZLR 648 at 665 and see summary of relevant cases in Moeke v South Waikato District Council [2019] NZHC 2282 at [38] – [40].

claim was a letter of a particular date could not rely upon subsequent material to justify the caveat.9

[25]   Here, QNZ relies upon a change in evidence that Mr Angurala gave in the related proceeding and in this proceeding.  In affidavits in the related proceeding   Mr Angurala denied it was agreed at the 3 September meeting that Keemati would surrender its shares in MR Civil or that he would resign as a director. He maintained all that was agreed was recorded in the minutes. He now accepts that evidence is incorrect. QNZ’s argument is that it follows from this change of position that the caveats were necessarily lodged on a different basis than Keemati now advances and should not be sustained.

[26]   I do not accept this argument. This case is quite different from Colin Adams. In its caveats Keemati claims interests under an agreement of 3 September 2018 pursuant to which QNZ was to transfer the properties to it. The agreement is the minutes. Its position as to the source and the nature of its interests has not changed and is unaffected by Mr Angurala’s change of evidence. Keemati also does not seek to introduce additional written or oral material to save its caveats. There is no merit to these grounds.

The transfer of the properties was subject to a condition that is spent

[27]   A conditional agreement to acquire land may confer an equitable interest capable of sustaining a caveat,10 but the equitable interest is subject to defeasance if the contract is lawfully cancelled or there is a failure of condition.11

[28]   QNZ contends the properties were an incentive or bonus for the timely completion of the Matua Road projects and their transfer was conditional upon Keemati completing the projects. Until then QNZ could not be called upon to transfer the properties. Keemati has abandoned the Matua Road projects and will never complete them. Any interest Keemati had in the properties has been lost because the condition upon which its interest was dependant will never be fulfilled.

9      Colin Adams Ltd v Baker CA178/98, 5 May 1999.

10     Bevin v Smith, above n 8, at 665.

11     McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 (HC) at 619.

[29]   Keemati says the transfer of the properties was not conditional upon the completion of the Matua Road projects but entirely independent of it. On its view, its shares were the consideration for the properties which QNZ has received. The properties were to be transferred on the issue of titles and titles have issued.

[30]   QNZ offers very little to support its position. It relies on the minutes recording Keemati was to complete the Matua Road projects, but it was not explained why it follows from the words of the minutes that the transfer of the properties was necessarily dependent upon that occurring. Although headed “Restructure of MR Civil Ltd” the minutes deal mainly with the terms upon which Keemati would complete the Matua Road projects. The clauses dealing with the transfer of the properties are incongruent in that context. The relationship of those clauses to the other clauses in the minutes is unclear.

[31]   Keemati relies  upon  the  absence  of  the  condition  in  the  minutes  and  Mr Angurala’s evidence that Keemati’s shares were the consideration for the transfer of the properties and that it was agreed at the 3 September meeting that the properties would be transferred on the issue of titles, albeit this was not recorded.

[32]   Where the obligations of parties to a contract are not expressly stated the Court will seek to establish their intentions and to interpret the wording of the contract accordingly.12 The parties’ intentions are to be resolved by the application of the principles of construction of contracts. The approach taken to contractual interpretation is highly contextual.13 Where a contractual provision is capable of conflicting interpretations the Court must “be aware of … all the facts and circumstance known to and likely to be operating on the parties’ minds.”14 In this context, the Courts have had regard also to both pre-contractual negotiations and the subsequent conduct of the parties.

12     Jeremy Finn, Stephen Todd and Matthew Barber Burrows Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 276.

13     Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912.

14     Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19] and Bethell v Rickard, above n 3, at [30].

[33]   The parties’ positions are irreconcilable and reflect underlying disputes of fact. These will require resolution at trial to determine what the parties agreed or are to be taken objectively to have intended in relation to the transfer of the properties. It is to be remembered also that the minutes were drafted by a lay person during a meeting without the benefit of reflection or advice and are incomplete. The parties’ intentions are unlikely to be identified from the words of the minutes alone. To get a proper understanding of what was intended the totality of the parties’ dealings will need to be considered including, I would expect, their conduct following the 3 September meeting. I am therefore unable to accept this ground.

Should the Court use its discretion to refuse to sustain the caveats?

[34]   Where a caveator can properly establish an arguable basis for its caveat the Court will not exercise its discretion to refuse to sustain the caveat unless it can be completely satisfied the legitimate interests of the caveator will not be prejudiced. This might arise where the caveator can have no reasonable expectation of obtaining benefit from the continuance of the caveat by way of specific performance of an agreement granting the caveator’s interest.15

[35]   QNZ argues that specific performance is not available to Keemati and the caveats should be allowed to lapse. A plethora of reasons are advanced, but the main ones are that it is impossible for Keemati to perform its obligations and complete the Matua Road projects, the Court will be reluctant to order specific performance of contracts for personal services, and performance of the agreement would require continuing Court supervision.

[36]   Keemati argues that there are no exceptional circumstances justifying the exercise of the Court’s discretion to refuse to sustain the caveats and it is not the case that specific performance will not be granted. It submits QNZ is re-advancing the argument that its obligation to transfer the properties was conditional in a different guise. If the Court accepts that the caveats should not lapse on that ground it must follow that it cannot rely on the same argument to decide that a claim for specific

15 Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd  [1996] 2 NZLR 652 (CA) at 656. See also Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [23] and Rasier Developments Ltd v Trefoil Properties Ltd [2008] NZCA 73.

performance in a separate proceeding, on which the Court has heard, at best, limited evidence, could not possibly succeed.

[37]   On first analysis Keemati’s stance is unappealing. It wants specific performance requiring QNZ to transfer the properties when it will not complete the Matua Road projects. Its argument appears to offend principles that in seeking an order of specific performance a party must generally be ready and willing to perform its obligations16 and that specific performance will generally only be granted in respect of the whole of a contract.17

[38]   However, the question arises whether the trial Court might sever that part of the agreement relating to the transfer of the properties and order specific performance even if the balance of the agreement cannot be performed; that is, the Court could order partial enforcement in specie.   The argument would be that the agreement of   3 September is not an entire contract and is in fact two contracts; one concerned with the transfer of the properties and the other with the Matua Road projects. This is consistent with the case that Keemati presents.

[39]   There is authority that the Court may order specific performance of part only of a contract. 18 In Ogden v Fossick Turner LJ said:19

… the Court, when called upon specifically to perform part of an agreement the whole of which cannot be specifically performed, is bound to see that the part which cannot be specifically performed is independent of that which it is called upon to perform.

[40]   In Isaac Construction Co Ltd v McDonald the issue was whether a sub- purchaser of part of a block of land had an equitable interest capable of enforcement by specific performance against a subsequent purchaser of the whole of the land.20 The Court of Appeal said that this issue turned upon whether the sub-purchase agreement formed a severable part of the head contract capable of performance and

16     Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thomson Reuters, Wellington, 2011) at 371.

17     At 373. See also Landco Albany Ltd v Fu Hao Construction Ltd [2006] NZLR 174 at 181.

18     Ogden v Fossick (1862) 4 De GF & J 426, 45 ER 1249 and Lytton v Great Northern Railways Co

(1856) 2 K & J 394.

19     At 1252.

20     Isaac Construction Co Ltd v McDonald (1998) 3 NZ ConvC 192,707 (CA).

whether the subsequent purchaser took over the liabilities of the original purchaser. In relation to the first issue the Court said:21

It has long been clear law … it may be possible to construe a contract which contains several parts as being in effect several separate and distinct contracts so that the enforcement of one is independent of the others.

[41]   In Spry the authors argue that there is no basis in principle for a rule that Courts of equity will not order specific performance of only part of a contract. 22 They go on to state that specific performance will not be ordered against a defendant if by reason of the non-specific enforceability of an obligation of the plaintiff the order would operate unjustly.23 They conclude:24

Accordingly where it is sought to enforce in specie a part of a contract, it is necessary to examine carefully the relationship of that part to the other remaining obligations of the parties, and to establish the independence or dependence of that part upon performance of those other obligations, the extent of efficacy of other remedies, the degree of hardship to the parties that may be caused by a grant or refusal of relief, as the case may be, and the extent of the burden that the court may assume if enforcement is undertaken, as well as any other discretionary considerations that affect the balance of justice. In accordance with the foregoing analysis, specific performance of part of a contract is granted where appropriate.

[42]   It is difficult to see justification for the rigid application of a principle that only whole contracts will be amenable to specific performance where the part of the contract that a party seeks to specifically enforce is severable and this is not inconsistent with the intentions of the parties.25 Whether in this case the trial Court would order specific performance of QNZ’s obligation to transfer the properties to Keemati, leaving the parties free to pursue such other remedies as are available to them in respect of the non-completion of the Matua Road projects, is something I cannot determine. I accept it is possible that it may.  Before doing so the Court would need to undertake an analysis of all the circumstances of the case and to be satisfied that such a result is consistent with the intentions of the parties and not unjust. I am in no position to make any such analysis.

21     At 192,709 citing Hanbury and Maudsley Modern Equity (13th edn, 1989) at 671 and Wilkinson v Clements (1872) LR 8 Ch 96.

22     I C F Spry The Principles of Equitable Remedies (Lawbook Co, Sydney, 2014) at 113.

23     At 115.

24     At 117.

25     Donald Harris, David Campbell and Rodger Halson Remedies in Contract & Tort (2nd ed, Cambridge University Press, Cambridge, 2005) at 194.

[43]   This is not therefore a case where I can be completely satisfied that Keemati can have no reasonable and legitimate expectation of obtaining benefit from the continuance of its caveats. It is not an appropriate case for me to exercise the Court’s discretion and refuse to sustain the caveats.

Result

[44]   Keemati’s application is successful. I order that Caveat 11512264.1 lodged against Lot 22 on Deposited Plan 516479 Certificate of Title 805218, Land Registration District of North Auckland and Caveat 11512276.1 lodged against Lot 31 Deposited Plan 516479 Certificate of Title 805227, Land Registration District of North Auckland shall not lapse.

[45]   This order is conditional upon Keemati commencing within 21 days of the date of this judgment proceedings in a court of competent jurisdiction to uphold the interest claimed by its caveats. The proceeding is to be pursued with due diligence and I reserve leave for QNZ to apply further if it is not.

[46]   If counsel cannot agree on costs memoranda may be filed within 21 days and are to be no longer than 5 pages.

O G Paulsen Associate Judge

Solicitors:

Vinci Law, Auckland

Chapman Tripp, Auckland