Lee v Oceania P&D Limited
[2022] NZHC 3257
•6 December 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-001287
[2022] NZHC 3257
BETWEEN SEONG HEE LEE
Applicant
AND
OCEANIA P&D LIMITED
Respondent
Hearing: 9 November 2022 (with a further telephone conference on
23 November 2022, further written submissions on 25 November
2022 and 2 December 2022)Appearances:
L Ponniah for Applicant
J T Burley and K L Chiu for Respondent
Judgment:
6 December 2022
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 6 December 2022 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
LEE v OCEANIA P&D LTD [2022] NZHC 3257 [6 December 2022]
[1] Seong Hee Lee (Mr Lee) claims Ji Ho Ryu (Mr Ryu) and Mr Ryu’s wife, Eun Young Jung (Ms Jung), signed agreements to transfer a property at 51 Florence Avenue, Orewa (the Orewa property) to him if they failed to pay him a debt. He considers the promise confers upon him a caveatable interest in the Orewa property.
[2] On 29 April 2022, Mr Lee lodged a caveat over the title of the Orewa property. He claimed “the transfer of ownership” of the property under term loan agreements dated 26 March 2022 and 5 April 2022 which provided the Orewa property as “security for the purpose of the loan repayment in full”.
[3] The Orewa property is not owned by Mr Ryu or Ms Jung but by the respondent, Oceania P&D Ltd (Oceania). Mr Ryu is the sole director and shareholder of Oceania.
[4] Oceania applied to the Registrar-General of Land under s143(1)(b) of the Land Transfer Act 2017 to lapse the caveat, and Mr Lee now applies for an order sustaining it.
[5] Contrary to what is stated in the caveat, Mr Lee’s application initially asserted Oceania held the Orewa property for him pursuant to a resulting or constructive trust. Then, in an amended application filed the day before the hearing, he claimed it is held for him by virtue of a “bare trust, express or implied”. It is on this latter basis that Mr Lee now attempts to support the caveat.
[6] Oceania says that it was not a party to any of the documents relied upon by Mr Lee, that they do not confer upon Mr Lee any interest in the Orewa property, and that the documents were all signed under duress.
[7] There are particular factual disputes between the parties that are unsuitable for resolution on a proceeding of this type, but the issues I have to decide do not engage with those factual disputes. The principal issues are the following:
(a)Does Mr Lee’s caveat provide the particulars required by s 138 of the Land Transfer Act 2017 and reg 5 and sch 2 of the Land Transfer Regulations 2018; and
(b)Has Mr Lee satisfied the Court he has a reasonably arguable case for a beneficial interest in the Orewa property under a “bare trust, express or implied”.
(c)What are the consequences of my findings on (a) and (b) above.
Background
[8] On or around 16 November 2021, Mr Ryu and Mr Lee entered into a written agreement pursuant to which Mr Lee agreed to purchase from Mr Ryu 800 shares in Max Fortuna 3 Ltd for $600,000 with settlement on 19 November 2021 or as varied by mutual agreement. There is a conflict in the evidence as to why Mr Lee and Mr Ryu entered into this agreement but that is not material to this application.
[9] Mr Lee obtained a loan from ANZ Bank for $600,000 but says he needed the money for other transactions and instructed his solicitors the share purchase was not proceeding. However, the $600,000 was paid to Mr Ryu, and the shares were transferred into Mr Lee’s name. The transfer was registered at the Companies Office on 14 December 2021.
[10] Mr Lee describes the attempts he made to recover the $600,000 from Mr Ryu and Ms Jung. He says that Mr Ryu and Ms Jung signed several documents in the Korean language promising to repay the money, and they agreed to transfer properties and businesses to him in the event they did not do so.
[11] Mr Ryu says that he signed the documents under duress due to threats made by Mr Lee to harm him, his family and property. Ms Jung provides corroboration for this and says that between 22 March 2022 and 22 April 2022, Mr Lee and his wife harassed and made death threats to Mr Ryu and Ms Jung on an almost daily basis which they reported to the Police. I need say nothing more about these allegations as they are denied by Mr Lee and cannot be resolved on a summary application of this kind, nor am I required to do so to determine this application.
[12] The first of the documents was signed by Ms Jung on 19 November 2021, very shortly after the $600,000 payment had been made. It appears Ms Jung was called to the home of Mr Lee and his wife, Ms Park, and, while there, signed a document that reads:
Note of Cash Receipt
I (Eun Young Jung) will make a deposit of $600,000.00, which was generated from using Mi Yeon Park and Seong Hee Lee’s house as collateral, into Mi Yeon Park’s account by 01 February 2022. If (I) fail to do so, (I) will be legal responsible.
Eun Young Jung: […]
19/Nov/2021 (signed) 25/03/2022 Ji Ho Ryu (signed) 1
[…]
[13]The money was not repaid by 1 February 2022.
[14] On or around 23 March 2022, Mr Lee was called upon to settle the purchase of a property at the Great North Road which he could not do. Mr Lee claims that because Mr Ryu did not repay the money he forfeited his deposit. There were meetings between the parties at around this time, and Mr Ryu agreed to accept the return of the shares and repay the $600,000, although Mr Ryu says it was explained this would take some time. Mr Ryu arranged to have the shares transferred back into his name on 24 March 2022.
[15] On 25 March 2022, Mr Lee says Mr Ryu and Ms Jung signed a document promising to pay the $600,000 by 30 March 2022, failing which ownership of a property at Papakura would be transferred to him. The document reads:
Certificate of Confirmation
Name in full: Ji Ho Ryu, Eun Young Jung Passport No: […] […]
We, the persons named above, are to repay the debt of NZD600,000.00 to Mr Seong Hee Lee by 10AM on 30 March 2022 and (we) confirm and promise to transfer our ownership of the land (at 44 East Street Papakura with the
1 This document was also signed by Mr Ryu but not until 25 March 2022 when he says he first became aware of it.
mortgage of 1.75 million, currently valued at 3.0 Million + GST) to Seong Hee Lee, in the case of failing to do so.
25 March 2022
Ji Ho Ryu (Signed)Eu Young Jung (Signed)
[16] Mr Lee says that on 26 March 2022, Mr Ryu proposed that the $600,000 debt “become a loan” repayable on 30 March 2022. Mr Ryu would also pay interest, and instead of the Papakura property, Mr Ryu would transfer the Orewa property to Mr Lee in full and final settlement if the loan was not repaid by 30 March 2022. Mr Lee says Mr Ryu explained he had authority to make this agreement on behalf of Oceania and that Mr Ryu drafted and signed the following document.
Certificate of Confirmation
Name in full: Ji Ho Ryu
Passport No: […]
I, the person named above, promise to transfer the ownership of my property (at 51 Florence Ave, Orewa), in the case of failing to repay the debt of NZD600,000.00 to Mr Seong Hee Lee by 10AM on 30 March 2022. If this promise fails to be kept, twenty thousand dollars are to be paid per day for the interest.
26 March 2022
Ji Ho Ryu (Signed)
Debtor Seong Hee Lee (Signed)
[17] The $600,000 was not paid on 30 March 2022. Mr Lee says on 1 April 2022 he requested the transfer of the Orewa property, but Mr Ryu asked him to “hold on” as he was still trying to repay the money.
[18] Mr Lee then describes how several further documents were provided by Mr Ryu on 5 April 2022 and 9 April 2022 as follows:
Pledge
Name in full: Ji Ho Ryu […] Company Name: Max Fortuna 3 Ltd
I, the person named above, acknowledge the debt of NZD600,000.00 to Mr Seong Hee Lee.
To prepare for the event where the debt may not be repaid, I, as the above- named person, promise and confirm that the ownership of the two laundromats (located in [Beach Haven, Manurewa]), owned by Max Fortuna 3 will be transferred to Seong Hee Lee and Mi Yeon Park (in the case of failing to repay the debt).
05 April 2022
Ji Ho Ryu (Signed) Seong Hee Lee (Signed)
Pledge of Interest payment
Name in full: Ji Ho Ryu […]
I, the person named above, promise to take over the financial interest on NZD600,000.00 accrued to Mr Seong Hee Lee as a debtor on his behalf. NZD3,000.00 is to be paid every month and the refund will be made later for the overpaid portion after reconciliation.
05 April 2022
Ji Ho Ryu (Signed) Seong Hee Lee
Pledge
Name in full: Ji Ho Ryu
I, the person named above, confirm and promise to pay Seong Hee Lee as a matter of priority when Eun Young Jung deposits from Korea into either Ji Ho Ryu’s personal account or the company account (Oceania P n D) in New Zealand.
If failed to do so, (I) confirm and promise to bear any legal responsibility.
09 April 2022
Ji Ho Ryu (Signed) Eun Young Jung
Seong Hee Lee (Signed)
Pledge
Name in full: Ji Ho Ryu Director of Oceania P n D Company Name: Max Fortuna 3 Ltd
I, the person named above, will repay the debt of NZD600,000.00 to Mr Seong Hee Lee by 20 April 2022.
If Eu Young Jung acquires money, the repayment will be made immediately as a matter of priority as soon as the money is deposited into Ji Ho Ryu’s personal account or the company account. In addition to that, all assets (Orewa and Papakura properties and laundromat business) will be made
available to be sold by Seong Hee Lee. If failed to do so, (I) confirm and promise to bear any legal responsibility.
09 April 2022
Ji Ho Ryu (Signed) Eun Young Jung
Seong Hee Lee (Signed)
[19] The $600,000 remained unpaid and Mr Lee applied to lodge a caveat over the Orewa property but withdrew that dealing to allow a refinancing of the property. Mr Lee says there was agreement with Mr Ryu that he could lodge another caveat, but Mr Ryu disagrees. However, on 8 April 2022, a payment of $50,000 was made to Ms Park’s solicitors and receipted into their trust account on 9 April 2022.
[20] On 29 April 2022, Mr Lee lodged his caveat against the title of the Orewa property. This is the caveat now in issue.
[21] On or around 12 July 2022, Mr Lee received notice from the Registrar-General of Land that Oceania had applied to lapse the caveat, and this application followed.
[22] Mr Lee’s application to sustain the caveat claimed an interest in the Orewa property by way of either a resulting and/or constructive trust. The day before the hearing, he filed an amended application claiming that his interest in the property was pursuant to a bare trust, express or implied.
Procedural issues
[23] Oceania has raised objections to the manner in which Mr Lee’s case has been presented. The first relates to the affidavits of Mr Lee and Ms Park which Oceania submits should not be read.
[24] Oceania complains that Mr Lee and Ms Park have acknowledged that English is not their first language, yet they have filed affidavits in English and these affidavits, including exhibits in the Korean language which are central to Mr Lee’s case, have not been translated by an interpreter and were filed in breach of r 1.15 of the High Court Rules. Oceania also says the affidavits contain objectionable and inadmissible evidence.
[25] In response, Mr Lee’s counsel, Mr Ponniah, complains about Oceania’s delay in raising this objection until shortly before the hearing, submits there has been no breach of the requirements of r 1.15 and that to the extent the affidavits contain inadmissible evidence, it can be ignored.
[26] I do not accept Oceania’s submission that the affidavits of Mr Lee and Ms Park should not be read. There are certainly aspects of the affidavits that are unsatisfactory. It is not explained, for instance, why the lawyer taking Mr Lee’s affidavit felt it necessary to note that the affidavit had been “explained” to him in Korean. However, Mr Ponniah advises me that Mr Lee has lived in New Zealand for many years and is a competent English language speaker. Ms Park’s affidavit concerns matters that are not determinative of this application. Further, insofar as there is concern about the translations of documents in the Korean language exhibited to Mr Lee’s affidavit, Oceania has, in compliance with r 1.15, filed an interpreter’s affidavit with translations of those documents. It is accepted that I can rely upon them as accurate translations. To the extent the affidavits contain objectionable or inadmissible material, it can be disregarded as Mr Ponniah has suggested.
[27] Oceania also objects to the late filing of Mr Lee’s amended application asserting an interest in the Orewa property on a new basis. Mr Burley argued that this is, in effect, a new application and is fatal to Mr Lee’s position. He points out that Mr Lee obtained an interim order sustaining the caveat asserting a different estate or interest than is now the case. He submits that if the original application is now superseded by an amended application advancing new grounds, the interim order should lapse and the amended application is out of time for the purposes of s 143(3) of the Land Transfer Act.
[28] I do not accept Mr Burley’s resourceful argument. In my experience it is not unusual for parties to amend the grounds relied upon in applications utilising the originating application procedure. While the amended application was filed on the eve of the hearing and rendered much of counsels’ written submissions redundant, Mr Burley advised me that he was able to proceed with argument on the basis of the amended application. In light of Mr Burley’s advice, I do not see there is any prejudice
to Oceania that cannot be compensated in costs and consider the amended application is best dealt with on its merits. The amendment is allowed.
Caveat principles
[29] The relevant principles that apply to an application of this kind were summarised in Philpott v Noble Investments Ltd as follows:2
(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b)It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained – either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and
(d)When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.
(footnotes omitted)
[30]To these principles, I would add:
(a)Where there is a conflict between the affidavits the Court will generally prefer the evidence of the caveator, however the Court is not bound to accept uncritically statements made in affidavits that are equivocal and lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable.3
(b)The Court will not finally determine the rights of the parties unless both consent or the facts are not in dispute and the law has been fully argued.4
2 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]; and Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813.
3 Luo v Jin [2021] NZHC 709 at [21]. See also Macrae v Rapana HC Auckland M633/94, 17 June 1994.
4 Neil Campbell Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at [10.020(a)].
Does Mr Lee’s caveat provide the particulars required by s 138 of the Land Transfer Act 2017 and reg 5 and sch 2 of the Land Transfer Regulations 2018
The particulars required
[31] The power to lodge a caveat arises from s 138 of the Land Transfer Act 2017. It provides as follows:
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.
(2)A caveat against dealings document must be executed by the caveator or the caveator's agent.
(3)A caveat against dealings document must contain the prescribed information.
[32] Section 138(3) requires a caveat to contain the prescribed information. This information is set out in reg 5 and sch 2 of the Land Transfer Regulations 2018. The regulations provide the caveat must contain the core information in reg 5(2) and the following additional information in sch 2:
A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) or, for a caveat under section 138(1)(d)(ii) of the Act, the matters that establish that there is a risk that the estate or interest may be lost through fraud
Details of how the estate or interest claimed is derived from the registered owner
[33] Different views have been taken by the Courts as to how strictly to apply the requirement to state the nature of a caveator’s claimed estate or interest and details of how that interest is derived from the registered proprietor.5
5 See Neil Campbell, above n 4, at [10.013(a)] and discussion in Luo v Jin, above n 3, at [25]-[32].
[34] The leading case is Zhong v Wang, where the caveator, Mr Zhong, claimed “a beneficial interest in the land … as cestui que trust of which the registered proprietor, Jia Yi Wang, is trustee”.6 The respondent argued that the interests claimed in the caveats were not sufficiently particularised. The Court of Appeal did not agree. It considered the underlying purpose of the caveat regime could be undermined if too strict an approach were taken to the detail required to describe the interest claimed and its derivation from the registered proprietor.7 The Court considered what was important was “that the registered proprietor and the Court understand the nature of the interest claimed and the basis of that claim”.8
[35]Importantly the Court also held that:
[54] As a general rule … it is sufficient to identify the form of trust alleged. While it would have been preferable for Mr Zhong’s caveats to refer expressly to a resulting or constructive trust, there can be no doubt that an interest of the type to which s 137(1)(a) refers was claimed. In our view, the caveats complied with s 137(2)(b).
[36] The Court also held that the caveat before it provided sufficient details of how the interest claimed was derived from the registered proprietor as follows:
[55] … There was a clear link between the named trustee (Mr Wang) and the registered proprietors, of which he was one. The caveats made it clear that the interest was derived from Mr Wang’s involvement with Mr Zhong. The nature of the involvement would have been self-evident to Mr Wang.
[56] …
[57] It is unnecessary to require a caveator to explain the precise basis from which the interest qua beneficiary arises. Section 137(2)(c) applies to all types of interests that give rise to a caveatable interest. The derivation of those claimed interests may need greater explanation in some cases than in others. In this case a linkage between the claimed interest and Mr Wang suffices.
The interests claimed in the caveat and the applications
[37] I turn now to consider the estate or interest that Mr Lee claims to have in the Orewa property.
6 Zhong v Wang (2006) 5 NZConvC 194,308 (CA) at [21].
7 Zhong v Wang, above n 6, at [58].
8 At [53].
[38] In the caveat, Mr Lee claims that under “term loan agreements” the Orewa property is provided as security for “the loan repayment”. It reads:
Estate or Interest claimed
Interests including the transfer of the ownership in favour of the Caveator in terms of the term loan agreements dated 26 March 2022 and 5 April 2022, being provided as security for the purpose of the loan repayment in full, between the Registered Proprietor and his wife. Eun Young JUNG as the Debtor and the Caveator as the Lender.
[39] In his original application to sustain the caveat, Mr Lee asserted that his interest in the Orewa property was by virtue of a resulting and/or constructive trust, as follows:
... by virtue of an implied trust being either a resulting and/or constructive trust pursuant to a verbal agreement dated 26 March 2022 with the respondent via its director Ji Ho Ryu to transfer the caveated property to the Applicant in consideration for a debt of $600,000, and pursuant to documents in Korean dated 26 March 2022 and 9 April 2022.
[40] It will be observed that Mr Lee no longer relied upon term loan agreements or that the Orewa property was provided as security for a loan repayment. Rather, he referred to a verbal agreement with Oceania, by its director Mr Ryu, to transfer the property to him in consideration for a debt of $600,000, and “documents” dated 26 March 2022 and 9 April 2002 (but not to a document dated 5 April 2022 as in the caveat).
[41] Mr Lee’s amended application claims a different interest again in the Orewa property as follows:
…by virtue of a bare trust, express or implied, pursuant to a verbal agreement with the respondent via its director Ji Hyo Ryu to transfer the caveated property to the Applicant, in consideration for a debt of $600,000 … and signed documents in Korean dated 26 March 2022 and 9 April 2022.
[42] Mr Lee no longer claims Oceania holds the property for him pursuant to a resulting and/or constructive trust but pursuant to a bare trust, express or implied.
[43] I note that in written submissions filed following the hearing, Mr Ponniah appears to advance yet a further basis upon which Mr Lee has a caveatable interest; that is, pursuant to “a specifically enforceable agreement for the transfer for valuable consideration, of a proprietary interest in the land”.
Mr Lee’s submissions
[44] Euphemistically, Mr Ponniah submits the wording of the caveat is “not perfect” but says it does not have to be. He argues that it adequately conveys the “essence” of the interest claimed which, he says, is an agreement to transfer the Orewa property to Mr Lee. He asserts it would have been “self-evident” to Oceania that this was the interest claimed and that, upon reading the caveat, it would recall the promise to transfer the property under the particular written documents referred to in the caveat.
[45] In support of his submission, Mr Ponniah referred me to Patel v GBCD Property Ltd which concerned an application to sustain a caveat lodged over the titles of several properties.9 The registered proprietor, GBCD, argued the caveat was defective on several grounds, including that the interest claimed in the caveat and before the Court were not the same and the interest claimed was not derived from GBCD. In respect of the first matter, the caveat recorded the interest claimed as being a beneficial interest in the properties pursuant to a joint venture agreement between the caveator and GBCD, whereas before the Court the interest was described as being by way of a resulting or constructive trust arising in the context of a joint venture agreement between the parties. In respect of the second matter, it was argued GBCD was not a party to any joint venture agreement and the caveator’s claimed interest could not be derived from it.
[46] Associate Judge Taylor held it would have been self-evident from the caveat that the beneficial interest claimed by the caveator arose out of the allegation that GBCD held the properties as trustee for the joint venture parties, including the caveator. He also held that, despite GBCD not being a party to the joint venture agreement, there was a “sufficient link” to GBCD as registered owner by reason of the claim by the caveator that GBCD was holding the properties as trustee for the joint venture parties.10 Therefore, the Judge considered the caveat sufficiently described the caveatable interest claimed.
9 Patel v GBCD Property Ltd [2022] NZHC 931.
10 At [84].
My analysis
[47] I do not accept Mr Ponniah’s submission that the caveat adequately conveys the interest Mr Lee claims to have in the property. While the caveat refers to “the transfer of the ownership in favour of the Caveator”, that is not the interest that is being claimed in the caveat, nor is it the interest that is now claimed in this proceeding.
[48] The interest asserted in the caveat is that the Orewa property was provided by way of security under term loan agreements dated 26 March 2022 and 5 April 2022. However, Mr Lee no longer claims an interest under term loan agreements or that the Orewa property was provided as security, nor is there reliance placed on an agreement of 5 April 2022. In this proceeding, Mr Lee has previously asserted the Orewa property was held by way of a resulting and/or constructive trust. He now asserts his interest arises from a bare trust.
[49] While Mr Ponniah argues that, consistent with Zhong v Wang, the Court should take a flexible approach to the detail required to be included in a caveat, I do not consider the principles in Zhong v Wang are engaged to such an effect in this case. There, the caveator claimed an interest as cestui que trust of which the registered proprietor was the trustee. The question for the Court was whether it was necessary for the caveator to explain “the precise basis from which the interest qua beneficiary arose”.11 Importantly, there was no change in the interest claimed by the caveator. Here, I am not concerned with the question of the descriptive detail of Mr Lee’s interest. The issue concerns the substance of the interest claimed and the fact that the interest claimed in the caveat and the application to sustain it are completely different.
[50] I also do not accept Mr Ponniah’s submission that the interest that Mr Lee claimed would be self-evident from the caveat. The caveat asserts the property has been provided as “security” for loan repayment under term loan agreements. There is no mention of a trust (express, resulting, constructive, or otherwise), nor any circumstances alleged from which the existence of a trust relationship could be inferred. Also, in the caveat there is reliance upon an agreement of 5 April 2022 but now a different agreement of 9 April 2022 is relied upon.
11 Zhong v Wang, above n 6, at [57].
[51] The approach adopted in Zhong v Wang is not “a careless conveyancer’s charter”.12 The cases establish that a caveator cannot lodge a caveat asserting an estate or interest in land on one basis and then seek to stave off a challenge to the caveat claiming a different interest or estate. Campbell on Caveats puts the matter this way:13
Where the caveator claims a particular estate or interest but, on a challenge to the validity of the caveat, the caveator is found to have a quite different estate or interest, the caveat will be held to be defective.
[52] In Ball v Fawcett,14 the caveator claimed in the caveat an interest in land pursuant to an agreement, but sought to sustain the caveat in his pleadings on the basis that his interest was pursuant to a constructive trust arising from a de facto relationship and reasonable expectations. The application that that caveat not lapse was declined on this basis.
[53] In Francis v Tarradale West End Ltd, a caveator claimed an interest in land arising under an agreement for sale and purchase.15 The caveat was challenged and an application made to sustain it. When the matter came on for hearing it was accepted the agreement had been cancelled and the applicant chose not to proceed with the application. Master Faire nonetheless issued a judgment stating:16
Having regard to s 138 of the Land Transfer Act 1952 and Regulation 24 of the Land Transfer Regulations 1966, the caveat must state the nature of the estate or interest claimed by the caveator. If the basis for claiming the caveat is changed then it complies neither with the Statute nor the Regulation and therefore should not be extended …
[54] As to Patel v GBCD Ltd, I am unable to agree with the Associate Judge’s conclusions in that case. In my view the caveat in question did not provide adequate particulars of the interest claimed. Further, that such interest was said to arise under an agreement the registered proprietor was not in fact a party to was, in my view, fatal to the caveator’s position.
12 Neil Campbell, above n 4, at [10.013(a)], referring to Buddle v Russell [1984] 1 NZLR 537 (HC), which was followed in Zhong v Wang, above n 6.
13 Neil Campbell, above n 4, at [10.013(e)], referring to Francis v Taradale West End Ltd (1998) 3 NZ ConvC 192,762; Joy v Roskam HC Hamilton CIV-2003-419-331, 12 June 2003 and Athena Professional Trustees Ltd v Foundation Custodians Ltd (2009) 11 NZCPR 239 (HC). See also Ball v Fawcett [1997] 1 NZLR 743 (HC).
14 Ball v Fawcett, above n 13.
15 Francis v Taradale West End Ltd, above n 13.
16 At 192,766.
[55] It follows that Mr Lee’s caveat is defective as it did not provide sufficient particulars of the estate or interest that he now claims to have in the Orewa property. I address the implications of this finding at the end of the judgment.
[56] As a further matter, there is a case, in my view, that the caveat does not detail how the estate or interest claimed by Mr Lee is derived from the registered proprietor. While there is reference in the caveat to the “Registered Proprietor and his wife Eun Young JUNG” that can only have been understood as a reference to Mr Ryu and not Oceania.
Has Mr Lee satisfied the Court he has a reasonably arguable case for a beneficial interest in the Orewa property under a “bare trust, express or implied”
Mr Lee’s case for a trust
[57] Mr Lee’s case is that the documents dated 26 March 2022 and 9 April 2022 and verbal discussions between Mr Lee and Mr Ryu, created a “bare trust, express or implied” concerning the Orewa Property in favour of Mr Lee. The argument presented was that Mr Lee’s interest as beneficiary of the trust “crystalised” upon non-payment of the debt in accordance with the 26 March 2022 document, and from that point Oceania held the property as trustee for the sole purpose of transferring it to Mr Lee.
[58] I understand what is being alleged is that there was an express bare trust in favour of Mr Lee, and the existence of the trust is to be inferred from the words and conduct of the parties. The word “implied” is used in the sense described by the authors of Garrow and Kelly: Law of Trusts and Trustees as:17
“Implied” can mean the trust is to be inferred from the language or conduct of the parties. Thus, “implied” is equivalent to “imperfectly expressed”. An implied trust in that sense would mean that although the trust was not directly expressed it was to be inferred from the words or conduct of the parties. However, wherever a trust can be inferred from the words or conduct of the parties, the trust is really an express or declared trust. The only difference between a trust explicitly set out in definite and clear language and one in which the language is doubtful (or in which the trust has to be inferred from
17 Chris Kelly and others Garrow and Kelly: Law of Trusts and Trustees (8th ed, LexisNexis, Wellington, 2022) at [2.24(a)].
conduct) is that in the latter case there needs to be evidence available to indicate the parties’ intentions.
[59] Mr Lee has not established an arguable case the Orewa property is held by Oceania on a bare trust for his benefit because:
(a)there was no intention to create a trust in his favour;
(b)there is no record in writing signed by Oceania creating a trust in Mr Lee’s favour as required by s 25 of the Property Law Act 2007.
Creation of an express trust
[60] Section 12 of the Trusts Act 2019 defines an express trust by reference to other sections in the Act which are concerned with the characteristics and legal requirements for the creation of express trusts. It provides:
12 Meaning of express trust
For the purposes of this Act, an express trust means a trust that
-
--
(a) has each of the characteristics set out in section 13; and
(b) complies with section 14; and
(c) is created in accordance with section 15.
[61]Section 13 provides the characteristics of an express trust as follows:
13 Characteristics of express trust
The characteristics of an express trust are as follows:
(a) it is a fiduciary relationship in which a trustee holds or deals with trust property for the benefit of the beneficiaries or for a permitted purpose; and
(b) the trustee is accountable for the way the trustee carries out the duties imposed on the trustee by law.
[62] Section 15 of the Act provides the formalities that must be satisfied to create a valid express trust, commonly referred to as the three certainties, that is certainty of intention, subject matter and objects. It provides:
15 Creation of express trust
(1)An express trust may be created
---
(a) by or under an enactment; or
(b) by a person (the settlor) who, clearly and with reasonable certainty (and subject to any formalities prescribed by any enactment)
---
(i)indicates an intention to create a trust; and
(ii)identifies the beneficiaries (or classes of beneficiaries) or the permitted purpose of the trust; and
(iii)identifies the trust property.
(2)A trust created under subsection (1) commences when a trustee holds property of the trust.
[63] Important also is 25 of the Property Law Act 2007. Section 25(2) states that a trust must be created in writing and signed by the settlor if (a) it relates to land and (b) it is to take effect in the lifetime of the settlor – that is, land subject to an inter vivos trust.
[64]I set out s 25 of the Property Law Act below:
25 Writing required for certain dispositions of interests in land
(1)A disposition of any of the following must be in writing and signed by the person making the disposition:
(a) an existing interest in land acquired by taking possession of the land:
(b) an existing legal or equitable interest in land:
(c) an existing equitable interest in a mixed fund consisting partly of land and partly of other property.
(2)A trust must be created in writing and signed by the settlor if
---
(a) it relates to land; and
(b) it is to take effect in the lifetime of the settlor.
(3)This section does not apply to a short-term lease.
(4)This section does not affect---
(a) the creation or operation of a resulting, implied, or constructive trust; or
(b) the making or operation of a will; or
(c) the disposition of any interest in land by operation of law.
Intention to create a trust
[65]In Robertson v Official Assignee, the Court of Appeal observed:18
[19] The relevant legal principles are settled. An express trust can be created in two different ways. The conventional means is by one party transferring property to another as trustee: Dal Pont & Chalmers, Equity & Trusts in Australia (4ed 2006) at 490. The other is by the owner declaring a trust over the property, which will be effective and binding in law providing there is certainty of intention, subject matter and objects. The Court must be satisfied also that a present irrevocable declaration of trust has been made. While express words of declaration are unnecessary, the settlor must use words having the equivalent meaning: Pettit Equity and the Law of Trusts (10ed 2005) at 102.
[66] Garrow and Kelly: Law of Trusts and Trustees notes a trust may be created by any language that is clear enough to show an intention to create it. Equity will look at the substance, not simply at the form, of any purported trust. No special technical words are required but the intention must be clear, because a Court cannot hold that a trust exists unless it is satisfied that a trust was intended.19
[67] Intention to create a trust may, however, be inferred by conduct,20 but there will be no trust where the evidence shows an intention to engage in any other sort of
18 Robertson v Official Assignee [2008] NZCA 500, (2008) 2 NZTR 18-022.
19 Chris Kelly and others, above n 17, at [4.4].
20 Juliet Chevalier-Watts and Durgeshree Raman Equity, Trusts and Succession (2nd ed, Thomson Reuters, Wellington, 2022) at 55.
transfer, for example, by way of gift.21 Geraint Thomas and Alastair Hudson in The Law of Trusts say:22
The law requires that the donor should have evinced by acts which admit of no other interpretation, that he himself had ceased to be, and that some other person had become, the beneficial owner of the subject of the gift or transfer, and that such legal right to it, if any, as he retained was held by him in trust for the donee.
[68] Robertson v Official Assignee is a useful example of the application of these principles. Mr Fisher, his wife and accountant were trustees of a trust. The trustees signed a resolution recording their agreement to transfer to the trust the proceeds of sale of shares held in Mr Fisher’s name. Mr Fisher subsequently became bankrupt and the Official Assignee challenged the transaction. Neither the High Court nor the Court of Appeal was satisfied that Mr Fisher had made an irrevocable declaration of trust. He had signed the resolution as a trustee and not in his personal capacity as owner of the shares and therefore there was no declaration of trust to constitute a valid gift. The Court said:23
[20] In our judgment Mr Walker’s submission that the resolution constituted a declaration of trust must fail. The resolution was made with two other resolutions at a meeting of trustees of the Trust, which were signed by the Fishers and Mr Robertson in their capacity as trustees. The resolution says that it is agreed that any shares owned by Mr and Mrs Fisher would remain in their names – that is, they would retain legal ownership – but they would be held in trust for the Trust. In the circumstances, we are not satisfied that Mr Fisher made an irrevocable declaration of trust, in particular because he made the resolution as a trustee of the Trust not in his personal capacity as owner of the shares.
[21] We consider that, at best, Mr Fisher was doing no more than indicating what was proposed in terms of future arrangements for the shares. It remained for him to do or say something in his personal capacity as owner of the shares to make an irrevocable declaration of trust. We regard this is more than simply a matter of form. It follows that Mr Fisher retained both the legal and beneficial interest in the 10,000 shares in Blenheim Finance Ltd.
21 Jones v Lock (1985) LR 1 Ch App 25 (CA in Ch).
22 Geraint Thomas and Alastair Hudson The Law of Trusts (2nd ed, Oxford University Press, Oxford, 2009) at [2.03] (footnote omitted).
23 Robertson v Official Assignee, above n 18.
The absence of an intention to create a trust in this case
[69] Mr Lee faces the immediate difficulty that the case he now presents is incongruous with his caveat and the position he pursued in this proceeding until the day before the hearing. His caveat makes no reference to a trust but claims the property was security for term loans. His initial application to sustain his caveat alleged a resulting and/or constructive trust, not an express trust.
[70] In his evidence, Mr Lee repeatedly refers to being owed a debt of $600,000 or to this sum being a loan. At para [24] of his evidence, which relates to the circumstances under which the 26 March 2022 document was signed, Mr Lee said that it was agreed the $600,000 debt would become a “loan repayable on 30 March 2022”. He says that in addition, Mr Ryu agreed on behalf of Oceania to transfer the property to him “in full settlement of the $600,000 debt” if it was not paid by 30 March 2022.
[71] As Mr Lee’s evidence makes clear, the relationship between him and Mr Ryu was not a fiduciary one based on assumed trust, confidence and loyalty,24 but one of debtor and creditor. The agreement to transfer the Orewa property was the mechanism by which the debt was to be satisfied if not paid on the due date. None of that suggests an intention on the part of Oceania, or Mr Ryu on its behalf, to create an express trust in favour of Mr Lee.
[72] The 26 March 2022 document is consistent with the existence of the relationship of debtor and creditor. It refers to the “debt of NZD600,000” owed to Mr Lee and Mr Ryu’s obligation to repay the debt. Further, and inconsistent with a trust relationship, Mr Ryu agrees to pay $20,000 per day “for the interest” if the debt was unpaid on due date.
[73] Mr Ponniah attempted to find support for Mr Lee’s case in the document of 9 April 2022 which purports to confer on Mr Lee the power to sell the Orewa property along with other assets of Mr Ryu and Ms Jung. If the property was held upon trust for Mr Lee he had a right to call for it to be transferred to him, but that is not what the document provides. The 9 April 2022 document again refers to the existence of a debt.
24 Trusts Act 2019, s 13.
The conferral of a power of sale is consistent with the proceeds being the source of payment of the debt.
[74] While Mr Lee’s amended application refers to a verbal agreement with Mr Ryu to transfer the property, in neither of his affidavits does he give any evidence that Mr Ryu expressed an intention on the part of Oceania to create a trust in his favour, or of circumstances from which such an intention could be inferred.
[75] Mr Ponniah referred me to the case of Hu v Zheng25 where Associate Judge Abbott sustained a caveat on the basis that the applicants had an arguable case for claiming a beneficial interest under an express oral trust despite there being no evidence of anything said by the respondent to the effect that he held the property in trust for the applicants. That case is very different from this one. The Judge was mindful that the dealings between the parties occurred within a family context, and given the circumstances facing the family at the time of the transfer to the respondent, he could not discount the possibility the respondent was aware of the applicants’ interest and accepted the transfer of the property on that basis.
[76] Here, the dealings between the parties did not take place in a family context but a commercial one, the relationship was one of debtor and creditor, no words used in the documents that Mr Lee relies upon show a clear intention on the part of Oceania (or Mr Ryu on its behalf) to create a trust, nor is there anything in the circumstances from which the existence of such an intention can reasonably be inferred.
The requirement of writing
[77] It is trite that a person cannot create a trust of property which does not belong to that person.26 As noted earlier, an express trust must be created in writing and signed by the settlor if it is to take effect. While s 49A of the Property Law Act 1952 contemplated the signing of the relevant document by a trustee, the Property Law Act 2007 is clear in its limitation to settlors only.
25 Hu v Zheng (2007) 8 NZCPR 587.
26 Chris Kelly and others, above n 17, at [5.13] and the authorities referred to.
[78] I infer Mr Lee contends the settlor and trustee of the express trust he now says was created is Oceania, who is the registered owner of the Orewa property.27 While Mr Lee asserts that Mr Ryu told him that he had authority to make an agreement to transfer the Orewa property if the debt was not paid, he did not purport to enter into the documents of 26 March 2022 or 9 April 2022 as agent of Oceania. The parties to the document of 26 March 2022 are Mr Ryu and Mr Lee. That the obligations assumed are personal to Mr Ryu are clear from the circumstances and the words used. First, it identifies the person who is giving the document as Ji Ho Ryu not Oceania. It then states Mr Ryu’s passport number. The body of the document begins, “I, the person named above, promise to transfer ownership of my property… in the case of failing to repay the debt….”. The debt, of course, was the debt of Mr Ryu not Oceania. Finally, the document is signed by Mr Ryu without any words to suggest he was doing so other than in his personal capacity. There is no mention of Oceania anywhere in the document.
[79] It follows that the formal requirements for the creation of an express trust are not satisfied in this case.
The consequence of my findings
[80] In my view, it follows from my findings that the caveat is deficient and that it should lapse.28
[81] I have considered whether Mr Lee’s position could be salvaged by amending the caveat. The question of whether the Court has the inherent power to amend a caveat was considered by the Court of Appeal in Lu Trustee Ltd v Parklane Infrastructure Ltd,29 but left open. However, several cases have held there is no such power.30 That is also the view expressed in Campbell on Caveats, which I find
27 If it was asserted Oceania was the settlor of the trust and Mr Ryu the trustee, the trust would not be created for non-compliance with s 15(2) of the Trusts Act.
28 Neil Campbell, above n 4, at [10.013(h)].
29 Lu Trustee Ltd v Parklane Infrastructure Ltd (2020) 21 NZCPR 740, [2020] NZCA 682 at [54]- [56].
30 Athena Professional Trustees Ltd v Foundation Custodians Ltd, above n 13, at [44]; Federal Capital Ltd v MTE 31 Ltd [2020] NZHC 811, (2020) 21 NZCPR 29 at [18]; and Goodwin v Rocket Surgery Ltd [2013] NZHC 2046 at [25].
compelling.31 But if such power exists I would not exercise it in this case, where Mr Lee has repeatedly changed the basis of his claimed estate or interest in the Orewa property and failed to explicate a valid basis to a caveatable interest.
[82] For this reason also, I do not accept Mr Ponniah’s submission that the Court could at this stage grant leave to Mr Lee to lodge a second caveat under s 146 of the Property Law Act. There is no formal application before me seeking leave to lodge a second caveat and the case did not proceed on the basis that such an order would be sought.
[83] Further, as Mr Ponniah’s submission recognises the power to authorise a second caveat could only be exercised if the Court was satisfied that Mr Lee has established an arguable caveatable interest in the Orewa property, and on the evidence before me he has not.
[84] Mr Ponniah submits that Mr Lee will be prejudiced if he cannot lodge a second caveat because Oceania has the Orewa property on the market. If that is the case, there are other appropriate legal avenues available to Mr Lee to protect his interests.32
Result
[85] The applicant’s application to sustain the caveat is dismissed and the caveat shall lapse.
[86] The respondent has been successful and is entitled to costs. If there is a dispute about quantum, submissions by memoranda (no longer than five pages) may be filed and I will deal with the matter on the papers.
O G Paulsen Associate Judge
31 Neil Campbell, above n 4, at [10.013(h)].
32 At [10.013(h)].
Solicitors:
Philip Law Office, Auckland McVeagh Fleming, Auckland
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