Mahon v The Station at Waitiri Limited
[2017] NZHC 631
•4 April 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-114 [2017] NZHC 631
BETWEEN NEVILLE CHRISTOPHER MAHON
Applicant
AND
THE STATION AT WAITIRI LIMITED Respondent
Hearing: 6 March 2017 Appearances:
D Bigio QC and A Glennie for the Applicant
D Chisholm QC and M Lenihan for the RespondentJudgment:
4 April 2017
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 4 April 2017 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Anderson Creagh Lai Ltd, Auckland, for the Applicant
Brown Partners, Auckland, for the Respondent
Counsel:
David Bigio QC for the Applicant
David Chisholm QC for the Respondent
MAHON v THE STATION AT WAITIRI LIMITED [2017] NZHC 631 [4 April 2017]
[1] Mr Neville Mahon applies to sustain caveat 10665372.1 lodged against the titles to properties at 12, 18, 20, 24 Park Street, and 9 Brisbane Street, Queenstown. These are the Park Street properties. The interest claimed in the caveat is:
As beneficiary under a constructive trust arising on or prior to 16 December
2015, in connection with an agreement or representation giving rise to an estoppel to the effect that the registered proprietor, The Station at Waitiri
Limited, would transfer the property to the caveator upon notice.
The Station at Waitiri Ltd, a company under the control of Mr Tim Edney is the registered proprietor. Mr Mahon says that he has a caveatable interest in the properties via three pathways:
[a] Under an oral option agreement made in December 2015 for which he relies on part-performance in early 2016;
[b] by an institutional constructive trust reflecting a common intention held by Mr Mahon and Mr Edney formed in December 2015; and
[c] by an institutional constructive trust arising out of an equitable estoppel which arose from representations by Mr Edney in December
2015 upon which Mr Mahon reasonably relied to his detriment.
[2] The nub of Mr Mahon’s case is that he had a warehousing arrangement with Mr Edney for the Park Street properties. Through a related company he made an agreement to buy the properties from a third party but he assigned it to a company controlled by Mr Edney under an understanding that he could buy the properties back. He now wants the land but Mr Edney refuses to transfer it to him.
General principles on caveat applications
[3] In Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act:1
1 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
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).
[4] In caveat applications under ss 143, 145 and 145A of the Land Transfer Act
1952, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 137(1) of the Land Transfer Act:
137 Caveat against dealings with land under Act
(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person—
(a) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or
(b) is transferring the land or estate or interest to any other person to be held in trust.
A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.2 Something more than a potential or future interest is required.3
[5] 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, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable it may be. 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 such ground no longer exists. In addition, the court has a
2Guardian Trust and Executors Company of New Zealand Limited v Hall [1938] NZLR 1020 (CA) at 1025.
3 Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA).
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. In Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd the Court of Appeal said:4
We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation which was then before the Court and were not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. In such circumstances the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator's interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.
[6] To establish a reasonably arguable case there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavit, 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.5
Facts
[7] Mr Mahon says that he is a property developer and manager and has been active in the property sector for 30 years in New Zealand and abroad. He says that his main focus has been identifying urban or suburban properties which offer scope
for residential or retirement development. He says that he has carried out
4 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656;
Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA).
5 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15], followed in Trustees
Executors Ltd v Steve G Ltd [2013] NZHC 16 at [63]-[66]; Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2013] NZHC 1297 at [78] (overturned on appeal, but not on this point: Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2014] NZCA 164, (2014) 15
NZCPR 227); S & S Ltd v XYZ Ltd [2016] NZHC 26 at [6]; and Virtual Spectator v Rothlander
[2016] NZHC 499.
developments in collaboration with Mr Edney, a property investor he has known since 1990.
[8] Mr Mahon identified the Park Street properties as having potential to be developed into a small retirement complex. In 2015 there was a house on each of the properties which were let out on residential tenancies. On 25 June 2015, Coronation Road Holdings Ltd, a company under Mr Mahon’s control, entered into an agreement with Domicile Development Ltd to buy the properties for $5 million. Settlement was to take place on 20 November 2015.
[9] Mr Mahon negotiated extensions of the date for due diligence to be completed and the settlement date, each time for a payment of $10,000.00. A deposit of $300,000.00 was to be paid by 19 December 2015 with the balance payable on 27 January 2016.
[10] Mr Mahon says that during a discussion with Mr Edney in December 2015 they agreed on the following:
1 Under the agreement for sale and purchase of the Park Street properties he would nominate a special purpose vehicle associated with Mr Edney to settle the transaction on 27 January 2016. Mr Edney would pay the purchase price to the vendor and would take legal title to the Park Street properties.
2 Through the special purpose vehicle, Mr Edney would hold the Park
Street properties on behalf of Mr Mahon for a period.
3 When Mr Mahon considered that he was in a position to do so, he would exercise an option to purchase the special purpose vehicle by giving Mr Edney a date on which the shares in the special purpose vehicle would be transferred.
4 The consideration for Mr Edney warehousing the Park Street properties for Mr Edney would be $5 million (the original purchase price) plus either:
a. a sum representing a 15 per cent internal rate of return on his investment during the warehousing period (less the rents generated by the Park Street properties during the warehousing period) and in any event no less than $200,000; or
b. an apartment in the complex which he would purchase at cost.
[11] Mr Tim Johnston is a consultant with the law firm retained by Mr Edney. In an email exchange between Mr Mahon and Mr Johnston on 16 December 2015, Mr Johnston said that the new special purpose vehicle would be a company called Waiwhakatu Ltd, which would be owned by Waitipu Ltd, a company associated with Mr Edney. There would be two directors, Mr Edney and Mr Con Lu. Mr Lu is the brother of Mr Mahon’s partner, Saren Lu. Mr Mahon’s responses included that he wished Saren to be a director rather than Mr Con Lu. Mr Johnston said:
I assume Tim will discuss any proposal going forward. I suppose if Tim is funding 100% of the transaction he would be dictating terms but I do not think he knows what that opportunity is fully as yet.
And in reply Mr Mahon said:
OK. Saren and I will put our trust in both of you …
Waiwhakatu Ltd was incorporated on 18 December 2015 with Mr Edney and Saren
Lu as directors. It was later removed from the register on 21 February 2017.
[12] Mr Mahon says that in late 2015 and early 2016 he spent money and applied himself to the proposed development of the Park Street properties: he completed due diligence for the purchase; he worked with the architects to develop drawings and plans for construction work; he worked with planning consultants including making a submission on the local district plan; he liaised with neighbours as to the possibility of purchasing neighbouring properties to increase the size of the site; at Mr Johnston’s request he liaised with property mangers responsible for dealing with
the current tenants of the Park Street properties; he paid all the consultants; and he kept Mr Edney regularly informed of progress, including providing him with updated architectural drawings and geotechnical reports.
[13] Mr Edney paid the deposit of $300,000.00 on time on 17 December 2016.
[14] The Station at Waitiri Ltd completed the purchase of the Park Street properties and became registered proprietor on 27 January 2016. It became the purchaser through two deeds of assignment of the agreement for sale and purchase. The first assignment was between Coronation Road Holdings Ltd (Mr Mahon’s company) as purchaser and Waiwhakatu Ltd (the special purchase vehicle) as sub- purchaser. The second was between Waiwhakatu Ltd as assignor and The Station at Waitiri Ltd as assignee. Under the assignment by Coronation Road Holdings to Waiwhakatu Ltd, Coronation Road Holdings Ltd covenanted that all its estate, title and interest in the agreement with Domicile Development Ltd would pass to Waiwhakatu free from any mortgage or encumbrance or other adverse interest. It authorised Domicile Development Ltd, the vendor, to transfer title in the Park Street properties to the assignees. As to the second assignment, Mr Mahon says that he simply had to trust Mr Edney to do the honourable thing. He trusted Mr Johnston’s assurances on that point.
[15] After The Station at Waitiri Ltd took title, Mr Mahon says that he continued to spend money and effort on the development. His evidence refers to dealing with an Australian fund manager regarding financing development costs for his proposed retirement complex. He would not have committed his time and effort unless he expected that the Park Street properties would be transferred back in due course.
[16] Mr Mahon says that he met with Mr Edney on 28 May 2016, shortly before Mr Edney was to leave for three months overseas. By this time there was no longer any talk of Mr Edney taking an apartment. Mr Edney was to be paid for warehousing the properties. Mr Mahon says that the arrangements made at the meeting on 28 May 2016 were:
[a] Mr Edney would transfer the shares in The Station at Waitiri and for the settlement to take place in seven weeks.
[b] Mr Edney would retain all of the rents received from the Park Street properties up to the date of transfer.
[c] Mr Mahon or his interests would pay Mr Edney:
[i] the original purchase price of $5 million plus an uplift to cover
Mr Edney’s transaction costs of $100,000; and
[ii] $200,000 in exchange for an Alldays and Onions vintage car. [17] Later that day Mr Edney emailed Mr Mahon:
Thanks for our discussion today. Your interest will purchase the Park Street company, all shares for $5.1 million plus GST if any on or before 20 June
2016. I will resign as director. This assumes Park Street is in a separate company as planned. The satisfactory purchase of the A & O is a mandatory
requirement of this agreement. Saren and Con will purchase my pride and
joy, the 1906 Alldays and Onions for $350,000 plus GST plus spare parts and documentation. This purchase will be completed on 28 September 2016
when it will be guaranteed by both and tied to the Coronation and Arena
loans.
[18] Mr Mahon’s response on the same day made the point that the consideration had increased by $150,000 for the vintage car. Mr Mahon renewed his offer to buy the shares in the entity holding the Park Street properties for $5.1 million plus GST, and made a separate proposal for the purchase of the vintage car for $200,000, with settlement on 28 September 2016. Payment would be guaranteed by a company of Saren Lu and by a company associated with Mr Mahon. Mr Mahon also offered to contribute $15,000 plus GST to cover joint documentation on settlement of the Park Street transactions.
[19] On 2 June 2016 Mr Tim Johnston sent an email to Con Lu and Saren Lu regarding the sale of the vintage car for $350,000 inclusive of GST and with guarantees. The email also referred to the sale of Park Street on 20 June for
$5.1 million plus GST. That transaction would be conditional on the vintage car sale.
[20] Mr Mahon sent an email to Mr Johnston on 3 June 2016, putting his version of the proposed transaction and suggesting that there had been a “big misunderstanding”. Mr Edney responded, saying that he required $350,000 plus security of payment. There were further emails between Mr Edney and Mr Mahon without the differences being resolved. Mr Mahon regards Mr Edney as reneging on the original deal.
[21] Mr Mahon lodged the caveats in this case on 22 December 2016. On the same day his lawyers wrote to Mr Edney’s lawyers, saying among many other things that Mr Mahon had requested the Park Street properties to be transferred but that Mr Edney had refused to do so. Mr Mahon’s evidence does not however say when he gave any such request to Mr Edney.
The claim to an interest arising from an oral contract
[22] It is accepted that a purchaser’s interest under an unconditional agreement for the sale and purchase of land may support a caveat. The agreement must be enforceable. An option to purchase gives an interest in land and may support a caveat. Here Mr Mahon relies on an oral agreement but says that there were relevant acts of part performance. He says that he is ready willing and able to complete the acquisition of the Park Street properties from Mr Edney in accordance with their original agreement. He maintains that he has sufficient funds to pay the price agreed at the meeting on 28 May 2016.
[23] The Station at Waitiri Ltd rejects Mr Mahon’s case on a number of levels:
[a] inadmissible evidence;
[b] implausible factual basis; [c] commercially unrealistic;
[d] legally unenforceable; and
[e] no caveatable interest.
Admissibility of evidence
[24] The Station at Waitiri Ltd attacks those parts of Mr Mahon’s first affidavit
where he sets out the terms of the agreements negotiated at the meeting in December
2015 (paragraph 21 of his affidavit) and the agreement made at the meeting on
28 May 2016 (paragraph 37). Each paragraph states in summary the terms of the agreement Mr Mahon says he negotiated with Mr Edney, but does not set out in Mr Mahon’s own words the actual content of the conversations. It was submitted that Mr Mahon had done little more than parrot parts of a letter from his lawyers which narrated Mr Mahon’s version of events. It was objected that these were not Mr Mahon’s personal statements as required by s 83(2)(a) of the Evidence Act 2006 and r 9.76(1)(d) of the High Court Rules.
[25] The respondent’s objection goes to weight, not to admissibility. I do not accept that those parts of Mr Mahon’s evidence are inadmissible. In the context of an application under s 145A of the Land Transfer Act to sustain a caveat, which must be prepared, filed and served within tight time constrains, it is a tall order to require a witness to give a word-by-word account of a conversation leading to an oral agreement. Given that the applicant need show only a reasonably arguable case for the interest claimed, his evidence need not go into the same amount of detail as may be required at a hearing to establish the final merits of the claim to the interest in the respondent’s property. Evidence as to what was agreed that does not go into detail is admissible as the deponent’s personal statement.
Attack on factual basis
[26] The Station at Waitiri Ltd submits that even if Mr Mahon’s evidence is admissible, it does not show a reasonably arguable case for the facts relied on, once other matters are taken into account. It makes these points:
[a] In October 2015 Mr Edney and Mr Mahon were in discussion about the Park Street properties. In an email on 12 October Mr Mahon said:
So just to clarify matters I am happy to nominate you or one of your companys to purchase these propertys for no consideration. Settlement is later in Nov.
And in response to Mr Edney’s enquiry as to whether Mr Mahon
would like him to lend the funds for the deposit, Mr Mahon replied:
No Tim. I’m just not in the business of flicking things on. Only if it suits you and your [sic] really happy with the asset buy it in your company so you can use your internal facilitys to fund it. I will carry on with the resource consent which John Edmond says will take seven months and obtain a fixed price lump sum with Naylor Love. If you would like to sell it to me in the future great. If not I understand …
This is said to show that at the outset Mr Mahon intended that Mr Edney would be able to take the Park Street properties without any fixed arrangement for him Mr Mahon to buy the properties back.
[b] While Mr Mahon relies on an oral agreement negotiated in December
2015, neither Mr Mahon nor Mr Edney made any contemporaneous record of arrangements under which Mr Mahon could buy back properties apparently worth $5 million. As experienced businessmen, Mr Mahon and Mr Edney would record their arrangements in writing. The matter was not raised until Mr Mahon’s lawyers wrote some
12 months later alleging the oral agreement. In particular Mr Mahon signed the assignment of the agreements for sale and purchase from his company to Waiwhakatu Ltd without having any buy-back arrangement recorded.
[c] Mr Tim Johnston’s email of 16 December 2015 recording that “Mr Edney does not know what the opportunity is fully as yet”, is consistent with the absence of a concluded agreement.
[d] Email traffic of 5 February 2016 casts doubt on Mr Mahon’s case.
Mr Mahon’s email to Mr Edney and Mr Johnston referred to
“our arrangement of a reasonable fee and 12% interest rate.” That was inconsistent with the arrangement which Mr Mahon says was negotiated in December 2015. In other email traffic later on that date Mr Johnston suggests another warehousing arrangement.
[e] Real estate transactions between companies associated with Mr Mahon and others associated with Mr Edney show that Mr Mahon is without funds. These involved properties at Beach Road in central Auckland and at Coronation Road, Mangere, Auckland.
[i] Mr Edney’s company, Waikoro Ltd, owns the old Station Hotel in Beach Road, Auckland, now known as The Arena Hotel. Waikoro Ltd leased the building to Beach Arena Ltd, a company under Mr Mahon’s control. The lease has an option to purchase but Beach Arena Ltd did not exercise it. Mr Edney says that he anticipated that Mr Mahon would spend money on upgrading the premises with a view to their purchase and later re-sale. Mr Edney’s company, Waimauri Ltd, made loans to Beach Arena Ltd. These were due for repayment on 21 March 2014 but repayment was not made. Waimauri Ltd made a formal demand on 1 October 2015 for
$1,596,797.98. Mr Edney says that Beach Arena Ltd fell behind in paying rent. After giving notices under the Property Law Act 1952 Waikoro Ltd re-entered on 15 September 2016. He says that the amounts overdue under the lease are
$569,525.10. Mr Mahon has countered that the building had serious building defects which were not disclosed, and that there was an agreement that allowed the sale of the premises to a third party, that Waikoro Ltd would not decline any offer to purchase and any claims made by each party against the other would be set aside.
[ii] Mr Edney says that in 2013 one of his companies, which owned a property at Coronation Road, Mangere Bridge, of
some 43,000m2 sold the property to Coronation Gardens Ltd. The director of Coronation Gardens Ltd is Saren Lu, Mr Mahon’s partner. Another of Mr Edney’s companies, Small (2005) Ltd, lent $11.6m to Coronation Gardens on second mortgage to fund the development of the Coronation Road property. Mr Edney says that Coronation Gardens Ltd is in default under that loan and he believes that it is also in default under its facility with the Bank of New Zealand, the first mortgagee. In response, Mr Mahon says that while Mr Edney lent him some funds to cover preliminary costs, he did not continue with the project himself and left it to his partner to take it over. He is not responsible for the indebtedness of Coronation Gardens Ltd.
[27] Notwithstanding these objections, I cannot dismiss Mr Mahon’s version as implausible on an Eng Mee Yong v Letchumanan basis.6 Mr Bigio QC referred to parts of Mr Edney’s evidence which corroborated Mr Mahon’s contentions. Mr Edney acknowledges that he met with Mr Mahon in December 2015 and that the conversation included discussions on the Park Street properties. He recalls that Mr Mahon proposed a structure along the lines of his evidence, though he denies actually entering into an agreement. Mr Edney confirms the proposal for an associate of Mr Mahon to be involved in the special purpose vehicle, Waiwhakatu
Ltd. That is consistent with Mr Mahon having an ongoing interest in Park Street properties.
[28] Mr Edney’s affidavit refers to his decision to complete the purchase in the name of The Station at Waitiri Ltd instead of Waiwhakatu Ltd. That was because Mr Mahon had not provided any evidence that he would be able to finance the purchase of the properties himself. Mr Mahon relies on that as an acknowledgment that there was some arrangement in place under which Mr Mahon would reacquire
the properties.
6 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
[29] Mr Edney’s case is that while there were discussions they were no more than that and no concluded arrangement was made. On that, the contest is about who said what in their discussions, particularly those in December 2015 and May 2016. In a caveat application, I cannot say that Mr Edney’s version must be preferred over Mr Mahon’s. That is a trial issue.
Attack on commercial reality of alleged transactions
[30] As to lack of commercial reality, The Station at Waitiri Ltd relies on the following:
[a] Mr Mahon and Mr Edney as experienced businessmen would have recorded any agreement between them in writing.
[b] That is consistent with the approach in Carruthers v Whitaker7 that there is no contract until both parties have signed a formal document embodying agreed terms for a transaction involving land of significant value.
[c] Mr Mahon is contending for an open-ended option to purchase - one without any expiry date. Mr Chisholm QC referred to K V Investments Ltd v K V L Courtenay Ltd8 as authority that any warehouse buy-back arrangement has a specified future date for the property to be bought back. Commonsense supports that. Legally, it might be possible to have an option to purchase real estate under which there is no expiry date for the option. But in practice that does not happen. And if there were a warehousing agreement with an
option without any expiry date, the parties would record that expressly and would also address the difficulties likely to arise from an indefinite option to purchase (for example, allowing the owner to
on-sell but so as to hold any future owner to the option).
7 Carruthers v Whitaker [1975] 2 NZLR 667 (CA).
8 K V Investments Ltd v K V L Courtenay Ltd [2015] NZHC 30 at [60], upheld on appeal in K V Investments Ltd v KBL Courtenay Ltd [2016] NZCA 227, (2016) 10 NZBLC 99-721.
[31] Mr Bigio tried to address the difficulty of an indefinite option by proposing a term. He referred to paragraph 44 of Mr Edney’s affidavit, which gave as the reason for transferring the Park Street properties into a special purpose vehicle the ability to transfer them cleanly to a third party at short notice within two years, with limited tax implications. The submission is opportunistic. On Mr Mahon’s version of the agreement, he could exercise the option when it suited him. Mr Edney’s reference to two years is not of itself an expiry date for the exercise of any option – it is simply explains his own business reasons for transferring into a special purpose vehicle (the tax implications were not explained). Indeed, the absence of an expiry date for the exercise of the option, suggests that matters had still to be negotiated before there was certainty of terms between the parties.
[32] The lack of commercial reality to the arrangements alleged by Mr Mahon makes it implausible that the parties would enter into an oral agreement in the terms he describes, or that any realistic effect can be given to them. Accordingly, the case is to be approached not on the basis that there was an oral agreement but instead that any discussions amounted to no more than suggesting that some time in the future the parties might make an arrangement for buy-back.
No enforceable agreement
[33] This deals with Mr Mahon’s case on the basis that he had an agreement under
which he would buy the Park Street properties. Under s 24 of the Property Law Act
2007 an agreement for the sale and purchase of land is not enforceable unless the agreement or its terms are recorded in writing and signed by the person against whom the agreement is to be enforced. In response to the objection that there was no written agreement Mr Mahon raises part performance, which is saved under s 26 of the Property Law Act. In turn The Station at Waitiri says that the matters Mr Mahon relies on are not acts of part performance.
[34] In Mahoe Buildings Ltd v Fair Investments Ltd9 the Court of Appeal
approved Tipping J’s formulation in T A Dellaca Ltd v PDL Industries Ltd:10
9 Mahoe Buildings Ltd v Fair Investments Ltd [1994] 1 NZLR 281 (CA) at 287.
10 T A Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88 (HC) at 109.
. . . in a part performance case the Court must consider three points which I would frame as follows:
1.Was there a sufficient oral agreement such as would have been enforceable but for the Act?
2.Has there been part performance of that oral agreement by the doing of something which:
(a) clearly amounts to a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract; and
(b) when viewed independently of the oral contract was, on the probabilities, done on the footing that a contract relating to the land and such as that alleged was in existence.
3.Do the circumstances in which that part performance took place make it unconscionable (fraudulent in equity) for the defendant to rely on the Act?
Here The Station at Waitiri focuses on step 2(a).
[35] In Actionstrength Ltd v International Glass Engineering INGLEN SpA Lord Hoffmann pointed out that the courts justified part performance on two grounds. One was estoppel – namely, it is unjust for one party to let the other act to his detriment on the faith of the agreement being valid and then assert that it is unenforceable. The second was proof – the acts by the plaintiff could prove the existence of the contract as a substitute for the statutory requirement for signed writing.11
[36] Under a standard option to purchase, on the grant the grantee has enforceable contractual rights against the grantor (and an interest in the land the subject of the option), but the grantor has no enforceable rights against the grantee. When the option is exercised, there is a complete vendor-purchaser relationship – each has enforceable contractual rights against the other. An option is exercised by the grantor giving notice to the grantee. The version of the agreement Mr Mahon alleges does not specify any mode of notice, but in the absence of any notice there cannot be
any exercise of the option. Strict compliance with the terms for exercise of the
11 Actionstrength Ltd v International Glass Engineering INGLEN SpA [2003] UKHL 17, [2003]
2 AC 541 at 549-550.
option is required.12 Other steps taken in reliance on the option, such as arranging finance, are not a substitute for giving notice. Thus there cannot be part performance of the exercise of an option to purchase. Once an option under an oral agreement is exercised it may be possible to take steps that amount to part performance by the purchaser.
[37] Paragraphs [12] and [15] above outline Mr Mahon’s alleged acts of part
performance. He says that they all occurred in late 2015 and the first quarter of
2016. He has not said when he gave notice exercising his option. His lawyer’s letter of 22 December 2016 alleges that he did give notice. That letter may serve as notice itself. He cannot have given notice earlier than the beginning of June 2016 because he and Mr Edney were still discussing terms. His actions may have been in anticipation of the exercise of the option, but they were not the exercise of the option and they were not performance of any contractual obligation because he was not under any until he did give notice.
[38] Mr Mahon may have taken steps but for contractual purposes they were no more than an optimistic expectation that a contract may follow. They were not part performance of a contract and do not prove the existence of the contract Mr Mahon alleges. As he cannot rely on part performance his claim based on an agreement for the purchase of land fails for non-compliance with s 24 of the Property Law Act.
No caveatable interest
[39] Even if Mr Mahon can overcome the difficulties in establishing an enforceable oral agreement to buy-back by the exercise of the option to purchase, he does not have a caveatable interest in land. Under the agreement he describes, Mr Mahon was to take the shares in the special purpose vehicle. His alleged agreement does not provide for the freehold titles to the Park Street properties to be transferred to him.
[40] A shareholder does not have a proprietary interest in the assets of a company in which the shares are held, and accordingly a shareholder has no caveatable interest
12 Lord Ranelagh v Melton (1864) 2 Drew & Sm 278 at 282.
in land owned by the company.13 In response to that submission by The Station at Waitiri Ltd, Mr Bigio referred to Li v 110 Formosa (NZ) Ltd.14 In that case a caveat was upheld, even though a caveator’s agreement had been to take shares in a company. That case turns on its own facts. The caveator had an arguable case for
misappropriation of funds which allowed him to trace the funds to their substitute, the land with which they were bought.15
[41] This case does not involve any allegation of misappropriation. No basis for tracing is available. Mr Mahon’s claim is under a contract under which he was to take shares. That does not give him a caveatable interest in property under s 137 of the Land Transfer Act.
The claim to an interest based on common intention institutional constructive trust
[42] Mr Mahon says that even if he does not have a caveatable interest based on contract, he can claim based on a common intention institutional constructive trust. He relies primarily on Avondale Printers and Stationers Ltd v Haggie.16 He submits that where property is conveyed or proprietary rights are released in consideration of an oral promise by the transferee (not necessarily amounting to a concluded contract), that the transferor will retain or later acquire a beneficial interest in the property and where retraction would amount to an equitable fraud on the transferor, the transferee will be a constructive trustee of the relevant interest for the transferor.
In this case the oral promise or arrangement reflects a “common intention” that a beneficial interest in the form of an option to purchase would vest in the transferor, even though legal title vested in the transferee. The necessary equitable fraud will exist where the transferor would not have parted with his property but for the promise, or where the transferee is trying to rely on the unenforceability of an oral agreement for the disposition of land. The court may decline to declare a constructive trust where the transferor lacks the funds to pay for the land or there is
insoluble uncertainty about the price.
13 Ten Pin Properties Ltd v Bowlarama (NZ) Ltd HC Christchurch, M655/89, 18 December 1989; Ridge Developments Ltd v Raymond HC Auckland M550/66, 16 May 1996. See Hinde McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at 10.010(l).
14 Li v 110 Formosa (NZ) Ltd [2017] NZHC 174.
15 The court applied tracing principles recognised in Foskett v McKeown [2001] 1 AC 102 (HL).
16 Avondale Printers and Stationers Ltd v Haggie [1979] 2 NZLR 124 (SC).
[43] Before addressing the position at equity, it is useful to note how the common law deals with cases where parties negotiate and, anticipating agreement, one party provides goods or services for the benefit of the other. On the failure of the negotiations, the party benefiting is under a restitutionary obligation (typically quantum meruit or quantum valedat) to pay for the benefits received.17 These are personal remedies and do not result in an interest in property.
[44] Now for equity. In the absence of a concluded agreement a “common intention” may cover different aspects. One is what I term “declaratory”. There are cases where the court declares the parties’ “interest” in the property according to their proved common intention based on the parties’ conduct and contributions. Vesting orders are made in consequence. Such declaratory common intention cases typically arise in domestic relationship (not covered by the legislation such as the
Property (Relationships) Act 1976.)18 A statement of the New Zealand principles is
recorded in Harvey v Beveridge.19
[45] This case is different. Mr Mahon is relying on a common intention as to performance of a planned transaction he wishes to see carried out. He relies on a promissory common intention, albeit one that falls short of a concluded agreement. Mr Mahon relies on Avondale Printers & Stationers Ltd as his authority for a promissory common intention.20 The plaintiff in that case was the purchaser of a commercial property, having been nominated by the defendant. The parties made an arrangement that the defendant would complete the purchase, repay the plaintiff for the deposit it had paid, and take title in its own name. The plaintiff would carry out
development work on the property. It would have the right to buy the property at the end of two years, but a formula to fix the price was not agreed. There was therefore no binding contract. The plaintiff continued to spend money on the development of the property. The defendant refused to recognise the buy-back arrangement.
Mahon J held that although there was no binding contract, the defendant held the
17 Brewer Street Investment Ltd v Barclays Woollen Co Ltd [1954] 1 QB 428; William Lacey
(Hounslow) Ltd v Davis [1957] 1 WLR 932; Cobbe v Yeoman’s Row Management Ltd [2008]
1 WLR 1752 (HL) at [40]-[44].
18 Examples are: Gissing v Gissing [1971] AC 886 (HL); Cossey v Bach [1992] 3 NZLR 612 (HC); Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432; Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776.
19 Harvey v Beveridge [2014] NZCA 72, [2014] NZAR 677 at [27].
20 Above n 16.
property on a constructive trust for the plaintiff. Importantly for this case, Mahon J did not order performance of the imperfectly formed promise. Instead, he ordered that the parties be put back in their positions at the outset. The plaintiff was to hold legal title and have an account for rent and profits received from the property but to reimburse the defendant for the purchase price and associated expenses.21 He said:22
In that manner the parties are restored to the status quo ante the re- assignment by the plaintiff and the fraudulent conduct of the defendants.
[46] It is important to recognise that Mahon J extended the law beyond earlier authorities. He drew on older cases where Judges had found equitable fraud as a way around the Statute of Frauds. The statute could not be used as an instrument of fraud. It was held to be a fraud for a person to whom the land had been transferred as a trustee to deny the trust and claim the land for himself. Notwithstanding the Statute of Frauds, the person claiming the land could prove the trust by parol
evidence and the assertion of title by the owner contrary to the trust.23 This did not
apply just to trusts. In Last v Rosenfeld a buy-back agreement was enforced.24
[47] This is procedural law, not substantive law. The requirements of the Statute of Frauds (and replacement legislation: Contracts Enforcement Act 1956 and the Property Law Act 2007, ss 24 and 25) are procedural.25 They go only to the enforceability of contracts, not to their validity. The case law in equity is likewise procedural. It allows parol evidence to prove the existence of substantive rights notwithstanding the statute. It does not change or create substantive rights. The English Court of Appeal recognized that in Bannister v Bannister:26
It is enough that the bargain should have included a stipulation under which some sufficiently defined beneficial interest in the property was to be taken by another.
(emphasis added)
21 Above n 16 at 164-165.
22 At 164.
23 Hutchins v Lee (1737) 1 Atk 447, Childers v Childers (1857) 1 De G & J 482; Lincoln v Wright
(1859) 4 De G & J 16; Re Duke of Marlborough [1894] 2 Ch 133; Rochefoucauld v Bowstead
[1897] 1 Ch 196 (CA); Bannister v Bannister [1948] 2 All ER 133 (CA).
24 Last v Rosenfeld [1972] 2 NSWLR 923 (NSWSC).
25 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington, 2016) at [9.4]; Whiting v Diver Plumbing and Heating Ltd [1992] 1
NZLR 560 (HC).
26 Above n 23, at 136.
[48] In this line of equitable fraud cases, the courts recognize conventional property interests notwithstanding that the procedural requirements of the Statute of Frauds and replacement legislation have not been satisfied. Avondale Printers Ltd v Haggie was different. A promissory common intention is not a “sufficiently defined beneficial interest in property”. In the absence of any concluded agreement, there is no beneficial property interest to be recognised. The court does not declare an interest in property in cases such as the Avondale Printers because there is none. Instead, in the absence of evidence of a defined interest in property, the court grants relief based on claims arising out of the failure of the common intention. The relief is restitutionary. That is why Mahon J ordered a return to the status quo ante, but did not order performance of the imperfectly formed contract. If the court were to order an interest in land by way of relief, it would be creating that interest, not declaring it. That would not be an institutional constructive trust but a remedial trust. That would
not support a caveat because there is no pre-existing interest.27
[49] What I have set out above largely repeats what I said in Clear White Investments Ltd v Otis Trustee Ltd.28 Since then I have become aware of the Cobbe v Yeoman’s Row Management Hamilton Ltd.29 That is consistent with my decision. In Cobbe, a property developer, relying on an unenforceable arrangement with the owner of a property under which each would have 50 per cent of the gross proceeds of the sale over £24 million, spent funds, time and effort in obtaining planning
approval. When the owner withdrew from the arrangement, he claimed in proprietory estoppel and constructive trust. His constructive trust claim failed. He alleged a Pallant v Morgan type of equity.30 Lord Scott of Foscote recognised that the owner’s conduct was unconscionable but held that no constructive trust had arisen. The arrangements were not legally binding on the defendant. Its unconscionable conduct was not enough to give rise to a constructive trust. There was only an inchoate agreement.31 The plaintiff was held to have in personam
remedies, including for unjust enrichment and quantum meruit.32
27 Three Chicks Ltd v New Zealand Building and Projects Ltd (2011) 12 NZCPR 799 (HC) at [22].
28 Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2823 at [40]-[55].
29 Above n 17.
30 Pallant v Morgan [1953] Ch 43.
31 Above, n 12 at [37].
32 Above, n 12 at [40]-[45].
[50] Mr Mahon’s case is based on a promissory common intention (but not a binding contract) as to a transaction to be performed. His remedy is not an order to perform the transaction. For that the court would have to impose an agreement on the parties where none exists. Instead in a case based on Avondale Printers Ltd v Haggie, his remedy is a restoration of the status quo. That is primarily a personal remedy akin to that recognised in Cobbe. Mr Mahon may have a basis for it given the steps he took which he alleged to be acts of part performance. They arguably benefited The Station at Waitiri, which may be under a restitutionary obligation to pay for those benefits. Unlike the traditional cases based allowing parol proof an existing interest in land, such as Bannister v Bannister, there is no interest in land under the arrangements Mr Mahon relies on and there is therefore no caveatable interest.
The claim to an interest based on equitable estoppel
[51] Mr Mahon relies on equitable estoppel principles. These are said to arise where:33
[a] a representor induces a belief or expectation on the part of a representee;
[b] any express representation is clear and unequivocal;
[c] any reasonable reliance on that representation, the representee acts to his detriment; and
[d] it would be unconscionable to permit the representee to depart from the representations.
[52] Mr Mahon’s case is that Mr Edney represented to him in December 2015 that Mr Edney would take title to the Park Street properties on the basis that Mr Mahon would have an option to acquire them. Mr Mahon relied on those representations to
his detriment by assigning the agreement for sale and purchase to one of Mr Edney’s
33 Wilson Parking NZ Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].
companies. Mr Mahon claims that had he known that Mr Edney would not honour the arrangement he would have sought and obtained alternative funding. Mr Edney did not keep his word when he substituted The Station at Waitiri Ltd for Waiwhakatu Ltd and did not stick with the arrangements reached in the meeting of
28 May 2016.
[53] In response, The Station at Waitiri distinguishes this case from Clear White v Otis. Here the parties had plenty of time in which to negotiate arrangements. Mr Mahon, as an experienced property developer clearly understood the requirements to document arrangements in writing. Mr Mahon’s early comments show that he was happy for the development opportunity to pass to Mr Edney without any firm arrangements that he would be able to take the property back. While The Station at Waitiri did not refer to it directly, it relied on this point made in
Equity and Trusts in New Zealand:34
The closer the relationship is to a commercial transaction paradigm between two well-resourced and self-interested parties of equal bargaining strength dealing at arm’s length, the more reasonable it is to expect their relationship to be governed by a contract. And the more reasonable it is to expect a contract to be entered into to protect a belief or expectation, the easier it is to infer that by not entering into a contract a gamble was being taken that the expectation would not be fulfilled…
In commercial transactions, contracts are commonplace and easily accessible to parties who wish to protect their expectations. The courts are, therefore, “careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-headed decisions of business people”. In general, reliance on a non-contractual representation or promise will only be reasonable if it was clear and unequivocal, made in relatively formal circumstances, and such that a reasonable person in the representee’s shoes must have understood that it was intended to be acted on. In a contractual setting, a representation not sufficiently clear to form the basis for a contractual variation will almost necessarily also be too uncertain to found an estoppel.
That aspect is supported by the lack of commercial reality in the arrangement
Mr Mahon claims – an indefinite option to purchase.
[54] The Station at Waitiri also notes weaknesses in the reliance and detriment
aspects of Mr Mahon’s claim. He did not have the funds to pay the deposit for the
34 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington,
2009) at [19.3.4] (footnotes omitted).
Park Road properties. Default in paying the deposit or in settling the purchase would lead to the vendor cancelling the agreement with Coronation Road Holdings Ltd. It was submitted that Mr Mahon had accordingly suffered no loss.
[55] While I recognise that the claim is weak, for a caveat decision I cannot say that the elements for equitable estoppel are unarguable. Instead the matter turns on the question of remedy. In Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, the Court of Appeal reviewed the principles for relief in equitable estoppel claims:35
… The cases show a wide variation of approach to the grant of appropriate remedies in cases of equitable estoppel. To attempt any definitive or exhaustive statement of the principles is likely to be elusive and may not be helpful given the fact-dependent nature of the cases coming before the Courts.
Nevertheless some principles may be stated with a degree of confidence even if the application of those principles in particular cases may be a matter of some difficulty. The three main elements relevant to relief stem from the ingredients necessary to establish equitable estoppel in the first place. These are the quality and nature of the assurances which give rise to the claimant’s expectation; the extent and nature of the claimant’s detrimental reliance on the assurances; and the need for the claimant to show that it would be unconscionable for the promisor to depart from the assurances given.
As a general approach, the clearer and more explicit the assurance is, the more likely it is that a court will be willing to grant expectation-based relief. That is because a clear assurance is more likely to engender an expectation by the promisee that it will be fulfilled. Similarly, the greater the degree and consequences of detrimental reliance by the claimant, the more likely it is that the court will be prepared to hold the defendant to the promise rather than make an award (generally of a more limited nature) designed to compensate for reliance-based losses.
Unconscionability is the third key consideration. As Brennan J explained in Waltons Stores unconscionability is the element which both attracts the jurisdiction of a court of equity and moulds the remedy. In assessing the appropriate remedy, all the relevant circumstances are to be considered. The aim is not to satisfy the claimant’s expectation (although that may be what the relief requires in appropriate cases) but to satisfy the equity that has arisen in the claimant’s favour.
While some authorities continue to refer to relief as being the minimum necessary to satisfy the equity, the emphasis in more recent cases has been on a broad consideration of the relief necessary to achieve a just and proportionate outcome.
Where the claimant’s expectation is seriously disproportionate to the
detriment suffered, the court will be unlikely to grant expectation-based
35 Above n 33, at [113]-[120] (footnotes omitted).
relief. To do so would be to overcompensate the claimant and would be unjust to the defendant. In such a case, the court would consider whether there may be a means of satisfying the equity in another way. But that does not mean the court will simply compare in an arithmetical manner the extent of any reliance-based losses with the value to the claimant of the expectation. A broad assessment of all the relevant circumstances is to be made including losses or other detriment which cannot be quantified or measured in monetary terms.
In choosing between reliance or expectation-based remedies, there is some support for the proposition that, subject to proportionality between the expectation and the detriment suffered, it will often be just to make an order to fulfil the expectation, but we do not consider it is appropriate to adopt a presumptive or prima facie approach one way or the other. That would not be consistent with the flexible approach to equitable remedies consistently emphasised in the cases.
….our preference is to avoid cluttering the available remedies by arbitrary
rules, as McGechan J put it in Stratulatos.
[56] Under these principles it is not reasonably arguable for Mr Mahon that the court would order expectation-based relief. Given the weak, undocumented evidence as to Mr Edney’s alleged assurances and Mr Mahon’s limited reliance – his “part performance” acts – Mr Mahon would be overcompensated if he were granted expectation-based relief. A reliance-based measure under which he is paid for any benefits conferred on The Station at Waitiri is adequate to salve its conscience. Given the claim to an indefinite option to purchase, any expectation-based relief would be disproportionate.
[57] A further reason is that the expectation Mr Mahon relies on was for shares in a special purpose vehicle, not an interest in land. That does not give a caveatable interest in land. Any court-ordered relief cannot be more extensive than the expectation claimed by the plaintiff.
[58] Accordingly Mr Mahon’s third basis for his caveat also fails.
Outcome
[59] Mr Mahon has not made out a case for a caveatable interest under any of his three heads. Accordingly the caveat must lapse. I defer the time for lapse to allow Mr Mahon to consider his options.
[60] I make these orders:
[a] Caveat 10665372.1 will lapse with effect from 21 April 2017;
[b] Mr Mahon will pay costs on the application. If the parties cannot agree costs, memoranda may be filed and I will decide costs on the papers.
……………………………………
Associate Judge R M Bell
11
1