Mau Whenua Inc v Shelly Bay Investments Ltd
[2019] NZHC 3222
•6 December 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-524
[2019] NZHC 3222
UNDER Part 19 of the High Court Rules IN THE MATTER
of an application under s 143 of the Land Transfer Act 2017
BETWEEN
MAU WHENUA INCORPORATED
First applicant
KAREN MARAMA PARATA
Second applicantAND
SHELLY BAY INVESTMENTS LIMITED
Respondent
Hearing: 13 and 14 November 2019 Appearances:
V L Heine and R L Pinny for applicants
S L Robertson QC and B M Cash for respondent
Judgment:
6 December 2019
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
TABLE OF CONTENTS
Introduction [1]
Background [3]
Principles for sustaining a caveat [28]
The applicants’ claim [40]
First hurdle – nature of the beneficiaries’ interest in the trust property [43]
Second hurdle – knowing receipt and constructive trust [46]
Third hurdle – the manifest injustice provisions [54]
Result [74]
Costs [76]
MAU WHENUA INCORPORATED v SHELLY BAY INVESTMENTS LIMITED [2019] NZHC 3222
[6 December 2019]
Introduction
[1] This is an application pursuant to s 143 of the Land Transfer Act 2017 for an order that a caveat not lapse.
[2] The applicants are Mau Whenua Inc, a society incorporated under the Incorporated Societies Act 1908, and Ms Karen Parata. The respondent is Shelly Bay Investments Ltd.
Background
[3] By agreement dated 13 December 2007, the Crown and Taranaki Whānui ki te Upoko o te Ika (Taranaki Whānui) settled the latter’s historical grievances.
[4] The parties’ agreement was ultimately recorded in a deed of settlement dated 19 August 2008 and enacted in the Port Nicholson Block (Taranaki Whānui ki Te Upoko o Te Ika) Claims Settlement Act 2009.1
[5]The settlement had the following components:
(a)an acknowledgement by the Crown of historical breaches of the Treaty of Waitangi;
(b)an apology from the Crown;
(c)cultural redress; and
(d)commercial and financial redress.
[6] In anticipation of the settlement, Taranaki Whānui procured the settlement of a trust, the Port Nicholson Block Settlement Trust (the Trust). The deed of trust was executed by the original trustees on 11 August 2008.
[7] The commercial and financial redress included an option to acquire certain properties specified in the deed of settlement. The trustees elected to exercise the
1 This is the settlement of the claim against the Crown by Taranaki Whānui dealt with by the Waitangi Tribunal in WAI 145.
option to acquire four blocks of land at Shelly Bay on the western side of the Miramar peninsular in Wellington Harbour. The pre-agreed purchase price for the Shelly Bay sites was $15.2 million. This was paid by way of a deduction from settlement monies. The properties were subsequently transferred to a company incorporated, owned and controlled by the trustees, Shelly Bay Ltd.
[8] The Shelly Bay sites roughly coincide with a former Royal New Zealand Airforce base. The public has long had access to the area, even while it was a RNZAF base. The RNZAF moved out years ago. The most pugilistic activity that takes place there these days is the occasional argument as to priority in the queue at the Chocolate Fish Café. The area is run down and has long been identified as in need of redevelopment.
[9] On the affidavit evidence it seems clear enough that by early 2016 the trustees had come to the view that they should divest themselves of this land.
[10] By this stage, the trustees were already in discussions with a Wellington developer, Mr Ian Cassells. Through his principal corporate entity, The Wellington Company Ltd, and other vehicles, Mr Cassells has been involved in many significant development projects in and around the city.
[11] At a special general meeting convened for the purpose on 9 February 2016, the trustees proposed the sale to The Wellington Company group of the Shelly Bay sites. Rightly or wrongly, the trustees and everyone else involved assumed that any such sale would be caught by cl 2.5 of the trust deed requiring that major transactions be sanctioned by a special resolution. The resolution failed to pass. Only 50.97 per cent of those voting supported it, well short of the 75 per cent supermajority required under the deed to pass a special resolution.
[12] Notwithstanding the failure of the trustees to gain what they obviously believed at the time to be the necessary level of support from members for the sale, the evidence is that they continued to engage with The Wellington Company group in relation to the development of the area. This of course became known to members and at the annual general meeting held on 15 October 2016 an ordinary resolution was passed directing the trustees to stop pursuing any sale option, report to members and allow
them to decide what should be done with the sites. Clause 14.11 of the trust deed provides that a resolution of the members shall not bind the trustees except in certain specified circumstances.
[13] Putting it neutrally, that resolution did not have the effect that those promoting it no doubt expected. Discussions or negotiations between the trustees and The Wellington Company group continued.
[14] By mid-2017, the trustees had agreed to the sale of three of the Shelly Bay sites to a subsidiary of The Wellington Company group, the respondent, Shelly Bay Investments, which is now the registered title holder of these sites. At the same time, the trustees agreed to enter into a joint venture agreement with The Wellington Company group, which included terms concerning the fourth Shelly Bay site.
[15] In March 2018, the trustees agreed to give The Wellington Company group an option to purchase the fourth Shelly Bay site. In March 2019, the parties cancelled the option and the joint venture and entered into a new partnership deed and a sale and purchase agreement for the fourth Shelly Bay site. In June 2019, Mau Whenua lodged a caveat against the title to the fourth Shelly Bay site.2 In July 2019, the applicants lodged the caveat that is the subject of this application against the three remaining Shelly Bay sites. In October 2019, the trustees agreed to sell the fourth Shelly Bay site to Shelly Bay Taikuru Ltd, another company in The Wellington Company group. The transfer has yet to be registered, no doubt because of the existence of the caveat lodged against the title.
[16] That description of events ignores a considerable amount of detail, but it is not detail that I regard as important in terms of the determination of this application. The end result is that, as matters stand, the respondent is the registered owner of three of the four Shelly Bay sites and another company in the group is the equitable owner of the fourth.
[17] On 5 July 2019, proceedings were commenced in this Court by Mau Whenua and several Taranaki Whānui members, including Ms Parata, against the current and certain former trustees, the respondent and the other group company. The object of
2 This is not the caveat to which the present application relates.
that proceeding is to reverse the sales of the Shelly Bay sites and repatriate these to the trust.
[18] In that proceeding, the plaintiffs plead five causes of action. The first and fifth causes of action are based on an allegation of breach of trust by the trustees. In the first cause of action, the plaintiffs say that the transactions whereby the trustees sold the Shelly Bay sites to The Wellington Company group involved a breach of trust, essentially because they amounted to a major transaction in terms of cl 2.5 of the trust deed not sanctioned by a special resolution of members and because the trustees are said to have acted inconsistently with tikanga by failing to give effect to the views of mana whenua as reflected in the failed special resolution and the resolution at the annual general meeting.
[19] The fifth cause of action includes an allegation that, upon the transfer of the three sites involved here, Shelly Bay Investments was aware of the breach of trust and was therefore a knowing recipient. On that basis, the plaintiffs invite the Court to hold that the three sites transferred to Shelly Bay Investments are held on a constructive trust for Taranaki Whānui members by that company. Similar relief is sought against Shelly Bay Taikuru with respect to the fourth Shelly Bay site. The second, third and fourth causes of action revolve around ss 54–57 of the Land Transfer Act, which concern rectification of the register of land in cases where the registration of a transfer has led to manifest injustice.
[20] The applicants here (a subset of the plaintiffs in that proceeding) lodged the caveat against the titles to the three Shelly Bay sites that are in issue here, in order to hold the position until the substantive proceeding is resolved. The caveat was lodged pursuant to s 138 of the Land Transfer Act. Its effect is to prevent any further dealing in the sites. This proceeding concerns only the caveat lodged against the titles to the three Shelly Bay sites registered in the respondent’s name. There is apparently another proceeding in which the applicants seek to sustain the caveat lodged against the title to the fourth site.
[21] One of the obligations of a caveator under s 138 of the Land Transfer Act is to identify in the instrument the basis upon which he, she or it claims an interest in the land concerned.3
[22] In this case, the applicants identified the basis for their claim in the following terms:
an interest is claimed in the land by each party comprising the caveator as beneficiaries under a cestui que trust of which the registered owner is trustee.
[23] During the course of the hearing before me, Ms Heine quite properly drew my attention to the fact that the wording of the caveat here corresponds exclusively to the claim articulated in the first and fifth causes of action in the substantive proceeding. In those circumstances, she indicated that she felt unable to pursue any argument based on ss 54–57 (the claim articulated in the remaining causes of action).
[24] As every Wellingtonian is aware, what happens at Shelly Bay has been the subject of intense public interest and debate. It has been the subject of debate at national and local political levels. In particular, since the land was acquired by The Wellington Company group, there has been fierce debate as to whether the development it is proposing is the best use of the land.
[25] In April 2017, the Wellington City Council issued a consent to The Wellington Company group to proceed with its development. That consent was the subject of a challenge in this Court. In a judgment dated 9 April 2018, this Court dismissed the challenge.4 The group opposing the development appealed. In a judgment dated 3 December 2018, the Court of Appeal overturned this Court’s judgment and referred the matter back to the Council.5 The Council referred the substantive application to commissioners appointed under the Housing Accords and Special Housing Areas Act 2013. Shortly before the hearing before me, the commissioners issued a consent to The Wellington Company group.
3 Land Transfer Act 2017, s 138(3); and Land Transfer Regulations 2018, sch 2.
4 Enterprise Miramar Peninsula Inc v Wellington City Council [2018] NZHC 614, [2018] NZRMA 269.
5 Enterprise Miramar Peninsula Inc v Wellington City Council [2018] NZCA 541, [2019] 2 NZLR 501.
[26] The Wellington Company group now wishes to proceed. The applicants’ caveat stands in the way of it doing so. Shelly Bay Investments has applied to the Registrar-General of Land for the caveat to lapse pursuant to s 143 of the Land Transfer Act requiring the applicants to abandon or justify their caveat. That of course is the genesis of this proceeding.
[27] At the conclusion of the hearing I enquired of counsel whether there was any urgency associated with disposing of this matter. I am told that from Shelly Bay Investments’ perspective the matter is urgent. I have allocated the delivery of this judgment such priority I could.
Principles for sustaining a caveat
[28] The Land Transfer Act came into force on 12 November 2018 and applies here because the applicant commenced this proceeding after that date. Section 138 provides:
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.
[29] The applicants principally rely on s 138(1)(b). On the grounds pleaded in the first and fifth causes of action in the substantive proceeding described earlier, they say that they have a beneficial estate or interest in the three Shelly Bay sites.
[30] I pause at this stage to mention that s 137 of the Land Transfer Act 1952 was expressed in different terms from those used in s 138 of the current legislation. Section 137(1)(a) of the 1952 legislation provided that a caveat against dealings in land could be registered by anyone who:
claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or any other instrument or transmission, or of any trust expressed or implied, or otherwise….
[31] Ms Heine did not contend on behalf of the applicants that the change of terminology between these two provisions materially altered the principles relating to when a caveat may be justified, or rendered the authorities decided under the earlier provision defunct.
[32] The reason for the change of terminology is not entirely clear from the history of the passage of the current legislation. In its report recommending the new enactment, the Law Commission expressed support for the broad view taken by Tipping J in Regal Castings Ltd v Lightbody that both registerable and unregisterable interests should be caveatable.6 This recommendation is reflected in s 138(1)(a), which allows a person to lodge a caveat who “claims an estate or interest in the land, whether capable of registration or not”. Section 138(1)(b) first appeared in the Bill as introduced to Parliament and represented a condensed version of several provisions suggested by the Law Commission. That provision refers to the situation where the caveator has a beneficial interest rather than where the caveator claims such an interest. No mention was made during the passage of the legislation of a deliberate decision to depart from the Law Commission’s recommendation of a broad approach to caveats. I have no doubt a claim to a beneficial interest can sustain a caveat, although whether that is under s 138(1)(a) or s 138(1)(b) is unclear.
6 Law Commission A New Land Transfer Act (NZLC R116, 2010) at [3.330], citing Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 at [151].
[33] The Torrens land registration system has been the primary basis of land ownership in this country since the coming into force of the Land Transfer Act 1870. The foundation of this system is indefeasibility of title — simply, a registered title holder can rely on his, her or its title against the world, subject to very limited exceptions, such as Land Transfer Act fraud.
[34] Although, as already said, Ms Heine did not submit that the change of wording between s 137 of the 1952 legislation and s 138 of the current legislation altered the pre-existing law, she did contend, forcefully, that, looked at broadly, the 2017 legislation signalled a relaxation in the circumstances in which a registered title holder’s position may be challenged — as it were, a partial retreat from indefeasibility.
[35] In her formal written submissions, Ms Heine referred to ss 62, 63, 182 and 183 of the 1952 legislation. As she said, all these provisions focussed on indefeasibility, and are not replicated in the same form in the current legislation. However, as Mr Cash submitted, their equivalents are to be found respectively in ss 51, 52, 6 and 51(1) of the current legislation.
[36] Ms Heine was on stronger grounds in contending that ss 54–57 of the current legislation, which had no equivalent in the 1952 legislation, reflect a new exception to the principle of indefeasibility. I will need to return to these provisions, but, at this point, it is sufficient to say that I am not satisfied that they have any effect on the general principles governing the determination of applications for orders that caveats not lapse. In the only case to which the parties referred me post-dating the coming into force of the 2017 legislation, Moeke v South Waikato District Council,7 and in an even more recent case my own researches identified, Li v Green Land Investment Ltd,8 it is quite clear that Associate Judges Sargisson in the first and Andrew in the second proceeded on the basis that the long-standing principles relating to when a caveat is sustainable are materially unchanged. I too proceed on that basis.
[37]The law governing the application for orders sustaining caveats is well settled:9
[24] The onus is on the caveator to demonstrate that it holds an interest in the land which is sufficient to support a caveat. The caveator must put before
7 Moeke v South Waikato District Council [2019] NZHC 2282.
8 Li v Green Land Investment Ltd [2019] NZHC 2991.
9 Botany Land Development Ltd v Auckland Council [2014] NZCA 61.
the Court a reasonably arguable case to support the interest it claims. An order for the removal of a caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively that such ground as then existed has now ceased to exist. There is a residual discretion, once a reasonably arguable case has been established as to whether to make an order removing the caveat. This will be exercised only cautiously, for example, where the Court finds there is no practical advantage to maintaining a caveat and the caveator will not be prejudiced.
[38] What is required to establish a beneficial estate or interest of a type capable of supporting a caveat is a vested right of one sort or another in the land.10 This has been held to exclude discretionary beneficiaries of trusts, the trustees of which own land.11 It has even been said to exclude beneficiaries with a fixed interest in a trust fund where land comprises only an undefined part of the trust assets.12
[39] The courts have consistently held that only a legal or beneficial interest in land is sufficient to support a caveat, which, in the case of an interest as a beneficiary, necessitates a vested and fixed interest in the land itself.
The applicants’ claim
[40] The case advanced for Mau Whenua and Ms Parata by Ms Heine is that, by reason of the trustees’ alleged breach of trust and Shelly Bay Investments’ knowing receipt of the benefit of that breach, the applicants have an arguable case for the imposition of a constructive trust on the three Shelly Bay sites and that is sufficient to bring them within s 138.
[41] There is a preliminary issue concerning Mau Whenua’s status. It is an incorporated society. It has no connection with the trust at all, save that certain, although not all, of its members happen to be members of Taranaki Whānui. There is certainly no basis in law upon which it could, in its own right, claim any estate or interest in the Shelly Bay sites. Whether it may stand in a representative capacity on behalf of members who are also members of Taranaki Whānui is a difficult issue best addressed in the substantive proceeding. Ms Heine referred me to the remarks of the minority of the Supreme Court in Proprietors of Wakatū Inc v Attorney-General that it is necessary to be flexible when dealing with the enforcement by Māori of interests
10 Rutherford v Rutherford [2015] NZHC 878, [2015] NZAR 1303 at [32].
11 At [18].
12 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 114.
in land.13 Although I have my doubts about Mau Whenua’s position, I accept Ms Heine’s submission that an application to sustain a caveat is not the appropriate forum to deal with this issue, especially where the caveat can stand or fall on the strength of Ms Parata’s claim.
[42] Assuming for the moment that the plaintiffs have an arguable case in breach of trust and knowing receipt, there are broadly three hurdles that the applicants will need to overcome in order to establish that they have a beneficial estate or interest in the land. First, they will need to demonstrate that they had an equitable interest in the land through the Trust sufficient to entitle them to pursue their claim against the respondent. Second, the claim against the respondent must give them an equitable estate or interest in the land. Third, that equitable estate or interest must not have been extinguished by the registration of the transfer of the land to the respondent having regard to indefeasibility of title principles.
First hurdle – nature of the beneficiaries’ interest in the trust property
[43] The first point raises the question of the nature of the relationship between members of an iwi and trustees of a trust settled to hold land or other assets acquired as a result of a Treaty of Waitangi settlement. The respondent’s position is that at best Ms Parata and the other beneficiaries are in the position of discretionary beneficiaries because they have no vested interest in the trust assets. Ms Robertson argued that the case could be put even more strongly than that because the trust deed here has the hallmarks of a purpose trust, but it is unnecessary to go into that for present purposes.
[44] On behalf of the beneficiaries, Ms Heine developed a novel argument drawing on the collective nature of Māori customary ownership of land, tikanga and the Treaty settlement context to distinguish the position of Ms Parata and the other beneficiaries from the position of beneficiaries of a conventional private trust.14 The essence of the argument was that whereas discretionary beneficiaries are usually characterised as
13 Proprietors of Wakatū Inc v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [665] per Glazebrook J.
14 Ms Heine found support for this approach in Williams J’s judgment in Ririnui v Landcorp Farming Ltd [2014] NZHC 1128 and in the extra-judicial remarks of Kós P in Stephen Kós “A Short History of the Trust” (keynote address to the New Zealand Law Society Trusts Conference, June 2019) at 15–16. See also Collins J’s reference to the Māori land context in Accident Compensation Corporation v Stafford [2018] NZHC 218, [2018] 2 NZLR 861 at [76]–[80].
having only a “mere hope” of receiving a benefit from the trust property, it would be inappropriate to adopt that description here where the trust was established to facilitate the return of ancestral land to collective ownership.
[45] There are important and difficult issues at stake in resolving this novel question, but ultimately this is not the appropriate occasion to so do because of the conclusions I have reached in relation to the second and third hurdles faced by the applicants.
Second hurdle – knowing receipt and constructive trust
[46] The second point poses a difficulty for the applicants, at least in the way their claim was argued before me. The caveat is not specific about the nature of the claimed interest. It merely states the caveator (being the applicants jointly) is a beneficiary of a trust of which the respondent is the trustee. In their application to sustain the caveat, the applicants identified their claimed interest as a beneficial one. In her submissions, Ms Heine elaborated on this by contending that their beneficial interest is pursuant to a constructive trust arising from the respondent’s knowing receipt of the three Shelly Bay sites.
[47] There is some conceptual confusion in the case law and commentaries as to the exact nature of the remedy obtainable upon establishing a claim in knowing receipt. The remedy is frequently referred to as the imposition of a “constructive trust” with little explanation as to what is meant by this.15 In Equity and Trusts in New Zealand, Professor Jessica Palmer suggests the remedy for knowing receipt is not a constructive trust at all:16
While it is clear that courts have described the remedy for knowing receipt as a constructive trust, interestingly, all three conceptual approaches to knowing receipt suggest that it gives rise to a personal remedy and not a proprietary remedy such as a constructive trust. Defendants are required to hold property as if they were constructive trustees and not actually as constructive trustees
– the point being merely that they are personally liable to account for the value of the receipt and make good any loss suffered by the beneficiaries; not that the property received is held on trust by the defendant for the plaintiff. The
15 See, for instance, Powell v Thompson [1991] 1 NZLR 597; G E Dal Pont Equity and Trusts in Australia (7th ed, Thomson Reuters, Sydney, 2019) at [38.100]; and Chris Kelly and Greg Kelly Gurrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at [15.139].
16 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [13.4.4], citing Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400 (CA) at 409 per Millet LJ.
remedy is personal, not proprietary. As such, constructive trust is not an accurate descriptor of liability for knowing receipt…
[48] However, as long ago as 1874, in Barnes v Addy, the courts referred to knowing recipients as “constructive trustees”.17 More recently in Westpac Banking Corp v Savin, the Court of Appeal used the same terminology:18
… The bank has been held liable to the plaintiffs as a constructive trustee of the sums in question. … The bank is now required to account as constructive trustee for the sums it received…
[49] The Court of Appeal clarified the jurisprudential underpinning of knowing receipt in McLennan v Livaja.19 In doing so, the Court said:
[40] We consider that the correct basis for knowing receipt is unconscionability. We prefer to characterise the liability incurred on a finding of knowing receipt as a personal liability to account in equity to the beneficiaries by restoring the property lost by the unconscionable receipt. The core duty of that liability is to restore misapplied assets, or their equivalent, to the beneficiaries.
[50] In my view, the confusion over the nature of the remedy for knowing receipt is helpfully clarified by Charles Mitchell and Stephen Watterson in their essay entitled Remedies for Knowing Receipt:20
In short, when the courts say that a knowing recipient is ‘personally liable to account as a constructive trustee’, they mean exactly what they say: because of the circumstances in which knowing recipients acquire title to the misapplied property, Equity fixes them with custodial duties which are the same as some of the duties which are voluntarily assumed by express trustees.
[51] Mitchell and Watterson also refer to the “core duty” to restore the misapplied trust property identified by the Court of Appeal in McLennan v Livaja.21 Similarly, they distinguish between the personal obligations owed by the knowing recipient and the proprietary status of the trust property.22 For Mitchell and Watterson, the proprietary status of the trust property is simple: 23
17 Barnes v Addy (1874) LR 9 Ch App 244 at 251–252.
18 Westpac Banking Corp v Savin [1985] 2 NZLR 41 (CA) at 54 per Richardson J.
19 McLennan v Livaja [2017] NZCA 446, [2018] NZAR 405.
20 Charles Mitchell and Stephen Watterson “Remedies for Knowing Receipt” in Charles Mitchell (ed) Constructive and Resulting Trusts (Hart Publishing, Oxford, 2010) 115 at 130.
21 At 132.
22 At 115.
23 At 115–116.
When an express trustee wrongfully transfers the original trust property to a recipient who is not entitled to it, the property continues to be owned by the beneficiaries in equity, whether or not the recipient knows of the breach of trust, unless he is a bona fide purchaser for value without notice of their equitable interest.
[52] Thus, a beneficiary can pursue two different kinds of remedies against a recipient of trust property acquired in breach of trust: a proprietary remedy that involves tracing the beneficiary’s existing equitable interest into the hands of the recipient and a personal remedy against the recipient. Those remedies have slightly different knowledge requirements and produce conceptually different outcomes. Although, practically, a beneficiary might achieve the return of the trust property through either, in the latter case this occurs by enforcing an in personam obligation against the recipient. Put another way, the court orders the recipient to return the trust property because he, she or it is obliged to do so, not because the beneficiary has any proprietary interest in the property.
[53] The significance of this conceptual distinction is evident in this case where the trust property is land the transfer of which has been registered under the Land Transfer Act. Barring any exception, such as Land Transfer Act fraud, any unregistered proprietary interest will be extinguished upon registration of the title to the property.24 If knowing receipt is made out, however, the beneficiary will still be able to enforce the recipient’s obligation in personam.25 It is the very fact the obligation is personal (rather than proprietary) that means it is not extinguished by the act of registration. But what this means for present purposes is that the applicants cannot rely on the cause of action in knowing receipt to sustain their caveat as they seek to do here.
Third hurdle – the manifest injustice provisions
[54] I have also considered whether the applicants might have a surviving proprietary claim against the respondent on the basis the respondent was arguably not a bona fide purchaser for value without notice of the beneficiaries’ interests. This turns on whether the applicants can bring themselves within any of the exceptions to indefeasibility of title within the Land Transfer Act, in particular, ss 54–57. I consider those provisions despite Ms Heine’s acknowledgment recorded earlier because it is
24 Land Transfer Act 2017, s 51(2).
25 Section 51(5).
necessary to do so in order to determine whether the applicants may have a proprietary interest.
[55]Section 54–57 provide:
54Application to court for order for alteration of register
(1)This section and sections 55 to 57 apply to a person (person A) who—
(a)has been deprived of an estate or interest in land by the registration under a void or voidable instrument of another person (person B) as the owner of the estate or interest in the land; or
(b)being the owner of an estate or interest in land, suffers loss or damage by the registration under a void or voidable instrument of another person (person B) as the owner of an estate or interest in the land.
(2)Person A may apply to the court for an order under section 55.
(3)An application for an order must be made not later than 6 months after person A becomes aware, or ought reasonably to have become aware, of the acquisition of the estate or interest by person B.
(4)The applicant must serve notice of the application on—
(a)the Registrar; and
(b)the registered owner of every estate or interest in the land and every person noted on the register as entitled to an interest in the land; and
(c)any other persons as the court directs.
55Court may make order only in cases of manifest injustice
(1)The court may make an order cancelling the registration of person B only if it is satisfied that it would be manifestly unjust for person B to remain the registered owner of the estate or interest.
(2)For the purpose of subsection (1), the existence of forgery or other dishonest conduct does not, of itself, constitute manifest injustice.
(3)An order under this section may be made only if the court is satisfied that in the circumstances the injustice could not properly be addressed by compensation or damages, whether under subpart 3 or otherwise.
(4)In determining whether to make an order, the court may take into account—
(a)the circumstances of the acquisition by person B of the estate or interest; and
(b)failure by person B to comply with any statutory power or authority in acquiring the estate or interest; and
(c)if the estate or interest is in Māori freehold land, failure by a person to comply with Te Ture Whenua Maori Act 1993; and
(d)the identity of the person in actual occupation of the land; and
(e)the nature of the estate or interest, for example, whether it is an estate in fee simple or a mortgage; and
(f)the length of time person A and person B have owned or occupied the land; and
(g)the nature of any improvements made to the land by either person A or person B; and
(h)the use to which the land has been put by either person A or person B; and
(i)any special characteristics of the land and their significance for either person A or person B; and
(j)the conduct of person A and person B in relation to the acquisition of the estate or interest; and
(k)any other circumstances that the court thinks relevant.
(5)The court may make an order under this section on any conditions that the court thinks fit (for example, an order relating to possession of the land).
56Court must not make order if estate or interest transferred to third person
The court must not make an order under section 55 if person B has transferred the estate or interest to a third person, that third person acting in good faith.
57Registration of order of court
(1)The Registrar of the court must serve a copy of the order on the Registrar.
(2)The Registrar must, on receiving a copy of the order, make the alterations to the register required to give effect to the order.
[56] Ms Heine submitted that ss 54–57 of the 2017 legislation were intended “to provide a fairer and more flexible approach to immediate indefeasibility than that which existed under the 1952 Act. The principle of indefeasibility remains important under the 2017 Act, but it is recognised through that flexibility”.
[57] She referred to the Law Commission’s report as to the genesis of ss 54–57 and continued by submitting that:
… the 2017 Act focuses on maintaining some flexibility to the immediate indefeasibility principles. The 2017 Act does not define “indefeasibility of title” – this is deliberate, following a recommendation by the Law Commission.
[58] She concluded this aspect of her argument with the submission that “the principle of indefeasibility of title is not as prescriptive under the 2017 Act as it was under the 1952 Act” and contended that “it is against this background that the application must be assessed”.
[59] This argument was intended to lay a foundation for a submission that, whereas under the 1952 legislation the courts consistently rejected claims such as those pleaded by the plaintiffs in the first and fifth causes of action in the substantive proceeding as amounting to a caveatable interest, the current legislation may have altered the position.
[60] Whilst I am prepared to accept that the exceptions to indefeasibility under the 2017 legislation are marginally wider than they were previously — essentially by reason of the introduction of ss 54–57 — I do not see the force in the argument that this reflects a wholesale move to a flexible view of indefeasibility. The Law Commission emphasised that immediate indefeasibility would continue to be the bedrock of the legislation and apply in the vast majority of cases.26 The Law Commission described its rationale for the new provisions as follows:27
The aim of providing for this discretion is to improve security of title in favour of previously registered owners, who had no intention to transfer or mortgage their property, and to improve fairness where a transfer would be void or voidable but for the LTA – particularly in cases involving fraudsters. This proposal should also reduce lengthy and expensive litigation in fraud cases, or avoid pushing the boundaries of the in personam jurisdiction in Torrens title cases.
[61] The Law Commission was careful to distinguish its proposal from the more wide-ranging flexibility provided for in some cognate jurisdictions:28
26 A New Land Transfer Act, above n 6 at [2.12].
27 At [2.14].
28 At [2.15].
Other Torrens statutes have similar provisions. The Queensland Land Title Act 1994 gives the Supreme Court wide discretion to make orders it considers just where certain exceptions to indefeasibility apply. Nova Scotia has legislated for “discretionary indefeasibility”, although from a position of deferred indefeasibility, giving the court a list of factors to take into account (similar to those in the Bill), and jurisdiction to make such orders as it thinks just and equitable (as in Queensland). However, the New Zealand proposal does not provide for such a wide judicial discretion (to make orders that the court considers just) as the provisions in these jurisdictions.
[62] The Law Commission also recommended the inclusion of the guidelines now contained in s 55 in response to submissions it received expressing concern about the effect of such a judicial discretion on transactional certainty.29 The Select Committee then introduced several further amendments to “clarify that the threshold for manifest injustice is very high, and more effectively set out the interplay between ‘manifest injustice’ and ‘fraud’.”30
[63] It is apparent, then, that the threshold for establishing manifest injustice is high. But, in the circumstances of this application, there is a more important point. Section 54–57 must be read together. While s 55 is the provision under which the court may make an order, s 54 is the provision entitling a person to make an application for such an order. Together, section 54(1) and (2) provide that two categories of persons may seek an order under s 55:
(a)a person who has been deprived of an interest in land by a “registration under a void or voidable instrument”; or
(b)an owner of an interest in land who has suffered loss or damage by a “registration under a void or voidable instrument”.
[64] The common thread is the registration under a void or voidable instrument. Where the instrument registered is neither void nor voidable, the provisions simply do not apply, irrespective of any manifest injustice. The manifest injustice test outlined in s 55 is the constraint on the court’s discretion to deal with situations where the registration of a void or voidable instrument has caused loss or deprived an interest in land. Manifest injustice does not itself trigger the court’s discretion. In that sense, the
29 At [2.16].
30 Land Transfer Bill 2016 (118–2) (select committee report) at 4.
heading to this group of provisions, “Alteration of register in cases of manifest injustice”, is very misleading.
[65] Neither void nor voidable are defined in the Land Transfer Act, and their meaning was not explained by the Law Commission or the Select Committee. But both words have an established meaning in the law:31
void – of no legal effect
voidable – valid until annulled; capable of being affirmed or rejected at the option of one of the parties
[66] The more immediate context for the inclusion of those words in s 54 is likely to be the wording of s 183(1) of the 1952 Act, which read:
(1) Nothing in this Act or the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002 shall be so interpreted as to render subject to action for recovery of damages, or for possession, or to deprivation of the estate or interest in respect of which he is registered as proprietor, any purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act or the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002 on the ground that his vendor or mortgagor may have been registered as proprietor through fraud or error, or under any void or voidable instrument, or may have derived from or through a person registered as proprietor through fraud or error, or under any void or voidable instrument, and this whether the fraud or error consists in wrong description of the boundaries or of the parcels of any land, or otherwise howsoever.
(emphasis added)
[67] In the landmark decision of Frazer v Walker, the Privy Council confirmed the principle of immediate infeasibility of title by reference to s 183.32 That provision was aimed at situations in which there was some legal defect in the title. Unless Land Transfer Act fraud could be established, the registered proprietor would take good title despite any legal defect in the transfer instrument. The section was not concerned with breaches of trust or other equitable matters.
[68] When viewed in this context, it is apparent s 54 was designed to ameliorate the position of a person who loses an interest in land or suffers damage as a result of fraud, or some other legal defect, not amounting to fraud as now defined in s 6 of the 2017
31 Bryan Garner (ed) Black’s Law Dictionary (11th ed, St Paul, Minnesota, 2019) at 1885–1886.
32 Frazer v Walker [1967] NZLR 1069 (PC).
Act (Land Transfer Act fraud). That explains the Select Committee’s comment that ss 54–57 involve an “interplay between ‘manifest injustice’ and ‘fraud’”. It also corresponds with the key concern identified by the Law Commission as justifying this minor departure from immediate infeasibility:33
In cases of void transfer instruments (particularly fraudulent transfers), immediate indefeasibility is not always fair on previously registered owners (especially those in occupation) who, as innocent victims of fraud for example, did not wish or intend to transfer their property.
[69] The applicants have not pointed to any legal defects in the instruments under which the respondent registered its titles to the three Shelly Bay sites that could make those instruments void or voidable. The alleged breach of trust, if made out, would not do so. The instruments would remain effective at law and the applicants only remedy would lie in equity. For this reason, any equitable interest the beneficiaries’ may have enjoyed in the three Shelly Bay sites was extinguished upon registration and cannot be clawed back through ss 54–57. Accordingly, the applicants cannot demonstrate an arguable case for a caveatable interest.
[70] Had the applicants been able to demonstrate an arguable case under s 54–57, I would have been inclined to uphold their caveat. I make this observation because this appears to be the first case dealing with these new provisions and certainly the first case considering them in the context of a caveat. Ms Robertson drew my attention to established authority that the right to request discretionary statutory relief from a court does not give rise to a caveatable interest.34 Ms Heine submitted ss 54–57 are different and applying that line of authority to them would undermine the purpose of those provisions, which was to improve security of title for previous owners.
[71] I am inclined to agree with Ms Heine. While an application is necessary, and relief remains at the court’s discretion, ss 54–57 exist to protect pre-existing proprietary interests, albeit interests that have since been extinguished by operation of the Land Transfer Act. In that sense, claimants under those provisions are in quite a different position from others seeking discretionary relief. Their interest is not
33 A New Land Transfer Act, above n 6, at [2.6].
34 Boat Harbour Holdings Ltd v Steve Mowat Building & Construction Ltd [2012] NZCA 305.
properly described as “inchoate”, as it is not so much created by the court as revived by it.35
[72] Section 51(3) makes clear that “the title of the person registered as owner of the estate or interest is subject to … the exceptions and limitations in sections 52 to 56…”. In that sense, indefeasibility of title is always subject to the possibility of a court exercising its discretion under s 55. In any event, the reality of the situation is the efficacy of ss 54–57 would be thwarted if a registered proprietor could deprive a claimant otherwise entitled to relief under s 55 of their proprietary interest by dealing with the land in the period before any application under those provisions could be heard. That cannot have been Parliament’s intention.
[73] In light of the conclusions I have reached, it is unnecessary to consider whether the beneficiaries would have an arguable case for breach of trust and knowing receipt. Those are matters that can be dealt with at any substantive hearing.
Result
[74]The application to sustain the caveat is dismissed.
[75]I order that the caveat lapse.
Costs
[76] I reserve costs. No doubt counsel will be able to resolve these. In the unlikely event that they cannot, then they may come back to me by memoranda in the usual way.
Associate Judge Johnston
Solicitors:
Gregory Simon Law, Auckland for applicants Kensington Swan, Wellington for respondent
35 At [41].
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