Moeke v South Waikato District Council

[2019] NZHC 2282

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE

CIV-2019-463-000050

[2019] NZHC 2282

BETWEEN

FORD BENJAMIN MOEKE

Plaintiff

AND

SOUTH WAIKATO DISTRICT COUNCIL

Defendant

Hearing:	15 August 2019
Appearances:	K J Patterson for the Plaintiff K Cornegé for the Respondent
Judgment:	12 September 2019

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 12 September 2019 at 11.30 am pursuant to Rule 11.5 of the High Court Rules.

…………………………………

Deputy Registrar

Solicitors:

Mark Copeland Lawyers, Rotorua K J Patterson, Tauranga

MOEKE v SOUTH WAIKATO DISTRICT COUNCIL [2019] NZHC 2282 [12 September 2019]

[1]                 This is an application for an order that a caveat not lapse pursuant to s 143 of the Land Transfer Act 2017.

[2]The background is not in dispute.

[3]                 The caveat is number 11417841.1, registered against Title Identifier 8A46B/1142. That is the title for the property located at 10 Dumfries Road, Tokoroa.

[4]                 On 2 October 2018 the applicant, Ford Moeke, entered into an agreement for sale and purchase with the then registered proprietor of the property, Raukawa Iwi Development Limited. It is agreed that the agreement became unconditional and that settlement was to take place on 7 December 2018.

[5]                 On 7 December 2018 Raukawa’s solicitors wrote to Mr Moeke and advised that it had elected not to sell. Mr Moeke’s solicitors issued a settlement notice requiring settlement within 12 working days. Settlement with Mr Moeke did not occur because Raukawa had resold the property to the respondent, South Waikato District Council. Registration of Raukawa’s transfer of its interest in the property to the Council took place on the very  day  that  Raukawa  was  supposed  to  settle  with Mr Moeke, 7 December 2018. The Council accepts, for the purpose of this proceeding, that it knew that Mr Moeke had a binding contract with Raukawa to buy the property. It says (with scant elaboration) that it acted in the public interest in stepping in, as an alternative purchaser, to defeat the completion of his purchase.

[6]                 On 20 March 2019 the Council entered into an agreement for sale and purchase with a third party. That agreement became unconditional on 14 June 2019 and settlement was due to take place on 26 July 2019. The date for settlement has been extended to 13 September 2019.

[7]                 On 16 April 2019 Mr Moeke lodged his caveat against the title to the property. He claims a caveatable interest pursuant to a cestui qui trust. He contends that he acquired an equitable interest in the property pursuant to the agreement for sale and purchase with Raukawa, and that he was deprived of his right to acquire the property

by the fraud of Raukawa and the Council. On this basis he claims an equitable interest in the property sufficient to support his caveat.

[8]                 There is no challenge to the description of the caveat and its adequacy in relation to the interest claimed.

[9]                 On 23 May 2019 Mr Moeke commenced proceedings naming Raukawa and the Council as first and second defendants under CIV-2019-463-46. In the statement of claim he sought relief by way of damages and exemplary damages for breach of contract and conspiracy to defraud against the first defendant, and conspiracy to defraud against the second defendant. Paragraph [13] of the statement of claim pleads:

… the first defendant “made it clear” to the plaintiff that it did not intend to perform the first defendant’s obligations under the contract, thereby repudiating the contract. In consequence the plaintiff has cancelled the contract, as is hereby notified.

(emphasis added).

[10]             At the same time he filed an application for summary judgment on the statement of claim.

[11]             The documents in opposition to the application for summary judgment were filed on 18 July 2019.

[12]             On 17 June 2019 Mr Moeke filed an amended statement of claim seeking relief by way of specific performance of the contract with Raukawa, seeking a declaration that the transfer from Raukawa to the Council is void; an order cancelling the registration of the transfer to the Council; and seeking an order that Raukawa specifically perform its agreement with Mr Moeke; or an order pursuant to s 43(3)(c) of the Contract and Commercial Law Act 2017 that  the property be vested in him.    I take this to be relief by way of an order that the Council transfer the property to   Mr Moeke. Additionally, Mr Moeke seeks relief by way of damages to compensate him for the delay in title, and exemplary damages in the sum of $150,000 plus costs.

[13]             Mr Moeke seeks by way of alternative relief damages of $450,000, interest under the Money Claims Act 2016, exemplary damages and costs.

[14]In the amended statement of claim Mr Moeke pleads as follows:

[12]     By para 13 of the statement of claim dated 28 May 2019, Ford notified cancellation of the contract.

[13]   By its actions of refusing to settle and selling the property to [the Council] and not complying with the settlement notice [Raukawa] repudiated the contract constituted by the first agreement.

[14]     Upon [Raukawa’s] repudiation, Ford became the beneficiary of a cause of action for specific performance which accrued unconditionally in Ford’s favour, notwithstanding the cancellation.

[15]     I consider the present application requires me to resolve the following questions:

(a)Did Mr Moeke have an equitable interest in the property by virtue of a trust?

(b)Is the pleading in para [13] of the statement of claim effective as cancellation by Mr Moeke of the agreement for sale and purchase between himself and Raukawa?

(c)Did Mr Moeke’s amended statement of claim effectively revoke the notice of cancellation in the earlier pleading?

(d)Even if the pleading is effective as cancellation, is it reasonably arguable that Mr Moeke has nevertheless retained his equitable interest in the property sufficient to sustain a caveat against the Council’s title? In other words, does the Council hold an equitable interest on trust for him separate from the contract with Raukawa?

(e)Alternatively, is Mr Moeke arguably entitled to relief in the form of an order requiring Raukawa or the Council to transfer the property to him, or can he “retrieve” his equitable interest by a vesting order under s 43 sufficient to sustain a caveat?

[16]     I will begin by setting out the applicable legal approach to sustaining or lapsing a caveat. I will then discuss each issue to the extent that I consider it ultimately determinative.

Caveats – legal principles

[17]The pertinent legal principles are not in dispute.

[18]     The onus lies with the caveator, Mr Moeke, to demonstrate he has a reasonably arguable case for the interest he claims.1

[19]     In this case, the interest relied upon by Mr Moeke is his status as beneficiary of a constructive trust over the property. There is no dispute that a constructive trust interest, if proven, is caveatable.2

[20]     A caveat will only be removed if it is patently clear the caveat cannot be maintained because:3

(a)there was no valid ground for lodging it; or

(b)such valid ground as then existed no longer does so.

[21]     Associate Judge Bell noted in Body Corporate 239331 v Escrow Holdings Forty-One Ltd that “caveat applications are summary and are therefore not suitable for deciding disputed questions of fact”.4 But he went on:5

… 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 made by the same deponent or inherently improbable it may be.

…

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

2      Land Transfer Act 2017, s 138(1)(b).

3      Sims v Lowe, above n 1, at 659–660.

4      Body Corporate 329331 v Escrow Holdings Forty-One Ltd [2017] NZHC 754, (2017) 18 NZCPR 466 at [8].

5      At [8]–[9].

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.

[22]     Even if Mr Moeke establishes a reasonably arguable case, the Court retains a residual discretion, exercised on the balance of convenience, to nonetheless remove a caveat or allow it not lapse.6 This discretion is usually exercised in circumstances where the caveat could serve no useful purpose or alternative safeguards are available.

Discussion

Did Mr Moeke have an equitable interest in the property by virtue of a trust?

[23]     The submissions for Mr Moeke describe him as being a cest tui que trust, or the beneficiary of a trust. This is effectively a claim that the Council holds the property as a trustee for him on the basis of a constructive trust arising from their alleged land transfer fraud, by purchasing the property from Raukawa while having actual knowledge of Mr Moeke’s unregistered interest as an unconditional purchaser awaiting settlement and therefore defeating that interest.7

[24]     It is not controversial that an as-of-yet unregistered purchaser of land will have an interest in land between purchase and settlement sufficient to sustain a caveat.8 Nor that title obtained through land transfer fraud will not be protected by registration against a genuine interest.9 That equitable interest is effectively held in trust by a registered owner who had notice that their registration served to unlawfully defeat the prior claim.

[25]     Prior to the final settlement of the agreement for sale and purchase, Mr Moeke clearly had an equitable interest in the land, to some degree. However, whether that

6      Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656; and

Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA).

7      Which is consistent with the definition of fraud in s 6 of the Land Transfer Act 2017.

8      Bevin v Smith [1994] 3 NZLR 648 (CA); McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 (CA); and Proprietors of Wakatu v Attorney-General [2017] NZSC 17.

9      Land Transfer Act 2017, s 52(1)(a).

equitable interest still exists remains in issue, given Mr Moeke’s cancellation of the contract which provided its basis.

Has Mr Moeke cancelled the agreement for sale and purchase?

[26]     It appears not to be in dispute that Mr Moeke cancelled the contract to purchase the property. The first notice of cancellation was given, following unsuccessful attempts at settlement negotiations,  in  the  original  statement  of  claim  filed  on  23 May 2019. That statement of claim was served on both Raukawa and the Council. In the statement of claim Mr Moeke only sought damages against both parties, rather than seeking to effectuate his interest in the property. It has not been suggested that this was invalid as a notice of cancellation. Cancellation became effective once the parties had notice of it.10

Is it reasonably arguable that Mr Moeke’s contractual interest in the property survived the cancellation of the contract?

[27]     The submission for Mr Moeke is  that,  even  if  the contract  is  cancelled,  Mr Moeke’s right to purchase the property was fully-formed prior to the point of cancellation and that right is not extinguished by the fact of cancellation. Counsel notes that causes of action accrued unconditionally before cancellation can survive cancellation.11 While this principle generally arises regarding unpaid deposits, counsel submits that it also applies to Mr Moeke’s equitable interest in the property in this case – which accrued unconditionally between the Council’s repudiation of the contract and Mr Moeke’s cancellation of that contract.

[28]     In my view it is not possible for Mr Moeke’s contractual interest in the property to have remained viable past cancellation.

[29]     To begin, Mr Moeke was aware that Raukawa had breached its contractual obligation to sell the property to him, and that the Council had allegedly fraudulently acquired his interest in the property. When one party repudiates a contract by making clear that it will not perform its fundamental obligations under the contract, the

10     Contract and Commercial Law Act 2017, s 41.

11     See Brown v Langwoods Photo Stores Ltd [1991] 1 NZLR 173 (CA); affirming Pendergrast v Chapman [1988] 2 NZLR 177 (HC); and see MQF Properties Ltd v Mosli [2019] NZHC 673.

wronged party has an option to either cancel the contract or affirm it.12 That election will generally be final and irrevocable.

[30]     Where a contract has been affirmed the party in breach remains liable for its obligations under the contract.13 Had the contract in this case been affirmed it would have been possible for the Court to give effect to Mr Moeke’s right to purchase the property under it, despite the fact that Raukawa no longer holds the property in question.14

[31]     However Mr Moeke instead cancelled the contract through the notice in the statement of claim. The consequences of cancellation are set out in s 42 of the Contract and Commercial Law Act 2017:

(1)When a contract is cancelled, the following provisions apply:

(a)to the extent that the contract remains unperformed at the time of the cancellation, no party is obliged or entitled to perform it further:

(b)to the extent that the contract has been performed at the time of the cancellation, no party is, by reason only of the cancellation, divested of any property transferred or money paid under the contract.

…

(3)Nothing in this section affects the right of a party to recover damages for a misrepresentation or the repudiation or breach of the contract by another party.

[32]     Under s 42(1)(a) any unperformed obligations effectively cease at the moment of cancellation. That includes Raukawa’s obligation to sell the property to Mr Moeke, which Raukawa had plainly repudiated. While Mr Moeke sought specific performance in his second statement of claim, filed just under a month later, this was

12 Contract and Commercial Law Act 2017, ss 36 and 38.

13 White and Carter Councils Ltd v McGregor [1961] 3 All ER 1178 (HL); and Metcalfe v Waterbedroom (Dominion Rd) Ltd (1991) 1 NZ ConvC 190,756 (HC).

14 In his amended statement of claim Mr Moeke seeks to have the Council’s registration set aside under s 55 of the Land Transfer Act 2017. New Zealand’s courts recognise a jurisdiction to set aside a transfer procured by fraud where its effect is to extinguish an equitable estate: see Efstratiou, Glantschnig and Petrovic v Glantschnig [1972] NZLR 594 (CA) at 601; cited in Waller v Davies [2005] 3 NZLR 814 (HC) at [35].

clearly too late. One cannot effectively unwind a cancellation after the other parties have been notified of it.

Is it reasonably arguable that an Mr Moeke’s equitable interest in the property survived the cancellation of the contract?

[33]     The submissions for Mr Moeke also argued that the power of the Court to grant relief under s 43 of the Contract and Commercial Law Act (including by orders vesting property or directing the transfer of property) is sufficient to keep alive the equitable interest in land, notwithstanding that he may have given notice of cancellation of the agreement for sale and purchase. Counsel submits that there is a statutory “revival” of the interest pending the Court’s determination as to the appropriate relief. He contends that, following the substantive hearing, the Court may either:

(a)order that the Council transfer its interest in the property to Mr Moeke; or

(b)cancel the transfer to the Council and order Raukawa to transfer its interest in the property to Mr Moeke.

[34]     The submissions for Mr Moeke also stressed the maxim that “fraud unravels all”. Counsel directed me to the comments of Lord Bingham in the British case of HIH Casualty and General Insurance Ltd v Chase Manhattan Bank that:15

… fraud is a thing apart. This is not a mere slogan. It also reflects an old legal rule that fraud unravels all … Once fraud is proved, “it vitiates judgments, contracts and all transactions whatsoever.”

[35]     Counsel argues that the caveat must be sustained because allowing it to lapse would effectively allow both Raukawa and the Council to profit from their wrongdoing. Alternatively, counsel repeats the claim that Mr Moeke’s equitable right as against the Council still exists, separately from the contract with Raukawa.

[36]     The original basis for Mr Moeke’s equitable interest in the property was his contract for its purchase. As against Raukawa, the cancellation of the contract (in both

15     HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 1 All ER (Comm) 349 at [15].

the language of cancellation and the bringing of a claim solely for damages) served to extinguish or return Mr Moeke’s beneficial interest in the property.16 It appears to me that the same is true for Mr Moeke’s equitable interest arising from that contract as against the Council.

[37]     The Courts appear to have consistently accepted that cancellation will extinguish an equitable interest. The Court of Appeal in Bevin v Smith stated clearly that (emphasis added):17

… we consider that an equitable interest in land should, and does, pass under a conditional contract of the kind involved here, even though specific performance of the contract in the strict sense is not available. We agree with the recent Australian authorities to the effect that the equitable estate passes when equity will, by injunction or otherwise, prevent the vendor from dealing with the property inconsistently with the contract of sale, ie inconsistently with the purchaser's contingent ownership rights. It will be sufficient if the Court will order specific performance of the contract subject to the contingency. As McMorland points out (para 10.03), the purchaser's estate will remain contingent pending fulfilment or waiver of the condition. The interest will cease if the contract were avoided for failure of the condition, in the same way as the interest may come to an end in several other situations: upon cancellation for breach; or upon non-payment of the purchase price.

[38]     Counsel for the Council also pointed me to the comments of Lord Walker setting out the United Kingdom approach to the passing of an interest in land in Jerome v Kelly, a case about capital gains taxation (emphasis added):18

[32] It would therefore be wrong to treat an uncompleted contract for the  sale of land as equivalent to an immediate, irrevocable declaration of trust (or assignment of beneficial interest) in the land. Neither the seller nor the buyer has unqualified beneficial ownership. Beneficial ownership of the land is in a sense split between the seller and buyer on the provisional assumptions that specific performance is available and that the contract will in due course be completed, if necessary by the court ordering specific performance. In the meantime, the seller is entitled to enjoyment of the land or its rental income. The provisional assumptions may be falsified by events, such as rescission of the contract (either under a contractual term or on breach). If the contract proceeds to completion the equitable interest can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full.

16     DW McMoreland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at 632.

17     Above n 8, at 665.

18     Jerome v Kelly [2004] UKHL 25, [2004], 2 All ER 835, cited by Woolford J without comment in

Body Corporate 396711 v Sentinel Management Ltd [2012] NZHC 1957.

[39]     In Chen v Lin New Zealand’s High Court dismissed an application to sustain a caveat based on a cancelled agreement, stating:19

[54]      It has been determined that a valid cancellation of an agreement for sale and purchase means that the equitable interest of the purchaser in the land comes to an end because the interest is dependent upon the continuing existence of a contract which can be specifically enforced: See Whitehead v Gunn Corporation.

[55]      As the Chinese courts have declared that the Agreement is now cancelled, there is no caveatable interest in the Flatbush Property pursuant to the Agreement dated 10 July 2007 between the deceased and the applicant/plaintiff. The applicant/plaintiff may have had a valid ground for lodging the caveat when the Agreement was still enforceable. However, now that it is cancelled, the equitable interest that justified the lodging of the caveat in the first place no longer exists. Therefore, I do not accept that it is reasonably arguable that the applicant/plaintiff has the type of equitable interest that he claims in the Flatbush Property.

[40]      In Whitford Holdings Ltd v Coumat Ltd a vendor cancelled an agreement for sale and purchase of land which had been protected by a caveat, due to the purchaser’s failure to settle in accordance with a settlement notice’s requirements.20 The Court stated that “where the caveat is based on an agreement for sale and purchase, the balance of convenience and residual discretion will rarely be relevant considerations.”21 The Court considered that while the agreement for sale and purchase was on foot the purchaser had obtained an equitable interest in the property which would support the caveat. However, as the agreement had been cancelled, that equitable interest was terminated, leaving no basis for the caveat to be sustained.22

[41]     Neither party has pointed me to a case directly dealing with the cancellation of a contract for sale and purchase by a party who nonetheless sought to rely on the equitable interest arising from that contract against a third party who was on notice (for the purpose of sustaining a caveat or otherwise). I have also not found such a case. In the absence of a direct authority, what seems clear from the cases before me is that generally a pre-registration purchaser’s equitable interest in land is very closely tied to their contract for purchase and cannot survive its cancellation. Given the Council was notified of the cancellation I do not consider their position should be

19     Chen v Lin [2014] NZHC 1727.

20     Whitford Village Holdings Ltd v Coumat Ltd [2015] NZHC 1787.

21 At [7].

22 At [76].

different from that of Raukawa, against whom the cancellation would clearly be the end of any claim for specific performance.

[42]     For the record I do not consider that any of the changes between the previous legislation and the Land Transfer Act 2017 affect the relevant law on this point.

[43]     Regarding the possible “revival” of an interest through remedies under the Contract and Commercial Law Act, I note that a caveator must have a present, rather than merely a potential interest in the land in order to sustain their caveat.23 This also implicates the distinction drawn by the Courts between remedial and institutional constructive trusts, set out by the Court of Appeal in Fortex Group Ltd (in rec and liq) v MacIntosh between institutional and remedial constructive trusts:24

The difference between the two types of constructive trust, institutional and remedial, is that an institutional constructive trust arises upon the happening of the events which bring it into being. Its existence is not dependent on any Order of the Court. Such order simply recognises that it came into being at the earlier time and provides for its implementation in whatever way is appropriate. A remedial constructive trust depends for its very existence on the Order of the Court; such order being creative rather than simply confirmatory. This description should not be regarded as definitive or as precluding further developments in this area of the law when greater refinement may be necessary. It is used to reflect the submissions in this case and is sufficient for present purposes.

[44]     For the caveat to be sustained, the equitable interest or constructive trust claimed must exist presently, rather than just as a possible remedy the Court might impose in response to the situation.25 If Mr Moeke has effectively sacrificed that equitable interest, the caveat cannot presently be sustained by the fact that the Council’s fraud might hypothetically lead to the Court providing a remedy allowing him to claim the property.

[45]       I do not consider the fact that Mr Moeke cancelled the agreement as a thwarted purchaser meaningfully changes the norm that the equitable interest of a purchaser arising from an agreement for sale and purchase cannot survive the cancellation of that contract. While there is a sliver of novelty to this situation – in that Mr Moeke’s

23     Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA) at 190,248; and DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [10.009].

24     Fortex Group Ltd (in rec and liq) v MacIntosh [1998] 3 NZLR 171 (CA) at 172–173.

25     Hinde McMorland & Sim Land Law in New Zealand, above n 23, at [10.009].

contract was with Raukawa rather than the Council, and he would never have been able to claim against Raukawa directly – he still cannot effectively disclaim his right to purchase the property to both Raukawa and the Council only to subsequently revive it. While Mr Moeke effectively cancelled the contract in response to the parties’ apparent land transfer fraud, his election to cancel and claim for damages was freely made, rather than being secured by further fraud.

[46]     It is my view that, following the cancellation of the contract, Mr Moeke was left in the position contemplated in Sims v Lowe, where the valid ground that existed justifying his lodging the caveat no longer does so.26 I do not consider he has a reasonably arguable claim sufficient to support his caveat.

Result

[47]     I  make  an  order,   which   will   take   effect   at   10.00   am   on   Friday 20 September 2019, that the caveat lapse. The reason for delaying the coming into effect of the order is to give Mr Moeke the opportunity to commence an appeal and seek a stay if he disagrees with this judgment.

Costs

[48]     In terms of the statutory costs regime, the presumption is that the successful party is entitled to costs. For a normal case of this level of complexity, costs would be allowed on a 2B basis. However under r 14.7(g) of the High Court Rules 2016 there is a broad discretion to reduce or refuse costs where some factor exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be “predictable and expeditious”. Without deciding the matter, my initial impression is that this is a case where the just course would be to let costs lie where they fall. If the Council does not agree with that approach, it may file and serve a brief memorandum within 10 working days. Mr Moeke may file and serve a brief memorandum in response within a further 10 working days.

26     Sims v Lowe, above n 1, at 660.

Associate Judge Sargisson