Pragma Designer Homes Limited v Jiang
[2016] NZHC 677
•13 April 2016
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2015-419-434 [2016] NZHC 677
UNDER The Land Transfer Act 1952 IN THE MATTER
of an application pursuant to Section 145A Land Transfer Act 1952 for an order that a caveat against dealings not lapse
BETWEEN
PRAGMA DESIGNER HOMES LIMITED
Applicant
AND
ZHOU JIANG Respondent
Hearing: 6 April 2016 Appearances:
Mr C Talbot for Applicant
Mr A Foster for RespondentJudgment:
13 April 2016
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
13.04.16 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
PRAGMA DESIGNER HOMES LIMITED v JIANG [2016] NZHC 677 [13 April 2016]
Introduction
[1] This proceeding arises from an originating application brought pursuant to s 145A of the Land Transfer Act 1952 for an order that caveat against dealings not lapse.
[2] The brief background to the proceeding is that the applicant alleges that it is entitled to an interest in a section of land known as Lot 140 in the Teafields subdivision at Hamilton. The applicant relies upon an agreement for sale and purchase which it executed on 5 August 2015. The agreement describes the vendor as being Zidong Jiang. The purchaser is described as Pragma Designer Homes Limited. The price of the section was $275,000 and settlement was to take place on
6 August 2015. It subsequently turned out that the vendor Zidong Jiang was not in fact the registered proprietor of the property. The section was actually owned by his son, Zhou Jiang. The son is named as the respondent to the present application.
[3] The applicant lodged a caveat against the title to the property claiming an interest or estate in the land in the following terms:
Estate or interest claimed
Pursuant to an agreement for sale and purchase dated 5 August 2015 between the Caveator as purchaser and Zidong Jiang as Vendor who has a beneficial interest in the property through a trust relationship with the registered proprietor Zhou Jiang.
[4] The present application was filed to prevent the lapse of the caveat. The key provisions of the notice of application setting out the grounds which were relied upon to support the caveat stated:
(a) The applicant has entered into the ASP with the vendor and has an unregistered interest in the section;
(b) The vendor at all material times had a beneficial interest in the section through a trust relationship with the registered proprietor Zhou Jiang;
(i) The vendor at all material times when negotiating concluding and then seeking to avoid the ASP was represented by a real estate agency [Harcourts]… . Harcourts various correspondence and discussions with the applicant when concluding the ASP
referred to amendments and an additional clause required by “the current owner”.
[5] The originating application went on to state that after the agreement for sale and purchase became conditional Harcourts represented to the applicant that “the owner” wished to withdraw from the agreement and would only sell the section as a home and land package. It was then alleged:
(iv) Harcourts actual or apparent authority to sell the section and make representations on behalf of “the owner” has never been revoked or denied by the registered proprietor;
[6] It was further stated:
(ix) The registered proprietor and vendor are father and son who are both involved in the same property developments business, New Settler Homes Limited from which the applicant has previously purchased sections;
(x) Neither the registered proprietor nor Harcourts have ever represented to the applicant that the vendor did not have authority to enter into the ASP.
[7] The notice of opposition which the respondent has filed first sets out a ground of opposition that the caveat is defective and that it does not state all of the particulars required by s 137 of the Land Transfer Act.
(a) … in particular section 137(2)(c) which requires, in mandatory terms, that a caveat must disclose how the land, or estate, or interest claimed is derived from the registered proprietor.
(b) Zidong Jiang as vendor under the said Agreement for Sale and Purchase dated 5 August 2015 did not have the requisite capacity as vendor both at the time the agreement was made and subsequently while the agreement remained executor;
(c) The said Agreement for Sale and Purchase dated 5 August 2015 is not enforceable by action by virtue of section 24(1)(b) of the Property Law Act 2007;
(d) There is no “trust relationship” identified or which existed between Zidong Jiang as vendor under the Agreement for Sale and Purchase dated 5 August 2015 and the respondent Zhou Jiang being the registered proprietor of the affected land;
(e) Further, Zidong Jiang as vendor has no beneficial interest … in the land and was not authorised on any basis to enter into the said Agreement for Sale and Purchase…
[8] Mr Mistry, who is a director of the applicant, deposed that there had been exchanges between the applicant’s solicitor and the solicitor for the respondent, Mr Guo. He noted that Mr Guo, although making references to “our client” in emails exchanged between the parties, did not actually identify who the client was. He then deposed as follows:
[15] We understand George Guo is also the solicitor for the registered proprietor Zhou Jiang, who is the father and our business partner of the Vendor. We know George Guo is the solicitor for NSH1 as we have previously purchased sections from NSH. We were purchasing another property from NSH at the same time as this dispute arose over the section. Given our existing relationship with Zhou Jiang and Zidong Jiang through their involvement in NSH we sought to provide an opportunity to allow the vendor to settle late on the section without penalty
[9] In a subsequent passage in his affidavit, Mr Mistry goes on to say:
[21] We believe the vendor holds a beneficial interest in the property and had authority, as beneficial owner, from the registered proprietor to market and sell the property to Pragma. The vendor could not otherwise have increased the price based on works being carried out on this section and could not have sought to withdraw from the agreement and then proceed again on the basis of the land and home package.
[10] Two points can be made about the evidence which I have set out from paras
15 and 21 of the affidavit of Mr Mistry above. In neither case is the evidence admissible. The evidence is opinion evidence which sets out the state of the deponent’s belief. Such evidence is excluded by s 23 of the Evidence Act 2006. The same conclusion applies to the statement in para 24 of the affidavit of Mr Mistry where he deposes that:
I believe and Pragma believes that the vendor has a beneficial interest in the property through a trust relationship with the registered proprietor, Zhou Jiang.
[11] However it may not be necessary to consider these particular aspects of the evidence depending upon the conclusion that the court comes to with regard to the first ground of opposition, namely that the caveat did not comply with s 137 of the
Land Transfer Act.
1 The reference is apparently to a company called New Settler Homes Ltd.
Principles and law relating to caveat
[12] The applicable principles for an application under s 143 of the Land Transfer
Act are referred to in Boulton v Senior.2 These are set out as follows:3
(b) If it is clear that there was no valid ground for lodging a caveat, or that the interest which in the first place justified the lodging of the caveat no longer exists, such a caveat should be removed. Sims v Lowe [1988] 1 NZLR 656 (CA) at p 659
(c) The onus under s 143 of the Land Transfer Act 1952 lies on the caveator to show that he has a reasonably arguable case for the interest he claims. Castle Hill Run Ltd v NZI Finance Ltd [1985] 2
NZLR 104 at pp 104-106
......
(e) For the purpose of this application, the caveator therefore must show that it is entitled to, or to be beneficially interested in, the estate referred to in the caveat by virtue of an unregistered agreement or an instrument or transmission or of any trust expressed or implied. Section 137, Land Transfer Act 1952
(f) What the caveator must establish is an arguable case for claiming an interest of the kind in s 137 of the Land Transfer Act 1952
(g) Even if the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously. Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd (1996) 3 NZ ConvC (digest) 192,459 at p 192,461; [1996] 2 NZLR 652 at p 656;
......
(i) The summary procedure for removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. Accordingly it has been said:
... that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so. Sims v Lowe [1988] 1
NZLR 656 at pp 659-660...
(See also Glanville v Medial Holdings Ltd, High Court Auckland, M 46-IM03, 25 February 2003, Heath J; and Pratt v Hodge, High Court Hamilton, M 216/02, 20 May 2003, Master Faire; and Hinde McMorland & Sim Land Law in New Zealand 10.020.)
2 Boulton v Senior HC Blenheim CIV-2004-406-19, 10 February 2004.
3 At [3], citing Allen v Hogan Developments Ltd (2001) 4 NZ ConvC 193,420 (HC).
[13] While that was a decision under s 143 of the Act, the same principles apply to an application for sustaining a caveat under s 145A.
The grounds relied upon for lodging the caveat
[14] The first ground of defence which was advanced on behalf of the respondent was that the caveat did not state all of the particulars required by s 137 of the Land Transfer Act in particular, s 137(2)(c) which requires that a caveat must disclose how the land, or estate or interest claimed is derived from the registered proprietor.
[15] The caveat in purported compliance with the requirements of s 137 states:
… Zidong Jiang is vendor who has a beneficial interest through a trust relationship with the registered proprietor Zhou Jiang.
[16] Section 137 provides as follows:
137 Caveat against dealings with land under Act
(1) Any person may lodge with the Registrar a caveat 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 any 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 any land or estate or interest to any other person to be held in trust.
(2) A caveat under this section must contain the following information:
(a) the name of the caveator; and
(b) the nature of the any land or estate or interest claimed by the caveator, which must be stated with sufficient certainty; and
(c) how the any land or estate or interest claimed is derived from the registered proprietor; and
(d) whether or not it is intended to forbid the making of all entries that would be prevented by section 141 or a specified subset of them; and
(e) the any land subject to the claim, which must be stated with sufficient certainty; and
(f) an address for service for the caveator.
(3) Caveats under this section must be executed by the caveator or the caveator's attorney or agent.
(4) Caveats under this section must be entered on the register as of the day and hour of their receipt by the Registrar.
[17] There is no doubt that a caveator may claim an interest in land as a beneficiary under a constructive or resulting trust: Zhong v Wang.4 As the Court of Appeal stated in that case, the question of whether the caveat adequately describes the interest claimed by the caveator or the derivation of that interest is one of degree.
[18] As the Court of Appeal further noted in the decision in Zhong:5
What is important is that the registered proprietor and the court understand the nature of the interest claimed and the basis of that claim.
[19] I do not read Zhong as justifying a lack of clarity on the part of the caveator when lodging the caveat on the basis that in subsequent caveat sustainment proceedings the interest was described with acceptable particularity to make it clear how the interest of the vendor came into being. The statutory requirements of what is to be included in a caveat require that the caveat includes a statement which stands on its own feet in the sense that it contains a sufficient statement of particularity regarding the source from which the rights of the caveator originate. That in turn may include, as it does in this case, a requirement to show how the rights of a third party who is not the registered owner of the property arose. The registered proprietor faced with the lodging of the caveat does not have the advantage of reading the considerable volume of affidavits which is typically filed in the caveat proceedings. The registered proprietor may never find itself in the position of having that information because sustainment proceedings may never be taken. Even before forming a view as to whether it should itself take proceedings for the removal of the caveat, it is necessary for the registered proprietor to be in possession of a
coherent and intelligible statement of the purported basis for lodging the caveat.
4 Zhong v Wang (2006) 5 NZ ConvC 194,308, (2006) 7 NZCPR 488 at [43].
5 At [53].
[20] The key point however is that s 137 requires that the caveator identify the basis upon which its beneficial interest in the property has arisen. A beneficial interest which would justify the lodging of the caveat under the Act could be available to the applicant in theory because it has arisen from the trust in its favour. In that regard, the caveat makes two key allegations. It says that its interest arises as a result of the agreement for sale and purchase dated 5 August 2015. But it is necessary for the caveator to identify the basis upon which enforcement of its agreement for sale and purchase could bind the property. If a contract is entered into between an intending purchaser with a person who does not have any interest in the property to dispose of, then the necessary interest of the alleged vendor does not empower it to create any equitable interest over the land. To establish how the respondent derives its interest, the caveator in this case says that the caveator’s interest arises from a trust which must have been antecedent in its creation to the date when the agreement for sale and purchase was entered into an pursuant to which trust the purported vendor had an interest in the land to dispose of.
[21] A registered proprietor confronted with a statement that the vendor in this case had a “beneficial interest in the property through the trust relationship with the registered proprietor” would not be given any reasonable information about where the supposed interest derived from.
[22] The statement contained in the caveat in this case appears to contain a mixture of concepts. By that I mean, the caveat refers to the entitlement to an interest in land as arising from an agreement for sale and purchase and a trust. It may be that the caveat was drawn in such a way to confront the difficulty that the counter-party to the agreement for sale and purchase was not the registered proprietor of the property and did not have the right to enter into agreements affecting the property which would be the prerogative only of the legal owner. The formulation which was therefore adopted may have been intended to establish a basis of entitlement for the vendor to sell the property. This was asserted in the caveat as being a right under a trust. However, such a basis cannot be understood as logically fitting in with the requirements of the law as to who has the right to deal with property. That is to say, a person who has a beneficial interest in a property owned by a trust does not in general terms have a right to enter into an agreement for
sale and purchase which, because it would affect the legal ownership of the property, would have to be an agreement that bound the trustee as the legal owner.
[23] Overall, viewed objectively, the statement in the caveat fails to satisfy the requirements of s 137(2)(c).
[24] For this reason, the ground of opposition put forward by the respondent succeeds. The caveator not having complied with the mandatory requirements of this section is not entitled to now seek sustention of the caveat.
The alleged trust arrangement further considered
[25] There are other difficulties with the case which the purchaser brings.
The evidence relating to clause 19
[26] The case for the purchaser rested heavily on the circumstance that the vendor attempted to recover the amounts of money which had inferentially, it appears, been spent on the property. This I understand was intended to give rise to an inference that supported the case for the applicant that the vendor in fact had an equitable interest in the property.
[27] For reasons which I have already tried to make clear, the fact that a party has an equitable interest in the property does not entitle him in general terms to act as though he is the legal owner of the property and entitled as such to enter into agreements for its sale. If that is the correct position, then even if the evidence which was relied upon by the applicant did give rise to an inference that the vendor had an equitable interest in the property, that would not assist the purchaser/applicant.
[28] There will be cases obviously where the caveator lodges a caveat in reliance upon an equitable interest in the land. But that is a different thing from the hybrid type of argument which was put forward here which sought to strengthen a claim that the applicant had an agreement for sale and purchase in relation to Lot 140 by pointing to the fact that the vendor, while not the owner of the legal title to the property, had an equitable interest in it.
Agency
[29] Mr Foster for the respondent made submissions concerning the agency matter on the basis that in this case what was relied upon was ostensible authority. That is to say that if the applicant were to succeed, it would have to demonstrate that there had been a representation made arising from all the circumstances of the case that the vendor in entering into the agreement for sale and purchase did so with the authority of the respondent as the registered proprietor.
[30] Mr Talbot for the applicant accepted that any representations which would give rise to a manifestation of ostensible authority would have to emanate from the putative principle. The supposed agent could not bind his principal by representations that he made as to the existence of an agency:6
The truth clearly was that they relied on the knowingly false representation made by Mr Johannesen [the “agent”], in implementation of his fraudulent conspiracy with Mr Magelssen, that the latter had obtained specific authority from Mundogas. Mr Magelssen purported to conclude the charterparty in Copenhagen on
19 June 1980, and may thus be taken to have made a direct representation of his own that he was empowered to do so. But no representation by Mr Magelssen can help Armagas. It must be in a position to found on some relevant representation by the responsible management of Mundogas as to Mr Magelssen's authority: see Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 1 All ER 630 at 645–646, [1964] 2 QB 480 at 505 per Diplock LJ.
[31] Mr Talbot sought to identify evidence of a representation made by the respondent that the vendor was indeed authorised to enter into the agreement for sale and purchase. The applicant does not of course have to establish in an application under s 145A that the existence of such representations is able to be established on the balance of probabilities. The applicant must, though, be able to point to some evidence which shows that there is a reasonable argument available to the applicant
that such inferences can be drawn.
6 Armagas v Mundogas SA [1986] 2 All ER 385 at 390.
[32] I will not set out in detail all the matters that Mr Talbot examined. The key point, though, was that it is possible to reason in the following steps. The first step in the argument is that the insertion of clause 19 into the agreement showed an intention to recover amounts of money which had been expended on the property. Secondly, such amounts of money would not have been expended without the consent of the respondent as registered proprietor. Therefore, recovery of such amounts would be for the benefit of the respondent. The fact that the vendor had by inserting clause 19 into the agreement sought to recover those amounts meant that he was acting in furtherance of the interests of the respondent. It followed therefore that he had an authority from the respondent to sell the property by way of an agreement which included a provision for the recovery of the monies expended on foundations and joists, being the areas in which the expenditure identified under clause 19 had arisen. This it will be observed is really an argument that an inference is available of actual authority.
[33] The case for the applicant is that if these sums were expended by the current owner of the property, the respondent, then the fact that the vendor was aware of them and sought to recover them shows that the two parties were acting in concert. That consideration together with the fact that the parties had previously been engaged in business together might be sufficient to demonstrate an arguable case that the respondent had in fact authorised the applicant to enter into the contract, notwithstanding his explicit evidence that he had not done so.
[34] I agree that there are other possible explanations as to why the vendor included clause 19 in the agreement for sale and purchase. These include the possibility that the vendor, in order to persuade the respondent as legal proprietor to cooperate in the exchange of title with the applicant, would have had to reimburse the respondent for the expenditure on joists and foundations etc. That outcome would be consistent with the vendor as the principal party to the transaction being required to acquire title from the respondent and then pass that title on to the applicant as purchaser under the agreement for sale and purchase. However, the fact that there is an alternative explanation does not entirely negate the persuasiveness of the suggested inference which the applicant would have the court draw in its favour.
[35] I would therefore agree that by a narrow margin the applicant would be able to demonstrate a possible basis for arguing that the vendor entered into the agreement for sale and purchase on behalf of the respondent with the actual authority of the latter. This conclusion does not, though, affect the outcome of the case.
Conclusion
[36] Because of what I would view as being the failure to comply with s 137 of the Land Transfer Act, my conclusion is that the applicant is not entitled to an order sustaining the caveat over the property. The result is that the application is dismissed.
[37] The parties at the hearing agreed that costs should be awarded against the party who failed in the proceeding and that costs should be on a 2B basis.7 In
addition the applicant is entitled to have disbursements as fixed by the Registrar.
J.P. Doogue
Associate Judge
7 HCR 14.2(a).
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