Risah Trustee Limited v Beard HC Christchurch Civ-2007-409-331

[2007] NZHC 1693

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2007-409-000331

UNDER  the Land Transfer Act 1952

IN THE MATTER OF     Caveat number 6983681.1 (Canterbury Registry) affecting the land in Certificate of Title CB16B/1147

BETWEEN  RISAH TRUSTEE LIMITED Plaintiff

AND  WAYNE JEFFREY BEARD Defendant

Hearing:         20 March 2007

Appearances: BRD Burke for Plaintiff

K W Clay for Defendant

Judgment:      26 March 2007

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

The Proceeding

[1]      Risah wants Mr Beard’s caveat removed from its Christchurch City property upon which the Provincial Hotel was built, and from which the hotel business is run.

Background to purchase of leasehold and freehold interests

[2]      Risah owns the land.  The land is subject to a registered lease in favour of the proprietor of the hotel business.   Until December 2005, Mr Nawisielski held the lease and was proprietor of the business.

[3]      On 25 November 2005 Mr Beard, as agent for a company to be incorporated, signed an agreement to purchase the business from Mr Nawisielski for $170,000.

RISAH TRUSTEE LIMITED V BEARD HC CHCH CIV-2007-409-000331  26 March 2007

The agreement was subject to Mr Beard approving the contract and raising suitable finance within ten days.  Settlement was to occur 14 days thereafter.

[4]      By agreement dated 20 December 2005, Risah agreed to sell the  land to R & P Trustees Limited for $1 million.  It was a back-up offer, and was subject to conditions  including  the  provision  of  vendor  finance  of  $300,000  which  was required to be secured over the subject property, and also over other land owned by a company  in which Mr  Paul Martin held  an  interest.    Purchase  conditions  were required to be determined within 30 days, and settlement was to occur on 1 July

2006.

[5]      Shortly prior to signing the agreement to buy the business Mr Beard met with Mr Paul Martin.  In the outcome of their discussions Mr Beard says he offered Mr Martin a fifty per cent share in the company to be incorporated that would complete the purchase of the business.   Mr Martin’s role was to organise finance for the purchase of the business and the land freehold.  On 25 November 2005 (the date of the business ASP) Mr Martin “reserved the company name Provincial Hotel Limited at the Companies Office”.

[6]      From about this point in time Mr Beard discerned Mr Martin was taking action to secure for himself the benefit of any interest in purchasing the business and the land freehold.

[7]      On  or  about  28  November  2005  Provincial  Hotel  Christchurch  Limited

(Provincial) was incorporated.  R & P Trustees Limited owned 50 shares.  The other

50 shares were recorded as being held in Mr Martin’s name.  R & P Trustees Limited had been incorporated previously.   Its shares were owned equally by the wife and brother of Mr Martin.

[8]      In negotiations for the purchase of the land freehold Mr Beard felt excluded by Mr Martin.  He says he is the beneficial owner of half of the shares in Provincial, being  the  shares  held  in  the  name  of Mr  Martin.    This  claim  is  supported  by reference to a Deed of Trust dated 9 December 2005 and signed by Mr Martin and Mr Beard.

[9]      Although committed to the purchase of the business, Provincial encountered difficulties  in raising  the finance to  complete.   A settlement  notice was  issued. Eventually finance was obtained in two tranches from Furniture Finance Limited totalling approximately $170,000.  Mr Beard was required to guarantee repayment of the sum of $70,000 and in support of that guarantee was required to give security over a separate property in which he held an interest.  For the advance of the balance of $100,000 guarantees were required of Mr Martin, his wife, and his brother.

[10]     Eventually, on 28 February, the purchase of the business was settled.  On 1

March 2006 trading of the new business began.  In his lengthy affidavit, Mr Beard chronicles   the   difficulties   he   experienced   with   Mr   Martin   over   business management.    He alleges  mismanagement  and  improper  use of company  funds. Matters came to a head about mid-June 2006 when Mr Beard was served with a trespass notice requiring him to leave his accommodation at the Provincial Hotel. The purchase of the freehold was to settle about two weeks later.  Mr Beard refers to a settlement notice being issued at a later date.  He disputes that part of the notice which states the vendors were ready, able and willing to settle.  He said they were not.  Apparently settlement was deferred upon additional conditions being agreed.

[11]     On 25 July Mr Beard left the property, having been required to leave. [12]  On 7 August 2006 Mr Beard lodged his caveat.

[13]     On  30  October  2006  receivers  were  appointed  to  Provincial,  and  on  31

October 2006 receivers were appointed to R & P Trustees Limited.

[14]     On 9 October, Risah issued a settlement notice.  Eventually they purported to cancel the contract for sale of the  land.   The deposit  of $70,000 paid has been forfeited.  Risah has since re-sold the property, but Mr Beard’s caveat has prevented settlement.  Meanwhile the receiver appointed to the business chose not to trade on. Consequently the lease was surrendered.

Surrender of the lease

[15]     An  issue  arises  regarding  the  circumstances  in  which  the  lease  was surrendered.

[16]     The agreement for sale and purchase of the leasehold interest was subject to Risah’s consent of assignment.   Consent to the assignment was granted, and that lease was assigned to Provincial pursuant to a deed of assignment dated 28 February

2006.   The lease was surrendered following the receiver’s decision that Provincial should cease trading.

[17]     The deed of surrender of lease was not signed by the receiver, but rather by Mr Martin as a director of Provincial.   It was executed on 22 January 2007.   Mr Beard’s position is that any such deed had to be signed by the receiver pursuant to s10 of the Receiverships Act 1993.  Section 10 requires every deed entered into by or on behalf of the receiver, and relating to the assets in receivership, must state that the receiver has been appointed.   However s10(3) also states that any failure (of the receiver to state that he has been appointed) does not affect the validity of the deed or agreement or document.  The purpose of s10 is to ensure that any exercise, by a director, of purported authority is subject to the authority of a receiver to deal with the company’s assets.   Mr Beard’s case is that Mr Martin had no authority, and therefore improperly acted to effect a surrender of the lease.   I will deal with this submission later.

[18]     Mr Beard also claims that Mr Martin surrendered the lease for the purpose of advancing his and R & P Trustees Limited’s interests because of its alleged attempt through another company, PLOT Limited, to acquire the land freehold interest.

[19]     This claim will also be dealt with by me later.

The caveat

[20]     It reads that Mr Beard has:

An estate or interest in a land described hereto by virtue of a resulting trust by way of a  partnership  agreement  between  R &  P Trustees  Limited as Trustee and Wayne Jeffrey Beard as beneficiary (by virtue of an unconditional agreement for sale and purchase dated 20  December  1995 between Risah Trustee Limited as registered proprietor and vendor and R & P Trustees Limited as purchaser).

[21]     The  caveat  refers  to  a  resulting  trust,  a  partnership  agreement,  and  an agreement for sale and purchase of freehold.

[22]     Mr Beard says there was a joint venture agreement for the acquisition of the freehold, as is evidenced by:

Discussions between he and Mr Martin.

The formation of Provincial.

The deed of trust by which his shares were held in trust by Mr Martin.

Correspondence  by  which  Mr  Martin  acknowledged  the  parties  had

worked with a view to best establish a 50/50 ownership structure.

The agreement for sale and purchase of the freehold which provided for the purchase by R & P Trustees Limited or nominee.

[23]     Mr Beard says Mr Martin/R & P Trustees Limited breached the joint venture agreement, which breach gave rise to fiduciary duties of loyalty trust and confidence. The breach has occurred:

Due  to  their  endeavour  to  acquire  an  interest  in  the  property  to  the exclusion of Mr Beard.

By Mr Martin taken unauthorised drawing of funds from Provincial, the effect of which was to damage Provincial’s financial position, leading to

it being placed into receivership.

By Mr  Martin  purporting  to  surrender  the  lease,  thereby  creating  an opportunity for his own interests to acquire the leasehold interest.

[24]     In the result, Mr Beard claims that because of the existence of a fiduciary relationship between the joint venturers, he has a caveatable interest in the land held by  R &  P  Trustees  Limited.    A  resulting  trust  arises  because  R &  P  Trustees Limited’s purchase created an equitable interest which should be shared with Mr Beard.   That equitable interest has arisen because of the agreement for sale and purchase and because of the payment by Provincial (in which 50% of the shares were held for Mr Beard) of a sum of $10,000 towards the deposit of $70,000 paid for the freehold.

[25]     Therefore the equitable rights in the property under the contract are held on trust for the entity which was eventually to complete the purchase.  The entity at that time was contemplated to  be Provincial,  which was to  have been  nominated to complete the purchase.    However,  in the circumstances Mr  Beard  claims  to  be entitled to have the opportunity to complete the agreement itself, and in support of this claim relies upon the part-payment of the deposit by Provincial to support the resulting trust back to him.

[26]     Alternatively Mr Beard submits the circumstances can also give rise to a constructive trust.  He said it was always intended there would be an express trust, by which a half-share in the freehold was transferred to him.  Although no effect was given to that, he said equity should act  to prevent  Mr Martin from fraudulently reneging on his undertaking to give formal recognition to the trust.  Given what he says was the understanding of the parties, it would be unconscionable for R & P Trustees Limited to deny the relationship that existed between the parties to the joint venture.   In those circumstances a trust recognising Mr Beard’s interest should be imposed.

Principles

[27]     The onus is on Mr Beard as caveator to prove the case for it to be sustained. Upon an application for its removal Mr Beard must  satisfy me on the evidence presented that his claim to an interest does raise a serious question to be tried, and then he must show on the balance of convenience that it would be better that the caveat remained in order to prevent the owners of the land from disposing of it to a third party.

[28]     Generally where the Court has doubts surrounding the rights of the caveator, the caveat ought to be extended until the position is established and an action is brought for that purpose.   An order that a caveat not lapse is like an interlocutory order to preserve property (New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41). In exercising its discretion whether to sustain the caveat in the face of a claim there is an arguable case to do so, the Court must weigh balance of convenience considerations. It will consider the evidence of the caveator and in cases where there is a conflict of evidence it will enquire whether that conflict can be resolved short of trial and cross-examination. In the end the Court may make such order as it considers fit, and this may entail amending the caveat or requiring an undertaking as to damages.

[29]     An  equitable  interest  may  be  sufficient  to  support  a  caveat  even  if  the caveator does not have a registerable instrument, and even if the caveator may not be entitled to an instrument which will lead to a recording in the register (Composite Buyers Ltd v Soong (1995) 38 NSWLR 286).

[30]     Authority exists for claiming a caveatable interest in situations giving rise to a resulting trust and a constructive trust.

Considerations and reasons for decision

[31]     It is questionable whether by its terms the caveat is capable of supporting Mr Beard’s claim for an interest in the leasehold as well as in the freehold of the land. Quite simply, no claim to an interest in the leasehold is contained in the words of the caveat.   Whilst  that is probably fatal to  Mr  Beard’s claim to  an interest  in the

leasehold, I propose to deal with the matter as if the caveat was meant to be so expressed.  The fact is, it is incumbent upon any caveator to be specific about how, and by what circumstances, a claim to an interest arises.

[32]     I  consider  Mr  Beard’s  claims  to  an  interest  in  the  leasehold  and  in  the freehold of Risah’s land must fail.  The reason is that Mr Beard can claim no greater interest than that to which Provincial and R & P Trustees Limited respectively were entitled.  Even if I am wrong in that conclusion, and Mr Beard is entitled to claim an interest for himself to the exclusion of those persons, I would not act to order the caveats to be sustained.

[33]    Without question, Mr Beard was intended to acquire half the shares in Provincial.   Also, because of his guarantee of a loan to  purchase the Provincial business, he  has paid  the  sum of $61,000  in repayment  of that  loan.    Yet, the business failed, receivers were appointed and the lease was surrendered.  His claim to a separate caveatable interest does not survive because of claims that Mr Martin had no authority to surrender the lease.  There is no evidence, save for assumption and speculation, that the surrender was achieved without authority of the receivers. The  fact  that  Mr  Martin  signed  the  surrender  does  not  invalidate  the  deed  of surrender save for any challenge by the receivers.  There is no such challenge.  The receivers determined that the business of Provincial should cease.  The keys to the business premises were surrendered to Risah, unquestionably with the consent of the receivers.  Section 10 of the Receiverships Act 1993 does not operate to invalidate surrender.  The fact that Mr Beard may have been disadvantaged thereby becomes a matter for him to pursue with Mr Martin, but not at the expense of the interests retained by the landlord, Risah.  Nor does it assist Mr Beard to claim that Risah was aware of his interest in the leasehold business.  Rather, they are entitled to treat the matter as an arms-length transaction between  it,  as  landlord,  and  Provincial,  as tenant.

[34]     As to the claim that the agreement for sale and purchase of the freehold had not  been  validly  cancelled,  this,  too,  cannot  be  sustained.    The  freehold  was purchased by R & P Trustees Limited.  They defaulted upon the purchase, and the agreement  was  cancelled.    Risah  is  entitled  to  deal with  the  situation  as  if  its

purchaser was R & P Trustees Limited, regardless of whatever view it may have held regarding Mr Beard’s interest in that purchase.  There was no obligation upon Risah to serve settlement notices or notice of cancellation separately upon Mr Beard.

[35]     Mr Beard claims the settlement notice was invalid because:

Risah could not claim to be ready, willing and able to settle when Mr

Beard’s own caveat prevented that possibility, and

Risah could not provide vendor finance to complete the purchase. [36]  These arguments assume:

a)        Mr Beard had a right to claim a caveatable interest, and

b)       Risah had an obligation to provide vendor finance although R & P Trustees Limited were unable to provide security for the provision of that finance.

[37]     In fact:

Whatever right R & P Trustees Limited had to caveat the title was lost

because it could not complete the purchase.

It never provided appropriate security to obtain vendor finance.

It failed to settle when required to do so by the settlement notice.

Mr Beard had no right to lodge a caveat claiming an interest in the land which was any greater than the right of R & P Trustees Limited to lodge a caveat.  That right to caveat was lost when R & P Trustees Limited failed to settle.

[38]     The hotel business has closed and the premises have been surrendered in circumstances suggesting compliance and authority of the receivers.   The contract

for the sale of freehold has been cancelled in circumstances where the deposit paid has been forfeited and in circumstances strongly suggestive that no rights are preserved to the purchasers.  Whatever rights may be preserved therein to Mr Beard, they do not translate to an independent claim by him to an independent interest in the business, nor in the freehold.  Mr Beard’s claim, if any, is to the assets of Provincial or of R & P Trustees Limited, or in respect of the actions of Mr Martin to deprive him of the benefit of his expectation in the outcome of the purchases.   Even if he should prove a right of independent claim against the leasehold or freehold interests in the property, I would not support those by an order sustaining his caveat claim.

[39]     Since filing his caveat, Mr Beard has taken no steps to enforce any claims he considers are his against  Provincial or  R & P Trustees Limited.    The evidence suggests Risah’s interests in selling the land and in promoting the hotel business upon it have been significantly affected as a result.  Because Mr Beard’s claims in essence concern the actions of Mr Martin, there is no proper reason to encumber the property meanwhile.  The evidence strongly suggests Mr Beard is not in a position either to purchase the freehold or to acquire the hotel business.

Judgment

[40]     The application for an order to remove the caveat of Mr Beard is granted.

[41]     Ordinarily costs upon the application would be ordered to be paid by Mr Beard on a category 2B basis, together with disbursements as fixed by the Registrar. However, I am informed Mr Beard is in receipt of a grant of legal aid.   Further, counsel for Mr Beard has advised that a condition of the grant of legal aid was that, if  successful,  he  reimburse  the  Legal  Services  Agency  for  the  agency’s  costs incurred on his behalf, namely fees paid to his counsel.

[42]     Counsel also  advises that the usual minimum requirement of payment  of costs of $50 was, in Mr Beard’s instance, waived.

[43]     In those circumstances, I make no order as to costs, but instead certify that but for the grant of aid, costs would have been payable by Mr Beard on a category

2B basis.  That means it will be up to Risah’s solicitors to make such application as they consider appropriate pursuant to ss40 and 41 Legal Services Act 2000.

Solicitors:
Harmans, Christchurch for Plaintiff

White Fox & Jones, Christchurch for Defendant

(Counsel: K W Clay, Christchurch)