Sain v Erceg
[2021] NZHC 761
•14 April 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1350
[2021] NZHC 761
UNDER the Property Law Act 2007 BETWEEN
VINKA PATRICIA SAIN
Plaintiff
AND
IVAN VLADIMIR JOSEPH ERCEG
First Defendant
MILLIE ERCEG TRUSTEE LIMITED
Second Defendant
Hearing: 29 March 2021 Appearances:
David Bigio QC and Tiaan Nelson for the Plaintiff
Vanessa Bruton QC and Priscilla Brown for the Defendants
Judgment:
14 April 2021
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 14 April 2021 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Solicitors:
LawWorks (George Ireland), Auckland, for the Plaintiff Priscilla A Brown, Auckland, for the Defendants
Copy for;
David Bigio QC, Auckland, for the Plaintiff
Vanessa Bruton QC, Auckland, for the Defendants
SAIN v JOSEPH ERCEG [2021] NZHC 761 [14 April 2021]
[1] Vinka Sain says that she is the beneficial owner of the residential property at 17 Withiel Drive, Epsom, Auckland. Her late brother, Michael Erceg, paid for the property in 2004 but title was taken in the name of their mother, Millie Erceg. Although nothing was written down, Vinka says that Millie had only a life interest in the property, with the remainder to go to her. She sues as beneficiary of that trust. Millie has now died, but while she was alive, she transferred Withiel Drive to the trustees of the Millie Erceg No 1 Trust, herself and Millie Erceg Trustee Ltd. Ivan Erceg, the first defendant, is the executor of Millie’s estate. Millie Erceg Trustee Ltd, the second defendant, is the remaining trustee of the Millie Erceg No 1 Trust.
[2] The defendants say that her claim cannot succeed and have applied for strike- out and summary judgment. Their grounds are that her claim is inherently improbable, the requirements for a trust are not met, her claim is barred by land transfer indefeasibility, and it is also time-barred or should be dismissed for laches. One difficulty for the defendants is that Downs J upheld Vinka’s caveat on the title.1
[3] There are certainly difficulties with Vinka’s case. It will be hard to prove, as is any case which turns on people remembering conversations which took place more than 15 years ago. But that is not enough to warrant dismissal. Although weak, her case is arguable.
Some background
[4] Mijo and Millie Erceg had four children – Michael, Ivan, Marijana and Vinka. Mijo died in 1983. The family’s background was in wine-making. Michael took it further and made a fortune in the liquor industry. He tragically died in a helicopter accident in November 2005. Ivan went into boat-building but was less successful. He went bankrupt. Marijana died of cancer in September 2004. Millie died in October 2019. Ivan is the executor of her will. He and Vinka are the only surviving children.
1 Sain v Millie Erceg Trustee Ltd [2020] NZHC 1723.
[5] The family home was in West Auckland, but in 2004 Michael decided to buy his mother another home. 17 Withiel Drive was bought at auction in December 2004. Michael paid the purchase price of $1.7 million, but Millie took title as purchaser under the agreement for sale and purchase. Michael also spent hundreds of thousands of dollars on renovations. Vinka says that when Michael bought the house for his mother, Millie was to have it for life and Vinka was to take the property on her mother’s death.
[6] In October 2013 Millie established the Millie Erceg No 1 Trust with herself and Millie Erceg Trustee Ltd as trustees. She settled Withiel Drive on the trust. The beneficiaries under the trust are Millie, Ivan and his daughter, Mikayla. The trust deed does not provide for Vinka. Ivan is now the sole director and shareholder of Millie Erceg Trustee Ltd.2
[7] Vinka lodged four caveats against the title: in November 2007, in December 2012, in November 2015 and November 2019. The first alleged an interest under an unregistered memorandum of mortgage and the others relied on the interest she claims in this proceeding. She withdrew the first three. She successfully applied to uphold the fourth and began this proceeding under a condition of Downs J’s judgment.
Summary judgment principles
[8] In Westpac Banking Corp v M M Kembla New Zealand Ltd the Court of Appeal gave authoritative guidance on the principles to be followed on defendants’ applications for summary judgment under r 12.2(2) of the High Court Rules 2016.3 These principles were not in dispute but it is worth noting that the test is demanding. A summary judgment application is not a mini-trial. The onus is on the defendant. The court should be wary of deciding the application on whether the plaintiff has enough evidence to prove their claim. It is not enough that the plaintiff’s claim may appear weak. To grant summary judgment, the court has to be satisfied that if the case
2 Originally Millie was the sole director. Ivan was appointed director. The original shareholders were Auckland lawyers who acted for Millie.
3 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [58]–[64].
were to go to a full hearing after extensive interlocutory steps, the result could not be different. The court tolerates pleading defects if they can be repaired.
[9] While the defendants also applied for strike out, most of the matters they raised are best dealt with under the summary judgment application, which allows greater scope of evidence. There are some pleadings questions which I address at the end.
Procedural matters
[10] This is not the first litigation in the Erceg family.4 Evidence from earlier cases has been used without objection. That comes with the rider that the affidavits were not all directed at the issues here.
[11] The defendants’ submissions went beyond the grounds in their application. They included matters pleaded in the amended statement of defence of 9 March 2021. Counsel for Vinka did not object or claim prejudice.
Downs J’s caveat judgment
[12] Vinka’s application in 2020 to sustain her fourth caveat over the title to Withiel Drive was successful.5 Downs J upheld the caveat on the standard basis that Vinka had a reasonably arguable case for the interest claimed in the caveat. Vinka has brought this proceeding to establish that interest. Vinka says that as her claim to an interest has already been found to be reasonably arguable, the defendants can hardly apply for summary judgment on the basis that her claim is not reasonably arguable. The matter is not however as straightforward as it may look.
[13] First a privity question. Only Millie Erceg Trustee Ltd was a party to the caveat application. Here Ivan as Millie’s executor is also sued. Shiels v Blakely was cited to say that Ivan is bound as a privy.6 Privity may arise where a derivative interest is
4 Other proceedings include: a proceeding concerning the Acorn Foundation Trust, which led to the Supreme Court’s decision in Erceg v Erceg [2016] NZSC 135, [2017] 1 NZLR 310, a proceeding in the Family Court under the Protection of Personal and Property Rights Act 1988 concerning Millie’s capacity and caveat applications in 2013 and 2020.
5 Sain v Millie Erceg Trustee Ltd [2020] NZHC 1723.
6 Shiels v Blakely [1986] 2 NZLR 262 (CA).
founded on some connection such as estate or contract or the like. Here Millie Erceg Trustee Ltd has derived its title to Withiel Drive from Millie, not the other way round. However, in Shiels v Blakely, the Court of Appeal said:7
We conclude that there must be shown such a union or nexus, such a community or mutuality of interest, such an identity between a party to the first proceeding and the person claimed to be estopped in the subsequent proceeding, that to estop the latter will produce a fair and just result having regard to the purposes of the doctrine of estoppel and its effect on the party estopped.
The caveat application was against Millie Erceg Trustee Ltd as the current registered proprietor of Withiel Drive, who had received it from Millie Erceg, said to be the original trustee. No other respondent was required or should have been joined. At the time of the caveat application, Ivan was the sole director and shareholder of Millie Erceg Trustee Ltd and therefore must have managed its case. Here he is sued as executor of Millie’s estate for her disposition of the property to the trustees of the Millie Erceg No 1 Trust. In terms of the Court of Appeal’s approach in Shiels v Blakely, it would produce a fair and just result for the findings against Millie Erceg Trustee Ltd, the transferee under Ivan’s control, also to be applied against Ivan as executor of the estate of the transferor. Ivan can hardly say that Downs J’s decision has nothing to do with him. His position is no stronger than Millie Erceg Trustee Ltd.
[14] There is still the question whether issue estoppel or res judicata applies. In Joseph Lynch Land Co Ltd v Lynch the Court of Appeal considered whether there could be issue estoppel as a result of a caveat decision.8 In that case there had been an earlier decision that a caveat claiming an interest under an implied or constructive trust was not sustainable. When the caveator sued, claiming the same interest, the registered proprietor relied on the earlier decision on the caveat application. The Court of Appeal however held that the earlier decision did not bar the claim. It said:9
While we acknowledge that points decided in interlocutory proceedings may in certain circumstances lead to an estoppel, the rationale is less powerful in an interlocutory context. Therefore the justice of the case must be compelling before a decision which is in substance interlocutory is held to prevent the later ventilation of an issue.
7 At 268.
8 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA).
9 At 43.
…
In our judgment the ultimate question is concerned not so much with the character of the earlier decision, ie whether it should be regarded as final or interlocutory. The question is rather whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties now wishes to raise.
Among its reasons the Court held that the context was in substance interlocutory and all the parties were entitled to was a ruling whether on the evidence and issues before the Court at the time the caveat should go. That applies even more so when a caveat has been upheld. It means that the caveator has made out an arguable case for the interest they claim in the caveat but no more than that. They must still bring another proceeding to establish the interest they claim. In that sense a caveat is like an interim injunction: both give interim protection but the claimant may yet still fail – at the final hearing or earlier.10 Res judicata and its sub-set, issue estoppel, are rules of substantive law. They apply when there has been a final decision on the merits. But a decision upholding a caveat is provisional only and cannot give rise to issue estoppel.
[15] There is another aspect, the abuse of process in relitigating matters that have already been decided. That is not substantive law, but a procedural rule to protect the process of the court from abuse and the other party from oppression.11 Instead of black letter rules, the court exercises a discretion. The test is:12
… a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.
(Emphasis added)
[16] In the hearing counsel for Vinka did not object to the defendants raising new issues: indefeasibility, limitation and laches, which were not before Downs J. That concession was appropriate. His decision can hardly bar the defendants from running
10 See Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 335 for the comparison.
11 Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 59.
12 Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 31.
those matters as substantive defences, even though they were not in issue in the caveat hearing. If so, there is no abuse in raising them in a summary judgment application. It would be pressing the rule in Henderson v Henderson13 too hard to require the registered proprietor to put forward all their defences to the caveator’s claim on pain of barring them from raising a new defence later. Caveat applications are summary and do not normally involve a full inquiry into all the merits of the case. Caveat applications would become unwieldy if parties had to set out all their case, lest they be barred later from raising them later.
[17] Mr Bigio QC, for Vinka, submitted however that the defendants could not re- argue Downs J’s findings of fact. For the defendants it was submitted that they had further evidence, which had not been before Downs J. That was an affidavit by Lynette Erceg used in another proceeding.
[18] I apply the same approach as with the new legal issues. It would not be right to apply the Henderson v Henderson principle to bar the defendants from giving evidence that was not used in the caveat application, again because a caveat application is summary and results in a provisional ruling that may or may not be upheld after the merits are fully explored. Accordingly, I will consider the new evidence.
Did Michael put Withiel Drive on trust?
Vinka’s case
[19] Peter Sain, Vinka’s husband, records Michael saying before the purchase that he would “buy a house for Mum to live in and when she passes away that house is to go to my sister, Vinka”.
[20] Vinka was not present at the auction in 2004 when Michael bought Withiel Drive, but her son, Petar, was. He says that Michael told his mother, “I want this to
13 Henderson v Henderson (1843) 3 Hare 100. Wigram V-C held that, except under special circumstances, parties to litigation are required to bring forward their whole case and will not permit them to relitigate about a matter that might have been brought forward earlier but was omitted.
be your home to live in and it will be put in your name for your lifetime but you are to leave it to Vinka”. When Millie said that it was Michael’s house, he replied that he wanted her to leave it to Vinka. Millie acknowledged and agreed to this. Petar says that Millie would frequently comment that the house would be his mother’s one day. That was common knowledge in the family and among close friends.
[21] Andrew Peat, a builder who worked on the renovations, says that at a party to celebrate the end of the work Millie said to Vinka, “All this is going to be yours one day as that is what Michael wanted.”
[22] Vinka says that Michael told her a number of times that he bought Withiel Drive for Millie to live in during her lifetime but on the basis that it would be Vinka’s when Millie died. Millie mentioned it frequently to the extent that Vinka felt uncomfortable about it. She also refers to the incident recorded by Mr Peat.
Inherently improbable?
[23] The defendants’ argument that Vinka’s case is inherently improbable goes to the factual basis. There is evidence going the other way. Ivan, who was at the auction, denies that Vinka was to have any interest in Withiel Drive. While she was alive, in response to an earlier caveat by Vinka, Millie swore an affidavit denying that Vinka was to have the property after she died. Millie’s wills of 2005 and 2010 did not leave Withiel Drive to Vinka. Another weakness in Vinka’s case is that she lodged four caveats but did not press her claim until after Millie’s death. Such half-heartedness may suggest a lack of confidence in what she was alleging. These matters are not new. Downs J did not consider that they made Vinka’s claim unarguable.14 They show that the facts are contested, but no more than that. They are matters for trial. The defendants say however that two clinching matters go against Vinka: her first caveat and Michael’s will.
[24] Vinka lodged her first caveat in November 2007 claiming an interest under an unregistered agreement to mortgage signed by Millie. That was done with Millie’s consent as a device to protect the property. Ivan had allegedly taken funds from
14 At [29]–[34].
Millie’s bank account. There was concern that Ivan could pressure Millie to mortgage or sell the property to give him funds. Later at Millie’s request Vinka withdrew the caveat. The defendants submitted that if Vinka’s claim to an interest in Withiel Drive under the alleged trust were valid, it would not have been necessary to use the device of a mortgage, as her trust claim would support a caveat. The first caveat was therefore said to be inconsistent with her trust claim.
[25] Downs J did not consider that evidence undermined Vinka’s case.15 I see no reason for taking a different view. Millie and Vinka took legal advice from an experienced lawyer. A concern to protect the property for Millie by the device of a mortgage is not conclusive against Vinka and may be explained by the circumstances in which the caveat was lodged.
[26] The second matter is evidence not given in Downs J’s case, an affidavit by Lynette Erceg, Michael’s widow, sworn in 2014 in the Acorn Foundation Trust proceeding. Clause 3(b) of Michael’s last will said:
I give to each of Lynne, Ivan, Vinka, Millie and my stepson Matthew who are living at my death all loans which I have made to each of them in my lifetime and which have not been repaid at my death. If any of them dies before me, his or her executors or administrators will take this gift for the benefit of that person’s estate.
According to Lynette, the forgiveness of all loans to Millie included the funds provided to buy Withiel Drive. The context was a reference to what Millie had received under Michael’s will. It was submitted that as Michael had lent his mother the funds to buy Withiel Drive, there was not any trust of the sort alleged by Vinka. The provision in the will is not unequivocal evidence that Michael lent his mother the funds to buy the property. Its apparent purpose is to make it clear that Michael’s executor is not required to call on those named in the clause to repay anything they may have received from Michael in his lifetime. It does not follow that Michael’s purchase of Withiel Drive was a loan to his mother.
[27] Neither Vinka’s first caveat nor Michael’s will, by themselves or together, count definitively against her claim. On the facts her case is still arguable.
15 At [33].
Are the requirements for a trust satisfied?
[28] The defendants say that even if the court were to find for Vinka on the facts, they still do not show a trust. The arrangement was no more than an intention to make a gift and equity will not assist a volunteer. There is nothing in writing to prove a trust.
[29] As to intention, the case was compared to Harvey v Beveridge, where the defendant occupied a residential unit owned by the deceased and resisted the executor’s claim to recover possession by asserting that the deceased intended to give the unit to him.16 The Court of Appeal rejected the defendant’s claim of a common intention constructive trust. It applied the principle that a donor may revoke an incomplete gift at any time. An intention to make a gift is not an intention to create a trust. The defendant had not made any contributions to the property that would make it unconscionable to deny him an interest.
[30] Vinka does not claim to have made any contributions to Withiel Drive so as to give her an interest under a constructive trust. Instead she alleges an express trust. The issue here goes to certainty of intention. There is no argument about the other certainties of subject-matter and beneficiaries. I take the defendants’ objection to be that, no matter how the evidence comes out, it will show only an intention to make a gift, not to create a trust.
[31] No particular words are required. “Trust” need not be used so long as the language clearly shows an intention to create a trust. In Mountain v Styak these words were held to be sufficient evidence of a trust, with “wishes” taken to show the required intention:17
I am most anxious that your dear old grandmother’s wishes should be carried out, which were that when she bought this property in my name that it was to be secured after our death equally to you and your sister, also the furniture, your father having a life interest in it all but not the power of selling it.
[32] On the evidence for Vinka, it is arguable that what Michael said went beyond stating an intention to make a gift to her. He could not make any gift after he had
16 Harvey v Beveridge [2014] NZCA 72, [2014] NZAR 677.
17 Mountain v Styak [1922] NZLR 131 (CA) at 131.
parted with the funds to buy Withiel Drive, but he could settle the funds on his mother to apply them to buy the property to be held for her for life and then for Vinka. This part of Vinka’s case is not hopeless.
[33] For the writing requirement the defendants referred to s 25(2) of the Property Law Act 2007:
25 Writing required for certain dispositions of interests in land
…
(2)A trust must be created in writing and signed by the settlor if –
(a)it relates to land; and
(b)it is to take effect in the lifetime of the settlor.
The trust was however established in 2004, before the 2007 Act came into force. Its validity is not affected by the new Act.18 Instead s 49A(2) of the Property Law Act 1952 applies:
49A Certain instruments to be in writing
…
(2)A declaration of trust respecting any land or any interest in land shall be manifested and proved by some writing signed by some person who is able to declare such trust or by his will.
Whereas the 2007 Act requires the trust to be created in writing by the settlor, under the 1952 Act there only needs to be some writing signed by the trustee proving the existence of the trustee.19 The time of signing does not matter.
[34] Vinka does not at this stage allege any relevant written evidence of the trust. She says instead that it would be fraudulent to rely on the absence of written evidence. But before I come to that, I note that there has not been formal discovery so far. Documents from both Michael’s estate and Millie’s may show evidence of the trust.
18 Property Law Act 2007, s 367(3).
19 Rochefoucauld v Boustead [1897] 1 Ch 196 (CA) at 206, Mountain v Styak [1922] NZLR 131 (CA) at 135–136.
Here the Court of Appeal’s words of caution in Westpac Banking Corp v M M Kembla New Zealand Ltd are relevant:20
Except in clear cases, such as a claim on a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff’s claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff’s case prematurely before completion of discovery or other interlocutory steps and before the plaintiff’s evidence can reasonably be assembled.
[35] Vinka’s answer to the objection that there is no written signed evidence of the trust is that invoking the statute would be fraudulent when Millie took the property on the basis that she would hold it on trust for Vinka. Equity and Trusts in New Zealand sets out the principle:21
The maxim that “equity will not allow a statute to be the instrument (or engine) of fraud” is a further manifestation of equity’s concern with the conscience of the parties before it. If the assertion of a statutory right or interest would facilitate fraudulent or unconscionable conduct by the person relying on it, equity will intervene. It does so, not by setting aside or ignoring the statute, but by recognising whatever right or interest the statute confers and placing on the person relying on that right or interest an obligation to use it in a manner compatible with conscience. The classic example of the maxim at work relates to the statutory requirement that a trust over land can be created only in writing.22 Where a person takes land by an inter vivos instrument pursuant to an oral arrangement that the land would be held by him or her on trust, he or she cannot rely on the statutory writing requirement to defeat the trust claim.
[36] The principle typically applies in cases where the settlor makes over land to the trustee under an oral trust to hold the property for the settlor. Equity will impose a trust on the trustee to hold the property for the settlor where it would be unconscionable or fraudulent in the equitable sense for the trustee to rely on the absence of writing to deny that they received the property on trust. On the other hand the statute will apply if the settlor simply makes an oral declaration that he holds land
20 Westpac Banking Corp, above n 3, at [63].
21 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 35. For cases, see Rochefoucauld v Boustead [1897] 1 Ch 196 (CA), Bannister v Bannister [1948] 2 All ER 133 (CA), Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 (HC), Crampton-Smith v Crampton-Smith [2011] NZCA 308, [2012] 1 NZLR 5 at [57], Smith v Ball [2020] NZHC 944.
22 Section 25(2) Property Law Act 2007, replacing s 49A(2) Property Law Act 1952.
on trust for a beneficiary but never makes the land over. Then the statute will bar a claim by the beneficiary.23
[37] Vinka’s position is different from the settlor who has made over land to a trustee to hold on trust. She is a volunteer and has not made any contributions to the property. As a third party can she claim that the statute is being used as an instrument of fraud? The point seems to be a new one in New Zealand. In the hearing counsel were not ready to argue the point. Mr Bigio sought time to make further submissions.
[38] I would only give time for more submissions if I considered that the point was fatal to Vinka’s claim. In a new area the court should be slow to strike out a claim at the outset. The better course is to allow it to be fully argued at trial. I set out some of the arguments.
[39]There is divided academic opinion.24
[40]As Vinka cannot apparently bring herself within it, Mahon J’s dictum in
Avondale Printers & Stationers Ltd v Haggie may count against her:25
Prima facie the Statute of Frauds or its modern statutory equivalent must be given its legal effect. Fraud in equity will only arise where in all the circumstances it will be dishonest for the legal owner to rely upon the statute, and that result will most commonly occur when in the words of Lord Diplock in Gissing v Gissing “the legal owner has so conducted himself as to induce the other party to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land”.
[41] There is English authority to support her. In Neale v Willis a husband bought a property in his own name.26 His mother-in-law funded part of the purchase on the basis that the property was to be owned jointly by the husband and wife. The wife
23 This assumes that other principles such as constructive trusts arising out of contributions and reasonable expectations do not apply.
24 J D Feltham “Informal trusts and third parties” [1987] Conv 246; T G Youdan “Informal Trusts and Third Parties: a response” [1988] Conv 267. See the discussions in: David Hayton, Paul Matthews and Charles Mitchell Underhill and Hayton Law of Trusts and Trustees (19th ed, Lexis Nexis, London, 2016) at [12.74]–[12.77]; Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet and Maxwell, London, 2020) at [3-020]; and H A J Ford and W A Lee Principles on the Law of Trusts (2nd ed, Lawbook Co, Sydney, 1990) at [6.1090].
25 Avondale Printers, above n 21, at 163–164.
26 Neale v Willis (1968) 19 P & CR 836 (CA).
was held entitled to enforce a constructive trust for a half share against her husband under Bannister v Bannister.27
[42] In Lyus v Prowsa Developments Ltd the plaintiffs bought a lot to be created in a subdivision, but the developer failed before title issued.28 A bank with a mortgage over the land in the subdivision had priority over the plaintiffs. It sold the land subject to the plaintiffs’ contract. The purchaser from the bank on sold the property subject to the plaintiffs’ contract so far as it may be enforceable. The transfer to the second purchaser did not refer to the plaintiffs’ contract but they were held entitled to enforce their agreement against the second purchaser under Bannister v Bannister.
[43] Mutual wills and secret wills are examples of informal trusts that do not meet the statutory requirements for form under the wills legislation. Beneficiaries of these trusts, pure volunteers, have successfully invoked the principle that the legislation cannot be used as an instrument of fraud. In Re Cleaver, a mutual wills case, Nourse J said that there is a wider principle:29
It is also clear from Birmingham v. Renfrew, 57 C.L.R. 666 that these cases of mutual wills are only one example of a wider category of cases, for example secret trusts, in which a court of equity will intervene to impose a constructive trust. A helpful and interesting summary of that wider category of cases will be found in the argument of Mr. Nugee in Ottaway v. Norman [1972] Ch. 698, 701–702. The principle of all these cases is that a court of equity will not permit a person to whom property is transferred by way of gift, but on the faith of an agreement or clear understanding that it is to be dealt with in a particular way for the benefit of a third person, to deal with that property inconsistently with that agreement or understanding. If he attempts to do so after having received the benefit of the gift equity will intervene by imposing a constructive trust on the property which is the subject matter of the agreement or understanding.
[44] In mutual wills and secret trusts cases, the settlor is no longer available to enforce the trust against the unfaithful trustee. The beneficiaries however can. Similarly in this case Michael is no longer available to enforce the trust for Withiel Drive. It is likewise arguable for Vinka that she may invoke equity to prevent the statute being used as an instrument of fraud.
27 Bannister v Bannister, above n 21.
28 Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044 (Ch D).
29 Re Cleaver [1981] 1 WLR 939 (Ch D) at 947.
Indefeasibility
[45] The statement of defence pleads that Millie took an indefeasible title to Withiel Drive in 2004 and that she and Millie Erceg Trustee Ltd took indefeasible title in 2013. Vinka’s claim is said not to be within any of the exceptions to indefeasibility. The Land Transfer Act 2017 is pleaded, but the transfers of ownership took place before that Act came into force. The Land Transfer Act 1952 applies, but for this case the legal position is the same under both acts.
[46] At the hearing the indefeasibility point was said to be more a matter of context. It was accepted that in personam claims are an exception to indefeasibility.30 Vinka’s claim was within the exception. Millie’s obligations as trustee are enforceable against her, even though she took title under the Land Transfer Act 1952. Instead it was submitted that Vinka’s claim failed on the merits, but that was only repeating earlier arguments. It was not suggested that the position was different when Vinka settled the land on the Millie Erceg No 1 Trust. As almost all private land in New Zealand is registered under the land transfer legislation, anyone in Vinka’s position alleging that land is held for them under an unwritten trust will be claiming against a registered proprietor. Registration of ownership under the Land Transfer Act does not change what has to be proved to establish that the land is held on trust under the principle Vinka has invoked.
Limitation
[47] Tipping J’s approach in Trustees Executors Ltd v Morel & Co Ltd for striking out a pleading, when the claim is said to be time-barred, also applies on a defendant’s summary judgment application.31 The defendant must satisfy the court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If so, the plaintiff may show an arguable case for an extension or postponement to bring the claim back within time.
30 C N and N A Davies Ltd v Laughton [1997] 3 NZLR 705 (CA); Regal Castings Ltd v Lightbody
[2008] NZSC 87, [2009] 2 NZLR 433.
31 Trustees Executors Ltd v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33].
[48] The defendants say that Vinka’s claim is time-barred under s 49(2) of the Limitation Act 2010, as she did not sue until more than three years after she knew of her mother’s breach of trust. On the other hand Vinka says that she is within time as she did not come into possession until her mother’s death. Her claim accrued then and she has sued within time.
[49]These events are relevant:
December 2004 Withiel Drive bought in Millie Erceg’s name 1 January 2011 Limitation Act 2010 comes into force
3 October 2013 Millie settles Withiel Drive on Millie Erceg No 1
Trust
5 November 2014 Vinka lodges third caveat against title 6 October 2019 Millie dies
12 August 2020 Vinka begins this proceeding
[50]Vinka claimed this interest in her third caveat:
As remainder beneficiary under an express, resulting, implied, declared or constructive trust created by Michael Erceg (now deceased) pursuant to which the Registered Proprietor, Millie Erceg, is entitled to a life interest in the property and to hold the remainder interest therein as trustee for the caveator absolutely and such interest of the caveator is now held by both of the Registered Proprietors as trustees.
[51] As the events straddle the Limitation Act 2010 coming into force, I consider the Limitation Act 1950 first and then see whether and to what extent the time bars are changed under the 2010 Act.
[52] Under the 1950 Act there was a 12-year limitation period for an action to recover land.32 In the case of future interests time did not start to run until the plaintiff fell into possession.33 In this case that means when Millie died. But that was subject to the exception under s 21(1) for certain claims by a beneficiary against a trustee:
32 Limitation Act 1950, s 7(2).
33 Limitation Act 1950, s 9(1).
21 Limitation of actions in respect of trust property
(1)No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—
(a)in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
(b)to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.
(2)Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:
Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.
[53] The basis for time not running against beneficiaries in claims against trustees goes back a long way. In Williams v Central Bank of Nigeria Lord Sumption traced the history and explained:34
It is important to understand why equity adopted this rule, for its rationale will not necessarily apply to every kind of constructive trust. The reason was that the trust assets were lawfully vested in the trustee. Because of his fiduciary position, his possession of them was the beneficiary's possession and was entirely consistent with the beneficiary's interest. If the trustee misapplied the assets, equity would ignore the misapplication and simply hold him to account for the assets as if he had acted in accordance with his trust. There was nothing to make time start running against the beneficiary. It will be apparent that this reasoning can apply only to those who, at the time of the misapplication of the assets have assumed the responsibilities of a trustee, whether expressly or de facto. Persons who are under a purely ancillary liability are in a different position. They are liable only by virtue of their participation in the misapplication of the trust assets itself. Their dealings with the assets were at all times adverse to the beneficiaries, and indeed to the true trustees holding the legal interest.
[54] In Paragon Finance plc v D B Thackerar & Co Millett LJ explained the distinction between those who were trustees from the outset and those whom the law considered trustees only because of their involvement in the misapplication of trust property, with time running only in the second case:35
34 Williams v Central Bank of Nigeria [2014] UKSC 10, [2014] AC 1189 at [13].
35 Paragon Finance plc v D B Thackerar & Co [1999] 1 All ER 400 (CA), 408–409.
Regrettably, however, the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.
A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust … In these cases36 the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.
The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee’. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions ‘constructive trust’ and ‘constructive trustee’ are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are ‘nothing more than a formula for equitable relief’.
[55] Rochefoucauld v Boustead held that claims by beneficiaries under trusts for land not evidenced in writing signed by the trustee came within the first class and time did not run against the plaintiff.37 The Supreme Court followed these cases in Proprietors of Wakatū v Attorney-General in holding that under s 21(1)(b) of the 1950 Act the claim against the Crown for breach of trust was not time-barred.38 Accordingly before the Limitation Act 2010 came into force, there was no statutory time limit on Vinka’s claim that Millie held Withiel Drive on trust for Vinka after Millie’s death.
36 McCormick v Grogan (1869) LR 4 HL 82; Rochefoucauld v Boustead [1897] 1 Ch 196 (CA);
Pallant v Morgan [1953] Ch 43.
37 Rochefoucauld v Boustead [1897] 1 Ch 196 (CA) at 208, citing Soar v Ashwell [1893] 2 QB 390 (CA).
38 Proprietors of Wakatū v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423.
[56] The Limitation Act 2010 repealed the 1950 Act,39 subject to the saving provision, s 59:
59 Actions based on acts or omissions before 1 January 2011
(1)This section applies to an action, cause of action, or right of action—
(a)based on an act or omission before 1 January 2011; and
(b)to which the Limitation Act 1950 applied immediately before its repeal.
(2)The action, cause of action, or right of action must, despite the repeal of the Limitation Act 1950 and unless the parties agree otherwise, be dealt with or continue to be dealt with in accordance with the Limitation Act 1950 as in force at the time of its repeal.
(3)Nothing in this section prevents any provision of the Limitation Act 1950 as in force at the time of its repeal from being applied, after 31 December 2010, and by analogy, to any claim for equitable relief—
(a)based on an act or omission before 1 January 2011; and
(b)to which the Limitation Act 1950 immediately before its repeal did not apply directly.
[57] That saving is in turn subject to the introduction of a longstop period under s 23B,40 but that did not apply to claims under s 21(1), those where there was no time limit:
23A Actions to which longstop period of limitation applies
(1)Section 23B applies to an action based on an act or omission before 1 January 2011 and to which this Act applied immediately before its repeal by section 57 of the Limitation Act 2010 so long as that action is neither—
(a)an action to which section 7(1) or 21(1)(a) or (b) applies; nor
(b)an action commenced before 1 January 2011.
[58] These savings provisions mean that the rules under the 1950 Act apply instead of the new rules under the 2010 Act. The words in s 59:
39 Limitation Act 2010, s 57.
40 Inserted by s 62 of the Limitation Act 2010. The period is the later of 5 years ending on 31 December 2015 or 15 years after the date on which the act or omission is based.
(1)… an action, cause of action, or right of action—
(a)based on an act or omission before 1 January 2011.
require some triggering event before 1 January 2011 for the old rules to apply. In a claim for breach of contract, the act or omission is the breach of contract. In a constructive trust claim against an accessory for knowing assistance (the second class in Millett LJ’s description in Paragon Finance Ltd), the accessory’s acts are the event. The question here is to establish the triggering event for claims under s 21(1)(b). Under the approach described by Lord Sumption in Williams v Central Bank of Nigeria, equity ignores any actions by the trustee in breach of trust and treats the trustee as if they had acted in accordance with the trust. To treat misapplications of trust assets by the trustee as triggering events would ignore the reason why equity did not set time limits for bringing proceedings against trustees. Parliament’s intention for that to still apply can be seen in the longstop in s 23B not applying to claims under s 21(1). For those claims the triggering event under s 59 of the 2010 Act is the establishment of the trust and the settlement of the land on the trust. As that happened in 2004 the 1950 Act applies and under s 21(1)(b) Vinka’s claim is not time-barred. There is no longstop period.
[59] Section 21(1)(b) applies to claims by beneficiaries against trustees to recover trust property in the possession of the trustee or received by the trustee and converted to her or his use. “In the possession of the trustee” applies widely to assets under the command or control of the trustee.41 When a trustee puts a trust asset into an entity under the trustee’s control, it is arguably still within the trustee’s possession under the section. So when Millie transferred Withiel Drive to the trustees of the Millie Erceg No 1 Trust, it arguably remained within her possession as she was one of the trustees and the other was a company in which she was sole director and the shareholders were her lawyers.
[60] Now for the rules under the 2010 Act that apply to claims based on acts and omissions after 1 January 2011. Part 3 sets time limits for claims to recover land,
41 Soar v Ashwell [1893] 2 QB 390 (CA) at 394; Kidd v Worldwide Leisure Ltd [2014] NZHC 1351 at [35]–[38].
12 years after the claim accrues to the claimant.42 For a future interest time does not run until the interest has fallen into possession.43 Under s 49(1) these time limits do not apply to claims by a beneficiary to recover trust property from a trustee:
49 Trust property possessed or converted by trustee
(1)A claim’s longstop period or Part 3 period does not apply to the claim if it is one by a beneficiary of a trust to recover from the trustee either or both of the following:
(a)trust property, the proceeds of trust property, or both in the trustee’s possession:
(b)trust property, the proceeds of trust property, or both previously received by the trustee and converted to the trustee’s use.
[61] The longstop period is for money claims and is not relevant here.44 The distinction under s 21(1) of the 1950 Act between different constructive trustees applies here. The trustee from the outset cannot raise the Part 3 limit as a defence, but the accessory, the knowing assistant or the knowing recipient, can. Consistent with the case law under and before the Limitation Act 1950 there is no reason why those who have trust liability imposed on them only because of their involvement in the misapplication of trust assets should have the benefit of s 49(1). The usual time limits under Part 3 apply to them.
[62]The rule in s 49(1) is however subject to the time limit under s 49(2):
It is a defence to a claim whose Part 3 period is disapplied by subsection (1), and that does not have a late knowledge period, if the defendant proves that the date on which the claim is filed is at least 3 years after the date on which the claimant gained knowledge (or, if earlier, the date on which the claimant ought reasonably to have gained knowledge) of the trustee’s breach of the trust.
[63] Under this three-year limit on bringing a claim, time runs from when the beneficiary gained or ought reasonably to have gained knowledge of a trustee’s breach, not from the breach itself. Depending on how long it takes the beneficiary to find out, the limit may be much shorter or much longer than the ordinary time limits for money
42 Limitation Act 2010, s 21(1)(b).
43 Limitation Act 2010, s 23(1).
44 Limitation Act 2010, s 11(3)(b) – 15 years after the act or omission on which the claim is based.
claims under Part 2 and for other claims under Part 3. On the other hand, if a beneficiary’s claim is not within s 49(1), the three-year limit in s 49(2) does not apply. A constructive trust claim against a knowing assistant or a knowing recipient is not subject to the three-year limit under s 49(2). The usual limits under Parts 2 and 3 apply instead. In a claim for recovery of land against a knowing recipient a beneficiary’s knowledge of the trustee’s breach is irrelevant in working out whether the claim is within time under Part 3.
[64] The defendants say that Vinka is out of time under s 49(2) because her third caveat shows her knowledge of Millie’s breach of trust in converting Withiel Drive to her own use by settling it on the Millie Erceg No 1 Trust.45 She lodged the caveat in 2015 but did not start the proceeding until 2020, more than three years later. Vinka’s claims are however arguably within time because:
(a)Her claim against Millie’s estate is based on the establishment of the trust in 2004. Under s 21(1)(b) of the 1950 Act and s 59 of the 2010 Act there is no time bar for that claim.
(b)Millie Erceg Trustee Ltd is a defendant in the claim against Millie’s estate for the trust asset in her possession as the entity into which she transferred Withiel Drive while keeping it in her control. The ongoing control can be seen in its control by Ivan, also the executor of her estate.
(c)Millie Erceg Trustee Ltd is sued in its own right as a knowing recipient. That claim is not within s 49(1) and accordingly is not subject to s 49(2). Instead the normal limits under Part 3 apply. Vinka’s claim did not accrue until her interest fell into possession on Millie’s death in 2019. The claim is well within the 12-year limit.
45 The defendants also raised other evidential matters to prove Vinka’s knowledge, but the caveat is the strongest sign.
Laches
[65] In Matai Industries Ltd v Jensen Tipping J commented that it would be a rare case where an equitable claim should be barred in limine46 by a finding of laches.47 That is because laches requires a balancing of competing interests after a careful inquiry into the facts. It is best done at trial. That applies here. The defendants did not raise the issue until their statement of defence of 9 March 2021, after affidavits for this hearing had already been filed. Vinka did not give any evidence on the issue. It would be wrong to consider the issue without evidence from her.
[66] I also observe that under the Limitation Act 2010 there are now time limits such as s 49(2), where there were none before. That may reduce the scope for laches where the 2010 Act applies.
The pleadings and the strike out application
[67] Applications to strike out under r 15.1 of the High Court Rules 2016 are concerned with the quality of the pleadings, whereas the court decides the substantive merits of a case when it grants summary judgment. Many strike out applications are decided on the assumption that a party may prove what it has pleaded, so that evidence has a reduced role. Issues on strike out and summary judgment applications can overlap, for example, when a plaintiff’s pleading does not show any reasonable cause of action or where a defendant shows an unanswerable affirmative defence.
[68] As her case was presented in argument, Vinka says that her mother was in breach of trust in settling Withiel Drive on the Millie Erceg No 1 Trust and that Millie Erceg Trustee Ltd holds the property subject to the trust alleged by Vinka. But the pleading is odd. There are two causes of action, one against Ivan as executor of Millie’s estate and the other against Millie Erceg Trustee Ltd. The first is a claim of breach of an express trust by Millie and alleges that at her death Millie held a half share of the property on trust for Vinka. It seeks a declaration that Millie holds a half share of Withiel Drive for Vinka and a vesting order. The second is a constructive
46 At the outset.
47 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 at 545.
trust claim. It alleges that Millie Erceg Trustee Ltd received a half share of Withiel Drive knowing of Vinka’s interest. It seeks a declaration that Millie Erceg Trustee Ltd holds a half share of Withiel Drive for Vinka and a vesting order.
[69] The oddness is the separate claims, each aimed at a half interest in the property. The deed by which Millie transferred Withiel Drive to herself and Millie Erceg Trustee Ltd as trustees of the Millie Erceg No 1 Trust is in evidence. Vinka of course does not accept that Millie should have given the property to the trust, but she does not dispute that Millie did transfer Withiel Drive. The deed of gift of 1 October 2013 has appropriate words of conveyance:
The Donor in consideration of natural love and affection for the primary beneficiaries of the Trust HEREBY TRANSFERS THE PROPERTY to the Donees absolutely by way of gift and for no consideration.
Clause 5 provides:
The beneficial interest in the property will pass to the donee as at the possession date.
A transfer to Millie and Millie Erceg Trustee Ltd was registered two days later. Millie clearly did not retain a beneficial interest in Withiel Drive.
[70] Trustees own trust property as joint tenants.48 Survivorship applies. On Millie’s death, her trusteeship of the Millie Erceg No 1 Trust came to an end. Millie Erceg Trustee Ltd as the surviving trustee is the sole owner of Withiel Drive. The property is not an asset of Millie’s estate.
[71] Vinka may have a claim against her mother’s estate for breach of trust for disposing of Withiel Drive but that is a claim for disposing of the entire property, not just a half share. As the property is not part of Millie’s estate, the court cannot make the declaration and vesting order Vinka seeks against Ivan as Millie’s executor. Vinka may have a knowing receipt claim against Millie Erceg Trustee Ltd, but that must be for the entire property, not a half share. Both the causes of action in the statement of
48 Neil Campbell et al Hinde, McMorland and Sim Land Law in New Zealand (2nd ed, LexisNexis, Wellington, 2004) at 13.008.
claim miss the mark, but they are capable of repair. The defendants did not suggest otherwise.
[72] As another point, the pleadings are incomplete. The defendants have raised affirmative defences. A reply is required but has not been filed yet.49 The defendants did not rely on the absence of a reply.
Outcome
[73]I make these orders:
(a)I dismiss the summary judgment application.
(b)I strike out the first and second causes of action in the statement of claim, but the plaintiff may file an amended pleading. The proceeding is not dismissed.
(c)The plaintiff is to file and serve an amended statement of claim by 30 April 2021.
(d)The defendants are to file and serve statements of defence by 14 May 2021.
(e)The plaintiff is to file and serve any reply by 28 May 2021.
(f)The Registrar is to arrange a first case management conference.
(g)Leave is reserved to apply for further directions.
[74] While the plaintiff’s pleadings have been found to be defective, she has been substantially successful. The hearing was spent almost entirely on the summary judgment application. The principle that costs on a plaintiff’s unsuccessful summary judgment application are reserved is not invariably followed on defendants’
49 High Court Rules 2016, rr 5.62 and 5.63.
unsuccessful applications. Unlike a plaintiff, a defendant is better able to assess the strengths of the case of the other side. Here the defendants had Downs J’s caveat decision. Their application initially traversed only matters he had addressed. They were over-optimistic in believing that the court would give a different answer. They should pay costs. If counsel cannot agree costs, memoranda may be filed.
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Associate Judge R M Bell
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