Travers Project Limited v Prime Property Limited
[2017] NZHC 940
•10 May 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2017-485-348 [2017] NZHC 940
UNDER Section 143 of the Land Transfer Act 1952 IN THE MATTER
of an application to remove
Caveat number 10626687.1BETWEEN
TRAVERS PROJECT LIMITED Applicant
AND
PRIME PROPERTY LIMITED Respondent
CIV-2017-485-394
UNDER Section 143 of the Land Transfer Act 1952
IN THE MATTER of an application to remove
Caveat number 10738433.1
BETWEEN PRIME PROPERTY LIMITED Applicant
ANDTRAVERS PROJECT LIMITED Respondent
Hearing: 8 May 2017 Appearances:
A J Lloyd and J J K Spring for Travers Project Ltd
J K Scragg and T A V McKeown for Prime Property LtdJudgment:
10 May 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] Travers Project Ltd (Travers) contends that it is entitled to complete the purchase of an agreement for sale and purchase of certain land at Foster Crescent,
Snells Beach contained in title Identifier NA 89A/917 (the property) signed by it as
TRAVERS PROJECT LIMITED v PRIME PROPERTY LIMITED [2017] NZHC 940 [10 May 2017]
purchaser on or about 1 August 2016. Prime Property Ltd (Prime) says that Travers has no such right, because Travers nominated Prime as the purchaser under a Deed of Nomination dated 21 September 2016 (the Deed). Prime says that it has paid the deposit on the purchase, and that it is the party entitled to complete the agreement.
[2] Both parties registered caveats to protect their claimed interests in the property, and each party has now applied for an order removing the caveat lodged by the other. I heard the two caveat removal applications on Monday 8 May 2017, and I now give judgment on them. The judgment is given in circumstances of some urgency, because the vendors of the property have served notice on Travers giving it
12 working days to settle the agreement for sale and purchase. The 12 working day period expires on 11 May 2017.
Background
[3] On or about 1 August 2016 Travers, acting as trustee of a trust called the Russel PKR Trust, entered into an agreement (the Agreement) to purchase the property from Annette and Douglas Corlett (the Corletts). The property comprises approximately 4,680 square metres, and it was considered suitable for a subdivision development.
[4] The purchase price was $2,150,000, and a deposit of $215,000 was payable to the Corletts’ agents on the Agreement becoming unconditional. The settlement date was to be 21 April 2017. Travers was entitled to nominate a purchaser to complete the Agreement in its place.
[5] Travers’ intention in purchasing the property was to develop it commercially, but it did not have the resources to do that without financial assistance. It approached Mr Baty of Finance Brokers Wellington to help find a joint venture partner for the proposed development.
[6] Mr Baty identified Prime as a potential joint venture partner, and email correspondence ensued between Mr Peter Chevin, a development consultant working for Travers, and Mr Aharoni, a director of Prime. Mr Monahan, a property manager employed by Prime, was also involved in this correspondence.
[7] It is common ground that the parties reached agreement on the following terms, which were set out in an email from Mr Chevin to Mr Aharoni dated
19 September 2016:
1.We [ie Travers] agree to assign the [Agreement] to [Prime’s] nominated entity, such nomination may not be able to be effected today, but will be completed as soon as practically possible.
2.[Travers has] two calendar months from today’s date (time being of the essence) to agree the terms of the Joint Venture arrangement. Notwithstanding this, the draft of these terms are as per those emailed to Tim Baty (Sunday, 18 September 2016 4.41pm.)
3.[Travers] can within the two calendar months “buy back the land contract” by paying [Prime]:
1. The deposit amount
2. An extra $100,000 + GST
3.All costs to date that have been expended (external costs) on the project by [Prime].
4.All the above costs must be paid by 19 November 2016 time being of the essence (being 2 months from today’s date) for this buy back option to be valid.
1. [Prime agrees] to pay the deposit of $215,000.00 as per the terms of
[the Agreement] (sent Tim Baty on Sat, Sep 17, 2016 at 2.42PM)
2.[Travers] will declare [the Agreement] unconditional upon the receipt of [Prime’s] email confirmation that this is agreed.
[8] I will refer to these agreed terms as “the 19 September agreement”.
[9] The assignment of Travers’ interest in the Agreement to Prime was effected by the Deed, which was completed on 21 September 2016. The Deed was a simple, one page, document, which recorded Travers’ nomination of Prime as the purchaser under the Agreement and Prime’s acceptance of that nomination and adoption of the Agreement. Prime acknowledged that the Agreement would be binding on it in the same manner, and would take effect in all respects, as if Prime had been a party to the Agreement. The Deed went on to provide that, immediately following execution, Travers would provide the Corletts with a copy of the Deed as evidence of the nomination. Travers and Prime both gave covenants to execute all deeds and documents, and perform all acts and things, as the other might reasonably require to
carry out the terms of the Deed, and from the date of the Deed Prime agreed to indemnify Travers against all actions, claims, costs, demands, damages or losses which Travers might incur under the Agreement in respect of obligations to be performed by Travers after the date of the Deed.
[10] On completion of the Deed, Prime promptly paid the deposit to the Corletts’
agent, and the Agreement became unconditional.
[11] Travers contends that, in breach of cl 2 of the 19 September agreement, Prime failed to engage in any meaningful negotiations with Travers towards completing a joint venture agreement for the development of the property. Eventually, on 18 October 2016, Mr Aharoni sent an email to Mr Chevin saying that he had had a further look and further thoughts, and that “this JV project will not work for us”. Mr Aharoni said that he was quite happy for Travers to take over the project as agreed, if it could. He asked Mr Chevin what Travers wanted to do.
[12] Mr Chevin replied the same day, saying that Travers would be happy to take over, but would need to “agree how this works and the timing of the return of the deposit and the fee attached to this”. Mr Chevin advised that he needed to assess Travers’ ability to have the project “sufficiently derisked” to have the deposit back to Prime by 20 November 2016 (which Mr Chevin took to be the last day of the two month period within which Travers could exercise its buy-back right under the
19 September agreement).
[13] On 7 November 2016 Mr Aharoni wrote to Mr Chevin asking if Travers intended to exercise the buy-out option referred to at cl 2 of the 19 September agreement. In reply, Mr Chevin asserted that there was still a joint venture in place, but that the terms still needed to be agreed. He asserted that since 19 September
2016 Travers had relied on the fact that there was to be a joint venture, but Prime was now refusing to proceed. Accordingly, Travers had decided to proceed with the development of the property on its own rather than as a joint venture. Mr Chevin noted that the buy-back option referred to in cl 2 of the 19 September agreement was an option for Travers to exercise if it chose to, and not an option for Prime to exercise.
[14] Mr Aharoni wrote to Mr Chevin on 16 November 2016, enquiring if Travers wished to exercise the buy-back option. Mr Chevin responded by email confirming that Travers’ position was that it was for it to decide whether to buy out Prime, and not the other way around. Mr Chevin also repeated the assertion that Prime had unlawfully cancelled the joint venture agreement. Mr Chevin said that Travers had been left with no option but to push the project forward itself. He said that Travers had done that, and made considerable progress.
[15] When no joint venture agreement had been completed by 16 November 2016, Travers lodged Caveat Number 10626687.1 (the Travers caveat) on the title to the property.
[16] On 22 March 2017 Prime lodged Caveat Number 10738433.1 (the Prime caveat) on the title to the property.
[17] Each side contends that the other has no caveatable interest in the property.
Why Prime withdrew from the joint venture discussions
[18] In his first affidavit, Mr Aharoni said that he had not previously had any dealings with Travers or Mr Chevin, and he knew nothing about them or their proposal to develop the property. He says that when he was first approached by Mr Baty he was busy running Prime’s affairs, but was aware that there was some urgency with the Agreement because a deposit had to be paid if the Agreement was to proceed. Mr Aharoni says that he was advised that Mr Chevin and Travers had no ability to pay the deposit at that point, but they were hoping to realise some development profits from other projects later down the track.
[19] Mr Aharoni concluded from the size of the property and its location that the purchase price of $2,150,000 seemed reasonable. His evidence is that he agreed to be involved from that point, on the basis that the project would be owned and fully controlled by Prime. Either Prime and Mr Chevin would agree to develop the property for the satisfaction of both parties or, if they were unable to agree to terms on which that would occur, Mr Chevin would have a limited option, on strict terms,
to buy out Prime’s interest. If Travers did not exercise the buy-back right, Prime would continue alone as purchaser of the property.
[20] Mr Aharoni stated that he learned after agreeing to become involved in the proposed development that Mr Chevin had been made bankrupt three times and had been convicted of various offences, including managing companies whilst a disqualified director.
[21] Mr Aharoni’s evidence is that he did not consider that the 19 September agreement created any joint venture agreement between the parties. He considered that he been put under a lot of pressure to move quickly on a multi-million dollar project, and for that reason required the two month period referred to in the
19 September agreement to consider the terms of any potential joint venture agreement. As he put it, “we had only agreed to explore whether terms for a joint venture could be agreed over the coming two months”.
[22] Mr Aharoni says that he became concerned at the joint venture structure which Mr Chevin had proposed. Mr Chevin had sent an email on 18 September
2016 (referred to in the September 19 agreement), in which Mr Chevin had set out some initial thoughts on how a joint venture agreement might work. Briefly, Prime would provide all of the funding for the project, but the final project margin would be split 50/50 between Prime and Mr Chevin’s project management entity, PLC. Prime would receive a return on funds employed (expected to be around 20–25%), and PLC would receive a project management fee for the defined period of time. Ownership of the project could be “in 100% control of [Prime] if required”.
[23] Mr Aharoni formed the view that the project, as proposed by Mr Chevin, was not viable. The number of sections able to be created within the applicable district planning scheme and rules was substantially fewer than the number which had played a part in enticing Prime to agree to accept the nomination as purchaser, and the joint venture as proposed by Mr Chevin put all the risk onto Prime, with no guarantee of profit, while Mr Chevin’s company would collect “exorbitant fees” along the way.
[24] By 17 October 2016 Mr Aharoni says that he had also become weary of Mr Chevin, and was concerned that it was not in Prime’s best interests to enter into a joint venture agreement. He says that Prime had been considering the joint venture option, but Mr Chevin’s background had come to its attention and Mr Aharoni had come to the view that Mr Chevin was untrustworthy.
[25] Mr Aharoni then sent his email of 18 October 2016 to Mr Chevin, saying that the joint venture proposal would not work for Prime, but that Prime would be happy for Travers to take it over as agreed if it could.
[26] Mr Monahan also provided an affidavit for Prime. He stated that he did not consider there was a joint venture agreement in place as at 19 September 2016. He also understood that the nomination of Prime as purchaser under the Agreement was not contingent on the parties agreeing joint venture terms. He points out that that was not a term of the Deed, nor a term included in the 19 September agreement.
Travers does not exercise the buy-back right
[27] On 2 November 2016 Mr Chevin emailed Mr Aharoni setting out a number of steps Travers had taken in furtherance of the proposed development of the property. Among other steps, consultants had been appointed, and a site survey had been completed. Mr Chevin went on to say that he needed to agree with Mr Aharoni on “timing for the repayment of the deposit and the $100,000 fee for this”. He noted that the date for those payments had previously been agreed to be 20 November
2016, but that had been on the basis that Travers had an agreement for a joint venture that was moving forward. He referred to Travers having lost around six weeks of its proposed programme for the development, and with Christmas approaching he was struggling to make further progress. He told Mr Aharoni “we need to agree when this deposit is repaid and how”.
[28] Mr Aharoni responded on 7 November 2016 saying that Prime had itself engaged a contractor who had met and requested proposals from local surveyors and planners, in case Mr Chevin/Travers was not going to proceed and exercise the buy- back option. Mr Aharoni advised that Prime would now put that on hold. Mr Aharoni noted that the payments from Travers ($100,000 plus GST, and return of
the deposit) were due by 19 November if the buy-back option was to be exercised, but that Prime was willing to consider a variation if required.
[29] Mr Chevin responded on 9 November 2016, advising (among other things) that Travers would need until 20 March 2017 to repay. Mr Chevin proposed that in the meantime Travers would proceed with preparation work for the development, with Prime meeting 50 per cent of agreed costs for that work. A decision would be made on 20 March 2017 as to who would proceed with the purchase. If Travers were the party to proceed, it would then repay the deposit to Prime, with the additional $100,000 plus GST payable under cl 3.2 of the 19 September agreement.
[30] Mr Aharoni was not prepared to extend the timeframe out to 20 March 2017. He took the view that, for the buy-back option to be valid, Prime needed to receive all its costs by 19 November 2016. Nor did he trust Mr Chevin sufficiently to agree to any sort of delayed repayment arrangement. On 15 November 2016 he sent another email to Mr Chevin. He advised that Prime could not leave options open beyond 19 November 2016. He disagreed with Mr Chevin’s recollection of relevant events, and confirmed that if the “buy-back” was to be exercised the payments would need to be made by 19 November 2016.
[31] No agreement was reached. Mr Chevin sent a further email on 15 November
2016 confirming that Travers would not be in a position to repay the funds by
19 November 2016. He said in his email that Travers had proceeded with the project on its own, because Mr Aharoni had written to him telling him that Prime was not proceeding.
[32] On 16 November 2016 Mr Chevin sent a further email to Mr Aharoni. In it he said “… we entirely dispute that we need to pay the funds you set out below by this date [an apparent reference to 19 November 2016]”. Mr Chevin repeated Travers’ position that a joint venture structure had been agreed before settlement (an apparent reference to the signing of the Deed and subsequent payment of the deposit by Prime). Travers had provided considerable information just after settlement to push the project forward, and it had continued to send requests to Prime for feedback, to get the project under way. Then, without warning, Mr Aharoni sent his
email of 18 October 2016 saying that Prime had no interest in continuing with a joint venture arrangement. Travers had then decided to push ahead on its own. Mr Chevin concluded by saying that Prime needed to accommodate the changing of the date for repayment, as it had unlawfully cancelled the joint venture agreement.
No Settlement with the Corletts
[33] On 7 March 2017 Carson Fox, the solicitors then acting for Travers, sent an email to Prime’s solicitors. They noted that Travers did not accept Prime’s claim that Travers does not have a caveatable interest, and said “[Travers] remains liable to complete the obligations of the purchaser under cl 1.4(2)”. Clause 1.4(2) was a reference to that clause in the Agreement. It materially provides:
1.4 Interpretation
…
(2) Where the purchaser executes this agreement with provision for a nominee, … the purchaser shall at all times remain liable for all obligations on the part of the purchaser.
[34] After Prime lodged the Prime caveat on 22 March 2017, its solicitors continued to make requests to the Corletts’ solicitor to take steps to have the Travers caveat removed. Mr Aharoni says that on 22 March 2017 the Corletts’ solicitor informed Prime’s solicitor that Travers had not provided notification regarding the nomination of Prime as purchaser. On 24 March 2017, Prime’s solicitor requested Travers’ solicitor to provide confirmation of the nomination to the Corletts’ solicitor.
[35] On 13 April 2017 the Corletts’ solicitor asserted that they had not received any formal notification from Travers of Prime’s nomination, and that they intended to treat Travers as the purchaser and send the settlement statement to Travers’ solicitor.
[36] Settlement did not occur on the scheduled settlement date of 21 April 2017. The Corletts have not taken any step to have either the Travers caveat or the Prime caveat removed. However they have served notice on Travers requiring it to settle.
Travers’ reply evidence
[37] There were two reply affidavits filed on behalf of Travers. First, Mr Harvey, a director of Travers, deposed that Mr Monahan was mistaken in saying that Travers did not “fulfil the clause” (an apparent reference to exercising its buy-back right) within the two month period. Mr Harvey went on to assert his understanding of the meaning of the words used in the 19 September email agreement, namely that Travers and Prime agreed to jointly develop the property unless Travers chose to exercise the buy-back option. He stated that the possibility of Prime refusing to enter into a joint venture, and pursuing the project on its own, was never discussed.
[38] Mr Harvey also deposed that Mr Aharoni and Prime were guilty of significant delays in progressing the joint venture.
[39] Mr Harvey rejected Prime’s argument that the assignment of Travers’ interest in the Agreement to Prime was separate from the joint venture. He also challenged Mr Aharoni’s assertion that Prime was ready, willing and able to proceed to settlement on 21 April 2017. His evidence was that to date Prime had not progressed the development of the property at all. Further, Prime had known about the Travers caveat since it was lodged on 16 November 2016, but had taken no steps to have the Travers caveat removed. Mr Harvey held firm to the position that the joint venture and the nomination were part of the same overall transaction, and if the joint venture agreement was not agreed and the buy-back clause not invoked, that did not mean that Travers lost its interest in the property.
[40] Mr Chevin also provided an affidavit in reply. He asserted that it would not have made commercial sense for Travers to incur significant time and cost in developing the property for two months, and then be at risk of losing the property entirely if it could not meet the requirements of the buy-back clause. He said that that was especially the case in circumstances where Travers agreed to work with Prime because it did not have sufficient funds at the time, and needed a joint venture partner.
[41] Mr Chevin also alleged that Prime had been guilty of significantly delaying the progress of the project after the initial terms were agreed on 19 September 2016.
At one point, Mr Aharoni had replied to him advising that he was currently on holiday in Italy, and that it was “too hot for anything else”. Mr Chevin asserted that Travers acted in good faith by promptly taking steps to progress the project, whereas Prime did not. He said that he was staggered when, nearly three weeks after Prime had pulled out of the joint venture, Mr Aharoni requested that Travers exercise the buy-back clause. Mr Chevin also expressed concern at Prime apparently changing its position on granting an extension of time for Travers to repay the deposit and pay the
$100,000. Initially, Prime had appeared willing to grant an extension, but later Mr Aharoni insisted that payment had to be made by 19 November 2016 if the buy- back option was to be exercised.
[42] Mr Chevin did not directly challenge Mr Aharoni’s evidence about Mr Chevin’s past bankruptcies and convictions. He expressed the view that Mr Aharoni was attempting to raise matters in his past which were unrelated to the proceeding, in an attempt to discredit his character and explain Prime’s significant delays. He said that he did not intend to respond to those matters, as they were not relevant to what Travers and Prime had agreed.
[43] Mr Chevin rejected a suggestion by Mr Aharoni that Mr Chevin had misrepresented the viability of the site due to the number of sections to be built on the property. He also rejected Mr Aharoni’s description of Mr Chevin’s proposed fees as exorbitant.
Mr Aharoni’s second affidavit
[44] The remaining affidavit in reply was that of Mr Aharoni.
[45] Mr Aharoni denied the allegation of significant delays on Prime’s part after it had accepted the nomination as purchaser. He explained that Prime had been put under considerable pressure in the few days leading up to the completion of the Deed, saying that the reason the parties had to move so quickly was because the Agreement was due to come to an end at 4pm on 19 September 2016 if it was not confirmed by then. Travers was not then financially in a position to confirm the Agreement. Underlining the pressure Mr Aharoni says was put on Prime, he referred
to one email from Mr Chevin saying that the parties had “9 minutes” to confirm the
agreement as unconditional.
[46] Mr Aharoni confirmed that Prime had funding to settle with the Corletts on
21 April 2017, and confirmed that the Corletts’ solicitors were advised on
21 April 2017 that Prime was ready, willing and able to settle.
The caveats
[47] The interest claimed in the Travers caveat was:
Pursuant to an agreement for sale and purchase of real estate dated 1 August
2016 where the registered proprietor is the vendor and the caveator is the purchaser.
[48] The interest claimed in the Prime caveat was:
Pursuant to an agreement for sale and purchase of real estate dated 1 August
2016 (Agreement) and a deed of nomination dated 21 September 2016 where the registered proprietor is the vendor and the caveator is now the purchaser
under the Agreement.
Applications to remove caveats – legal principles
[49] Section 143 of the Land Transfer Act 1952 provides:
143 Procedure for removal of caveat
(1) Any such applicant or registered proprietor, or any other person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the High Court for an order that the caveat be removed.
(2) The court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the court seems meet.
[50] The courts have applied the following principles to applications under s 143. First, the onus is on the caveator to show that it has a reasonably arguable case in support of the interest claimed. If the caveator can do that, the caveat will not be
removed.1 An order for the removal of a caveat will not be made unless it is patently
1 Sims v Lowe [1988] 1 NZLR 656 (CA).
clear that the caveat cannot be maintained, either because there was no valid ground for lodging it, or because a valid ground no longer exists.
[51] Even if the caveator can demonstrate it has a caveatable interest, the court retains a discretion to remove the caveat if no useful purpose would be served by allowing the caveat to stay on the title. However that discretion will be exercised cautiously, and only where the court is completely satisfied that the legitimate interest of the caveator will not be prejudiced.2 The onus lies on the party challenging the caveat to show why the residual discretion should be exercised to remove the caveat.3
The issues
[52] The broad issues on the application by Travers to remove the Prime caveat are whether Prime has a reasonably arguable case to support the Prime caveat, and (if it does) whether the court should nevertheless remove the Prime caveat in the exercise of its discretion under s 143.
[53] The same broad issues arise on Prime’s application: has Travers shown a reasonably arguable case to support the Travers caveat? If it has, should the court nevertheless exercise its discretion to order removal of the Travers caveat?
[54] Those are the overarching issues. In support of his contention that Travers has an arguable case for the removal of the Prime caveat, and that Prime has no arguable case favouring removal of the Travers caveat, Mr Lloyd identified the following three sub-issues:
(1)Was there a pre-condition to the Deed, under which it would only take effect if the parties completed a joint venture agreement?
(2)Did Prime act in breach of a fiduciary obligation owed to Travers, as an actual or prospective joint venture partner, to engage in good faith
2 Pacific Homes Ltd (in rec) v Consolidated Joiners Ltd [1996] 2 NZLR 652 (CA).
3 Lombard Finance and Investments Ltd v Albert Street Ltd HC Auckland CIV-2004-404-2120, 14
October 2004 at [16].
with Travers in an attempt to complete a formal joint venture agreement? If Prime did act in breach of such a fiduciary obligation, is it arguable for Travers that the appropriate equitable remedy would be to restore to Travers its original equitable interest as purchaser of the property (thus giving Travers a caveatable interest in the property)?
(3)Did Prime repudiate the 19 September agreement by withdrawing from the 19 September agreement without making a good faith attempt to negotiate joint venture terms? If so, was the effect of the repudiation to restore Travers to its position as the purchaser entitled to complete the purchase of the property under the Agreement?
[55] It will be convenient to consider Mr Lloyd’s three sub-issues first, and then return to the overriding questions of arguable case and the exercise of my discretion on each application.
Sub-issue 1 – Was there a pre-condition to the Deed, under which it would only take effect if the parties were able to subsequently complete a joint venture agreement?
[56] Mr Lloyd conceded at the hearing that Travers’ arguments on this sub-issue are insufficient to justify an order removing the Prime caveat. However he submits that the arguments do provide Travers with an arguable case on the application by Prime for an order removing the Travers caveat.
[57] I do not think it is reasonably arguable for Travers that the Deed was subject to the alleged pre-condition. First, and most obviously, no such precondition was stated either in the Deed or in the email correspondence which preceded it. The issue was of such consequence that one would have expected commercial people such as these to have recorded such a precondition if it had been intended.
[58] Secondly, the Deed and the 19 September agreement required the parties to take immediate steps on the footing that the 19 September agreement and the Deed were binding. Specifically, Travers was required to provide the Corletts with a copy
of the Deed (as evidence of the nomination) immediately following execution of the Deed (cl 2.1 of the Deed). Travers also undertook to declare the Agreement unconditional upon receipt of an email from Prime confirming the terms of the
19 September agreement (cl 2, near the end of the 19 September agreement). For its part, Prime committed to pay the deposit of $215,000 under the Agreement.
[59] I think those were substantial commitments, and that they could not be “taken back”. For example, Travers’ undertaking to declare the Agreement unconditional on receipt of Prime’s confirmation of agreement to the terms set out in the
19 September email was an irrevocable step as between Travers and the Corletts, and it was directly linked to the undertaking Travers had from Prime that Prime would accept the nomination as purchaser and pay the deposit.
[60] That view is entirely consistent with the wording in cl 3 of the 19 September agreement providing for Travers to “buy back the land contract”. It is also consistent with Mr Chevin’s correspondence following Prime’s withdrawal on 18 October
2016, when Mr Chevin sought an extended period to pay the $100,000 plus GST, and refund the deposit, in order that Travers could proceed with the development on its own.
[61] I conclude that the parties intended that binding obligations would arise on completion of the 19 September agreement and the Deed. Any argument that the operation of the Deed was intended to be conditional on subsequent agreement on joint venture terms, is not in my view arguable for Travers.
Sub-Issue 2 – Did Prime act in breach of a fiduciary obligation owed to Travers, as an actual or prospective joint venture partner, to engage in good faith with Travers in an attempt to complete a formal joint venture agreement? If Prime did act in breach of such a fiduciary obligation, is it arguable for Travers that the appropriate equitable remedy would be to restore to Travers its original equitable interest as purchaser of the property (thus giving Travers a caveatable interest in the property)?
[62] On this issue, Mr Lloyd submits that Travers’ arguments are decisive both on the application to remove the Prime caveat and in defence of Prime’s application to remove the Travers caveat.
[63] I accept Mr Lloyd’s arguments based on Chirnside v Fay that, depending on the facts of the case, fiduciary obligations may arise where commercial parties are negotiating towards the completion of a joint venture agreement.4 A fiduciary relationship can arise, and fiduciary duties exist, notwithstanding that the parties have not reached (and may never reach) agreement on consensual terms which are to govern the arrangements between them.
[64] A fiduciary relationship and its attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of a partnership business or before the precise terms of any partnership agreement have been settled.5
[65] One of the factors which may be important in deciding whether a fiduciary relationship has arisen in such circumstances is whether one of the parties has given property or confidential information to the other in the expectation of concluding a contract.6
[66] As Tompkins J noted in Marr v Arabco Traders Limited, if the course of dealing indicates an intention to carry out a common purpose by a joint association in a way that involves mutual confidence in each other, fiduciary duties may well result. Brian’s case established that in the case of a relationship in the nature of a joint venture, that relationship can give rise to fiduciary duties where the negotiations are incomplete. Whether in fact such duties will arise will depend on the nature and stage of the negotiations, and whether, looking at the overall context, the negotiations have given rise to mutual confidence between the participants. Tompkins J referred specifically to the situation of one participant having performed some act for the benefit of the other, or having agreed to hold a property on behalf of
the other, as a factor which may point to a fiduciary relationship having arisen.7
4 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.
5 United Dominions Corporation Limited v Brian Pty Limited [1985] HCA 49, (1985) 157 CLR 1 at 11-12.
6 Andrew Butler, Tim Clarke Brooke Gibson and Jeff Kenny Equity and Trusts in New Zealand
(2nd ed, Thomson Reuters, Wellington, 2009) at 1139.
7 Marr v Arabco Traders Limited HC Auckland A1195/77, 22 May 1987.
[67] In my view it is reasonably arguable for Travers that the Deed was executed as part of a wider understanding set out in the 19 September agreement, that the parties would negotiate towards completion of a joint venture agreement to develop the property. The execution of the Deed was a step in the furtherance of the
19 September agreement.
[68] Mr Scragg submitted that there can be no arguable fiduciary relationship in this case, because Prime and Travers are both commercial parties and they had only just begun dealing with each other. In his submission, this is not a situation like Chirnside v Fay, where the parties had been dealing with each other for a substantial period of time. He submits that it is not arguable for Travers that the parties were reposing trust and confidence in each other in those circumstances.
[69] That might prove to be the case, but particularly in circumstances where Travers went ahead and assigned its interest in the Agreement to Prime, I am not prepared to say that the existence of a fiduciary relationship is beyond reasonable argument for Travers. I accept that it is reasonably arguable for Travers that a fiduciary relationship existed between it and Prime immediately following the making of the 19 September agreement, the execution of the Deed, and the payment of the deposit.
[70] The next question is the content of the fiduciary obligations that arguably arose. Again, I accept that it is arguable for Travers that Prime was obliged to act in good faith towards it, and that that good faith obligation arguably extended to Prime genuinely engaging with Travers in an attempt to finalise a joint venture agreement. I further accept that it is arguable for Travers that Prime may have breached that good faith obligation when it withdrew from the negotiations on 18 October 2016. I acknowledge that the negotiations may have gone nowhere, particularly after Mr Aharoni learned about Mr Chevin’s prior bankruptcies and previous convictions. Nevertheless, I do not think Travers’ breach of good faith argument can be dismissed in a summary fashion on these applications. It appears that Mr Aharoni’s concerns over Mr Chevin’s background were not raised with Travers’ director Mr Harvey, and it may be that Travers could have provided Mr Aharoni with sufficient assurances regarding Mr Chevin’s role if it had been given the opportunity to do so. I conclude
that it is at least arguable that there was a breach of a fiduciary obligation to fully engage with Travers in negotiating a joint venture agreement.
[71] Any such breach by Prime would have been substantially attributable to Prime’s firm belief that it had no obligations at all in regard to the proposed joint venture immediately after the 19 September agreement was made. Mr Aharoni appears to have taken the view that he had two months to consider whether Prime would assume any obligation in respect of the proposed joint venture, and he appears not to have turned his mind to the possibility, established by the cases, that fiduciary obligations (including a duty to act towards the other in good faith) may arise before any formal agreement is reached. But Prime’s appreciation or otherwise of its obligations could not be an answer to any breach of fiduciary obligation argument – if it did assume fiduciary obligations to Travers, Prime was obliged to comply with them.
[72] The first part of the content of any fiduciary obligations, would then, be that Prime was obliged to deal in good faith with Travers, including in respect of the joint venture negotiations which were contemplated by the 19 September agreement.
[73] Arguably, there was a second element in the “content” of any fiduciary obligations owed by Prime to Travers. It relates to the manner of Prime’s withdrawal from the 19 September agreement. In Chirnside v Fay Tipping J made the following general observation:8
The resulting fiduciary relationship is not one from which a party is unable to withdraw, albeit withdrawal will usually require appropriate arrangements to be made in consideration of the severance of the joint interests and the release of the parties from their duties of loyalty to each other. Because there is, as yet, no contract between the joint venture parties, each will ordinarily be free to withdraw, on giving the other notice to that effect. On the giving of that notice duties of loyalty for the future will come to an end but confidentiality obligations may remain; and any assets, tangible or intangible, held on behalf of the joint venture will still usually be held on trust for both the erstwhile joint venturers. Appropriate steps will be necessary to agree, or obtain some external resolution as to how those assets are to be dealt with.
8 Chirnside v Fay, above n 4, at [92].
[74] So any assets, tangible or intangible, held on behalf of the joint venture will usually be held on trust for both of the erstwhile joint venturers. Appropriate steps will be necessary to agree, or obtain some external resolution as to how those assets are to be dealt with.
[75] The real difficulty which I see for Travers on this sub-issue, and I think it is insuperable, is in the area of remedy. Mr Lloyd submits that equity would require that Travers be restored to its position as purchaser under the Agreement on the basis that equity would require Prime to disgorge its “ill-gotten gains” (the interest it acquired as purchaser under the Agreement) arising from its breach of the claimed fiduciary obligations.
[76] I do not accept that submission. The arrangements between the parties in this case, incomplete as they were, never contemplated that Travers would become the owner of the property, at least without paying the $100,000 plus GST to Prime and refunding the deposit. In his email of 18 September 2016, in which he set out his initial thoughts on how the joint venture might work, Mr Chevin said that “Ownership of the project can be in 100 percent control of [Prime] if required”. Consistent with that, there was no condition attached to the Deed linking the assignment of Travers’ interest in the property to completion of a joint venture agreement. Travers had no money, and the initial expectation was effectively that Prime would fund everything, including deposit, land settlement, pre-development costs, land development costs, and (possibly) house construction costs. And Mr Chevin’s initial thinking was that it would not be Travers but Mr Chevin’s entity, PLC, that would split the project final margin 50/50 with Prime.
[77] I do not consider it arguable that equity would require Prime to disgorge that which Prime had lawfully acquired under the Deed and which the parties expected Prime would retain as the full owner, subject to any exercise of the buy-back option by Travers. An account of any profits Prime might earn on the development of the property, or a claim for equitable damages, are the remedies which appear to be reasonably arguable for Travers if there was a breach of fiduciary obligation by Prime.
[78] In circumstances where Travers could have had no reasonable expectation of acquiring a share in the ownership of property (unless it refunded the deposit and paid the $100,000 to Prime, which it has not done), I see no reasonable basis under which equity might reward Travers by conferring on it an interest in the property which it was not bargaining for. Put another way, I do not think it arguable for Travers that the equitable interest in the property which was assigned to Prime was an “asset” of the proposed joint venture, which Prime was obliged to hold in trust for the (prospective) joint venturers.
[79] I accept Mr Scragg’s submission that while Travers might (at best) have an arguable entitlement to share in any profit made on the sale of the lots which would be subdivided from the property, it has no remaining interest in the property itself. A right to share in the proceeds of sale of a piece of land does not normally create a caveatable interest in that land.9
[80] I conclude on this issue that Travers has failed to show that Prime has no arguable basis for the retention of the Prime caveat. I conclude also that the “fiduciary obligation argument” does not provide an arguable basis for the retention of the Travers caveat.
Sub-Issue 3 – Did Prime repudiate the 19 September agreement by withdrawing from the 19 September agreement without making a good faith attempt to negotiate joint venture terms? If so, was the effect of the repudiation to restore Travers to its position as the purchaser entitled to complete the purchase of the property under the Agreement?
[81] Again, Mr Lloyd accepted at the hearing that Travers’ arguments on this sub- issue would not be sufficient to show that Prime has no arguable case for retention of the Prime caveat. As with sub-issue (1) however, he submits that the arguments do
provide an arguable basis for retention of the Travers caveat.
9Merbank Corp Ltd (in liq) v Price (1978) 1 NZCPR 24 (SC) supports this view. In that case the caveator argued that a joint development agreement which provided that he was to receive one half of the profits on sale of the land created a trust in his favour. McMullin J pointed out that the mere existence of a trust is insufficient to support a caveat; the caveator must establish the existence of a trust which confers on the caveator a beneficial interest in the land sought to be caveated. His Honour held that the caveator was not beneficially entitled to an interest in the land even though it might be able to show an express or implied trust entitling it to a share in the moneys received.
[82] I do not consider it arguable for Travers that any repudiation by Prime of the
19 September agreement could have had the effect of “unwinding” the Deed, and restoring to Travers its former ownership of an equitable interest as purchaser of the property.
[83] First, it is common ground that the Deed operated to assign to Prime Travers’ equitable interest in the property. And it is apparent from Travers’ decision to proceed on its own with the development that any such repudiation was accepted by Travers. If Prime did repudiate the 19 September agreement, s 8 of the Contractual Remedies Act 1979 (the CRA) would therefore have applied.
[84] Section 8(3) of the CRA materially provides:
8 Rules applying to cancellation
…
(3) Subject to this Act, when a contract is cancelled the following provisions shall apply:
(b) so far as the contract has been performed at the time of the cancellation, no party shall, by reason only of the cancellation, be divested of any property transferred or money paid pursuant to the contract.
…
[85] The effect of the subsection in this case is that if the 19 September agreement was cancelled, neither party, by reason only of the cancellation, was to be divested of any property transferred or money paid pursuant to the 19 September agreement. Therefore, Prime was not divested of the interest it had acquired when Travers’ equitable interest in the property was assigned to it under the 19 September agreement.
[86] Mr Lloyd submits that Travers was nevertheless entitled to apply to the court for relief under s 9 of the CRA. That section provides that the court may make a variety of orders on the cancellation of a contract, if it is “just and practicable” to make the orders. For example, an order may be made vesting in any party to the proceedings the whole or any part of any real or personal property that was the subject of the contract. The court is also empowered to direct any party to the
proceedings to do or refrain from doing, in relation to any other party, any act or thing as the court thinks just.
[87] The problem with the argument that Travers has a right to ask the court for a vesting order (or an order that its former equitable interest in the property be returned to it) is that a right to apply to the court under s 9 of the CRA does not give rise to any caveatable interest in land. As Associate Judge Bell noted in Woodroffe v Coleman, the ability to recover property transferred turns on the court exercising its powers under s 9 favourably. Until a court makes a vesting order under s 9 of the
CRA, the claimant has no interest in the property transferred under the contract.10
[88] For those reasons, I do not consider it reasonably arguable for Travers that any repudiation by Prime of the 19 September agreement resulted in a re-vesting in Travers of its former equitable interest as purchaser of the property, or otherwise gave rise to any caveatable interest in the property.
Summary of conclusions and result
[89] Travers has failed to make out grounds for the removal of the Prime caveat. It has failed to show that it has an arguable case on any of the sub-issues identified by Mr Lloyd, and I consider Prime’s case for retention of the Prime caveat is arguable. I accordingly dismiss Travers’ application for removal of the Prime caveat.
[90] For essentially the same reasons, Prime succeeds with its application for an order removing the Travers caveat. Travers has failed to show that it has an arguable claim to an interest in the property sufficient to support the Travers caveat. I would also have held, if it had been necessary, that the “fiduciary obligations” interest claimed by Travers was not the same interest as that claimed in the Travers caveat (which referred only to Travers’ interest as purchaser under the Agreement). Travers might conceivably have based the Travers caveat on its option to buy back the interest it had assigned to Prime, but the Travers caveat was not lodged on that basis,
and any interest Travers had under the buy-back option expired on the cancellation
10 Woodroffe v Coleman HC Auckland CIV-2011-404-4391, 11 November 2011 at [35]. See also [29] of the judgment, where the Associate Judge said: “interests in land that come into being only on a court making an order that establishes the interest not caveatable”.)
of the 19 September agreement (or on 19 November 2016, whichever came first). In any event, any such interest no longer subsists. I make an order removing the Travers caveat from the title to the property.
[91] In the foregoing circumstances there is no need for me to consider the
exercise of the Court’s discretion to remove a caveat, on either application.
[92] I am inclined to order costs in favour of Prime on a 2B basis, with disbursements as fixed by the Registrar. But there may be issues over whether full costs should be awarded in both proceedings. If the parties cannot agree on costs, Prime may file a memorandum within 15 working days. Travers may file a reply memorandum within 15 workings days of its receipt of Prime’s memorandum.
Associate Judge Smith
Solicitors:
Minter Ellison Rudd Watt, Auckland for Travers Project Ltd
Duncan Cotterill, Wellington for Prime Property Ltd
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