Hemmingson v Rod [2014] NZHC 873 (30 April 2014)

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UNDER	the Land Transfer Act 1952
IN THE MATTER OF	an application to prevent a caveat lapsing
BETWEEN	ROBERT NEILL HEMMINGSON Plaintiff
AND	STEVEN ROD and THE CLANARD PROPERTY TRUST COMPANY LTD Defendants

Hearing:	18 March 2014
Counsel:	G A Paine for plaintiff P J Morahan for defendants
Judgment:	30 April 2014
Reissued:	4 June 2014

The plaintiff ’s claim to an interest in the land ................................................................................ [9] The Dispute ...................................................................................................................................... [42] The Application ............................................................................................................................... [51] The Opposition ................................................................................................................................ [52] Discussion - Legal Principles ......................................................................................................... [53] Application of legal principles in this case .................................................................................... [55]

_{Costs
.................................................................................................................................................
[81]}

HEMMINGSON v ROD and THE CLANARD PROPERTY TRUST CO LTD [2014] NZHC 873 [30 April 2014]

[1] On 30 April 2014 I delivered a reserved decision in this matter, in which I granted leave to the plaintiff to file a second caveat. At a telephone conference with counsel on 3 June 2014 I made an order recalling that judgment, so that the wording of the order relating to the lodging of the second caveat could be corrected. The corrected working now appears at paragraph [80] of this (re-issued) judgment, which in all other respects is in the same terms as the judgment delivered on 30 April 2014.

[2] The plaintiff applies under s 145A of the Land Transfer Act 1952 for an order that a caveat lodged by him on certificate of title WN38C/726, Wellington Land District, does not lapse (the Application).

[3] The land in question is the site of the Foxton Hotel in Foxton. The plaintiff was, for some years prior to June 2011, the publican at the hotel. Between February

2006 and July 2007, the plaintiff and Cullinane Steele Trustees (2003) Limited were registered as proprietors of the land. From 23 July 2007 until 19 July 2011, the registered proprietors were the plaintiff and Cheryl Marie Hemmingson. The registered proprietors throughout the period from February 2006 to 19 July 2011 appear to have been trustees of family trusts established by or associated with the plaintiff.

[4] Following registration of the 2007 transfer to the plaintiff and Ms Hemmingson, two mortgages were registered against the title to the land: a first mortgage (no 7464244.3) to Avanti Finance Limited (Avanti), and a second mortgage (no 7466093.1) to John Stanford Davis and Faye Beryl Davis (the first Davis mortgage).

[5] The plaintiff ran into financial difficulties and was bankrupted on the application of the Inland Revenue Department on 15 October 2007. However, the Foxton Hotel continued in business. Initially the business was run by a tenant, Foxton Hotel Limited. Following the liquidation of that company on 28 March

2008, the hotel was operated by a manager, with the plaintiff and his partner providing support. According to a valuation report prepared for Avanti on 2 August

2010, there was not, at that time, any formal lease in place. Trade continued on a

month-to-month arrangement, with the rental payments aligned to cover the interest

[6] The owners were unable to keep up the required payments on the Avanti mortgage, and Avanti eventually exercised the power of sale contained in the Avanti mortgage. A transfer of the land from Avanti as mortgagee to the defendants was registered on 19 July 2011. At the time of the mortgagee sale, it appears that the total debt owing to Avanti was approximately $385,000. The land was sold to the defendants for $275,000, leaving a shortfall for Avanti of approximately $100,000.

$50,000. However, the effect of the exercise by Avanti of its power of sale under the Avanti mortgage was to extinguish the interest in the land held by Mr and Mrs Davis under the first Davis mortgage.

[8] The defendants’ purchase of the land from Avanti was funded entirely by a first mortgage from Mr and Mrs Davis (the second Davis mortgage). The second Davis mortgage was registered under no 8806440.2 on 19 July 2011.

[9] The caveat was registered by the plaintiff on 17 April 2013. The estate or interest claimed in the caveat is:

Pursuant to a constructive trust to purchase the land contained in the above certificate of title under which the registered proprietors Steven Rod and The Clanard Property Trust Company Limited agreed to purchase the land from the mortgagee under mortgage number 8806440.2 on behalf of the caveator.

[10] It will be noted that there was a mistake in the mortgage number. The number of the mortgage under which the land was sold by Avanti to the defendants

_{was 7464244.3. 8806440.2 is the registered number of the second Davis
mortgage.}

[11] The plaintiff says that the defendant Mr Rod was his accountant from at least

2010, and that in 2010 Avanti required the plaintiff to lodge deposits from the hotel trade in the trust account which Mr Rod was then operating at his firm, Steve Rod Taxation Technician. According to the plaintiff, that was done and payments to Avanti were made by Mr Rod’s firm on behalf of the plaintiff’s family trust, which then owned the land. From time to time Mr Rod would transfer excess funds to the plaintiff’s own account.

[12] Mr Davis was a friend of the plaintiff. In May 2011 when the plaintiff was having difficulties with the Avanti mortgage, Mr Davis offered to refinance the Avanti mortgage. The plaintiff says that he arranged for Mr Davis to meet with Mr Rod to discuss the matter further. The plaintiff says that Mr Rod did not know Mr Davis at this stage, and that it was he who introduced Mr Davis to Mr Rod. That is denied by Mr Rod, who says that it was he who approached Mr Davis.

[13] It is common ground that it was Mr Rod who negotiated with Avanti to purchase the land for the sum of $275,000.

[14] The plaintiff’s evidence was that Mr Rod suggested to him that Mr Rod and the plaintiff would form separate trusts to acquire each part of the Foxton Hotel business from Avanti. One trust would acquire the hotel business, and the other would acquire the land and other hotel assets. The plaintiff said that Mr Rod suggested that the plaintiff and Mr Rod would be the two trustees, as it is a legal requirement to have trustees. Mr Davis was also involved with the discussions, and the plaintiff’s evidence was that he and Mr Davis agreed that establishing two trusts to acquire the land and business from Avanti would be a good idea.

[15] In his affidavit, the plaintiff said that an arrangement was reached. Pursuant to this agreement, he would pay $1,000 per week into Mr Rod’s trust account, and Mr Rod would pay interest on the second Davis mortgage and PAYE, GST and rates

[16] Mr Davis provided an affidavit in support of the Application. He said that in May 2011 he decided to lend the plaintiff the amount required to refinance the Avanti mortgage, provided he could be satisfied that the business was operating successfully and that repayments would not be an issue. Mr Davis said that he and the plaintiff discussed the details fully with Mr Rod, and that Mr Davis was happy with the arrangements at which they arrived. Those arrangements were said to entail Mr Davis lending the money to the plaintiff, who would “form a trust for the title to be registered to and Steve Rod would be a trustee along with [the plaintiff]”.

[17] Mr Davis confirmed the plaintiff’s evidence of the Arrangement. [18] There was one affidavit in opposition, that of the defendant Mr Rod.

[19] Mr Rod’s evidence was that he was employed by a company called Tax Accounting Technicians Limited, later known as Accounting & Taxation Solutions Limited, which had offices in Levin. He said that he was approached by the plaintiff for assistance with the hotel business before September 2010 when the plaintiff was still an undischarged bankrupt. Mr Rod said that it quickly became clear that the business of the hotel was in a financial mess, and that the plaintiff’s major concern at the time was to find a way to save the business.

[20] Mr Rod claimed that it was he who approached Mr Davis when he first became aware of the difficulties the hotel was facing with the Avanti loan and the first Davis mortgage.

[21] According to Mr Rod, Mr Davis’ first response was that he would not lend the plaintiff any further money. Mr Rod said that he relayed that information to the plaintiff, and then suggested to the plaintiff that he (Mr Rod) would endeavour to buy the hotel and business from Avanti. Mr Rod said that he contacted a friend at the Bank of New Zealand (BNZ) and made a preliminary arrangement to borrow from the BNZ to complete the purchase. He also negotiated the $275,000 purchase price with Avanti, saying that, although a sale at that figure would leave Avanti out of pocket, it was keen to quit what it regarded as a toxic debt.

[22] Mr Rod said that although he had been the initial point of contact for the professional accounting needs of the plaintiff and the hotel business, he shifted the plaintiff over to an associate shortly after the initial contact. Mr Rod said that the associate, through a separate accounting company, took over as the plaintiff’s accountant. That evidence was not challenged by the plaintiff.

[23] Mr Rod described the arrangement he made with the plaintiff for the acquisition of the land in the following terms:³

The arrangement which I made with Bob was that I would form a trust which would be called the R & S Trust. The initials R & S were to stand for Robert and Steve. The Trust would purchase the freehold and the business of the Foxton Hotel for $275,000.00 and the Trust would receive the funds for the purchase from John Davis by way of a first mortgage. Davis was more than happy to advance the funds to the trust as he saw this as a way of advancing the funds to someone other than Bob.

Bob was not to be either a trustee or a beneficiary of the trust at the inception for a number of reasons.

[24] It appears that a trust known as the R & S Investment Trust was established in June of 2011. An unsigned copy of a trust deed dated June 2011 was produced by the plaintiff with his affidavit.

[25] The form of trust deed which the plaintiff produced showed Mr Rod as the settlor and the defendants as the two trustees. The second-named defendant is a company whose sole director is the defendants’ solicitor. The “Primary Beneficiary” as defined in the form of trust deed was Mr Rod and any child or children of Mr Rod. While the form of trust deed made a number of references to “Discretionary Beneficiaries”, that expression was not defined in the document. There was no mention of the plaintiff.

[26] The reasons Mr Rod said that the plaintiff was not to be either trustee or beneficiary of the proposed trust included the fact that the plaintiff had only recently been released from a second bankruptcy, and did not have any money to put towards the purchase. The recent bankruptcy also meant that he could not raise finance until at least two years after his discharge. A further reason was that Avanti was adamant

it would not consent to a transfer to any entity which included the plaintiff. Mr Rod also noted the possibility that Avanti might pursue the plaintiff for the shortfall on the Avanti mortgage.

[27] Mr Rod’s evidence was that he discussed those issues with the plaintiff prior to the settlement with Avanti. Mr Rod said that, contrary to the plaintiff’s claims in his affidavit, there was “never any suggestion from me that he would be a trustee at the outset”.

[28] Mr Rod’s evidence as to how the plaintiff would fit into the arrangements for the acquisition of the land, as the plaintiff was neither a trustee nor a beneficiary of the trust which would acquire the land, was set out in Mr Rod’s affidavit in the following terms:⁴

The agreement which I had with Bob was that once it was certain that Bob was in the clear from possible claims from creditors of the Foxton Hotel, and he had some money, I would transfer the freehold to him and as consideration for my successful negotiations with Avanti and he would pay me half the difference between the value of the freehold and the outstanding amount of [the second Davis mortgage]. ... I believed at the time of the settlement of the purchase by the Trust that everyone understood this arrangement. I did not see anything wrong with this arrangement.

[29] Mr Rod described a meeting held in his office in Levin on 11 June 2011. Present were himself, Mr Davis, the plaintiff and Mr Rod’s solicitor, Peter Morahan. Mr Rod’s evidence was that Mr Morahan endeavoured to explain the structure of the trust to Mr Davis and the plaintiff at this meeting. He said that Mr Davis stated that he knew all about trusts, as he had one himself. At the meeting, Mr Davis handed over a cheque drawn on his family trust for the $275,000 he had agreed to advance for the purchase of the land from Avanti, and Mr Rod produced a trust account receipt issued by Mr Morahan’s law firm the following Monday showing the payment receipted to the account of “R & S Investment Trust – advance for purchase of Foxton Hotel”.

[30] The settlement of the purchase from Avanti was effected on 15 June 2011. The transfer of the land to the defendants and the second Davis mortgage were duly registered on 19 July 2011.

[31] A copy of the term loan agreement under which the funds secured by the second Davis mortgage were advanced to the defendants was produced with a reply affidavit sworn by Mr Davis. The lenders were shown as Mr Davis and his wife. The defendants, as trustees of the R & S Investment Trust, were named as borrowers. The plaintiff signed the term loan agreement as guarantor. The loan was for a term of five years, commencing on 15 June 2011. The security was shown as the second Davis mortgage.

[32] Mr Rod stated that, a few weeks after the settlement with Avanti, the plaintiff contacted him saying that he needed a lease of the premises in order to obtain a liquor licence. Mr Rod said that up until then he had not given much thought to the issue of a lease, “as I had assumed that Bob and I would be equal partners in any profit from the sale of the freehold”. However, he contacted his lawyer and obtained a copy of the Auckland District Law Society form of commercial lease (fifth edition), which he filled in and sent to the plaintiff. The rental under the lease was

$1,000 per week, which was the same as the sum the plaintiff was supposed to be paying to Mr Rod for forwarding on to Avanti when Avanti still held its mortgage on the land. According to Mr Rod, it was the plaintiff who suggested the amount to be inserted in the lease.

[33] A copy of part of the lease of the hotel from R & S Investment Trust to “Robert Neill Hemmingson T/A Foxton Hotel”, dated 7 June 2011, was produced by Mr Davis in a reply affidavit. The lease was signed by the defendants and the plaintiff. The schedule to the document referred to a term of 10 years commencing

15 July 2011, and to weekly rent of $1,000 including GST. Mr Rod asserted that the lease of the hotel was a gross lease, under which the tenant was liable for rates and insurance. I was not provided with a complete copy of the lease, but in any event that statement was not challenged by any reply affidavit from the plaintiff.

[34] Mr Rod said that he heard nothing further from the plaintiff about the lease for the next 10 months, but did receive payments of $1,000 per week between

12 June 2011 and 19 February 2012. On 19 February 2012, the plaintiff contacted Mr Rod and complained that he thought he had been ripped off in regard to the weekly payments. The exact nature of the claimed “rip off” was not explained in the affidavits. No further payments of rent were received by Mr Rod after 19 February

2012, although it appears that the plaintiff began making mortgage interest payments direct to Mr and Mrs Davis after that, under the second Davis mortgage.

[35] There was a dispute at the hearing as to the correct categorisation of the weekly payments of $1,000, which the plaintiff made to Mr Rod from 12 June 2011. According to Mr Rod, they were simply payments of rent made under the deed of lease. At the hearing, Mr Paine endeavoured to categorise the “deed of lease” as a mere device, designed to keep the sale of liquor authorities satisfied that the plaintiff had secure tenure of the hotel. In Mr Paine’s submission, the weekly payments of

$1,000 were in reality payments of the interest due on the second Davis mortgage, and of other outgoings which would ordinarily be payable by the landlord of the premises. Mr Paine submitted that these payments of mortgage interest and outgoings on the land constituted a contribution by the plaintiff to the acquisition of the land, consistent with him being entitled to an interest in the land under a constructive trust.

[36] Mr Rod gave evidence of how the weekly payments of $1,000 received from the plaintiff after 12 June 2011 were applied. Nearly half of the figure was applied to paying the interest on the second Davis mortgage, while $111.11 was paid to the Inland Revenue Department for GST on the rental payments. Rates and insurance on the land and hotel were paid from the $1,000, and a sum of $150 was retained by Mr Rod as “an administration fee”. A balance of $88.23 was placed into a trust account, but Mr Rod said that the balance in the trust account was soon used when the plaintiff missed a couple of the weekly payments.

[37] There was one affidavit filed in reply, being that of Mr Davis. In it, Mr Davis said that it was “during the investigation” that he heard from the plaintiff that he had been given notice to quit as a tenant of the hotel. It was apparently only then that

Mr Davis became aware that the plaintiff was named as the lessee in the lease dated

7 June 2011. Mr Davis expressed the view that the plaintiff’s status as lessee was “inconsistent with his right under the terms of which I provided funds for the mortgage”.

[38] In respect of the term loan agreement, Mr Davis stated that his belief that the plaintiff had an interest in the land was “... my very reason for me providing the funds”.

[39] Mr Davis said that he had two meetings with Mr Rod. One took place in Mr Rod’s office on 11 June 2011, and the other two weeks or so earlier. Mr Davis said that at the earlier meeting Mr Rod asked him if he would consider lending the plaintiff money sufficient to buy the hotel at a price which Mr Rod had discussed with Avanti. Mr Davis said that he replied with an emphatic “no” as, in his view, the plaintiff was hopeless with money. However, Mr Davis said that Mr Rod talked him around, saying that he (Mr Rod) would be in control of the finances and the plaintiff

... a part of the action by means of something he called the R (for Robert) and S (for Steve) Trust he was setting up and anyway it was only for a short time as the BNZ would take over the loan.

[40] Mr Davis’ evidence was that he never saw any deed of trust. Regardless, he stated that he never would have contemplated a loan if it had not been for the representation that the plaintiff would be a party to the ownership – and it was to be only for a short time.

[42] The plaintiff said in his affidavit that he was not aware until early 2012 that the ownership of the hotel was in the name of the defendants, and that he was not named as a proprietor. When he found that out, he rang Mr Rod and left a heated

message on his voicemail. Mr Rod rang back, allegedly denying all knowledge of the second-named defendant and stating that there must have been a mistake made when settlement was made with Avanti. The plaintiff said that Mr Rod told him that he would look into it and have it rectified.

[43] The plaintiff stated that he heard nothing further from Mr Rod. He subsequently obtained the copy of the R & S Investment Trust deed, and was concerned that neither he nor his family, nor Mr Davis was mentioned anywhere in the document.

[44] The plaintiff and Mr Davis both referred in their evidence to a “surprise” visit paid to Mr Morahan in his Lower Hutt office. They both said that Mr Morahan initially could not tell them why the property was registered in the names of Mr Rod and the second-named defendant. Later in the meeting Mr Morahan told them that the land would be transferred to the plaintiff upon payment of $60,000. The plaintiff said in his affidavit that he did not know what that sum was for.

[45] Mr Rod denied the plaintiff’s evidence about the “heated message” left on

I had given Bob back the business of the Foxton Hotel and I did not see any reason why I should not be reimbursed for my troubles in acting partially as his bookkeeper.

[46] On 12 June 2012, Mr Davis wrote to Mr Rod advising that he had not received any payments on the second Davis mortgage since 5 March 2012. He asked that the default be rectified by the end of the month or he would take legal action to recover the debt.

[47] By letter dated 10 July 2012, the defendants’ solicitor replied expressing surprise at Mr Davis’ letter and setting out the defendants’ impression that weekly payments had been made, and were still being made, by the tenant of the Foxton Hotel. The defendants’ solicitor stated:

Accordingly, I now have instructions to issue a notice of termination of tenancy to Mr Hemmingson and request him to quit the premises.

[48] On 26 July 2012, the defendants issued a notice to the plaintiff to quit the land. In reply, the defendants’ solicitor received a letter dated 26 July 2012 from the plaintiff’s then solicitors, attaching a copy of four pages of the June 2011 deed of lease and contending that the plaintiff was entitled to remain in possession of the land under the terms of the lease. Mr Rod’s evidence was that this was the first occasion on which he had been made aware a lease had been signed by the plaintiff.

[49] The plaintiff wrote to the defendants’ solicitor on 3 December 2012. In the letter, the plaintiff said:

As I understood it, until the disputed ownership of the hotel was resolved, I had a verbal agreement with Steve Rod to pay John Davis, rates, and insurance in lieu of a lease payment and this I have been doing.

... I understand that you intend to repay John Davis’ loan on 14 December and I presume you will require me to vacate the hotel.

I have alternative premises to relocate the business to but cannot take possession until 23 January.

With your agreement I will move then and from 14 December make weekly lease payments.

[50] In his evidence, Mr Rod said that this was the first occasion on which a suggestion of a verbal arrangement to pay Mr Davis had been raised. He said that it had not been raised earlier by the plaintiff’s previous solicitor.

[51] In the Application, the plaintiff pleads that Mr Rod told him that the ownership of the Foxton Hotel should be placed in a trust for and on behalf of the plaintiff. He contends that his friend Mr Davis agreed to make sufficient funds available for the purchase of the hotel in a trust for the benefit of the plaintiff. He

further contends that the second-named defendant was set up solely for the benefit of Mr Rod, and that Mr Rod advised the plaintiff to make payments to Mr Rod for the interest on the second Davis mortgage, which the plaintiff did. The Application goes on to allege that, contrary to the express advice of Mr Rod, the Foxton Hotel ownership was transferred to Mr Rod and a trust for Mr Rod’s benefit. The Application further alleges that Mr Rod procured the monies from Mr Davis, and the signatures to necessary documents from the plaintiff, by virtue of fraud. The Application further contends that the defendants hold the land on trust for the plaintiff “in terms of the agreements between the plaintiff and the defendants”.

[52] In their amended notice of opposition, the defendants contend that the plaintiff has failed to show that he has any interest in the land capable of sustaining the caveat. They say that the Application also fails to disclose the existence of any constructive trust. The defendants refer to the error in the caveat relating to the registered number of the Avanti mortgage. They say that the error is fatal to the Application. The defendants further contend that the plaintiff has failed to show the terms of the alleged agreement between the plaintiff and the defendants under which the plaintiff contends that the land is held by the defendants on trust for the plaintiff. Generally, all allegations in the Application are denied.

(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person—

(a) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or

(b) is transferring the land or estate or interest to any other person to be held in trust.

(2) A caveat under this section must contain the following information: (a) the name of the caveator; and

(b) the nature of the land or estate or interest claimed by the caveator, which must be stated with sufficient certainty; and

(d) whether or not it is intended to forbid the making of all entries that would be prevented by section 141 or a specified subset of them; and

(e) the land subject to the claim, which must be stated with sufficient certainty; and

(4) Caveats under this section must be entered on the register as of the day and hour of their receipt by the Registrar.

(1) The registered proprietor of any estate or interest in the land protected by a caveat against dealings (other than a caveat lodged by the Registrar) may apply to the Registrar for the caveat to lapse.

(2) The Registrar must give the caveator notice of an application under subsection (1).

(3) The caveat lapses with the close of the prescribed period after the date on which the notice under subsection (2) is given unless—

(a) the caveator has earlier given to the Registrar notice that an application for an order to the contrary has been made to the High Court; and

(b) an order to that effect has been made and served on the Registrar within the prescribed period after the date on which the notice under paragraph (a) is given to the registrar.

[54] The main principles governing applications under s 145A(3)(a) were summarised in the very recent decision of the Court of Appeal in Botany Land

Development Ltd v Auckland Council.⁷In that case, the Court of Appeal confirmed that applications under provisions such as s 145A of the Land Transfer Act are “quite unsuitable to determine the rights of the parties”.⁸That was said to be particularly so where there were disputed questions of fact. The onus is on the caveator to demonstrate that he or she holds an interest in the land which is sufficient to support a caveat.⁹The caveator must show a reasonably arguable case to support the interest claimed.¹⁰An order for the removal of a caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively that such a ground as then existed has now ceased to exist.¹¹There is a residual discretion once a reasonably arguable case has been established as to whether to make an order removing the caveat. This will be exercised only cautiously, for example, where the Court finds there is no practical advantage to maintaining a caveat and the caveator will not be prejudiced.¹²

[55] The plaintiff gave a very simple account of the basis for his claim to a beneficial interest in the land. In essence, he said that Mr Davis lent the money secured by the second Davis mortgage to the plaintiff to buy out the Avanti mortgage, and that the defendants were to hold the hotel property and the hotel assets in trust for the plaintiff.

[56] Mr Davis’ evidence was to similar effect. He said that he understood he would be lending the money to the plaintiff, who would form a trust which would become the registered proprietor of the land. Mr Rod would be a trustee along with the plaintiff. He referred to the term loan agreement for $275,000, signed by the plaintiff as guarantor, and emphasised that he would never have contemplated a loan if it had not been for Mr Rod’s representation that the plaintiff would be a party to

⁷_{Botany Land Development Ltd v Auckland Council
[2014] NZCA 61, at [23]–[25].}

⁹Botany Land Development Ltd v Auckland Council, above n 7, at [24]; referring to Sims v Lowe

¹⁰_{At [24]; citing Castle Hill Run Ltd v NZI Finance Ltd
[1985] 2 NZLR 104 (CA) at 106.}

¹²Botany Land Development Ltd v Auckland Council, above n 7, at [24]; referring to Pacific

[57] Mr Rod did not dispute that the plaintiff was to have some sort of interest. His version of the arrangement was that:¹³

... once it was certain that Bob was in the clear from possible claims from creditors of the Foxton Hotel, and he had some money, I would transfer the freehold to him and as consideration for my successful negotiations with Avanti and he would pay me half the difference between the value of the freehold and the outstanding amount of [the second Davis mortgage].

Davis was simply lending the money in place of the BNZ in order to try to protect first Davis mortgage.

[58] Pressed at the hearing to articulate the details of the beneficial interest claimed by the plaintiff, Mr Paine submitted that the evidence establishes that the plaintiff was the sole beneficiary (and not a discretionary one) under an oral trust created at latest on 11 June 2011 when the pre-settlement discussions were concluded and Mr Davis handed over the cheque for the purchase of the land. Under this trust, the trustees would hold the hotel land (subject to the second Davis mortgage) for the plaintiff. The trustees were to be the trustees of the R & S Investment Trust, and the plaintiff was not a trustee.

[59] Mr Morahan submitted that any interest the plaintiff had was limited to an interest in any proceeds arising from an eventual sale of the hotel.

[60] I accept that if the arrangement was the plaintiff would only be entitled to an equal share in the net proceeds of an eventual sale of the land (after repaying the second Davis mortgage), then it would not be a sufficient interest to support the caveat. But that is not how Mr Rod described the agreement. He said that he would “transfer the freehold” to the plaintiff in certain circumstances, and on payment of a

sum equivalent to half the equity in the property at the time.¹⁴The plaintiff and

Mr Davis both described in their evidence the 2012 meeting with Mr Morahan, in which Mr Morahan said the defendants would transfer the land to the plaintiff on

[61] The plaintiff’s letter to the defendants’ solicitor dated 3 December 2012 might on its face be seen as equivocal on the issue of whether any interest the plaintiff held was in the hotel land itself or in the proceeds of a sale of the hotel. The letter appears to contemplate the defendants having the entitlement to require the plaintiff to vacate the hotel. However the letter does also refer to “the disputed ownership of the hotel”. Furthermore, Mr Davis’ understanding was clearly that the plaintiff would have a beneficial interest in the hotel.

[62] As the Court of Appeal noted in Botany Land Development Ltd, the provisions of section 145A are quite unsuitable to determine the rights of the parties in circumstances where the facts are disputed to the extent which is apparent from the affidavits in this case. Accordingly, I find that the plaintiff has made out a reasonably arguable case that such interest as he may have had was an interest in the hotel land as opposed to an interest in the proceeds of an eventual sale.

[63] Mr Morahan then submitted that the intention was that a trust would be created after the acquisition in the hotel, and the plaintiff’s interest would be in the equity. That equity had not been determined at the time of the acquisition of the hotel by the defendants. This submission appears to be that the subject matter of the trust was insufficiently certain, and that the trust necessarily fails on that account alone.¹⁶But on the evidence of the plaintiff and Mr Davis there was no such uncertainty. Mr Rod was to form a trust (the R&S Investment Trust), which would hold the land for the plaintiff as sole beneficiary. On that evidence there was

certainty as to the subject matter of the trust (the hotel land, to be held for the plaintiff subject to the second Davis mortgage).

[64] Certainly there is a degree of vagueness about the evidence produced by the plaintiff to support his claim to an interest in the land as a beneficiary of a trust. One might question why, for example, the defendants would have taken on primary liability under the second Davis mortgage without apparently receiving anything in return apart from administration fees taken from the weekly payments which the

_{plaintiff made until the end of February 2012. On the other hand, the
land appears to}

¹⁶Certainty of subject matter of both an express trust and an institutional constructive trust is

essential to the trust’s validity. See Fortex Group Ltd (in rec and in liq) v MacIntosh [1998]

have been acquired from Avanti at a figure which was probably well below its market value.¹⁷It may be that the defendants considered that the risks were acceptable. In my view, these are matters for trial and are not appropriate for resolution in a proceeding such as this.

[65] I do not see any merit in the defendants’ further submission that the plaintiff made no contribution to the land because the payments he made in his capacity as lessee under the lease.¹⁸First, I consider it is at least arguable that the payments made by the plaintiff were in reality intended to be payments of interest under the second Davis mortgage; indeed, the plaintiff made payments direct to Mr Davis after February 2012 when he stopped making payments to Mr Rod’s trust account. The plaintiff also provided a personal guarantee of the second Davis mortgage. The fact that he was prepared to do so suggests that the understanding was that he should

have some interest in the land or at least in the proceeds of sale of the land. In either event, the interest would be greater than the interest normally held by a lessee under a lease.

[66] A further factor is that Mr Rod himself apparently did not contemplate at the outset that the payments to be made by the plaintiff would be payments under a lease. On his evidence, he did not give much thought to the issue of a lease until some weeks after the settlement when the plaintiff told him that a lease would be necessary to obtain a liquor license for the hotel. Until then, Mr Rod said that he had been working on the assumption that he and the plaintiff “would be equal partners in

any profit from the sale of the freehold”.¹⁹In those circumstances, I do not believe

that the signing of the lease in and of itself is sufficient to support a finding that the plaintiff has no reasonably arguable case to support the beneficial interest in the land

¹⁷The freehold was valued at around $410,000 by the valuer who carried out the valuation for

[67] A more substantial ground of opposition raised by the defendants was that certain deficiencies in the caveat itself are fatal, and that the caveat should be allowed to lapse on that account alone.

[68] In my view, that submission must be accepted. Under s 137(2)(b) of the Act, a caveat must show the nature of the estate or interest claimed by the caveator with sufficient certainty. Under s 137(2)(c) the caveat must show how the land or interest claimed is derived from the registered proprietor. The underlying principle is that persons whose land has been made subject to caveats should be given reasonable notice of the reasons why that has been done.²⁰

[69] In this case, the wording of the caveat was deficient in two respects. First, it failed to make clear whether the interest claimed was as beneficiary under an express trust or as beneficiary under a constructive trust. In my view that deficiency was such that the requirement of “sufficient certainty” in s 137(2)(b) was not met. The ambivalence of the nature of the interest claimed by the plaintiff was carried through to the hearing itself.²¹

[70] The issue of what is required to meet the “sufficient certainty” requirement was discussed in Holdgate v Official Assignee, where the learned Judge noted that, while there is considerable authority on the question, it depends on the circumstances of the case. ²²In that case a bare statement that the interest arises by virtue of a constructive trust, without any particulars such as date, parties and origin, was regarded as plainly inadequate.

[71] On the facts of this case, involving as it does an alleged oral trust, it was in my view incumbent on the plaintiff as caveator to state with particularity the details of the claimed trust. The fact that Mr Paine was able to do so succinctly in his oral submissions reinforces the view that it would not have been a difficult matter for

[72] The mistake in the caveat relating to the mortgage number, while seemingly minor on its own, also leads me to conclude that this caveat should be allowed to lapse. Section 137(2)(c) of the Act requires that the caveat must show how the estate or interest claimed is derived from the registered proprietor. The difficulty for the plaintiff is that there was not merely an error in the number of the mortgage referred to in the caveat, but that the number is actually the number of the second Davis mortgage.

[73] In those circumstances, I accept the defendants’ submission that the caveat does not accurately state how the estate or interest claimed by the plaintiff is derived from the defendants as registered proprietors of the land.

[74] In the end, I conclude that, while the plaintiff may have an arguable claim to an interest in the land as beneficiary under a trust, that claim has not been described in the caveat in a manner which complies with the mandatory requirements of section 137(2)(b) and (c) of the Act. Accordingly, I decline to make an order that the caveat is not to lapse.

[75] However, it does appear to me that this is a proper case for leave to be granted to the plaintiff under section 148 of the Act to file a second caveat. The circumstances are that the plaintiff has shown that he has an arguable claim to a beneficial interest in the land, and the application has failed only because that beneficial interest has not been correctly or sufficiently described in the caveat itself.

[76] The present application seeks an order under s 145A of the Act. It is well accepted that the same principles apply to applications under that section as to applications made pursuant to ss 143 and 145.²³The Court has a broad discretion in its responses to caveats and removals or lapses of caveats to make any order “as to the Court seems meet” under s 143.²⁴Hammond J in Bank of New Zealand (BNZ) v

_{Clark interpreted this phrase to mean “where the justice of
the case so requires”.}²⁵

²⁴_{Holt v Anchorage Management Ltd [1987] 1 NZLR 108
(CA) at 121 per Casey J.}

[77] The current caveat must be removed. The errors in the caveat cannot be ignored. However, after having regard to the balance of convenience and what the overall justice in this case requires on the facts, it is my view that the plaintiff is entitled to caveat the title.

[78] In reaching this view, I must now turn to the relevant factors in granting the plaintiff leave under s 148 to lodge a second caveat. Relevant factors in exercising that discretion include, but are not limited to, the strength of the case for the claimed caveatable interest, the reason for lapse or removal of the earlier caveat and whether a party may be prejudiced by a second caveat.²⁶It is a recognised principle that the language of s 148 gives the Court an unfettered discretion and is not to be placed under any “straight-jacket”.²⁷

[79] Having regard to these relevant factors, I find that this is an appropriate case for me to exercise my discretion in granting the plaintiffs leave under s 148 to lodge a second caveat.

[80] Accordingly, I make an order granting leave to the plaintiff under s 148 to lodge a second caveat on the property, subject to the term that it will apply only if the second caveat is lodged by Tuesday, 10 June 2014.

[81] The plaintiff’s application has not succeeded, but my preliminary view is that this is a case where costs should probably lie where they fall. The plaintiff has an arguable case that he has a beneficial interest in the land, and the application has failed solely because of technical deficiencies in the description of that interest in the caveat.

[82] However, the issue of costs was not argued at the hearing and the defendants are entitled to be heard on the issue. Accordingly, if they wish to apply for costs they

_{may do so, by memorandum filed within 14 days of the date of this
judgement. The}

²⁶_{Zen v Borman Residential Ltd [2009] NZHC 615; (2009) 10 NZCPR 503
(HC) at [15].}

plaintiff may file a reply memorandum within 14 days after receipt of any such memorandum from the defendants.

High Court of New Zealand Decisions

Hemmingson v Rod [2014] NZHC 873 (30 April 2014)