Clear White Investments Limited v Otis Trustee Limited [2016] NZHC 2823 (25 November 2016)

Last Updated: 30 November 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-2295 [2016] NZHC 2823

UNDER	the Land Transfer Act 1952
IN THE MATTER OF	an application under Sectoin 145A
BETWEEN	CLEAR WHITE INVESTMENTS LIMITED Applicant
AND	OTIS TRUSTEE LIMITED Defendant

Hearing:	15 November 2016
Appearances:	D J Chisholm QC for the Applicant D W Grove for the Respondent
Judgment:	25 November 2016

_{JUDGMENT OF ASSOCIATE JUDGE R M BELL}

This judgment was delivered by me on 25 November 2016 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

.............................................................

Registrar/Deputy Registrar

Solicitors:

Carson Fox Bradley Ltd (Matthew Carson), Auckland, for Applicant

Ewart & Ewart (John Z Ewart), Epsom, Auckland, for Respondent

Counsel:

David J Chisholm QC, Auckland, for Applicant

Daniel W Grove, Auckland, for Respondent

CLEAR WHITE INVESTMENTS LIMITED v OTIS TRUSTEE LIMITED [2016] NZHC 2823 [25 November 2016]

[1] Clear White Investments Ltd, a property development company, applies to sustain caveat 10541263.1 registered over the land in identifier 554189 (South Auckland Registry). The interest claimed under the caveat is:

... by virtue of a constructive trust created on or about 20 July 2016, pursuant to which the registered proprietor holds the property as a trustee on trust for the caveator as beneficiary

[2] Mr Peter Chevin is the sole director of Clear White Investments Ltd. He says that he has carried out many successful developments, but he comes with baggage. He has been bankrupted three times. He is awaiting sentence on charges laid by the Financial Markets Authority.

[3] The land in identifier 554189 is at 40 Te Kauwhata Road, Te Kauwhata.¹ It is

5.8680 hectares in area. It has one house and some farm buildings but is otherwise in pasture. Mr Chevin has identified it as ripe for development. The land is in a “Living Zone”. Under one view of the district plan, residential development is to be deferred until other parts of Te Kauwhata have been developed, but Mr Chevin and some of his consultants believe that subdivision consent can be obtained now. There is varying evidence as to the potential number of residential lots that might be created, ranging from 48 to 68. Mr Chevin accepts that his proposed 68-lot subdivision is a non- complying activity under ss 87A(5) and 104D of the Resource Management Act 1991.

[4] In December 2015 Clear White entered into an agreement to buy the property at

40 Te Kauwhata Road for $2 million plus GST if any. It paid a deposit of $200,000. After due diligence, the agreement became unconditional. Mr Chevin instructed consultants to make investigations and prepare reports for a subdivision application. The purchase of the property was to settle on 1 July 2016 but Clear White did not have any funds to settle. It did not even have enough money to pay all its consultants’ fees.

_{The vendors gave a notice requiring settlement by 20 July 2016.}

1. It also has a frontage to Travers Road and is referred to as the Travers Road property in parts of the evidence.

[5] A few days before the settlement notice was to expire, Mr Chevin approached Mr Ian McKay for assistance. He is the director of Otis Trustee Ltd. After negotiations, Clear White entered into a written agreement to on-sell the Te Kauwhata property to Otis Trustee Ltd for $1,811,463.78. That was the amount Clear White needed to pay its vendors. On 20 July 2016 Clear White’s purchase and its on-sale to Otis both settled. Otis Trustee Ltd has remained the registered proprietor since. Mr Chevin passed on to Mr McKay reports that he obtained from consultants and Mr McKay has continued with work to obtain a subdivision consent.

[6] Clear White contends, however, that in the negotiations Mr Chevin arranged with Mr McKay that it would be able to buy the property back. Mr McKay denies that any such arrangement was made. The disputed buy-back arrangement is the basis for Clear White’s caveat.

[7] It has begun a substantive proceeding to uphold the interest it claims in its caveat. It pleads that a buy-back arrangement was entered into between 18 and 20 July

2016. It acted to its detriment in relying on that arrangement, but in August 2016 Otis repudiated it. There are three causes of action:

[a] The first is for a constructive trust. Otis’ denial of the buy-back arrangements is said to be an equitable fraud which gives rise to a constructive trust. For relief, Clear White seeks a declaration that Otis holds the property on a constructive trust for it, an injunction restraining Otis from further development or damaging the property, and either an enquiry into damages or an account of profits.

[b] The second is for estoppel. Otis is alleged to have represented that the arrangements the parties made were in substance a financing transaction, Clear White acted on that representation to its detriment, and it is now unconscionable for Otis to deny the buy-back financing arrangement. That cause of action seeks the same relief as for the constructive trust claim.

[c] The third cause of action alleges oppressive conduct under Part 5 of the Credit Contracts and Consumer Finance Act 2003. The arrangements made between 18 and 20 July 2016 are alleged to be a credit contract. Otis is alleged to have applied oppressive terms and to have acted oppressively in denying the financing nature of the arrangement. The relief sought is a re-opening of the arrangements under Part 5 of the Credit Contracts and Consumer Finance Act with orders to restrain Otis from further developing or damaging the property; to transfer the property back on terms, including repayment of the purchase price; and an enquiry into damages or an account of profits.

[8] Clear White’s ultimate purpose is to have the Te Kauwhata property restored to it so that it can carry out the development. While it did not say so in quite so many words, it believes that Otis Trustee Ltd has stolen the development opportunity by buying the property at an under-value and taking advantage of the “intellectual property” Clear White had obtained from the investigations by consultants to establish that a residential subdivision was viable. While it does not at present have the funds to buy out Otis now, it seeks time in which to raise finance.

[9] A practical problem for Clear White is that it faces real difficulties in raising funds. Clear White was under-capitalised at the outset. It has not been able to meet its liabilities as they have fallen due. Undertaking property development while insolvent is obviously very risky. With Mr Chevin’s poor credit record and his pending sentence, Clear White’s prospects of obtaining finance are dismal. That sets the context for the negotiations in July. Further, while Mr Chevin asserts that he has prospects of raising funds and blames Otis for making that more difficult, he has not given any evidence that he has a firm offer of finance. Clear White’s bid for more time is largely wishful thinking.

General principles on caveat applications

[10] In Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act 1952:²

² Holt v Anchorage Management Ltd [1987] NZCA 5; [1987] 1 NZLR 108 (CA) at 113.

Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat".) Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).

[11] In caveat applications under ss 143, 145 and 145A of the Land Transfer Act, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 137(1) of the Act:

137 Caveat against dealings with land under Act

(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.

[12] A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.³ Something more than a potential or future interest is required.

[13] Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable it may be. For a caveat to be removed, it must be patently clear that the caveat cannot stand either because there was no ground for lodging it at the outset or because any such ground no longer exists. In addition, the court has a residual

_{discretion not to uphold a caveat but that is exercised cautiously, as when the caveat}

³ Guardian Trust and Executors Company of New Zealand, Limited v Hall [1938] NZLR 1020 (CA)

at 1025; Philpott v NZI Bank Ltd [1989] NZCA 155; (1989) 1 NZ ConvC 190,246.

could serve no useful purpose or alternative safeguards are available. That aside, balance of convenience considerations do not apply, once a caveatable interest is established. In Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd the Court of Appeal said:⁴

We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation which was then before the Court and were not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. In such circumstances the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator's interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.

[14] To establish a reasonably arguable case there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavit, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. As a qualification to the reasonably arguable standard, where there are allegations of fraud or other

reprehensible conduct, it is necessary to show a prima facie case.⁵

Facts

The negotiations 18-20 July

[15] Clear White’s caveat is based on negotiations between 18 and 20 July 2016. The

_{parties differ on what was discussed, but there is no dispute as to emails between them.}

⁴ _{Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.}

⁵ Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15], followed in Trustees Executors Ltd v Steve G Ltd [2013] NZHC 16 at [63]-[66], Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2013] NZHC 1297 at [78] (overturned on appeal, but not on this point: Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2014] NZCA 164, (2014) 15 NZCPR

227); S and S Ltd v XYZ Ltd [2016] NZHC 26 at [6]; and Virtual Spectator v Rothlander [2016] NZHC 499 at [10].

[16] On 18 July 2016 at 10.04 am Mr Chevin sent Mr McKay a copy of part of a report by a registered valuer giving the property a current market value of $2,350,000 plus GST (if any) on the assumption that the property could be immediately divided into

68 residential lots. (The full report has not been put in evidence). Mr Chevin followed with other information: costings from a contractor for the subdivision works, plans and prices from a franchise house construction company, a concept subdivision plan, copies of letters and emails from Clear White’s planning consultant and landscape architect and a copy of Clear White’s agreement to buy the property

[17] At 11.25 am the same day Mr McKay asked for a copy of the “expired PLA” (meaning the vendors’ settlement notice) and requested Mr Chevin to prepare a three month loan agreement with Otis Family Trust the lender.

[18] At 11.32 am Mr Chevin requested an extension of the term of the loan to four months, saying that he was happy to have a pro rata higher fee.

[19] At 3.30 pm Mr McKay replied:

To simplify the structure given time constraints try the following.

McKay interests buy the land with a simultaneous S&P to your entity at a price reflecting fees commission etc.

Both contracts are less the $650,000 equity that you are to contribute. The buyback S&P in 4 months.

Your thoughts,

[20] At 7.59 pm Mr McKay sent Mr Chevin a spreadsheet with a proposal for a buy-back agreement. Clear White would sell to Otis at $1.4 m on the assumption that Clear White would “carry the $650,000 equity until buy back”. Clear White would buy the property on 20 November 2016 for $1,833,333.

[21] On 19 July at 2.12 pm Mr Chevin emailed his solicitor that “we” had agreed the deal with Ian McKay to settle tomorrow and asking for the settlement statement from the vendors’ lawyer.

[22] At 2.40 pm Mr McKay asked Mr Chevin to prepare an agreement for sale and purchase under which Clear White sold to Otis Trustee for $1.8m plus GST zero rated. The agreement would be unconditional with settlement the next day. At 2.41 pm Mr McKay requested a copy of a geotechnical report. Mr Chevin supplied it later that day.

[23] At 2.47 pm Mr Chevin’s lawyer emailed Mr McKay asking for details of his lawyer and inquired, “Have the terms of the buy-back been agreed between you?” In his reply Mr McKay said, “At this stage we are focusing on settling tomorrow”.

[24] By 5.35 pm terms for the agreement for sale and purchase had been settled and the documents were ready to sign.

[25] At 5.00 pm Mr Chevin emailed Mr McKay

I am coming under some pressure from my lawyer to get the buy-back agreement sorted. Can you please through [sic] down some thoughts and we can get this started.

[26] Mr McKay replied at 8.30 pm:

I can understand his concerns but I am not sure of what structure we will agree on. I am looking at areas where I may be able to add value in sales etc as I have some contacts there.

Also have some interest in some of the Warkworth stuff but that is down the track.

Let me sleep on it and flesh out some thoughts tomorrow.

[27] As recorded in [5] above, the sale to Otis settled on 20 July. The email traffic on the mechanics of settlement does not need to be recorded. The agreement under which Otis took title says nothing about any buy-back arrangement.

[28] The case for Clear White based on Mr Chevin’s first affidavit is that these emails show an arrangement for a buy-back, even though final terms had not been agreed. Mr Chevin explains that Mr McKay’s email of 3.30 pm on 18 July contemplated that Clear White would contribute equity of $600,000 taking into account the deposit of $200,000 that had already been paid. He does not deal with the difference between the “equity of $600,000” in his evidence and “the $650,000 equity” in

Mr McKay’s email. He told Mr McKay that Clear White did not have the further

$400,000. Notwithstanding that, Mr McKay was still prepared to make a buy-back agreement, by paying the amount required to settle the purchase by Clear White.

[29] Mr McKay’s account is that four different proposals were discussed. The first was Mr Chevin’s request in a phone call on 18 July that Mr McKay front for his company by acting as its director for a consideration of $200,000. Mr McKay declined. Under the second proposal Mr McKay offered to lend $1.4m for three months with Clear White providing the remaining funds required to allow the purchase of the property to settle. Mr Chevin did not agree. The third proposal was set out in Mr McKay’s emails of 3.30 pm and 7.59 pm on 18 July: purchase by Otis and sale back to Clear White in four months. Otis would pay $1.4m. Mr Chevin did not take that up because Clear White could not contribute the balance of the funds needed to complete the purchase on 20 July. On 19 July they agreed on the fourth proposal – Otis would buy the property outright to prevent a cancellation by the vendors, but there was no commitment to sell the property back to Clear White. There might be possible advantages in their working together later, but nothing firm was agreed.

[30] In reply Mr Chevin rejects Mr McKay’s characterisation of four proposals. Instead financing proposals evolved without any express acceptance or rejection of specific proposals. The fundamental nature of the transaction, a financing arrangement, did not change, even though the terms were still to be finalised.

[31] Each of them attacks the evidence of the other as unreliable. In particular Mr McKay gives grounds for doubting much of what Mr Chevin says. But his evidence does not allow me to reject Mr Chevin’s evidence in its entirety on an Eng Mee Yong basis.⁶ For this decision I assume that at a defended hearing on the substantive merits Mr Chevin’s version may be accepted.

Events after 20 July

[32] Otis did not take possession immediately after settlement. Mr Chevin’s daughters’ horses grazed there and they remained for the time being. Mr McKay asked

for more information on the proposed subdivision which Mr Chevin supplied. Mr Chevin says that he was aware that he would have to repay Otis and refinance the property by 20 November 2016 but that the fee for the financing had still to be agreed. Mr McKay was also requesting dates for milestones to be set.

[33] On 9 August 2016 Mr McKay wrote to Mr Chevin with a proposal for a buy back agreement. It was expressly subject to contract and was structured as an option to purchase to be exercised by 20 November 2016 and subject to milestones being met. Mr Chevin found the terms too onerous – a return of over 70 per cent per annum plus

10 per cent of expected profits of the development. At a meeting on that day Mr Chevin advised that there were outstanding consultants’ fees of $150,000. Mr McKay says that he learnt this for the first time and that Mr Chevin had misled him about the unpaid fees; Mr Chevin denies misleading him.

[34] On 11 August 2016 Mr Chevin replied with a counter-proposal under which the buy-back option would expire on 20 December 2016 and payment of the buy-back price would not fall due until completion of the 45^th house, with payment secured by a second mortgage. Milestone dates would be put back. Mr McKay found that unacceptable.

[35] Mr Chevin says that at about this time he began work on a back-up strategy: a subdivision of four to eight lots for which consent could be obtained very quickly. That would increase the value of the property ahead of the buy-back on 20 November. He also says that he began discussions with a new funder but he does not identify the funder or say that he did obtain a firm offer of finance.

[36] On 12 August Mr McKay sent an email to Mr Chevin. It appears that Mr Chevin did not learn of it until 19 August. Mr McKay was reluctant to pay ongoing or outstanding consultants’ fees and did not believe that Mr Chevin could buy the property for about $2.3m in the next three months. A reduction in the intensity of the project seemed warranted. He felt it best to address a deal whereby he acquired any useable intellectual property and they went their separate ways.

[37] In response to Mr Chevin’s protestation that they had a buy-back arrangement,

Mr McKay pointed out that there was no such concluded agreement. Clear White’s

lawyers lodged the caveat on 23 August. On 7 September Mr McKay required the horses to be removed from the property and the house to be vacated. Mr Chevin claims that this action and Mr McKay’s repudiation of the buy-back have held him back in arranging fresh finance.

[38] In a late bid to show Clear White’s inability to buy back the property, on

8 November Otis sent an open letter on a without prejudice basis offering to transfer the property back and to remove the caveat on payment of $2,520,234 on 20 November

2016, time being essential. In a reply the next day the offer was declined with some queries, a complaint that Clear White had been deprived of the benefit of the buy-back period and a willingness to negotiate a resolution. In turn Otis offered to extend the time for settlement to 20 December with an adjustment to the price, but apparently that has not been taken up.

[39] Otis says that it has spent $176,357.93 on consultants and rates for the property. Some of those charges go back to before it took title. The record for identifier 554189 shows Otis as registered proprietor, but no mortgage is registered.

The constructive trust claim

[40] An institutional constructive trust is a caveatable interest under s 137(1) of the Land Transfer Act. Clear White’s constructive trust claim is based on a common intention. It transferred legal title to Otis on 20 July on the common understanding (but not a binding contract) that it could buy the property back on terms still to be negotiated. It says that Otis’s repudiation of that arrangement is equitable fraud for which equity imposes an institutional constructive trust.

[41] As experienced businessmen, both Mr Chevin and Mr McKay appreciate the legal requirement for certainty of terms before there can be a binding contract. Otis takes the points that any agreement under which Clear White would retake title is not enforceable unless it is in writing and signed by the party against whom the agreement is to be enforced⁷ and that there never was a buy-back agreement in any event. At its highest Clear White’s case does not show sufficient certainty of terms to amount to a

binding contract. The following matters were not agreed: the buy-back price, the date for settlement, whether time was of the essence, whether there should be terms as to milestones, and whether the agreement should be an option to purchase or an agreement for sale and purchase.⁸ Clear White accepts that final terms for a buy-back were not agreed but says that it can still maintain a caveatable interest under a constructive trust based on common intention. With that it hopes to be in at least as good a position as if

it had made a legally enforceable contract: to force Otis to transfer the property back on payment. While its pleading in the substantive proceeding does not say so, Clear White is in effect seeking specific performance of a non-contractual common intention.

[42] Mr Chisholm QC cited the Court of Appeal’s decision in Paugra Holdings Ltd v Harvestfield Holdings Ltd to say that a constructive trust may be imposed as a remedy for fraud,⁹ but he has taken that decision out of context. That case involved actual dishonesty, a deliberate diversion of company capital to defeat a creditor. Clear White has not alleged or shown a prima facie case of fraud on the part of Mr McKay or Otis in acquiring the property. If Clear White were to run a case that it was induced to enter

into the agreement to sell to Otis because of a misrepresentation, it would not have a caveatable interest. Section 8(3)(b) of the Contractual Remedies Act 1979 provides that property passes under a contract induced by misrepresentation and stays with the transferee, even after cancellation.¹⁰ Instead Clear White’s case is based on “equitable fraud”, which is better understood as unconscionable conduct. Otis is said to have acted unconscionably in no longer recognising the buy-back arrangement.¹¹

[43] Clear White refers to common interest constructive trusts in domestic relationship cases. Mr Chisholm cited these principles recorded in Harvey v

_Beveridge:¹²

⁸ _{The evidence shows that buy-back arrangements may use either transaction.}

⁹ Paugra Holdings Ltd v Harvestfield Holdings Ltd [2014] NZCA 164, (2014) 15 NZCPR at [36]- [37].

¹⁰ Any revesting of property transferred under the agreement occurs only under an order made under s 99. An interest in land that arises only on a court order is not caveatable. The old law as to

_{automatic revesting on rescission has gone – s 7(1).}

¹¹ Otis may have an argument that it is not unconscionable to attempt to negotiate in good faith when there is an agreement to agree and then to withdraw when agreement is not possible, but that is for the substantive hearing.

¹² Harvey v Beveridge [2014] NZCA 72, [2014] NZAR 677 at [27]. While overturning the decision at first instance, the Court of Appeal accepted these principles as correct.

• There must have been an intention common to the claimant and the legal owner which was unequivocally expressed by words or conduct.

• It follows that the common intention must have been an actual, subjective, intention albeit found “objectively” by the Court to exist on the evidence.

• The common intention is usually required to have existed at the time of acquisition but may exceptionally have come into existence after the acquisition of the property.

• Such a trust will most often arise in relation to de facto relationships but may be found in other, non-intimate, relationships.

• The settled legal position in England and Australia is that the claimant must have acted in reliance upon the common intention or must have significantly altered his or her position in reliance upon the common intention, but the law in New Zealand is unsettled on this point.

• The current circumstances must be the circumstances to which the parties intended their common intention to apply.

• Remedies differ as between a constructive trust based on expectations and one based on common intention – in the former the remedy is strictly proportionate to reasonable expectations based upon contribution; in the latter, the Court fulfils the common intention of the parties notwithstanding that the intended rights may be disproportionate to contribution.

[44] Other authorities recognising that a trust may arise from a common intention to hold a property other than according to the legal title are Gissing v Gissing, Cossey v Bach, Stack v Dowden and Jones v Kernott.¹³ These principles are typically applied in cases of domestic relationships (when legislation such as the Property (Relationships) Act 1976 does not apply) but they can arise in other situations. Austin v Keele is sometimes cited as an example of such a claim in a commercial context, although the claim failed on the facts.¹⁴

[45] In these common intention cases the court declares the parties’ interests in property according to their proved common intention and may make vesting orders in consequence. Clear White relies on a different common intention here. A declaration as to ownership will not get it very far. It relies on a common intention as to performance of a planned transaction, which it wishes to see carried out; in other words

_{a promissory common intention.}

¹³ Gissing v Gissing [1970] UKHL 3; [1971] AC 886 (HL), Cossey v Bach [1992] 3 NZLR 612 (HC), Stack v Dowden

_{[2007] UKHL 17, [2007] 2 AC 432; and Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776.}

¹⁴ Austin v Keele (1987) 72 ALR 579 (PC).

[46] Clear White relies on Avondale Printers & Stationers Ltd v Haggie as showing a successful claim for a constructive trust in the context of a common intention buy-back arrangement.¹⁵ The plaintiff was the purchaser of a commercial property, having been nominated by the defendant. The parties made an arrangement that the defendant would complete the purchase, repay the plaintiff for the deposit it had paid and take title in its own name. The plaintiff would carry out development work on the property. It would have the right to buy the property at the end of two years, but a formula to fix the price was not agreed. The plaintiff continued to spend money on developing the property.

The defendant refused to recognise the buy-back arrangement. Mahon J held that although there was no binding contract the defendant held the property on a constructive trust for the plaintiff. For relief he ordered that the parties be put back in their positions at the outset – the plaintiff to hold legal title and to have an account for net rent and profits received from the property but to reimburse the defendant for the purchase price and associated expenses.

[47] The basis for the decision was equitable fraud – unconscionable denial of the arrangement under which the defendant had taken title. That can be seen in these passages:

A familiar example of circumstances giving rise to a constructive trust in a case of disposition of land is the case where the land is conveyed to the person as trustee but where the trust agreement is in oral form, thus not complying with the modern counterpart of s 4 of the Statute of Frauds. Where the transferee denies the trust and relies upon absolute form of transfer, then it is competent for the transferor to prove the trust by parol evidence, notwithstanding the Statute of Frauds, and thereafter the transferee will be held a constructive trustee of the property for the benefit of the transferor.¹⁶

...

In each case the party seeking to assert the legal title was held liable as trustee for the plaintiff by virtue of the oral agreement or promise of the defendant, and the true rationale of all these decisions undoubtedly is that the transferor would not have parted with his interest in the absence of the oral undertaking given by the transferee.¹⁷

...

Where property is conveyed or proprietary rights released in consideration of an oral promise by the transferee that the transferor will retain or later acquire a

¹⁵ _{Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 (SC).}

¹⁶ _{At 161-2}

¹⁷ At 162-3.

beneficial interest in the property in question, and where retraction of the promise amounts to a fraud upon the transferor, then the transferee will be held a constructive trustee for the benefit of the transferor of either the whole property or of the relevant interest therein. The key to this type of inquiry in my opinion lies in the question whether the transferor would have parted with his property but for the oral undertaking of the transferee. If that question is answered in the negative, then renunciation of the promise or disavowal of the common intention will operate in equity as a fraud on the transferor and entitle him to the appropriate remedy.

In considering this type of question it must be kept in mind that the holder of the legal title to property will not in all cases be constituted a constructive trustee merely by reason of the fact that he has been shown to be in breach of an oral agreement affecting that property and made between himself and the plaintiff. The circumstances must show that reliance upon the legal title in that particular situation amounts to a fraud upon the plaintiff. Where the relationship between the parties, or the terms of the oral agreement, or the terms of a common intention not constituting a completed agreement, are such as to show that the owner of the legal title has not committed any fraud in the legal or equitable sense, then the plaintiff must be left to whatever contractual remedy he may have for breach of the oral agreement, if it is enforceable.

The ordinary rule is that reliance upon the Statute of Frauds in order to defeat a beneficial interest intended to be conveyed by oral agreement will constitute equitable fraud so as to fasten upon the legal owner the liability of a constructive trustee. But mere reliance upon the Statute of Frauds to defeat an oral agreement relating to land does not in itself give rise to a constructive trust. 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".

In the instant case the defendants do not need to rely upon the Contracts Enforcement Act 1956 because the points of agreement between the parties did not amount to a concluded oral contract. What the plaintiff relies upon is the common intention of the parties evidenced by the promise or undertaking of Haggie which was acted upon by Thomas in permitting Haggie to complete the land purchase, and it is clear from the decision in Gissing v Gissing that conduct in breach of such a common intention, even where no concluded oral contract is proved, will be sufficient to create a constructive trust, provided always that the conduct of the legal owner is fraudulent either in equity or at law.¹⁸

(Emphasis added)

[48] As Mr Chevin’s version of events may be accepted at a hearing on the substantive merits, Clear White has an arguable case on the principle applied in Avondale Printers.¹⁹ There was a common intention as to a buy-back arrangement.

Clear White sold the property to Otis at an undervalue relying on that common intention

– the sale price was $200,000 less than it had paid for it and the property had possibly risen in value since December 2015. It handed over its “intellectual property” on the basis of the intended buy-back. The terms of the agreement under which Clear White sold to Otis do not bar Clear White from showing that in addition there was a common intention for a buy-back. Otis’s conduct was arguably unconscionable (equitable fraud) when it denied the buy-back arrangement, even though it was not before.

[49] The difficulty comes in working out what the remedy should be for failure of the common intention. On the face of it there are two potential options – put the parties back in the position they were in at the outset, or compel Otis to transfer the property back to Clear White on terms fixed by the court. In my judgment neither is viable here.

[50] In Avondale Printers Mahon J ordered a restoration to the status quo.²⁰ In Constructive Trusts Cope suggests that that is the usual remedy.²¹ In this case that would require Otis to transfer the property back to Clear White for the price paid, with reimbursement for Otis for expenses it has incurred – rates, consultants’ fees incurred

by Clear White which it has paid and further fees incurred since taking title. On those terms Clear White will enjoy free credit for the period that Otis has held title, even though both parties intended that Otis should resell at a profit as return for extending financial accommodation to Clear White. Moreover, there is no reason to believe that Clear White will be able to raise the funds to buy the property back. Throughout it has been insolvent. As I have noted, with Mr Chevin’s record his prospects of raising finance are dismal. At the hearing Clear White sought time in which to raise funds, but it offered no evidence that it had any stable funding arrangements.

[51] Mr Chisholm proposed that the court should fix terms on which Clear White would have the opportunity to buy the property back. That would be for more than the price Otis had paid. It would receive due return for the high risk in lending to a Chevin company. The court would fix a date by which Otis was to be paid or the property would be free of any claim by Clear White. He submitted that fixing a buy-back price

would be little different from fixing a reasonable price for goods and services in quantum valebat and quantum meruit claims.

[52] Under orders in those terms the court would be making a contract for the parties. There is no binding agreement but the remedy sought is tantamount to specific performance. The court does not make such orders in the absence of a binding agreement.²² Further I cannot imagine that it would be possible to establish a going rate for lending to someone such as Mr Chevin. In fixing a time for payment the court would apply a date later than the period of credit the parties contemplated – a term

expiring in November/December 2016. The substantive case will not be heard until April 2017. Clear White would obtain more extensive relief than was within the parties’ alleged common intention. And the problem of Clear White not being able to raise funds will be even worse.

[53] While those remedies are not viable, there may be others. Equity’s intervention on account of a proved common intention does not always require the court to declare an interest in property. Instead, findings of common intention and an unconscionable departure from that intention are a basis for equitable relief. To explain, it may be useful to see the way equity has evolved. The old cases Mahon J drew on in Avondale Printers found equitable fraud as a way round the Statute of Frauds. The statute could not be used as an instrument of fraud. It was held to be a fraud for a person to whom land had been transferred as a trustee to deny the trust and claim the land for himself. Notwithstanding the Statute of Frauds, a person claiming the land could prove the trust

by parol evidence and the assertion of title by the owner contrary to the trust.²³ This

was procedural law, not substantive. Substantive law confers legal recognition and protection on various interests, including in land. Procedural law is concerned with the machinery by which those rights are enforced in court. The requirements of the Statute of Frauds (and replacement legislation: the Contracts Enforcement Act 1956 and the Property Law Act 2007 s 24) are procedural.²⁴ They go only to enforceability of

_{contracts, not to their validity. The case law in equity is likewise procedural. It allows}

²² _{Avondale Printers, above n 16, at 164.}

²³ Examples are Hutchins v Lee [1737] EngR 28; (1737) 1 Atk 447; Childers v Childers [1857] EngR 821; (1857) 1 De G & J 482; Lincoln v Wright [1859] EngR 406; (1859) 4 De G & J 16; Re Duke of Marlborough [1894] 2 Ch 133; Rochefoucauld v Boustead [1897] 1 Ch 196 (CA); Bannister v Bannister [1948] 2 All ER 133 (CA).

²⁴ John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5^th ed, LexisNexis, Wellington, 2016) at [9.4]; Whiting v Diver Plumbing & Heating Ltd [1992] 1 NZLR 560 (HC).

parol evidence to prove the existence of substantive rights notwithstanding the statute. It does not change or create new substantive rights. The English Court of Appeal recognised that in Bannister v Bannister:²⁵

It is enough that the bargain should have included a stipulation under which some sufficiently defined beneficial interest in the property was to be taken by another.

(Emphasis added)

[54] That position in Bannister v Bannister has changed with cases such as Avondale Printers. A promissory common intention is not “a sufficiently defined beneficial interest in property”, unlike an express trust or an agreement for sale and purchase.²⁶

The introduction of a common intention short of a binding contract and the application of equitable fraud mark a change in substantive law. Critics may complain that using a doctrine originating in procedural law to establish new substantive rights is a departure from orthodoxy. But for a caveat decision, Avondale Printers provides arguable authority for Clear White. The court no longer declares an existing interest in land in such cases because there is none. In the absence of evidence of a defined interest in property, it grants relief based on claims arising out of the failure of the common intention. It provides an occasion for restitutionary relief. But that relief does not have to be recognition of a current interest in land. Equity may require no more than payment of a sum of money. Cope notes the uncertainty as to the scope of relief and a

limiting principle:²⁷

The full extent of such relief remains far from clear and there is a danger that such intervention may get out of control if the concept of unconscionable conduct is not clarified more fully and if the restitutionary nature of the remedy is not kept constantly to the forefront of thinking about the constructive trust as it applies to informal arrangements affecting land.

Further, if the court were to order an interest in land by way of relief, it would be creating that interest, not declaring it. That would not be an institutional constructive trust, but a remedial trust, and would not support a caveat as there is no pre-existing

_interest.²⁸

²⁵ _{Above, n 20, at 136.}

26. Last v Rosenfeld [1972] 2 NSWLR 923 (NSWSC) is an example of enforcement of an oral buy-back agreement.

²⁷ _{Above, n 21, at 607.}

²⁸ Three Chicks Ltd v NZ Building and Projects Ltd [2011] NZHC 1074; (2011) 12 NZCPR 799 (HC) at [22].

[54] In this case it is not arguable for Clear White that the court should make any orders under which it is found to have an interest in the property, even one conditional on it paying out Otis. Instead, restitutionary orders may be made that make adjustments for any disparity in benefits conferred and detriments suffered, for example, the sale at an undervalue and the value of any intellectual property passed on which Otis has not had to pay for. The relief power is analogous to that in cases where contracts have fallen over, as under s 9 of the Contractual Remedies Act and s 3 of the Frustrated Contracts Act 1944. That is, restitutionary relief is arguably available on the failure of the common intention.

[55] For caveat purposes, Avondale Printers is authority for an arguable case that relief may be available in equity for unconscionable conduct in not keeping to a promissory common intention, but that relief will not give Clear White an interest in the property in this case. In the absence of an arguable case for an interest in the property based on constructive trust, Clear White’s first cause of action does not give it a caveatable interest in the property.

The estoppel claim

[56] An equitable estoppel may be the basis for a constructive trust. Accordingly nothing turns on the fact that the caveat does not expressly refer to an interest arising from estoppel. Besides, Otis did not raise that point.

[57] In brief the equitable estoppel principles are:

(a) a belief or expectation by Clear White has been created or encouraged by words or conduct by Otis;

(b) to the extent an express representation is relied upon, it is clearly and unequivocally expressed;

(c) Clear White reasonably relied to its detriment on the representation; and

(d) it would be unconscionable for Otis to depart from the belief or expectation. ²⁹

[58] Clear White’s case is that by reason of the negotiations in July 2016 it believed that Otis would take title on the basis that there was in substance a financing transaction, even though a fee had not been agreed; it would repurchase on 20 November 2016; and the sale to Otis was not to be an absolute transfer at an undervalue. It acted to its detriment in not seeking other sources of finance, not negotiating with its vendors for an extension of time, in selling at an undervalue and in handing over “intellectual property” to Otis. It would not have done so if it had known that Otis would not have recognised the financing nature of the transaction. It is unconscionable for Otis to deny the buy- back arrangement.

[59] Equity and Trusts in New Zealand says:³⁰

The closer the relationship is to a commercial transaction paradigm between two well-resourced and self-interested parties of equal bargaining strength dealing at arm’s length, the more reasonable it is to expect their relationship to be governed by a contract. And the more reasonable it is to expect a contract to be entered into to protect a belief or expectation, the easier it is to infer that by not entering into a contract a gamble was being taken that the expectation would not be fulfilled...

In commercial transactions, contracts are commonplace and easily accessible to parties who wish to protect their expectations. The courts are, therefore, “careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-headed decisions of business people”. In general, reliance on a non-contractual representation or promise will only be reasonable if it was clear and unequivocal, made in relatively formal circumstances, and such that a reasonable person in the representee’s shoes must have understood that it was intended to be acted on. In a contractual setting, a representation not sufficiently clear to form the basis for a contractual variation will almost necessarily also be too uncertain to found an estoppel.

[60] That provides an argument for Otis that the parties chose not to reduce to writing any arrangement as to a buy-back on the basis that they would see if they could work out an agreement but without any comeback if they could not. That is, Mr Chevin took a gamble. A financing agreement in principle is so indeterminate that it would be wrong to hold a failure to adhere to it as unconscionable. For Clear White there is a counter-argument that while this was a commercial dealing, the parties did not have equal bargaining strength, given the imminent expiry of the settlement notice. As a stand-alone defence, that matter will need to be decided at the substantive hearing.

[61] Otis also has an argument that Clear White did not act to its detriment in selling the property to Otis because Clear White’s interest in the property was about to expire when it did not comply with the settlement notice. On cancellation by the vendors, Clear White would lose its deposit and also faced liability to its consultants for not having paid their fees. It was no worse off under the sale to Otis. Such counter-factual arguments are not usually suitable for summary disposal in a caveat case. That too should await the substantive hearing.

[62] These aspects do however go to the question of remedy. In Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, the Court of Appeal reviewed the principles for relief in equitable estoppel claims:³¹

The cases show a wide variation of approach to the grant of appropriate remedies in cases of equitable estoppel. To attempt any definitive or exhaustive statement of the principles is likely to be elusive and may not be helpful given the fact-dependent nature of the cases coming before the Courts.

Nevertheless some principles may be stated with a degree of confidence even if the application of those principles in particular cases may be a matter of some difficulty. The three main elements relevant to relief stem from the ingredients necessary to establish equitable estoppel in the first place. These are the quality and nature of the assurances which give rise to the claimant’s expectation; the extent and nature of the claimant’s detrimental reliance on the assurances; and the need for the claimant to show that it would be unconscionable for the promisor to depart from the assurances given.

As a general approach, the clearer and more explicit the assurance is, the more likely it is that a court will be willing to grant expectation-based relief. That is because a clear assurance is more likely to engender an expectation by the promisee that it will be fulfilled. Similarly, the greater the degree and consequences of detrimental reliance by the claimant, the more likely it is that the court will be prepared to hold the defendant to the promise rather than make an award (generally of a more limited nature) designed to compensate for reliance-based losses.

Unconscionability is the third key consideration. As Brennan J explained in Waltons Stores unconscionability is the element which both attracts the jurisdiction of a court of equity and moulds the remedy. In assessing the appropriate remedy, all the relevant circumstances are to be considered. The aim is not to satisfy the claimant’s expectation (although that may be what the relief requires in appropriate cases) but to satisfy the equity that has arisen in the claimant’s favour.

While some authorities continue to refer to relief as being the minimum necessary to satisfy the equity, the emphasis in more recent cases has been on a

³¹ Above n 29, at [113]-[120] (footnotes omitted).

broad consideration of the relief necessary to achieve a just and proportionate outcome.

Where the claimant’s expectation is seriously disproportionate to the detriment suffered, the court will be unlikely to grant expectation-based relief. To do so would be to overcompensate the claimant and would be unjust to the defendant. In such a case, the court would consider whether there may be a means of satisfying the equity in another way. But that does not mean the court will simply compare in an arithmetical manner the extent of any reliance-based losses with the value to the claimant of the expectation. A broad assessment of all the relevant circumstances is to be made including losses or other detriment which cannot be quantified or measured in monetary terms.

In choosing between reliance or expectation-based remedies, there is some support for the proposition that, subject to proportionality between the expectation and the detriment suffered, it will often be just to make an order to fulfil the expectation, but we do not consider it is appropriate to adopt a presumptive or prima facie approach one way or the other. That would not be consistent with the flexible approach to equitable remedies consistently emphasised in the cases.

....our preference is to avoid cluttering the available remedies by arbitrary rules,

as McGechan J put it in Stratulatos.

[63] My approach largely follows that for the constructive trust claim. Expectation- based relief would involve giving Clear White the opportunity to buy back the property. The assurance was not clear enough that the court could find the terms for a buy back. After all, the parties left it to be sorted out later. Any relief directed at meeting the expectation would overcook it by giving Clear White more than the short term financing which it says was the subject of the assurance by Otis. That would be disproportionate. The relief would have to be conditional on Clear White obtaining funding and that would be fruitless.

[64] Likewise any attempted restoration of the parties to their original positions would not work, again because of Clear White’s inability to find funding. And there is no reason why Clear White should have free credit at the expense of Otis.

[65] Instead a reliance-based remedy that provides monetary relief for any detriments suffered will meet the demands of unconscionability. Relief by way of an interest in the property is not required and there is not an arguable case for it. The estoppel cause of action does not give a caveatable interest.

Part 5 of the Credit Contracts and Consumer Finance Act 2003

[66] Clear White alleges that the arrangement negotiated in July 2016 was in substance a credit contract under s 7 of the Credit Contracts and Consumer Finance Act:

(1) In this Act, unless the context otherwise requires, credit contract means a contract under which credit is or may be provided.

(2) If, because of any contract or contracts (none of which by itself constitutes a credit contract) or any arrangement, there is a transaction that is in substance or effect a credit contract, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a credit contract made at the time when the contract, or the last of those contracts, or the arrangement, was made, as the case may be.

[67] It claims oppressiveness because of the usurious terms that Otis proposed on 18 July and 9 August and because of the repudiation of the financing arrangement. For relief it seeks a reopening under Part 5 of the Credit Contracts and Consumer Finance Act and orders for Otis to transfer the property back on terms fixed by the court.

[68] A technical difficulty for Clear White is that the interest claimed in the caveat, a constructive trust, does not refer to claims under that act. Under s 137(2)(b) and (c ) of the Land Transfer Act a caveat must state:

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

(c) how the land or estate or interest claimed is derived from the registered proprietor...

While there is a liberal approach to drafting and construing caveats,³² it is a stretch to say that the caveat in this case covers the oppressiveness claim.

[69] Moreover the oppressiveness claim is not a caveatable interest. A claim for relief under Part 5 of the Credit Contracts and Consumer Finance Act may adjust parties’ rights under a credit contract, but it is not a claim to an interest in land. In this case if the court were to make an order giving expectation-based relief, the provisions of

_{the Act would guide the court in setting terms of relief, but that does not by itself confer}

³² Zhong v Wang [2006] NZCA 242; (2006) 7 NZCPR 488 (CA).

an interest in land. The act allows the court to make vesting orders,³³ but a claim to an interest that will arise only on a court order is not a caveatable interest.³⁴

[70] Just as I have rejected as unarguable relief under which a claim by Clear White to a current interest in the property would be vindicated, I regard any similar claim under the Credit Contracts and Consumer Finance Act as equally untenable.

Outcome

[71] Overall I am satisfied that Clear White Investments Ltd does not have a caveatable interest in the Te Kauwhata property. While it may have arguable claims against Otis arising out of the negotiations between 18 and 20 July 2016 and the failure of any firm financing arrangement to eventuate, those claims could not result in the court granting relief recognising a current interest in the property. Clear White can hope for only monetary relief at best. Accordingly it does not have a caveatable interest in the land.

[72] I make these orders:

[a] Caveat 10541263.1 will lapse fifteen working days after delivery of this decision;

[b] If Clear White Investments Ltd appeals, leave is reserved to apply for an extension of time before lapse;

[c] Clear White Investments Ltd shall pay costs on the application. If the parties cannot agree costs, memoranda may be filed.

......................................................

_{Associate Judge R M Bell}

³³ _{Credit Contracts and Consumer Finance Act 2003, s 127(2)(b).}

34. G W Hinde and others Hinde McMorland & Sim Land Law in New Zealand (looseleaf ed, LexisNexis) at [10.010].