Erlon Limited v Agrotrust Limited [2022] NZHC 1995 (12 August 2022)

Last Updated: 23 August 2022

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2021-470-117 [2022] NZHC 1995

UNDER	Section 143 of the Land Transfer Act 2017
BETWEEN	ERLON LIMITED Applicant
AND	AGROTRUST LIMITED Respondent

Hearing:	19 May 2022
Appearances:	J Delaney for the Applicant J Hakaria for the Respondent
Judgment:	12 August 2022

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 12 August 2022 at 4pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors/Counsel: KM Law, Tauranga

Sharp Tudhope, Tauranga J Delaney, Tauranga

ERLON LTD v AGROTRUST LTD [2022] NZHC 1995 [12 August 2022]

Introduction

• [1] Erlon Limited has applied for an order that a caveat over two properties in Pakaraka in the Far North not lapse. The properties are owned by the respondent, Agrotrust Limited, and have been converted from farmland into a kiwifruit orchard.

• [2] Erlon’s interest in the properties is described on the caveat as:

an equitable interest pursuant to a constructive trust ... by reason of the Joint Venture Agreement dated 6 November 2021 between the Caveator and the registered proprietor of the Properties, and by reason of both direct and indirect financial contributions to the Properties.

• [3] In an application that a caveat not lapse, the overriding issue for determination is whether it is reasonably arguable that the interest in the property claimed in the caveat exists and is an interest in land. Erlon submits that it is reasonably arguable that an institutional constructive trust arises and is a sufficient interest in land to sustain the caveat.

• [4] It is settled law that an institutional constructive trust is a sufficient interest in land to sustain a caveat and that the four elements for such a trust are as set out in Lankow v Rose, namely that:¹

(a) the applicant has made contributions, direct or indirect, to the property in question;

(b) the applicant had an expectation of an interest in the property;

(c) that expectation was a reasonable one; and

(d) the respondent should reasonably expect to yield the interest to the applicant.

• [5] Agrotrust submits there cannot be an institutional constructive trust in Erlon’s favour because:

1. Lankow v Rose [1995] 1 NZLR 277 (CA) at 294 per Tipping J, as recently confirmed in Siddiqui v Siddiqui [2022] NZCA 324 at [26].

(a) Erlon could not have had an expectation of an interest in the properties;

(b) Erlon used Agrotrust’s money to fund development of the properties and did not contribute to the development itself;

(c) Erlon derived a profit from the development of the properties;

(d) even if Erlon did make contributions to the properties:

(i) they did not manifestly exceed the benefit it obtained by way of payment for its contributions; and

(ii) the works were performed in its capacity as a contractor/service provider, which do not give rise to an equitable interest that is capable of supporting a caveat.

Issues

• [6] The issues are therefore whether Erlon has established that it is reasonably arguable that:

(a) Erlon has made contributions, direct or indirect to the properties against which the caveat is registered;

(b) Erlon had an expectation of an interest in the properties;

(c) Erlon’s expectation was reasonable; and

(d) Agrotrust should reasonably expect to yield an interest in the properties to Erlon.

Background

• [7] The relationship between the parties began in late 2019 to early 2020 when Erlon and Agrotrust first started working together to develop a kiwifruit orchard in Pakaraka in Northland. Mr Arizaga, the sole director of Agrotrust, says he approached Mr Figueiredo, the sole director and shareholder of Erlon, for advice about establishing an avocado orchard. Mr Arizaga’s evidence is that during discussions Mr Figueiredo advised that instead of an avocado orchard, Mr Arizaga should develop a

kiwifruit orchard in Northland and that he should plant the Zespri red variety of kiwifruit.

• [8] Mr Arizaga accepts in his affidavit that he engaged Mr Figueiredo’s company, Erlon, to find a suitable property to develop such an orchard.

• [9] In late 2019 Erlon identified the first suitable property at 6846 State Highway 10, Pakaraka, Far North District (Record of Title 643621, Lot 3 on Deposited Plan 470585) (Parcel A). At that time the land was used as a dairy farm and work was required to convert it into an orchard.

• [10] Erlon submits that the parties entered into a verbal agreement to establish a joint venture to develop the orchard. Agrotrust accepts that the parties entered into a verbal agreement but only to the extent that Agrotrust and Erlon would enter into good faith negotiations on the terms of a proposed joint venture with a view to entering into a Joint Venture Deed which would record the agreed terms between the two parties.

• [11] The parties agree that the joint venture (either as agreed (Erlon) or as a possibility (Agrotrust)) was for Erlon and Agrotrust to share in the capital and operating costs of the orchard on a 50/50 basis with both sharing in any profits.

• [12] In April 2020 Agrotrust purchased Parcel A. The purchase price was $3 million. Agrotrust made arrangements with the vendor to pay $1,500,000 on the settlement date and for the remainder to be paid over a two-year mortgage at an interest rate of 4.5 per cent.

• [13] On approximately 17 June 2020 Erlon provided Agrotrust with a quote from Ground Up Limited dated 9 April 2020 for the amount of $3,984,692.04 (including GST). Mr Figueiredo is the sole shareholder and director of Ground Up. The Ground Up quote recorded that it was for materials and labour for the development of the orchard.

• [14] Between June and September 2020 Erlon issued the following invoices for progress payments:

(a) Inv-2238 dated 16 June 2020 in the amount of $664,115 (including GST) (plus 25% deposit for 5 hectares RED licence of $79,062.50);

(b) Inv-2276 dated 7 August 2020 in the amount of $664,115 (including GST);

(c) Inv-2301 dated 7 September 2020 in the amount of $664,115 (including GST).

• [15] Mr Arizaga accepts that, except for the deposit for the Zespri Red licence in the first invoice, the invoices relate to development of the orchard and total $1,992,345 (including GST). Mr Arizaga’s evidence is that he understood from Mr Figueiredo that the $1,992,345 charged in the invoices was for Agrotrust’s 50 per cent share of the development and infrastructure costs of the orchard, being half of the Ground Up quote.

• [16] Agrotrust paid the construction invoices.

• [17] During this time it was discovered that Parcel A did not have an adequate water source and that water for that property had previously come from the smaller neighbouring property, 6846A State Highway 10, Pakaraka (Record of Title 643620, Lot 2 on Deposited Plan 470585) (Parcel B).

• [18] Mr Arizaga’s evidence is that Agrotrust was therefore forced to purchase Parcel B for the orchard to become operational. Agrotrust did so on or about 3 August 2020, paying $1,050,000 for Parcel B. Agrotrust arranged with the vendor to pay $300,000 as a deposit and for the remainder of the purchase price to be paid with a mortgage. A deposit of $300,000 was paid by Agrotrust to the real estate agent’s account on 28 July 2020.

• [19] Mr Figueiredo’s evidence is that Erlon contributed $150,000 towards the deposit of Parcel B, deducting this amount from one of its invoices. Mr Arizaga says there was no agreement between the parties that Erlon would contribute towards the deposit of Parcel B but does not otherwise dispute that it was contributed to in this way.
• [20] Once Agrotrust had acquired Parcel B, water could be supplied from Parcel B to Parcel A. With that water source in place, development of the orchard could continue, including the planting of approximately 39,200 kiwifruit plants.

• [21] Around 8 October 2020 Erlon provided a quote for the construction of a windbreak. The quote was for $2,760,000. Mr Figueiredo’s evidence is that he agreed with Mr Arizaga that the windbreak invoices would be payable by Agrotrust in three payments of $460,000. Again, Mr Figueiredo says the windbreak payments to be made by Agrotrust totalled 50 per cent of the total windbreak cost. At around the same time, 8 October 2020, Erlon issued the first windbreak invoice, INV-2325, for

$460,000. Agrotrust paid the first instalment.

• [22] On or around 6 November 2020, after several months of negotiation involving the parties’ lawyers, a Joint Venture Deed was finally executed between Agrotrust, Erlon and E-Farms Limited (company incorporated by Mr Figueiredo).

• [23] The Joint Venture Deed included clause 3 which set out conditions precedent as follows:
  3. Conditions precedent
  • 3.1 This Deed is in all respects conditional on:

  (a) Agrotrust and E-Farms agreeing in writing within 20 days of this Deed being signed:

  (i) a schedule setting out the contributions of each Participant as at the Commencement Date (which is to include acquisition costs for the Property, costs to acquire Zespri Licence, and capital and operational costs paid to Erlon in connection with the Project);

  (ii) the Project Budget; and

  (iii) the Project Plan.

  (b) The Vendor consenting to E-Farms acquiring a one half undivided share of the Property as a tenant in common from Agrotrust;

  (c) E-Farms assuming responsibility for the Vendor Finance Loan and associated mortgage in a manner satisfactory to Agrotrust;

  (d) Completion of the purchase of a one half undivided share of the Property as a tenant in common by E-Farms from Agrotrust; and

  (e) each holder of Zespri Licence and party to a Licence Lease executing a deed of trust acknowledging that it holds its allocation of Zespri Licence and rights under the relevant Licence Lease on trust for the Joint Venture and will transfer its Zespri Licence and surrender its right, title and interest under the Licence Lease to the Joint Venture as soon as it is able to do so in accordance with the terms of the relevant Zespri Licence,

in each case other than clause 3.1(a), within one month of this Deed.

• 3.2 If the condition(s) in clause 3.1 are not satisfied within the time period prescribed in clause 3.1, this Deed will be at an end and no party will have any rights or obligations to the other parties except under clause

20.1 (Confidentiality).

• [24] Mr Arizaga’s evidence is that Agrotrust and Erlon negotiated the project budget and the project plan to try and satisfy the conditions precedent in the Joint Venture Deed within the given timeframe. However, the parties were unable to complete those tasks and, on 18 December 2020, agreed by email to extend the timeframe for satisfaction of the conditions to 15 January 2021.

• [25] By that date the parties were still unable to agree on the project budget and project plan. Mr Arizaga’s evidence is that, pursuant to clause 3.2, the Joint Venture Deed therefore lapsed on 15 January 2021. He deposes that whilst not necessary, Agrotrust’s lawyers communicated this lapse to Erlon’s lawyers on 15 February 2021 by email. A copy of that email is annexed to his affidavit and reads:

As you [the lawyer for Erlon] will be aware the parties have not been able to progress the conditions precedent and there was no mutual agreement to extend the condition date for the purposes of clause 3.2. As a result, and in accordance with its terms the deed [the Joint Venture Deed] was at an end from 15 January 2021 and no party has any rights or obligations to the others except under clause 20.1 (confidentiality).

• [26] On 26 March 2021 Agrotrust gave notice to Erlon that its services were no longer required and that it was not to access the orchard to do any more work.

• [27] In May 2021 Agrotrust filed a claim in the High Court against Erlon and Mr Figueiredo. Mr Arizaga’s evidence is that the claim is based on his discovery that:

(a) Erlon had overcharged Agrotrust.

(b) Erlon’s invoices to Agrotrust exceeded 50% of the actual costs of the orchard development.

(c) Agrotrust had paid to Erlon its share of the purported development costs, and Erlon used that money to pay for the entire development of the orchard without contributing any of its own money.

(d) Erlon used the funds that Agrotrust’s paid for purposes other than for the orchard development.

(e) Erlon did not complete the orchard development as it said it would.

(f) Erlon had not paid many of its contractors for services undertaken at the orchard.

• [28] On 16 June 2021 Erlon and Mr Figueiredo filed a statement of defence and counterclaim. The counterclaim alleges Agrotrust has been unjustly enriched by the contributions made by Erlon towards the joint venture.

• [29] Mr Figueiredo’s evidence is that, in particular:

(a) Erlon had paid a deposit towards the purchase of Parcel B;

(b) Erlon had paid 50 per cent of the cost of planting kiwifruit on Parcel A and Parcel B, referred to together as “the contributions”.

• [30] Based on the contributions, Erlon is seeking a declaration that the properties are held by Agrotrust on constructive or resulting trust for Erlon.

• [31] On 12 August 2021 a caveat was lodged by Erlon claiming an interest in the properties, Parcel A and Parcel B, “by reason of the Joint Venture Agreement dated 6 November 2021 between the Caveator and the registered proprietor of the Properties, and by reason of both direct and indirect financial contributions to the Properties”.

• [32] Mr Figueiredo’s evidence is that through the contributions and reliance on the joint venture, Erlon has undercharged on its normal invoiced rates by approximately

$4.5 million and has increased the value of the properties from being bare fields to a fully operational kiwifruit orchard.

• [33] Mr Figueiredo annexes a spreadsheet to his affidavit providing a breakdown of the costs incurred by Agrotrust and Erlon for the joint venture during the orchard development.

• [34] Mr Arizaga disputes the figures in the spreadsheet provided by Mr Figueiredo.

Legal principles governing applications to sustain caveats

• [35] In Green & McCahill Holdings Ltd v Ara Weiti Development Ltd,² the Court of Appeal recently confirmed that the core principles covering applications to sustain caveats under s 143 of the Land Transfer Act 2017 are those set out in the Court of Appeal’s decision in Philpott v Noble Investments Ltd:³
  • [26] The applicable legal principles which governed the application to sustain the caveats, and which now govern this appeal, are as follows:

  (a) The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;

  (b) It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;

  (c) The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and

  (d) When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.

(footnotes omitted)

• [36] The Court of Appeal in Green & McCahill went on to say:

[83] Although summary process does not permit close engagement with contested facts, the court must still assess the arguability of the asserted case of a proprietary right realistically and interrogate the documentary record. As the Privy Council said in Eng Nee Yong v Letchumanan, a court is not required:⁴

... to accept uncritically, as raising a disputed 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 in itself it may be.

² Green & McCahill Holdings Ltd v Ara Weiti Development Ltd [2022] NZCA 218 at [80].

3. Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]; Philpott was referred to with approval by the Supreme Court in Melco Property Holdings (NZ) 2012 Ltd v Hall [2022] NZSC 60 at [56].

⁴ Eng Nee Yong v Letchumanan [1980] AC 331 (PC) at 341.

• [37] As outlined above, the parties agree that the applicant needs to establish that it is reasonably arguable that the four elements set out in Lankow v Rose are met in the circumstances of this case. I therefore go through each of these elements below. Before doing so I note that in Lankow v Rose, Hardie Boys J held that contributions which are “adequately compensated by the benefits the relationship itself confers” will not suffice to support a constructive trust and that the contributions “must manifestly exceed the benefits” received.⁵

• [38] His Honour further explained that contributions need not be in money and “may be in services or in any other respect” but “there must be a causal relationship between the contributions and the acquisition, preservation or enhancement” of the property in issue.⁶

• [39] In Almond v Read, the Court of Appeal approved commentary in Equity and Trusts in New Zealand that a common factor in institutional constructive trusts is the unconscionability of the respondent denying the applicant an equitable interest in the relevant property because of a previous understanding, whether subjectively agreed upon between the parties or deemed by the law to be appropriate in the circumstances.⁷

Is it reasonably arguable that Erlon made contributions, direct or indirect to the property in question?

• [40] I record at the outset that land is defined in the Land Transfer Act as including “plants, trees, and timber on or under land”.⁸

• [41] Erlon submits that it has made direct and indirect contributions to the properties by:

(a) identifying the properties as being suitable for conversion from a dairy farm into a kiwifruit orchard;

⁵ Lankow v Rose, above n 1, at 282 per Hardie Boys J.

⁶ At 282 per Hardie Boys J.

⁷ Almond v Read [2019] NZCA 26 at [65].

⁸ Land Transfer Act 2017, s 5.

(b) establishing a kiwifruit orchard by constructing structures to support the kiwifruit vines, installing irrigation and putting orchard management processes in place;

(c) growing and planting approximately 39,200 kiwifruit plants across 45 hectares of the property;

(d) only charging 50 per cent of the normal market rate for the orchard development work;

(e) paying 50 per cent of the deposit on the Parcel B land by deducting

$150,000 from INV-2259 which records “Red Licence $237,187.50 minus $150,000 for deposit of the new property. Only net payment of

$87,187.50”.

• [42] Agrotrust submits in response that Erlon carried out works at the properties as a service provider and that Erlon’s 50 per cent share of the development costs “would only be considered a contribution if the joint venture was established, and only then that would be for the benefit of Mr Figueiredo”.

• [43] Agrotrust submits that the Joint Venture Deed makes it clear that Erlon was only a service provider. Agrotrust relies on the fact that the Deed was negotiated between Agrotrust, Erlon and Mr Figueiredo with the assistance of their respective legal advisers for five months. The “Background” section of the Joint Venture Deed records:

E. Erlon has, as a service provider but not (for the avoidance of doubt) as a participant in the Joint Venture, already provided certain services in relation to the orchard development occurring on the Property prior to the date of this Deed, which are agreed to be operational costs of the Joint Venture.

• [44] As set out above, clause 3.2 of the Joint Venture Deed records that if the conditions precedent in clause 3.1 are not satisfied within the time period prescribed, the Deed will be at an end and no party will have any rights or obligations to the other party except under clause 20.1 (Confidentiality).
• [45] Clause 5.3 of the Joint Venture Deed records:

5.3 The parties acknowledge that Erlon, as the date of this Deed, has provided services to E-Farms in E-Farms’ capacity as participant in the Joint Venture. E-Farms and Agrotrust acknowledge that the value of the services is to be recorded as contribution to the capital of the Joint Venture by E-Farms.

• [46] In addition, Agrotrust relies on clause 23.7 of the Joint Venture Deed which records:
  • 23.7 To the extent permitted by law, in relation to its subject matter, this Deed:

  (a) embodies the entire understanding of the parties, and constitutes the entire terms agreed by the parties;

  (b) sets out the only conduct relied on by the parties; and

  (c) supersedes any prior written or other agreement or understanding of the parties.

• [47] Agrotrust submits the above clauses show that in executing the Joint Venture Deed, Mr Figueiredo and Erlon willingly confirmed that:

(a) Erlon was only a service provider and not a participant in the joint venture.

(b) Erlon provided services to E-Farms in E-Farms’ capacity as participant in the joint venture.

(c) Erlon could not have had an expectation of an interest in the property.

(d) Any other and previous understandings of what Erlon was to provide or had an interest in was superseded by the Joint Venture Deed.

• [48] Agrotrust relies on the decision of Associate Judge Bell in Claverdon Developments Ltd v Housing New Zealand Ltd where his Honour held:⁹

... the supply of services and materials on the land of another, gives a builder a licence to go onto the land to carry out contract works, but that licence is not irrevocable and is not coupled with an interest in land. If the employer wrongly brings the contract to an end, the builder’s remedy is in damages.

9. Claverdon Developments Ltd v Housing New Zealand Ltd HC Auckland CIV-2009-404-7159, 19 February 2010 at [13].

• [49] Agrotrust submits therefore that Erlon carried out the services in its capacity as a contractor/service provider which does not give rise to any interest that is capable of supporting a caveat.

• [50] Erlon submits in response that the fact that Erlon is a party to the Joint Venture Deed confirms that it has made contributions. If it had only been a service provider, there would have been no need for Erlon to be a party. It was necessary to include Erlon to ensure that Erlon’s contributions were dealt with and Erlon could not make a separate claim.

• [51] Furthermore, Erlon submits it was entirely at Erlon’s discretion whether it participated in the joint venture itself or, instead, set up E-Farms to be the joint venture partner. It is only because Mr Figueiredo and Erlon decided that E-Farms was to be the joint venture partner that the Deed referred to Erlon as a service provider, but then only as a service provider to E-Farms and not to Agrotrust. Erlon submits that if the joint venture did not proceed, as Agrotrust submits, then Erlon is the appropriate claimant as it is the entity that has provided the contributions.

• [52] I consider it is reasonably arguable that Erlon has made contributions to the properties in question satisfying the first element from Lankow v Rose. Mr Arizaga agrees that, inter alia, a term of the original verbal agreement reached was that:

(c) Erlon would carry out the Services, and would charge Agrotrust 50% of the actual costs of the Services, plus a reasonable margin based on market rates.

• [53] Mr Arizaga’s evidence is not that Erlon’s invoices necessarily exceeded the whole of the actual costs of the orchard development but that they exceeded 50 per cent of the actual costs. The difference between the parties is that Mr Arizaga’s evidence is that, in the verbal agreement, the other 50 per cent cost of the services that Erlon was responsible for would only be credited as a contribution if the terms of the proposed joint venture were agreed and the proposed joint venture established.

• [54] Mr Arizaga does not say however what would happen if the joint venture was not established and whether Erlon would then be paid the remaining 50 per cent for its services.
• [55] Mr Figueiredo’s evidence by contrast is that the terms of the verbal agreement were that Agrotrust and Erlon would form a joint venture and that included Erlon providing the orchard management services and charging 50 per cent of the costs of the services to Agrotrust. The other 50 per cent was to be Erlon’s contribution to the joint venture, with arrangements agreed in relation to the purchase of the properties and for Agrotrust and Erlon to enter into a Joint Venture Deed to record the terms of the agreement.

• [56] I accept that Agrotrust disputes whether it has only paid 50 per cent of the services provided and has brought proceedings in that respect. But this is not a matter that can be determined in the summary context of a caveat application (as counsel for Agrotrust accepted at the hearing).

• [57] In addition, it appears to be reasonably arguable that Erlon contributed half of the deposit for the Parcel B land ($150,000).

• [58] Agrotrust submits that Erlon perhaps has an argument for a remedial constructive trust but that such an argument is not enough to sustain a caveatable interest given there would be no present interest in the land. This submission appears to acknowledge that there has at least been a contribution by Erlon.

Did Erlon have an expectation of an interest in the property?

• [59] In Almond v Read the Court of Appeal held that where a contribution is made on the basis of a pre-existing common intention that the contribution will result in a proprietary interest, there will be no difficulty in establishing a reasonable expectation.¹⁰

• [60] In an earlier decision of the Court of Appeal, Gormack v Scott, Cooke P expanded on the principles applying to contributions based on a common intention:¹¹

¹⁰ Almond v Read, above n 7, at [69].

¹¹ Gormack v Scott [1995] NZFLR 289 (CA) at 293.

(a) where there has been an express common intention applicable to the circumstances that have arisen, it is unnecessary to fall back on reasonable expectations;

(b) if the common intention was too vaguely expressed, the evidence bearing on common intention may still be relevant in considering the reasonable expectations of the parties;

(c) in considering reasonable expectations, attention is not to be confined to the inception of the relationship or the time when any property in question was purchased, with the enquiry to extend to the whole circumstances and history of the relationship.

• [61] Erlon submits that it initially undertook the orchard development work in reliance on a verbal agreement with Agrotrust that Mr Figuierdo deposes in this affidavit had the following terms:

(a) Agrotrust and Erlon would form a Joint Venture;

(b) Agrotrust and Erlon would share in the costs of the purchase, development and operating costs of the orchard on a 50:50 basis;

(c) Erlon would provide the orchard management services and would charge 50% of the cost of the services. The other 50% would be Erlon’s contribution to the Joint Venture;

(d) Agrotrust would purchase the properties with arrangements in place for contributions to the purchase price to be made by Erlon.

• [62] Mr Arizaga for Agrotrust describes the verbal agreement reached as:

(a) Agrotrust and Erlon would enter into good faith negotiations as to the terms of the Proposed Joint Venture, with a view to entering into a Joint Venture Deed which would record the agreed terms between the two parties.

(b) The primary principal of the Proposed Joint Venture was that Agrotrust and Erlon would share in the capital and operating costs of the orchard on a 50:50 basis, and both would share in any profits on the same basis.

(c) Erlon would carry out the Services, and would charge Agrotrust 50% of the actual cost of the Services, plus a reasonable margin based on market rates.

(d) Erlon would carry out the Services with reasonable skill and care.

(e) Agrotrust would acquire the Zespri Licences.

(f) Agrotrust would purchase the Properties for the Orchard.

(g) If the terms of the Proposed Joint Venture were agreed and the Proposed Joint Venture established, then:

(i) the other 50% cost of the Services that Erlon was responsible for would be credited as a contribution of the Proposed Joint Venture by Mr Figueiredo;

(ii) Mr Figueiredo would acquire a half share of the Properties;

(iii) Agrotrust’s Zespri Licences would be transferred to the Joint Venture.

(“Agreement”)

• [63] It is not possible to determine in this caveat application the terms of the verbal agreement that were agreed and therefore whether there was a common intention or not.

• [64] The Joint Venture Deed was entered into after the development work was completed and Erlon had made contributions. At the time of the contributions, in my view, it is reasonably arguable that Erlon had an expectation of an interest in the properties.

Was Erlon’s expectation reasonable?

• [65] Agrotrust submits that Erlon has admitted Agrotrust’s pleading in its statement of claim in the substantive proceeding of the terms of the verbal agreement entered into which includes at paragraph 11(g):

(g) If the terms of the Proposed Joint Venture were agreed and the Proposed Joint Venture established, then:

(i) the other 50% cost of the Services was to be credited as a contribution of the Proposed Joint Venture by the second defendant;

(ii) the second defendant would acquire a one-half undivided share of the Property for the Orchard;

(iii) the Zespri Licences would be transferred to the Joint Venture.

• [66] I do not consider that the admission of this paragraph by Erlon and Mr Figueiredo in their statement of defence means their expectation of an interest in the property was not reasonable as the verbal agreement, even on Mr Arizaga’s evidence, did not provide for the situation where the terms of the joint venture were not agreed.
• [67] The Joint Venture Deed included clause 3.2 which said that if the conditions precedent were not met, “this Deed will be at an end and no party will have any rights or obligations to the other parties except under clause 20.1 (Confidentiality)”. It does not say, the joint venture is at an end, but instead “this Deed”. The Deed does include an entire agreement clause at clause 23.7, providing that the Deed supersedes any prior written or “other agreement or understanding between the parties”.

• [68] Whether this clause is effective in superseding the verbal agreement depends on the operation of s 50 of the Contract and Commercial Law Act 2017. This is not a matter I can determine in the context of a caveat proceeding.

• [69] Erlon may no longer be able to rely on a clear, common intention but Mr Arizaga’s evidence that the agreement was that Agrotrust would pay only 50 per cent of the invoices for the development of the orchard together with the undisputed evidence that Erlon paid 50 per cent of the deposit for the Parcel B land suggests that it was a reasonable expectation that Erlon would have an interest in the land it worked to develop.

• [70] As Cooke P held in Gormack v Scott the enquiry as to whether the expectations were reasonable needs to extend to the whole circumstances and history of the relationship:¹²

For example, developments may occur which were outside the scope of the original reasonable expectations. Reasonable persons in the shoes of the parties might expect these developments to be dealt with in a different way. So it was here, in the Judge’s view, with the payments assessed at $17,000 to give the appellant credit for that sum was a perfectly proper course.

• [71] Agrotrust now says that Erlon has charged Agrotrust and Agrotrust has paid Erlon more than what the orchard has cost to develop. This claim is the subject of this substantive proceeding as referred to above. This claim relies on information obtained by an ex-employee of Erlon who now works for Agrotrust. Erlon says that this information was obtained in breach of that employee’s employment obligations. These are not matters that are able to be determined in the context of an application to

¹² At 293.

sustain a caveat. I proceed on the basis therefore that Erlon invoiced Agrotrust for 50 per cent of the services and bore the costs of the remaining 50 per cent.

• [72] Agrotrust’s position in relation to the 50 per cent contribution to the deposit for the Parcel B land does not suffer from the same complaint from Agrotrust but Agrotrust says that it did not ask Erlon to contribute. Agrotrust did not however reject Erlon’s contribution and only paid the invoice as reduced by that contribution, in line with what Erlon proposed.

• [73] Here, it is reasonably arguable that a reasonable person in the shoes of the parties would expect that Erlon would have an interest in the property having been paid for only 50 per cent of the work performed and having contributed 50 per cent to the deposit for Parcel B. Erlon submits that it made other contributions including the selection of the appropriate property and advice on developing the land as a Zespri Red orchard. But for the purposes of this caveat, the work for services performed, 50 per cent of which were not invoiced, and the contribution to the deposit for the Parcel B land, are sufficient to establish that it is reasonably arguable that Erlon’s expectation of an interest was reasonable. The third element in Lankow v Rose is therefore sufficiently established for the purposes of this caveat application.

Should Agrotrust reasonably be expected to yield an interest to the applicant?

• [74] Agrotrust proposes Erlon’s application ought to fail on two main grounds:

(a) it denies that Erlon made the contributions, claiming that Erlon overcharged for the orchard development, and that the payment from the respondent covered the entire cost of the development; and

(b) the joint venture was not properly established because the conditions precedent were not all met and, in those circumstances, the contributions were made at Erlon’s risk and do not give rise to an institutional constructive trust.

• [75] The first of these arguments, as I have already discussed above, cannot be determined in the context of this caveat application. The evidence of overcharging

relies on affidavits from Mr Arizaga and an ex-employee of Erlon that now works for Agrotrust. Erlon submits this analysis is based on Erlon’s incomplete financial records obtained in breach of the ex-employee’s employment conditions. Furthermore, the evidence is challenged by an affidavit from Erlon’s accountant who deposes that the financial accounts produced by Agrotrust are incomplete and cannot be relied upon.

• [76] In addition, Erlon provides evidence of quotes given by it to other clients consistent with the original quote to Agrotrust as evidence that it did not overcharge. These matters are matters in issue in the substantive proceedings that have already been filed and are matters that can only be properly determined after a full hearing including evidence from experts.

• [77] The second ground on which Agrotrust opposes Erlon’s claim to an interest in the land is that any interest was conditional on a joint venture being properly established and that this did not happen because the conditions precedents were not all met.

• [78] Erlon submits that the status of the Deed itself is less determinative than Agrotrust submits. Erlon says that whether the joint venture as described in the Deed is at an end or not, the Deed still evidences that:

(a) the contributions when made by Erlon, were made with the reasonable expectation of a proprietary interest;

(b) the contributions were accepted by Agrotrust as having been made towards the capital of the joint venture; capital that has increased the value of the properties and gives rise to a constructive trust.

• [79] Erlon submits that even if the joint venture was “not established”, there remains the open question of what happens to the contributions made by the parties up to that point. For Agrotrust to retain the sole ownership and benefit of the property, it would mean Agrotrust would have the benefit of Erlon’s contributions for which it has not paid, that is 50 per cent of the invoices rendered and other costs not invoiced such as the kiwifruit plants.
• [80] Erlon submits that Agrotrust’s position that this was agreed is not supported by the evidence, is commercially unsustainable and would result in Agrotrust having the benefit of Erlon’s contribution without any obligation to account for it if the joint venture was not established.

• [81] I accept Erlon’s submission that, in such circumstances, it is at least reasonably arguable that the Court would find it unconscionable for Agrotrust to deny Erlon an equitable interest in the properties.

Result

• [82] It is reasonably arguable that Erlon will be able to establish all four elements necessary for an institutional constructive trust. In these circumstances, Erlon’s application that the caveat not lapse must be granted. Substantive proceedings have already been filed with Erlon filing a counterclaim in those proceedings. There is no need therefore for the order that the caveat not lapse to be conditional on proceedings being filed. I therefore order that the caveat is not to lapse until further order of the Court, with those orders to be made following the outcome of the substantive proceedings.

Costs

• [83] I did not hear from the parties on costs but record my preliminary view that Erlon is entitled to costs. The opposition by Agrotrust relies on factual matters which are in dispute between the parties. Substantive proceedings had already been filed to determine those matters, including the filing of a counterclaim prior to the notice of lapse being filed.

• [84] I ask the parties to confer and attempt to reach agreement. If that is not possible, memoranda may be filed of no more than five pages (excluding costs schedules) on behalf of the applicant within 20 working days of this judgment and on behalf of the respondent within a further 10 working days.

Associate Judge Sussock