Green & Mccahill Holdings Ltd v Ara Weiti Development Ltd

• Jurisdiction: New Zealand
• Judge: Kós P
• Judgment Date: 01 June 2022
• Neutral Citation: [2022] NZCA 218
• Docket Number: CA147/2021
• Court: Court of Appeal

Between

Green & Mccahill Holdings Limited

Appellant

and

Ara Weiti Development Limited

First Respondent

Ara Weiti Bay Development Limited

Second Respondent

[2022] NZCA 218

Court:

Kós P, Cooper and Brown JJ

CA147/2021

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Contract, Equity, Property — application to sustain a caveat — failed property development — caveatable interest based on an alleged constructive trust — joint venture — fiduciary duties — knowing receipt — Land Transfer Act 2017

Counsel:

J W A Johnson, K C Francis and W L Porter for Appellant

D J Chisholm QC, and M H L Morrison and L R Green for Respondents

• A The appellant's application for leave to adduce further evidence is granted.

• B The appeal is allowed.

• C The re-imposition of caveats and the conditions therefor are remitted to the High Court.

• D Costs are reserved.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Kós P)

Table of Contents

	Para No
Background	[2]
The contracts	[17]
Master agreement for the sale of Weiti Station	[18]
Development agreement	[21]
Limited partnership agreement	[23]
Quadripartite deeds	[28]
The relationship breaks down	[34]
The caveats imposed	[46]
The case made before the Associate Judge for a proprietary remedy	[48]
The judgment appealed	[53]
The caveats lapse	[61]
Issues on appeal	[62]
Some issues of timing, further evidence and background material	[63]
Issue 1: Is liability of the respondents for knowing receipt reasonably arguable?	[68]
Submissions	[69]
Discussion	[78]
(1) Principles governing applications to sustain caveats	[80]
(2) Did Mr Williams arguably owe fiduciary duties to GMHL?	[88]
(3) Did any fiduciary duties arguably exist still as at June 2020?	[101]
(4) Were the properties arguably subject to a trust as at June 2020?	[109]
(5) Was the transfer to the respondents arguably in breach of trust?	[122]
Conclusion	[123]
Issue 2: Is primary liability of the respondents as a fiduciary reasonably arguable?	[124]
Discussion	[126]
Issue 3: If a proprietary right is reasonably arguable, should discretion be exercised against a re-imposition of the caveats?	[127]
Issue 4: If the caveats are sustainable, what relief should be ordered in this appeal?	[129]
Costs	[133]
Result	[134]

1 The appellant, a participant in a complex property development, contributes the land, which is then mortgaged to a third-party lender. The development fails. The lender sells the land by mortgagee sale to the respondents, who are associates of the other participant in the development. The question in this appeal is whether the appellant may now sustain caveats asserting a proprietary interest in its former land, based upon an alleged constructive trust.

Background

2 The background is set out in some detail in the judgment appealed. 1 The essential facts are uncontested, although the inferences to be drawn from them are. We need only provide a summary at this stage. In subsequent sections of the judgment we will look in more detail at the contracts entered between 2010 and 2018 governing the respective parties' interests in the Weiti land development project, the breakdown of their relationship, and the caveats imposed which are the subject matter of the appeal.

3 The appeal concerns two caveats over 29 titles within a subdivision development in Weiti Bay, near Stillwater, just north of Auckland. They were lodged by the appellant, Green & McCahill Holdings Ltd (GMHL).

4 GMHL was incorporated in 1956. It owned approximately 900 ha of land in Weiti Bay. In 1991 the Green family sold GMHL to members of Mr Tong-Kuang (Peter) Liu's family. GMHL is now owned by Orere Farms Ltd, which in turn is owned by the Liu family.

5 On 7 December 2005, GMHL entered an option agreement with Williams Capital Ltd (WCL), a company controlled by Mr Evan Williams. Under that agreement, GMHL granted WCL an option to purchase the land in exchange for a non-refundable payment of $5 million. The purchase price was to be between $155 and $295 million depending on the number of residential lots for which consent was obtained. A second agreement entered into on the same day granted GMHL a put option under which it could require WCL to purchase the land - so a put and call arrangement applied. Delays ensued and these arrangements were extended.

6 In September 2010, Mr Liu and Williams Capital No 1 Ltd (WCNL, another company controlled by Mr Williams) entered a master sales agreement establishing a

sales programme for the Weiti Bay land and obligating WCNL to develop that land. In February 2011 GMHL and WCNL entered an agreement to develop Weiti Station

7 In June 2012, a limited partnership was entered and registered, establishing Weiti Development Limited Partnership (WDLP). Under a development agreement entered around the same time, WDLP became the purchaser and developer of the Weiti land. The limited partners were Weiti Trustee Ltd (as to 60 per cent and controlled by Mr Liu) and Weiti General Partner Ltd (as to 40 per cent and controlled by Mr Williams). Weiti Development General Partner Ltd (WDGPL) (controlled by Mr Williams) was appointed general partner of WDLP and was responsible for day-to-day management, though Mr Liu was a member of an advisory committee.

8 GMHL then made land available as security for WDLP to borrow funds for development at the request of Mr Williams and provided mortgages over parcels of land at Weiti over the next five years. In 2015 a quadripartite deed was entered into under which GMHL granted mortgages to the Bank of New Zealand (BNZ). In July 2018 the finance arrangements were varied, with a term loan agreement being entered into with Lambton Quay Properties Nominee Ltd (Lambton) as junior creditor, and another quadripartite deed entered into under which GMHL provided mortgages in favour of BNZ and Lambton.

9 In early 2019, Mr Liu advised that GMHL would not provide further security to finance the developments without being paid a share of proceeds from future sales. Mr Liu expected, Mr Williams says, that GMHL be paid such proceeds on a first priority basis. This resulted in development work ceasing. In June 2019, BNZ assigned its rights to Lambton.

10 In June and July 2019, WDLP and WDGPL did not meet their obligations under the facility agreement (as amended) and term loan agreement, leading to Lambton serving Property Law Act 2007 (PLA) notices on GMHL. A mortgagee sale process followed.

11 In October 2019, Mr Williams gave an interview with Stuff regarding the mortgagee sale process. We return to this later. 2 In May 2020, Ara Weiti Developments Ltd and Ara Weiti Bay Development Ltd, the respondents, were incorporated by Mr Williams. In June 2020, Lambton sold the properties to Ara Weiti Developments, which then sold some of the properties on to Ara Weiti Bay Development. Lambton also assigned rights under various instruments to Ara Weiti Investments Ltd - a sister company to the respondent companies.

12 In July 2020, GMHL lodged the caveats at issue. Then, in August 2020, GMHL brought substantive proceedings against Mr Williams and the respondent companies alleging (as the first cause of action) a breach of fiduciary duty by Mr Williams and knowing receipt by the respondent companies. In short, GMHL alleges it and Mr Williams were party to a joint venture and that Mr Williams owed it fiduciary duties. Among other things, it alleges he breached those fiduciary duties by acting contrary to GMHL's interests by procuring the sales of the properties by the mortgagee to his own companies.

13 Also in August 2020, GMHL applied to the High Court for orders pursuant to s 143 of the Land Transfer Act 2017 (LTA) that the caveats not lapse.

14 Associate Judge Andrew declined to make the orders. The Judge accepted it was reasonably arguable there was a fiduciary relationship between Mr Williams and GHML. 3 But the Judge did not consider it reasonably arguable that the properties were acquired by the respondents as a result of, and in knowing receipt of, a breach of those duties. 4

15 GMHL appeals. In doing so it advances, in the alternative, an argument based on the respondent companies being fiduciaries in their own right, as well as being subject to liability as recipients knowing of Mr Williams' breaches of duty.

16 The caveats had lapsed before the appeal was heard. This raises a number issues about timing, further evidence and the orders that might be made if the appeal succeeds.

The contracts

17 It is necessary to now set out in some detail the contractual relationships established between 2010 and 2018 governing the respective Liu and Williams' interests in the Weiti land development project. Four contracts require our attention here. We will summarise their key provisions.

Master agreement for the sale of Weiti Station

18 The master agreement was entered into by Mr Liu as agent for a company of his yet to be formed (referred to as Liu) and Williams Land Ltd in September 2010. Clause 1 records Liu shall be the owner of Weiti Station and is to sell land for each stage of development. But Liu retains the ultimate right of veto of a stage plan or a stage agreement and is not required to provide funding for construction of a stage of development. Clause 2 obligates Williams Land to design each stage, develop each stage according to the relevant stage agreement signed by Liu, manage the overall development and market the development. Clause 6 then reiterates that Williams Land is not to commence construction of a stage without prior signature of a stage agreement satisfactory to Liu, and that Liu is not obligated to provide funding for construction or transfer title to the land...