JEB Management Ltd v Grubz United Whanau Trust

• Jurisdiction: New Zealand
• Judge: TOOGOOD J
• Judgment Date: 12 February 2015
• Neutral Citation: [2015] NZHC 157
• Docket Number: CIV-2014-404-2587
• Court: High Court
• Date: 12 February 2015

Between

JEB Management Limited

Appellant

and

Grubz United Whanau Trust

Respondent

[2015] NZHC 157

CIV-2014-404-2587

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application for removal of caveat — land owned by a Trust was sold to the applicant — Trust said that party who had negotiated the sale with the applicant had been fraudulently appointed as a trustee and that the applicant knew or ought to have known of those fraudulent actions — caveator claimed an interest in land under a constructive trust on the basis that the persons who sold the property to the applicant were not authorised to do so, that the property was purchased for substantially less than market value ($150,000 instead of its $300,000 valuation) and that the applicant was not a bona fide purchaser for value of the property and therefore did not get the benefit of indefeasible title — what was the proper test for the fraud exception to indefeasibility — whether it was reasonably arguable that the applicant committed fraud when dealing with the property — whether it was reasonably arguable that the applicant's title could be defeated under the in personam exception to indefeasibility.

Appearances:

D Mitchell for Applicant

P Webb for Respondent

This judgment was delivered by me on 12 February 2015 at 4:45 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

JUDGMENT OF TOOGOOD J

Introduction and result

1 JEB Management Ltd (“JEB”) has applied under s 143 of the Land Transfer Act 1952 for the removal of a caveat registered against its property at 56 Wymondley Road, Otara, Manukau (“the Otara property”). The question to be determined is whether the caveator, Grubz United Whanau Trust (“the Trust”), the former registered proprietor of the property, has shown it is reasonably arguable that it has a caveatable interest in the property. If that is so, the caveat should be sustained.

2 For the reasons which follow, I have determined that it is not reasonably arguable that the Trust has a caveatable interest in the property. In summary, the reasons are:

• (a) In order for the Trust to sustain the caveat, it needs to show that it is reasonably arguable that JEB committed fraud to a land transfer standard.

• (b) The evidence does not establish a reasonable argument that JEB committed land transfer fraud.

• (c) A claim of knowing receipt of trust property cannot be brought as an in personam exception to indefeasible title.

3 The caveat on the Otara property is to be removed.

Background facts

4 The Trust was established in 1989 by a group of Otara residents who sought to better the lives of young people in the local community by providing recreational facilities and workplace training. Its principal asset was the Otara property.

5 The original trustees ran the Trust with some success for several years. They passed on the operation of the Trust, although not their trusteeships, to the next generation. The Trust's activities were effectively abandoned, however, in about 2007. The Otara property fell into disrepair, and the Trust fell into arrears in respect of Council rates.

6 The sole director of JEB, Mr Darren Wallbank, says that in December 2010 he was approached by Mr Papa Manu who asked if he was interested in buying the Otara property. Mr Manu showed him some documents which indicated to Mr Wallbank that Mr Manu was representing the Trust due to the death of some of the trustees. On 21 December 2010, the parties entered into an agreement for the sale and purchase of the Otara property. The agreed purchase price was $100,000, with a further $50,000 to be paid to the Trust when JEB sold the property. The sale and purchase agreement contained a due diligence condition for the benefit of JEB, and it was agreed the transaction would be settled on 20 January 2011. The agreement as to the outstanding $50,000 was recorded in a deed of acknowledgment of debt, entered into between JEB and the Trust on 19 January 2011.

7 During the due diligence period, Mr Wallbank viewed the property; considered a valuation report provided by Mr Manu; and consulted a builder about renovation potential.

8 Both the Trust and JEB were represented by solicitors who handled the sale and purchase transaction. On 20 January 2011, the agreement was confirmed unconditional. Settlement was completed on 21 January and JEB became the registered proprietor on 24 January 2011.

9 On 25 January 2011, JEB's solicitor wrote to the Trust's solicitor to explain that vacant possession had not been obtained because there were people occupying the property who purported to be trustees of the Trust. The Trust's solicitor provided JEB's solicitor with copies of a trust deed, a certificate of incorporation (confirming the Trust's name had changed from Grubz United Trust to Grubz United Whanau Trust) and a deed of retirement and appointment of new trustees. The latter deed was executed by the original appointor of the Trust, Mr Michael Dowd, who asserted in the recitals that all of the original trustees apart from him had died and recorded that he wished to retire and appoint new trustees, including Mr Manu. The copy of the deed provided to JEB is dated 25 November 2005. I infer that a copy of this document was what had been shown to Mr Wallbank to establish Mr Manu's credentials.

10 On 4 June 2014, the Trust registered a caveat over the Otara property. A notice of the caveat was not served on JEB, which had no knowledge of it until August 2014 when Mr Wallbank obtained an updated title search.

11 The caveat includes a claim by the caveator that the Trust has an interest in the Otara property under a constructive trust, on the basis that the persons who sold the property to JEB were not authorised to do so; that the Otara property was purchased for substantially less than market value; and that “[a]ccordingly JEB Management Limited was not a bona fide purchaser for value” of the property.

12 It appears that the Crown Law Office began an investigation into the Trust's allegations in November last year. A memorandum of Crown Counsel on behalf of the Attorney-General, filed in advance of the hearing of this proceeding, discloses that that investigation is ongoing. Counsel said it was understood that the Trust intends to commence a separate proceeding addressing the removal of the trustees and the sale of trust property. While the Solicitor-General may seek to participate in that proceeding, the Attorney-General did not wish to be heard regarding the present application.

The Trust's assertions

13 The Trust alleges that in late 2010 a group of people, including Mr Dowd and Mr Manu, took steps to acquire control of the Trust. It claims that Mr Dowd's assertion that all the other trustees were dead was knowingly fraudulent because, although some of the original trustees had died, two others remained alive and were able to operate the Trust. It submits that the apparent haste with which Mr Manu and the other new trustees took steps to dispose of the Trust property (only three days after their purported appointment) gives rise to a belief that “it is possible” that JEB was involved in or aware of a plan by Mr Dowd and those he “improperly assisted to seize control of the [Trust] to improperly dispose of” the Otara property, and that the sale of the property was planned in advance of the execution of the deed of retirement. I was told the Trust is bringing a separate proceeding against Mr Dowd, Mr Manu, JEB and others alleging breaches of fiduciary duty and unconscionable actions.

14 Essentially, the Trust argues that it retains a proprietary interest in the property because JEB was not a purchaser in good faith, and therefore does not get the benefit of indefeasible title. The allegation of lack of good faith rests on proof that Mr Dowd acted fraudulently in appointing new trustees, knowing they intended to sell the property, and that JEB knew or ought to have known of those fraudulent actions.

Removal of caveat

15 Section 143 of the Land Transfer Act 1952 says:

Procedure for removal of caveat

• (1) Any such applicant or registered proprietor, or any other person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the High Court for an order that the caveat be removed.

• (2) The court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the court seems meet.

16 The parties agree about the proper test for removing a caveat: the onus of proof in a s 143 hearing falls on the Trust, as caveator; it must show there is a reasonably arguable case that it has an interest in the property that entitles it to the protection of the caveat; a caveat will be removed only if it is “patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so”. 1

17 The parties further agree that the Court should not, at this point, attempt to resolve any conflicts in their evidence. 2 Generally, where there is such a conflict on an application to remove a caveat, the Court will accept the evidence advanced on

behalf of the caveator as correct, unless it is patently lacking in credibility. 3 But that does not prevent the Court from making an assessment of the strength of a party's case. The contest between the parties is about whether the Trust's factual allegations support a reasonably arguable case that it has a caveatable interest in the property

18 The applicant argues that, even if the Court finds that Mr Dowd acted dishonestly or otherwise in breach of his obligations as a trustee, the asserted facts do not disclose a reasonably arguable case that JEB should be deprived of clear title to the...