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Hudson v Robway Farms Limited [2012] NZHC 748 (23 April 2012)

Last Updated: 16 May 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-488-049 [2012] NZHC 748

BETWEEN SHEREE ELLEN HUDSON Applicant

AND ROBWAY FARMS LIMITED Respondent

Hearing: 22 February 2012

Appearances: A G Jackson for applicant

G Swanepoel for respondent

Judgment: 23 April 2012

_{JUDGMENT OF ALLAN J}

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 4 pm on Monday 23 April 2012

Solicitors:

Regent Law, Whangarei Anthonygjackson1@gmail.com

_{Swan Law, Whangarei George@swanlaw.co.nz}

HUDSON V ROBWAY FARMS LIMITED HC AK CIV 2012-488-049 [23 April 2012]

Introduction

[1] The applicant applies under s 145A of the Land Transfer Act 1952 for an order sustaining two caveats lodged by her against land titles No’s NA 117A/135 and NZ 117A/136.

[2] She claims to have a beneficial interest arising from an express, or alternatively a constructive, trust in respect of part of a farm near Maungaturoto, registered in the name of the respondent. An order sustaining the caveat ought to be made, unless it is patently clear that the caveat cannot be maintained either because there is no valid ground for lodging it, or that such valid ground as then existed no longer does.1

[3] It is not appropriate to determine disputed questions of fact on the present application, which is intended to be dealt with in a summary manner.2

The applicant’s case

[4] The applicant is the child of Robyn and Wayne Hastings. She has two siblings, Troy and Tania. All the children are adults.

[5] In 1997, the applicant’s parents decided to purchase a 200 hectare farm property situated at 175 James Road, Maungaturoto. They had earlier owned properties in the Hokianga area and later in Kerikeri. The respondent was incorporated in order to serve as the vehicle to hold title to the farm property.

[6] When the respondent was incorporated, the applicant became the majority shareholder and the sole director. It is common ground that the respondent was

_{structured in that way in order to achieve first owner stamp duty exemptions valued}

1 Sims v Lowe [1988] 1 NZLR 656 (CA) at 659-660. Although this was a case under s 143 of the

_{Land Transfer Act, the principles are the same.}

2 Sims at 661.

at $20,000. Several years later, the applicant relinquished both her directorship and her shareholding to her parents.

[7] In 2000, the respondent acquired the caveated land, comprising a little over

22 hectares. Ms Hudson says that this land was purchased for her partly in recognition of her removal as a shareholder and director of the respondent, and the consequential loss of any benefits such as an entitlement to a salary or director’s fees. She says also that the decision to acquire the additional land for her reflected a great deal of unremunerated hard work she had undertaken on earlier properties owned by her parents. She claims that, from the date of acquisition of the property, it was intended to be hers, but that it was to be held in trust by the respondent for the time being. She accepts that the purchase price came from the respondent.

[8] She says also that the respondent became the registered proprietor of the caveated land partly in order to facilitate the raising of funds required to improve the property and to place a house on it for her, as her parents intended. The caveated land initially was unimproved and badly infested by gorse. It is common ground that between 2000 and 2003, significant work was done to clear the gorse. The applicant, her partner, and Mr Hastings all appear to have played a significant role in that activity.

[9] In 2003, a relocatable house was obtained and placed on the caveated land. Although that land had initially been purchased for cash, a mortgage was raised from the BNZ to fund the acquisition of the house and its placement on the land. The applicant says that she had little income and no significant credit record, and could not herself have raised a mortgage for this purpose. So the property needed to be in the respondent’s name. Moreover, Mr and Mrs Hastings were concerned about a relationship property claim by the applicant’s partner, of whom they did not approve. For all these reasons, the land was placed in the name of the respondent, which raised the necessary finance.

[10] The applicant says she agreed with her parents that she was to make the payments on the mortgage, and once it had been paid off, the caveated land would be transferred to her. It was also agreed that she would undertake improvements to the

house and land at her cost. She says she did indeed make herself responsible for the mortgage payments, to begin with by payments of cash to her mother, and then by way of automatic transfers from her bank account. In evidence, she has produced a sample print out from her account at the BNZ which shows the making of weekly payments of $140, each designated as mortgage payments.

[11] The applicant says also that she paid all rates and other outgoings for the caveated land. In 2003, at the time of the relocation of the house onto the property, she says she organised and paid for the installation of a septic tank, certain related earthworks and the provision of electricity to the property. In addition, since 2003, and together at times with her partner (now her husband), she has:

(a) continued with the clearance of gorse and other vegetation; (b) undertaken general repairs and maintenance to the property; (c) added stock yards;

(d) erected a treble bay workshop/shed; (e) erected fencing;

(f) installed a driveway and undertaken other earthworks; (g) carried out further site works;

(h) installed waterworks and tanks;

(i) undertaken farm activities such as spraying;

(j) built up stock on the land and undertaken a pig farming operation.

[12] The applicant says that all of this work was carried out with the knowledge of her parents, without objection or adverse comment.

[13] In 2009, difficulties arose within the family. The applicant made certain [redacted] allegations [redacted] against her father. As might be expected, family relationships have become badly fractured. More recently still, Mr and Mrs Hastings have decided that the whole farm, including the caveated land, should be put on the market. That decision has given rise to the present application. The applicant seeks to sustain the caveat pending the resolution of the dispute between the parties. Mr Jackson, counsel for the applicant, indicates he is in a position to commence proceedings within a short time frame if the caveat is sustained.

The respondent’s case

[14] The respondent (and accordingly Mr and Mrs Hastings) accept that the applicant became the majority shareholder and sole director of the respondent in

1997 in order to qualify for the first farm ownership exemption from stamp duty. They say that, in April 1999, the shareholding changed so that each of Mr and Mrs Hastings acquired half of the 1000 shares. The applicant resigned as a director at the same time and her parents were appointed directors.

[15] In February 2000, a house was moved onto the main Maungaturoto farm for the applicant’s brother Troy to live in. About three years later, in January 2003, a mortgage was raised over one of the blocks of caveated land (lot 7), in order to fund the purchase and relocation of a house as accommodation for the applicant and her family. The applicant moved into the property in about April 2003. The respondent accepts that the applicant has paid about $150 a week in all for outgoings on the caveated land, but says this was simply an occupation rent charged at below market rates. The respondent denies that there was ever any agreement, or even an understanding, to the effect that she would become entitled to legal ownership of the caveated land when the mortgage over it was repaid. Rather, if she maintained the land properly, it was generally understood that she could reside there indefinitely.

[16] A number of the applicant’s claims to having improved or maintained the property are disputed. The applicant’s parents through the respondent say that:

(a) certain of the work was paid for by the respondent and not by the applicant, as she claims;

(b) some of it amounted to nothing more than maintenance which she was expected to undertake as part of her entitlement to live on the land in the meantime;

(c) in more recent years, both the house and the land have deteriorated because the applicant has failed to comply with her obligations;

(d) the applicant did not forgo any benefits when she signed over her shareholding in the respondent and resigned her directorship, because no directors’ fees and salaries were ever paid. Moreover, she undertook no duties at all in her capacity as shareholder and director while she held those positions;

(e) the applicant had no entitlement to compensation for the work she did on the Hokianga and Kerikeri farms in earlier days. Most of the work done by her at that time was for her own benefit and in any event, it was no more than could be expected of a family member who lived on a farm;

(f) the case for the applicant is a complete fabrication that is the product of the breakdown in family relationships, caused by the applicant’s baseless allegations against her father.

The factual dispute

[17] This case has generated a significant degree of emotional heat. Very serious allegations are made on either side about the honesty of opposing witnesses. For example, Tania, the applicant’s sister, asserts that the applicant called her in 2008, after the farm property had allegedly been placed on trust by their parents. Tania says that the applicant was extremely upset at the fact that the beneficiaries of the trust would be the grandchildren, with the result that Troy’s five children would get

the lion’s share, not the applicant’s two boys. Tania says further that the applicant told her that she was going to make allegations [redacted] against her father, and suggested that Tania should join her in that claim.

[18] Tania says she then drafted a letter to her parents dated 12 February 2009, a date preceding the applicant’s complaint [redacted] and the lodging of the caveats. The letter outlined the applicant’s disclosure to her of an intention to make claims against their father.

[19] But in answer to that evidence, Troy’s former wife has deposed to having been present when Mr and Mrs Hastings were on the phone to Tania, late in 2010 or early in 2011, when plans were made for Tania to back-date her letter to February

2009. In other words, Tania’s letter was not written contemporaneously with any discussion with the applicant, and was framed at the dictation, or at least with the involvement, of the applicant’s parents.

[20] Allegations and counter-allegations such as these must await trial. They illustrate the impossibility of resolving fundamental factual disputes without oral evidence and cross-examination.

[21] Mr Swanepoel accepts that, where there is a conflict in the evidence, then for present purposes, the applicant’s version of the facts must be accepted unless it is so implausible that it must be rejected as lacking all credibility.3

[22] There is no doubt that there are two sides to this case. The applicant’s claims cannot be rejected as completely implausible. For present purposes, it is sufficient to note that the applicant’s account is substantially supported by the evidence of a number of apparently independent witnesses, mostly neighbours. They corroborate the applicant’s version of events in two material respects. First, several witnesses say that about the time the caveated land was purchased, they met Mr and Mrs Hastings on social occasions and were told that the caveated land had been purchased for the applicant. Naturally enough, the witnesses use different language,

_{but the overall impression is that, contrary to the evidence of the applicant’s parents,}

3 Mackie v Rapana HC Auckland M633/94, 17 June 1994.

Mr Hastings in particular was notably forthcoming about their desire to make provision for the applicant by acquiring land and placing a house on it.

[23] For example, Robyn and James Baker say that, at a social function, Mr and

Mrs Hastings told each of them separately that they had bought the caveated land:

for Sheree. They repeated this news during the evening and appeared very proud of it.

[24] Mr Kevin Hayden says:

At one social occasion Wayne told me that he had bought the two blocks of land where Sheree was living for her, as her own land, and that this was to compensate her for all the unpaid work she had done for them over the years.

[25] Mr Michael Smales leased the farm property from Mr and Mrs Hastings for six years, until March 2008. He says that Mr Hastings told him:

... on more than one occasion that when the block at 119 James Road was purchased it was for Sheree, so that she would have her own house and block of land. He told me that this was to compensate her for all her hard work on the farm and for the company for which she had not been paid.

[26] Second, there is corroboration also as to the extent of the applicant’s work on the main farm at Maungaturoto. Several witnesses attest to the fact that she was highly visible on the main farm belonging to the respondent, largely to the exclusion of anyone else. Various witnesses confirm that she appeared to work long hours, not only there but also on her own property. So there is some support for her claims that she did indeed work hard on the respondent’s property.

[27] This supporting evidence satisfied me that there is a sufficiently credible basis for the applicant’s factual claims, and that for present purposes her allegations must be accepted.

Procedural issues

[28] This proceeding comes before the Court by way of originating application supported by affidavits. No draft statement of claim was provided.

[29] During the hearing of the application, Mr Jackson made it clear that the applicant relied upon an express trust arising from the oral declarations of Mr and Mrs Hastings in 2000, or alternatively a constructive trust arising out of statements they made to the applicant at the time of the acquisition of the land, and again in

2003 when the house was relocated to the property and arrangements made for the applicant to fund mortgage repayments.

[30] Mr Jackson was given leave to file written submissions in reply (the half day allocated for the hearing having expired without time for an oral reply), and was requested to provide a draft statement of claim. He duly did so.

[31] The draft statement of claim reflects Mr Jackson’s earlier oral argument to the effect that the applicant relies upon both an express trust and in the alternative, on a claim to a constructive trust.

[32] Mr Swanepoel was given leave to file further written submissions, confined to that draft statement of claim. He has (quite properly) chosen to comment by providing a draft statement of defence, which is a very detailed document running to

14 pages, and couched in language rather more in keeping with an affidavit than a formal pleading. Nevertheless, it is plainly intended to provide the respondent’s answer to the allegations in the draft statement of claim.

Discussion

[33] There is no documentary material that directly evidences the claimed trust, either express or constructive. However, there is in my view a sufficiently credible narrative to justify an order sustaining the caveat based on the applicant’s claim to an express trust alone. The supporting affidavits from apparently independent neighbour witnesses raise the reasonable possibility that the applicant’s parents, on the respondent’s behalf, used precatory words consistent with an intention to form a

trust.4 Moreover, the fact that the respondent purchased the caveated land at about

_{the time the applicant resigned as shareholder and director of the respondent is}

4 Re Williams [1987] 2 Ch APP 12 (CA).

conduct that supports this intention.5 While there is an argument that the words used were expressions of an intention to gift, not to create a trust,6 the applicant’s claim is at least sufficiently credible to require resolution at trial. If the applicant has an arguable case to the effect that the respondent holds the caveated land pursuant to an express trust for her, then plainly the caveat ought to be sustained.7

[34] But Mr Jackson also lays considerable emphasis upon his constructive trust argument, which relies upon the various contributions made by the applicant to the caveated land from the time of its acquisition.

[35] There is some documentary support for the applicant’s claim to have made various payments in respect of the improvement and upkeep of the land. In addition to the agreed payments in respect of the mortgage (the applicant claiming them to be mortgage payments, while her parents say they are just rental payments), the applicant has produced various invoices and supporting documents suggesting that she has paid from her own funds some of the cost of carrying out improvements to the caveated land.

[36] The probative value of these documents is, in some instances, in dispute. In particular, the status of what is known as the “O2” bank account is in issue. The applicant says it is a sub-account used solely for payments by and to her. Her parents on the other hand say the account is a sub-account of the respondent’s main bank account and it was used for payments referable to the acquisition of the caveated land and the raising of the loan thereon. It is not possible to resolve that dispute at present. It is sufficient to say however that there are some documents that tend to suggest that the applicant has spent significant sums on the caveated property. Likewise, she and her husband have undertaken a great deal of work there. Again, that evidence is disputed.

[37] The concept of constructive trusts is very well established. In general, a claimant must show contributions, direct or indirect, to the property in question, a

5 _{Paul v Constance [1977] 1 WLR 527.}

6 _{Re Williams.}

7 Sims at 559-560.

reasonable expectation of an interest in the property as a result, and that a defendant should reasonably expect to be made to yield an interest to the claimant.8

[38] Mr Jackson submits that the applicant has met the requirements for a finding of a constructive trust in that:

(a) She contributed to the acquisition, preservation and enhancement of the caveated property in more than a minor way:

(i) The acquisition was to compensate her for unpaid, substantial work done on the main Robway Farm and subsequently to the caveated property;

(ii) In the preservation of the caveated property by the payment of mortgage, rates and other outgoings;

(iii) Enhancement as a consequence of substantial works carried out by her and/or on her behalf done on the caveated property.

(b) She had an expectation of an interest in the caveated property; (c) Her expectation was reasonable, given;

(i) the substantial nature and value of the works undertaken on the caveated property;

(ii) it was agreed between the parties at the time of purchase that the caveated property would be hers beneficially;

(iii) her expectation that the caveated property was beneficially hers was further encouraged by subsequent comments made by the respondent’s directors;

(iv) the respondent did nothing to discourage the applicant’s expectation, despite its knowledge of the works being undertaken by the applicant.

(d) The respondent should reasonably expect to agree to or be made to yield the applicant an interest:

(i) This follows from the very significant contributions made to the caveated property by the applicant, and her submission that

8 Lankow v Rose [1995] 1 NZLR 277 (CA) at 294-295.

the detriment she has suffered is not outweighed by the benefits she has received from utilising the land.

[39] Although constructive trusts had their principal application for a time in the context of relationship property claims between de facto couples, there is nothing to suggest that such claims are confined to de facto cases.9 Neither is it a bar to the imposition of a constructive trust that a defendant may not have had a conscious intention to create or consent to such an interest on the part of the plaintiff.10

[40] Mr Swanepoel argues that the applicant has not established a caveatable interest in the land, because the constructive trust cases arising out of de facto relationships dealt for the most part with the division of property at the time of separation, so that the Court was concerned with an interest that was clearly caveatable, in that it related to a present entitlement to a share in that property. Here, he argues, the applicant can simply point, at best, to a promise of what might happen in the future, namely upon the repayment of the mortgage, an event that has not yet occurred.

[41] I do not understand constructive trust principles to be so limited. The applicant claims to be entitled to a transfer of the title to some or all of the caveated land, upon the happening of a defined future event. She relies on alternative claims of an express trust or a constructive trust. Her claim is that she has an equitable interest in the land which she is entitled to perfect in due time, and for that purpose she seeks to protect her interest through her caveat.

Equitable estoppel

[42] Mr Jackson has made it clear, both in his submissions and in the draft statement of claim proffered to the Court, that the applicant does not rely upon equitable estoppel principles. Her case is restricted to alternative claims of an

_{express or constructive trust.}

9 _{Fortex Group Ltd (in rec & liq) v Macintosh [1998] 3 NZLR 171 (CA).}

10 Lankow v Rose at 293; Gillies v Keogh [1989] 2 NZLR 327 (CA) at 330-331.

[43] On the other hand, much of Mr Swanepoel’s argument was directed to equitable estoppel principles. That was perhaps unsurprising, given that the applicant had not provided a draft statement of claim, and so the respondent was left uncertain initially as to the precise legal foundation relied upon. But although eschewing any reliance upon estoppel principles, Mr Jackson accepts that, whilst estoppel arrives at unconsciability by a slightly different route from that of

constructive trust, both remedies are equitable and the arguments are comparable.11

[44] Mr Swanepoel relies on the decision of Associate Judge Bell in Jackson v Bell, as an example of a case in which the Court refused to sustain a caveat.12 The applicant had the use of a holiday home at Lake Hawea, purchased by her father. Although it was placed in her father’s name, the applicant understood that it was to be hers. She was able to occupy it for a period of some years to the exclusion of her father, who lived in England. She paid all outgoings, rates, insurance premiums and power accounts. She furnished the property and undertook certain maintenance and repairs, including the installation of a shower. Against those detriments, the Associate Judge balanced the benefits enjoyed by the applicant and her family,

namely the use of a holiday home in an attractive setting and on cheaper terms than if she had purchased it. He considered that the benefits were not outweighed by the detriments, and that any claim lay in the difference, not against the land itself.

[45] Mr Jackson submits that there is no comparison between this case and Jackson v Bell. He argues that the applicant’s contribution has far exceeded the normal outgoings which a tenant might be expected to meet, and that on the applicant’s evidence (which must be accepted for present purposes), she has turned unimproved, gorse-infested land, into a viable farm by dint of the expenditure of a great deal of capital and labour.

[46] I accept that this case appears to be much stronger for the applicant than was the case mounted in Jackson v Bell. But the crucial difference here is that the

_{applicant relies in the alternative on an express trust, for which there is some}

11 See the discussion in Gillies v Keogh at 331. There Cooke P observed that at the heart of the Court’s equitable jurisdiction is an analysis of the reasonable expectations of the parties in the light of the factual matrix and of their conduct.

12 Jackson v Bell HC Dunedin CIV-2010-412-607, 25 November 2010.

independent factual support. She has accordingly an arguable case on that ground alone which ought to be determined at trial, pending which the caveat ought to be sustained.

The respondent’s position

[47] The disputed land is of course owned by the respondent, and not by Mr and Mrs Hastings, who are alleged to have made the relevant promises. But the respondent is their vehicle, and it has not been suggested that it is not bound by the actions of its directors.

[48] Mr Swanepoel does however refer to the provisions of s 180 of the Companies Act 1993, which imposes certain formalities upon companies entering into written agreements. As I understand his argument, it is that having regard to the provisions of s 180, the company might have been expected to enter into a formal written agreement with the applicant, if there had ever been an understanding or promise of the sort alleged. He says the absence of any documentation goes to overall credibility.

[49] It is difficult to place any significant weight upon that argument. Family arrangements such as these are often made orally. It is not appropriate, in my view, to reach conclusions as to the intention of various family members by reference to Companies Act provisions of which they were likely to have been completely unaware.

Clean hands

[50] Mr Swanepoel submits that the applicant is unlikely to obtain any relief at trial because she is disqualified by reason of her conduct under the clean hands doctrine. He refers to the applicant’s complaint [redacted] about [redacted] her father, to the filing in the Family Court in January 2012 of an affidavit containing scandalous allegations, and to her revelations of family dissension to neighbours. Mr Swanepoel says that her conduct is in breach of a fiduciary duty of care she owed

to her parents, and that such a duty required her to take steps to protect and defend their name and reputation if she wished to gain from their largesse.

[51] There are several points to be made about this argument. The first and most important is that this is essentially a trial matter and cannot be brought into the balance for present purposes. Second, there is very little detail before the Court about the extent to which the applicant has allegedly brought the family name into disrepute. In particular, although it appears that a number of neighbours who have filed affidavits on her behalf have become aware of dissension within the family, there is little to suggest that the applicant has disclosed her allegations [redacted] to them.

[52] Moreover, the clean hands doctrine is not of such wide application as is sometimes thought. The Court will look for a close association between the subject matter of the dispute on the one hand, and the impugned conduct of the claimant on the other.13

[53] In any event, as I have said, any clean hands argument is a matter for trial and not for the present.

Result

[54] Provided that an applicant is able to point to a credible factual narrative that supports a caveat, factual matters are to be determined at trial and not on an application to sustain. I am satisfied here that there is a credible argument for both express and constructive trusts.

[55] Accordingly, there will be an order sustaining the caveat until further order of the Court. The order is subject to the condition that the applicant must commence a proceeding in this Court in reliance on her claim to an express trust, or alternatively a constructive trust, on or before Tuesday 8 May 2012. If no such proceeding is

_{filed, the caveat will automatically lapse.}

13 Equiticorp Industries Group Ltd (In Statutory Management) v R (Judgment No.47) [1998] 2 NZLR

481.

[56] As required by the High Court Rules, the papers must be served promptly, and the applicant must thereafter pursue the proceeding with diligence.

[57] The proceeding, once filed, will no doubt be referred to an Associate Judge for case management directions in the usual way. I note that the case will be entitled to a degree of priority, having regard to the present desire of the respondent and of Mr and Mrs Hastings to sell the farm as a single unit.

[58] The applicant is entitled to costs. Counsel may file memoranda if they are unable to agree.

C J Allan J