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Cerny v Cerny [2015] NZHC 2256 (22 September 2015)

Last Updated: 6 October 2015

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

CIV-2015-406-000014 [2015] NZHC 2256

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

Introduction

[1] This is an originating application for an order, under s 145A of the Land Transfer Act 1952, that caveat 9936057.1 not lapse. The caveat is registered against two titles: identifier 533125 and identifier MB6B/642. The respondents are the registered proprietors of the land comprised in each title. The former is a property located in the Marlborough Sounds known as Blackwood Bay. The latter is a property in Waikawa, Picton.

[2] Under the caveat, the applicant Martin Cerny claims an estate or interest in the land owned by the respondents in the following terms:

The above named caveator claims a beneficial interest in the land contained in the above certificate [sic] of title as Cestui Que Trust of which the registered proprietors 187 Bridge Trustees 70 Limited, Jiri George Cerny and Jitka Cerny are trustees.

CERNY v CERNY & 187 BRIDGE TRUSTEES 70 LTD Trustees of the Rainbow Trust [2015] NZHC 2256 [22 September 2015]

[3] Martin Cerny is the son of Jiri and Jitka Cerny. They, and the third named respondent 187 Bridge Trustees 70 Limited, are the present trustees of the Rainbow Trust.

The Rainbow Trust

[4] The Rainbow Trust was settled under a deed of trust on 30 November 1998 by Jiri Cerny. The trustees were Martin, Jitka and Jiri Cerny until Jiri and Jitka Cerny, exercising a power under cl 14.5 of the Deed of Trust, removed Martin Cerny as a trustee on 8 April 2014. On 24 July 2014, they excluded Martin Cerny as a beneficiary of the trust, pursuant to a power contained in cl 13.1. The beneficiaries of the trust are named as Jiri and Jitka Cerny, “the final beneficiary”, and any children the final beneficiary may have. Martin Cerny was named as the final beneficiary. Removal of him as the final beneficiary therefore also had the effect of removing him as a discretionary beneficiary for capital distributions. He does not, therefore, have any interest in the Rainbow Trust. These steps were the culmination of a period during which the relationship between Martin Cerny and his parents had deteriorated.

The principles to be applied to this application

[5] Section 137 of the Land Transfer Act 1952 provides, to the extent presently relevant:

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

(2) A caveat under this section must contain the following information:

(a) the name of the caveator; and

(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; and

(d) whether or not it is intended to forbid the making of all entries that would be prevented by section 141 or a specified subset of them; and

(e) the land subject to the claim, which must be stated with sufficient certainty; and

(f) an address for service for the caveator.

[6] In Botany Land Development Limited v Auckland Council, the Court of

Appeal said:¹

Principles governing the lapse of a caveat

[23] As this Court has previously held, applications under provisions such as s 145A of the Land Transfer Act are “quite unsuitable to determine the rights of the parties”. This is particularly so where there are disputed questions of fact. That said, there is no dispute between the parties as to the applicable principles.

[24] The onus is on the caveator to demonstrate that it holds an interest in

the land which is sufficient to support a caveat. The caveator must put before the Court a reasonably arguable case to support the interest it claims. An order for the removal of a caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively that such ground as then existed has now ceased to exist. There is a residual discretion, once a reasonably arguable case has been established as to whether to make an order removing the caveat. This will be exercised only cautiously, for example, where the Court finds there is no practical advantage to maintaining a caveat and the caveator will not be prejudiced.

The facts

[7] Evidence on this application has been given principally by way of affidavits sworn by Martin, Jitka and Jiri Cerny. With exhibits, this evidence runs to over 400 pages. It is not necessary to summarise the evidence in detail given the direction of the Court of Appeal in Botany Land Developments that the process currently before the Court is quite unsuitable for the determination of the rights of the parties,

_{particularly where there are disputed questions of fact. That is certainly the position}

1. Botany Land Development Limited v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813 (citations omitted).

here. Martin Cerny’s version of the events, on which he relies to support his claim to an interest in the land over which the caveat has been registered, differs materially from the version of events presented by his parents. The written submissions filed for Jiri and Jitka Cerny contain a long analysis of the facts, directed at establishing that Martin Cerny cannot establish the constructive trust which forms the basis of his claim to an interest in the Blackwood Bay and Waikawa properties. However, Mr Downing responsibly accepted at the outset of his presentation of oral argument that these were in fact issues for trial, and not for the determination of this application.

[8] I start this discussion, therefore, with a brief summary of the facts which are not in issue before turning to Martin Cerny’s evidence on the events on which he relies in support of his claim.

[9] In 2000, Jiri Cerny learned that there was a 59 hectare rural property for sale adjacent to the Pupu River, near Takaka in Golden Bay. He and Jitka decided to buy the property. They sold a property near the Motueka River where they had been living. They arranged for the Rainbow Trust to buy the Golden Bay property.

[10] Jitka, Jiri and Martin Cerny moved into the homestead on the property late in

2000. Part of the property was leased to a nearby farmer until 2005. Between 2003 and 2005, the Rainbow Trust subdivided the property. Part of the subdivision involved dividing some land zoned Rural 2 into four blocks and a new trust, the Kingslins Farm Trust, was established for this purpose. This part of the farm was transferred from the Rainbow Trust to the Kingslins Farm Trust. In due course, the Kingslins Farm Trust sold the four blocks and received the proceeds of sale.

[11] In May 2010, Martin, Jiri and Jitka Cerny decided to purchase a property at Blackwood Bay in the Marlborough Sounds, which is one of the properties against which Martin Cerny has lodged a caveat. The Rainbow Trust completed the sale. In

2012 the balance of the Golden Bay property was sold and the Rainbow Trust bought a house at Rapaura, near Blenheim, for Jiri and Jitka to live in. They found this property to be unsuitable, due to deteriorating health, so the Rainbow Trust sold it

early in 2013 and bought a house at Waikawa near Picton. This is the second property against which Martin Cerny has lodged his caveat.

[12] Difficulties arose between Martin Cerny and his parents in relation to the sale of the Rapaura property. He refused to sign the necessary documentation for the sale. This led to Jiri and Jitka Cerny immediately removing him as a trustee of the Rainbow Trust, which then completed the sale.

[13] Martin Cerny maintains that, from the time the Golden Bay property was purchased, he undertook very substantial work on the property, that he has not been properly remunerated for it and that he had an agreement with his parents that he would live and work on the farm and do all the work which was needed to realise the potential of the property. It was expected that the project would take a few years and, according to him, it was agreed that he would receive a 50 per cent share of the profit made when the property was developed and eventually sold. He says that he and his parents thought the value of the property would probably double or perhaps more. As the purchase price was $550,000, the expected profit was approximately the same and Martin Cerny’s interest would therefore be around $275,000.

[14] Martin Cerny says that he undertook a substantial amount of work on the property. He says he cleared by hand gorse and barbary growing all along the 1.5 kilometre river frontage over a period of several years (on and off). He repaired and replaced significant lengths of fencing, completely revamped and then maintained the three acre area of garden around the homestead, restained the exterior of the homestead, cleared weeds from pasture, cleared bush, sprayed and mowed pasture and cleared rubbish from the property. He says that he undertook landscaping to improve the property aesthetically, upgraded and improved tracks and water-races on the property, installed a new irrigation system and built new implement sheds and carried out general maintenance on the homestead. He totally redesigned and built a new water supply system for farm, stock and house supply and garden irrigation.

[15] Then, when the subdivision started, Martin Cerny says he did substantial physical work creating new property boundaries, identifying and clearing suitable

building sites and access roads, clearing away old fencing and deer sheds and other necessary work.

[16] Martin Cerny says that he did not receive a share of the increase in value of the Golden Bay property when it was sold as the proceeds of sale were put into the purchase of Rapaura and Blackwood Bay. A cottage was built on Blackwood Bay and Martin Cerny says he expected the property to be sold when this was completed and that he would receive his entitlement from the development of the Golden Bay property at that point. This did not occur.

[17] Jiri Cerny agrees with very little, if any, of the evidence given by his son. He says there was no agreement that he, Jitka and Martin would develop the Golden Bay property and share the profits of doing so, nor that Martin would receive 50 per cent of any profits that may be derived. He takes issue with the proposition that Martin Cerny moved onto the Golden Bay property in order to undertake development work, explaining that step instead by reference to health issues which he says Martin Cerny had at the time. As well, Jiri takes issue with almost all of Martin’s claims in relation to work that was carried out on the property. I need not go through it in detail. The thrust of his evidence is that contractors were engaged for much of the work, he did some of it himself, and the work which Martin did do was not as extensive as claimed.

[18] Jiri Cerny takes issue with Martin Cerny’s view that Blackwood Bay was to be sold once a cottage had been built on it and that he would then receive the sum to which he maintains he was entitled from development of the Golden Bay property. He says that, not only was this never agreed, it was not even discussed.

The case for Martin Cerny

[19] Martin Cerny says that part of the proceeds of sale of the Golden Bay property are held by his parents and, now, 187 Bridge Trustees 70 Limited under a constructive trust in his favour arising from their obligations to him in respect of the arrangements made in relation to the Golden Bay property and the work he undertook on it. He says that the proceeds of sale of the Golden Bay property can be traced into the Blackwood Bay property and the Waikawa property. He says that, as

a result, he is entitled to maintain a caveat against the titles to the properties now owned by his parents and 187 Bridge Trustees 70 Limited and that the caveat he has lodged is in terms which comply with s 137 of the Land Transfer Act. It adequately describes the interest claimed and how it is derived from the owners of the properties over which it has been lodged.

The case for Jiri and Jitka Cerny and 187 Bridge Trustees 70 Limited

[20] Apart from denying that Martin Cerny undertook the work he has described and the agreements he says were reached in relation to the increase in the value of the Golden Bay property, Jiri, Jitka and 187 Bridge Trustees 70 Limited say that, on its face, the caveat claims an interest under an express trust, whereas the case presented for Martin Cerny seeks to rely on a constructive trust. They say that the caveat cannot be amended to allege a constructive trust. They say that, by analysis of the requisite elements for a constructive trust, Martin Cerny has not established that such a trust has arisen. Even if a constructive trust is established, it will be a remedial constructive trust, not an institutional constructive trust and will therefore be unable to support the caveat. They say the caveat does not show how the interest claimed is derived from the registered proprietors of the land against which it has been lodged and that if Martin Cerny is claiming an interest under the Rainbow Trust that will not sustain a caveat as he was a discretionary beneficiary.

The issues

[21] The issues requiring determination on this application are these:

(a) Has Martin Cerny established an arguable case that he has an interest under a constructive trust in a half-share of the profit derived on the sale of the Golden Bay property which is traceable into the Blackwood Bay and Waikawa properties?

(b) If that interest is established, is it an interest in respect of which a caveat may be lodged under s 137?

(c) Does the caveat adequately describe the interest in the properties which Martin Cerny claims and the way that interest is derived?

Discussion

First issue: Has Martin Cerny established an arguable case that he has an interest under a constructive trust in a half-share of the profit derived on the sale of the Golden Bay property which is traceable into the Blackwood Bay and Waikawa properties?

[22] The principal facts on which Martin Cerny relies for his contention that part of the sale proceeds of the Golden Bay property are held by the Rainbow Trust on a constructive trust for him have been summarised briefly in paras [9]-[11] and [13]- [16] above. Although Jiri and Jitka Cerny take issue with their son’s assertions and indeed, even on this application, have mounted a trenchant defence to his substantive claim, I am satisfied that there is sufficient evidence before the Court to demonstrate an arguable claim to an interest under a constructive trust.

[23] My reasons are these. Both counsel referred to the elements for the imposition of a constructive trust in the circumstance of a de facto relationship which were identified by the Court of Appeal in Lankow v Rose and recently applied by the Court of Appeal in Marshall v Bourneville.² Both counsel accept that the same criteria should be examined by the Court on this application. In Garrow & Kelly, the learned authors note that these principles will apply to cases falling outside the ambit of the Property (Relationships) Act 1976 including de facto relationships of short duration and relationships between parents and children, brothers and sisters, close friends and business partners.³ The learned authors cite Hamilton v Jurgens which I

discuss below, and Stratulatos v Stratulatos as examples.⁴ The latter concerned a

claim by a widow against the mother of her late husband, based on proprietary estoppel and, in the alternative, a constructive trust.

2. Lankow v Rose [1995] 1 NZLR 277 (CA); Marshall v Bourneville [2013] NZCA 271, [2013] 3 NZLR 766.

³ _{Garrow & Kelly Law of Trusts and Trustees (7}^th _{ed, LexisNexis, Wellington, 2013) at [15.64].}

4. Hamilton v Jurgens [1996] NZFLR 350(HC); Stratulatos v Stratulatos [1988] NZHC 467; [1988] 2 NZLR 424 (HC).

[24] I accept that these principles provide the appropriate framework for analysis

of Martin Cerny’s case. Therefore, in order to establish his claim, he must show:⁵

(a) contributions, direct or indirect, to the property in question; (b) the expectation of an interest in the property;

(c) that such expectation is a reasonable one; and

(d) that the defendants to his claim should reasonably expect to yield to him an interest in the property concerned.

[25] Martin Cerny’s evidence establishes an arguable case that he made significant contributions by way of physical labour to the Golden Bay property and held an expectation, based on those contributions, and agreement reached at the time the property was bought, that he would receive half of the increase in value of the property, effected by the improvements which would be undertaken. When, later, it was decided that the property would be subdivided between the land zoned Rural 1 and the land zoned Rural 2, and the latter re-subdivided into blocks by another trust, it is arguable that his expectation continued, so that he would derive a half share of the profits derived by those steps being taken. The evidence shows that he contributed physical work to give effect to the subdivisions.

[26] Martin Cerny must also establish that his expectation was reasonable. I am satisfied that he has established an arguable case on this point. Although he lived on the property without charge and received modest financial returns in the form of a vehicle and other small financial rewards, there is evidence to show that the property had potential to be significantly improved at the time it was bought and for its value to thereby be substantially increased. The improvements required involved a substantial amount of physical work. There is a dispute on the extent to which Martin Cerny undertook this work and the extent to which it was undertaken by contractors, but he has established an arguable case that he undertook a substantial

_{amount of work, in contrast to his parents who were much older and, in the case of}

⁵ Marshall v Bourneville, above n 2.

his mother, unwell. Quite apart from whether he can establish an agreement that he would receive the share of the increase in value for which he contends, which I find to be arguable in any event, he must also have had an expectation in these circumstances that he would be rewarded from the increase in value of the property and further, in all the circumstances, that expectation was arguably reasonable. Although Mr Downing submits that a reasonable expectation of an interest in property is easy to establish as a matter of course in a de facto relationship, but is much more difficult to establish outside that context, that is only a matter of the degree of proof that will satisfy a Court that the expectation was held, and reasonably so. I am satisfied that, if the evidence put before the Court on this application by Martin Cerny is accepted at trial, these elements of the foundation for a constructive trust will have been established.

[27] It follows from this that Jiri and Jitka Cerny and 187 Bridge Trustees 70

Limited should reasonably expect to yield to Martin Cerny an interest in the proceeds of sale as claimed, and I need add nothing further on this element.

[28] I find that Martin Cerny has established an arguable case that he has an interest under a constructive trust, as he maintains. Further, it is common ground that the proceeds of sale of the Golden Bay property were expended on the purchase of Blackwood Bay and Rapaura Road, and when the latter was sold, on the property now owned by the respondents in Waikawa. There was no suggestion that the proceeds could not be traced into these properties and, for present purposes, I am satisfied that is so.

Second issue: If Martin Cerny has an interest under a constructive trust, is it an interest in respect of which a caveat may be lodged under s 137?

[29] In Fortex Group Ltd (in rec and in liq) v MacIntosh, the Court of Appeal drew a distinction between two types of constructive trusts, institutional and

_remedial.⁶ _{Tipping J said:}

⁶ Fortex Group Ltd (in rec and in liq) v MacIntosh [1998] 3 NZLR 171 (CA) at 172-173, per

Tipping J.

[A]n institutional constructive trust arises upon the happening of the events which bring it into being. Its existence is not dependent on any order of the Court. Such order simply recognises that it came into being at the earlier time and provides for its implementation in whatever way is appropriate. A remedial constructive trust depends for its very existence on the order of the Court; such order being creative rather than simply confirmatory.

[30] A caveator must have a present, as distinct from a potential, interest in land.⁷

Because a remedial constructive trust does not exist until it is created by order of a Court, it has been found in a line of High Court cases that a caveat cannot be lodged in respect of a claimed remedial constructive trust prior to the date of such order.⁸

[31] On an application to sustain a caveat lodged to protect an interest under a constructive trust, it is therefore necessary to determine whether the constructive trust in question is classified as an institutional constructive trust or a remedial constructive trust. Mr Downing submits that Martin Cerny alleges he has a remedial constructive trust in that he seeks the imposition of a constructive trust on part of the proceeds of sale of the Golden Bay property to remedy the failure by the trustees of the Rainbow Trust to remunerate him in accordance with the agreement on which he relies. He says, therefore, that this form of constructive trust does not presently exist and will not exist until the Court finds liability to be established in his favour and declares that the proceeds of sale, and therefore the properties into which the proceeds may be traced, are held on constructive trust for Martin. Therefore, Mr Downing says, Martin Cerny does not have a caveatable interest.

[32] Mr Quinn argues that the constructive trust which Martin Cerny claims arises in circumstances akin to those recognised by the Court in Lankow v Rose.⁹ In Lankow v Rose, the Court applied Gillies v Keogh in settling the criteria which must be satisfied in order for the Court to find that a constructive trust exists.¹⁰

[33] It is clear that a constructive trust of this kind is an institutional constructive trust, not a remedial constructive trust. In Fortex, the Court of Appeal referred to

⁷ _{Philpott v NZI Bank Limited [1989] NZCA 155; (1989) 1 NZ ConvC 190,246 (CA) at 190,248, per Cooke P.}

⁸ Philipiah v Ministry of Health HC Auckland M1038-IM/01, 5 February 2002 at [23]; Metalplas Engineering Pty Limited v Ellis HC Auckland M293-IM/02, 21 August 2002; Woodroffe v Coleman HC Auckland CIV-2011-404-4391, 11 November 2011 at [29]; Three Chicks Limited v NZI Building and Projects Limited [2011] NZHC 1074; [2011] 12 NZCPR 799 (HC).

⁹ _{Lankow v Rose, above n 2.}

¹⁰ Gillies v Keogh [1989] NZCA 168; [1989] 2 NZLR 327 (CA).

“... what can conveniently be called the Gillies v Keogh ... line of cases” and then

said:¹¹

The constructive trust which arises in de facto matrimonial property cases is of an institutional, rather than a remedial kind. Furthermore, the constructive trust which arises in such cases is itself conscience based. The party with legal title to the asset or assets in question is required to yield to the claimant party a beneficial interest because it would be unconscionable for the first party to deny the claimant such interest. Hence, equity intervenes: see for example Lankow v Rose.

[34] As already stated,¹² the principles recognised in Lankow v Rose have application outside the context of property rights within de facto relationships, including relationships between parents and children. Specifically, they are of application in a case such as the present. The present claim is therefore to an institutional constructive trust.

[35] Two cases amply demonstrate this point. In Marshall v Bourneville, a former partner to a de facto relationship registered a caveat over a property which had been bought with the proceeds of sale of a property which had been purchased during the course of the parties’ relationship.¹³ The property in question was, by the time the caveat was lodged, owned by a family trust established by the other partner to the relationship.

[36] In her caveat, the applicant claimed an equitable interest based on a constructive trust. The Court found that she had an arguable case that a constructive trust existed, and the caveat was upheld.

[37] In Hamilton v Jurgens, the plaintiff and the defendant, both men, had a relationship of mutual cooperation and support which, because of an intense loving bond between them, was found by the Court to be akin to that of a de facto marriage.¹⁴ The plaintiff was much younger than the defendant and claimed to have worked in the defendant’s nursery gardens for nearly ten years, with the result that

_{the defendant was enriched by his efforts. The Court found that neither the fact that}

¹¹ _{Fortex Group Ltd (in rec and in liq) v MacIntosh, above n 6, at 178 (citations omitted).}

¹² _{At [23].}

¹³ _{Marshall v Bourneville, above n 2.}

¹⁴ Hamilton v Jurgens, above n 4.

the plaintiff and the defendant were of the same gender, nor the absence of a sexual relationship between them, took their case outside the equitable principles developed in Gillies v Keogh and subsequent cases. The Court upheld the plaintiff ’s claim to an interest in the defendant’s property by way of constructive trust.

[38] This case did not involve the validity of a caveat but it is plain from the judgment that the interest which the plaintiff was found to have in the defendant’s property was derived from the relationship between the plaintiff and the defendant and the contributions made by the plaintiff to the defendant’s property in the context of that relationship. I do not read the outcome of the case as the Court retrospectively imposing a constructive trust on the asset of the defendant in the sense of creating an interest in the defendant’s property in favour of the plaintiff, as distinct from confirming an interest which came into being at an earlier time, to adopt the phraseology of Tipping J in Fortex.

[39] The trust alleged in the present case by Martin Cerny is the same as the trust recognised in Hamilton v Jurgens, with the added feature that it is said to be founded, in part, on an express agreement made at the time the property in Golden Bay was purchased.

[40] I therefore find that the interest claimed by Martin Cerny is an institutional constructive trust, in respect of which a caveat may be lodged under s 137.

Third issue: Does the caveat adequately describe the interest in the properties which

Martin Cerny claims and the way that interest is derived?

[41] The statutory requirements for a caveat are set out in s 137(2).¹⁵ Mr Downing says that the caveat lodged by Martin Cerny does not sufficiently comply with the requirements in paras (b) and (c).

[42] The relevant part of the caveat lodged by Martin Cerny is set out in paragraph

_{[2] above. Mr Downing says that, as this statement makes no reference to Martin}

¹⁵ See para [5] above.

Cerny claiming an interest under a constructive trust, it does not comply with the requirements of s 137(2)(b).

[43] The question of whether any given caveat states with sufficient certainty the interest in the land which is claimed is a question of fact. In Zhong v Wang, the Court said “[in] our view, the question is one of degree. Did the caveats describe adequately the land and the interest (and its derivation) claimed?”¹⁶

[44] After analysing cases in which this issue has been considered, the Court of

Appeal continued:¹⁷

[53] What is important is that the registered proprietor and the Court understand the nature of the interest claimed and the basis of that claim.

[54] As a general rule (for s 137(2)(b) purposes), it is sufficient to identify the form of trust alleged. While it would have been preferable for Mr Zhong’s caveats to refer expressly to a resulting or constructive trust, there can be no doubt that an interest of the type to which s 137(1)(a) refers was claimed. In our view, the caveats complied with s 137(2)(b).

[55] Applying the same test, did the caveats comply with s 137(2)(c)? In our view, they did. There was a clear link between the named trustee (Mr Wang) and the registered proprietors, of which he was one. The caveats made it clear that the interest was derived from Mr Wang’s involvement with Mr Zhong. The nature of the involvement would have been self evident to Mr Wang.

...

[57] It is unnecessary to require a caveator to explain the precise basis from which the interest qua beneficiary arises. Section 137(2)(c) applies to all types of interest that give rise to a caveatable interest. The derivation of those claimed interests may need greater explanation in some cases than in others. In this case, a linkage between the claimed interest and Mr Wang suffices.

[58] The purpose of the caveat procedure is to enable those with proper claims to proprietary interests to protect themselves against loss by forbidding dealing with the land pending resolution of substantive claims. The underlying purpose of the caveat regime could be undermined if too strict an approach were taken to the detail required to describe the interest claimed and its derivation from the registered proprietor.

¹⁶ Zhong v Wang [2006] NZCA 242; (2006) 7 NZCPR 488 (CA) at [46].

[45] I approach my consideration of the facts in the present case accordingly. In Zhong v Wang, each of the two caveats in issue describe the interest claimed as follows:¹⁸

[Cheng Rong Zhong] claims a beneficial interest in the land contained in the above Certificate of Title as cestui que trust of which the registered proprietor, Jia Yi Wang is trustee.

[46] The wording in the caveat presently before the Court is virtually identical to that in Zhong v Wang; I discern no material difference in relation to either the nature of the interest claimed, or the way in which that interest is said to be derived from the registered proprietors (the respondents). The caveat in Zhong v Wang was upheld. There is no reason why the same result should not follow in the present case.

[47] The only possible point of difference between the present case and Zhong v Wang is that in this case the registered proprietors hold the land as trustees of the Rainbow Trust. It may have been preferable for the caveat to specifically spell out that the interest claimed by Martin Cerny was not under the Rainbow Trust but under a constructive trust lying outside the Rainbow Trust. While as a matter of law,

trustees of an express trust may also hold land under a separate constructive trust,¹⁹

so a caveat cannot fail on the basis that the land is already held on a separate trust, there would have been greater clarity if the assertion of an interest held by Martin Cerny under a constructive trust had been expressly set out. I do not put the point any higher than that, though. The caveat in this case sufficiently complies with the requirements of s 137(2)(b) and (c) when the principles enunciated in Zhong v Wang are taken into account. The fact that the registered proprietors held the land as trustees of the Rainbow Trust does not materially distinguish the adequacy of the wording of the caveat in the present case from the nearly identical wording of the caveat in Zhong v Wang.

[48] I have not overlooked Mr Downing’s reference to cases where the courts have found an inadequate description of the interest claimed, or an insufficient

_{description of the way in which it said that the caveator’s interest is derived. But, as}

¹⁸ At [21].

I have said, the cases turn on their facts and I am not persuaded to a different view after considering the facts of those cases.

[49] I find that the caveat adequately describes the interest in the properties which

Martin Cerny claims and the way in which it is said that interest is derived.

Residual discretion

[50] In all applications under s 145A of the Land Transfer Act, the Court retains a residual discretion to remove a caveat, despite a reasonably arguable case having been established, if there is no practical advantage to maintaining the caveat and the caveator will not be prejudiced. The Court approaches the exercise of the discretion with caution.²⁰

[51] In this case, no ground was identified for the Court to exercise its discretion against sustaining the caveat. There is no suggestion that there is an immediate need for the caveat to be removed from either of the titles, because of possible prejudice to the Rainbow Trust. Conversely, there are reasonable grounds for concern that real prejudice may be suffered by Martin Cerny if his caveat is discharged. He is no longer a beneficiary in the Rainbow Trust. Jiri and Jitka Cerny are, and they have power to distribute the trust to themselves. Their action in not only removing Martin Cerny as a trustee, which would in itself have been sufficient to resolve the impasse which had been reached in relation to the signing of documentation for the sale of the Rapaura Road property, but in simultaneously removing him altogether from any interest whatever in the properties held by the trust, combined with their trenchant opposition to this application, leads me to the view that Martin Cerny should have the protection of the caveat until his claim to a constructive trust is tried. The interests of the trustees can be suitably protected by the imposition of a condition on the order of the Court which requires the substantive proceedings intended by Martin

_{Cerny to be filed promptly and pursued expeditiously.}

²⁰ Botany Land Development Limited v Auckland Council, above n 1, at [24].

Outcome

[52] I make the following orders:

(a) Caveat 9936057.1 shall not lapse until further order of the Court.

(b) A substantive proceeding claiming as interest in the land described in the caveat is to be filed and served within 20 working days and pursued with reasonable expedition.

(c) The respondents will pay costs to the applicant on a 2B basis together with disbursements fixed by the Registrar.

_{J G Matthews}

Associate Judge

Solicitors:

McFadden McMeeken Phillips, Nelson.

Vicki Ammundsen Trust Law Ltd, Auckland.