Action Fencing Limited v Ark Contractors Limited [2017] NZHC 3248 (19 December 2017)

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BETWEEN	ACTION FENCING LIMITED First Plaintiff HPL DISTRIBUTION LIMITED Second Plaintiff MALCOM JAMES DAISLEY Third Plaintiff
AND	ARK CONTRACTORS LIMITED First Defendant PAUL GERRARD KELLER and KAREN ELIZABETH KELLER Second Defendants PAUL GERRARD KELLER, KAREN ELIZABETH KELLER and TW TRUSTEES 2008 LIMITED _{Third Defendants}

Hearing:	5 December 2017
Counsel:	EL Smith for Plaintiffs JA Browne for Third Defendants
_Judgment:	_{19 December 2017}

This judgment was delivered by me on Tuesday, 19 December 2017 at 4 pm pursuant to r 11.5 of the High Court Rules.

[1] The trustees of a family trust are being sued in conversion in relation to trust- owned land near Whangarei. They are alleged to have converted chattels after the plaintiffs’ tenancies were terminated. The trustees seek summary judgment on the basis the claim against them cannot succeed. Argument centres largely on three items which remain on the property: a concrete toilet block, security fencing panels, and guard rails. The trustees argue these were affixed to the land before they bought it. They claim the rest of the allegedly converted chattels were not on the land when they took possession, save for an abandoned steel container.

[2] The plaintiffs are Mr Malcom Daisley and two of his companies. The defendants are Mr Paul Keller and Mrs Karen Keller, one of their companies, and the trustees of their family trust—Mr and Mrs Keller and an independent trustee company, TW Trustees 2008 Ltd. Only the trustees seek summary judgment.

[3] Relevant events commence in late 2009 when Mr Daisley was the registered owner of land at 1 Maungakaramea Road (“the property”). Mr Daisley was living on the property and running his businesses there. They, however, were struggling.

Mr Daisley faced a mortgagee sale. To avoid this, Mr Daisley entered an arrangement with the Kellers to allow him and his businesses to continue to occupy the property. The Kellers incorporated the first defendant, Ark Contractors Limited (“Ark”), which purchased the property on 31 January 2010. Under the agreement, Ark was to lease the property to Mr Daisley and entities associated with him. Pending finalisation of the lease terms, Mr Daisley and his companies occupied the property as tenants at will. And continued to trade.

[4] On 11 March 2010 Mr Daisley placed two of his companies, Daisley Contracting Ltd and HPL Northland & North Harbour Ltd, into liquidation. Two of Mr Daisley’s other companies, Action Fencing Ltd and HPL Distribution Ltd, continued to trade from the property. But by late August 2010 the relationship between Mr Daisley and the Kellers had deteriorated to the point Mr Daisley and his companies served Ark with notices to terminate the tenancies.

[5] Mr Keller, who has filed an affidavit on behalf of the trustees, acknowledges chattels were left on the property. However, Mr Keller says he was aware the liquidators of Daisley Contracting and HPL Northland & North Harbour had rights in relation to these companies’ property.

[6] On 6 September 2010 the solicitors acting for the liquidators of Daisley Contracting and HPL Northland & North Harbour served Mr Daisley and his son with trespass notices. Mr Daisley says these prevented him from accessing the property to retrieve machinery, stock, work tools and equipment. Mr Daisley claims the liquidators’ solicitors were acting on the instructions of Ark and the Kellers. He also claims all matters between his liquidated companies and the liquidators had been resolved by June 2010. He says the liquidators confirmed as much in writing.

[7] Mr Keller says after the trespass notices were issued, people arrived at the property to uplift items on behalf of Mr Daisley. He says he released chattels only on proof of ownership. Mr Keller says he ultimately removed any unclaimed chattels from the property as they were inhibiting his plans to re-let the premises. He says this occurred well before the trustees purchased the property in April 2014.

[8] Settlement took place on 20 April 2014. Mr Keller says none of the claimed chattels was on the property when the trustees purchased it except for the toilet block, the fencing panels, the guard rails and the steel container. Mr Keller says the last was abandoned, and the other items ceased to be chattels when they became affixed to the property some time before the trustees purchased it.

[9] The parties agree as to principle.¹Summary judgment will not be given for a defendant unless, on the balance of probabilities, none of the plaintiffs’ claims can succeed. As the Privy Council has observed, “that is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless it is quite

_hopeless”.²_{If there are disputes on
material matters of fact, or if material facts cannot}

be ascertained from affidavit evidence, the matter must proceed to trial. However, affidavit evidence will not be accepted uncritically where it is equivocal, lacking in precision, inconsistent with undisputed contemporaneous documents or other statements by the same deponent, or inherently improbable.³

[10] There is a further principle of relevance. Summary judgment should not be entered to preclude a plaintiff from exercising a right to amend pleadings before trial. If defective pleadings are capable of cure so the plaintiff has an arguable case, there should be a trial.⁴

[11] For the plaintiffs, Ms Smith submits the trustees have failed to adduce objective evidence to corroborate Mr Keller’s contention other chattels were not on the property. True, it is difficult to prove a negative. However, the plaintiffs should not be denied a trial through untested assertion, particularly as the onus is on the trustees to show the claim against them is inarguable.

[12] This aspect involves the interrelationship between the law of conversion and the law of fixtures. The former protects possessory rights by making liable any person who usurps another’s right to use and possess an item of property. However, if a chattel becomes a fixture, the property in that chattel passes by operation of law from the owner of the chattel to the owner of the land.⁵The chattel becomes part of the land, thereby losing its legal identity as a chattel. So, while the act of affixing a chattel to the land may constitute a conversion, a bona fide purchaser for value of land cannot be liable for converting what was another’s chattel.

[13] An article not attached to land other than by its own weight is presumed to be a chattel unless the contrary is established. Conversely, an article attached to the land,

_{even slightly, is presumed to be part of the land unless circumstance
reveals it was}

intended to continue as a chattel.⁶Purpose of annexation is important.⁷And assessed objectively.⁸Consequently, an item is a fixture if it is brought onto land for the land’s permanent and substantial improvement. An item remains a chattel if it is brought onto land for a temporary purpose, or for more complete enjoyment and use as a chattel.⁹

[14] The concrete toilet block is presumptively a fixture as it has been plumbed into the property’s sewerage. For the trustees, Mr Browne submits there is nothing to rebut this presumption, and in any event, its purpose is self-evident. The block was annexed to provide toilet facilities in the yard additional to those in the home.

[15] Ms Smith submits the toilet block is arguably a chattel as a temporary structure. She notes it is capable of removal and replacement. Ms Smith refers to Elitestone Ltd v Morris in which Lord Lloyd acknowledged the possibility of a house remaining a chattel if it were “constructed in such a way as to be removable even though it is connected temporarily to mains services such as water or electricity.¹⁰

[16] I consider it beyond argument the toilet block was affixed as a permanent facility to improve the land. True, its removal is technically possible, but that is not determinative. Many permanent fixtures on land are capable of removal—even a house as Lord Lloyd observed. However, Ms Smith has advanced nothing to rebut the presumption the toilet block is a fixture. Further, having seen a photograph of the block, I consider its removal would be difficult, if not impossible, absent substantial damage.

[17] The photographs annexed to Mr Keller’s affidavit show the fencing panels are mesh barriers. Poles provide a frame for the mesh. The panels appear to be roughly

⁸Lakes Edge Developments Ltd v Kawarau Village Holdings Ltd [2017] NZCA 205, [2017] 3 NZLR

⁹Hinde, McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [6.036].

four metres in width and two metres in height. They sit by their own weight on fencing posts, which have been concreted into the ground.

[18] Mr Daisley says the fencing panels were trade chattels of Action Fencing, and designed to be capable of relocation. It follows, in Ms Smith’s submission, the fence panels are capable of retaining their individual character as chattels despite their incorporation into a fence.

[19] Mr Browne submits even if the fence panels were once trade chattels, they lost that character when they were attached to posts concreted into the land. Mr Browne refers to a passage in Mr Keller’s affidavit in which he deposes:

... before the third defendant purchased the land, those fence panels had been used in the fence that is on site. Whether or not the panels can be used for temporary fencing, the fence that is on the property is not a temporary one but is concreted into the land. The fence has been concreted to the land all the way around its perimeter.

[20] Mr Browne contends the fence has been concreted into the ground to delineate an area of land and provide security. So, the fence has the character of permanence.

[21] I consider the plaintiffs have an arguable case. The panels can be removed easily from the posts. Indeed, that is by design. Resolution of this issue must await trial.

[22] The guard rails have been used to construct a retaining wall on the property. I accept Mr Browne’s submission the rails have been clearly and substantially annexed to the land. Objectively construed, the wall’s purpose is to provide parking space. The wall is a permanent structure.

[23] The issue, however, is timing. Mr Keller says the retaining wall was constructed before the trustees acquired the land. Ms Smith, however, submits there is no objective evidence to conclusively determine when the wall was constructed. I agree. Mr Keller merely asserts: “the items were fixtures well before the time of purchase by the third defendants”. And the photograph annexed to his affidavit is not

time-stamped. If the retaining wall was constructed after the trustees took title to the property the trustees could be liable in conversion. The plaintiffs have an arguable trial case.

[24] Given my conclusions, the following discussion is necessary only in relation to the toilet block. Nonetheless, it has relevance if the fencing panels and guard rails are also fixtures.

[25] Absent fraud, a purchaser for value takes title to land free of any pre-existing unregistered interest. This principle of indefeasibility is embodied in s 182 of the Land Transfer Act 1952:

Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, direct or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.

[26] As the provision makes clear, mere notice of another’s interest is insufficient to constitute fraud. Mr Browne expands on this proposition with reference to Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd. There, the Court of Appeal stated:¹¹

Knowledge ... that an adverse claim exists, that it may possibly be well founded, and that it will be destroyed by an alienation of the property, is not in itself sufficient to stamp the transaction as fraudulent within the meaning of the Land Transfer Act.

[27] Waimiha Sawmilling reached the Privy Council.¹²The Board agreed with the

_{Court of Appeal’s assessment, observing “the act must be
dishonest, and dishonesty}

¹¹Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1923] NZGazLawRp 32; [1923] NZLR 1137 at 1175.

must not be assumed solely by reason of knowledge of an unregistered interest”.¹³The essential feature of fraud in this context is thus dishonesty.¹⁴

[28] In Nicholson v BNZ iron pipes had been fixed to land later sold to a bank.¹⁵

The plaintiff claimed ownership of the iron pipes contending they had been unlawfully fixed to the land. Williams J found the bank, as a bona fide purchaser for value, was protected by indefeasibility of title. However, His Honour made the following observations:¹⁶

... the chattels, having been annexed to the soil for the better enjoyment of the land, have in reality become part of the land, and so pass with it, although as against the person who annexed them the former owner may by contract have retained the right to treat them as chattels. Here there was no contract, and the rights of the former owner against the person who annexed the chattels are founded the tort of the latter. The chattels, however, were in fact annexed in such a manner that as between a vendor and a purchaser of land they would undoubtedly pass, under a conveyance of land, as part of it. It may be that, as between the original owner and the wrongdoer, the latter at any rate in a case where the chattel was easily separable, would not be able to take advantage of his own wrong, and in a proceeding for the recovery of the chattel to say that he had made it part of his freehold. A bona fide purchaser of the land is, however, in an entirely different position. He found the chattel, in fact, part of the land, and he is not a wrongdoer. This, of course, involves the result that a man’s property may be taken away from him by being fixed on the land of another. But that this may sometimes happen is recognised by Lindley, L.J., in Gough v Wood ...

Defendants and therefore the transfer of title was completed in full knowledge of the unlawful conversion of the Plaintiffs’ Property.

Upon transfer to the Third Defendant a further event of conversion occurred resulting in a further interference with the rights of the Plaintiffs in the Plaintiffs’ Property.

The Defendants have refused to return the Plaintiffs’ Property, have unlawfully transferred possession of some of those assets to third parties and has used those assets, in particular tools and equipment, for their own purposes, thereby depriving the Plaintiffs of the possession and use of the Plaintiffs’ Property.

[30] Mr Browne submits the proceedings do not explicitly allege fraud. So, there is no clear challenge to indefeasibility of title. However, as earlier observed, summary judgment will not be appropriate when the claim could be amended to remedy the defects relied on by the defendant. Put another way, summary judgment should be entered only when the defendant has a clear answer to the claim which cannot be contradicted.¹⁷

[31] Applying Nicholson, I am satisfied the plaintiffs have an arguable case against the trustees. As Williams J observed, a converter may not be able to avoid recovery of a chattel through affixing it to his, her or its land. This principle may extend to a self-interested transaction—the same converter may not be able to avoid a claim in conversion through the transfer of land to an associated entity.¹⁸

Mr Daisley has attempted personally, and through others, to enter the property to retrieve what he claims to be his companies’ property. Trespass notices have been issued. At times, the confrontation has turned physical. Against this background, it is arguable the defendants’ affixation of the chattels to the property could constitute fraud in the sense discussed. It is also arguable any fraud could extend to the trustees’ purchase of the property given the transfer was effected at the direction of the same personnel. True, mere notice of another’s interest does not constitute fraud. But that is an argument which can be weighed at trial against tested evidence.

[33] Mr Keller says chattels were abandoned before the trustees purchased the property. If that is right, there can be no fraud. And, the plaintiffs cannot claim for the steel container. There is, arguably, evidence of abandonment. The plaintiffs did not bring proceedings to recover the chattels by the time the trustees purchased the property. Nor did they lodge a caveat. And, more than three and half years passed between the commencement of the alleged conversion and the sale of the property to the trustees. However, these are arguments for trial. Evidence of the plaintiffs’

_{repeated requests for return of the items is sufficient to establish an
arguable case.}

¹⁷Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [12.2.07(1)]; Westpac Banking Corp v M M Kembla, above n 1; Jones v Attorney-General, above n 1.

[34] To conclude, it is arguable the plaintiffs can maintain a claim in conversion against the trustees through fraud. The presence of an independent trustee does not alter the calculus. Ignorance by one trustee does not necessarily purge the fraud of others. Moreover, the director of TW Trustees 2008 Ltd was apparently the Kellers’ lawyer during the relevant period. Ignorance should not be assumed.

(d) Arguable the trustees committed fraud even if the disputed articles are all fixtures.

[36] The trustees’ application for summary judgment fails. They have not persuaded me on the balance of probabilities none of the plaintiffs’ claims can succeed. However, the pleadings will require amendment if fraud is to be pursued.¹⁹And if pursued, allegations of fraud must be pleaded with care and particularity. Fraud cannot be left as a matter of mere inference.²⁰

¹⁹As Mr Browne observes, a lawyer must not be a party to the filing of any document in court alleging fraud unless the lawyer has taken appropriate steps to ensure reasonable grounds for making the allegation exist: r 13.8.1 of the Lawyers: Conduct and Client Care Rules 2008.

High Court of New Zealand Decisions

Action Fencing Limited v Ark Contractors Limited [2017] NZHC 3248 (19 December 2017)