AIREDALE HOLDINGS LIMITED V PARLY ACQUISITIONS LIMITED CA CA66/03

AIREDALE HOLDINGS LIMITED V PARLY ACQUISITIONS LIMITED CA CA66/03 8 July 2003IN THE COURT OF APPEAL OF NEW ZEALAND CA66/03BETWEEN AIREDALE HOLDINGS LIMITED Appellant AND PARLY ACQUISITIONS LIMITED Respondent Hearing: 17 June 2003 Coram: Elias CJ Anderson J Glazebrook J Appearances: B O'Callahan for Appellant B H Dickey and B D Tantrum for Respondent Judgment: 8 July 2003JUDGMENT OF THE COURT DELIVERED BY ELIAS CJ[1] Airedale Holding Limited appeals against a decision of the High Court dated 11 April 2003 under s145 of the Land Transfer Act 1952 ordering that a caveat lodged against its property by Parly Acquisitions Limited should not lapse. The caveat was lodged by Parly to protect a claimed interest in part of the Airedale property said to arise out of agreement between the parties or out of a constructive trust arising out of dealings between them. Both the claimed agreement and the circumstances said to give rise to the constructive trust turn on disputed facts and disputed inferences to be drawn from them. [2] Justice Paterson in the High Court held that there was an arguable case or a serious question to be tried as to the validity of Parly's claimed interest. The matter was not suitable for summary disposal on the affidavits filed because of the conflict in evidence and the different inferences reasonably available from the evidence.Resolution of the facts upon which Parly's claimed interest arose required determination at a substantive hearing. The Judge was therefore unable to conclude that Parly did not have a caveatable interest in the property and the caveat was maintained. The substantive claim was timetabled for expeditious disposal to a hearing after 1 June 2003. The Judge gave a direction that: If Parly fails to file its statement of claim within the 21 day period, or fails to expeditiously progress its claim, Airedale may on seven days' notice apply to this Court for an order that the caveat lapse. [3] Airedale appeals on the grounds that the Judge applied the wrong test for maintenance of a caveat and failed to require the caveator, Parly, to satisfy the Court that it had a reasonably arguable case for its maintenance. The point was developed at the hearing by reference to the evidence before the High Court. Airedale maintained that on the evidence the Judge ought not to have concluded that Parly had a reasonably arguable case for an interest in the property against which the caveat had been lodged. [4] At paragraph [5] of the judgment of 11 April the Judge set out his approach: [5] The principles which this Court applies on an application that a caveat not lapse are now well settled. The applicant must first show there is an arguable case or a serious question to be tried as to the validity of its claim to have a caveatable interest. If the threshold is reached, balance of convenience considerations are only relevant if there are exceptional circumstances. Unless it is abundantly clear that the caveat cannot be maintained, because Parly does not have a caveatable interest, this Court should make the order applied for by Parly. At the hearing of the appeal, the contention that the Judge had applied the wrong legal test to the application was not greatly pressed. The statement of approach set out in paragraph [5] accords with authority in requiring the applicant to show an arguable case for a caveatable interest (see Holt v Anchorage Management Ltd[1987] 1 NZLR 108; Sims v Lowe [1988] 1 NZLR 656 at 660 per Somers and Gallen JJ). We consider that the Judge was correct in adopting it. [5] Counsel were in agreement that no issue arises in the present case as to the balance of convenience and any residual discretion in the Court to make the order ifan arguable case is found. The principal challenge to the judgment is in the application of the test. The main issue on the appeal is therefore whether on the material before the High Court it is clear that Parly has no interest in the land subject to the caveat.Background[6] Airedale is the registered proprietor of Lot 2 of a subdivided commercial property on Airedale Street, Auckland. Parly is the registered proprietor of Lot 1. The caveat is lodged by Parly against Lot 2. [7] The Airedale Street property, then not subdivided, sold at auction in December 2000. Settlement was due on 6 April 2001. The purchasers named in the contract were Mark Stevenson, James Brown, Simon Rowntree, or their nominee. The property comprised land and a building with two car-parking floors and two and a half floors of office premises. A stratum title subdivision of the building was completed before settlement. Lot 1, comprising the two parking levels and the land outside the building footprint, was transferred to Parly, a company incorporated by Mr Brown and Mr Rowntree. Lot 2, comprising the office space above the carpark floors of the building, was transferred to Airedale, a company incorporated by Mr Stevenson. Parly paid $1.015 million for Lot 1 and Airedale paid $810,000 for Lot 2, to make up the total purchase price for land and building of $1.825 million. [8] The basis for the caveat is Parly's contention that certain airspace which should have been included in its title has been appropriated to Airedale's title. Instead, that adjacent to the floors acquired by Airedale and the airspace above is included in Airedale's title. [9] Parly lodged a caveat under s137 of the Land Transfer Act against Lot 2 on 19 September 2002. Airedale sought to present a mortgage for registration, which, after notification by the District Land Registrar, led to an application by Parly on 4 December 2002 for an order that the caveat not lapse. The caveatable interest identified on its application by Parly was as beneficiary under a constructive trust arising from the agreement to subdivide. Airedale opposed the application on thegrounds that Parly had no caveatable interest, having both consented to the subdivision and taken a conveyance of CT135B/928 "without protest or reservation". It also claimed that Airedale was estopped from denying the boundaries on the certificates of title "there being no grounds for a constructive trust". [10] Substantial affidavit evidence was filed by both parties. As the Judge noted, much of it was not contentious. Thus, the parties were agreed that when the un- subdivided property was purchased at auction, it was intended that it be subdivided so that Mr Stevenson's interests would have the commercial premises in the building and the interests associated with Mr Brown and Mr Rowntree would have all the land and the parking floors of the building. The subdivision was to be achieved before settlement with the vendors. Its undertaking was by agreement left to Mr Stevenson, according to the affidavits filed on behalf of Parly because of Mr Stevenson's experience with property development. [11] Mr Stevenson instructed a surveyor the day after the auction to draw up plans for the subdivision. Early on, it became clear that Auckland City Council requirements would impose restrictions on any development of the land to provide a buffer around part of the existing building for fire rating purposes and for the protection of light and air in relation to the existing building. There was a discussion between the parties in which the Parly interests agreed that they would not build within six metres of the existing building. Mr Stevenson was left to deal with the surveyor to achieve the restriction to enable the subdivision to conform. [12] The surveyor, Mr Faulkener, dealt only with Mr Stevenson. He told Mr Stevenson there were two options to deal with the fire rating and light and air problems. The first was to leave the boundaries of the two lots against the existing building, with a light and air easement in favour of Lot 2 of sufficient width to satisfy the fire rating and light and air requirements. The second was to step the boundary back into Lot 1, at the relevant elevation a sufficient distance from the building to meet the requirements. On that basis, Parly would have title to the airspace in the 6 metre strip adjacent to the parking floors and Airedale would have title to the airspace adjacent to its floors and above. Mr Faulkener advised Mr Stevenson that the second option was less complicated to achieve and waspreferable for that reason. It is not in dispute that the two options were not discussed with Mr Rowntree and Mr Brown. Mr Stevenson approved the second, adjusting the boundary by approximately six metres at the rear of the existing building to achieve the necessary spacing. [13] Application for resource consent, annexing the plans for the subdivision with the adjustment of the boundaries discussed between Mr Stevenson and Mr Faulkener, was lodged in Airedale's name without reference to Mr Brown or Mr Rowntree. The scheme plans adopted the second option discussed between Mr Faulkner and Mr Stevenson. The plan also showed a support easement in Lot 1 within the six metre strip. According to Mr Stevenson, the support easement was intended to provide support for a sprinkler system. [14] The boundary adjustment was not discussed between the parties but the plans were sent to Parly's solicitors. Airedale's solicitors in their covering letter of 17 January 2001 referred specifically to airspace confirming that Airedale was to have the right to the air space "above the building". The Auckland City Council granted a resource consent on the basis of the plans and Land Transfer plans were drawn up by Mr Faulkener. The approved Land Transfer Plans were sent to the solicitors for Parly on 13 March 2001. They included the easement of support which had earlier been discussed and rejected by Mr Brown. Mr Stevenson has said it could be deleted, but despite that indication, the easement of support appeared in the plans. Mr Brown reiterated his opposition because he thought a carpark space would be lost as a result. The easement of support was by agreement simply deleted from the description of the easements on the plans. [15] On 5 April 2001 Messrs Brown, Rowntree and Stevenson executed a deed recording their earlier agreement to acquire the property, the subdivision of the property with the consent of the vendor, and their agreement that Mr Stevenson was to purchase Lot 2 and Mr Brown and Mr Rowntree Lot 1 through their nominees, Airedale and Parly, respectively. The deed also contained indemnities between the parties. A deed of nomination to implement the arrangements and an Agreement for Sale and Purchase completed the documentation. On 6 April 2001 the settlement ofthe purchase was effected in conformity with the deeds and agreement for sale and purchase. [16] In early July 2002, Parly became aware that proposals it had for development of Lot 1 did not conform with Council requirements because it was not the registered proprietor of the airspace which had been included on Airedale's title contiguous to the existing building where the car parking levels had been included in Airedale's title. The present proceedings were brought by Parly to correct the position.The judgment in the High Court[17] The Judge was of the view that objectively ascertainable facts tended to support Parly's central allegation that, before the property was acquired at auction, it had been agreed by the three men named in the purchase agreement that Parly would purchase the land and car parking levels, leaving Airedale with the three office levels. Those objective facts were:• The apportionment in the purchase price (suggesting that the parties had agreed on their particular interests in the property); and• The instructions given by Mr Stevenson to a surveyor the day after the auction as to the subdivision. While Airedale argued that any pre-contractual discussions between the parties were too uncertain to constitute an agreement on the future subdivision, the Judge considered that the undisputed facts raised a sufficiently arguable case that the parties had agreed to the subdivision contended for by Parly. There was sufficient material before the Court for the Judge to accept "that there may have been the type of agreement alleged by Messrs Brown and Rowntree". Whether any such agreement was sufficiently certain to be enforceable was a matter "for the substantive hearing". [18] There was no real dispute that all dealings with the surveyor were undertaken by Mr Stevenson on behalf of the purchasers. The Judge was of the view thatwhether Mr Stevenson was an agent or fiduciary of Parly could not be determined in advance of a substantive hearing. He was not able to "discount the possibility that the Parly position will be accepted at the substantive hearing". [19] Whether Mr Stevenson, if a fiduciary, was in breach of duty or had discharged any such duty when the plans were delivered before settlement, was also a matter unsuitable for summary determination on the affidavits. The Judge accepted that, if it had been agreed that Parly was to obtain all the bare land and if the subdivision altered the agreed boundaries, it would be unconscionable for Airedale to retain the airspace. Parly would be entitled to an interest by constructive trust capable of supporting the caveat. [20] The Judge accepted that someone "familiar with plans" would have been able to see from the plans provided before settlement that Lot 2 included the airspace over the six metre strip by which Lot 1 was set back from the building above the car park levels. He acknowledged Airedale's argument that the discussion about the proposed easement of support should have alerted Mr Brown to an issue as to Airedale's entitlement to the airspace above the land. Although he thought it "surprising" that Mr Brown and Mr Rowntree did not ascertain the correct position of the air space from the plans provided, "their position is that they did not". The matter could not be determined ahead of the substantive hearing. The Judge was "not certain that Airedale can succeed on the claim". The need to test the evidence of the parties' knowledge and issues of reliance also meant that Airedale's alternative contention that Pary is estopped by conduct from relying on any mistake or breach of fiduciary duty could not be determined on summary application. Similarly, whether the deeds between the parties upon settlement constituted a variation of the earlier agreement or removed any taint of unconscionability could not be considered in advance of a full hearing. The Judge could not be satisfied that the Court would not make an order directing an alteration to the subdivision. "It is too early to determine whether or not a proprietary remedy would be granted if Parly succeeds".[21] The caveat was accordingly maintained. A timetable order was made. In the event of failure to progress the claim expeditiously, Airedale was given leave to apply for order that the caveat lapse.Decision[22] Despite the thorough argument advanced by Mr O'Callahan for Airedale, we are not persuaded that the caveat should not have been maintained. The points he makes in reliance upon the evidence highlight issues which may prove to be weaknesses in Parly's case, but which cannot be resolved on the untested affidavit evidence in a summary hearing. [23] The earlier dealings between the parties are consistent with the expectation that the airspace above the building would be available to Airedale but the airspace above the undeveloped land would belong to Parly. Airedale's solicitors said as much in a letter of 17 January 2001 to Parly's solicitors in noting that it was part of the arrangement that Airedale have the air rights "above the building". In addition, as the Judge noted, the apportionment of the purchase price and the initial instructions given by Mr Stevenson to the surveyor are consistent with the arrangement that Airedale's interest was confined to the three levels of commercial offices and the airspace above the existing building. So too are both solutions the surveyor came up with: an easement can only have been on the assumption that the agreement had Parly as the owner of the space; and a realignment of the boundary was necessary only if Parly was the agreed owner. That expectation is the background to assessment of the circumstances giving rise to the claimed constructive trust. [24] It does not appear to be in dispute that Mr Stevenson acted for all purchasers in dealing with the surveyor about the subdivision. He is Mr Brown's brother-in-law and apparently trusted by both other men as someone experienced in property development. Mr Stevenson was arguably a fiduciary of the other purchasers for the purposes of the subdivision. Whether he acted as a fiduciary in attending to the subdivision as agent for the other purchases is an issue for trial.[25] Nor does it appear to be in dispute that the two options raised by Mr Faulkener were not communicated by Mr Stevenson to Mr Brown and Mr Rowntree for their agreement. Instead, Mr Stevenson gave instructions which were to the benefit of his interests in the purchase and not to the benefit of Mr Brown and Mr Rowntree. The effect was not explained to them. If (as seems an available inference) the solution was contrary to the earlier agreement, it is arguable that it should have been specifically drawn to their attention. [26] Whether the eventual transmission of the plans was effective to remedy any unconscionability or breach of fiduciary duty will be a matter for determination at the substantive hearing. The Judge expressed the view that the plans would have alerted someone familiar with reading plans, but whether Mr Brown and Mr Rowntree were sufficiently familiar with reading plans is not clear. There is evidence that Mr Stevenson was an experienced property developer and that they relied upon him. Because the six metre space follows the shape of the building and because the plans deal with different levels on different sheets (with the lower elevations showing the space within Lot 1), the significance of the different spaces might well not be evident to someone not so experienced. Whether Parly's solicitors had any role in the subdivision as opposed to the conveyance may be an issue for the hearing but cannot be determinative of the present application. Certainly none of the exchanges of correspondence between the solicitors referred to the boundary question. [27] At the substantive hearing it will be necessary for the Judge to consider the fact that Mr Brown and Mr Rowntree were aware at an early stage that a solution had to be found in the subdivision to meet the Council requirements for fire rating and light and air. They expected to be prevented from building within six metres of the existing building and it may be thought strange that they did not ascertain how the problem was resolved in the subdivision plans. On the other hand, it may be important that Mr Stevenson, as his affidavit indicates, throughout referred to the solution as a "buffer zone" rather than a re-alignment of the property interests. [28] A further difficulty for Parly to which Mr O'Callahan drew attention is the knowledge Mr Brown and Mr Rowntree gained through the discussion about thesupport easement. The fact that Mr Stevenson sought a support easement may be thought to suggest Airedale's entitlement to use the airspace above the land. It is a matter likely to be explored in evidence at the hearing. The context of the discussion will be important. In that respect it may be of significance that in his affidavit Mr Stevenson acknowledges that he explained that the easement was to support a sprinkler pump on a platform protruding out from the building. Whether that explanation would have been sufficient to bring home to Mr Brown and Mr Rowntree the entitlement to the airspace above the "buffer zone" is not at present clear. [29] There is force in the submission that any agreement as to the subdivision was varied by the deeds entered into by the parties at the time of the settlement and conveyance. But that is not determinative of the issues of unconscionability, mistake, and estoppel. They can only be resolved at the substantive hearing. [30] For these reasons, we are in agreement with the judgment in the High Court. Parly has shown that there is a serious question to be tried, that it has a caveatable interest in Lot 2 arising out of a constructive trust. Whether it has such an interest will be for determination at the substantive hearing. The claim is not appropriate for summary determination.Result[31] The appeal is dismissed. The respondents are entitled to costs of $3,000 together with travelling and accommodation costs for one counsel and disbursements to be fixed, failing agreement, by the Registrar.Solicitors: Carter & Partners, Auckland for Appellant Meredith Connell, Auckland for Respondent