LEE SMYTH V ROYSTON WILLIAM WADLAND CA CA398/07

LEE SMYTH V ROYSTON WILLIAM WADLAND CA CA398/07 22 December 2008IN THE COURT OF APPEAL OF NEW ZEALAND CA398/07 [2008] NZCA 578BETWEEN LEE SMYTH Appellant AND ROYSTON WILLIAM WADLAND Respondent Hearing: 16 September 2008 Court: Arnold, Potter and Harrison JJ Counsel: J D Noble for Appellant M K Macnab and J C W Green for Respondent Judgment: 22 December 2008 at 3.30 pmJUDGMENT OF THE COURT A The appeal is dismissed. B As to costs, see [55] of the judgment.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] Mr Lee Smyth appeals against the judgment of Frater J delivered in the High Court at Auckland on 16 July 2007, dismissing his claim for a declaration that Mr Royston Wadland held three residential properties in West Auckland as trusteefor the interests of Mr Smyth and Ms Theresa Woodland, Mr Wadland's daughter and Mr Smyth's former partner. [2] Mr Smyth's appeal raises a number of grounds which are principally challenges to the Judge's findings of fact.Background circumstances[3] The relevant facts are comprehensively set out in Frater J's judgment and, for these introductory purposes, we need only summarise what is common ground and necessary for an understanding of the essential events. We shall deal with aspects of the facts more fully where appropriate when considering discrete grounds of appeal. [4] Mr Smyth purchased a 10 acre lifestyle block at 22 Te Aute Ridge, Bethells Beach and built a house there in 1990. At all relevant times the property was mortgaged to ANZ Banking Group Ltd. Ms Woodland started living with Mr Smyth at Te Aute Ridge in the late 1990s. Each had children from previous relationships. They later had two children together. Both derived their incomes principally from State benefits. [5] Ms Woodland owned her own house in Sunnyvale. She fell into default under her mortgage. The mortgagee sold Ms Woodland's property after she moved to Te Aute Ridge. [6] Mr Smyth also defaulted under his mortgage to ANZ which issued a notice of intention to sell Te Aute Ridge in January 2002. Mr Smyth then owed the bank $250,000. Mr Wadland, who lives in England and had never previously met Mr Smyth, agreed to a request by Mr Smyth and his daughter to purchase Te Aute Ridge. Mr Smyth engaged an intermediary, Mr Martin Fuller, to bid for the property at the auction conducted by the mortgagee through Mr Fuller's company, Edinburgh Construction Ltd. Mr Fuller, a mortgage broker, arranged a loan offer from Westpac Banking Corporation Ltd for $215,000 on the basis of the property having a value of $270,000. Edinburgh was successful at the auction with a bid of $260,000. Mr Wadland paid the deposit of $25,000 to ANZ.[7] Shortly after the auction Mr Smyth had the property re-valued. R A Purdy & Co, a registered valuer, valued it at $350,000. On this basis Westpac agreed to increase its loan offer to $280,000. In accordance with his prior arrangement with Mr Smyth and his daughter, Mr Wadland settled the purchase of the property instead of Edinburgh, at a nominal price of $351,000. He took title subject to a mortgage in favour of Westpac securing $280,000. The unusual circumstances relating to the transaction are more fully described by Frater J as follows:[27] The R A Purdy valuation, dated 20 May [after the auction], valued the property at $350,000. [28] On the basis of this, together with a letter from Mr Wadland giving proof of his income at around $NZ70,000 per annum, and a tenancy agreement signed by Ms Woodland and her brother, Paul Wadland, showing a weekly rental of $475 per week – a factor which Mr Fuller said "highlights the family's commitment to the purchase" – Westpac increased their loan offer from $215,000 to $280,000. [29] This sum was to be advanced in two lots: a loan of $230,000 for a fixed three year term with interest only payments of $708 per fortnight; the balance of $50,000 on a floating mortgage over 20 years, but, again, with payments of interest only ($140 per fortnight) for the first three years. [30] Settlement was effected on 11 June 2002. The notional balance required to settle, including the vendor mortgages, penalty interest and Edinburgh Construction's brokerage fee and solicitors' costs, totalled $331,878.63. Disregarding the vendor mortgages (which Mr Smyth described as a "ruse"), the sum actually paid was only $240,878.63. This left an available balance of $39,121.37. On Mr Wadland's written instructions $22,500 of this sum was re-deposited into his Westpac term deposit account, $NZ5,000 was transferred to his account in England, and the balance of $6,924.62 remaining after deducting Davenports' costs, was paid into the Westpac floating mortgage account, to reduce the loan.[8] Mr Smyth, Ms Woodland and some of their children continued living at Te Aute Ridge after Mr Wadland's purchase. Despite what the Judge found was their precarious financial position, Mr Smyth and Ms Woodland decided to purchase another property in October 2003. They used Mr Wadland's funds deposited in his New Zealand account with Westpac to pay the deposit towards the purchase price of a property at 1/723 Swanson Road for $185,000. The property was purchased in Mr Wadland's name. [9] This transaction proceeded after Mr Smyth obtained a revaluation of Te Aute Ridge at $440,000, enabling the provision of further financing by Westpac sufficientto fund the purchase of 1/723 Swanson Road. As Ms Moira Macnab for Mr Wadland emphasises, Mr Smyth and Ms Woodland drew down $35,000 of the additional advance to Mr Wadland which they applied for their own purposes including purchasing a motor vehicle and boat. This conduct continued a pattern which started when Ms Woodland became a signatory on Mr Wadland's bank account in August 2002. Thereafter Mr Smyth and Ms Woodland drew regularly from the account to meet personal expenses. Frater J found that the couple used Mr Wadland's money as their own: at [39]. [10] Ms Woodland signed an agreement to purchase another property, at 731 Swanson Road, in April 2004 for $200,000. Mr Wadland paid the deposit of $20,000. Again he purchased the property in his name, subject to a mortgage to Westpac securing the full amount of the purchase price of $200,000. [11] The third purchase coincided with the breakdown of the relationship between Mr Smyth and Ms Woodland. They separated at around this time. Mr Smyth issued his proceeding in the High Court in 2005. He claimed an interest in all three properties, asserting that Mr Wadland held title on a constructive trust.Appeal[12] Frater J dismissed Mr Smyth's primary ground of claim by finding that the parties never entered into an oral agreement that Mr Wadland would hold any or all of the properties as trustee for the benefit of Mr Smyth and his daughter: at [77]. Mr Jeremy Noble, Mr Smyth's counsel, does not challenge this finding. Instead, he submits that Frater J was wrong to dismiss Mr Smyth's alternative claim that, in the absence of an enforceable agreement, equity should nevertheless intervene to declare a constructive trust: at [125]. Mr Noble's written synopsis of submissions alleged 10 material errors but in oral argument he focused on six grounds. However, on analysis they fall more conveniently into four categories and we shall deal with the appeal accordingly.(1) Elements of a constructive trust[13] First, Mr Noble submits that Frater J erred in law. While his written submissions on this aspect of the law were extensive (largely by way of recitation of settled authority), Mr Noble accepted the applicability of the principles set out by Tipping J in Lankow v Rose [1995] 1 NZLR 277 (CA) at 294. In summary, a party claiming a beneficial interest in property owned in law by another must first show a contribution to that property in order to establish a constructive trust: Gillies v Keogh[1989] 2 NZLR 327 (CA) at 334 per Cooke P. By this means equity impresses on the conscience of the legal owner an acknowledgement of the claimant's contribution where to deny an interest would amount to unconscionable conduct. A qualifying contribution can either of itself assist in the acquisition, improvement or maintenance of the property or its value or by its provision help the registered proprietor to achieve those objectives. A causal link between the contribution and the acquisition or otherwise of the asset is essential: Lankow v Rose per Hardie Boys J at 282. While proof of a recognisable contribution is a prerequisite to imposing a constructive trust, a claimant must also prove his or her expectation of an interest; that the expectation was reasonable; and that the owner should reasonably be expected to yield an interest. [14] Mr Noble submits that the Judge failed to inquire properly into the competing expectations held by Mr Smyth and Mr Wadland. The short answer to that submission is found in equity's threshold requirement of proof of a recognisable contribution. That was the premise from which Frater J rightly proceeded: see [80]- [84]. [15] Mr Noble seeks to circumvent this conclusion in two ways. One is by submitting that the law of constructive trusts is usually concerned with family relationships where parties have not turned their minds to ownership issues. By contrast, he says, there is evidence that Mr Smyth instructed his Auckland solicitors to prepare a declaration of trust prior to Mr Wadland's purchase of Te Aute Ridge. [16] This argument about the relevance of the parties' consideration of proprietary interests is misconceived. It is common ground that a document was preparedaccording to Mr Smyth's instructions, purporting to recite an agreement between the principal parties. But significantly the document was never executed and Mr Wadland neither participated in its preparation nor was consulted about its contents. [17] The absence of consideration of ownership rights may favour equity imposing a constructive trust in a dispute between parties who have lived together as husband and wife. As Hardie Boys J noted in Lankow v Rose at 282:It is also to be remembered that it is of the nature of intimate human relationships that the parties will give little if any conscious thought to financial outcomes should the relationship fail; and of course while it lasts they are usually of no concern and minimal relevance.[18] However, this was not such a situation. We agree with Ms Macnab that it was far more akin to a series of commercial transactions. The nature of the relationship between Messrs Smyth and Wadland was distant. They did not meet until after this proceeding was filed in the High Court. They were linked only through Ms Woodland. Mr Wadland's participation was predominantly motivated by a desire to protect his daughter. The absence of Mr Wadland's agreement to recognise a proprietary interest in Mr Smyth tells against imposition of a constructive trust. [19] Mr Noble submits alternatively that Frater J failed to consider whether or not she should nevertheless grant Mr Smyth a percentage interest in the properties. He criticises the Judge's adoption of an all or nothing or 'black and white' view of the issue. He submits that all three adults played a part in the acquisition and retention of the three properties and should therefore each receive a proportionate benefit. [20] The apparent genesis of Mr Noble's argument is Deane J's description inMuschinski v Dodds (1985) 62 ALR 429 (HCA) of a constructive trust as (at 451): a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent thatsuch retention or assertion would be contrary to equitable principle. [Mr Noble's emphasis]Mr Noble extrapolates from this statement what he describes as the relevant question; namely, what is the extent to which Mr Wadland's retention of beneficial ownership of a property or properties is contrary to equitable principle? [21] This submission misconstrues Deane J's statement of the law. He was not suggesting that a trial judge should award a person a percentage interest or cash sum wherever there is evidence of that person's participation in the acquisition of a property. He was, rather, expressing the orthodox view that equity will impose a constructive trust to the extent necessary to accord with principle. Deane J was not mandating a departure from the approach adopted in Lankow v Rose and other New Zealand authorities, requiring the Court to identify a quantifiable share only if it is satisfied, following a reasoned and principled evaluation of the facts, of a party's contribution to an asset sufficient to invoke equity's intervention. This was the approach which Frater J correctly followed. [22] This ground of appeal must fail.(2) Contribution: A necessary requirement[23] Second, Mr Noble submits that Frater J made a number of factual errors when determining whether Mr Smyth made a recognisable contribution to Mr Wadland's acquisition of the three properties. We shall separately address each of his three alternative submissions within this wide-ranging ground of challenge.(a) Deterring potential buyers[24] Mr Noble submits that Frater J erred in finding that steps taken by Mr Smyth to dissuade potential buyers from purchasing Te Aute Ridge did not constitute a contribution towards the purchase price sufficient to make it unconscionable for Mr Wadland to deny Mr Smyth a financial interest in the property. [25] Frater J described Mr Smyth's actions prior to the sale in this way:[23] As well as liaising with Mr Fuller and Mr Allen, in the build-up to the auction Mr Smyth actively endeavoured to prevent or dissuade potentially interested third parties from viewing the property or purchasing it. To this end he tore down a real estate sign advertising the property, told the real estate agent that no one was allowed to see it, and was generally unco-operative. He also arranged for a neighbour to come to the auction and make it known that the house had been built over the boundary into his property, which he did. [24] According to Mr Smyth, the plan was for Edinburgh Construction to purchase the property cheaply, and for improvements then to be made to it which would support a higher valuation and thus, a higher mortgage, thereby enabling Mr Wadland's deposit to be repaid. [25] In the event, despite Mr Smyth's endeavours, the auction was not a one horse race. After a few opening bids it developed into a contest between Mr Fuller, for Edinburgh Construction, and one other. Eventually, however, Mr Fuller prevailed. The property was secured for $260,000, and the deposit of $25,000, advanced by Mr Wadland, handed over.[26] The Judge noted that this was the first of three types of contribution claimed by Mr Smyth to be sufficient to effect Mr Wadland's conscience as legal owner and justify a claim on a constructive trust: at [84]. She dismissed Mr Smyth's claim in this way:[85] Mr Smyth values his contributions in deterring people from attending and bidding at the auction at $80,000, being the difference, after taking into account the agents' fees, between $350,000 which was the price, he claims at which the property could have sold and its actual sale price of $260,000. He argues that Mr Wadland's contribution, by comparison, was minor. Although he provided the deposit, it was paid back plus an extra $2,500, which more than covered any costs involved. And, because the borrowings were only $280,000 against a valuation of $350,000, his exposure to loss was extremely limited. [86] I do not accept this argument. [87] There is no evidence that Mr Smyth's actions in attempting to ward off potential purchasers actually had that result, or that they impacted on the eventual price. Such evidence, if available, could have been given by a real estate agent handling the sale, but none was called. To the contrary, the property sold for much more than either Mr Fuller or Mr Allen anticipated. This was despite the fact that this was a mortgagee sale, which, I accept, would normally serve to keep the price down [88] I also have considerable reservations about the accuracy of Purdy's 2002 valuation, given that it made no mention of the fact that the house on the property is built over the neighbours' boundary. Having regard to the careful way in which valuers in general and Purdy's in particular note any factors, such as the absence of building consents, which could impact on the valuation, I am satisfied that, as it is not mentioned in the report, the valuer who conducted the valuation can not have known of this fact –notwithstanding Mr Fuller's recollection that he did. What reduction would have resulted if he had is highly speculative. Mr Walker estimated the cost of changing the boundary at between $5,000-6,000. Mr Young, who valued the property for Purdy in 2003, and again in 2006, said that, had he known of this issue in 2003, he would have reduced his valuation by between $75,000 to $100,000. He thought that the 2002 valuation should have been reduced by a similar amount.[27] Mr Noble's primary submission is that Frater J failed to recognise the deterrent effect of Mr Smyth's generation of the neighbour's intervention to advise bidders at the auction that Mr Smyth's house at Te Aute Ridge had been built in part over the boundary to his property. He submits that Mr Smyth made the boundary issue known at the auction in order to drive the price down, enabling Mr Wadland to buy it cheaply. He relies on a concession made by the valuer at trial that he would have reduced his valuation from $350,000 to $275,000 – $250,000 if he had known the house was built partly over the neighbour's boundary. Mr Noble says Mr Smyth's conduct was a significant contribution to "the family's firstly being able to retain the property and secondly being able to retain some equity" in it. [28] This submission is misconceived and circular. Mr Smyth apparently, if unintentionally and unconventionally, complied with his legal obligation. A vendor in those circumstances was arguably under a duty to disclose the boundary encroachment. Mr Smyth's silence may well have constituted an actionable misrepresentation: see Sharplin v Henderson [1990] 2 NZLR 134 (CA);Thompson v Vincent [2001] 3 NZLR 355 (CA); Harvey Corporation v Barker [2002] 2 NZLR 213 (CA) at [2] (earlier first instance authorities preceding the Contractual Remedies Act 1979 which might suggest to the contrary may now be doubted: seeSpooner v Eustace [1963] NZLR 913). [29] The real estate agent conducting the auction would unarguably have been liable for misleading and deceptive conduct under the Fair Trading Act 1986 for any losses suffered in consequence of the non-disclosure: Harvey Corporation v Barker. On orthodox agency law, the agent would have had a right of indemnity from his principal, Mr Smyth. He would have ultimately borne the financial burden of non- disclosure, whether through the direct route or the indirect route of vicarious liability. A party's compliance with his own obligations of disclosure to potentialpurchasers could not constitute a contribution towards another party's acquisition of the property, let alone provide a basis to invoke equity's intervention. [30] In any event, Mr Wadland did not acquire the property cheaply or for less than market value. He agreed to pay $260,000, within the range accepted by the valuer after allowing for his error in failing to take account of the boundary encroachment. And even if it was proven that Mr Smyth's disclosure did deter a competing purchaser who would have been willing to pay $350,000 (which was Mr Smyth's case at trial unsupported by any evidence), the result would have been that Mr Wadland himself was forced to pay the same excessive price and suffered loss accordingly (there was no evidence of his prior knowledge of the boundary encroachment). [31] Alternatively Mr Noble submits the Judge under-rated the deterrent effect of Mr Smyth's general antagonism towards third parties. The short answer to this submission is that it suffers from a fatal evidential dearth, as Frater J found. There was no causal link between Mr Smyth's conduct and the subsequent sale to Mr Wadland or any attempt to quantify its effect even if proven. The argument is also undermined by the interest manifested at the auction by an unknown third party whose participation caused the eventual price to reach a level higher than Mr Smyth and his nominee expected. [32] This ground of appeal must fail.(b) Assumption of risk[33] Mr Noble submits alternatively that Frater J erred in failing to recognise that Mr Smyth bore much if not all of the risk of the ultimate success or failure of the sale and purchase of Te Aute Ridge at auction. Mr Noble says that such an assumption counts as a contribution. [34] Frater J found as follows:[110] Mr Noble made much of the apparent inequity of Mr Wadland retaining the benefit of the property, to the exclusion of Mr Smyth.However, that seems to me to be a very one-sided view. It disregards the not inconsiderable contribution Mr Wadland made. Without him the property could not have been retained. The family would have lost the security of living in the home they knew. Mr Wadland took a risk. He broke his term deposit to make funds available. Although, as it turned out, they were returned to him with interest, there was always a possibility that a third party would outbid Mr Fuller at the auction. Secondly, he took a risk as the mortgagee. Although he expected Mr Smyth and Ms Wadland to pay "rent" which was sufficient to cover the outgoings, and they said they would indemnify him, ultimately he was, and is, liable to the bank. As it has turned out, he has had to pay penalty interest and has assumed a greater liability than he anticipated, given the further borrowings made by Mr Smyth and Ms Woodland, without his permission, against his mortgage account. He left it up to his daughter and her partner, Mr Smyth, to protect his position. He did not check up on what they were doing. He trusted them. They abused his trust. [111] The fact of the matter is that neither Mr Smyth nor Ms Woodland had any funds of their own. If their outgoings increased, WINZ gave them a larger benefit to meet them. If their outgoings had been less, the accommodation supplement would have been reduced accordingly. [112] In all the circumstances it is hardly unreasonable of Mr Wadland to have thought that the property was his, not Mr Smyth's or his daughter's, and to have resisted Mr Smyth's constructive trust claim to the contrary.[35] Mr Noble submits that these findings overlook the risk assumed by Mr Smyth in pursuing his strategy of deterring potential purchasers. [36] This is a variant of the preceding argument. Mr Smyth did not assume any risk by deterring interested third parties. That was because he had the comfort throughout of Mr Wadland's commitment to buy. He was otherwise at the mercy of his mortgagee and the market. He was in default of his obligations to ANZ to which he was personally indebted for $250,000. He had no prospect of refinancing. [37] Without Mr Wadland's commitment, Mr Smyth was at risk of the property selling to another party for less than the amount of his indebtedness to ANZ. He would then have been left with a residual personal liability for the shortfall. As Frater J found, Mr Smyth was also at risk of losing the security of his right of continuous occupation if a third party purchased. It was in his personal interest to deter a third party. As Frater J explained, it was Mr Wadland, not Mr Smyth, who took all the risks associated with this transaction, principally an assumption of a liability to Westpac where he relied solely upon rental payments from Mr Smyth and Ms Woodland to service interest obligations on a debt of $280,000.[38] This ground of appeal must fail.(c) Construction work and mortgage repayments[39] Mr Noble submits alternatively that the Judge erred by failing to recognise Mr Smyth's contribution in conducting construction and renovation work and making mortgage repayments for Te Aute Ridge. [40] Frater J considered this argument for a contribution as follows:[89] I do not consider that Mr Smyth and Ms Woodland can claim any credit for increasing the value of the property through work undertaken on it. This is primarily because I regard most of the work as being in the nature of overdue maintenance, rather than capital improvements. [90] I accept that over the years some alterations were made, for example, by the installation of new cedar windows across the front of the kitchen. However, in my view, any value added by such work was more than counterbalanced by two factors: first that some of the materials used were paid for out of Mr Wadland's bank account, and, secondly, that half completed projects, such as the construction of the pergola, have decreased, rather than increased the value of the property. [91] The initial valuation by R A Purdy and Co Limited, dated 20 May 2002, placed a value on the improvements (including the driveway access, landscaping, tanks and site improvements) at $180,000 and valued the land at $170,000. Eighteen months later the same company valued the improvements at $190,000 and the land at $250,000. The latest valuation, prepared by Bristow Barbour Walker for Mr Smyth on 5 July 2006, of $400,000, attributes $360,000 to land value, including the drive, and only values improvements at $40,000. [92] The two valuers who gave evidence: Mr Walker from Bristow Barbour and Walker and Mr Young from R A Purdy and Co Limited, agreed that the value of the property mainly lies in the land. [93] They also agreed that the property had deteriorated over the years. Mr Young said that when he visited it in mid 2006 it was apparent that little if any maintenance had been undertaken; furthermore, work which needed to be done in 2003 in order to obtain a building permit remained outstanding. Mr Walker was of a similar view. While saying that the property "never was a palace", he thought that even from that standard, it had gone backwards to a moderate degree during the six years between the second time he valued it and the third. [94] Finally, even if, contrary to the foregoing, I accept that the working bees conducted at the property did make capital improvements, I doubt that they had any impact on the valuation of 20 May. This is because the firstone took place after the auction on 15 May 2002, yet the report states that the valuer visited the property the day before, on 14 May. [95] At first sight Mr Smyth's claim in relation to the payment of outgoings has more substance. [96] I accept that although, in mid 2002, a rental agreement was drawn up showing Ms Woodland and her brother, Paul Wadland, as tenants, and providing for a rental of $475 per week, this was, as Mr Smyth described it, a "ruse" to satisfy the bank that there would be a sufficient income stream to meet the outgoings. [97] Although Ms Woodland said that she had looked at other properties of the same size and that at the time rent of $475 per week was reasonable, and, for the purpose of the accommodation supplement, WINZ obviously accepted that it was, it seems to me that that rate was somewhat higher than market rental, at least in 2002. Mr Walker, who I accept has a good local knowledge, and based his assessment on research of local advertisements in 2002, thought that a reasonable rental for a similar property at that time would have been between $250 and $275 per week. Mr Young thought that in 2003, when he visited the property, it would have reached a rent of between $400-$450 per week. For present purposes I would put the figure somewhere in the middle of the highest and lowest of these figures – say $350 per week. [98] If payments had been made consistently at that rate, Mr Smyth might have had some basis for arguing that he and Ms Woodland had contributed to the value of the property, simply by meeting the outgoings, albeit that the payments were of interest only, because by doing so they were maintaining the property for Mr Wadland, thereby enabling him to benefit from the inevitable increase in value through inflation. But that only tells half the story. The reality is that they actually contributed much less than $475 or even $350 per week. Not only did they fail to pay the outgoings each week, as required, they borrowed a further $35,000 against the account, used the additional monies paid in from Mr Wadland's term deposit account, and made drawings against the account for their own purposes. [99] The bank statements from the mortgage account show that over the 98 week period from June 2002 to February 2004 Mr Smyth and Ms Woodland made rental or mortgage payments of $30,240. Giving them credit for further unexplained inputs of $4,314, the total paid into the account was $34,554. On that basis, the average weekly payments were $352.59. However, if withdrawals are subtracted from the payments in, the average weekly payments, over the 98 week period, were only $83.91. This is much less than a reasonable rental, and falls far short of meeting the outgoings on the property. And so, rather than contributing to the property, Mr Wadland subsidised their occupation of it. [100] I appreciate that, despite signing an agreement undertaking to pay rental of $280 per week, from March 2004 until April 2006 Mr Smyth originally made payments at the rate of $450 per week. But this needs to be seen in context. While they were together he and Ms Woodland were operating as a couple. While WINZ paid him an invalid's benefit, they paid the accommodation supplement relating to that benefit to Ms Woodland. Heshared in the drawings on the account. He must accept equal responsibility for the shortfall which accrued. [101] In these circumstances I do not believe that Mr Smyth's claim to have contributed to the property by paying the outgoings can be substantiated either.[41] Mr Noble challenges these findings together with the Judge's rejection of his argument that Mr Smyth made an 'entrepreneurial' contribution in these terms:[124] I accept also that, without Mr Smyth's drive, these transactions may not have happened. As Ms Woodland said, he took over. I accept that he did so because he thought that he was securing an investment from which he would benefit. However, all he contributed was his time, and that was not significant. The valuer charged for his work and the cost was paid out of Mr Wadland's mortgage account, as were the legal expenses. Mr Wadland assumed the entire risk and has been left with the liability.[42] Mr Noble submits that Mr Smyth contributed a good deal of "intellectual capital" which merits a "reward". Mr Noble characterises his input as much more than mere "time", contrary to Frater J's finding. He emphasises Mr Smyth's agreement to pay rent of $475 per week. But Mr Noble does not challenge the Judge's adverse findings about the poor nature of the construction work carried out by Mr Smyth (much of it paid for directly by Mr Wadland) and its detrimental effect on value. [43] We cannot see any basis for interfering with the Judge's careful findings. Mr Smyth admitted, first, to arranging for Mr Wadland to provide bogus letters about his income to mislead the mortgagee and, second, to inflating the tenancy agreement in order to obtain what he called "a decent accommodation supplement from WINZ" and thus an artificial subsidy from the State. These steps were taken principally for Mr Smyth's benefit; there was none of the detriment necessary to satisfy the estoppel component of proof of a contribution: see Lankow v Rose per Hardie Boys J at 282. [44] The benefit to Mr Smyth arose in a number of ways, principally by enabling him to inflate the level of Mr Wadland's borrowing from Westpac to provide a surplus of $35,000 or so which he and Ms Woodland then misappropriated for their own purposes over the next two years. Mr Smyth not only misled a lending institution and the State; he abused Mr Wadland's trust, as Frater J found: at [110].There is nothing "entrepreneurial" in essentially dishonest conduct that could possibly justify equity's intervention. [45] This ground of appeal must also fail.(3) Admission[46] Third, Mr Noble submits that a constructive trust should have been imposed given Mr Wadland's admission that if anything adverse happened he would not have left his daughter and Mr Smyth without, and that the nature of any interest in Mr Smyth's favour would have been at his prerogative. [47] Frater J dismissed this argument as follows:[125] If Mr Smyth and Ms Woodland had remained together, whether or not a formal trust had been established, they, or their children, could reasonably have expected to benefit from these purchases. As Mr Wadland said, if anything had happened, he would not have left them without. However, how he exercises his discretion is entirely a matter for him. There is nothing in the evidence that persuades me that Mr Smyth or Ms Woodland had or should have an entitlement to an interest under either a constructive or a resulting trust, and I dismiss these claims also.[48] Mr Noble's general submission was that the Court should have somehow recognised, in the form of fixing a contribution, Mr Wadland's concession of a discretion. He says that a trustee's expectation of conferring a benefit on another is sufficient to impose a constructive trust. He submits that this result follows from a "broad" view of the jurisprudence and conforms with "the Court's view of what the equitable thing to do would be". He says that the effect of Frater J's finding is that Mr Smyth would have had an equitable interest had he not separated from Ms Woodland. [49] Mr Noble's submission again overlooks the threshold requirement of establishing a contribution as a prerequisite to imposing a constructive trust. A court must act according to principle, not by broad and unstructured notions of equity. And an admission by a legal or beneficial owner that he may or may not have exercised his legal powers in a certain way at a later date cannot give rise to apresent entitlement in the nature of a fixed contribution to property by one who may possibly obtain the benefit of that discretion. We agree with Frater J. [50] This ground of appeal fails.(4) Deposit[51] Fourth, Mr Noble relies on an admission made by Mr Wadland in cross- examination that he initially believed he had been repaid the deposit on the purchase of 723 Swanson Road. Mr Noble submits that Mr Wadland's initial belief that his deposit had been repaid verifies Mr Smyth's evidence of common intention that all three properties would be 100 per cent financed by bank loans and that Mr Wadland would immediately be refunded for any payments made from his own funds. [52] In support Mr Noble relies on this passage from Frater J's judgment:[117] even if I am wrong about Te Aute Ridge, the fact that Mr Wadland was not repaid his deposit following the purchase of 723 Swanson Road marks that transaction out as different from the first, at the outset. Similarly, for the purchase of 731, the deposit was simply drawn down from the floating mortgage account, for which Mr Wadland remained liable.[53] Mr Noble did not explain the purpose or effect of this submission. It is an attempt to revisit Frater J's unchallenged finding that the parties never reached an agreement, premised on the rejection of a common intention, and must fail accordingly.Decision[54] In summary, we are satisfied from the evidence that Mr Smyth and Ms Woodland took much more from their relationship with Mr Wadland than they ever contributed. Mr Smyth's claim did not approach the threshold necessary to establish a claim to any of the properties. The nature and extent of his dishonest conduct, including participation in the prolonged abuse of Mr Wadland's trust in hisdaughter, eliminated any prospect of equity's favourable intervention. Mr Smyth's appeal against Frater J's judgment dated 16 July 2007 is dismissed. [55] In the normal course Mr Wadland would be entitled to an order for costs and usual disbursements. However, we understand that Mr Smyth is in receipt of legal aid. Accordingly, we are not entitled to make an order for costs against him unless we are satisfied that there are exceptional circumstances: see s 40(3) of the Legal Services Act 2000. If Mr Wadland wishes to argue that there are exceptional circumstances in the present case, he must file and serve submissions on the point by 5pm on Friday 13 February 2009. Mr Smyth must file and serve any submissions in response by 5pm on Friday 27 February 2009.Solicitors: Boyle Mathieson, Auckland, for Appellant Richard Wood, Auckland, for Respondent