PAUGRA HOLDINGS LIMITED (IN LIQUIDATION) v HARVESTFIELD HOLDINGS LIMITED CA384/2013 [2014] NZCA 164

PAUGRA HOLDINGS LIMITED (IN LIQUIDATION) v HARVESTFIELD HOLDINGS LIMITED CA384/2013 [2014] NZCA 164 [2 May 2014]IN THE COURT OF APPEAL OF NEW ZEALANDCA384/2013[2014] NZCA 164BETWEEN PAUGRA HOLDINGS LIMITED (IN LIQUIDATION)AppellantAND HARVESTFIELD HOLDINGS LIMITEDRespondentHearing: 11 November 2013 (further submissions received 2 April 2014)Court: Ellen France, White and Heath JJCounsel: N H Malarao and K H Kuang for AppellantG M Illingworth QC and D G Collecutt for RespondentJudgment: 2 May 2014 at 2.30 pmJUDGMENT OF THE COURTA The appeal is allowed. The High Court's decision to dismiss the application for an order that the caveat not lapse is set aside. We make an order that caveat 9155346.1 not lapse. The application is remitted to the High Court for further consideration after a further draft amended statement of claim has been provided.B The costs order in the High Court is set aside. Costs are, in the absence of agreement, to be fixed in that Court.C The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.____________________________________________________________________REASONS OF THE COURT(Given by White and Heath JJ)Table of ContentsPara NoIntroduction [1]The facts in outline [6]The proprietary claim [18]The Associate Judge's reasoningIntroductory comments [20]The s 67 point [22]Could an institutional constructive trust arise in any event? [26]Competing contentions [31]Analysis [33]Result [45]Introduction[1] In June 2007 Paugra Holdings Ltd (in liq) (Paugra) bought a property at 33– 37, Seymour Road, Henderson (the property) from Kiwi On Queen Ltd (Kiwi) for a purchase price of $5,600,000 plus GST. In November 2008 it agreed to sell the same property to Harvestfield Holdings Ltd (Harvestfield) for $10,500,000 plus GST, although it had yet to settle its agreement with Kiwi.[2] In July 2009, Paugra, which in the meantime had been the subject of a share sale, transferred the property to Harvestfield, but only received so much of the sale price as it needed to pay Kiwi to complete the purchase and to meet transaction costs. That meant that Harvestfield acquired the property for about $5,700,000 and Paugra lost its anticipated profit on the sale, about $4,900,000.[3] On 27 July 2012 Paugra was put into liquidation at the instance of its sole creditor, the Commissioner of Inland Revenue (the Commissioner).1 The liquidators lodged a caveat in Paugra's name against the title to the property. They claimed that Harvestfield held the land (at least in part, equating, in monetary value, to the unpaid purchase price) as a constructive trustee for Paugra. 2 Harvestfield denies any liability to Paugra. It contends that even if the alleged facts on which the claim is based were true, Paugra cannot establish any proprietary interest in the land.1 As to the taxation consequences of the transactions see below at [15].2 The terms of the caveat are set out below at [19].[4] As a result of Harvestfield's stance Paugra applied to the High Court for an order sustaining the caveat, pending determination of its substantive claim it pursues in relation to the property, also based on Harvestfield's alleged status as a constructive trustee. The application was heard by Associate Judge Bell in the High Court at Auckland. In a judgment given on 5 June 2013, the Associate Judge dismissed the application.3 While holding that Paugra had made out a prima facie case of fraud, the Associate Judge took the view that, because the claim was so closely linked to recovery of the unpaid purchase moneys, Paugra had no right to claim any form of equitable interest in the property. In any event, he considered that no claim based on an institutional constructive trust was available on the facts.[5] Paugra appeals against the High Court's decision. The caveat remains in place, pending determination of the appeal. 4 For the purposes of the appeal, Harvestfield accepts that we may act on the findings of fact that the Associate Judge made. Its position on the correctness of those findings is expressly reserved, should the substantive proceeding go to trial.The facts in outline[6] The underlying facts are complex and were the subject of a thorough review by the Associate Judge. Rather than replicate his comprehensive analysis of the evidence, we confine ourselves to a summary of what we regard as the material findings on which his decision was based.[7] On 22 June 2007 Kiwi agreed to sell the property to Paugra for $5,600,000 plus GST ($700,000); a total of $6,300,000. At that time, Paugra was under the control of interests associated with Mr John Clough. The transaction was negotiated at arm's length between a willing buyer and a willing seller. The land was ripe for development.[8] The agreement for sale and purchase anticipated that settlement would be effected on 31 May 2008, subject to Paugra having the right to elect to extend that period to "31st [sic] November 2008". A deposit of $250,000 was paid on3 Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2013] NZHC 1297.4 Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2013] NZHC 2642.3 July 2007. A second deposit of $950,000 became due and payable on 23 August 2007 in anticipation of the vendor's GST return date of 28 August 2007. It too was paid.[9] Paugra claimed a refund of the GST component of the purchase price. On 13 September 2007, the Commissioner paid the sum of $703,143.75 to Platinum Investments Auckland Ltd, another company associated with Mr Clough. It had advanced the moneys required to pay the deposits.[10] In February 2008 the solicitors for Mr Clough were approached by lawyers acting for Mr Qin Lu in relation to the possible purchase of the property. On the Associate Judge's findings, Mr Lu was acting (at all material times) on behalf of Mr Junjie Tao. After some negotiations, Mr Lu made an offer to purchase shares in Paugra, provided it remained the owner of the property. The Clough interests agreed. The settlement date for the property transaction was extended to 30 November 2008. On or about 22 August 2008, Mr Tao's interests acquired the shares in Paugra for $1,200,000.5[11] Harvestfield was incorporated on 18 November 2008. Associate Judge Bell found that it was controlled by Mr Lu, on behalf of Mr Tao's interests. The evidence suggests that, from the time Mr Tao's interests acquired the shares in Paugra, Mr Tao was the guiding mind of both Paugra and Harvestfield.[12] On 20 November 2008 Mr Lu caused an agreement for sale and purchase to be entered into between Paugra and Harvestfield, whereby the latter was to purchase the property for $10,500,000 plus GST ($1,312,500); a total purchase price of $11,812,500. A registered valuation of the property as at 10 December 2008 assessed the property's worth at $11,500,000, inclusive of GST. That evidence tends to confirm that the purchase price reflected current market value.5 After Mr Tao's interests acquired the shares in Paugra, they were transferred to another person, Weiyu Wang. Associate Judge Bell took the view that Mr Wang acted at all times at Mr Tao's behest: see Paugra, above n 3, at [14] and [93(e)]. As, on the Associate Judge's findings, nothing turns on Mr Wang's involvement, we shall continue (for the sake of simplicity) to refer to Mr Tao's interests when explaining the nature and impact of the transactions.[13] By agreement with Kiwi, the settlement date for Paugra's purchase of the property was extended to 30 January 2009. Paugra made a payment of $200,000 to Kiwi on 17 December 2008. Subsequently, the settlement date was extended further, to 31 July 2009. On settlement on 15 July 2009, Harvestfield advanced sufficient funds to Paugra to enable it to pay the purchase price to Kiwi, inclusive of transaction costs. The decision to complete the sale of the property in that way was made by one person, on behalf of both Paugra and Harvestfield. It can be seen as a decision made in the best interests of Mr Tao (as the effective shareholder in each company) as opposed to the individual companies.[14] As a result of those transactions:(a) Harvestfield acquired the property for $5,019,957.54. That was $6,792,542.46 (inclusive of transaction costs and GST) less than it had contracted to pay to Paugra. Because Mr Tao's interests also owned the shares in Harvestfield, this was also to their benefit;(b) Mr Tao's interests gained another benefit by avoiding the need to repay the GST component on the sale of the property from Kiwi to Paugra. That occurred because Harvestfield did not pay sufficient money to Paugra to enable it to meet that obligation; and(c) Paugra was deprived of a sum of $6,792,542.46, being that part of the sale price to Havestfield that it did not receive. That includes the amount for which it was obliged to account to the Commissioner for GST.[15] Associate Judge Bell explained why the transactions were constructed and implemented in the manner we have described. He said:[94] On those findings, the question arises why Junjie Tao did not arrange the purchase of Seymour Road differently. A more straightforward way to buy the property would be to buy the shares in Paugra himself. Settlement with Kiwi on Queen could still have been put back to July 2009, as happened here. On settlement he could have paid the required purchase price under the agreement with Kiwi on Queen. It seems strange to interpose Weiyu Wang as director and shareholder of Paugra and the on-sale to a fresh entity,Harvestfield. The straightforward course could have been carried out quite lawfully.[95] The answer is revealing. It is for tax advantages. Paugra had already claimed GST on the purchase from Kiwi on Queen. By installing a fresh purchaser, Junjie Tao could arrange for a fresh claim for a GST refund, and this time reflecting the higher price. It made sense for Paugra to resell at a higher price to Harvestfield so as to reduce the amount of any gain on resale on which Harvestfield would be taxed. That strategy would work if Paugra were left as an empty shell, unable to meet its tax liabilities.[96] On that basis I find that the liquidators have a prima facie case that the way Harvestfield acquired the Seymour Road property was part of a dishonest scheme by Junjie Tao, which included installing a token director and shareholder in Paugra to allow the sale to Harvestfield to go ahead without payment of the full price.[16] In completing the transaction in this way, Mr Tao's interests, through the two companies they controlled, committed a fraud on the Inland Revenue Department. The Commissioner was left with a debt payable by an assetless company, Paugra.[17] The Commissioner obtained judgment against Paugra. When that was not satisfied, an order was sought and obtained putting Paugra into liquidation. The Commissioner has lodged a claim in the liquidation for $3,835,367.87, representing unpaid GST and income tax. Some of that claim is preferential, some unsecured.The proprietary claim[18] In addition to making demand for payment of the unpaid purchase price, the liquidators of Paugra lodged a caveat against the property. They claim that Paugra retains a proprietary interest in it, as a result of the alleged fraud perpetrated by Harvestfield. They base their claim on an institutional constructive trust arising out of the circumstances in which the fraud occurred.[19] The caveat in issue, caveat 9155346.1, states:The caveator claims a beneficial interest in the land contained in the above certificate of title as cestui que trust of which the registered proprietor, Harvestfield Holdings Limited, is trustee, on the following basis:(a) the property was sold by the caveator to the registered proprietor with settlement on 15 July 2009;(b) the agreement provided for a purchase price of $11,812,500 including GST but the registered proprietor only paid the caveator the sum of $5,019,957.54 on settlement;(c) with full knowledge of a wrongful intervention in the caveator's affairs by the registered proprietor's shareholder and sole director, the registered proprietor took advantage of the disability of the caveator brought about by that wrongful intervention and procured a transfer of the property to itself on payment of the sum set out in (b) above;(d) the registered proprietor Harvestfield Holdings Limited therefore holds the property on trust for the caveator, as to part, on the basis of a constructive trust.The Associate Judge's reasoningIntroductory comments[20] Associate Judge Bell analysed the basis on which the liquidators of Paugra had advanced Paugra's claim for a proprietary interest. He observed that the liquidators:(a) accepted that there was a real sale by Paugra to Harvestfield, albeit one instituted as part of the fraudulent scheme undertaken by Mr Tao's interests. The Associate Judge pointed out that, if the position were otherwise, the liquidators would be "in difficulty with the Commissioner who has also treated the sale as genuine and claimed in the liquidation on that basis"; 6(b) did not contend that the sale should be set aside and the parties returned to their original position. The Associate Judge observed that argument was not available because the liquidators do not have the funds to repay the moneys advanced by Harvestfield to pay for its acquisition from Kiwi; 7 and6 Paugra, above n 3, at [99].7 At [100].(c) did not rely on any statutory provisions entitling them to exercise special powers in relation to the transaction, whether under the insolvency provisions of the Companies Act 1993, or otherwise. 8[21] Two substantive questions were considered by Associate Judge Bell. The first was whether a claim for an institutional constructive trust was barred by s 67 of the Property Law Act 2007.9 The second was whether (on the assumption that s 67 did not disentitle Paugra from making a proprietary claim), the liquidators had made out an arguable case that Harvestfield held the property (at least in part) as a trustee for Paugra, under an institutional constructive trust. Associate Judge Bell ruled against Paugra on both issues. Accordingly, the application to sustain the caveat was dismissed.The s 67 point[22] Section 67 of the Property Law Act provides:67 Vendor has no lienA vendor of land has no legal or equitable lien over the land because of unpaid purchase money.[23] Associate Judge Bell took the view that the proprietary claim was inextricably linked to the unpaid purchase price. In those circumstances, he held that an invalid claim for the unpaid purchase price was being dressed up as a proprietary interest.10[24] The Associate Judge conducted an erudite review of the legislative history of s 67. He observed that the section has a respectable pedigree. Since s 43 of the Conveyancing Ordinance 1842 5 Vict 10, New Zealand law has not recognised any right for an unpaid vendor to claim an equitable lien over real property for non-payment of all or any part of the purchase moneys. The Associate Judge took the view that the underlying policy must be viewed against the pre-existing common8 At [101].9 Section 67 is set out below at [22].10 At [103] and [110].law position that the Ordinance changed. The prior law had been explained by Rolfe B, in Goode v Burton: 11The equitable right of the vendor is inaccurately described by the word "lien," if that word is to be understood in its legal acceptation, which always implies possession by the party setting up the lien of the thing on which it exists; the legal principle in such case being, that the party having rights which in good conscience he may enforce, and which are more or less connected with the thing of which he has possession, shall not be compelled to part with his possession till those rights are satisfied. But the vendor's right in equity is altogether independent of his possession of the land, or of the deeds. He has what, though called a lien, is in truth an equitable charge on the land, and which in general he may enforce in the same way as any other equitable mortgage.[25] For that reason, the Associate Judge held that s 67 was a complete bar to any claim that Paugra might make for a proprietary interest in the land arising out of non-payment of part of the purchase price. Associate Judge Bell considered that position pertained whether or not the vendor had parted with title to the land as a result of a fraud perpetrated by the purchaser. He said:[110] The liquidators are applying for recognition of an interest in land that was abolished 171 years ago. It does not matter that they call it a constructive trust rather than an equitable lien or an equitable charge. The substance of the interest is the same, no matter what the liquidators call it.[111] Nor does it matter that the liquidators say that the basis for their interest is founded on fraud. If I were to hold that fraud gave rise to the interest they claim, I would be engrafting an exception on to s 67 of the Property Law Act. Aside from the constitutional impropriety of my rewriting the Act, there is no basis for restricting the scope of the section. An unpaid vendor does not have a charge over the land he or she has sold, no matter what the reason is for non-payment. Introducing exceptions to revive an equitable charge would go against the statutory purpose of simplifying the law.Could an institutional constructive trust arise in any event?[26] Associate Judge Bell then considered whether, in the absence of s 67, the facts alleged could arguably amount to an institutional constructive trust. After explaining further the nature of the remedy of constructive trust and its effect on11 Goode v Burton (1847) 1 Ex 189 at 195–196, 154 ER 80 at 83.priorities in a liquidation,12 the Associate Judge held that Paugra could not claim such an interest in the property.[27] In analysing this issue, the Associate Judge accepted that a distinction should be drawn between cases involving consensual and non-consensual transactions. In doing so, he adopted the distinction drawn by Potter LJ in Twinsectra Ltd v Yardley, in which his Lordship had said: 13 the distinction of importance here is that between non-consensual transfers and transfers pursuant to contracts which are voidable for misrepresentation. In the latter case, the transferor may elect whether to avoid or affirm the transaction and, until he elects to avoid it, there is no constructive (resulting) trust; in the former case, the constructive trust arises upon the moment of transfer.[28] The Associate Judge treated Paugra and Harvestfield as distinct legal entities dealing at arm's length. He saw an inherent inconsistency between Paugra agreeing to transfer the land to Harvestfield for less than the agreed purchase price (on the one hand) and its desire to hold Harvestfield accountable for the unpaid portion of the purchase price through the imposition of an institutional constructive trust (on the other). 14 On that basis, the Associate Judge considered that the whole of the transaction between Paugra and Harvestfield should be characterised as consensual in nature.[29] Associate Judge Bell rejected Paugra's submission that the existence of fraud altered the position. He reached that conclusion notwithstanding observations made by Lord Browne-Wilkinson in the House of Lords in Westdeutsche Landesbank Girozentrale v Islington London Borough Council, this Court's decision in Trustees Executors Ltd v Eden Holdings 2010 Ltd and the advice of the Privy Council inAttorney-General for Hong Kong v Reid.1512 At [113].13 At [115] and Twinsectra Ltd v Yardley [1999] Lloyd's Rep Bank 438 (CA) at 461; rev'd [2002] UKHL 12, [2002] 2 AC 164 but on different grounds.14 At [115].15 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL) at 715–716; Trustees Executors Ltd v Eden Holdings 2010 Ltd [2010] NZCA 626; andAttorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (PC).[30] The Associate Judge distinguished this Court's decision in Trustees Executorsby reference to the dichotomy between consensual and non-consensual transactions. 16 Trustees Executors was a mortgage fraud case in which a defrauded mortgagee claimed an institutional constructive trust over property said to have been acquired with traceable proceeds of loans that had been obtained fraudulently. Associate Judge Bell considered that this Court's judgment could not "be read as ruling that in all cases of consensual transfers obtained by fraud there is an institutional constructive trust over the transferred assets". 17Competing contentions[31] Mr Malarao, for Paugra, submits that the Associate Judge erred when he concluded that:(a) Paugra did not have an arguable claim of a proprietary interest in the property;(b) the caveat operated as a charge for the unpaid portion of the purchase price, therefore falling foul of s 67 of the Property Law Act; and(c) he was not bound to sustain the caveat as a result of the reasoning of this Court in Trustees Executors and that of the Privy Council inAttorney-General for Hong Kong v Reid.[32] Mr Illingworth QC, for Harvestfield, supported the Associate Judge's decision, for the reasons that the Associate Judge gave.Analysis[33] The principal issue on appeal is whether the Associate Judge was right to conclude that Paugra did not have a reasonably arguable case for a proprietary interest in the property.16 See above at [27].17 At [133].[34] There is no dispute that Paugra bore the onus of persuading the High Court that it had a "reasonably arguable" case to support its claim for a proprietary interest in the property. 18 A caveator bears that burden because it is the party seeking to "clog" or fetter an existing property right. 19 The same test applies whether an application is made to sustain the caveat (under either ss 145 or 145A of the Land Transfer Act 1952) or to remove it (under s 143).[35] That test emerges from the decision of this Court in Sims v Lowe.20 In their joint judgment, Somers and Gallen JJ (with whom Bisson J agreed) said: 21It is clear that this summary procedure for the removal of a caveat against dealings is wholly unsuitable for the determination of disputed questions of fact. From this it follows, and has been consistently held, that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so. See eg Plimmer Bros v St Maur, Re Caveat No 2538 (1906) 26 NZLR 294, 296; Catchpole v Burke [1974] 1 NZLR 620, 623-624, 625 (a case under s 145); Mall Finance & Investment Co Ltd v Slater [1976] 2 NZLR 685, 686, 688. The patent clarity referred to will not exist where the caveator has a reasonably arguable case in support of the interest claimed.Catchpole v Burke, New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41, 43 and Holt v Anchorage Management Ltd[1987] 1 NZLR 108 show that the same test applies to both s 143 and s 145.It was said in Re Peychers' Caveat [1954] NZLR 285, 288 that the onus of establishing a right to removal of a caveat under s 143 rests on the applicant for removal. With respect, we do not think this can be right. The caveator seeks to clog or fetter the proprietary interest of another. As a matter of principle it seems right that he must justify the continued existence of his caveat. He will do that if he can show he has a reasonably arguable case for the interest he claims. The issue is the same as that which arises under s 145. The onus under s 143 should lie on the caveator: see New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41, 43.[36] Applying that approach in this case, we are satisfied that Paugra has established a reasonably arguable case to support its claim for a proprietary interest in the property and that the Associate Judge erred in deciding that the claim was barred by s 67 of the Property Law Act.18 Sims v Lowe [1988] 1 NZLR 656 (CA) at 659–660.19 Raiser Developments Ltd v Trefoil Properties Ltd [2008] NZCA 73, (2008) 9 NZCPR 161 at [34].20 Sims v Lowe, above n 18.21 At 659–660.[37] The starting point is to recognise the importance of not conflating three distinct situations to which different legal principles apply. They may be summarised in these propositions, which are not in themselves exhaustive: 22(a) First, the law will not permit a vendor who has consensually transferred real property to a purchaser to claim any form of charge (whether legal or equitable) over the land to ensure that it receives the balance of the purchase price. This proposition is enshrined in s 67 of the Property Law Act. It is based on the notion that if a vendor parts with title to land before receiving the purchase price in full, it takes the risk of doing so and should be confined to a personal remedy to recover the balance of the purchase price. The consensual nature of the transfer provides the rationale for allowing the purchaser to retain the property, irrespective of whether part of the purchase price remains unpaid. 23(b) Second, an institutional constructive trust (which may be protected by caveat) will arise when the proceeds of a fraud are used to acquire a registerable interest in land. The rationale for this rule is that those who have been defrauded of property and can (both factually and legally) trace the use of their funds to enable a third party to acquire other property should be regarded as beneficial owners of the property. The bribery case of Attorney-General for Hong Kong v Reidand the mortgage fraud case of Trustees Executors are illustrations of that general proposition. 24(c) Third, where there has been a non-consensual transfer of an interest in land from a vendor to a purchaser, as a result of a fraud perpetrated on22 For instance, a further type of case is that where a transfer is induced by fraudulent misrepresentation. Such a transfer is voidable, not void, and can either be affirmed or avoided by the representee: Twinsectra Ltd v Yardley, above n 13, at 461; Lonrho plc v Fayed (No 2)[1992] 1 WLR 1 (Ch) at 11–12. The representee's decision would impact which, if any, of these situations applied. Section 67 would apply, for example, where the representee elected to affirm the transfer.23 See Associate Judge Bell's analysis on this topic in Paugra, above n 3, at [103]–[110].24 Attorney-General for Hong Kong v Reid, above n 15; Trustees Executors Ltd v Eden Holdings 2010 Ltd, above n 15.the vendor by the purchaser, the vendor is able to claim an institutional constructive trust (which may be protected by a caveat) in respect of the vendor's interest in the property that has been defrauded. 25[38] In our view, on the basis of the evidence currently before the Court, Paugra is able to put forward a reasonably arguable case for an institutional constructive trust that equates to the unpaid purchase moneys, on the basis of the third of those propositions. The arguable case arises because Paugra may be able to establish on the evidence adduced at the substantive hearing that the 2009 transfer to Harvestfield was non-consensual and that a constructive trust therefore arose when the transfer took place. Without setting out to confine the scope of the arguments for Paugra, the following propositions provide a possible basis for its case:(a) While Harvestfield agreed in 2008 to purchase the property from Paugra for a sum that equated to market value ($10,500,000 plus GST), it subsequently acquired the property for less than the agreed price as a result of the actions of Mr Tao's interests which by then controlled both companies.(b) As the Associate Judge found, the purpose of the transaction was to deprive Paugra of the full amount of the agreed purchase price and thereby defraud the Commissioner of the GST refund by leaving an empty company against which to enforce her claims.(c) The transaction was a non-consensual transaction because Paugra, a separate legal entity, could not lawfully have agreed to receive a reduced purchase price in return for transferring the land to Harvestfield when that constituted a fraud on Paugra itself and also a fraud on the Revenue. In the alternative, the 2009 transfer was a non-consensual transaction separate from the 2008 agreement because it varied the terms of the settlement required by the 2008 agreement.25 See below at [39].(d) As the transaction was unlawful, it was void, not merely voidable. It was therefore not necessary for Paugra to rescind the transaction. The subsequent affirmation of the 2008 agreement by the liquidators of Paugra was not inconsistent with this result.26(e) Harvestfield holds the property on an institutional constructive trust for Paugra.[39] These propositions would be supported by authorities establishing the following:(a) In the case of a non-consensual transfer, which is void, the constructive trust arises "upon the moment of transfer". 27 Such cases should be distinguished from cases involving transfers pursuant to contracts which are voidable for misrepresentation and which do not result in a constructive trust unless and until the claimant's equitable right to rescind is exercised.28(b) A transaction between two companies may be non-consensual notwithstanding the fact that the same interests control both companies if the transaction itself constitutes a fraud on one company or on a third party. 29(c) A transfer of property may in and of itself be an instrument of fraud, in which case the transfer will be void, not voidable. 3026 See below at [42]–[43].27 Twinsectra Ltd v Yardley, above n 13, at 461; Halley v Law Society [2003] EWCA Civ 97, [2003] WTLR 845 at [47] and [54]; Collings v Lee [2001] 2 All ER 332 (CA) at 336–337; andJ J Harrison (Properties) Ltd v Harrison [2001] EWCA Civ 1467, [2002] 1 BCLC 162 at [25]– [30].28 Ibid; Lonrho plc v Fayed (No 2), above n 22, at 11–12; and Bristol and West Building Society v Mothew [1998] Ch 1 (CA) at 22–23. See also Alistair Hudson Equity and Trusts (7th ed, Routledge, New York, 2013) at 591; and David Fox "Trusts Arising from Wrongs" in John McGhee (ed) Snell's Equity (32nd ed, Sweet & Maxwell, London, 2010) 771 at [26–013].29 Harrison, above n 27; Wallersteiner v Moir (No 2) [1975] QB 373 (CA) at 390; and Robb v Sojourner [2007] NZCA 493, [2008] 1 NZLR 751 at [25] and [27]; and see also Peter Watts "Corrupt Company Controllers, their Companies, and their Companies' Creditors: Dealing with Pleas of Ex Turpi Causa" (2014) 2 JBL 161.30 Halley v Law Society, above n 27, at [47] and [54].(d) A caveatable interest may arise when a party is persuaded to part with land by a fraud. 31[40] Aspects of the propositions supporting Paugra's reasonably arguable case were raised first by members of this Court during oral argument and then in a post-hearing minute of the Court giving counsel for the parties an opportunity to make further submissions on a number of questions.32 We have been assisted by the parties' further submissions.[41] We accept that the submissions made on behalf of Harvestfield have answered questions that we raised about the validity of the original 2008 agreement, which was affirmed by the liquidators. The submissions also provide a response to the possible application of the principles underlying the judgment of Hoffmann J inAveling Barford Ltd v Perion Ltd in the context of the distribution rules set out in the Companies Act. 33 Whether or not that argument is tenable is matter for trial.[42] We do not agree with the submissions for Harvestfield that Paugra has no reasonably arguable case in respect of the following questions:(a) Whether there was a variation in 2009 of the original 2008 agreement or merely an arrangement as to the mode and manner of performance of the original agreement and therefore not a separate transaction. 34(b) Whether, in light of the fraudulent actions of Mr Tao's interests, the variation was non-consensual as far as Paugra was concerned.(c) Whether the conduct of the liquidators in affirming or ratifying the original agreement extended to the variation.31 Gordon v Treadwell Stacey Smith [1996] 3 NZLR 281 (CA) at 289; TE Group of Companies Ltd (in liq) v Lin HC Auckland CIV-2003-404-6777, 10 March 2004.32 Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd CA384/2013, 4 March 2014.33 Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 (Ch) at 632–633; Companies Act 1993, ss 52–57; and see Re DML Resources Ltd (in liq) [2004] 3 NZLR 490 (HC) at [44]–[56].34 See Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA); Morris v Baron & Co [1918] AC 1 (HL).(d) Whether the variation was made effective by part performance and Paugra is estopped from denying the existence of the variation.[43] These questions are not able to be answered definitively at this stage. They depend for their determination on the evidence to be adduced and tested at the substantive hearing as well as on further argument. The existing evidence is not entirely clear and the way in which it might finally emerge after cross-examination is equally unclear. The existence of these questions does not detract therefore from our conclusion that, on the material presently before the Court, Paugra's case is reasonably arguable.[44] At the same time, however, we recognise that the propositions supporting Paugra's reasonably arguable case, which have been developed and refined since the High Court decision and which would require Paugra to amend its pleadings, may be undermined by the answers to the questions identified by Harvestfield in its further submissions, including in particular the fact that the original agreement was affirmed. We see these matters, however, as being for trial.Result[45] For these reasons, the appeal is allowed and the Associate Judge's decision to dismiss the application is set aside. We make an order that caveat 9155346.1 not lapse. The application is remitted to the High Court for further consideration after a further draft amended statement of claim has been provided by Paugra to meet the points raised in this judgment. We anticipate that the Registrar of the High Court will convene a case management conference for timetabling directions to be made.[46] Costs are awarded in favour of Paugra in this Court, on the basis of a standard appeal on a band A basis, together with usual disbursements and a certificate for two counsel. Orders as to costs that have been made in the High Court are set aside. Costs are, in the absence of agreement, to be fixed in that Court.Solicitors:Meredith Connell, Auckland for AppellantSimpson Dowsett Mackie, Auckland for Respondent