SAMOAN ASSEMBLIES OF GOD IN AOTEAROA TRUST BOARD INCORPORATED (PREVIOUSLY KNOWN AS THE SAMOAN ASSEMBLIES OF GOD IN NEW ZEALAND TRUST BOARD INC) V FAAVAE TAOIPU ROBERTSON AND FIATAU FAALILI HC WANG CIV-2006-483-431

SAMOAN ASSEMBLIES OF GOD IN AOTEAROA TRUST BOARD INCORPORATED (PREVIOUSLY KNOWN AS THE SAMOAN ASSEMBLIES OF GOD IN NEW ZEALAND TRUST BOARD INC) V FAAVAE TAOIPU ROBERTSON AND FIATAU FAALILI HC WANG CIV-2006-483-431 4 April 2007IN THE HIGH COURT OF NEW ZEALAND WANGANUI REGISTRY CIV-2006-483-431UNDER Section 143 of the Land Transfer Act 1952 BETWEEN SAMOAN ASSEMBLIES OF GOD IN AOTEAROA TRUST BOARD INCORPORATED (PREVIOUSLY KNOWN AS THE SAMOAN ASSEMBLIES OF GOD IN NEW ZEALAND TRUST BOARD INC) Applicant AND FAAVAE TAOIPU ROBERTSON AND FIATAU FAALILI Respondents Hearing: 21 March 2007 Appearances: O. Woodroffe for Applicant T. Refoy-Butler and E. Parkes for Respondents Judgment: 4 April 2007 at 3.30 pm In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 3.30pm on the 4 th day of April 2007.JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL Introduction[1] The applicant applies under s143 Land Transfer Act 1952 for the removal of caveat 6701639.1 lodged on 21 December 2005 over four properties in Wanganui being Certificates of Title WN31A/586, WN266/263, WN267/62 and WN266/152 ("the properties"). The applicant is the registered proprietor of the properties. [2] The application is opposed by the respondent caveators.Background Facts[3] The respondents are trustees of the Wanganui Samoan Assembly of God Community Trust ("the Trust"). In that capacity the respondents, along with two other trustees, were the previous registered proprietors of the properties, the Trust having purchased the properties from 1986. [4] The respondents are two of the founding trustees of the Trust which was settled by a Deed of Declaration of Trust dated 19 October 1984. The Trust has never registered as a charitable trust under the Charitable Trust Act 1957, nor under the Incorporated Societies Act 1908. [5] The first of the four properties was purchased by the Trust on 17 November 1986. It was a vacant section at 44 Liverpool Street, Wanganui. Then on 19 February 1987 the Trust purchased the second of the four properties at 46 Liverpool Street, which was a church next door to the first property. During the next two years the Trust purchased the third property, a section backing onto the other properties, and finally the fourth property, a house next door to the church for use as a manse. [6] The evidence before the Court is that each of these purchases was financed in part by donations from beneficiaries of the Trust and members of other congregations of the Samoan Assembly of God Church, and partly through loans from Westpac Banking Corporation on mortgage over the properties. [7] The applicant is an incorporated society and registered charitable trust. It was settled and registered in 1992 by the Samoan Committee. The Samoan Committee, as I understand it, is an unincorporated society within the matrix of the Assemblies of God in New Zealand Incorporated movement. [8] Being an unincorporated society, the Samoan Committee formed the applicant to provide it with an arm having legal personality which was capable of owning and efficiently administering property.[9] According to the respondents, the Samoan Committee was formed to represent the interests of local Samoan congregations within the Assemblies of God movement in New Zealand. It has appointed a delegate to represent the interests of the ethnic local churches on the Executive Council of the Assemblies of God in New Zealand Incorporated. [10] In 2001 the Trust experienced financial difficulties. It was in default under its Westpac Bank mortgage. An approach was made to the Samoan Committee with a request for a loan to the Trust of $35,000.00. The purpose of this loan was to repay the Trust mortgage to Westpac Bank. The respondents state that the properties at that time were worth about $150,000.00. [11] The Samoan Committee organised the loan which was used in turn to repay and discharge the Westpac mortgages. The $35,000.00 loan was made through the auspices of the applicant as lender. A formal Deed of Acknowledgement of Debt was prepared by the applicant's solicitor and signed on 12 November 2001. In addition, the properties were transferred to the applicant around that date and the Westpac mortgages discharged. The properties remain in the ownership of the applicant today. [12] As I have noted, the Deed of Acknowledgement of Debt was entered into between the applicant noted as "creditor" and the then four trustees of the Trust (which included the respondents) who were noted as "debtor". Relevant parts of the Deed of Acknowledgement of Debt are:3.0 Payments 3.1 The Samoan AOG-NZ will make payment on behalf of the Wanganui Samoan AOG to Westpac of all outstanding debts, charges and legal fees.3.2 In the event that the Wanganui Samoan AOG attains the position of being able to repay the loan, the parties will in good faith enter into negotiations with the objective of reaching agreement as to the repayment schedule and the issue of ownership of the properties listed in the First Schedule.4.0 Security4.1 By way of security for the loan (approximately $35,000) the Wanganui Samoan AOG will transfer to the Samoan AOG- NZ all the land comprised and described in the Certificates of Title listed in the First Schedule of this Deed.4.2 Upon repayment of the amount of the loan pursuant to clause 3.2 of this Deed and requisite agreement between the parties, the Samoan AOG-NZ shall forthwith sign a Memorandum of Transfer of the land comprised and described in the Certificates of Title listed in the First Schedule of this Deed into the name(s) of the Wanganui Samoan AOG or nominee body. And:5.0 Miscellaneous 5.1 The property as described in the First Schedule shall be held by the Samoan AOG-NZ on trust for the Wanganui Samoan AOG until such time as negotiations as described in clause 3.2 have taken place, or the expiration of a five year period from the date of this Deed, whichever may be first.5.2 In the event that the Wanganui Samoan AOG fails to make repayment of the loan amount as described in clause 3.2 above, and in accordance with clause 5.1 above, the title of the properties as listed in the First Schedule of (sic) shall remain the property of the Samoan AOG-NZ absolutely.[13] As I have noted, it is the respondents' clear position that the Samoan Committee used the applicant as its legal personality and the vehicle for the $35,000.00 loan. It was the applicant's solicitors who formalised the loan by drafting the Deed of Acknowledgement of Debt and the Memorandum of Transfer whereby legal title in the properties was conveyed to the applicant as security for the loan. [14] During the year after the transfer of the properties to the applicant the Trust remained in occupation rent free. Then it seems that, for a variety of reasons, the congregation attached to the Wanganui Trust declined. By 2003 the respondents say the remaining congregation combined for worship with another local Assembly of God church. The respondents position, however, is that notwithstanding this practical arrangement, the Trust did not terminate, nor did it wind up under its express powers.[15] By about 2002 the respondents indicate the Trust apparently could not afford to maintain the properties, and it was agreed with the applicant to lease them to another associated church, the River City Assembly of God. At first the Trust collected rent and forwarded it to the Samoan Committee. After about one year the respondents say the Samoan Committee took over dealing directly with the tenants and collecting the rent. [16] According to the respondents, on 24 November 2005, some members of the Samoan Committee left and incorporated a separate society called the Samoan Assemblies of God Incorporated. It is said that by coincidence the trustees of the applicant were those very same members. As a result, they took with them de facto control of the applicant. [17] This split apparently lead to a schism between the parties that has raised many legal issues. These questions, including whether the present members of the applicant Trust Board have de jure control, I understand are in issue in other associated proceedings. These associated proceedings Samoan Assemblies of God in New Zealand Incorporated & Samoan Assemblies of God in Aotearoa Charitable Trust Board v Assemblies of God in New Zealand Incorporated & Ors (CIV-2005- 404-5398) I am told are yet to be heard. [18] With all of this, unfortunately relations between the applicant and the Trust have completely broken down, and any common association between the parties had been severed. [19] Notwithstanding this, the respondents maintain that since 5 December 2006 through their solicitors they have made repeated offers to the applicant to redeem the loan outstanding under the Deed of Acknowledgement of Debt, in order that the Trust can re-take title to the properties, but these offers have been rejected. [20] The applicant's position, as I understand it, is that in terms of paragraph 5.2 of the Deed of Acknowledgement of Debt (noted at paragraph [12] above) as the Trust had failed to make repayment of the loan amount to the applicant within a fiveyear period from the date of the Deed (by 12 November 2006), then "the title of the propertiesshall remain the property of the Samoan AOG-NZ absolutely". [21] According to the applicant, for the purposes of the present application, it follows that even if the respondents had a caveatable interest in the property up to 12 November 2006, this interest ceased on that date.Counsel's Arguments and My Decision[22] The principles to be applied in applications such as the present one are well established through the decisions of the Court of Appeal in cases such as Sims v Lowe [1988] 1 NZLR 656, and Pacific Homes Limited v Consolidated Joineries Limited [1996] 2 NZLR 652. [23] The principles I propose to apply in reaching my decision are: a) The onus is on the caveators to demonstrate that they hold an interest in the land which is sufficient to support the caveat. b) The caveators must put forward a reasonably arguable case to support the interest they claim. c) An order for the removal of the caveats will only be made if it is clear that there was either no valid ground for lodging it in the first place, or alternatively, that such ground as then existed has now ceased to exist. d) Caveat proceedings are wholly unsuitable for the determination of disputed questions of fact. [24] In the present case the caveat claims the following interest in the properties:By a deed dated 12 November 2001 the abovenamed caveators (the respondents) retain and claim a beneficial interest as cestui que trust in the land of which the registered proprietor Samoan Assemblies of God and New Zealand Trust Board is the trustee.[25] The essential grounds advanced by the applicant in support of its application to remove the caveat are: a) The Trust no longer exists and the respondents in their personal capacity are precluded from claiming an interest in the properties by their membership of the applicant pursuant to s14 Incorporated Societies Act 1908. b) If a caveatable interest existed under the Deed of Acknowledgement of Debt, it has lapsed, as the date on which the properties are vested absolutely in the applicant has now passed. [26] But first, a preliminary matter arises. This is a complaint by the applicant that the caveat itself is vague and does not properly set out "the nature of the land or estate or interest claimed by the caveator which must be stated with sufficient certainty" – s137(2)(b) Land Transfer Act 1952. This complaint suggests that the interest claimed by the respondents in the caveat has not been described accurately and fully and the Court has no jurisdiction to amend the wording in the caveat –Wesseling v Biddick (HC AK, 29 October 2002, M1214-IM02, Master Lang). I reject this complaint. In the present case, I am satisfied that the beneficial interest claimed in the caveat as cestui que trust in the properties is properly described and with sufficient certainty. [27] On this point, I note also the recent Court of Appeal decision in Zhong v Wang (CA282/05, 5 September 2006) which states at paragraph 58:58. The purpose of the caveat procedure is to enable those with proper claims to proprietary interests to protect themselves against loss by forbidding dealing with the land pending resolution of substantive claims. The underlying purpose of the caveat regime could be undermined if too strict an approach were taken to the detail required to describe the interest claimed and its derivation from the registered proprietor.[28] In my view the interest in the property claimed here by the respondents in their caveat is linked to the applicant, the Deed of Acknowledgement of Debt and the properties themselves and is sufficiently described in terms of s137(2)(b) Land Transfer Act 1952.[29] I reject this misdescription argument advanced on behalf of the applicant. [30] I turn now to consider the first substantive ground advanced for the applicant and noted in paragraph [25](a) above. In my view this argument is quickly disposed of. [31] The Trust, as I have noted, was established under a trust deed dated 19 October 1984. [32] There is no evidence before the Court that the Trust has been wound up, or that it has ceased to function. The Trust Deed has not provided for termination at this point. The contention from the applicant that the Trust simply no longer exists is quite unsupported by any evidence before the Court. In addition, the applicant has failed to particularise its grounds for suggesting that the Trust has terminated other than its contention that the "Church" no longer exists. There is a clear dispute as to any suggestion that the Trust has terminated and any inference from the applicant that it may have ended is quite unsubstantiated. I reject this claim. [33] Further, I am satisfied that the respondents' claim in the caveat is made in their capacity as trustees of the Trust and not in any personal capacity. The caveatable interest claimed refers to the 12 November 2001 Deed of Acknowledgement of Debt, and the respondents entered into this Deed strictly in their capacity as two of the trustees of the Trust. [34] For these reasons, I dismiss the first ground advanced by the applicant noted in paragraph [25](a) above. [35] I turn now to the second ground noted in paragraph [25](b) above. This is to the effect that if a caveatable interest did exist under the Deed of Acknowledgement of Debt, it lapsed on 12 November 2006, and on that date the properties vested absolutely in the applicant pursuant to the provisions in the Deed.[36] The caveat in question here claims an estate or interest by virtue of a constructive trust whereby the applicant holds the land in trust for the respondents in their capacities as trustees of the Trust. [37] Commentators have said that there is no clear and all-embracing definition of a constructive trust, but nevertheless, a constructive trust generally arises where one party (the trustee) retains benefits in breach of its equitable obligations to the other party (the beneficiary). It implies a fiduciary duty on the part of the trustee – Butler & Others "Equity and Trusts in New Zealand" Brookers Wellington 2003, paras 12.1.1, 12.1.3 and 12.2.1. [38] In the present case I am satisfied that the specific provisions included in the Deed of Acknowledgement of Debt do create a continuing equitable interest in the properties in favour of the Trust under a constructive trust. [39] Paragraph 4.1 of the Deed of Acknowledgement of Debt notes that the transfer of the properties to the applicant is purely "by way of security for the loan (approximately $35,000)". Paragraph 4.2 of the Deed of Acknowledgement of Debt provides clearly for the retransfer of the properties to the Trust upon repayment of the loan. [40] I have no hesitation in finding that when the Deed of Acknowledgement of Debt was signed on 12 November 2001 and the properties transferred to the applicant, the Trust and the respondents as trustees retained an equitable interest in the properties under a constructive trust in terms of the test outlined in the established authorities, including Buddle v Russell [1981] 1NZLR 537, Attorney- General for Hong Kong v Reid (1994) 1 AC 324, Alexander v Henry (HC Christchurch, 14 June 1996, M121/96, Master Venning) and Allen v Hogan Developments Limited (2001) 4 NZ Conv. Cases 193,420. [41] Before me, Ms Woodroffe for the applicant acknowledged as much. She contended, however, that any caveatable interest held over the properties lapsed on 12 th November 2006 when in terms of the Deed of Acknowledgement of Debt the properties vested absolutely in the applicant.[42] This argument is founded on the provision contained in paragraph 5.2 of the Deed of Acknowledgement of Debt (noted at paragraph [12] above) which states:5.3 In the event that the Wanganui Samoan AOG fails to make repayment of the loan amount as described in clause 3.2 above, and in accordance with clause 5.1 above, the title of the properties as listed in the First Schedule of (sic) shall remain the property of the Samoan AOG-NZ absolutely.[43] The applicant's argument follows that as the Trust failed to repay the $35,000 (approximately) loan outstanding five years from the date of the Deed of Acknowledgement of Debt (on or by 12th November 2006), this paragraph 5.2 kicks into operation and automatically "the title of the propertiesshall remain the property of the (applicant) absolutely". [44] Turning to consider this argument, the first point to note is that paragraph 5.2 predicates its coming into operation with the words:In the event that the Wanganui Samoan AOG fails to make repayment of the loan amount as described in 3.2 above, and in accordance with clause 5.1 above (emphasis added)[45] Paragraph 3.2 of the Deed of Acknowledgement of Debt states:3.2 In the event that the Wanganui Samoan AOG attains the position of being able to repay the loan, the parties will in good faith enter into negotiations with the objective of reaching agreement as to the repayment schedule and the issue of ownership of the properties listed in the first schedule. (emphasis added)[46] Paragraph 5.1 of the Deed of Acknowledgement of Debt in turn states:5.1 The property as described in the First Schedule shall be held by the Samoan AOG-NZ on trust for the Wanganui Samoan AOG until such time as negotiations as described in clause 3.2 have taken place, or the expiration of a five year period from the date of this Deed, whichever may be first.[47] What appears to be abundantly clear from these provisions is that retention of ownership of the properties by the applicant is to occur in terms of paragraph 5.2 in the event that the Trust fails to "make repayment of the loan amount as described inclause 3.2" of the Deed of Acknowledgement of Debt. Clause 3.2 in turn provides for the parties "in good faith to enter into negotiations with the objective of reaching agreement as to a repayment schedule and the issue of ownership of the properties". [48] In my view, these provisions clearly envisage the parties under paragraph 3.2 negotiating to reach agreement as to a repayment schedule for the loan (which presumably may require scheduled loan repayments extending out beyond 12 November 2006), and to discuss the issue of ownership of the properties within the five year period from the date of the Deed (12 th November 2001). [49] That this may not have occurred in the present case by 12 November 2001 may well have arisen for any number of reasons. [50] As I see it, the best that can be said here for the applicant is that prior to 12 thNovember 2006 no agreement was reached with the Trust regarding a repayment schedule for the loan. To suggest, as the applicant does, that the full $35,000 (approximately) loan must have been repaid by 12 th November 2006, failing which ownership of the properties remained for all time with the applicant absolutely, in my view is arguably erroneous. [51] To me, a detailed enquiry into what may have happened between the applicant and both the respondents and the Trust during this period up to 12 thNovember 2006, which would be an intensely factual enquiry, is required. The applicant clearly held title to the properties from November 2001 as a bare security for its loan to the Trust. To retain those properties now on a unilateral basis over the insistence of the respondents that the Trust from as early as 5 December 2006 was in a position to repay the loan and tried to do so may well be regarded as dubious at best and draconian at worst. There is a reasonable argument, as I see it, that the applicant is seeking a windfall here. [52] And what is clear from submissions made by counsel for the respondents before me is that the respondents and the Trust are on the cusp of commencing substantive proceedings against the applicant, challenging whether the Deed ofAcknowledgement of Debt has resulted in the applicant obtaining the entire fee simple to the properties for all time. Counsel for the respondents has confirmed that these proceedings would seek: a) A declaration that the transfer of 12 th November 2001 to the applicant was simply by way of mortgage or security. b) An order obliging the applicant to accept the respondents' offer to redeem the loan. c) An order compelling the applicant to transfer the legal estate to the properties back to the Trust. d) An accounting of profits made by the applicant from the properties whilst holding them in trust for the respondent Trust. e) An order allowing set-off of any profits revealed against sums due to the applicant on the loan. [53] As to these aspects, counsel for the respondents confirmed that the respondent Trust is able and prepared to make an immediate voluntary payment of $35,000 to be held wherever directed until disposal of the proposed substantive proceedings. This payment could be made into Court if required. [54] Counsel for the respondents confirms also that the respondents have made repeated efforts since 5 December 2006 to repay the $35,000 (approximately) loan owing to the applicant, but in each case these have been rejected. [55] That said, I am of the view that the applicant is unable to say here, as it has endeavoured to do, that simply by its failure to repay the loan by 12 th November 2006 the Trust and the respondents as trustees therefore have lost all right to redeem the debt and all interest in the properties pursuant to clause 5.2 of the Deed of Acknowledgement of Debt. In my view, the applicant's suggestion ignores two things. The first is what is a possible and likely interpretation of the provisions in the Deed of Acknowledgement of Debt noted in paragraph [12] above, which wouldrequire simply that by 12 November 2006 in terms of clause 3.2, the parties were "in good faith (to) enter into negotiations with the objective of reaching agreement as to the repayment schedule and the issue of ownership of the properties". And the second is the absence of any real evidence before the Court as to what efforts "in good faith" may have been made, ignored (or avoided) by either party in the period up to that date. [56] I remind myself that the respondents to successfully oppose the present application to remove the caveat are required simply to meet what is essentially a low threshold of establishing a reasonably arguable case to their caveatable interest. That said I am satisfied here that the respondents have done sufficient to establish that reasonably arguable case to the caveatable interest claimed. The respondents clearly had an equitable interest in the properties pursuant to the Deed of Acknowledgement of Debt, at least up to 12 November 2006, and I am satisfied there is a reasonable argument which needs to be tested at substantive hearing, that this interest continued after that date. [57] For these reasons I am satisfied that the respondents have satisfied the burden upon them of establishing a reasonably arguable case to the equitable interest claimed in the properties, the protection of which the continued existence of the caveat is justified. [58] The essential dispute between the applicant, the respondents and the Trust here is over the ownership of these property assets. There is no doubt the properties were assets of the Trust, at least until 2001. The Trust through the respondents maintains that the bare security held by the applicant over these properties must now come to an end when the debt (if any) owing is repaid and the properties be re- transferred to the Trust. There are significant factual issues to be resolved between the parties which may well require viva voce evidence. Caveat proceedings are not an appropriate vehicle to deal with these. The substantive proceedings which the respondents intend to bring will provide the appropriate forum for these disputes to be resolved.[59] I turn now to consider one final issue raised here. This relates to the residual discretion the Court has to allow a caveat to lapse, even if the Court accepts, as I do here, that the applicant has a reasonably arguable case for the interest claimed. [60] To exercise this residual discretion and make an order for removal of a caveat, the Court is required to be completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced – Pacific Homes (in receivership) v Consolidated Joinery Limited [1996] 2 NZLR 652. The discretion is also always to be exercised on a cautious basis – Stewart v Kaipara Consultants Limited [2003] NZLR 55 (CA) and Pacific Homes. [61] It is often said, too, that the onus must lie on the party challenging the caveat, in this case the applicant, to show why the residual discretion should be exercised to remove the caveat. This is because the residual discretion is exercisable only where the Court is "completely satisfied" that removal would not prejudice the caveator's interests, so in the absence of evidence on that point, the caveat should be sustained – see Hinde McMorland & Sim "Land Law in New Zealand" para 10.020(c). [62] In considering aspects of prejudice in the present case, in my view any order for removal of the caveat would unduly prejudice the respondents here. It would enable the applicant to sell or deal with the properties as it saw fit, and if transfers of the titles were to occur, to prevent the respondents from ultimately obtaining an order for the re-transfer of the properties to the Trust. [63] By the same token, I do not see in the present case that the applicant would suffer undue prejudice if the caveat is to remain in place. There is no suggestion, as I understand it, that the properties have been, or are about to be sold, or otherwise disposed of. [64] For these reasons I am satisfied that this is not an appropriate case for the Court to exercise its residual discretion and to make an order for the removal of the caveat.Conclusion[65] For the reasons I have outlined above, the application by the applicant for an order removing the caveat has failed. [66] It is clear from s143(2) Land Transfer Act 1952 that on an application such as the present made pursuant to that section, the Court "may make such order in the premisesas to the Court seems meet". [67] The Court is also able to make orders under s143 subject to conditions –Varney v Anderson [1988] 1 NZLR 478. This is appropriate here.Orders[68] The following orders are now made: a) An order is now made, therefore, that caveat no. 6701639.1 lodged against Certificates of Title WN31A/586, WN266/263, WN267/62 and WN266/152 shall not lapse until further order of this Court. b) The order made above that the caveat shall not lapse is conditional upon the respondents within 20 working days of the date of this judgment commencing substantive proceedings which effectively challenge whether the Deed of Acknowledgement of Debt resulted in the applicant obtaining the entire fee simple to the properties, and those proceedings subsequently being pursued by the respondents with all reasonable diligence. If this condition is not satisfied, then the way is open to the applicant to apply to this Court on notice for a discharge of this order. c) As to costs, the respondents have been successful in opposing the application to remove the caveat and are entitled to an order for costs in the normal way. Costs are therefore awarded to the respondents against the applicant with respect to this application calculated on a2B basis, together with disbursements if any as approved by the Registrar."Associate Judge D.I. Gendall"Solicitors:Woodroffe Law Partnership, Auckland for Applicant Jack Riddet Tripe, Wanganui for Respondents