Mackenzie v Richard Kidd Marketing Ltd [2007] WSSC 41 (21 May 2007)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

IN THE MATTER:

of Caveat 27045x affecting alol that land at Laloanea/Aleisa and Lotopa respectively described as Parcels 832 & 71/40 Plan 1958L, LR 41/112 & 41/114 9 (Laloanea/Aleisa) and Parcel 357, Plan 83 U/VS, LR 10/121 (Lotopa) of which Roderick Ignatius Mackenzie is the registered owner.

BETWEEN:

RODERICK IGNATIUS MACKENZIE
sole trader trading as R & J Mackenzie Enterprises and or R&J Mackenzie Wholesale of Pesega/Lotopa near Apia.
Applicant

AND:

RICHARD KIDD MARKETING LIMITED
a duly incorporated company in Auckland New Zealand.
First Respondent

AND:

REGISTRAR OF LANDS
Second Respondent

Counsel: J Brunt for applicant
R Drake for first respondent
M Mālietoa for second respondent

Judgment: 21 May 2007

JUDGMENT OF SAPOLU CJ

The applicant’s motion

In these proceedings the applicant is Roderick Mackenzie who is a sole trader trading as R & J Mackenzie Enterprises and/or R & J Mackenzie Wholesaler; the first respondent is Richard Kidd Marketing Ltd which is a company incorporated in Auckland, New Zealand; and the second respondent is the Registrar of Lands.

The proceedings are concerned with a motion filed by the applicant on 6 February 2007 for an order to remove caveat 27045x lodged by the first respondent and registered by the second respondent prohibiting the registration of any dealing with real properties owned by the applicant. These properties comprise of a parcel of land at Lotopa on which the applicant is operating his business, a parcel of land at Laloanea, and a parcel of land at Falemauga. All three parcels of land were inherited by the applicant under the will of his late father who died in 1996.

Essentially, there are two grounds in support of the applicant’s motion for removal of caveat. These are: (a) the first respondent has no caveatable interest in the lands which are the subject of the caveat, and (b) the second respondent should not have accepted the caveat for registration.

Approach to affidavit conflicts in a motion for removal of caveat

In proceedings on a motion for removal of a caveat, the procedure to be followed is the summary procedure. That is to say, the Court will determine whether to remove or allow the caveat to remain on the basis of the affidavits filed in support of and in opposition to the motion and any submissions by the opposing parties. In such circumstances, there will always be conflicts between the affidavit evidence by the opposing parties. In dealing with such conflicts, I referred in Chan Chui & Sons Ltd v Pereira [2006] WSSC 34 to Barrett v IBC International Ltd [1995] 3 NZLR 170 where Cooke P said at p.175:

"Evidently the learned Master was inclined not to rule out the possibility that this new allegation might be credible. I am afraid that I am unable to take as generous a view. On the contrary, the case seems transparently to be one for application of Lord Diplock’s well known statement in Eng Mee-Yong v Letchumanon s/o Velayutham [1980] AC 331, 341;

‘"Although in the normal way it is not appropriate for a Judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement in an affidavit however, equivocal, lacking in precision, inconsistent with contemporary documents, or other statements by the same deponent, or inherently improbable in itself it may be

"That proposition has been acted on in this Court more than once. It is sufficient to refer to Bible Dymock Corporation v Patel [1987] NZCA 193; (1989) 1 PRNZ 84, 86 where encouragement was found in Lord Diplock’s words for adopting a robust and realistic judicial attitude in a summary judgment proceeding. It is material to add that Lord Diplock was actually speaking in a case about the sustainability or otherwise of a caveat."

With respect, I accept that in the normal way the summary procedure which is followed in proceedings on a motion for removal of a caveat is unsuitable for resolving factual disputes in the affidavit evidence by the opposing parties. Such factual disputes should be left for the hearing of the substantive claims by the parties when the evidence of the deponents to the affidavits will be subjected to cross-examination. However, this does not mean that the Judge is bound to accept uncritically every dispute of fact between the conflicting affidavits. If such a dispute can be resolved on the basis of the affidavits and documents before the Judge without the need for cross-examination, then it is for the Judge to resolve such a dispute during the summary procedure proceedings.

What has not been clear is how the Judge is to proceed where the factual disputes between conflicting affidavits by the opposing parties cannot be resolved without cross-examination under the summary procedure. In such a situation, the Judge is to proceed on the assumption that the factual allegations in the affidavits for the caveator are correct because the onus is on the caveator to show that he has a reasonably arguable case for maintaining his caveat: Zhong v Wang [2006] NZCA 242 at para [5] per Wild and Heath JJ and para [10] per Wiltham Young P. This is the approach I propose to follow in respect of the factual conflicts between the affidavits by the opposing parties in these proceedings where such conflicts cannot be resolved on the basis of the affidavits and annexed documents.

Where there is no conflict between the affidavits by the opposing parties on a particular matter then I will rely on the affidavits of the parties. This will be more so where the affidavits are in agreement on a matter of fact.

As the onus is on the caveator to show that he has a reasonably arguable case for maintaining his caveat, it is important that he sets out clearly in his affidavits the factual basis upon which he claims to have an interest in the land which requires protection by way of caveat. This requires more than a mere denial of the grounds in support of a motion for removal of the caveat or of the allegations in the affidavits of the applicant for removal. The caveator should also explain in a satisfactory way the legal principles upon which he relies in support of the interest which he claims in the land that is the subject of the caveat.

Background

In December 2001, Colin Richard Kidd (Mr Kidd) the managing director of Richard Kidd Marketing (RKM), the respondent company, negotiated with Roderick Mackenzie (Mr Mackenzie), the applicant, and a third party a three way joint venture arrangement. The terms of this joint venture were for RKM to source, supply and ship meat from New Zealand as well as provide plant and equipment for the operation of the joint venture in Samoa. Mr Mackenzie was to supply his land, office and shop at Lotopa as well as his staff to sell and distribute the meat supplied by RKM from New Zealand. The third party was to be the manager of the joint venture operation. Mr Kidd also discussed plans with Mr Mackenzie and the third party to build cold stores on Mr Mackenzie’s land at Lotopa where Mr Mackenzie has his shop and office. A long term and substantial operation was envisaged. It seems that the aim of the parties was to form their joint venture into a partnership at a later stage. Mr Mackenzie and the third party visited a solicitor to formally set up a joint venture but it seems nothing was done.

RKM then supplied some NZ$120,000 in meat products as its contribution to their joint venture arrangement. It also supplied plant and equipment. On 4 December 2001, RKM supplied the first orders of meat to the joint venture. RKM then continued to supply meat to the joint venture throughout 2002. In July 2002 trading deteriorated as RKM was concerned that it was owed substantial funds for its meat products supplied from New Zealand to Mr Mackenzie in Samoa. The third party was dismissed about the same time as manager of the joint venture by Mr Mackenzie. According to Mr Kidd in his affidavit, Mr Mackenzie advised him that he would try and obtain a loan to pay RKM but that was not successful. Mr Kidd then made repeated requests for some accounts and bank statements but has never been supplied with any. It is not clear how much was owed to RKM at that stage.

On 15 January 2003, Mr Kidd and Mr Mackenzie signed what both claim to be a joint venture agreement. This joint venture agreement is set out on a paper with RKM’s letterhead. It consists of only one sentence which says that it is an agreement between Mr Mackenzie and Mr Kidd that the company trading as R & J Mackenzie Wholesale Ltd is a joint venture between the parties with each party having a 50% shareholding in that company. It is not clear why this agreement was worded in this way because it was RKM, and not Mr Kidd, that was supplying meat products to Mr Mackenzie in terms of the oral joint venture arrangement that was reached in December 2001.

After February 2003, Mr Kidd declined to continue with RKM supplying meat from New Zealand to Mr Mackenzie in Samoa. According to Mr Kidd’s affidavit, RKM is owed NZ$833,635 for meat supplied to Mr Mackenzie. He admits that Mr Mackenzie made some payments but it is not clear how much. In September 2003 he came with his lawyer to Samoa. It is debatable whether during that visit by Mr Kidd, the joint venture agreement of 15 January 2003 was cancelled because the agreement which purported to cancel that joint venture agreement was signed by Mr Mackenzie and not by Mr Kidd. Mr Kidd tried to obtain payment from Mr Mackenzie for the debt owing to RKM but was told that R & J Mackenzie Wholesale Ltd had gone bankrupt. However, a search of the companies register by Mr Kidd’s lawyer revealed that that company had never been registered.

Mr Kidd claims in his affidavit that in 2002 Mr Mackenzie purchased a dry goods store for about $600,000 tala to $700,000 tala. This day dry goods shop is situated on Mackenzie’s land at Lotopa. Meat supplied by RKM were stored and displayed for sale in the shop. Mr Kidd believes that part of the proceeds from the sale of meat supplied by RKM had been used to finance the purchase and establishment of that shop. Mr Kidd also claims in his affidavit that during his visit to Samoa in September 2005 when he met with Mr Mackenzie at Mr Mackenzie’s shop at Lotopa, he observed new buildings being constructed around Mr Mackenzie’s shop at Lotopa. Mr Kidd believes that those improvements to Mackenzie’s land at Lotopa were financed with part of the proceeds from the sale of the meat RHK had supplied to Mr Mackenzie in December 2001 and throughout the whole of 2002. The timing of the construction of those buildings would suggest that they were financed from part of the proceeds of the sale of meat supplied by RKM.

Perhaps I should mention at this junction that Mr Mackenzie strongly denies in his affidavit that he owes RKM any money. H says that after consolidating his accounts he might have overpaid RKM for the meat supplied to him. This is in direct conflict with what Mr Kidd says in his affidavit. For the purposes of these proceedings I will proceed on the assumption that what Mr Kidd says in his affidavit is correct.

Mr Kidd also states in his affidavit that he has commenced separate legal proceedings for recovery of the sum of NZ$833,635 which is the balance alleged to be still owing by Mr Mackenzie to RKM for meat supplied. As I have not seen any papers for those separate legal proceedings, I would assume that they are in the name of RKM which supplied the meat. It would be a mistake to bring those proceedings under Mr Kidd’s name if the owner and supplier of the meat was RKM.

On 24 June 2004, RKM lodged a caveat with the Registrar of Lands, the second respondent, against Mr Mackenzie’s lands at Lotopa, Laloanea and Falemauga claiming an equitable interest in those lands. As earlier mentioned, all those three lands were inherited by Mr Mackenzie under the will of his late father who died in 1996. Except for the land at Lotopa, there is no evidence that any of the proceeds of the sale of meat supplied by RKM was spent on any improvement to the lands at Laloanea and Falemauga.

On 5 June 2006, the caveat was removed by order of Vaai J. According to what Mr Kidd says in his affidavit, that caveat was removed without his knowledge but with the consent of his previous solicitors. On 16 November 2006, a second caveat was lodged by the previous solicitors for RKM against the same lands which were the subject of the previous caveat which had been removed by order of Vaai J. An equitable interest is again claimed in those lands by virtue of the joint venture between RKM and Mr Mackenzie. I will deal in detail later with Mr Mackenzie’s complaint against the Registrar of Lands for accepting the second caveat. In the meantime, I will continue with the proceedings between Mr Mackenzie and RKM regarding the caveat.

Basis upon which an interest is claimed to support the caveat

In support of its caveat, RKM claims an interest in Mr Mackenzie’s lands on two basis. The first is a Quistclose trust and the second is a constructive trust. This is in the context of a joint venture arrangement. Before I deal with the two basis on which an interest is claimed in the lands to support the caveat, it is important to refer first to the concept of joint venture for it is in the context of a joint venture that RKM claims to have an interest in the lands on the basis of a Quistclose trust and a constructive trust.

The basis and context of the interest claimed to support the caveat

In support of its caveat, RKM claims an interest in Mr Mackenzie’s lands on two basis. The first is a Quistclose trust and the second is a constructive trust. I will deal with the two types of trust later in this judgment.

The context in which RKM claims an interest in Mr Mackenzie’s lands is rather unclear. In his affidavit, Mr Mackenzie refers throughout to his commercial arrangement with RKM as a joint venture. On the other land, Mr Kidd in some parts of his affidavit refers to the commercial arrangement between RKM and Mr Mackenzie as a joint venture, in some parts of his affidavit as a partnership, and in other parts as both a joint venture and a partnership. It is important to be clear first about the context in which RKM is claiming an interest in Mr Mackenzie’s lands on the basis of a Quistclose trust and a constructive trust, whether it is a joint venture or partnership, before dealing with those two types of trust.

Joint venture or partnership

Even though there are parallels between a joint venture and a partnership, there is a distinction between the two. This was explained in United Dominions Corporation Ltd v Brian Pty Ltd (1986) 157 CLR1 where Dawson J said at p.15:

"Perhaps in this country, the important distinction between a partnership and a joint venture is, for practical purposes, the distinction between an association of persons who engage in a common undertaking for profit and an association of those who do so in order to generate a product to be shared among the participants. Enterprises of the letter kind are common enough in the exploration for and exploitation of mineral resources and the feature which is most likely to distinguish them from partnerships is the sharing of product rather profit."

On the basis of what was said by Dawson J in United Dominion, Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1986) 157 CLR 1 at p.15, the learned authors of Equity and Trusts in Australia and New Zealand (2000) 2nd ed state at pp 103-104:

"Partnerships are commonly distinguished from joint venturers in that the former is an association of persons who engage in a common undertaking for profit, and the latter an association of those who do so in order to generate a product to be shared among the participants. Joint ventures are many and various in their structures and any fiduciary duties imposed by law on the participants will very according to that structure. Many joint ventures are established particularly because the venturers do not wish to be bound by obligations akin to those of partners. Others are set up because, although in many respects the venturers wish to embark upon a joint endeavour imposing fiduciary obligations, there are other aspects to their dealings where each venturer wishes to retain the right to act in accordance with the commercial considerations best suited to it."

Having cited from United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 per Dawson J at p.15 and Equity and Trusts in Australia and New Zealand (2002) 2nd ed pp103-104, I must say that the distinction between what is a joint venture and what is a partnership may still not be easy to draw. For example, in United Dominion Corporation at p.10, Mason, Brennon and Deane JJ said:

"The term ‘joint venture’ is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purpose of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scot’s law, ‘adventure’) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a joint venture and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred."

It would also seem that the use of the label joint venture to describe an arrangement between the participants is not conclusive. If the existing circumstances show that the arrangement is a partnership, then it is a partnership, notwithstanding that the participants may have used the label joint venture. In United Dominion Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, Mason, Brennon and Deane JJ in a joint judgment said at p.11:

"Under the agreement, the participants were joint venturers in a commercial enterprise with a view to profit. Profits were to be shared. The joint venture property was held upon trust. The participants indemnified the managing participant (SPL) against losses. The policy of the joint enterprise was ultimately a matter for joint decision. Apart from the absence of any reference in the agreement to ‘partnership’ or ‘partners’, the relationship between participants under the agreement exhibited all the indicia of, and plainly was, a partnership." (emphasis mine)

In the present proceedings, the arrangement that RKM, Mr Mackenzie, and a third party entered into in December 2001, was for RKM to supply meat from New Zealand to Mr Mackenzie to sell and distribute at his shop at Lotopa. RKM was also to supply plant and equipment. Mr Mackenzie was to supply his land, office, and shop at Lotopa as well as his staff to sell and distribute the meat. The third party was to be the manager of the operation. That joint arrangement started operations in December 2001. Mr Mackenzie, as earlier mentioned, refers in his affidavit to this arrangement as a joint venture and Mr Kidd in his affidavit refers interchangeably to the same arrangement as a joint venture and then as a partnership. In terms of what was said by Dawson J in United Dominions Corporation at p.15 and what is said in Equity and Trusts in Australia and New Zealand (2000) 2nd ed at pp103-104, I am of the view that the commercial arrangement between RKM and Mr Mackenzie would be a partnership rather than a joint venture. The purpose of their particular joint enterprise was mutual profit, ‘not to generate a product’ to be shared between themselves. The removal of the third party whose contribution was his managerial skills did not alter the character of the joint enterprise from a partnership to a joint venture. Nor would the use by the participants of the label joint venture. Section 4 of the Partnership Act 1975 also explains a partnership as a relation which subsists between persons carrying on a business in common with a view to profit. However, as Blanchard and Tipping JJ pointed out in Chirnside v Fay [2006] NZSC 68 at [71], the key point is not how precisely is the relationship described, whether it is a joint venture or a partnership, but whether the relationship between the parties was of a kind which gave rise to fiduciary duties on each side.

Fiduciary nature of the relationship between the parties

As earlier mentioned, in December 2001 Mr Kidd on behalf of RKM, Mr Mackenzie, and a third party entered into negotiations for a three way ‘joint venture’ arrangement. Each party had obligations to perform under that arrangement and RKM started and continued to supply meat from New Zealand pursuant to that arrangement. Mr Mackenzie and the third party visited a solicitor to formally set up a ‘joint venture’ but it seems nothing was done. The aim of the parties was to formally form their so-called ‘joint venture’ into a partnership at a later stage. However, no joint venture or partnership was formally set up between RKM and Mr Mackenzie, the third party ceased to be a participant in July 2002. I do not consider that the so called "joint venture agreement" dated 15 January 2003 between Mr Kidd and Mr Mackenzie provides any assistance as RKM is not a party to that agreement. The so called "joint venture agreement" is worded to be between Mr Mackenzie and Mr Kidd and not RKM.By the time of that agreement, the relationship between RKM and Mr Mackenzie had deteriorated to the point where RKM was no longer supplying any more meat from New Zealand to Mr Mackenzie but was trying to obtain payment from Mr Mackenzie for the meat that had already been supplied.

In the circumstances I have outlined, the relationship between RKM and Mr Mackenzie, though primarily contractual being a partnership, was a fiduciary relationship which gave rise to fiduciary duties on each party. These are duties of loyalty and good faith. In United Dominions Corporation Ltd v Brian Pty Ltd (1986) 157 CLR1, Mason, Brennan and Deane JJ said at p.11:

"It was submitted on behalf of UDC that no fiduciary relationship existed and no fiduciary duties arose between the prospective participants in the joint venture until the joint venture agreement was actually executed in July 1974. To the extent that that submission involves a general legal proposition that the relationship between prospective partners or joint venturers cannot be a fiduciary one until a formal agreement is executed, it is clearly wrong. A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligation may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation."

At p.15 Dawson J said:

"The only other thing which I wish to add is that in my view it is quite clear that a fiduciary relationship may arise during negotiations for a partnership or, for that matter, a joint venture, before any partnership or joint venture agreement has been finally concluded if the parties have acted upon the proposed agreement as they had in this case. Whilst a concluded agreement may establish a relationship of confidence, it is nevertheless the relationship itself which gives rise to fiduciary obligations. That relationship may arise from the circumstances leading to the final agreement as much as from the fact of final agreement itself. This is the view expressed in Lindley on Partnership, 15th ed (1984), at p.480, and it seems to me that as a matter of principle it must be correct."

The view that the relationship between partners is of a fiduciary nature had been earlier expressed in the High Court of Australia in the case of Birtchnell v Equity Trustees Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 where Dixon J said at p.407:

"The relation between partners is, of course, fiduciary. Indeed it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners. ‘Their mutual confidence is the life-blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust one another that the business goes on’ (per Bacon V.C. in Helmore v Smith [1887] UKLawRpCh 70; (1886) 35 Ch D 436 at p.444. The relationship is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for their joint advantage only. In some degree it arises from the very fact that they are associated for such a common end and are agents for one another in its accomplishment. Lord Blackburn found in this consideration alone sufficient reason for the fiduciary character of the partnership relation (Cassels v Stuart (1881) 6 App Cas. At p.79.

In the Supreme Court of New Zealand in the recent case of Chirnside v Fay [2006] NZSC 68, Blanshard and Tipping JJ stated at para [74]:

"There is a strong case for saying that most joint venture relationships can properly be regarded as being inherently fiduciary because of the analogy with partnership. The relationship between partners is one which has traditionally been regarded as a classic example of a fiduciary relationship in that the parties owe to each other duties of loyalty and good faith; and they must, in all matters relevant to the activities of the partnership, put the interests of the partnership ahead of their own personal interests."

When discussing the types of relationship which would be likely to give rise to fiduciary duties and obligations in Estate Realties Ltd v Wignall [1981] 3 NZLR 482, Tipping J said at p.492:

"The cases demonstrate that a fiduciary relationship will arise where one party is 'reasonably entitled to repose and does repose trust and confidence in the other, either generally or in the particular transaction: see per Casey J in Day v Mead ([1987] 2 NZLR 443) where His Honour said that the relationship in question in that case ‘generated that degree of confidence and trust which in my view justifies the intervention of equity.’ What must be asked is whether the circumstances in the present transaction were such that Estate Realties Ltd were reasonably entitled to and did place confidence and trust in Egden Wignall & Co. The answer in my view must be in the affirmative."

Applying these statements of principle to the circumstances of the present proceedings, the relationship between RKM and Mr Mackenzie when they entered into negotiations to form a joint venture business at the beginning of December 2001 was a fiduciary relationship. It was founded on mutual confidence that the parties will embark on their joint venture for their joint advantage. As partners in their joint arrangement they owed each other the fiduciary duties of loyalty and good faith. They were to put the interests of their partnership ahead of their own personal interests. The same fiduciary relationship and duties continued throughout the whole time that RKM supplied meat from New Zealand to Mr Mackenzie in Samoa starting from December 2001 until RKM ceased to supply any more meat in 2002.

As the fiduciary relationship between the parties turned out, according to the affidavit of Mr Kidd, Mr Mackenzie failed to make substantial payments for the meat supplied by RKM. When RKM ceased to supply any more meat, the total amount which had not been paid was NZ$833,635. Attempts by RKM to obtain payment from Mr Mackenzie were met with the response that R & J Mackenzie Wholesale Ltd had gone bankrupt. This company never existed as it was never registered. RKM claims that part of the proceeds of the sale of the meat it had supplied had been used by Mr Mackenzie to make certain business improvements to his land at Lotopa where his own trading business operates from.

On the basis of the affidavit evidence adduced by RKM through Mr Kidd, there is no doubt that Mr Mackenzie had breached the fiduciary duties which it owed RKM under their partnership or ‘joint venture’ as it is sometimes referred to. This will be the subject of debate at the substantive hearing of RKM’s claim as Mr Mackenzie denies owing any money to RKM. In saying that it believes Mr Mackenzie had used part of the proceeds from the sale of the meat it supplied to him to make business improvements to his land at Lotopa, RKM is claiming an interest not only in Mr Mackenzie’s land at Lotopa but also his lands at Laloanea and Falemauga. The legal basis on which RKM is claiming this proprietary interest is Quistclose trust and a constructive trust. This is the same proprietary interest upon which RKM relies to support its caveat.

Quistclose trust

The type of situation where a Quistclose trust would arise would be where money is advanced by one person to another for a particular purpose to be used ‘only’ or ‘exclusively’ for that particular purpose. The beneficial ownership of the money will remain with the lender until it is used for the particular purpose for which it was advanced to the borrower. The borrower, on the other hand, will hold the money on trust for the lender until it is used for the particular purpose for which it was advanced. If the particular purpose fails, then the borrower would have to return the money to the lender who retains the beneficial ownerships in the money. The name of the trust by which the money is held for the particular purpose for which it was advanced is Quistclose trust. It is a kind of resulting trust. The effect of this is that if the borrower becomes insolvent, his creditors cannot lay claim to the money advanced to the borrower because that money has been impressed by law with a Quistclose trust under which the beneficial interest remains with the lender.

The circumstances of these proceedings are far removed from the type of situation where a Quistclose trust would arise. So the claim by RKM to a proprietary interest on the basis of a Quistclose trust in Mr Mackenzie’s lands to sustain its caveat is plainly untenable. However, as this is the first Samoan case in which a Quistclose trust has been raised, I will refer to what must be the most erudite judicial exposition of a Quistclose trust so far.

The Quisclose trust was explained in Twinsectra Ltd v Yardley and others [2002] UKHL 12 where Lord Millet stated at paras 68 and 69:

"68. Money advanced by way of loan normally becomes the property of the borrower. He is free to apply the money as he chooses, and save to the extent to which he may have taken security for repayment the lender takes the risk of the borrower’s insolvency. But it is well established that a loan to a borrower for a specific purpose where the borrower is not free to apply the money for any other purpose gives rise to fiduciary obligations on the part of the borrower which a Court of equity will enforce. In the earlier cases the purpose was to enable the borrower to pay his creditors or some of them, but the principle is not limited to such cases.

"69. Such arrangements are commonly described as creating ‘a Quistclose trust,’ after the well-known decision of the House in Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567 in which Lord Wilberforce confirmed the validity of such arrangements and explained their legal consequences. When the money is advanced, the lender acquires a right, enforceable in equity, to see that it is applied for the stated purpose, or more accurately to prevent its application for any other purpose. This prevents the borrower from obtaining any beneficial interest in the money, at least while the designated purpose is still capable of being carried out. Once the purpose has been carried out, the lender has his normal remedy in debt. If for any reason the purpose cannot be carried out, the question arises whether the money falls within the general fund of the borrower’s assets, in which case it passes to his trustee-in-bankruptcy in the event of his insolvency and the lender is merely a loan creditor; or whether it is held on a resulting trust for the lender. This depends on the intention of the parties collected from the terms of the arrangement and the circumstance of the case."

In explaining the effect of a Quistclose trust, Lord Millet went on to say at paras 73 and 74:

"73. A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cash-flow. Commercial life would be impossible if this were not the case.

"74. The question in every case is whether the parties intended the money to be at the free disposal of the recipient: In re Goldcorp Exchange Ltd [1995] 1 AC74, 100 per Lord Mustill. His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose, for as Lord Wilberforce observed in the Quistclose case [1970] AC 567, 580:

‘"A necessary consequence from this, by a process simply of interpretation, must be that if, for any reason, [the purpose could not be carried out,] the money was to be returned to [the lender]: the word ‘only’ or ‘exclusively’ can have no other meaning or effect’"

Lord Millet went on to explain that with money impressed with a Quisclose trust, the beneficial ownership is with the lender and the borrower has no beneficial interest. In paras 80-83 His Lordship said:

"80. (i) The Lender. In The Quisclose Trust: Who Can Enforce It: (1985} 101 LQR, 269, I argued that the beneficial interest remained throughout in the lender. This analysis has received considerable though not universal academic support... Gummow J [in In re Australian Elizabethan Theatre Trust [1991] FCA 344; (1991) 102 ALR 681] saw nothing special in the Quisclose trust, regarding it as essentially a security device to protect the lender against other creditors of the borrower pending the application of the money for the stated purpose.

"81. On this analysis, the Quistclose trust is a simple commercial arrangement akin (as Professor Bridge observes) to a retention of title clause (though with a different object) which enables the borrower to have recourse to the lender’s money for a particular propose without entrenching on the lender’s property rights more than necessary to enable the purpose to be achieved. The money remains the property of the lender unless and until it is applied in accordance with his directions, and insofar as it is not so applied it must be returned to him. I am disposed, perhaps predisposed, to think that this is the only analysis which is consistent with orthodox trust law and with commercial reality...

"82. The borrower. It is plain that the beneficial interest is not vested unconditionally in the borrower so as to leave the money at his free disposal. That would defeat the whole purpose of the arrangements, which is to prevent the money from passing to the borrower’s trustee-in-bankruptcy in the event of his insolvency. It would also be inconsistent with all the decided cases where the contest was between the lender and borrower’s trustee-in-bankruptcy, as well as with the Quistclose case itself...

"83. The borrower’s interest pending the application of the money for the stated purpose or its return to the lender is minimal. He must keep the money separate; he cannot apply it except for the stated purpose; unless the terms of the loan otherwise provide he must return it to the lender if demanded; he cannot refuse to return it if the stated purpose cannot be achieved; and if he becomes bankrupt it does not vest in his trustee in bankruptcy. If there is any contest to beneficial ownership at all, the lender is the beneficial owner and the borrower is not."

And then at para 100 Lord Millet stated:

"[I] hold the Quistclose trust to be an entirely orthodox example of the kind of default trust known as a resulting trust. The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money, and insofar as he does not it is held on a resulting trust for the lender from the outset. Contrary to the opinion of the Court of Appeal, it is the borrower who has a very limited use of the money, being obliged to apply it for the stated purpose or return it. He has no beneficial interest in the money, which remains throughout in the lender subject only to the borrower’s power or duty to apply the money in accordance with the lender’s instructions. When the purpose fails, the money is returnable to the lender, not under some new trust in his favour which only comes into being on the failure of the purpose, but because the resulting trust in his favour is no longer subject to any power on the part of the borrower to make use of the money. Whether the borrower is obliged to apply the money for the stated purpose or merely at liberty to do so, and whether the lender can countermand the borrower’s mandate while it is still capable of being carried out, must depend on the circumstances of the particular case."

Finally at para 102, Lord Millet stated:

"102. Like all resulting trusts, the trust in favour of the lender parts with the money on terms which do not exhaust the beneficial interest. It is not a contingent reversionary or future interest. It does not suddenly come into being like an eighteenth century use only when the stated purpose fails. It is a default trust which fills the gap when some part of the beneficial interest is undisposed of and prevents it from being ‘in suspense."’

As earlier mentioned, the circumstances of the present proceedings are far removed from the type of situation where a Quistclose trust may arise. No money was lent or advanced by RKM to Mr Mackenzie to be used ‘only’ or ‘exclusively’ for a particular purpose. Only goods in terms of meat as well as plant and equipment were supplied by RKM to Mr Mackenzie. Thus no Quistclose trust could have arisen. The New Zealand Court of Appeal decision in Zhong v Wang [2006] NZCA 242 upon which RKM relied was concerned with moneys (not goods, plant or equipment) advanced by the appellant to the respondent for the purpose of gaining residence in New Zealand. The majority of the Court in that case held that a Quistclose trust did not arise; the minority held to the contrary. So there was money advanced by one party to another party for a purpose. Such a situation is quite different from the situation in these proceedings where no money was lent or advanced for a particular purpose from RKM to Mr Mackenzie.

Constructive trust

The other basis upon which RKM relies for claiming a proprietary interest in Mr Mackenzie’s lands is a constructive trust. However, it was not explained which type of constructive trust is being relied upon by RKM.

There are two types of constructive trust: institutional and remedial. These are explained in Equity and Trusts in Australia and New Zealand (2000) 2nd ed by Dal Pont and Chalmers where the learned authors state at pp 964-965:

"The principal hallmark of an ‘institutional constructive trust is that it arises by operation of law as from the date of circumstances which give rise to it: the function of the Court is merely to declare that such trust has arisen in the past. Those circumstances are recognised by law as defined categories which give rise to an interest to which the Court gives effect from the date when the defining events occurred. Two further points must be made in this context. First, although described as institutional, the trust in such cases is not deprived of all remedial character, as the trust in such a case is most commonly used as a vehicle through which a person who has committed a breach of a pre-existing duty (whether as principal or as a party) is made accountable for that breach. Secondly, although strictly speaking the use of the term ‘trust’ carries with it a notion that a proprietary interest is given effect to, in the context of the institutional constructive trust, the term is also used to describe personal accountability."

The learned authors then go on to explain what is a ‘remedial’ constructive trust by saying:

"The ‘remedial’ constructive trust does not exist at all until the Court imposes it, meaning that it is not premised on any pre-existing relationship between the parties giving rise to legal duties. The trust acts merely as a remedy for an independent cause of action, constituting a judicial response to a triggering event, rather than a triggering event in itself. What is required is that there be some asset in the defendant’s hands in respect of which the Court considers it appropriate to impose a trust, and some principled basis for declaring assets by A should be held on trust for B, both vis-à-vis A and any third person who has a proper interest in the asset affected by the imposition of the trust."

It would seem that in the circumstances of these proceedings, the type of constructive trust that RKM is relying upon is an institutional constructive trust. The reason is that the claim by RKM to a proprietary interest in Mr Mackenzie’s lands is based on their pre-existing relationship as partners in their joint enterprise and the alleged breach by Mr Mackenzie of his fiduciary duties under the partnership or ‘joint venture’ as the parties sometimes called it. That being so, it would be helpful to refer to the conditions which must be satisfied before the Court imposes an institutional constructive trust. In Son & Kim v Ko & Others [2006] NZHC 1131, Baragwanath J at para [49] said:

"[49] Here the defendants appear to be arguing for the imposition of an institutional constructive trust. The test for imposing such a trust was stated by McLachlin J for the majority of the Supreme Court of Canada in Soulos v Korkontzilas (1997) 146 DLR (4th) 214. Four conditions should be satisfied before the Court imposes an institutional constructive trust (p230):

"(i) The defendant must have been under an equitable obligation, that is, an obligation of the type that Courts of equity have enforced, in relation to the activities giving rise to the assets in his lands;

"(ii) The assets in the lands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

"(iii) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and

"(iv) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g. interests of intervening creditors must be protected."

In the present proceedings, both RKM and Mr Mackenzie owed to one another fiduciary duties founded on mutual trust and confidence as partners in their joint enterprise. Fiduciary duties are equitable obligations and have been traditionally enforced by Courts of equity. It is claimed by RKM that in breach by Mr Mackenzie of his fiduciary duties, he had used part of the proceeds from the sale and distribution of meat supplied by RKM to make his own business improvements to his land at Lotopa. In such a situation, there is a clear need to ensure that parties to a partnership remain faithful to their fiduciary duties of loyalty and good faith. I also do not see any factors which would render the imposition of an institutional constructive trust unjust provided it is limited to Mr Mackenzie’s land at Lotopa.

Constructive trust and caveat

In New Zealand there is some authority that only an institutional constructive trust can support a caveat lodged prior to proceedings for removal of a caveat but not a remedial constructive trust: Land Law in New Zealand (2003) vol 1 by Hinde, Sion & McMorland at 10.009 (d) p.561; New Zealand Land Law (2005) by Bennion et al 4.7.07 (d) (i) pp 236-237. The reason given for this view is based on the distinction between an institutional constructive trust and a remedial constructive trust explained in Fortex Group Ltd v Macintosh [1998] 3 NZLR 171 where Tipping J said at pp 172-173:

"[An] institutional constructive trust arises upon the happening of the events which bring it into being. Its existence is not dependent on any Order of the Court. Such order simply recognises that it came into being at the earlier time and provides for its implementation in whatever way is appropriate. A remedial constructive trust depends for its existence on the Order of the Court; such order being creative rather than simply confirmatory."

It follows from the distinction explained in Fortex Group Ltd v Macintosh [1998] 3 NZLR 171, 172-173 that since a remedial constructive trust only comes into being at the time it is declared by the Court, such a trust cannot support a caveat which was lodged prior to the order of the Court declaring its existence. An institutional constructive trust on the other hand does not depend for its existence on an order of the Court as it arises prior to and independent of an order of the Court which simply confirms it existence.

What is not explicit from the above analysis is whether a remedial constructive trust can support a caveat after it has been declared by the Court and comes into existence. This would normally be when the merits of the substantive claim by the caveator had been heard and determined by the Court. In principle, I see no reason why a remedial constructive trust cannot support a caveat after it has been declared to exist by an order of Court, that is, if the reason why it cannot support a caveat prior to an order by the Court is that a remedial constructive trust had not come into existence at that point in time.

Application of the institutional constructive trust to the caveat in these proceedings

It would be recalled that the lands which are the subject of RKM’s caveat are lands which were inherited by Mr Mackenzie under the will of this late father. The lands were not acquired by Mr Mackenzie in connection with his commercial relationship with RKM which is of a fiduciary nature. As pointed out in Equity and Trusts in Australia and New Zealand (supra) at p.968, the doctrine of constructive trust does not apply to gains unconnected with any fiduciary relationship. The only gains alleged against Mr Mackenzie which have any connection to the fiduciary relationship that existed between Mr Mackenzie and RKM is the alleged use by Mr Mackenzie, in breach of his fiduciary duties, of part of the proceeds from the sale and distribution of meat supplied by RKM to make improvements to his land at Lotopa where his own business is operating from. There is, however, no connection between Mr Mackenzie’s lands at Laloanea and Falemauga and his fiduciary relationship with RKM

It follows that the constructive trust claimed by RKM can have no application to Mr Mackenzie’s lands at Laloanea and Falemauga. The caveat should therefore be removed in respect of those lands.

Whether the second respondent should have rejected the caveat

The second general ground of the motion by Mr Mackenzie for removal of the caveat is that the second respondent, the Registrar of Lands, should not have accepted the caveat when it was lodged. In support of this general ground, counsel for Mr Mackenzie relies on two specific grounds set out in his written submissions.

The first specific ground is that RKM had lodged a previous caveat against Mr Mackenzie’s lands and that caveat was removed by consent by order of the Court on 5 June 2006. Counsel for Mr Mackenzie then says in his written submissions that the second caveat, which is the subject of these proceedings, should not have been accepted by the Registrar. He relies for that submission on a passage in New Zealand Land Law (2005) by Bennion et al, 4.12.01 (1) at p.279. That passage refers to s.143 of the Land Transfer Act 1952 (NZ) which provides that where a caveat has lapsed or has been removed, no second caveat may be lodged by or on behalf of the same person in respect of the same interest except by order of the Court. Counsel then points out that the second caveat was lodged and accepted by the Registrar without an order of the Court.

The second specific ground raised by counsel for Mr Mackenzie is that the present caveat, which is the second caveat, is defective in form and on that basis should not have been accepted by the Registrar. He points out that the present caveat is dated 22 November 2006; it was lodged on 13 October 2006; and it was registered on 16 November 2006. This means that the caveat was lodged and registered before it came into existence.

Counsel for the Registrar of Lands in his written submissions says that the previous counsel for RKM had presented a caveat on 13 October 2006 to the Registrar. The Registrar after reviewing that caveat found that it disclosed no caveatable interest. Counsel for RKM was accordingly informed and the caveat was returned to her. After counsel had revised that caveat, she presented a revised caveat to the Registrar on 16 November 2006. That revised caveat was accepted and reviewed by the Office of the Registrar and was registered by the Registrar on the same day, 16 November 2006, as in the opinion of the Registrar the revised caveat disclosed a caveatable interest. If this is correct, then it would mean that there was an error in dating the revised caveat "22 November 2006". According to the affidavit filed on behalf of the Registrar, the date "22 November 2006" was written on the revised caveat by the pervious counsel for RKM. This is the caveat which is the subject of the present proceedings.

The question for determination is whether the Registrar should have rejected the revised caveat on the grounds that: (a) a previous caveat lodged for registration in respect of the same lands had been removed by consent by order or the Court, and (b) the revised caveat is defective as to form in that it was lodged, accepted and registered on 16 November 2006 even though dated 22 November 2006. I will deal with each of those two grounds in turn.

In respect of the first ground, a caveat is a creature of statute and the caveat procedure is a statutory procedure. The powers of the Registrar to deal with a caveat that has been lodged in respect of an estate or interest in land are also statutory powers being powers conferred by the Land Registration Act 1992/1993. There was also no submission from any of the counsel that the Registrar has any common law powers in this regard.

In New Zealand Land Law (2005) by Bennion et al at 4.12.01 (1) p.279, cited by counsel for Mr Mackenzie, the learned authors state:

"Where a caveat has lapsed or has been removed under s.143, no second caveat may be lodged by or on behalf of the same person in respect of the same interest, except by order of the High Court. The Registrar is not obliged to look further than the current title to verify that a caveat does not breach this prohibition.

"Where a second caveat is lodged contrary to the prohibition in s.148, the Court will declare such second caveat to be void."

A similar passage is to be found in Land Law in New Zealand (2003) vol 1 by Hinde, McMorland & Sim at p.615 where the learned authors state:

"When any caveat has been removed or has lapsed, s.148 of the Land Transfer Act 1952 provides that no second caveat may be lodged by or on behalf of the same person in respect of the same interest except by order of the High Court.

"The prohibition in s.148 cannot be avoided by framing the second claim in a different manner when it in fact relates to the same alleged interest."

Whilst I am grateful to Mr Brunt for his submission which has effectively pointed out what is a lacuna in the existing provisions of the Land Registration Act 1992/1993, I think he is also aware of the difficulty involved in applying the passages just cited to the present proceedings. The difficulty is that is there is no provision in the Land Registration Act 1992/1993 which is similar to s.148 of the Land Transfer Act 1952 (NZ). In consequence, there is no prohibition under the existing provisions of the Land Registration Act 1992/1993 against a second caveat lodged by or on behalf of the same person in respect of the same interest in land in relation to which a previous caveat had been lodged with the Registrar and that caveat had been removed by order of the Court. One would have thought that there should have been such a prohibition. But there is none. This is a serious loophole which can only be cured by an appropriate amendment to the Act.

There is another difficulty. One would need to see the first caveat to find out the interest that was sought to be protected in that caveat and whether it is the same interest which is sought to be protected in the second caveat. The first caveat lodged by RKM was not produced so that it is not possible to say whether the interest sought to be protected in the first caveat is the same as the interest sought to be protected in the second caveat.

In respect of the second ground in support of Mr Brunt’s submission that the Registrar should have rejected the revised caveat lodged by previous counsel for RKM, I wish to refer to a passage in Land Law in New Zealand (2003) vol 1 by Hinde, McMorland & Sim at p.592 where the learned authors state:

"The Registrar is required by s.137 (4) of the Land Transfer Act 1952 to enter caveats on the register ‘as of the day and hour of their receipt.’

"By s.148A of the Land Transfer Act 1952 the Registrar is required to ensure only that the caveat complies on its face with the requirements of the Act, and is not otherwise required ‘to be satisfied that the caveator is in fact or in law entitled to the estate or interest claimed in the caveat.’ Provided that the caveat is in proper form the Registrar is therefore under a duty to enter the caveat: there is no discretion. In Kuper v Keywest Construction Pty Ltd (1990) 3 WAR 419 at 433 it was said that:

"The function of the Registrar in receiving a caveat is....limited to determining whether the caveat is in proper form. This is an administrative rather than an adjudicative function. Once satisfied regarding the form the Registrar is under a duty to accept the caveat and comply with....the Act.’

"Upon receipt of any caveat the Registrar must under s.142 of the Land Transfer Act 1952, give notice thereof to the registered proprietor against whose title the caveat has been lodged."

There is no provision in the Land Registration Act 1992/1993 like s.148A of the Land Transfer Act 1952 (NZ). Section 24 (a) of the Land Registration Act 1992/1993 which would be the nearest provision to s.148A of the New Zealand Act provides:

"Upon the receipt of any caveat the Registrar shall enter a memorial thereof in the Land Register and shall give notice of the same to the person against whose estate or interest the caveat has been lodged."

It would seem that under s.24 (a) the Registrar has no discretion. When he receives "any caveat" he must enter a memorial thereof in the Land Register. He must also give notice of the caveat to the person against whose estate or interest the caveat has been lodged.

As I read s.24 (a) of the Act, it gives the Registrar no power to reject the revised caveat that was lodged by the previous counsel for RKM. All that the Registrar was required to do was to enter a memorial in the Land Register and give notice of the caveat to Mr Mackenzie against whose lands the caveat had been lodged. It was then for Mr Mackenzie to apply to the Court under s.24 (b) for an order to have the caveat removed if he wanted to which he has done.

It would follow from what has been said that under the existing provisions of the Land Registration Act 1992/1993, there is no prohibition against a second caveat being lodged by the same person in respect of the same estate or interest where a previous caveat by the same person in respect of the same interest has been removed. This is a serious loophole in the Act which should be cured by an appropriate amendment. In saying that, I was not asked to consider whether a caveator who behaves in that way may still be liable for abuse of process or contempt. I therefore express no view on that. It would also follow from what has been said that the Registrar had no power to reject the revised caveat that was lodged on 16 November 2006 though dated 22 November 2007. This is also an unsatisfactory situation as under the existing provisions of the Land Registration Act 1992/1993 there is no power given to the Registrar, as it is under s.148A of the Land Transfer Act 1952 (NZ), to ensure that a caveat is in proper form and be able to reject it if it is not in proper form.

The answer, therefore, to the question of whether the Registrar should have rejected the revised caveat, which is the caveat that forms the subject matter of these proceedings, must be in the negative. That still leaves the question of what should be done with the caveat which has been accepted by the Registrar and entered in the Land Register.

What to do with the caveat

I have already decided that RKM has a reasonably arguable case for sustaining its caveat in respect of Mr. Mackenzie’s land at Lotopa but not in respect of Mr Mackenzie’s lands at Laloanea and Falemauga. The caveat is also defective as to date. It is uncertain at this stage whether the Court has power to amend a caveat. Perhaps the Act should also be amended in this regard if it is desirable to clarify whether the Court has the power to amend a caveat. In my view, the safe way to deal with the present caveat would be to order its removal. This order is to be effective seven days from the date of this judgment. In the meantime, RKM is to file within seven days a fresh caveat to be correctly dated and must relate only to Mr. Mackenzie’s land at Lotopa.

Conclusions

For the foregoing reasons, I conclude as follows:-

(a) The present caveat is to be removed at the end of seven days from the date of this judgment.

(b) RKM is to lodge a fresh caveat within the said seven days period mentioned in (a).

(c) The fresh caveat must be correctly dated and must only be in respect of Mr Mackenzie’s land at Lotopa.

(d) RKM is also ordered to file and serve within 7 days a statement of claim setting out a cause of action for a constructive trust in respect of the proprietary interest that it claims in Mackenzie’s land at Lotopa. That statement of claim is set for mention on the first mention day following the end of the said 7 days. The normal procedure requiring a statement of defence will then follow.

Costs

As Mr Mackenzie has only partially succeeded in its application for removal of RKM’s caveat, I will award costs of $4,000 in favour of Mr Mackenzie against RKM plus reasonable disbursements to be fixed by the Registrar.

I award costs of $500 in favour of the Registrar of Lands against Mr Mackenzie.

CHIEF JUSTICE

Solicitors
Brunt & Keli Law Firm for applicant
Drake & Co for first respondent
Attorney General’s Office, Apia, for second respondent