Judgment:
(Given by Dobson J)
[1] This is an appeal from a decision of French J ordering rectification of an agreement for sale and purchase (ASP) in respect of a seaside residential property near Kaikoura (the property).[1] To effect meaningful relief, the judgment also imposed a constructive trust in respect of land that ought to have been transferred to the respondents as purchasers under the ASP, but had instead been transferred by the first appellants (Mr and Mrs Robb) to the second appellant who is their son (Gary). Gary was ordered to transfer the land to the respondents.
[2] At the conclusion of the hearing the Court dismissed the appeal, with reasons to follow. We now provide those reasons.
The facts
[3] Mr and Mrs Robb lived for many years at the coastal property which adjoins the sea at Kie Kie Bay, Kaikoura.[2] At that point, State Highway One adjoins the foreshore, with the railway line running on the inland side of the highway. Mr and Mrs Robbs property was immediately inland from the railway line, with access to it gained by way of an easement over the railway line. Behind the house and garage on the property the land rises steeply and is apparently entirely covered in bush. A part of the property closest to the railway line was held on long-term lease from the relevant New Zealand Rail property-owning entity (the Railways lease) and the balance was freehold.
[4] By late 2006 Mr and Mrs Robb had decided to sell the property and move into a rest home. Gary placed a for sale sign in the window of the house. On 4 December 2006, the first respondent (Mr James) saw the sign, knocked on the front door of the house, and had a discussion with Mrs Robb for approximately half an hour.
[5] Mr James evidence was that Mrs Robb told him that she and her husband were selling everything to move into Kaikoura for health reasons. She described the property as including the four bedroom house and the land behind the house that went down to a creek on one side and up the hill into the bush behind. Mrs Robb said she did not know exactly how far up the hill the boundary was, but that it was œway up there somewhere? and that the rest of the land was either Department of Conservation (DoC) or MÄ ori land. She said that he would have the place all to himself and described the nearest neighbours as living down the road. Mrs Robb also told Mr James that the land was partly leasehold, with the balance being freehold. She told Mr James that if he wanted to pursue the matter any further he should speak to Gary.
[6] Gary operated a restaurant a short distance from the property and Mr James raised the matter with him at the restaurant after his discussion with Mrs Robb. Gary told Mr James that there was an existing offer for $340,000, which was to be considered and potentially accepted by Mr and Mrs Robb at 10 am the following day.[3] Gary told Mr James that if he wanted to purchase the property he would need to make a better offer than the existing one before 10 am the following day.
[7] The Judge found that Mr James was entitled to take from both his conversations with Mrs Robb and with Gary that there were no close neighbours and that the land ran a substantial but undefined distance up the hill and into the bush.
[8] In the weeks before Mr James discussions with Mrs Robb and Gary on 4 December 2006, another prospective purchaser of the property, Ms Horne, had visited and progressed matters to the stage of making an offer to buy. In the course of Ms Hornes dealings with Gary, he had advised her that the property comprised a total of 1,353 square metres freehold, plus 304 square metres leasehold. Gary had taken those figures from a recent rates demand.
[9] However, research by Ms Hornes solicitors revealed that Mr and Mrs Robb were registered as owners of a single certificate of title comprising only 847 square metres (CT MB53/35). Ms Horne raised this discrepancy with Gary, but proceeded to make an offer of $300,000, which she apparently took to relate to the property with the boundaries as she understood them following her own visit to the site.
[10] On 5 December 2006, the day after Mr James discussions with Mrs Robb and Gary, the solicitor acting for Mr and Mrs Robb forwarded to Mr James solicitor a search copy of CT MB53/35, together with a copy of the Railways lease. Mr James solicitor then prepared an ASP, stipulating the property to be sold as that described in CT MB53/35. There was no reference either to assignment of the Railways lease or to any other freehold title.
[11] After negotiations throughout that day, Mr James and Mr and Mrs Robb concluded an unconditional ASP of the property at $350,000. Settlement was to occur on 31 May 2007. Mr James reserved the entitlement to nominate another entity as purchaser which he subsequently did, nominating the second respondent company, Blue Cod Investments Limited (BCI).
[12] Having paid the deposit, Mr James visited the property again on 22 December 2006. On that occasion he walked around the property with Mr and Mrs Robb. The Judge accepted Mr James uncontradicted evidence that when they were standing by a fence running along a stream on the southwestern boundary of the property, Mr Robb had pointed up the hill and said œthats your boundary, boy?, adding that the precise line of the boundary did not matter as it was all his (Mr James).
[13] By early March 2007 Mr and Mrs Robbs solicitor had discovered that when the Robbs purchased the property in 1982, it comprised two freehold titles, CT MB53/35 and CT MB1B/517. Sale notices lodged in respect of the 1982 transaction included the land in both titles and Mr and Mrs Robb had subsequently paid rates on both properties. On 9 March 2007, Mr and Mrs Robbs solicitor wrote to the solicitors for the previous owner (the estate of Mrs Scott) asking if their client would agree to transfer to Mr and Mrs Robb the second title, CT MB1B/517, as had been intended in 1982. That request was agreed to, and on 3 May 2007 title to CT MB1B/517 was transferred to Mr and Mrs Robb.
[14] In terms of the physical layout, the majority of the residence is located on land subject to the Railways lease, with minor parts of one end of the residence being on the land in each of CT MB53/35 and CT MB1B/517. In addition, a double garage that was reasonably close to the residence was located mostly on CT MB1B/517, and to a small extent on CT MB53/35.
[15] On 26 April 2007, Mr James visited Kie Kie Bay with a valuer. On that occasion they met with Gary and Mr Robb who told him that they had discovered an additional piece of land behind the house that was not the subject of the contract, and on which Gary wanted to build a house once the present transaction had been settled. Their statements referred to the land in CT MB1B/517, which the parties have somewhat euphemistically come to call the œlost land?.
[16] Gary claimed in evidence that he had flagged the issue of the lost land in January 2007, but the Judge preferred Mr James recollection of it first being raised with him during his 26 April 2007 meeting with Gary and Mr Robb. Mr James response was one of confusion and a state of disbelief. He made the point that all three of the Robbs had represented to him that there was nothing behind the house other than DoC or MÄ ori land. He had also placed some importance on representations that there would be no near neighbours.
[17] The Judge accepted that Mr James settled the purchase on 1 June 2007 on the basis of legal advice that issues in respect of the lost land could be dealt with thereafter, once the factual circumstances were further clarified.
[18] In September 2007 Mr and Mrs Robb transferred the lost land in CT MB1B/517 to Gary for consideration nominated at some $53,000. The precise amount equated with the amount they had paid to discharge their mortgage over the title transferred to BCI when they settled with Mr James.
[19] In the latter part of 2007 there were numerous discussions between Gary, a building consultant retained by him, and Mr James about the prospect of boundary adjustments that would facilitate Garys construction of a house on some part of the lost land. It appears that, in the absence of some adjustment between the two areas, the lost land would be landlocked without vehicular access.
[20] In February 2008, Mr James solicitors gave notice to Mr and Mrs Robb of a claim against them in relation to the lost land. That notice cited the Contractual Remedies Act 1979 and the Contractual Mistakes Act 1977, but the letter also invited proposals to reach a solution. Thereafter, Mr James changed his solicitors and the High Court proceedings were issued in December 2009.
The law
[21] The parties were agreed on the requirements for the Court to order rectification. It is sufficient to repeat the reliance that French J placed on the necessary elements as stipulated by Tipping J in Westland Savings Bank v Hancock.[4] Those are as follows:
(1) That, whether there is an antecedent agreement or not, the parties formed and continued to hold a single corresponding intention on the point in question.
(2) That such intention continued to exist in the minds of both or all parties right up to the moment of execution of the formal instrument of which rectification is sought.
(3) That while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party.
(4) That the document sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested.
[22] The terms of that formulation were affected by the issue in the Hancock case of whether an outward expression of the accord as determined between the parties was necessary before a rectification could be ordered. The position in New Zealand is relatively settled and Tipping Js 1987 formulation still applies.[5]
[23] Given the equitable origins of rectification, the Court may be required to consider any potentially competing equities involved in granting or refusing rectification in a given case.
The Judges analysis
[24] Neither Mr nor Mrs Robb gave evidence at the trial, ostensibly because of their delicate states of health. In the absence of briefs of their evidence being served, the plaintiffs solicitors had issued subpoenas to require them to give evidence. At the commencement of the hearing, the Judge considered the medical information offered on their behalf as the ground for non-attendance to be insufficient to discharge the subpoenas that had been issued. The Court was subsequently provided with an email from their doctor, the effect of which was that their states of health were precarious and participating in any form of giving evidence would be impossible in one case and detrimental in the other. The Judge proceeded to assess the evidence on the basis that Mr James evidence as to the content of his discussions with Mr and Mrs Robb was uncontradicted.[6]
[25] French J was satisfied that Mr and Mrs Robb and Mr James shared a common intention as to the subject matter of the contract up to and including when they all executed the ASP. Her Honour stated her reasons for that finding as follows:
[64] First, Mr James evidence as to what Mrs Robb told him on 4 December 2006 was uncontradicted. I accept that she identified the land which was for sale as including the area of the lost land.
[65] Mr James testimony as to what both Mrs Robb and Gary told him was corroborated by the evidence of Ms Horne, the only truly independent witness. Ms Horne is a chartered accountant and receiver. She testified that Mr and Mrs Robb Senior and Gary gave her to understand the Robbs were selling all the land they owned, that the creek was the side boundary and that she would have no neighbours other than DOC. The latter feature was particularly important to her. It was the reason she was unconcerned about the discrepancy in the land area. I found Ms Horne a very reliable witness. She had no reason to lie and she was concerned to be accurate.
[66] In my view it would be unlikely that two prospective purchasers would both independently mishear Gary on exactly the same issue (lack of residential neighbours at the back), especially given the importance of that issue to both of them.
[67] Secondly, Mr James evidence was consistent with the physical appearance of the property “ the lost land was a steep irregularly shaped rear parcel of land with no legal frontage or apparent access “ and also consistent with the location of the house and garage.
[68] Thirdly, Mr James evidence was also consistent with the conduct of the Robbs in paying rates in respect of the lost land since 1982, as well as being consistent with the terms of the letter their lawyer wrote to the Scott estate.
[69] In contrast to Ms Horne and Mr James, I did not form as favourable an impression of Mr Gary Robb. Some aspects of his evidence on key points were unsatisfactory and lacked credibility. He claimed, for example, that he did not appreciate the lack of neighbours was a selling point, despite discussing it with both Ms Horne and Mr James. He also claimed that the reason he lied to Mr James about the amount of Ms Hornes offer was not to maximise the purchase price, but to put Mr James off buying altogether. This was inconsistent with evidence that he had told Ms Horne, a person to whom his parents wanted to sell, that the property could fetch up to $400,000. Gary even attempted to explain away the solicitors letter to the Scott estate by claiming that his parents lawyer wrote that letter despite knowing there was no evidence of any oversight in 1982 and despite knowing all the evidence was actually against it.
...
[83] The evidence of a common intention to transfer the lost land is convincing and in my assessment sufficient to rebut the usual presumption that a document signed by parties is an expression of their agreement.
[26] The Judge next considered whether Mr James should be denied a remedy on the grounds of delay. Mr and Mrs Robb opposed the granting of relief on the basis that the doctrine of laches applied, or that there had been acquiescence by Mr James in Mr and Mrs Robbs conduct consistent with the existing terms of the ASP. The mistake in the ASP omitting the certificate of title for the lost land was known by Mr James in April 2007, but proceedings were not issued for two and a half years until December 2009. The Judge accepted that the delay had been inordinate. However, the extent of the delay itself is not determinative, and rather an assessment was required of what the effect of the delay had been.
[27] Mr James had engaged with Gary on various proposals that might resolve the issue by accommodating Garys ownership of part of the property. In an email from Mr James to Gary on 28 November 2008, he included the comment œnever mind the past is the past?. Arguably, the lack of a formal claim for rectification encouraged Mr and Mrs Robb to proceed with the transfer to Gary, and for Gary to then incur expenditure on surveying and building consultancy fees. The Judge found that Mr James had protested at the exclusion of the lost land from the time he was on notice about it, and that there were circumstances that constituted at least a partial explanation for the delay in seeking rectification.
[28] Weighing all those matters, the Judge decided that it would be œunconscionable not to grant rectification, rather than the other way round?.[7] On any view of the evidence, the Judge considered Gary did not come to Court with clean hands. She viewed his conduct as opportunistic, exploiting for his own benefit a situation he had helped to create. The Judge found that Gary was on notice of the equitable interest Mr James had in the lost land and could not resist the remedy sought on the basis that he had incurred expenses in attempts to profit from his own wrongdoing.[8]
[29] On this basis, the Judge rejected delay as sufficient reason to decline an order for rectification. The same reasoning applied to attribute a constructive trust to Garys legal ownership of the lost land, justifying the direction that he complete a transfer in favour of BCI as Mr James nominated purchaser.
Grounds of appeal
Common intention lacking when ASP signed?
[30] Mr Wallace did not contest the Judges findings on the common intention shared by Mr and Mrs Robb and Mr James after the discussions on 4 December 2006 as to the extent of land that would be the subject of any sale. Rather, he argued that by the time Mr and Mrs Robb signed the agreement the following day, they were mindful that the freehold title, CT MB53/35, that was the only title included in the agreement, did not cover all of the land represented the day before as being available for purchase.
[31] If that factual analysis was accepted, it would follow that there was not a common mistake at the time of execution of the agreement, but only a unilateral one on Mr James part.
[32] This argument was not new. It had been put to the Judge, and rejected. The first difficulty with the argument is the absence of evidence from Mr and Mrs Robb. There is nothing in any of the documents that would support Mr Wallaces analysis that they appreciated at the time of signing the agreement on 5 December 2006 that Mr James had been misled about the extent of the land in the discussions that occurred the previous day. Further, an awareness of the discrepancy would be inconsistent with Mr Robbs subsequent comment to Mr James on his 22 December 2006 visit to the property that the land would all be his (ie Mr James). There is no basis for a finding that Mr Robb made a deliberate misrepresentation on that occasion. It is far more likely that his comment on 22 December 2006, consistent with the statements made by his wife on 4 December 2006, reflected a genuine belief that they would be selling all of the land as they had occupied it.
[33] The only other prospect for a change in the relevant intentions of Mr and Mrs Robb between 4 and 5 December 2006 is if Gary sufficiently appreciated the nature of the conveyancing mistake that had occurred in 1982, and had explained the consequences of it to Mr and Mrs Robb before they signed the agreement. We have considered all of Garys evidence and relevant documents that might support this reconstruction.
[34] The impression from the cross-examination of Gary is that he was endeavouring to defer the point in time at which he learned that a second freehold title had not been transferred to his parents in 1982. Mr and Mrs Robb had provided discovery of search copies of both titles printed on 4 December 2006, showing CT MB1B/517 still in the name of the previous owners, and CT MB53/35 in Mr and Mrs Robbs name. Gary thought he had only seen those at some point in 2007 and that he had not seen them before the agreement was signed.[9] He did accept that he had learned the area at the rear of the section was still in the name of the previous owners from an email sent to him on 8 December 2006 by a lease administrator with the Railways.[10]
[35] In Garys evidence in chief, he described dialogue he had had with the Kaikoura District Council about the extent of land on which his parents were charged rates. He referred to the Council staff agreeing to amend the rates notices and the record of that updating of the rates roll is dated 1 December 2006.[11] His evidence in chief was that he kept his father updated about these matters.[12] There is no suggestion that Gary had any concerns about his parents entitlement to occupy the whole of the property as they had done for some 24 years. A lay persons perception that there was some mistake in the records about legal ownership could hardly be decisive in respect of dealings with all of the land occupied by his parents.
[36] Gary acknowledged that the contract did not reflect his parents intentions in two respects. First, it did not include a transfer of their lessees interest under the Railways lease. Secondly, they clearly intended to transfer the garage adjoining the house, the majority of which was on the lost land. It followed that they intended to transfer at least the area on which the garage was sited, and some area around it. Garys imprecise evidence on the point was that he thought that the boundary of the lost land ran somewhere behind the garage.
[37] The Judge found that there was no evidence that Gary had told his parents of his suspicions prior to 22 December 2006. Mrs Robb had made representations to Mr James as to the extent of the property on 4 December 2006, and Mr Robb made consistent representations on 22 December 2006. We agree that there was no evidence sufficient to establish that Gary had conveyed to his parents, at any time before the ASP was executed, any concern as to the extent of land that they could offer for sale.
[38] The Judges conclusion on the evidence on this point was that if Gary did not know for a fact about the lost land being in a different title in the name of the Scott estate before the agreement was signed, then he certainly had suspicions. There is no basis for upsetting that finding. It seems most likely that he was conscious that something was amiss with the records of ownership, but that did not amount to a conscious appreciation that his parents did not have the legal capacity to complete a transfer of the whole of the property as they had occupied it since 1982.
[39] This ground of the appeal cannot be made out. The relevant requirement for a common intention as to the extent of property that was the subject of the ASP at the time it was completed was clearly made out.
Did laches, acquiescence or delay apply to disentitle the purchaser to rectification?
[40] The second ground of appeal was that the Judge had mischaracterised the circumstances and consequences of the extent of delay in the period between Mr James being put on notice of the exclusion of the lost land from the ASP, and pursuing the claim for its rectification. This encompassed an argument that Mr James and BCI had acquiesced in Mr and Mrs Robbs conduct when they settled the transaction on the original terms recorded, and their subsequent dealing with the lost land by transferring it to Gary.
[41] In their statement of defence Mr and Mrs Robb had pleaded that Mr James became aware of the separate title for the lost land from on or about 26 April 2007, and that Mr James did not complain that the ASP excluded the lost land until after settlement. In such circumstances, it was pleaded that Mr James and BCI were deemed to have accepted the limit of Mr and Mrs Robbs title to the property as described in the agreement.
[42] In his submissions, Mr Wallace acknowledged that rectification was not opposed on the basis that Mr James had waived his rights to seek rectification, or was, by virtue of his conduct, estopped from doing so. Nonetheless, he argued that the combination of Mr James completing settlement on 1 June 2007 without explicit protest over the extent of land conveyed, and the delay between Mr James learning of the omission of the lost land in April 2007 and the commencement of proceedings in December 2009, should disentitle Mr James and BCI to the relief sought.
[43] From a review of all the communications between the parties from April 2007 to the commencement of proceedings in December 2009, assessed in light of the evidence of Gary and Mr James at trial, there is a sense in which Mr James was sending mixed signals. At various times he entertained proposals from Gary about boundary adjustments that might enable a second building site to be accessed by Gary. Mr James did ask the valuer he had retained what impact such boundary adjustments would have on the value of his own property. He maintained an informal dialogue, which implicitly sought to reach a mutually satisfactory outcome to avoid a formal dispute.
[44] However, the communications from Mr James also contained repeated protests at what Mr and Mrs Robb were trying to do, a lack of understanding as to how they could assert the positions they were, and concerns, implicitly at least, that he had not received all he bargained for.
[45] As we have already noted (at [27]), an email from Mr James to Gary dated 28 November 2008 included the comment œnever mind the past is the past?. This was the best evidence Mr Wallace could cite in support of his argument that Mr James acquiesced in what Mr and Mrs Robb had done in not transferring the lost land to him and then transferring it to Gary.
[46] However, the content of the email immediately preceding that comment was as follows:[13]
i [sic] must admit you are very persistent and seem to be one step ahead of us all the way, for someone that knows so much about how everything works it still seems stange [sic] that you said you didnt [sic] know about the other section when you sold us kie kie even tho [sic] your parents paid rates on over 1300 squares of land for 20 years?
[47] Mr James evidence was that he had settled the purchase without pursuing a formal claim on the basis of legal advice that it was better to sort it out later. Thereafter, given the relatively informal circumstances and the nature of the transaction, it is understandable that he would exhaust informal opportunities to reach some acceptable accommodation, without incurring additional expenses with lawyers. He changed solicitors between giving formal notice of a claim in February 2008 and commencing the proceedings. The course of Mr James conduct was inconsistent with acquiescence, and renders the lapse in time up to commencement of the proceedings explicable, if not entirely justified.
[48] We agree with the Judge that Garys conduct was opportunistic. He cannot rely on the absence of a claim at the time of settlement as justification for his claim that he thereafter suffered detriment in incurring expenses to pursue initiatives to build on the lost land, title to which he acquired from his parents in September 2007. He continued to incur such expenses after formal notice of the claim had been given on behalf of Mr James and BCI.
[49] Although Mr Wallace was reluctant to concede the point, this was a case in which there had to be rectification. The ASP omitted the leasehold interest being transferred, and the need to transfer at least the part of the lost land on which a corner of the house and most of the garage was sited. The issue was therefore confined to the extent of rectification ordered.
[50] Despite Mr Wallaces best efforts, we found Mr and Mrs Robbs position to be entirely without merit. In seeking reversal of the relief granted in the High Court, Mr and Mrs Robb wanted to hold Mr James to the terms of a contract that patently did not reflect the bargain they had struck. Garys answer to the unfairness of such an outcome was to propose boundary adjustments to regularise Mr James occupancy of all the area on which the house and garage were sited, but in return he would acquire a substantial part of Mr and Mrs Robbs section nearer the railway and the road, creating a building site with its own access. Gary would only have any credible leverage in negotiating for such an outcome if the Court declined to rectify a contract that compellingly required such relief.
[51] The impediment to Mr and Mrs Robb performing their part of that bargain was a 1982 conveyancing error that Mr and Mrs Robb easily rectified. In the six months or so between execution of the ASP and settlement of the transaction, Mr and Mrs Robb, no doubt at Garys initiative, sought to exploit their own temporary impediment to passing legal title to a part of the property in which Mr James had an equitable interest. To reverse the orders made would be to sanction that unconscionable outcome, and the impact of the delays in formally pursuing rectification cannot alter that characterisation of the parties respective positions.
Imputation of a constructive trust warranted?
[52] A residual criticism raised by Mr Wallace was that the Judge had given inadequate consideration to the requirements for imputing a constructive trust to Gary as the means by which a transfer of legal ownership of the lost land could be effected.
[53] Equity deploys the concept of a constructive trust in a range of circumstances, including where necessary to rationalise otherwise disparate interests in legal and equitable ownership.[14] Here, Gary acquired the lost land from his parents in circumstances where all of them were on notice of the equitable interest in that land created for Mr James and BCI by the circumstances surrounding the inadequately documented ASP. On Garys own evidence, he had acquired legal ownership of land, at least a part of which he recognised his parents were obliged to transfer to BCI.
[54] Those are entirely appropriate circumstances in which to impose obligations on him as trustee of a constructive trust for the benefit of BCI. The form of relief ordered was entirely appropriate and followed conventional application of the use to be made of a constructive trust.
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[1] James v Robb HC Christchurch CIV-2009-406-266, 11 July 2011.
[2] One map appeared to describe the location as Goose Bay.
[3] French J found that Gary had misrepresented to Mr James that the offer was for $340,000 when in fact it was for $300,000.
[4] Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC) at 30.
[5] Contrast the state of some uncertainty as to the requisites for rectification in English law, Daventry District Council v Daventry and District Housing Ltd [2011] EWCA Civ 1153, [2012] 1 WLR 1333 and David McLauchlan œRefining Rectification? (2014) 130 LQR 83.
[6] James v Robb, above n 1, at [47]“[52].
[7] At [95].
[8] At [97].
[9] Case on Appeal vol 2 at 160/31-161/10 [CoA].
[10] CoA vol 2 at 157/32“158/5, vol 3 at 256.
[11] CoA vol 4 at 429.
[12] CoA vol 2 at 138.
[13] CoA vol 4 at 459.
[14] See generally Jessica Palmer œConstructive Trusts? in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [13.2.1].