IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2014-419-155
[2014] NZHC 1351
BETWEEN
MICHAEL DAVID KIDD
Applicant
AND
WORLDWIDE LEISURE LIMITED
Respondent
Hearing:
16 June 2014
Appearances:
B O'Callahan and E J H MotTison for Applicant
M J Tingey and N F D Moffatt for Respondent
Judgment:
16 June 2014
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors:
Kirkland Morrison O'Callahan, Auckland, for Applicant
Bell Gully, Auckland, for Respondent
KIDD v WORLDWIDE LEISURE LIMITED [2014] NZHC 1351 [16 June 2014]
[1]
This matter is an application under s 145A of the Land Transfer Act 1952 to
sustain two caveats, 9652162.1 and 9652162.2.
They are over two lots which
together make up 11.5 ha ofland: Lot 1 DP 5025, 6.7785 ha described in SA1424/13
(South Auckland Registry) and Lot 2 DP 5025, 4.8562 ha described in SA1424/14
(South Auckland Registry). Those properties are at 271 and 229 Huka Falls Road,
Taupo, respectively. I shall refer to the two titles as "Huka Lodge". Worldwide
Leisure Ltd is the registered proprietor of Huka Lodge.
Michael Kidd is the
caveator. The interest claimed under the caveats is this:
The caveator claims a beneficial interest in the land contained in the above
celiificate of title identifier as cestui que trust of which the registered
proprietor, Worldwide Leisure Ltd, is trustee.
On 5 May 2014 Associate Judge Doogue made an order sustaining the caveat
pending further order.
[2]
The applicant, Michael Kidd, is a steel trader. While he originally comes
from the United Kingdom, he lives in South Africa. Worldwide Leisure Ltd was
incorporated in 1984 at the behest of Mr Alexander Pieter van Heeren, who had been
in business with Mr Kidd.
[3]
The application says that the interest claimed by Mr Kidd arose as follows:
(a)
Mr van Heeren entered into an agreement on 14 October 1984 to buy
Huka Lodge and did so for the benefit of a partnership between
himself and Mr Kidd;
(b)
the agreement included a right of first refusal for adjoining property;
(c)
in November 1984 Mr van Heeren caused Worldwide Leisure to be
incorporated, became its director and nominated it as purchaser under
the agreement to buy Huka Lodge;
(d)
Worldwide Leisure took title Imowing of Mr Kidd's interest in Huka
Lodge and became trustee for the partnership;
(e)
Worldwide Leisure took title using partnership funds;
(f)
it used partnership funds to make improvements;
(g)
it bought the adjoining property under the right of first refusal in the
agreement of October 1984 with partnership funds and took title as
trustee for the partnership;
(h)
there is either an express or constructive trust; and
(i)
an accounting for the partnership, which is still to be wound up, is
required.
[4]
The application also says that there are substantive proceedings on foot
between Mr Kidd and Mr van Heeren.
[5]
In opposition, Worldwide Leisure says:
(a)
The allegations by Mr Kidd are that Worldwide Leisure Ltd became
the owner of Huka Lodge by an unlawful transaction, namely that
Mr van Heeren incorporated and nominated Worldwide Leisure Ltd to
be the purchaser without Mr Kidd's consent, and used partnership
funds to pay the purchase price and make improvements without
Mr Kidd's consent. Therefore, if Worldwide Leisure Ltd could be
found to hold Huka Lodge as trustee for the applicant, this would be
due to the imposition of a constructive trust founded on an alleged
unlawful transaction.
(b)
As a consequence, the limitation period has expired as the agreement
was settled in November 1984 and the limitation period for recovery
of trust property against a person who has not become a trustee
through a lawful transaction, is six years from when the cause of
action accrued.
(c)
It also makes the point that Worldwide Leisure Ltd has not been
named as a party to the substantive proceeding against Mr van Heeren
started by Mr Kidd in 1996.
For this proceeding, Worldwide Leisure Ltd does not contest the facts alleged by
Mr Kidd but puts them in issue for all other purposes. I take it that Worldwide
Leisure Ltd accepts that the facts alleged by Mr Kidd are arguable, but it reserves its
right at another hearing to show that those facts cannot be proved.
Bacliground
[6]
As already mentioned, Mr Kidd comes from the United Kingdom but now
lives in South Africa. Mr van Heeren is originally from the Netherlands but now
apparently lives in Belgium.
Mr Kidd and Mr van Heeren went into business
together in South Africa in 1975 as steel traders. Mr Kidd was the trader, whereas
Mr van Heeren managed the financial aspects of the business.
They started a
company called Galaxy Propeliies Ltd which traded under the name Tiseo. As
business grew they established other entities, some of which were incorporated
outside South Africa. One of those was a company called Genan Trading Co NV,
which was incorporated in 1976 in the Netherlands Antilles. Mr Kidd and Mr van
Heeren were equal shareholders of that company. In a judgment in South Africa I
am about to refer to, Mr van Heeren's lawyers are quoted as saying:
Our case has always been the steel trading was ... for the joint benefit and
whatever was derived from that.
[7]
The steel trading business seems to have been successful. Over time Mr
Kidd and Mr van Heeren became interested in oppOliunities outside South Africa,
given what they considered to be the uncertain political future for South Africa. One
of the places they hit on was New Zealand. Their activities in New Zealand began
from 1982. They bought a New Zealand company called Prime New Zealand Ltd.
Mr Kidd was not shown on the official records - apparently they were concerned to
conceal any South African connection.
shareholders.
The company was set up with nominee
[8]
Huka Lodge was acquired in 1984. That was described in the South African
judgment!
Huka Lodge
57.
In July 1984, Kidd says he flew to New Zealand to see Huka Lodge
with Van Heeren which was then and still is a luxurious lodge. This trip substantiated by passport entries and Tisco records of travelling expenses is not in dispute. Kidd testified that the purpose of the trip was to consider
this as an acquisition for his and Van Heeren's partnership to be made out of
their steel trading profits. Kidd was willing that such acquisition be made.
Kidd referred the court to certain diary entries made over September to
December 1984 indicating that Huka Lodge and issues pertaining thereto including problems with the contract - were discussed between himself and
Van Heeren. Kidd was adamant in his evidence that Huka Lodge was
purchased for the partnership and that a personal loan from Genan [Trading
Company N.Y.] to Van Heeren or his nominees was never discussed. He did
not appear in the documents because "the politics of the day to me and to us
dictated that it keep me out of the picture totally" and "there was no South
African involvement at all" and "·we made sure that the South African tag
would not appear anywhere".
58.
Browning referred the court to the final sale agreement of 14th
October 1984, the incorporation of Worldwide Leisure on 16th November
1984 (the shares in the company held by nominees who were the solicitors of
Prime New Zealand "as trustees for A.P Van Heeren. It) and the registration
of Worldwide Leisure as the owner of Huka Lodge on 12th December 1984.
A Land Valuation Tribunal document of 20 th February 1985 records "the
purchase Worldwide Leisure has, as one of its members, an overseas
companv". Having regard to the financial statements as also the other
documents, Browning took the view that "Genan, the overseas company,
was the investor in Worldwide Leisure via a nominee". In any event, shares
were transferred to Genan in 1989.
59.
The gross sale price was New Zealand 1.3 million paid in several
tranches. The 1985 financial statements of Worldwide Leisure record that
the purchase of and renovations to Huka Lodge has been funded via loans
from Genan in an amount of NZ $4.4 million and some further funds of
about NZ $171 thousand provided by Prime NZ. No interest payable to
Genan was recorded in the Worldwide Leisure accounts. Genan provided
the loan directly to Worldwide Leisure. The 1986 cashflow analysis indicates
that further funds were provided by both Genan and Prime New Zealand to
Worldwide Leisure, Genan receiving a high rate of interest until 1988 when
interest was no longer charged. With re-pricing of the loan in Worldwide
Leisure financial statements from NZ dollars to Deutschemark, the loan by
Genan was reduced.
60.
Shares in Worldwide Leisure were transferred to Genan on 13 th
October and 24 th November 1989 and relate to payment of the Genan loan
balance. The result would be that Genan received a share interest in
Worldwide Leisure and therefore in Huka Lodge although the shares were
Kidd v van Heeren He South Gauteng, Johannesburg, 27073/1998,
20 May 2013.
subsequently retransferred back to Van Heeren. The final outcome of the
series of share transactions is that no cash was needed to execute the
repayment of the Genan loan balance and Genan received an interest in
Worldwide Leisure in exchange for its loan balance. There is no record of
any funds contributed or invested by Van Heeren in Worldwide Leisure for
the acquisition of or renovations to Huka Lodge.
[9]
In submissions, Mr O'Callahan also referred to parts of the evidence of
Mr Browning. He is a New Zealand accountant who gave evidence in South Africa
at the hearing between Mr Kidd and Mr van Heeren. The judge in South Africa
accepted Mr Browning's evidence. The patis of Mr Browning's repolis used in the
South African proceeding suppOli the findings made by the judge. Those repolis
were exhibited to Mr Browning's affidavit in this application.
[10]
In addition to what had been described by the judge in the South African
proceeding, Mr O'Callahan also referred to a decision of the Overseas Investment
Office approving a change in shareholding in Worldwide Leisure Ltd. Whereas the
shares had fOlmerly been held by tmstees on behalf of Mr van Heeren, in 2005 they
were transferred to a Netherlands company, Saraceno Holdings BV.
[11]
The upshot is that when Mr van Heeren arranged the purchase of Huka Lodge
he entered into an agreement in his own name but nominated Worldwide Leisure Ltd
to take title. The funds for the acquisition of Huka Lodge were sourced from Genan,
the Netherlands Antilles company, through which Mr Kidd and Mr van Heeren
operated their partnership/joint venture. It is clearly arguable that the acquisition of
Huka Lodge and its improvements were funded with money sourced from the steel
trading activities.
[12]
The record of the decision by the Overseas Investment Office shows that the
change in shareholding was from one entity of which Mr van Heeren had control to
another entity, admittedly incorporated overseas, over which Mr van Heeren
apparently still exercises control.
While Mr van Heeren may be only one of a
number of directors of Worldwide Leisure Ltd, he appears to be the ultimate
shareholder of Worldwide Leisure Ltd. I infer that he is able to exercise control over
that company. In particular, he would have the power to appoint and remove other
directors.
[13]
Sometime after Worldwide Leisure Ltd acquired Huka Lodge, relations
between Mr van Heeren and Mr Kidd deteriorated. There was a patting of the ways.
In January 1991, they signed two documents. One was an agreement under which
Mr van Heeren sold shares to Mr Kidd in five South African companies and one
Hong Kong company.
Another was a document called an "indemnity" which
contained terms that generally purported to settle all disputes, however arising,
between Mr van Heeren and Mr Kidd in relation to any matters anywhere in the
world. That indemnity was the subject of the South AfHcan proceeding, to which I
shall refer?
[14]
In 1996 Mr Kidd brought a proceeding in New Zealand against Mr van
Heeren, seeking a division of assets under their pattnership.J In defence, Mr van
Heeren relied on the indemnity he and Mr Kidd had signed in January 1991 in South
Africa. That indemnity agreement provided that South African COUltS would have
jurisdiction to hear any disputes under the agreement and that South African law
would apply. Because of Mr van Heeren's reliance on that defence, Mr Kidd brought
a proceeding in South Africa to challenge the validity of the indemnity. While it was
statted in 1998, it was not heard until 2013. The proceeding in South Africa was
solely between Mr Kidd and Mr van Heeren. Worldwide Leisure Ltd was not a
patty.
[15]
The hearing ran from 28 January to 13 March 2013. Mr van Heeren did not
give evidence. Her Ladyship Satchwell J found for Mr Kidd. In her judgment of
21 May 2013 she held that the indemnity was void. In coming to that decision, she
reviewed the transactions between the patties including the acquisition of Huka
Lodge as well as other investments. She found that there was a pattnership between
Mr Kidd and Mr van Heeren, and that Mr van Heeren had made misrepresentations
to induce Mr Kidd to sign the indemnity. She made a declaration that the indenmity
was null and void and of no force and effect. Mr van Heeren sought leave to appeal.
The Supreme COUlt of Appeal of South Africa dismissed his application for leave on
21 October 2013.
2
Kidd v van Heeren, above n 1.
See Kidd v van Heeren HC Auckland, CP 46/96,4 February 1997.
[16]
With that decision in his favour, Mr Kidd has revived his 1996 proceeding.
Just as with the South African proceeding, Worldwide Leisure Ltd is not a patty and
there is no current proposal for it to be joined to that proceeding.
[17]
I have been given copies of amended pleadings in the 1996 proceeding.
Whereas Huka Lodge had been the subject of the original statement of claim filed in
1996, an amended statement of claim filed this year left out any reference to the
lodge or Worldwide Leisure Ltd. A further statement of claim has now referred to
the acquisition of Huka Lodge. The 1996 statement of claim was directed at the
shareholding in Worldwide Leisure Ltd. The current pleading alleges an interest in
the land itself. Under the latest statement of claim, Mr Kidd is seeking an equal
division of various assets said to be the product of their steel trading. Mr Kidd
brings into account assets of US$5m and says that Mr van Heeren has assets of
US$47.5m. The proceeding seeks a taking of account as between the partners. It
alleges that Mr van Heeren holds unaccounted-for assets as a constructive trustee.
The caveats
[18]
The caveats are drafted widely. The Comt of Appeal has indicated that a
liberal approach is to be taken to the drafting of caveats. 4 The drafting in this case
has not been criticised. It is established that the comt will not sustain a caveat if it is
patently clear that there cannot be a caveatable interest. In this case, Worldwide
Leisure Ltd has pinned its argument on the specific pleading in the application to
sustain the caveat. I am going to take a wider approach. I am going to consider
whether the caveat can be sustained not only on the basis of the precise pleading but
also on any alternative basis which is consistent with the drafting of the caveat. I
have in mind one case where such an approach has been applied: the decision of the
Comt of Appeal in Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd. s In
that case, a caveator had lodged a caveat relying on an agreement for sale and
purchase. In the High Comt and in argument in the Comt of Appeal, it alleged that
there was a valid agreement and effective transfer of title. The Comt of Appeal
accepted on the patticular facts of that case that there would not be a caveatable
4
Zhong v Wang (2006) 5 NZConvC 194,308 (CA) at [58].
Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2014] NZCA 164.
interest if the transfer had been effective. However, after it had heard argument, it
invited further submissions from the parties on the basis that the agreement for sale
and purchase or the transfer were void. After receiving those submissions, it held
that the caveat should be upheld on the basis that the transaction relied on by the
caveator was void so that no interest in the land passed to the registered proprietor.
The Court left open exactly how the voidness was to be established, merely
sketching out the bare bones of a possible argument. So far as the COUli of Appeal
was concerned, there was a sufficient basis for holding that there was a caveatable
interest even if the finer details had still to be worked out. Given the tenor of that
decision, I feel justified in looking beyond the nalTOW scope of the pleading by the
applicant in this case, to check whether there are alternative bases for a caveatable
interest. In that, I am approaching the matter in a way similar to the way the COUli
approaches an application to strike out a pleading based on an absence of reasonable
cause of action. The court will consider in such cases not only whether the current
pleading shows a reasonable cause of action, but also whether the matter could be
remedied by an alternative pleading. The comi will be cautious about striking out a
pleading if it is capable of repair. Similarly, if there is a basis for the interest claimed
in the caveat, even though it is an alternative to that stated in the pleading, the comi
should be wary of declaring that there is no caveatable interest.
Reliance on South African judgment
[19]
I have relied on the South African judgment to make certain findings for this
case. Mr Tingey has refened to s 50 of the Evidence Act 2006 to say that findings of
fact in one proceeding cannot be relied upon to prove the existence of a fact in
another proceeding. He correctly drew my attention to s 50(2) which preserves the
normal rules as to res judicata and issue estoppel. He submitted that Worldwide
Leisure Ltd could not be bound by the decision of the High Comi of South Africa
because Worldwide Leisure Ltd was not a patiy to that proceeding. Section 50 says:
Civil judgment as evidence in civil or criminal proceedings
(1)
Evidence of a judgment or a finding of fact in a civil proceeding is
not admissible in a criminal proceeding or another civil proceeding
to prove the existence of a fact that was in issue in the proceeding in
which the judgment was given.
(2)
[20]
This section does not affect the operation of(a)
a judgment in rem; or
(b)
the law relating to res judicata or issue estoppel; or
(c)
the law relating to an action on, or the enforcement of, a
judgment
Notwithstanding that section, the judgment in South Africa can be used in
this case. It goes to whether Mr Kidd has an arguable case for the interest he claims
in his caveats. If Mr Kidd was able to obtain the findings that he did in South Africa,
after a hearing in which Mr van Heeren instructed counsel and challenged the case
for Mr Kidd over a sustained period, Mr Kidd may be able to establish the same
findings of fact in New Zealand in a proceeding opposed by Worldwide Leisure Ltd.
In other words, the fact that something has been proved in a defended hearing in
South Africa gives grounds for believing that the same findings of fact may be made
in a similar proceeding in New Zealand.
[21]
It is arguable that Worldwide Leisure Ltd is a privy for issue estoppel. 6
Worldwide Leisure Ltd took title as nominee of Mr van Heeren under the agreement
for sale and purchase of 1984. A judgment which goes to show that Mr van Heeren
bought Huka Lodge as a trustee or partner will equally bind Worldwide Leisure Ltd
as nominee under the same agreement for sale and purchase. It is therefore possible
that some of the findings in the South African court may also bind Worldwide
Leisure Ltd as a matter of issue estoppel. However, I am wary of setting out in full
every finding that could be applied in this proceeding as not every finding of fact in
the South African proceeding was necessarily fundamental to the decision of the
South Afdcan court, as explained in Talyancich v Index Developments Ltd. 7 While
some findings may be binding on Worldwide Leisure Ltd as a matter of issue
estoppel, I prefer to rely on the judgment as showing an arguable basis for Mr Kidd
to be able to establish the same matters of fact in a like proceeding in New Zealand.
[22]
The South African court decided that the indemnity was void applying South
Afr-ican law.
6
7
That is the only area where I apply South African law in this
There can be issue estoppel for foreign judgments - Carl Zeiss Stiftung v Rayner & Keeler Ltd
[1967] 1 AC 853 (HL).
Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38.
application. There has been no proof of foreign law, even though Mr Kidd and Mr
van Heeren conducted their business internationally. When there is no proof of
foreign law, this court applies New Zealand law. And as the case also concerns title
to land in New Zealand, New Zealand law governs that aspect ofthe case.
General law as to partnership property
[23]
The judge in South Africa found that there was a partnership between
Mr Kidd and Mr van Heeren. Given that, it is arguable that a judge in New Zealand
would come to a similar finding.
The question of partnership is relevant to the
claims of trusteeship. That arises out of ss 23, 24 and 32 of the Partnership Act
1908:
23
Partnership property
(1)
All property and rights and interests in property originally brought
into the partnership stock, or acquired (whether by purchase or
otherwise) on account of the finn or for the purposes and in the
course of the partnership business, are called in this Act partnership
property, and must be held and applied by the partners exclusively
for the purposes of the partnership and in accordance with the
partnership agreement.
(2)
Provided that the legal estate or interest in any land which belongs to
the partnership shall devolve according to the nature and tenure
thereof and the general rules of law thereto applicable, but in trust,
so far as necessary, for the persons beneficially interested in the land
under this section.
(3)
Where co-owners of an estate or interest in any land not being itself
partnership property are pattners as to profits made by the use of that
land or estate, and purchase other land or estate out of the profits to
be used in like manner, the land or estate so purchased belongs to
them, in the absence of an agreement to the contrary, not as partners,
but as co-owners for the same respective estates and interests as are
held by them in the land or estate first mentioned at the date of the
purchase.
24
Property bought with partnership money
Unless the contrary intention appears, propeliy bought with money
belonging to the firm is deemed to have been bought on account of the firm.
32
Partners to account for private profits
(1)
EvelY pattner must account to the firm for any benefit derived by
him without the consent of the other pattners from any transaction
concerning the partnership, or from any use by him of the
pattnership property, name, or business connection.
(2)
[24]
This section applies also to transactions undeliaken after a
patinership has been dissolved by the death of a partner, and before
the affairs thereof have been completely wound up, either by any
surviving patineI' or by the representatives of the deceased patineI'.
Section 23(2) is relevant as showing that, even though legal title may devolve
according to general rules of law, patiners will have a beneficial interest in any
patinership land held by one partner alone. Section 24 is relevant in that there is a
presumption that property bought with money belonging to the patinership is
deemed to be bought on account of the firm. 8 Section 32 is relevant to establishing
Mr van Heeren's accountability for profits made without the consent of the other
partners. That accountability can endure up until the final winding-up of the affairs
of the patinership.
[25]
It is possible to carry out tracing for the purpose of any proprietary claim by
Mr Kidd. 9 Funds of Genan were used to buy Huka Lodge and carry out renovations.
Genan held funds derived from the steel trading which belonged to the partnership.
Those funds went into Worldwide Leisure Ltd, and flowed through into the land
itself. If Mr van Heeren had taken title himself, it is arguable that he would hold the
land as partnership propeliy and that Mr Kidd would have a beneficial interest in that
land. Mr van Heeren arranged for Worldwide Leisure Ltd to take title instead. Its
title is arguably subject to a beneficial interest in favour ofMr Kidd.
[26]
In an application under s 145A, the cOUli is concerned to establish whether
the person claiming the caveat has an interest recognised under s 137(1)(a) of the
Land Transfer Act. That subsection allows any beneficial interest in land, by virtue
of any express or implied trust, to give rise to a caveatable interest. It is common
ground between the parties that that must be an actual, not potential, interest and it
cannot be an interest that arises only by way of cOUli order. In other words, a cOUli
must be able to declare the interest, not create it. Both sides agree that remedial
constructive trusts cannot give rise to a caveatable interest.
9
Cartel' Bros v Rel10uf (1962) III CLR 140 (HCA).
I mean a proprietary claim as described in Foskett v McKeO't1'11 [2001] 1 AC 102 (HL) per Lord
Browne-Wilkinson at 108 and Lord Millett at 130.
Limitation rules
[27]
I come to the nub of the case: the application of the limitation rules to the
interests claimed by Mr Kidd. It is common ground that the Limitation Act 1950
applies. 10
[28]
Mr Kidd relies on s 21 of the Limitation Act, in particular s 21(1)(b), to say
that any proceeding to uphold the interest he claims would not be time-barred:
21
Limitation of actions in respect of trust property
(1)
No period of limitation prescribed by this Act shall apply to an
action by a beneficimy under a trust, being an action-
(2)
(a)
In respect of any fraud 01' fraudulent breach of trust to which
the trustee was a party or privy; or
(b)
To recover from the trustee trust property or the proceeds
thereof in the possession of the trustee, or previously
received by the trustee and convelied to his use.
Subject as aforesaid, an action by a beneficiary to recover trust
property or in respect of any breach of trust, not being an action for
which a period of limitation is prescribed by any other provision of
this Act, shall not be brought after the expiration of 6 years from the
date on which the right of action accrued:
Provided that the right of action shall not be deemed to have accrued
to any beneficimy entitled to a future interest in the trust pl'Opeliy
until the interest fell into possession.
(3)
[29]
No beneficimy as against whom there would be a good defence
under this Act shall derive any greater or other benefit from a
judgment or order obtained by any other beneficiary than he could
have obtained if he had brought the action and this Act had been
pleaded in defence.
Against that, Worldwide Leisure Ltd says that this proceeding lies outside
that subsection. It says that Mr Kidd's claim falls within the second class of cases
described by Millet LJ in Paragon Finance ptc v DB Thakerar & Co. l1 In that case,
Millet LJ drew a distinction between claims against those who are trustees at the
outset, and against those called constructive trustees, who only became trustees by
reason of having become involved in someone else's breach of trust. Millett LJ
10
11
It continues to apply under s 59 of the Limitation Act 2010.
Paragon Finance pIc v DB Thakerar & Co [1999] 1 All ER 400 (CA) at 408-409.
described these as people being at most accountable in equity but not true trustees.
People falling into this second class are said to be persons who never assumed or
intended to become trustees, whether formally or informally, but have exposed
themselves to equitable remedies. Millett LJ gave a very full explanation at 408409.
[30]
The United Kingdom Supreme Court has looked at the matter afresh in
Williams v Central Bank ofNigeria. 12 The leading judgment of Lord Sumption gives
a very clear and helpful explanation of the law. He traces the origins of the lUle
which goes back before the limitation statutes, including this:
It is impOliant to understand why equity adopted this rule, for its rationale
will not necessarily apply to every kind of constructive trust. The reason was
that the trust assets were lawfully vested in the trustee. Because of his
fiducimy position, his possession of them was the beneficimy's possession
and was entirely consistent with the beneficimy's interest. If the trustee
misapplied the assets, equity would ignore the misapplication and simply
hold him to account for the assets as if he had acted in accordance with his
trust. There was nothing to make time stmi running against the beneficimy.
It will be apparent that this reasoning can apply only to those who, at the
time of the misapplication of the assets have assumed the responsibilities of
a trustee, whether expressly or de facto. Persons who are under a purely
ancillary liability are in a different position. They are liable only by vitiue of
their participation in the misapplication of the trust assets itself. Their
dealings with the assets were at all times adverse to the beneficiaries, and
indeed to the true trustees holding the legal interest.
This point was first miiculated by Lord Redesdale, Lord Chancellor of
Ireland, in Hovenden v Lord Annesley (1806) 2 Sch & Lef 607, a classic
judgment delivered (according to the repOlier) after several days of argument
around his sickbed at home. Referring to a judgment of Lord Macclesfield
on the application of statutOly limitation by analogy to claims against
trustees for breach of trust, he continued (at 633-634):
"Now I take it that the position which has been laid down, 'that trust
and fraud are not within the statute,' is qualified just as he qualifies
it here: that is, if a trustee is in possession, and does not execute his
trust, the possession of the trustees is the possession of the cestui que
trust; and if the only circumstance is, that he does not perform his
trust, his possession operates nothing as a bar, because his
possession is according to his title ... But the question of fraud is of
a velY different description: that is a case where a person who is in
possession by virtue of that fraud, is not, in the ordinmy sense of the
word, a trustee, but is to be constituted a trustee by a decree of a
court of equity, founded on the fraud; and his possession in the
12
Williams v Central Bank afNigeria [2014] UKSC 10, [2014] 2 WLR 355 at [13]-[14].
meantime is adverse to the title of the person who impeaches the
transaction, on the ground of fraud... '"
[31]
Relying on these very strong authorities, Worldwide Leisure Ltd says that it
falls into the second class. It was not a trustee from the outset. The claim against it
arises only because it has become involved, by reason of receiving propeliy which is
said to be held subject to trust. It is in the position of a person alleged to be liable for
knowing receipt.
[32]
In pmi, Worldwide Leisure Ltd relies for its argument on the specific
pleading in the application, the allegation by Mr Kidd that the way that Worldwide
Leisure Ltd was set up - so that he was excluded from any form of shareholding or
interest - constituted an unauthorised transaction. That alleged lack of authority is
the basis for any liability on the pmi of Worldwide Leisure Ltd.
[33]
There is a factual distinction between cases such as Paragon and Williams v
Central Bank ofNigeria and this. In those cases the persons who were held to fall
into the second class were independent of the alleged trustee.
They were
independent third parties who were alleged to be liable even though they were not
trustees at the outset. Worldwide Leisure Ltd cmmot claim that independence. It
was at all times under the control of Mr van Heeren. That leads to a basis for
holding that this case does come within s 21(1)(b) so that the claim is not brought
out of time.
Worldwide Leisure Ltd as a trustee from the outset
[34]
Mr O'Callahan submitted that Worldwide Leisure Ltd itself was a trustee. As
I understand it, the argument runs this way. The land was bought for pminership
purposes. Initially Mr van Heeren bought the land in his own name. He established
Worldwide Leisure Ltd to be the nominee to take title. Worldwide Leisure Ltd was
at all times under Mr van Heeren's effective control. The knowledge and intentions
of Mr van Heeren can be attributed to Worldwide Leisure Ltd. It would not be open
to Mr van Heeren to say that he used pminership funds for his own purposes unless, of course, he could rebut the presumption under s 24 of the Partnership Act,
but he has not attempted that here. As the knowledge of Mr van Heeren can be
attributed to Worldwide Leisure Ltd, and as Mr van Heeren can be taken to know
that the property was being acquired for partnership purposes, so Worldwide Leisure
Ltd can be taken to have acquired the property for partnership purposes as well. On
that basis Worldwide Leisure Ltd was a trustee from the outset. Accordingly, the
caveatable interest is within s 2l(l)(b) as being for the recovery of trust property in
the possession of a trustee. I find that that is an arguable basis for the interest
claimed in the caveats, which satisfies s 21 (1 )(b) so that the claim is not brought out
of time.
Huka Lodge as a trust asset in the possession of Mr van Heeren
[35]
There is an alternative basis which I explored with counsel.
Instead of
treating Worldwide Leisure Ltd as a trustee, Mr van Heeren is the relevant trustee.
That approach takes a wide view of these words: "recover from the trustee" and
"trust property or the proceeds thereof in the possession of the trustee".
It is
impOliant to bear in mind that trustees may deal with trust assets in a wide variety of
ways. Trust assets may be held in a range of vehicles. They may be held in other
entities. When those assets are transferred into entities which remain under the
control of the trustee, in my view that is consistent with the trust propeliy remaining
in the possession of the trustee.
[36]
There is a basis for taking this wide view of "in the possession of the trustee."
In Soar v Ashwell Lord Esher MR saidY
The cases seem to me to decide that, where a person has assumed, either
with or without consent, to act as a trustee of money or other property, i.e"
to act in a fiducimy relation with regard to it, and has in consequence been in
possession of or has exercised command or control over such money or
property, a COUlt of Equity will impose upon him all the liabilities of an
express trustee, and will class him with and will call him an express trustee
of an express trust. The principal liability of such a trustee is that he must
discharge himself by accounting to his cestui que trusts for all such money or
propelty without regard to lapse of time. (Emphasis added).
[37]
Likewise, the words "recover from the trustee" can be taken to incorporate
proceedings against not only the trustee himself but also against other entities in the
control of the trustee.
13
A trustee should not be able to defeat s 21 (1 )(b) by
Soar v Ashwell [1893] 2 QB 390 (CA) at 394.
transferring assets out of his own name into another entity which remains under his
control. The law should be agile enough to recognise that a proceeding run against
an entity controlled by the trustee is still a proceeding within s 21 (l)(b). On this
alternative basis I also find that Mr Kidd's claim is within the subsection.
[38]
Accordingly, I find that Mr Kidd does have a caveatable interest in Huka
Lodge. I uphold the caveats.
Conditions
[39]
There were submissions as to the conditions for the caveats. It is normal in
any decision to sustain a caveat to require the caveator to issue proceedings to obtain
a substantive judgment as to the interest claimed in the caveat. It would be an abuse
if the caveator were allowed to have the caveat without also having the substantive
merits decided. I see no reason for departing from that practice in this case.
[40]
While the main proceeding pending in this court is against Mr van Heeren
alone, there is no relief sought that Worldwide Leisure Ltd is holding Huka Lodge as
trustee with Mr Kidd as one of the beneficiaries.
That proceeding, however,
provides a convenient vehicle in which the issues raised in this case can be heard at
the same time as the main issues between Mr Kidd and Mr van Heeren. I give
Mr Kidd this option. He is either to start a fresh proceeding, seeking a declaration
against Worldwide Leisure Ltd as to the beneficial interest he holds in Huka Lodge
or he may apply to have Worldwide Leisure Ltd joined as a defendant in the main
proceeding. I regard this decision as having determined any limitation issues in
respect of any suchjoinder application.
[41]
Another matter canvassed was whether Mr Kidd should give an undeliaking
as to damages.
I flagged this possibility at a case management conference.
Worldwide Leisure Ltd submitted that an undertaking as to damages should be
required and to boot, Mr Kidd, being resident in South Africa, should also post
security for any undertaking required to be given by him.
Mr van Heeren and
Worldwide Leisure Ltd have not presented any evidence at all. They have not given
any evidence as to any particular prejudice that would arise from the caveat staying
on the title. Worldwide Leisure Ltd has been the registered proprietor of Huka
Lodge since 1984. It has seemingly been able to trade profitably and continually
ever since that time. The lodging of a caveat may restrict the ability of Worldwide
Leisure Ltd to use the titles to give security for finance, but there is no evidence that
the titles are presently required for that purpose.
[42]
In these circumstances it does not seem that Worldwide Leisure Ltd would
suffer any greater inconvenience than any other registered proprietor in having the
caveat lodged against the title until the substantive merits of the caveat are decided.
I therefore decide that an undeliaking as to damages should not be required.
Orders
[43]
I make these orders:
(a)
The caveats 9652162.1 and 9652162.2 are not to lapse pending further
order of the court.
(b)
That is subject to the condition that Mr Kidd is to issue substantive
proceedings to seek a declaration upholding the interest he claims in
his caveat, but that may be done by joining Worldwide Leisure Ltd in
the main proceeding.
(c)
I reserve leave to the paliies to apply fuliher, in patiicular if Mr Kidd
does not prosecute his claim against Mr van Heeren with due
diligence.
(d)
I award costs to Mr Kidd against Worldwide Leisure Ltd on a 2B
basis. If there are any differences as to costs, memoranda may be
filed. The party filing second should file their memorandum no later
than five worldng days of the patiy filing first.
Associate Judge Bell