Caveats can be useful for preventing property being transferred when it might defeat the caveators real ability to recover a debt owing or the due return on an unregistered property interest.
However, to maintain a caveat it is necessary to show not only a debt or interest, but also how this debt or interest is connected to the property against which the caveat is lodged. This, and the need to consider how actions taken to recover a debt might compromise the ability to sustain a caveat are highlighted in Chen v Lin. The facts of this case are complicated and relate to an agreement for the purchase of 30% of a New Zealand property where the purchase price of some several million dollars was paid by a Chinese national but the property interest was never conveyed. While an agreement for the sale and purchase of property can provide a basis for a caveat, the difficulty in this case was that as part of the legal process for recovery of the purchase price, which started in China, the agreement for sale and purchase was terminated.
Ultimately judgment was made and an application for summary jugment filed in New Zealand. This application was granted in due course when the court was satisfied that there was jurisdiction for it to do so. However, this still left the matter of the caveat to be considered.
If only it were that simple.
The difficulty for the applicant was firstly, the agreement was terminated and secondly, while there is case law to support the propostion of a resulting trust (see below) founding a basis to sustain a caveat, in the case relied upon the advance was to enable the respondent to purchase of the property- not as was the case here – to purchase the property from the respondent. It may seem a fine detail – but it mattered. While the applicant had its order of summary judgment it could not maintain the caveat. The result may seem harsh. However, it appears technically correct and is a lesson in not abandoning rights under an agreement for sale and purchase without due consideration.
A resulting trust arises where:
- A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property that is vested either in B alone or in the joint names of A and B. there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A, or in the case of a joint purchase, by A and B in shares proportionate to their contributions. This is only a presumption that can be rebutted: Vandervell v IRC; In re Vandervell (No 2)
- Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest: Barclays Bank v Quistclose Investments Ltd
Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to the putatutive trustees’ presumed intention.
Also see Westdeutsche Landesbank Girozentrale v Islington London Borough Council
- Chen v Lin  NZHC 1727
- Westdeutsche Landesbank Girozentrale v Islington London Borough Council  AC 669
- Underhill and Hayton p. 317
- Vandervell v IRC  2 AC 291
- In re Vandervell (No 2) Ch. 269
- Barclays Bank v Quistclose Investments Ltd  AC 567