<%@LANGUAGE="JAVASCRIPT" CODEPAGE="1252"%> Smith v. Hugh Watt Society NZ HC 2/10/03
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CP.275/01
CIV-2003-404-1972
     
 
BETWEEN
ANDREW MICHAEL BERESFORD SMITH
First Plaintiff
  AND LYNORE BERYL CRAIG
Second Plaintiff
  AND THE HUGH WATT SOCIETY INCORPORATED
First Defendant
  AND CHRISTOPHER JAMES WINDSOR DIACK
Second Defendant
  AND MARGARET ELEANOR BURKE
Third Defendant
   
Hearing:
9, 10 and 11 June 2003
Appearances: D E Smyth and G B Presland for Plaintiffs
B P C Carter for Defendants
Judgment: 2 October 2003
 

INTERIM RESERVED JUDGMENT OF RANDERSON J

       
________________________________________________________
Solicitors:
G B Presland, P O Box 20310, Auckland for Plaintiffs
P A Fuscic, McVeagh Fleming Kennedy Tudehope, P O Box 4099, Auckland for Defendant
Counsel:
D E Smyth, P O Box 105270, Auckland for Plaintiffs
B P C Carter, P O Box 1857, Auckland for Defendants

 

Introduction

[1] In 1973, a hall was acquired at 70 Grey St, Onehunga for the Labour Party in Onehunga. It became known as the Hugh Watt Labour Hall after the longstanding Onehunga Member of Parliament and Cabinet Minister. In 1985, it was transferred to a newly formed incorporated society now known as the Hugh Watt Society Incorporated.

[2] Then, in 1988, the hall was sold and a residential unit purchased in Mt Smart Rd, Onehunga in the name of the Society. The ownership of that unit is disputed by the plaintiffs in this proceeding who claim that the Society holds it in trust for them.

[3] The first plaintiff, Mr Smith, is the General Secretary of the New Zealand Labour Party, an unincorporated body registered as a political party under the Electoral Act 1993. The second plaintiff, Ms Craig, is a member of the Labour Party residing in Onehunga in the former Onehunga electorate which was abolished in 1995/1996 and absorbed partly into the Maungakiekie electorate and partly into the Mt Roskill electorate.

[4] The plaintiffs claim that the Labour Party in the former Onehunga electorate raised the funds for the purchase of the hall and that it was always intended that the property would be held for the benefit of the members of the Labour Party in that electorate or, in default, the New Zealand Labour Party. It is not in dispute that, at the time of the 1985 transfer to the Society, the then registered proprietor held the hall in trust for the members of the Labour Party in the Onehunga electorate.

[5] The ownership issue has arisen because, by a process beginning in 1992, the rules and membership of the Society have been changed. The rules originally provided that the members of the Society were to comprise all elected or appointed members of the New Zealand Labour Party Electorate Committee in Onehunga. Upon a winding up, the surplus assets of the Society were to vest in the New Zealand Labour Party. The plaintiffs contend that the Society's rules have since been radically altered so as to exclude all reference to the Labour Party or its members and that, in consequence, they have been denied the use and benefit of the unit.

[6] By their second amended statement of claim, the plaintiffs pleaded three causes of action. The first was in contract but was rightly abandoned at trial. It was based on alleged breach of the rules of the Labour Party but those rules could not have contractual effect against the second and third defendants after their membership of the party ceased. The second alleged a breach of trust on the basis that the Society was aware that the unit was held in trust for the plaintiffs but has refused to transfer it despite demand. A declaration to the effect that the unit is held in trust for the plaintiffs was sought and an order for transfer of the unit to them. The third cause of action pleaded a breach of fiduciary duty by the second and third defendants who are the Secretary/Treasurer and the Vice Chairperson of the Society respectively. Those claims were also abandoned during the hearing, subject to an application by the plaintiffs to amend the pleadings to allege a wider fiduciary duty on the part of the Society not to amend the rules in such a way as to defeat the plaintiffs' interests in the property.

[7] The defendants deny all these claims, submitting that the Society is the legal and beneficial owner of the unit and that the rule changes were undertaken lawfully in accordance with the Incorporated Societies Act 1908.

[8] The plaintiffs' second amended statement of claim is not felicitously drafted. It is not clear whether an express trust is alleged or an implied or constructive one. Nor is it alleged that there was a breach of trust involved in the transfer of the original hall to the Society. In considering the legal consequences of the transactions, it seemed to me there was a real prospect that the hall had been transferred to the Society in breach of trust and I sought further submissions on whether, if I were to find that, the defendants accepted it was appropriate to declare that the unit was held in trust for the original beneficiaries. I took that step because, although it had not been pleaded or argued by the defendants, I considered there was a possibility that indefeasibility of title could become an issue.

[9] I also sought further submissions on whether it would be appropriate to allow the plaintiffs to amend their claim to include a cause of action based on breach of fiduciary duty, an issue raised during the hearing but not dealt with before its conclusion.

[10] I have now received submissions on those matters, the last of which were filed on 28 July 2003. The issues to be determined are:

a) Was both legal and beneficial ownership of the hall transferred to the Society when it was established in 1985 or, as the plaintiffs contend, was there only a transfer of the legal interest?

b) If there were a transfer of both legal and beneficial interest, did that amount to a breach of trust by the trustee and, if so, is such a claim within the pleadings or permissible by amendment?

c) If there were a breach of trust, what are the consequences of that? In particular, are the defendants or any of them under a legal or equitable duty to hold the property for the plaintiffs?

d) Were the defendants under a fiduciary duty not to alter the rules of the Society in a way which would preclude the original beneficiaries of the trust from enjoying the benefit of the property and, if so, should the plaintiffs be permitted to amend their claim?

e) Do the indefeasibility provisions of the Land Transfer Act 1952 preclude the plaintiffs' claims if established?

f) What relief should be given if the plaintiffs' claims are established?

 

The facts in more detail

[11] Prior to the trial, I heard the evidence of Mrs J M Hensley who, for reasons it is unnecessary to relate, was unable to attend the trial. Mrs Hensley has been a member of the New Zealand Labour Party for more than 50 years. She lived most of her life in the Onehunga area and recalled the decision being taken to buy the hall in 1973. She gave evidence, which I accept, that the Labour Party in the Onehunga electorate conducted housie evenings and other fundraising activities over a period of approximately two years prior to the purchase in order to raise the necessary funds. The housie evenings were known as Labour Party housie evenings and I accept her evidence that the funds were to be used for the benefit of the Labour Party in the Onehunga electorate.

[12] The title to the property shows that a transfer to one David Isbey was registered on 12 October 1973. He is now deceased but was the brother of the former Labour Member of Parliament, Mr Eddie Isbey and was himself closely connected with the Labour Party. The transfer records that the consideration for the purchase was $11,000. It also shows that the transferee was originally intended to be the New Zealand Labour Party, Onehunga Labour Representation Committee (the predecessor of the New Zealand Labour Party Onehunga Labour Electorate Committee). For reasons not in evidence, the reference to the Committee in the transfer was deleted and Mr Isbey's name substituted.

[13] Mrs Hensley's evidence was that the local party decided it needed the hall as its headquarters and it was in fact used for that purpose. Other groups used the hall from time to time for a nominal fee but the local party managed it.

[14] I accept Mrs Hensley's evidence and find that the funds used to purchase the hall in 1973 were raised by and on behalf of the members of the Labour Party in the Onehunga electorate and that the hall was purchased for the use and benefit of the Labour Party and its members in that electorate.

[15] Other evidence established to my satisfaction that the hall was used at all times thereafter until it was sold in 1988 as the centre of the Labour Party organisation in the Onehunga electorate. It was used continuously as the electorate office for the local Labour Member of Parliament, all meetings of the Labour Electorate Committee, and some branch meetings. It was also used as the headquarters for all election campaigns and was the headquarters for the local party organisation. All of the local party's records were kept there. The hall was divided into two main areas: an open hall available for hire and used by other groups, and a meeting room and associated space kept exclusively for the use of Labour Party staff.

[16] Mr G Woodcock gave evidence of his involvement with the Onehunga Labour Party over a substantial period and confirmed that while the late Mr Fred Gerbic was the Labour Party MP for Onehunga, he used part of the hall as an electorate office, rent being paid for the use of the hall by Parliamentary Services. Income raised was used to pay the outgoings on the hall, including maintenance. Mr Woodcock confirmed that all decisions relating to the hall were made by the Labour Party in Onehunga. He always understood that David Isbey was holding the property on behalf of the Labour Party members in the Onehunga electorate. He estimated that in 1996 there were between 200 and 300 paid up members, excluding affiliate members.

[17] Mr Woodcock was active in the Party in 1985 when it was decided to sell the hall. There was concern in Onehunga that the Labour Party head office might wish to take control of the hall, sell it, and use the proceeds to pay off debt incurred by the Party in Wellington.

[18] Mr Woodcock was involved in discussions involving the then Chairman of the Labour Electorate Committee in Onehunga (Mr John Cargill), Mr Gerbic, and a solicitor and Labour Party supporter, Mr Paul Maskell. Mr Woodcock recalled it was Mr Maskell's suggestion that some form of trust structure be adopted to hold the hall so that control of it could be retained by the local party in Onehunga. His understanding was that it was eventually decided to incorporate a Society to take a transfer of the hall. The Society would be responsible for management of the hall but it would be an integral part of the local party. He stated that membership would be open to delegates of the Labour Electorate Committee of the Onehunga electorate who, by definition, were also members of the New Zealand Labour Party.

[19] Mr Maskell gave evidence for the defendants. He was not aware of the circumstances regarding the original acquisition of the hall in 1973 but was fully involved in the transfer of the asset in 1985 and prepared all the relevant legal documents. In doing so, he acted on behalf of both the transferor and transferee. He confirmed at least parts of Mr Woodcock's evidence, although disagreeing with others. In particular, he deposed that he regarded the ownership of the hall by an incorporated society as the best means of preventing it being sold by the head office of the Labour Party for its own funding purposes. This was an important issue for Mr Gerbic and the members of the Labour Electorate Committee at the time. He saw the purpose of the transfer as being a means of maintaining control of the hall for what he described as "the local community". In cross examination, he clarified that by the "local community", he meant the people in the Labour Party in Onehunga. As far as he was concerned, the incorporated society was to be a separate entity which would hold both the legal and beneficial interest. He could foresee difficulties if it were suggested that the property would be held in trust for the Labour Party or the Labour members of the Onehunga electorate. As far as he was concerned, there was no suggestion the property be held in trust by the Society.

[20] Mr Maskell went on to say that he investigated the title and found it was solely in the name of Mr Isbey. He was not aware of any trust deed relating to the property and none was produced in evidence. Mr Maskell stated that his dealings were with Mr Gerbic and members of the Labour Electorate Committee in Onehunga. Mr Gerbic was responsible for discussions with Mr Isbey and it was on the basis of Mr Gerbic's instructions that he prepared the transfer to the Society upon its incorporation.

[21] In a significant passage in cross examination by Mr Maskell by the plaintiffs' counsel, the following is recorded:

So we reach this position then Mr Isbey - stand back a step - the hall was used for Labour Party purposes, the LEC were concerned head office would take and sell the hall, the local party wanted to preserve it and Mr Gerbic reported that Mr Isbey said he was a trustee for the local party members. Is that the position you found yourself in? ... Yes.

[22] Mr Maskell also accepted in cross examination that although the Society would be a separate legal entity, it would reflect the views of the Labour Party in Onehunga given that its members were to be drawn from the Labour Electorate Committee in that electorate. He also acknowledged that if one of the Society's members ceased to be a member of the Labour Electorate Committee, then under the Society's rules, his or her membership of the Society would automatically lapse. Similarly, if a member of the Society ceased to be a member of the New Zealand Labour Party for any reason, then he or she would not be eligible to be a member of the Labour Electorate Committee and no longer entitled to be a member of the Society. It is also common ground that if a Labour Party member were no longer to espouse the political policies and aspirations of the Labour Party, then any such member would be subject to disciplinary proceedings and likely expulsion from the Party.

[23] There was no consideration for the transfer from Mr Isbey to the newly formed Society. In re examination, Mr Maskell stated for the first time that the reason for this, from his perspective, was that the transaction involved Mr Isbey, as trustee, transferring the hall to the beneficiaries of the trust.

[24] The evidence established that the Labour Electorate Committee supported the transfer and that Mr Gerbic discussed the matter at least with some Party members. There was also discussion about the transfer in the Labour Party branches whose delegates were represented in the Labour Electorate Committee. But the evidence fell short of establishing that all members of the Labour Party in the Onehunga electorate consented to the transfer or were even consulted about it. Mr Woodcock stated, as one would expect, that not all members of the Labour Party in Onehunga took an active interest in its affairs and some were seen only on election day. Mr Maskell did not assert that the consent of the members as beneficiaries was obtained or even sought in any formal way. I find that the consent of all member beneficiaries to the transfer to the Society was not obtained and indeed, that the need for such consent if a transfer of the beneficial interest were intended, was probably never considered. The support of the Labour Electorate Committee was not sufficient to amount to a consent on behalf of all members and there was no evidence that the Committee had authority to consent on the members' behalf.

[25] The relevant portions of the transfer dated 30 September 1985 and signed by Mr Isbey as transferor were:

WHEREAS DAVID ISBEY of Auckland, Harbour Board Employee being registered as proprietor of two estates in fee simple as trustee for the members of the New Zealand Labour Party in the Onehunga Electorate subject however to such encumbrances, liens and interests as are notified by memoranda underwritten or endorsed hereon in those pieces of land situated in the Land District of North Auckland containing

[Legal description follows]

AND WHEREAS the ONEHUNGA LABOUR SOCIETY INCORPORATED a duly incorporated Society pursuant to the provisions of the Incorporated Societies Act 1908 consisting of members of the New Zealand Labour Party in the Onehunga Electorate has been incorporated to become registered proprietor of the said pieces of land above described

NOW THEREFORE pursuant to the above premises the said DAVID ISBEY hereby TRANSFERS to the said ONEHUNGA LABOUR SOCIETY INCORPORATED all his estate and interest in the said pieces of land above described.

[26] In answer to questions from me, Mr Maskell said he could not recall any discussions at the time about transferring the legal and beneficial interest in the hall from Mr Isbey to the Society. However, he explained that:

... in the context of discovering the property was owned by David Isbey and Fred Gerbic indicating that David Isbey didn't want to continue in ownership role and my suggestion of setting up an incorporated society that consisted of members of the Labour Party in Onehunga, my recollection is that both Fred Gerbic and David Isbey saw that that was a useful way of bringing all of those issues together because the society would be set up and have as its members the members of the Labour Party in Onehunga and David Isbey considered that he was holding it on behalf of those people so that a transfer from one legal entity to another would achieve the same objective.

Was that why amongst other things, rule 13 was included in the constitution as to surplus assets to go back to the Labour Party? ... That is correct, that the society would be a completely separate entity but would have as its members, members of the New Zealand Labour Party in Onehunga but ultimately when the society had served its purpose, then the asset could go to the overriding body that many people were affiliated to.

[27] When asked whether there was any contemplation at the time of the transfer and the formation of the new Society that the rules would be changed so as to effectively exclude the Labour Party members in Onehunga from any part of the operation of the Society and to change the ultimate beneficiary, Mr Maskell could not recall any such discussion. He confirmed in answer to my question that when the transfer was made and the Society was established, "the whole objective of it was to hold the property for the use and benefit of the Labour Party members in Onehunga".

[28] The Society was incorporated on 13 August 1985, shortly before the transfer of the hall was completed. It was then known as the Onehunga Labour Society Incorporated. At the time of incorporation, the objects of the Society were stated in rule 2 as follows:

2. OBJECTS

The objects for which the Society is established are:

(a) To be the registered proprietor of a property situated at 70 Grey Street, Onehunga known as the Hugh Watt Labour Hall being all that parcel of land ... [legal description follows].

(b) To buy, sell, rent, lease or otherwise deal with real property (including the property at 70 Grey Street, Onehunga).

(c) To maintain and operate facilities to encourage social, economic and political activities in the Onehunga area.

(d) To facilitate research and offer assistance in social economic and political matters in the Auckland region.

(e) To provide grants and scholarships to persons residing in the Onehunga area.

(f) To invest and deal with any money of the Society not immediately required in such manner as may from time to time be determined and to borrow or raise or secure the payment of money in such manner as the Society may think fit.

[29] Rule 3 provided that the income and property of the Society was to be applied solely towards the promotion of its objects and was not to be paid or transferred to any of the Society's members. Membership was provided for in r 4:

4. MEMBERSHIP

(a) All elected or appointed members of the New Zealand Labour Party Onehunga Labour Electorate Committee shall be entitled to become members of the Society upon presentation by them of approval from their constituent body for them to be the constituent body's representative to the Society.

(b) A member shall cease to be a member of the Society upon:

(i) Delivering a written resignation to the Secretary of the Society; or

(ii) A member ceasing to be an elected or appointed member of the New Zealand Labour Party Onehunga Electorate Committee.

[30] Under rule 9, general meetings of the Society were to be held at not more than three monthly intervals. As well, the executive of the Society was required to attempt to arrange meetings of the Society to coincide with the monthly meetings of the Onehunga Labour Electorate Committee. Rule 13 provided on the winding up of the Society, all surplus assets after the payment of all costs, debts, and liabilities, were to vest in the name of the New Zealand Labour Party at Wellington.

[31] In 1986, the Society decided to sell the hall. It was run down and considered to be uneconomic to retain. The sale was not completed until 1988 when it was sold for $93,000. The unit in Mt Smart Rd was purchased shortly afterwards for $130,000, utilising the proceeds of sale from the hall and a loan raised by the Society from the Bank of New Zealand which was subsequently repaid from rental generated from the property.

[32] Mr Maskell acted for the Society on the sale and purchase but his firm’s records have since been destroyed. He stated in evidence that there was no suggestion that the Society had to account to the Labour Party for the proceeds of sale of the hall. The unit comprises a two bedroom house with a bedsitter attached. Mrs Burke now rents the house and the bedsitter is separately let. The property is now worth approximately $300,000. The surplus rental income has been used to pay off the bank loan raised to purchase the property. Funds of about $45,000 have been accumulated by the Society since then but much of this has been spent on legal fees in connection with this litigation. The only other assets of the Society are some office furniture and equipment of little value. There are no liabilities of any substance.

[33] In late 1992, Mr Richard Northey won selection as the Labour Party candidate for the Onehunga electorate for the 1993 election. The second defendant Mr Diack was one of the unsuccessful nominees. He had been very active in the New Zealand Labour Party. For example, he was the campaign administrator for Mr Gerbic in 1987 and ran his campaign as chairman of the Onehunga Labour Electorate Committee in 1990.

[34] After his unsuccessful nomination as the Labour Party candidate for the 1993 election, Mr Diack was dissatisfied with the Party. During 1993, steps were taken by the Labour Party to expel him from the Party and he resigned in mid 1994. It is clear that the nomination contest was a bitter affair which caused a split in the Party in the Onehunga Electorate and ultimately led to a change in political direction for Mr Diack. He is now a member of the ACT New Zealand political Party and is also a member of a local government party, Auckland Citizens and Ratepayers Now.

[35] Mrs Burke had also been active in the Labour Party since 1984, including acting as a delegate to the Onehunga Labour Electorate Committee where she served at different times as secretary, treasurer, chairperson, and vice chairperson. She resigned from the Labour Party in 1994 as well. Her political allegiances are unclear but it is reasonable to infer she is no longer a supporter of the Labour Party.

 

The rule changes

[36] It is clear from the evidence that at least until 1993, the Society maintained a close relationship with the Labour Electorate Committee in Onehunga. For example, in the 1990 elections, the Society provided campaign services to the Labour Electorate Committee through the use of the Society’s computer for mail out purposes. Funds raised by the Onehunga Labour Party in the sum of $14,900 were advanced to the Society for the purpose of funding expenditure incurred by the Society on the Party’s behalf for the 1990 election. Later, the Labour Electorate Committee wrote off the amount of those advances. While I accept Mr Diack’s evidence that the Society and the Labour Electorate Committee maintained separate accounts, there can be no doubt on the evidence that the Society remained closely connected with the Labour Electorate Committee and supported it mainly through the provision of services.

[37] However, from 1992 the rules of the Society were progressively changed and eventually led to the elimination of all reference to the Labour Party whether locally in Onehunga or nationally. In 1992, the Society’s rules were changed by deleting the references in rule 2 to the hall at 70 Grey St. By then, of course, it had been sold. The membership rule 4 was changed to define more closely those eligible for membership of the Society. Members were to be drawn from the Onehunga Labour Electorate Committee which were to comprise all delegates representing branches of the Onehunga electorate Labour Party, the local party candidate or the Labour Member of Parliament for Onehunga, and the Women’s Liaison Officer of the Onehunga Labour Party. The rule was also amended to provide that if the number of members eligible to be appointed was less than 15, the Society was entitled to appoint additional members from the membership of the Labour Party in the Onehunga electorate to bring the number up to 15. There were other changes introduced at that time not relevant for present purposes.

[38] The most important changes were introduced in 1993 and 1995. At the Society’s Annual General Meeting on 10 March 1993, the rules were changed in two principal ways. First, the society resolved to appoint 20 life members from the membership of the New Zealand Labour Party in the Onehunga electorate as at 31 December 1992. Those members would remain as members of the Society until their resignation or death. Unlike other members, their continued membership of the Society was not contingent upon their continued membership of the Labour Party. As well, it was resolved to introduce a rule which would permit one member of the Society to be nominated from each of the approved branches of the New Zealand Labour Party in the Onehunga electorate (or where any such branch had more than 100 financial members, a further member). The rule required the production of evidence to satisfy the secretary of the Society that the member was appropriately qualified in terms of the rules. Any member so appointed would remain a member until the next Annual General Meeting of the branch, their resignation, the removal of their branch from a register of approved branches to be maintained by the Society, or the member ceasing to be a member of the New Zealand Labour Party.

[39] Rule 12 was also replaced so as to require any rule change to be passed by not less than two thirds of the total membership personally present at a general meeting of the Society. It was also provided that there was to be no alteration to the pecuniary profit or winding up rules without the approval of the Inland Revenue Department.

[40] These rule changes were said to be justified on two main grounds. First, there was concern that the Society’s members might fall below 15 which would afford a ground for winding up the Society under s 25(b) of the Incorporated Societies Act 1908. Secondly, as Mrs Burke put it in her evidence, there was concern that the Labour Party might swamp the Society with members and take control of its assets or, alternatively, force a winding up in which case surplus assets would go to the Labour Party. In cross examination, it was put to Mrs Burke that the rule changes enabled her to disregard the concerns she had about the intentions of the Labour Party. Her response was:

It certainly gave me a lot more comfort. Yes it did, because there were many many messages which I can’t repeat to this court for obvious reasons coming through that the Labour Party was going to get that property and they were not going to get it while I was a member of it because they didn’t own it.

[41] The minutes of the 1993 Annual General Meeting show that the meeting was chaired by the late Mr Gerbic and that there were 16 members in attendance. The motions to amend the rules were all moved by Mr Diack and a number were seconded by Mrs Burke. The rule changes were carried by the members, the minutes recording that Mr Gerbic and Mr Northey voted against the principal changes to the membership rules.

[42] At a later general meeting of the Society on 12 April 1993, it was resolved to appoint 20 life members pursuant to the rule change adopted at the Annual General Meeting. As well, the Society resolved to approve eleven branches of the New Zealand Labour Party for the purpose of nominating members from those branches to the Society. Mr Diack, Mrs Burke, and Mr Maskell were all appointed life members. Although it was suggested that the remaining 17 life members appointed at that time were all supporters of Mr Diack and Mrs Burke, I am unable to determine that on the evidence. I note, however, that the meeting was chaired by the late Mr Gerbic and that twelve other members were present, including Mr Northey. The motion to appoint the life members was moved by Mr Diack and seconded by Ms A Lindley. They were both appointed life members. Neither Mr Northey nor Mr Gerbic were so appointed. It is reasonable to infer that the majority of members present were not favourably disposed towards Mr Gerbic or Mr Northey becoming life members.

[43] The minutes of the meeting of the Society held on 19 May 1993 indicate that the Society was experiencing difficult times. The minutes record Mrs Burke as reporting to the meeting that “the past few months had been a tumultuous time for the Society. Its private business had been aired in the daily papers and much publicity had been given to the house owned by the Society.” The minutes also show that Mr Northey was not permitted to have observer status at the meeting and was asked by Mrs Burke as the chairperson to leave.

[44] The minutes of a meeting of the Society on 4 September 1993 record that a previous decision by the Society to donate $3000 to the New Zealand Labour Party for the Onehunga election campaign was reversed for lack of funds. It is evident that by 1993, the Onehunga Labour Electorate Committee was expressing concerns about the loss of control of the Society’s residential unit. Those concerns were referred to in the minutes of the Society’s meeting on 16 December 1993 at which Mr Diack and Mrs Burke were present.

[45] In late 1993 it was proposed that the winding up rule be amended to provide that surplus assets of the Society after the payment of all costs and liabilities would vest in the name of the New Zealand Labour Party Onehunga Labour Electorate Committee. Mrs Burke explained in evidence that this rule was to be changed because there were concerns about the head office of the Labour Party “putting a claim on the property”. She said the Society members believed that, by changing the winding up clause to the local branch of the Labour Party, it might remove the incentive for head office to threaten the Society with court action. This rule change was effected in 1994.

[46] In 1995, there were major rule changes by the Society which finally removed all reference to the Labour Party in the Society’s rules. By this time, the Society had changed its name to the Hugh Watt Society Incorporated. At a meeting of the executive of the Society on 10 May 1995, resolutions were passed recommending to the Society the following rule changes. First, the life membership rule was to be amended to provide for up to 25 life members to be appointed by way of resolution at a general meeting. Reference to the life members being drawn from the membership of the New Zealand Labour Party in the Onehunga electorate as at 31 December 1992 was to be deleted. Secondly, it was proposed to delete all reference to further members of the Society being drawn from nominees of the branches of the New Zealand Labour Party in Onehunga. Thirdly, the winding up rule was to be changed to provide that surplus assets were to vest in the name of the “Hugh Watt Charitable Trust in Auckland or if this is not in existence at the time of wind up, then such registered charitable organisations active in the Onehunga Community as the Registrar of incorporated societies shall determine”. The minutes of the meeting also record that a draft proposal for the charitable trust contemplated by the new winding up rule was to be considered.

[47] Thereafter, the Annual General Meeting of the society took place on 31 May 1995. The meeting was chaired by Mr L Leaver and there were twelve persons present. Mrs Burke was elected vice chairman and Mr Diack secretary treasurer. Mr Maskell was appointed to the executive. The Annual General Meeting approved all the recommended rule changes.

[48] In evidence, Mrs Burke and Mr Diack explained that by the time the 1995 rule changes were made, the Onehunga electorate had been disbanded through boundary changes and it was considered that the Society should use its resources for the purpose of promoting education in the Onehunga area, perhaps through the grant of scholarships, and that, upon a winding up, the Onehunga community should benefit. Mr Diack added that a stalemate had earlier been reached between the Society and the Labour Electorate Committee over the Society’s request that the Labour Party in Onehunga provide membership lists for its branches. The Labour Electorate Committee alleged this would constitute a breach of the Privacy Act. For its part, the Society wished to have new membership lists because, as Mr Diack explained it, there were discussions in the Labour Electorate Committee at the time that the branch structures could be re-organized so as to effect a takeover of the Society. For that reason, he said, the Society wished to assure itself that members were not appointed to the Society from fictitious branches.

[49] Mr Diack said that the rule changes were made so that the Society could pursue its objects and not some “external agenda”. A draft charitable trust deed had been prepared but nothing had yet been done towards pursuing the charitable objects in the form of education or other grants. Mr Diack said he considered the Society now to be non political. He did not, however, rule out some form of political activity by the Society in the future. He accepted that the Labour Party had not been consulted about the change of the winding up rule.

[50] Mr Diack also accepted that prior to the rule changes effected from 1993, the members of the Society were, for all intents and purposes, the same as the members of the Labour Electorate Committee in Onehunga. Nevertheless, he saw the two bodies as being separate and distinct as to financial and other matters. He did not consider that the Society had any obligation to support the Labour Party financially. Although there was a relationship between the two bodies, the Society’s role was to be responsible for the hall and subsequently for the Mt Smart Rd unit. Mrs Burke added that she did not consider the Society had any obligation towards the Labour Party either nationally or in the Onehunga electorate and she was convinced that she had “done the right thing” in supporting the rule changes.

 

Issue (a) – Was both legal and beneficial ownership of the hall transferred to the Society in 1985?

[51] The first and critical issue to be determined is the intention of the parties at the time the hall was transferred from Mr Isbey to the Society in 1985. The plaintiffs’ contention was that Mr Isbey intended to transfer to the Society only the legal interest in the land and not the beneficial interest. The defendants on the other hand contended that the intention was to transfer to the Society both the legal and beneficial interest in the hall, leaving the Society free to deal with the asset as it saw fit and in accordance with its constitution as established by the rules from time to time.

[52] Before embarking on a determination of the intention of the parties at the time, it is necessary to observe, contrary to the submission by the plaintiffs, that a trustee has all the rights of an absolute owner but subject to the right of the beneficiary to compel the trustee to hold and use those rights in accordance with the terms of the trust. Although the rights of the beneficiary constitute an equitable estate in the land, that interest, as the authorities have stated “is not carved out of a legal estate but impressed upon it”: DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, 474 per Brennan J. In Re Transphere Pty Ltd (1986) 5 NSWLR 309, McLelland J referred to “the imprecision of the notion that absolute ownership of property can properly be divided up into a legal estate and an equitable estate”. As he put it, at 311:

An absolute owner holds only the legal estate, with all the rights and incidents that attach to that estate. Where a legal owner holds property on trust for another, he has at law all the rights of an absolute owner but the beneficiary has the right to compel him to hold and use those rights which the law gives him in accordance with the obligations which equity has imposed on him by virtue of the existence of the trust. Although this right of the beneficiary constitutes an equitable estate in the property, it is engrafted on to, not carved out of, the legal estate.

[53] Although there was no formal trust deed, when Mr Isbey executed the transfer of the hall property, he effectively declared that he held the land in trust for the benefit of the members of the New Zealand Labour Party in the Onehunga electorate. That point was not disputed by the defendants. The real question is, whether, when Mr Isbey transferred “all his estate and interest” in the land, he was intending to transfer the land free of the trust he had declared or subject to it. Mr Smyth on behalf of the plaintiffs submitted that the transfer was merely a change of trustee and that it was intended that the Society would hold the property on the same trust as that binding Mr Isbey. If that were so, then the Society would simply hold the property on trust for the members of the New Zealand Labour Party in the Onehunga electorate and they could compel the Society to transfer it to them.

[54] I find it difficult to accept the plaintiffs’ argument. First, there is nothing in the transfer or in the rules of the Society suggesting that the property was to be held in trust. Secondly, the reference in the transfer to the Society “consisting of members of the New Zealand Labour Party in the Onehunga electorate” is consistent with an intention to transfer the legal and beneficial interest in the land to the Society as if it were representative of the beneficiaries. That would be consistent with Mr Maskell’s evidence as to what he understood the intention was at the time. In other words, because the Society would, through the Labour Electorate Committee, comprise members of the New Zealand Labour Party in the Onehunga electorate, the transfer to the Society was considered to be effectively a transfer to them. Thirdly, the terms of the Society’s rules do not suggest that the Society’s role was to be limited to that of trustee. As they stood at the time of incorporation, the objects of the Society included being the registered proprietor of the property, as well as buying, selling, renting, leasing, or otherwise dealing with real property, including the subject property. That objective must however also be read with object 2(c) which was to maintain and operate facilities to encourage social, economic, and political activities in the Onehunga area. This suggests an intention that the hall would be maintained and operated as a facility for those activities but does not, in itself, suggest a trust. Importantly, rule 4 provided for membership of the Society amongst all electorate or appointed members of the New Zealand Labour Party Onehunga Labour Electorate Committee which ensured that the committee would have control of the Society and its assets for the benefit of the members of the Labour Party, so long as that rule remained. Finally, the winding up rule (13) provided that all surplus assets were to vest in the New Zealand Labour Party at Wellington. This provision is not necessarily inconsistent with a trust in favour of the original beneficiaries of the land because s 27(1) of the Incorporated Societies Act recognises that the distribution of surplus assets in accordance with the rules of the Society is “subject to any trust affecting the same”. Nevertheless, it is an indication that a trust for the benefit of the members of the Labour Party in the Onehunga electorate was not intended.

[55] I find that the documentation is consistent with an intention to transfer the property to the Society as a separate legal entity free from the trust which bound Mr Isbey. That is consistent with Mr Maskell’s understanding who drew the relevant documents and acted for both transferee and transferor at the time. The incorporation of the Society was seen as a means of ensuring that the asset could be preserved for the benefit of the Labour Party in Onehunga and to prevent the New Zealand Labour Party national headquarters from selling it to repay debt.

[56] While there can be no doubt that the Society was formed as a separate legal entity, I find it was intended at the time of the transfer from Mr Isbey that the Society would act co operatively with the Labour Electorate Committee in Onehunga and that the hall or any asset purchased in substitution for it, would be available for the use and benefit of the Labour Party members in Onehunga. As Mr Maskell put it, “the whole objective was to hold the property for the use and benefit of the Labour Party members in Onehunga”. That was to be achieved through the commonality of membership that existed between the Society and the Labour Electorate Committee, rather than any formal trust relationship.

[57] I am satisfied that at the time of the transfer, no one foresaw the possibility that the rules of the Society would be changed so as to exclude the Labour Electorate Committee from membership and control of the Society and its assets. Careful provision had been made for any surplus assets to revert to the New Zealand Labour Party in the event of a winding up. Again, I am satisfied that, at the time of the transfer, no one contemplated the possibility that the ultimate beneficiary under that rule would be changed.

[58] The overwhelming inference from all the evidence is that there was a bitter falling out amongst members of the Labour Party in the Onehunga electorate in late 1992 when Mr Diack failed to secure the nomination as the Labour Party’s candidate for the 1993 election. That led ultimately to the resignation of both Mr Diack and Mrs Burke from the Labour Party and a substantial split in the membership of the Party in the Onehunga electorate. I cannot regard it as merely accidental that from 1992 onwards, there was a progressive alteration of the rules of the Society which had the effect of radically altering the rules in force at the time of the transfer. By 1995, those rule changes had effectively excluded the Labour Party or its members from any control of or involvement in the Society whether through the Local Electorate Committee or through the New Zealand Labour Party head office in Wellington. That must have occurred with the support of the Society members who were no longer sympathetic to the Labour Party and whose votes became possible through the membership changes initiated by Mr Diack.

[59] I also find on the evidence that the Society’s membership rules were changed with the specific intention of excluding Labour Electorate Committee members or branch nominees from membership and by creating instead what amounted to a “closed shop” of up to 25 life members appointed by the Society itself and who were in a position to out vote members appointed by the Labour Electorate Committee. Mrs Burke, in particular, made it clear that the changes to the membership rule were made for the purpose of preventing the Labour Party members in Onehunga from having control of the Society and its assets.

[60] Similarly with the changes made to the winding up rule. I find that the change made to exclude the New Zealand Labour Party from participating in any surplus assets on a winding up was made deliberately after concerns had been raised by the Party concerning the direction of the Society and control of its assets. While I am not in a position to make any finding about the political views of all of the members of the Society, it is clear that Mr Diack, as a prime mover in the Society, is now connected with a political party at the opposite end of the political spectrum from that of the Labour Party. That is undoubtedly one of the factors which has given rise to the schism between the Society and the plaintiffs. There is no evidence that the Society considered whether it might have had any on going obligations towards the members of the Labour Party in the Onehunga electorate or that it considered obtaining the consent of the New Zealand Labour Party before changing the winding up rule.

 

Conclusion on first issue

[61] I conclude that it was intended to transfer both the legal and beneficial interest in the hall to the Society in 1985 but subject to the clear understanding and expectation by both transferee and transferor that the membership of the Society was and would remain composed of the members of the Labour Party in the Onehunga electorate through the Electorate Committee. I also find that the purpose of this structure was that control of the hall would remain in their hands, along with the associated right to enjoy its benefits and, in the event of a winding up, any surplus assets would revert to the New Zealand Labour Party.

 

(b) Was there a breach of trust when the hall was transferred from Mr Isbey to the Society?

[62] It is fundamental in the law of trusts that the trustee's overriding duty is to obey the terms of the trust. In the present case, Mr Isbey's simple duty was to hold the property for the members of the New Zealand Labour Party in the Onehunga electorate as beneficiaries. While he was permitted to transfer the property to those beneficiaries, he was not permitted to transfer the property to a third party without the unanimous consent of all the beneficiaries or the sanction of this court to a variation of trust: Dal Pont and Chalmers, Equity and Trusts in Australia in New Zealand, 2nd ed., p 618. I have already found as a fact that the consent of all beneficiaries was not obtained. There is no evidence that approval to a variation of trust was sought or obtained. It follows that a transfer to the Society purporting to be free of any trust in favour of the beneficiaries was a plain breach of trust.

[63] Although Mr Isbey and the Society may not have been personally aware that the transfer was, in law, a breach of trust, they were each aware through Mr Maskell and the terms of the transfer that a trust existed and that the consent of all the beneficiaries to the transfer had not been obtained. As well, Mr Maskell either knew or ought to have known that the transfer would constitute a breach of trust. As he acted as solicitor and agent for both transferee and transferor, the Society as transferee had imputed knowledge of the breach. I do not suggest that Mr Maskell and the other parties involved acted in bad faith. No doubt he and the others involved believed they were acting in the best interests of the Labour Party members in Onehunga and that the transfer was necessary to preserve the asset represented by the hall from possible attack from the head office of the Labour Party and to keep it in local control.

[64] As to the pleading point, I accept Mr Carter's point that the second amended statement of claim does not specifically allege that the transfer was in breach of trust. That is no doubt because the plaintiffs' primary submission was that Mr Isbey as transferor had effectively only transferred the beneficial interest. However, the evidence and arguments focused extensively on the intentions of the parties at the time of the transfer and the nature of the interest transferred. The second cause of action was headed "Breach of trust" and paragraphs 26 to 28 of the second amended statement of claim plead that the Society held the property as trustee for the plaintiffs and not in its own right. Effectively, as I later find, the consequence of the breach of trust in the transfer of the hall to the Society is that the Society holds the hall (or any asset purchased from the proceeds of its sale), for the original beneficiaries of the trust. The existing pleading therefore captures that aspect of the breach of trust claim.

[65] Nevertheless, I accept that an amendment is required to the pleading in order to allege a breach of trust in relation to the transfer on the basis I have found. I have decided that it is appropriate to grant leave to amend the plaintiffs' pleading to make a specific allegation of breach of trust by transferring the hall to the Society without the consent of all the Labour Party members in the Onehunga electorate as beneficiaries or court approval to a variation of trust. I have power to make that amendment under r 187, even after trial: Marr v Arabco Traders (High Court, Auckland, A.1195/77, 12 March 1987, Tompkins J). I am satisfied that the amendment is necessary for the purpose of determining the real controversy between the parties and that no injustice would result to the defendants by the amendment. The pleading of a breach of trust in the transfer is an issue intimately connected with the transfer itself which was the central issue debated at trial. The question of whether the consent of all the local members as beneficiaries had been obtained was explored in evidence as already discussed. In those circumstances, there is no need for any re litigation of factual issues. The finding that the transfer was a breach of trust follows inevitably from the submission made by the defendants themselves that the legal and beneficial interest was transferred to the Society.

 

(c) What are the consequences of the breach of trust?

[66] It is well established that a party receiving for its own benefit trust property transferred in breach of trust, is liable as a constructive trustee if it was received with actual or constructive notice that it was trust property and that the transfer was a breach of trust. The same result follows where, although the transferee received the trust property without such notice, it subsequently discovers the facts. In the first case, the transferee is liable to account for the property from the time it was received and, in the second, from the time it acquired notice that the transfer was in breach of trust.

[67] In these circumstances, the transferee is deemed to have knowingly received the trust property and a constructive trust is imposed, probably on the basis of unjust enrichment: Powell v Thompson [1991] 1 NZLR 597, 606 610; and Nimmo v Westpac Banking Corporation [1993] 3 NZLR 218, 225 citing Agip (Africa) Ltd v Jackson [1990] Ch 265, 291 292.

[68] Although these authorities dealt with "knowing receipt", Thomas J confirmed in Powell v Thompson at 609 that the knowledge required of the party charged with being a constructive trustee of property received is analogous to the notice of an equitable interest which may deprive a purchaser of an interest in the land purchased. As Thomas J put it:

In both cases, the property which is acquired is "encumbered" by an equitable interest.

[69] Given my factual findings on the actual or constructive knowledge the Society possessed (or is deemed to possess) through its solicitor and agent Mr Maskell, the Society must be deemed to be a constructive trustee of the Grey St hall or any asset shown to have been derived from it. It received the hall for its own benefit with knowledge of the trust and its breach, and it has acted inconsistently with the existence of the trust by asserting ownership of it for its own use. It holds that asset or any derived asset for the benefit of the members from time to time of the Labour Party in the Onehunga electorate.

[70] In the absence of evidence to the contrary, it may be assumed that the beneficiaries acquiesced in the Society continuing to hold the assets so long as control of it was maintained for the benefit and enjoyment of the members of the Labour Party in the Onehunga electorate. That state of affairs continued and the Society co operated fully with the Labour Electorate Committee until late 1992 or early 1993 from which time the rules were progressively changed.

[71] Ultimately, the effect of the rule changes was to totally exclude the New Zealand Labour Party or the members of the Labour Party in the Onehunga Electorate from any further involvement in or control of the Society. In its turn, these steps deprived the local labour Party members from the benefit of their asset. Instead, the Society (and in consequence, the assets of it) now exist for the benefit of altogether different parties having no or little political or other connection with the New Zealand Labour Party or its members in the Onehunga electorate. The plaintiffs have since taken steps to recover the unit and it was not suggested at the hearing that there was any delay or other conduct on their part which would preclude recovery.

[72] The hall was originally paid for by funds raised from the Labour Party electorate and was transferred to the Society without any payment whatsoever. The increase in its value and the unit later derived from it is due to income derived from the hall and the unit later purchased. There was no evidence before me of any or any significant financial contribution by the Society or anyone else subsequent to the transfer in 1985.

[73] It follows that the Society has been unjustly enriched at the expense of those who raised the original funds for the purchase of the hall. In my view, there can be no doubt that in the circumstances, a strong equity arises in favour of the members of the Labour Party in the Onehunga electorate. As well, the New Zealand Labour Party itself stood to gain in the event of a winding up and has been effectively deprived of that opportunity by the rule changes.

 

(d) Were the defendants under a fiduciary duty not to alter the rules of the Society in a way which would preclude the original beneficiaries of the trust from enjoying the benefit of the property and, if so, should the plaintiffs be permitted to amend their claim in that respect?

[74] Strictly speaking, it is unnecessary for me to determine this issue which I raised with counsel during the hearing. Mr Smyth for the plaintiffs reserved the right to apply to amend the statement of claim and he has now done so.

[75] The amendment is opposed on behalf of the defendants but I am not persuaded there is any merit in that opposition. If necessary I would have granted leave to the plaintiffs to amend the statement of claim to include an allegation of breach of fiduciary duty limited to the specific allegation just outlined. The issue of the rule changes was clearly signalled in the pleadings and was covered extensively in the written briefs and in cross examination. All parties were well aware that the steps taken to change the rules of the Society were a critical part of the plaintiffs' case. I am unable to see how there could be any prejudice to the defendants in allowing the amendment and it would not have been necessary for further evidence to be led.

[76] In the draft third amended statement of claim filed by the plaintiffs, they sought to allege breach of fiduciary duty on a range of other grounds but I would not have been prepared to permit any further amendment beyond that already indicated.

[77] I would have been prepared to find in the circumstances of the case that the first defendant was under a fiduciary duty to act in good faith towards the members of the Labour Party in the Onehunga electorate as beneficiaries of the trust and, in particular, not to alter the rules of the Society in such a way as to preclude them from enjoying the benefit of the property. It is unnecessary to traverse all the relevant circumstances. It is sufficient to say that I would have been prepared to find such a duty to arise from the relationship between the parties (who were not at arms length); the voluntary nature of the transfer made without consideration; the actual or constructive knowledge of the Society and its members of the trust at the time of the transfer; and the clear understanding between transferee and transferor that the Society existed to hold the asset for the benefit of the Onehunga Party members (by their ability to become members of the Society and to control the asset through the Electorate Committee for their benefit and enjoyment under the Society structure).

[78] Of course, the Society's constitution permitted the rules to be changed by its members from time to time but I would have found that the fiduciary duty assumed by the Society restricted the Society and its members from changing the rules in a way which would be contrary to the clear understanding reached at the time of the transfer. It is difficult to imagine how there could have been a more blatant breach of that understanding by the rule changes which occurred.

 

(e) Do the indefeasibility provisions of the Land Transfer Act 1952 preclude the plaintiffs' claims?

[79] Although not raised by the defendants, I sought further submissions on this subject which is apt to be misunderstood and is not always easy to apply to particular fact circumstances. There are several well established exceptions to the principal indefeasibility provisions of the Land Transfer Act: ss 62 and 63. The most important exception is the case of fraud which, I am satisfied has no application to the present case. That is because any such fraud must exist at the time of the transfer and, on the facts, I am satisfied the parties acted in good faith at that time, believing that the steps taken were in the best interests of the members of the Labour Party in the local electorate. As well, there are the statutory exceptions in ss 62(a) and (b) and (c). None of those applies in the present case.

[80] But, significantly for present purposes, it is well settled that the indefeasibility provisions do not prevent in personam claims against the registered proprietor. The possibility of in personam claims was recognised by the Court of Appeal as early as 1924 in Boyd v Mayor of Wellington [1924] NZLR 1174 where Adams J stated, at 1223, that the power of the court to enforce trusts, express or implied, had repeatedly been exercised by the court notwithstanding the corresponding indefeasibility provisions of the Land Transfer Act 1915. Similarly for the performance of contracts upon which the title has been obtained or the rectification of mistakes in carrying the contract into effect. Specifically in relation to the enforcement of trusts, Adams J stated that the certificate of title is not affected by its enforcement.

[81] The principle has not been doubted since and has been upheld at the highest levels in the Privy Council in Frazer v Walker and Ors [1967] NZLR 1069, 1078 where it was held that the general principle [of indefeasibility] "... in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant". More recently, the Privy Council has affirmed the same principle in Oh Hiam v Tam Kong (1980) 2 BTR 9451, 9454.

[82] The principle has also been affirmed by the Australian courts: Breskvar and Anor v Wall and Ors (1971) 126 CLR 376, 384 385 per Barwick CJ (HCA) on the footing that the in personam claim depends upon the acts of the registered proprietor himself. The "personal equities" described by Barwick CJ in Breskvar v Wall may be created by the registered proprietor either before or after he or she has become registered. The issue has since been helpfully discussed by Mahoney JA delivering the judgment of the New South Wales Court of Appeal in Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537, 563. It was confirmed that an equity may arise even in the absence of fraud. Mahoney JA gave by way of example a registered proprietor who, before acquiring the land, agreed to hold it in trust or for a stated purpose. In such a case, the agreement would be enforced against the registered proprietor. Mahoney JA emphasised that the kind of interest which may be enforced against a registered proprietor in this way is not limited and may include, in addition to the examples given by Adams J in Boyd, a situation where the transferee has occupied a fiduciary position in relation to the transferor.

[83] In Bahr and Anor v Nicolay and Ors (No. 2) (1988) 164 CLR 604, the High Court of Australia held that a purchaser who had undertaken to hold the title subject to a third party's right to re purchase, remained bound by the undertaking after the registration of the transfer. If the transferee repudiated the third party's right to purchase, equity would impose a constructive trust so that the registered proprietor held the title on trust for the third party to the extent of the third party's interest. At 653, Brennan J observed that a claim in personam could be founded in law or in equity and the court has the power to order the registered proprietor to divest (wholly or partly) the estate or interest vested in the registered proprietor by registration. Orders of that kind:

... do not infringe the indefeasibility provisions of the Act. Those provisions are designed to protect a transferee from defects in the title of the transferor not to free him from interests from which he has burdened his own title.

[84] In New Zealand, the authorities were reviewed in detail by Thomas J, delivering the judgment of a five member Court of Appeal, in C N and N A Davies Ltd v Laughton and Ors [1997] 3 NZLR 705, 711 713. The Court of Appeal confirmed the scope and effect of in personam claim. The Land Transfer Act was described as "a conveyancing enactment giving greater certainty of title but not an enactment which in any way destroys the fundamental doctrines by which courts of equity may enforce, as against registered proprietors, the 'conscientious obligations entered into by them'."

[85] The court observed at 712:

Properly perceived, the principle sits comfortably with the concept of indefeasibility. Designed to protect a transferee from defects in the title of the transferor and not to release him or her from the burden of interests which they may have undertaken, the principle has as its basis the enforcement of personal claims arising out of the registered proprietor's conduct. It is essentially non proprietary in nature. The key element is the involvement in or knowledge of the registered proprietor in the unconscionable or illegal act or omission in issue. It is such involvement or knowledge which gives rise to the equity or legal right in the innocent party as against the registered proprietor in person. Indefeasibility is no answer to a claim based on such an equity or legal right. When granted, it is true, a remedy may restrict the registered proprietor in what he or she can do or require them to give up in whole or in part their registered interest, but until that event occurs the title remains conclusive as against third parties.

[86] The court did not see any detriment to the objective of indefeasibility which was to "save persons dealing with registered proprietors from the trouble and expense of going behind the register in order to investigate the history of the title and to satisfy themselves of its validity". That objective was "accomplished by providing that anyone who purchases land, without fraud and for value, properly is the proprietor and enters his or her deed of transfer or mortgage on the register, thereby acquires an indefeasible right notwithstanding any infirmity in the title. Admitting in personam claims against a registered proprietor whose very acts or omissions give rise to the claim does not compromise this objective."

[87] Applying these principles to the present case, I am satisfied that courts of equity can and should enforce against the Society the constructive trust which I have found arises in the present case. That trust arises by operation of law but it depends on the knowledge and acts of the registered proprietor at the time of and subsequent to the registration of the transfer. The Society had imputed knowledge of the breach of trust and of the understanding that, under the new structure, the members of the Labour Party in the Onehunga Electorate would continue to have control and enjoyment of the hall through the Society while at the same time preserving the asset from possible attack by the Labour Party headquarters. By the rule changes made, the Society breached the clear understanding reached and precluded the Labour Party members in Onehunga from the control and enjoyment of their asset.

[88] In those circumstances, I am satisfied it would be unconscionable to permit the Society to retain the unit which has been derived from the Grey St Hall transferred in 1985. That equity gives rise to an in personam claim against the Society either by virtue of the constructive trust thus imposed or by a breach of fiduciary duty or a combination of both. The in personam claim arises not from any defect in the title, but from the knowledge and acts of the Society as registered proprietor. As such, the indefeasibility of the provisions of the Land Transfer Act are not challenged.

 

Voluntary transfer

[89] There are conflicting authorities in Australia as to whether a volunteer who does not give valuable consideration for a purchase is protected by the indefeasibility provisions of the Land Transfer Act. The authorities are discussed in Butterworth's Land Law in New Zealand, Hinde McMorland and Sim (1997) at paragraph 2.105. On the view that I have taken on this matter, it is unnecessary for me to determine that issue.

 

(f) What relief should be given?

[90] The defendants have raised certain other issues which bear on the grant of relief. First, it is said that the beneficiaries of the trust must be certain before a trust may be established. Since the Onehunga electorate has been abolished, it is said it is no longer possible to identify the members of the Labour Party in that electorate.

[91] I called for further information on this point. I have been provided with an extract from the New Zealand Gazette which shows that the Representation Commission gave notice fixing new electoral boundaries under ss 40 and 45 of the Electoral Act 1993 on 27 April 1995. According to the evidence, the Electoral Commission determined that the Onehunga electorate would be abolished. It was to be partly absorbed into the Maungakiekie electorate and partly into the Mt Roskill electorate.

[92] Section 40(3) provides that the new electoral districts shall apply for the purpose of the next election after the dissolution or expiration of the then existing Parliament. I have been informed that the next general election after the determination of the Electoral Commission took place on 12 October 1996. Mr Smyth has submitted that the date the Onehunga electorate ceased to exist corresponded with the date Mr Northey vacated his office as the Member of Parliament for that electorate. He submitted that in terms of s 54(1)(b) of the Electoral Act, that occurred at the close of the polling day on 12 October 1996.

[93] While acknowledging some difficulty over the issue, Mr Smyth submitted that logically, the class of beneficiaries closed on the termination of the Onehunga electorate on that day. He submitted that the beneficiaries of the trust were the members of the Labour Party in the Onehunga electorate as at that date.

[94] Mr Carter for the defendants submitted that it was "fundamentally wrong" that people who became members of the Labour Party in the Onehunga electorate after the property had been transferred to the Society should become beneficiaries when they had not contributed to the acquisition or maintenance of the property in question. He submitted that if it were found that the property was held in trust for Labour Party members, the class of beneficiaries should be restricted to those members of the party in the Onehunga electorate at the time of the transfer of the property to the first defendant, ie, in 1985.

[95] I am not persuaded that there is any difficulty in closing the class at the date upon which the Onehunga electorate ceased to exist. I am informed that it should be possible to provide a list of members at that date. I do not at this stage make any firm finding as to the date on which the electorate ceased to exist and will reserve the opportunity for further submissions on that point. I do not see any problem in Labour Party members becoming beneficiaries after the date of transfer. Plainly, the trust was intended to benefit the members of the Labour Party in the Onehunga electorate from time to time. It is inevitable that some of those members may have contributed and some may not have. As well, some who may have contributed may have since ceased to be members of the Labour Party. There is nothing to suggest that they might have become entitled to take with them, on the cessation of their membership, their interest in the trust. Membership of the trust is akin to passengers getting on and off a bus as the journey continues.

[96] Mr Carter also took the point that the second plaintiff was not suing in a representative capacity and that there was no evidence that she sued with the consent of all beneficiaries in the class. That may be so but I do not regard this submission as having any merit. After all, the court could make a declaration that the second plaintiff is entitled to a pro rata interest in the asset along with all other members of the Labour Party in the Onehunga electorate at the date the class closed.

[97] In my view, there is no apparent impediment to the court declaring that the first defendant Society holds the unit in Mt Smart Rd in trust for the members of the Labour Party in the Onehunga electorate at the time it ceased to exist. I will, however, reserve the issue of the form of any relief until the parties have had the opportunity of considering the position and the precise form of any remedy.

[98] The parties should bear in mind that the court has power under s 64 of the Trustee Act 1956 to authorise variations of trust where it is inexpedient, difficult, or impracticable to do so without the court's assistance. Bearing in mind the clear intention that the property would be held for the benefit of the Labour Party members in the Onehunga electorate from time to time, it might be decided that some other form of disposition might now be appropriate, such as a variation of trust so that the property is held for the benefit of the Labour Party members in the electorates now representing the former Onehunga electorate. However, I should not be taken to be expressing any view on the merits of that suggestion and the matter will need to be determined in due course in the light of submissions then made.

[99] I do not see any basis for granting relief as against the second and third defendants. The specific allegations of breach of fiduciary duty against them were abandoned and any breach of obligation is properly the responsibility of the Society rather than its members or officers.

 

Decision

[100] This decision is issued on an interim basis.

[101] I reserve leave to the plaintiffs to apply in relation to the form of relief. Any such application is to be made within six weeks of the date of issue of this judgment.

[102] Costs are reserved and will be considered along with the form of any relief in due course.

 

 

Signed at ____________ this 2nd day of October 2003.

 

 

 
_____________________________
A P Randerson J