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Equitable lien over land under the Property Law Act 2007 section 67- the main principles, by Eugene Duhovnikoff BA/LLB

Section 67 of the Property Law Act 2007 provides:

 

67 Vendor has no lien

A vendor of land has no legal or equitable lien over the land because of unpaid purchase money. 

Historically the New Zealand law has not recognised any right for an unpaid vendor to claim an equitable lien over real property for non-payment of all or any part of the purchase moneys. A following extract from Goode v Burton illustrates that point:[1]

"The equitable right of the vendor is inaccurately described by the word “lien,” if that word is to be understood in its legal acceptation, which always implies possession by the party setting up the lien of the thing on which it exists; the legal principle in such case being, that the party having rights which in good conscience he may enforce, and which are more or less connected with the thing of which he has possession, shall not be compelled to part with his possession till those rights are satisfied. But the vendor’s right in equity is altogether independent of his possession of the land, or of the deeds. He has what, though called a lien, is in truth an equitable charge on the land, and which in general he may enforce in the same way as any other equitable mortgage."

However the legal position is not that straightforward. There are at least three[2] distinct situations to which different legal principles apply which were recently summarized in Paugra Holidings Limited (In Liquidation) v Harvestfield Holdings Limited:[3]

(a) First, the law will not permit a vendor who has consensually transferred real property to a purchaser to claim any form of charge (whether legal or equitable) over the land to ensure that it receives the balance of the purchase price. This proposition is enshrined in s 67 of the Property Law Act. It is based on the notion that if a vendor parts with title to land before receiving the purchase price in full, it takes the risk of doing so and should be confined to a personal remedy to recover the balance of the purchase price. The consensual nature of the transfer provides the rationale for allowing the purchaser to retain the property, irrespective of whether part of the purchase price remains unpaid. [4]

(b) Second, an institutional constructive trust (which may be protected by caveat) will arise when the proceeds of a fraud are used to acquire a registerable interest in land. The rationale for this rule is that those who have been defrauded of property and can (both factually and legally) trace the use of their funds to enable a third party to acquire other property should be regarded as beneficial owners of the property. The bribery case of Attorney-General for Hong Kong v Reid and the mortgage fraud case of Trustees Executors are illustrations of that general proposition.[5]

(c) Third, where there has been a non-consensual transfer of an interest in land from a vendor to a purchaser, as a result of a fraud perpetrated on the vendor by the purchaser, the vendor is able to claim an institutional constructive trust (which may be protected by a caveat) in respect of the vendor’s interest in the property that has been defrauded.[6]

 


 

[1] Goode v Burton (1847) 1 Ex 189 at 195–196, 154 ER 80 at 83.

[2] This list is not exhaustive. In Paugra Holidings Limited (In Liquidation) v Harvestfield Holdings Limited CA384/2013 [2014] NZCA 164 [2 May 2014] at para 37 further situations have been described: “a further type of case is that where a transfer is induced by fraudulent misrepresentation. Such a transfer is voidable, not void, and can either be affirmed or avoided by the representee: Twinsectra Ltd v Yardley, above n 13, at 461; Lonrho plc v Fayed (No 2) [1992] 1 WLR 1 (Ch) at 11–12. The representee’s decision would impact which, if any, of these situations applied. Section 67 would apply, for example, where the representee elected to affirm the transfer.”

[3] CA384/2013 [2014] NZCA 164 [2 May 2014] at para 37.

[4] See Associate Judge Bell’s analysis on this topic in Paugra, above n 3, at [103]–[110]. [5]Trustees Executors Ltd v Eden Holdings 2010 Ltd [2010] NZCA 626; and Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (PC). [6] Halley v Law Society [2003] EWCA Civ 97, [2003] WTLR 845 at [47] and [54]; Collings v Lee [2001] 2 All ER 332 (CA) at 336–337; and J J Harrison (Properties) Ltd v Harrison [2001] EWCA Civ 1467, [2002] 1 BCLC 162 at [25]– [30].

 

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