Can a caveat be lodged based on an oral agreement ?

Introduction

The case of Kang v Kim [2024] NZHC 2950 is a property dispute involving Seok Young Kang (the applicant) and Donggun Kim and Sujeong Lee (the respondents). Mr. Kang applied for an order to sustain a caveat he lodged over a property at 182 Lake Road, Northcote, Auckland. The property, owned by the respondents, became the center of conflict after Mr. Kang alleged an oral agreement to hold the property on trust for him and his wife.

This article simplifies the legal and factual aspects of the case so that anyone can understand what happened, the arguments, and the outcome.

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Key Terms for Clarity

• Caveat: A legal warning on a property’s title, preventing its sale or transfer.
• Constructive Trust: A trust implied by the court to protect a person’s contribution to a property where legal ownership does not reflect fairness.
• Part Performance: Actions that indicate a verbal agreement exists, even if it was not in writing (a requirement under New Zealand law).

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Background of the Case

1. Property Purchase:
   • Mr. Kang wanted to buy a property for his wife’s hairdressing business but could not qualify for a loan.
   • On 18 December 2022, Mr. Kang claims he and his wife made an oral agreement with the respondents:
     • The respondents would buy the property and hold it on trust for Mr. Kang and his wife.
     • Mr. Kang would repay the purchase price of $819,000 plus an additional $20,000.
2. Settlement and Occupation:
   • The respondents bought the property on 20 January 2023, securing a loan of $655,200 from ANZ Bank.
   • Mr. Kang and his wife moved in shortly after and began making monthly payments covering the loan interest.
   • Mr. Kang also invested heavily in renovating the property and setting up the hairdressing business.
3. Conflict:
   • The respondents denied there was an oral agreement.
   • Mr. Kang lodged a caveat to prevent the respondents from dealing with the property. The respondents applied for its removal, leading to the court proceedings.

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The Arguments

Mr. Kang’s Position (Applicant)

Mr. Kang argued that:

1. Oral Agreement:
   • On 18 December 2022, there was a clear verbal agreement that the respondents would hold the property on trust.
2. Part Performance:
   • Several actions support the existence of the agreement, including:
     • Monthly mortgage payments made by Mr. Kang and his wife.
     • Spending $120,000 on renovations and improvements to the property.
     • Transferring $91,756 to the respondents (partial repayment).
3. Constructive Trust:
   • Mr. Kang claimed his contributions to the property gave him a reasonable expectation of ownership, which the respondents should honor.
4. Prejudice:
   • Allowing the caveat to lapse would unfairly evict Mr. Kang’s family and strip them of their significant investment.

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The Respondents’ Position

The respondents countered that:

1. No Agreement:
   • There was no verbal agreement or promise to hold the property on trust.
   • Mr. Kang’s claims lacked credibility and supporting evidence (e.g., no emails, texts, or written communication).
2. Payments Were Not Contributions:
   • The monthly payments were more like rent or an “occupation fee,” not contributions toward ownership.
3. No Trust Exists:
   • Mr. Kang’s investments in renovations and payments were for his own benefit (living in and running a business) and not evidence of a constructive trust.
4. Only a Monetary Claim:
   • At best, Mr. Kang had a monetary claim for repayment, not an interest in the property itself.

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Legal Principles Applied

1. Caveatable Interest:
   • Under New Zealand law, a person can lodge a caveat if they can prove a legitimate interest in a property, such as a constructive trust.
2. Oral Agreements and Part Performance:
   • While oral agreements for property are unenforceable without written proof (Property Law Act 2007), exceptions exist where actions show part performance of the agreement.
3. Constructive Trust:
   • For a constructive trust to exist, Mr. Kang needed to prove:
     1. Contributions to the property.
     2. A reasonable expectation of ownership.
     3. That the respondents should reasonably yield an interest in the property.

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Court’s Analysis and Decision

1. Was There an Oral Agreement?
   • The court found Mr. Kang’s claim of an oral agreement plausible, supported by certain evidence, including:
     • A letter from the respondents’ lawyers suggesting an agreement existed.
     • Actions like possession of the property and extensive renovations.
2. Part Performance:
   • Mr. Kang’s actions (renovations, payments, and taking possession) clearly suggested reliance on an agreement.
3. Constructive Trust:
   • The court agreed Mr. Kang’s contributions (approximately $120,000 in renovations and $91,000 in payments) supported a reasonable expectation of ownership.
4. Prejudice:
   • Removing the caveat would prejudice Mr. Kang, as the respondents could sell the property, leaving him without recourse for his contributions.

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Court’s Decision

• The High Court granted Mr. Kang’s application to sustain the caveat.
• Mr. Kang established a reasonably arguable case for an interest in the property under a constructive trust.
• The court found sufficient evidence of:
  • An oral agreement.
  • Part performance of that agreement.
  • Mr. Kang’s significant contributions to the property.

Outcome: The caveat will remain in place until a full trial can resolve the dispute.

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Key Takeaways for the General Public

1. Caveats Protect Interests:
   • If you have a genuine claim to a property, a caveat can prevent the owner from selling or transferring it.
2. Oral Agreements Are Risky:
   • Always put property agreements in writing. Relying on verbal agreements can lead to complex legal disputes.
3. Contributions Matter:
   • Significant financial or personal contributions to a property may establish a constructive trust, even if you’re not the legal owner.
4. Seek Legal Advice:
   • If you face a property dispute, consult a lawyer early to protect your rights.

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Conclusion

The case of Kang v Kim highlights the importance of documenting agreements and the legal protections available through caveats and constructive trusts. While Mr. Kang succeeded at this stage, the final resolution will depend on the full trial’s findings.

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