IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-61

BETWEEN	BOBS COVE DEVELOPMENTS LIMITED
Applicant

AND	STRATEGIC NOMINEES LIMITED Respondent

Hearing:	13 April 2010

Appearances: J.K. Scragg - Counsel for Applicant
J.D. McBride - Counsel for Respondent

Judgment:	26 April 2010 at 4.00 pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 26 April 2010 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

Solicitors:	Duncan Cotterill, Solicitors, PO Box 5, Christchurch
Bell Gully, Solicitors, PO Box 4199, Auckland

BOBS COVE DEVELOPMENTS LIMITED V STRATEGIC NOMINEES LIMITED HC WN CIV-2010-485-
61  26 April 2010

Introduction

[1]       The applicant, Bobs Cove Developments Limited (BCDL), applies for an order pursuant to s 145A of the Land Transfer Act 1952 that caveat 8200771.1 not lapse.  The caveat claims an interest in part of a property contained in certificate of title  78399  (Otago  Registry),  described  as  “1.5  hectares  being  part  of  Lot  13
Deposited Plan 319903 ... and being the proposed Lot 2, Deposited Plan 417633” (the Wapiti Block). The interest is based on an agreement for sale and purchase dated 8 December 2003 (the Agreement) with Bobs Cove Limited (BCL), which is currently in receivership. The Agreement relates to a parcel of land in several titles comprising 42.5855 hectares and, amongst other things, provides for BCDL, the vendor, to subdivide and retain the Wapiti Block.

[2]        The  respondent,  Strategic  Nominees  Limited  (SNL),  has  a  registered mortgage over all the property described in certificate of title 78399 which title itself comprises over 15 hectares. The mortgage was registered after the Agreement between  BCDL and  BCL was entered into. The respondent was aware that the applicant retained an interest in the Wapiti Block under the Agreement. It opposes the application however on the basis that it says the applicant does not have a reasonably arguable case for an interest in the property, and that in any event its indefeasible rights as mortgagee must prevail over the applicant’s prior equitable interest.

Background facts

[3]       BCL is the registered proprietor of the property contained in certificate of title 78399 (the property), which forms part of a property development near Queenstown, known as Bob’s Cove Nature Reserve Development. A majority of the shares in BCL are held by Mr Donald Reid (Mr Reid) as trustee for BCDL.  Mr Reid is also the sole director of BCDL all of the shares in which are held by or for Mr Reid  and  the  Reid  family interests.  Prior  to  being  placed  in  receivership,  BCL purchased the property from the applicant, BCDL, in December 2003, pursuant to the Agreement, intending to subdivide the property into dwelling sites.

[4]       BCL and BCDL agreed that the property purchased by BCL did not include the 1.5 hectare block of land known as the Wapiti Block, the caveated part of the property. However, because a separate title had not issued at that time for the Wapiti Block, the parties agreed that it would be held by BCL on trust for the benefit of BCDL until subdivision of the property had been finalised. Mr Reid says that this

condition was included to ensure that BCDL would keep a “small area for the Reid family’s  personal  use”.    Specifically,  clause  16  of  the  Agreement  provided  as follows:

16.	The Vendor (BCDL) shall undertake the subdivision of the area of approximately 1.5 ha. from Lot 13 LT319903 Certificate of Title
78399 as shown on the plan attached hereto and described as Lot 14, at its expense and the Purchaser (BCL) shall hold such land in trust for the Vendor from settlement date until such subdivision is complete and shall transfer the said title for the sum of $1.00 to the Vendor or nominee once a separate title is available. The vendor shall indemnify
the purchaser in all respects for all costs arising out of the purchaser
holding such land in trust. Such lot will be allocated 12 residential sites of the total of 106 sites allocated to the special zone.

[5]       Lot 14 on the proposed plan attached to the Agreement is the land that was known to the parties as the Wapiti Block. Ten dwelling sites of a total of 106 individual allotments were intended to be located on the Wapiti Block.

[6]       In 2005, BCL sought to obtain finance for the development of the property, and two valuations were prepared for that purpose. Both valuation reports were provided to SNL as potential financier, and both reports excluded the Wapiti Block from the valuation of the property. For example, the executive summary in the valuation report stated:

Wapiti Lodge Limited is to retain 12 sites which are excluded from this valuation.

[7]      The valuation continued as follows:

There is a resource consent granted for 106 individual allotments and this report relates to  the land content of the said allotments. The allotments have not been defined in area other than general location and numbers as follows:

Villas, chalets                                  65
Single family allotments                  29
Wapiti Lodge sites                           12
Total sites                                        106

We have been requested to exclude the Wapiti Lodge sites from this valuation as they will be retained in the ownership of the Reid family.

[8]       The  12  Wapiti  Lodge  sites  referred  to  in  the  valuation  included  the  10 dwelling sites located on the Wapiti Block. The remaining two sites were common ownership sites. The valuation calculations in the report were accordingly carried out on the basis of 94 sites, excluding the 12 Wapiti Lodge sites. Subsequent valuations also excluded the land comprising the Wapiti Block.

[9]       Under their financing arrangement, SNL agreed to advance a loan of $4 million to BCL. On 26 August 2005, BCL registered a second ranking mortgage over the property to secure this loan in favour of the respondent, SNL.  Prior to this, SNL  had   been   provided   with   various   documents   relating   to   the   proposed development of the property, including the Agreement with BCDL.

[10]     Because  a  separate  title  had  still  not  issued  for  the  Wapiti  Block,  the mortgage to SNL was registered over the whole of the property. SNL accepts that it was aware that BCL intended to transfer the Wapiti Block back to BCDL. However, when subsequently BCL sought SNL’s consent to a partial discharge of the mortgage necessary to complete the subdivision of the Wapiti Block and to transfer it to BCDL, SNL refused to grant its consent.

[11]     On 11 and 12 August 2008, SNL served on BCL default notices under s 119 of the Property Law Act 2007, claiming outstanding amounts under the mortgage totalling $8,210,673.66. BCL was then placed in receivership on 24 June 2009.

[12]     A few days earlier, on 19 June 2009, BCDL registered its caveat over the Wapiti Block.  SNL then applied to the Registrar-General of Land to have the caveat removed. On 6 January 2010, BCDL received notice from the Registrar-General that the caveat would lapse, pursuant to s 145A of the Land Transfer Act. The applicant now applies for an order from this Court that the caveat not lapse.

Preliminary Issue:  Did the applicant “appear” for the purpose of r 10.8?

[13]     At the outset of the hearing, counsel for the respondent, Mr McBride, raised a preliminary issue as to whether the respondent was entitled to judgment pursuant to r
10.8, as Mr Reid had been adjudicated bankrupt and therefore could not continue to act as a director of the applicant company and provide instructions on the company’s behalf to pursue this application. Mr Reid was apparently adjudicated bankrupt on 15
March 2010. Sections 151 and 157 of the Companies Act 1993 provide that an undischarged bankrupt is disqualified from continuing to hold any directorship of a company.  Mr McBride submitted that there was therefore no-one here who was in a position to give instructions to continue this application. It is implied in this submission that counsel for the applicant, Mr Scragg, no longer has a retainer to act for the applicant company.

[14]     Mr Scragg responded to this submission by noting that the application, and Mr Reid’s affidavits, were filed prior to Mr Reid’s bankruptcy, and he submitted that the application could therefore go ahead.

[15]     On this point, Mr McBride placed reliance on Churchill Group Holdings Ltd v Aral Pty Holdings Ltd HC Auckland CIV-2001-404-2302, 13 December 2006, where Williams J granted an application for judgment against the plaintiffs under r
485 of the old High Court Rules (now r 10.8) on the basis that the plaintiffs were not appearing and had not been appearing since the bankruptcy of the plaintiffs’ sole director.  In that case, plaintiffs’ counsel had also sought – and been granted – leave to withdraw. The application was brought during the substantive hearing, while the defendants’ case was still in progress. At that stage in the proceeding, none of the four plaintiff companies had a director in office, and none of the shareholders appeared likely to take any steps to exercise their rights to appoint a director or to instruct solicitors in the foreseeable future.

[16]    Rule 10.8 High Court Rules provides:

10.8 When only defendant appears

If the defendant appears but the plaintiff does not, the defendant,—

(a)	if  the  claim  is  not  admitted,  is  entitled  to  judgment  dismissing  the proceeding; and

(b)   if there is a counterclaim, must prove it so far as the burden of proof lies on the defendant.

[17]     The rule applies throughout the proceeding until judgment is given: Chase Wellington Properties Ltd v Hughes (1989) 3 PRNZ 121. In that case, the Court allowed judgment for the defendant under r 485 on the basis that the statutory manager no longer wished to continue the plaintiff’s claim. Counsel, being without instructions, were granted leave to withdraw.

[18]     On  its  face,  the  decision  in  Churchill  Group  Holdings  Ltd  v  Aral  Pty Holdings Ltd would appear to provide some support for Mr McBride’s claim that here, the applicant BCDL was effectively not appearing, because its sole director Mr Reid is now an undischarged bankrupt, and could no longer provide proper instructions for the company.  (This assumes of course that the shareholders in the mean time had not appointed another director or reinstructed counsel).

[19]     On this argument, I prefer the view, however, that the fact that a director is prohibited from holding office does not invalidate actions, (including the issuing of

proceedings) taken on behalf of the company. Support for this proposition can be found in Harlow Finance & Leasing Ltd v Sterling Nominees Ltd HC Auckland M1992-IM00, 18 June 2001, where the respondent applied for rescission of an order granting relief against forfeiture on the basis that the director of the applicant company,  who  had  initiated  the  proceedings,  was  an  undischarged  bankrupt. Although the application for rescission was ultimately determined on different grounds, Hansen J considered the validity of this argument when determining the respondent’s application for indemnity costs. The respondent argued that the proceeding was a nullity from the outset because, given its director’s bankruptcy, the applicant never gave any authority for the proceeding to be brought.  In rejecting this argument, Hansen J. noted:

[19] ...   I am unable to see any reason why this proceeding should be treated as a nullity. The fact that a director is prohibited from holding office or participating in the management of the company does not invalidate actions taken on behalf of the company: s 158 Companies Act 1993. Mr Johnson was the company’s director and responsible for its management in fact, even if it was an offence for him to do so. The proceedings were properly constituted. The order of this Court was properly made and could not be set aside as a nullity...

[20]     Hansen J’s observations were considered by the Court of Appeal in Clark v Libra Developments Ltd [2007] 2 NZLR 709. In that case, the appellant contended that the respondent could not have acted as a partner in a partnership because the respondent’s sole director was bankrupt, and thus disqualified/barred from taking part in the management of a company, with the result that the respondent had no director. The Court of Appeal considered that the combined effect of s 158 and s
126(1)(a), which provides that the definition of “director” includes a “person occupying the position of director of the company by whatever name called”, was that the respondent’s director remained a “de facto director” notwithstanding his disqualification, as he was held out by the company as its director. The Court was satisfied that this reasoning clearly applied to a company with only one director. And, in dismissing an application for leave to appeal, the Supreme Court noted that the Court of Appeal was plainly correct on this issue: [2007] NZSC 16 at [8].

[21]     Based on Harlow Finance & Leasing Ltd v Sterling Nominees Ltd and Clark v Libra Developments Ltd, I therefore conclude that the present application should not be  treated  as  if there  was  a  failure to  appear  by BCDL due  to  Mr  Reid’s bankruptcy. Even though Mr Reid may be prohibited from holding office as BCDL’s director, this does not invalidate his acts – including the continued pursuit of this application: ss 158 and 126(1) Companies Act 1993. Moreover, unlike the situation

that prevailed in Churchill Group Holdings Ltd v Aral Pty Holdings Ltd, here Mr
Scragg is continuing to act as counsel for BCDL.

[22]     But, in any event, given my later determination in this judgment that the present application must fail, there would be no different result here even if I am wrong in reaching the conclusion I have on this preliminary issue.

The application

[23]     Turning now to the present application itself, it seeks an order that the caveat not lapse under s 145A of the Land Transfer Act 1952. It is well accepted, however, that the same principles apply to applications under that section as to applications made pursuant to ss 143 and 145.

[24]     The general approach to these applications was settled in Sims v Lowe [1988]
1 NZLR 656 at 660 (CA):

The caveator seeks to clog or fetter the proprietary interest of another. As a matter of principle it seems right that he must justify the continued existence of his caveat. He will do that if he can show he has a reasonably arguable case for the interest he claims.

[25]     The person seeking to sustain the caveat thus has the burden of establishing a “reasonably  arguable  case”  that  it  has  a  caveatable  interest  in  the  property  in question: Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 at 106 (CA). An order for removal of a caveat will not be made unless it is patently clear that the caveat cannot be maintained, either because there was no valid ground for lodging it, or no such ground now exists: Sims v Lowe at 659-660. The Court therefore should not finally determine the rights of the parties unless the facts are not in dispute and the law has been fully argued: New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41 (CA).

Is there a caveatable interest?

[26]     The applicant BCDL claims that it has a reasonably arguable case for an interest in the Wapiti Block. This argument is based on the Agreement and more specifically the term that the applicant BCDL would retain beneficial ownership of the Wapiti Block. The respondent SNL submits that BCDL does not have a reasonably arguable case for an interest in the property, because it has lost its interest in the property, and the interest it claims in any event is subject to SNL’s mortgage.

[27]  Section 137(1)(a) of the Land Transfer Act provides:

(1)	Any person may lodge with the Registrar a caveat [[in the prescribed form]]
against dealings in any land or estate or interest under this Act if the person—

(a)    claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or

(b)   is transferring the land or estate or interest to any other person to be held in trust.

[28]     Although the applicant’s interest must be a proprietary interest in land, it is sufficient that it be an equitable interest which gives relief against the land itself: Wellesley Club Inc v Wellesley Property Holdings Ltd (2007) 8 NZCPR 421. A purchaser under a sale agreement will usually derive a beneficial interest capable of supporting a caveat – Foreman v Hazard [1984] 1 NZLR 586 Bevin v Smith [1994] 3
NZLR 648 (CA) and Lysaght v Edwards (1876) 2 Ch. D 499.  And a purchaser of a small part of a proposed subdivision will also have a beneficial interest capable of sustaining a caveat over the “master title” – Howard v Resort Developments Ltd (2007) 5 New Zealand Con. C. 194.569.  In the present case, there can be no dispute that  BCDL  holds  a  caveatable  interest  in  the  Wapiti  Block,  either  under  its agreement for sale and purchase with BCL, or possibly as a beneficiary under a trust (although this is not the interest specifically described in the caveat itself).  The real issue in this case, however, is not whether BCDL has a caveatable interest, but whether this interest should take priority over SNL’s rights as registered mortgagee and whether it would enable BCDL to seek specific performance of the agreement against BCL and SNL.

Is there an arguable case that the applicant’s (BCDL) unregistered equitable interest could take priority over the respondent’s (SNL) registered mortgage?

[29]     BCDL  submits  that  the  Wapiti  Block  does  not  form  part  of  SNL  the mortgagee’s security, notwithstanding that the mortgage is registered over the head title to the development including this land pending the subdivision of the Wapiti Block. It submits that SNL has accepted that it was aware of BCDL’s equitable interest under the Agreement, and that its rights must therefore take priority over the SNL’s registered mortgage. The grounds on which this argument is advanced are not identified in any detail, other than counsel’s suggestion that there may potentially be an argument of supervening fraud on the part of SNL “once further evidence is collected”.

[30]     BCDL here relies on a decision by Associate Judge Christiansen in Centillion
Investments Ltd v Hillpine Investments Ltd HC Auckland CIV-2006-404-6965, 6
December 2006.   In that case the mortgagee acquired its security interest in the knowledge that the property was subject to agreements for sale and purchase. The issue was whether the indefeasible interest of the mortgagee had priority over the equitable interest of the purchaser. The Associate Judge there considered that the purchaser was required to show that it was reasonably arguable that the mortgagee was acting dishonestly when it took its security, or when it sought to act upon it to the prejudice of the purchaser’s equitable interest. Noting that dishonesty could not be assumed by reason of mere knowledge of an unregistered interest, he nevertheless concluded that “there may be circumstances wherein the knowledge a mortgagee has [of] prior equitable interests would make it unconscionable to permit him to resort to the power of sale in order to defeat those interests” (at [25]). He then held that the particular facts of the case did not preclude an argument of Land Transfer fraud:

[34] In my judgment, an arguable case for Land Transfer fraud can be made in circumstances where since taking a charge over land at a time it was aware of equitable interests of others pursuant to agreements for sale and purchase, it did then  act  inconsistently  with  that  knowledge  of  matters  by  setting  out  to extinguish those rights by exercise of a power of sale.

...

[37] Accordingly, although when taking its mortgage interest [the mortgagee] may not have been acting dishonestly, subsequent events may disclose fraud by the manner  in  which [the  mortgagee] has  purported to  exercise its  rights  as  a mortgagee.

[31]     The  reasoning  in  Centillion  Investments  Ltd  v  Hillpine  Investments  Ltd appears to be based on the concept of supervening fraud, namely fraudulent conduct occurring subsequent to registration of the interest. This concept, to the limited extent that it has been endorsed by the Courts, is largely made redundant by the in personam exception to indefeasibility, and I prefer to decide the present case on that basis: see Regal Castings Ltd v Lightbody [2008] NZSC 87; [2009] 2 NZLR 433.

[32]     Before embarking on an analysis of the applicant’s ability to establish an exception to the indefeasibility of the respondent’s registered interest as mortgagee here, it is helpful to provide a brief outline of the provisions in the Land Transfer Act that are at play. Section 62 provides that, in the absence of fraud, the estate of the registered  proprietor  of  land  is  paramount.  Mere  knowledge  of  an  unregistered interest cannot itself be imputed as fraud to a purchaser: s 182. Section 105 sets out exceptions to indefeasibility of title following transfer of a property to the purchaser from a mortgagee exercising its power of sale. It provides that the purchaser will

take good title to the property subject to an estate or interest which has priority over the mortgage, or which received the consent of the mortgagee:

105 Transfer by mortgagee

Upon the registration of any transfer executed by a mortgagee for the purpose of [exercising a power of sale over any land], the estate or interest of the mortgagor therein expressed to be transferred shall pass to and vest in the purchaser, freed and discharged from all liability on account of the mortgage, or of any estate or interest except an estate or interest created by any instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.

[33]     The  combined  effect  of  these  provisions  is  that  here,  BCDL’s  equitable interest is subject to the SNL’s rights as mortgagee, unless these are displaced by fraud, consent or conduct amounting to deferral of priority. In National Mutual Finance (1988) Limited v Berryman HC Wellington M No 451/91, 2 October 1991, McGechan J observed that a mortgagee’s rights “could not be displaced without the mortgagee’s consent or without conduct which in equity would be recognised as resulting in deferral of priority”. It follows that dishonest conduct following registration falls within the in personam jurisdiction, with the result that a registered proprietor cannot rely on the register so as to defeat an equitable interest if this would be contrary to good conscience.

[34]     The question of what is needed to establish consent under the Land Transfer Act was considered by the Court of Appeal in New Zealand Fisheries Limited v The Napier City Council (1990) 1 NZ ConvC 190,342 (CA). The Court considered that the term “consent” involved agreement to a proposal or request, and that “mere acquiescence in a state of affairs” was not enough. For a mortgagee to be bound under s 105, there must be a “positive affirmative act such as written or oral acceptance  or  even  an  implied  acceptance  by conduct”,  as  opposed  to  “passive standing by without objection”.

[35]     The continuing validity of these principles was again confirmed by the Court of Appeal in Cashmere Capital Ltd v Crossdale Properties Ltd [2009] NZCA 185, [2009] 3 NZLR 612, where the Court limited the in personam exception to the indefeasibility rule to a “positive affirmative act such as written or oral acceptance or
... an implied acceptance by conduct” that “truly engages the conscience of the party whose registered priority is challenged”: at [18]. In that case, the issue of consent arose in the context of s 119 of the Act, which provides that a lease is only binding on the mortgagee if the mortgagee has consented to it.  There, it appeared that the mortgagee was aware of the tenancies when it made its advances to the mortgagor, but it was mistaken as to the terms of the tenancies. On appeal, the Supreme Court

appears to have upheld the Court of Appeal’s reasoning on this issue, commenting that an expansive approach to the word “consent” in ss 105 and 119 would not be consistent with the purpose of the legislation: [2009] NZSC 123, [2010] 1 NZLR
577 at [75]-[79]. The Court then concluded in the following terms:

[79] These decisions [Registered Securities Ltd v Christensen Potato Company Ltd (1991) ANZ ConvR 57 and NZ Fisheries Ltd v Napier City Council] indicate that a consent which, under ss 105 and 119, binds a mortgagee to the competing estate or interest in another instrument, requires conduct which affirms the lease. A mortgagee who is aware of a third party’s interest, and passively stands by, making no objection, has not consented. For there to be a valid consent the mortgagee must either have been aware of the essential terms of the lease or be shown to have consented to the lease whatever its terms may be. Only then does the mortgagee consent to the terms of the other instrument, in the sense of agreeing to be bound by it. Making an advance as mortgagee, while being aware of the other instrument and another party’s interest in it, of itself, does not amount to consent. (emphasis added)

[36]     In the present case, BCDL relies on SNL’s admission that it was aware of BCDL’s beneficial interest in the Wapiti Block before advancing funds and registering its security, and refers to the documentation that was provided to SNL showing that such an interest was clearly in existence. In particular, BCDL refers to the several valuations, carried out for the purposes of the loan arrangements, which expressly excluded the Wapiti Block, and to the agreement for sale and purchase between BCL and BCDL. It submits that SNL knew that the Wapiti Block fell outside the land to be developed by BCL.

[37]     In response, SNL argues that the intended transfer of the Wapiti Block to BCDL was always subject to its registered mortgage over the whole property, and that the mortgage did not provide any “carve-out” or partial security release for the Wapiti Block.  Significantly, this mortgage was signed for BCL by Mr Reid as one of its directors, he being also the sole director of BCDL.  Presumably legal advice was obtained before the mortgage was signed, but BCL and Mr Reid still made no attempt  to  exclude from  SNL’s  security the  Wapiti  Block  which  it  said  it  was holding for its related family company, BCDL.  Accordingly, it is submitted for SNL that the parties never agreed to exclude the Wapiti Block from the mortgage security and to give effect to what was the directly related party’s BCDL’s beneficial interest. Referring to the valuations that expressly excluded the Wapiti Block, SNL argues that these can only suggest that it was satisfied that the value of the property, even if the Wapiti Block was excluded, would be sufficient security for its loan.  Before me, counsel  agreed  the  basic  facts  in  this  case  are  not  disputed,  and  no  issues  of credibility arise. As such, SNL submits that BCDL’s claim that its interest takes priority over SNL’s mortgage is not reasonably arguable.

[38]     The respondent SNL has properly acknowledged before me that it both knew of  the  agreement  with  BCDL,  and  that  the  related  Reid  family  company  BCL intended to transfer the Wapiti Block back to BCDL and also that it was aware of this before SNL advanced funds and  registered  its mortgage.  In fact,  SNL was provided with a copy of the Agreement. However, it is quite clear that BCL and Mr Reid never requested of SNL that the Wapiti Block be excluded from the mortgage security, and the mortgage instrument was formally granted over the entire property.

[39]     Indeed in his affidavit  of 18 February 2010, Mr Peter Morrison Brown (Mr Brown) an employee of SNL provides evidence on these aspects and explains the situation thus:

12.         The  Agreement and  the  valuations confirm  that  SNL  knew  that  BCL intended to transfer the Wapiti Block back to BCDL.  However, that was always subject to SNL’s registered mortgage over the property, which did not provide any “carve-out” for the Wapiti Block.   We had a clear expectation that SNL and Guardian Trust’s loans would be repaid prior to the Agreement being performed, and this was confirmed by the valuations which forecast repayment without recourse to the Wapiti Block, Again, however, that forecast was always subject to our registered mortgage over the entire property.

13.         At no time did BCL request, or did SNL consent, to exclude the Wapiti Block from SNL’s mortgage security.   As is evident from the mortgage instrument, SNL took a mortgage over the entirety of the property.

(emphasis added)

[40]     I am satisfied that on the undisputed facts before the Court, BCDL cannot argue here that SNL has consented to the sale to it in priority to its rights under its registered  mortgage.    While  SNL  learnt  of  BCL’s  sale  to  the  related  company BCDL, it clearly did not consent to it.  At most it merely acquiesced in it.  Nor can it be said that SNL should in any way have its mortgage security tarnished by Land Transfer fraud.   The conduct of SNL, clearly explained in Mr Brown’s affidavit, cannot be said in any way to be dishonest, inequitable or unconscionable.   In my view, SNL merely wishes to act in this case as any mortgagee would once default has occurred to realise its security.  And significantly, that default is by BCL, a Reid family company directly related to BCDL and Mr Reid who is a director of both.

[41]     I conclude that BCDL cannot rely on the in personam exception to attack in any  way  the  indefeasibility  of  SNL’s   registered   mortgage  here,   as   SNL’s explanations for taking the security it has are clear and unequivocal.   At most, all that can be said against it is that SNL passively stood by (and thus was not guilty of any affirmative conduct) when it was provided with a copy of the agreement for sale

and purchase between the related family companies BCL and BCDL.   On the authorities noted above, that is not enough.

[42]     One final matter needs to be mentioned.  This relates to the discussion which took place before me concerning discrepancies between the two survey plans for the property, the plan attached to the caveat and the “draft concept plan” attached to the agreement. However, I am satisfied that nothing turns on these discrepancies, as the nature and size of the Wapiti Block remained unaffected.

Result

[43]     For all the reasons I have outlined above BCDL has failed to demonstrate that it is reasonably arguable that its asserted beneficial interest in the property arising  from  the  agreement  can  overcome  SNL’s  entitlement  as  mortgagee  to exercise its rights and the power of sale contained in its mortgage.  The application by BCDL to sustain the caveat is dismissed.

[44]     On questions of timing, a mortgagee can apply at any time, before exercising its power of sale, for an order for removal of a caveat under s 143: Public Trust v Toussaint HC Wellington CIV-2004-485-859, 20 July 2004. Ordinarily, however, where  the  applicant  (as  here)  initially  has  established  an  arguable  case  of  a caveatable interest, a caveat should remain until presentation of a transfer for registration to the purchaser: Cantab Management Limited v Greagh Investments Ltd HC Hamilton M 95/02, 20 November 2002.

[45]     SNL asks in this case that the Court make an order for removal of the caveat prior to presentation of a transfer, as it says it is now considering an alternative subdivision plan that may be more attractive to buyers. It submits that it would be commercially fraught for it to have to investigate an alternative subdivision plan for the property with the caveat remaining, and that it is under significant pressure to realise its security for the best available price, given that SNL is currently in receivership.

[46]     No authority was cited in support of this proposal, however.  And, as I have noted at [28] above, BCDL here clearly has a caveatable interest in the Wapiti Block, even though this interest does not take priority over SNL’s interests as registered mortgagee, such that if by chance SNL’s mortgage was able to be repaid in the mean time, the caveat would remain as against third parties.

[47]     Accordingly, I order that caveat no 8200771.1 be removed on presentation of SNL’s transfer in the exercise of its power of sale as mortgagee.  Leave is reserved, however, to enable SNL to apply for a variation of this order should it encounter difficulties in exercising its powers under s 178 of the Property Law Act 2007.

[48]     SNL has succeeded here and is entitled to costs which are ordered on a
Category 2B basis together with disbursements as approved by the Registrar..

‘Associate Judge D.I. Gendall’