IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-3052 [2015] NZHC 92

UNDER	the Land Transfer Act 1952	

IN THE MATTER	
of caveat 9360334.1	

BETWEEN	
ASTON INVESTMENTS LIMITED Applicant	

AND	
KERVUS MC LIMITED Respondent	

Hearing:	27 January 2015	

Appearances:	
R O Parmenter for Applicant
H J H Glennie for Respondent	

Judgment:	
5 February 2015	

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 5 February 2015 at 4.30 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors:	Short & Partners, Auckland
Chapman Tripp, Auckland

Counsel:	R O Parmenter, Auckland

ASTON INVESTMENTS LIMITED v KERVUS MC LIMITED [2015] NZHC 92 [5 February 2015]

Introduction

[1]       The Applicant (“Aston”) seeks an order that caveat 9360334.1 (“the caveat”) be removed.1   The caveat is lodged against the titles to five units and three accessory units in a unit title development situated in Queen Street, Auckland (“units”).

[2]       The Respondent (“Kervus”) lodged the caveat on 5 April 2013.  Kervus is the nominated  purchaser  under  an  agreement  for  sale  and  purchase  between  the registered  proprietor  of  the  units,  QSM  Trustees  Limited  (“QSM”),  and  DMK Limited  (“DMK”)  dated  11 February  2013.    I  refer  to  this  agreement  as  the QSM/Kervus ASP.

[3]       Aston is the first mortgagee of the units.  Aston’s case is that the caveat is impeding the exercise of its power of sale, and that the Court should order its removal.  Kervus opposes the application.

[4]       The issues for determination are:

(a)	Did Kervus acquire a caveatable interest in the units pursuant to the

QSM/Kervus ASP?

(b)	Did Aston consent to the DMK/Kervus ASP, or has it in some other way deprived itself of the right to exercise its power of sale?

(c)	Has Aston exercised its power of sale?

Background

[5]       I have affidavit evidence from Aston’s director, Mr Alan Michael Moyes, and Mr Timothy John Burcher of Aston’s solicitors, Short & Partners.  The evidence for Kervus is from its director Mr Gregor John Barclay and its employee, Mr James Matthew Peters. The relevant facts are as follows.

[6]       239 Queen Street Trustees Limited (“QST”) was the registered proprietor of the units until January 2013.   Both Aston and Gartmore Nominees Limited (“Gartmore”) advanced funds to QST, those advances being secured by first and second mortgages respectively.

[7]       QST defaulted in its obligations.   Aston served a notice pursuant to s 119

Property Law Act 2007 (“PLA” and “PLA notice”) in November 2012 but QST did not remedy its default within the period specified in the notice.

[8]       QST transferred the units to QSM in January 2013.

[9]       On 11 February 2013 QSM entered into an agreement for sale and purchase with DMK or nominee, that is the QSM/Kervus ASP.  DMK nominated Kervus as the purchaser on 25 March 2013.

[10]     On 26 March 2013 QSM, DMK and Gartmore executed a “side letter” to which I refer below.

[11]     The (undisputed) evidence for Kervus is that the QSM/Kervus ASP became unconditional  on  4  April  2013,  and  that  since  then  Kervus  has  spent  a  very substantial sum, in the hundreds of thousands, investigating a redevelopment of the units.

[12]     The QSM/Kervus ASP, although unconditional, requires QSM to attend to certain matters prior to settlement.  One of these matters, and on the evidence the most  problematic,  is  that  QSM  must  settle  a  dispute  between  it  and  the  body corporate of the development (“body corporate dispute”). As I understand it, no such settlement has yet been reached.

[13]     Kervus lodged the caveat on 5 April 2013, claiming the following interest:2

An equitable interest as the nominee of the purchaser of the land pursuant to an unconditional agreement for sale and purchase between the Registered Proprietor and [DMK] (with [DMK] nominating the Caveator to complete

settlement) dated 11 February 2013 as varied by a side letter dated 5 April
2013.

[14]     Gartmore appointed receivers to QSM on 25 July 2013.

[15]     On  26  July  2013  the  shareholders  of  QSM  resolved  to  wind  up  and  a liquidator was appointed.

[16]     The parties to the body corporate dispute attended mediation in February

2014.  Mr Moyes, Mr Finnigan of Gartmore and Mr Peters attended the mediation. Mr Peters’ evidence  is  that  he  attended  at  Mr  Finnigan’s  request,  and  gave  a presentation as to Kervus’s proposed redevelopment.  Mr Peters’ evidence is that it must have been apparent to Mr Moyes from the presentation that Kervus had spent a considerable sum investigating the feasibility of redevelopment.

[17]     On 4 November 2014 Aston executed an agreement for sale and purchase with  Fisher  Finance  Limited  (“Fisher”  and  “Aston/Fisher ASP”).    There  is  no evidence as to any marketing campaign, instruction of a real estate agent and negotiation of the Aston/Fisher ASP.  The amount of the deposit and purchase price have been redacted on the copy of the Aston/Fisher ASP that Mr Moyes put in evidence, “for commercial reasons”.3   The Aston/Fisher ASP is conditional.  There is no evidence that the conditions have been satisfied or waived or that the parties are ready to settle, but for the existence of the caveat.

Discussion

[18]     The application to remove the caveat is made pursuant to s 143 Land Transfer

Act 1952 (“LTA”), which provides:

143	Procedure for removal of caveat

(1)        Any such  applicant  or registered  proprietor, or any other  person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the High Court for an order that the caveat be removed.

(2)        The Court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the Court seems meet.

[19]     There is no dispute that Aston as mortgagee is entitled to apply for an order or as to the principles which apply.  In Instant Funding Ltd v Greenwich Property Holdings Ltd, Venning J said:4

[6]        Although Instant Funding is the applicant, the onus is on Greenwich to satisfy the Court that it has a reasonably arguable case to sustain the caveat: …

[7]        As a purchaser of the property under an agreement for sale and purchase Greenwich has an equitable interest in the property that would prima facie sustain the caveat: ... The issue in the present case is whether that interest has been affected by the sale by Instant Funding as mortgagee.

[8]        Monice had the right to sell Sale Street to Greenwich or to any other party, but that right was subject to Instant Funding’s rights as mortgagee which  could  not  be  displaced,  in  the  absence  of  fraud  under  the  Land Transfer Act, without Instant Funding’s consent or without conduct which amounted to deferral of priority: ...

[20]     In Vegar-Fitzgerald v Aorangi Forests Ltd the Court of Appeal said:5

[13]      In  substantial  agreement  with  Mr  McMillan’s  submission,  we
summarise the relevant substantive principles as follows:

(1)        In the ordinary course a party who enters into an agreement to  purchase  land  acquires  an  equitable  interest  in  the property which is entitled to the protection of a caveat.

(2)        However, where the owner of property has encumbered its estate by mortgage, its rights are subject to the mortgagee’s prior rights.

(3)	In that situation the mortgagee’s title is paramount including
its right to exercise its power of sale.

(4)        If a mortgagee has not consented to a sale by the owner, the purchaser’s equitable interest is extinguished by a sale by the mortgagee in exercise of its powers and the caveat cannot be sustained.

(5)        Consent in this context does not mean mere acquiescence or standing by ... Instead consent requires proof of a clear and unequivocal, that is, positive and demonstrative act or acts.

4	Instant Funding Ltd v Greenwich Property Holdings Ltd HC Auckland CIV-2007-404-6806,
20 December 2007, at [6] – [8] (footnotes omitted).
5	Vegar-Fitzgerald v Aorangi Forests Ltd [2014] NZCA 200, at [13] (footnotes omitted).

[21]     As to [13](5) of that passage, the Court of Appeal added:6

... The test is whether Ms Vegar-Fitzgerald has established it was reasonably arguable that both mortgagees gave consent.

Caveat

[22]     As  purchaser  under  an  unconditional  agreement  for  sale  and  purchase, Kervus acquired an equitable interest that would sustain a caveat.  However, a sale by Aston  in  the  exercise  of  its  power  of  sale  would  extinguish  the  caveatable interest,7  unless Aston had consented to the sale to DMK/Kervus or had conducted
itself in such a manner as to disentitle it to exercise its power of sale.8

Consent

[23]     Kervus submits that Aston did consent to the sale and in this respect relies on an email dated 19 March 2013 from Mr Finnigan to Mr Peters in which Mr Finnigan says:9

I have agreement from the first mortgagee (although at a price higher than expected)...

[24]     The email records a statement said to have been made to Mr Finnigan, not to DMK or Kervus.  In his evidence Mr Moyes acknowledges discussions as to whether Aston would consent to the sale to Kervus but he denies that consent was given.  I record also that, although the side letter was prepared so as to provide for both mortgagees’ execution, it was only executed by Gartmore.  Mr Moyes’ evidence is that Aston declined to give consent to its terms.

[25]     I am not satisfied on this evidence that Kervus has established an arguable case that Aston gave the consent alleged.

6	At [15].
7	At [13].
8	Instant Funding Ltd v Greenwich Property Holdings Ltd, above n 4, at [8].
9	Affirmation of J M Peters affirmed 2 December 2014, Exhibit B.

Disentitling conduct

[26]     Alternatively, Kervus submitted that Aston’s conduct was such as to disentitle

it from exercising its power of sale.

[27]     Kervus was critical of Aston’s failure to advise Kervus of the fact that it had served a PLA notice on QST in November 2012 and that Aston proposed to proceed to exercise its power of sale.  The evidence for Kervus was that it first learned that a PLA notice had  been  served  when Aston  served this  application to remove the caveat, that is in November 2014.

[28]     Kervus submitted that Aston’s failure to disclose was all the more remarkable because  Mr Moyes  knew  of  the  QSM/Kervus  ASP,  and  because  of  Mr Peters’ attendance at the mediation referred to above.

[29]     I am not satisfied that there is any merit in this complaint.  Mr Moyes has put in evidence an email from Short & Partners for Aston to the solicitors for Kervus, Chapman Tripp, dated 19 May 2014.10   That email clearly indicated that Aston was becoming impatient with the delay in settlement of the DMK/Kervus ASP and that it proposed to take the property to auction in the absence of a prompt settlement. Kervus did not reply to that email.

[30]     Short  &  Partners  then  wrote  to  Chapman Tripp  on  18  September  2014, requesting  that  the  caveat  be  withdrawn  as  it  was  prejudicing  efforts  to  sell.11
Kervus did not reply to this letter.

[31]     In my view, these communications made Aston’s intentions clear and it was

for Kervus to reply if it required information.

[32]     Kervus was also critical of the lack of information in Mr Moyes’ affidavit as to the marketing campaign, if any, that Aston conducted in advance of the Aston/Fisher ASP,  and  how  it  was  that  Fisher had  emerged  as  a purchaser.    It
questioned whether Aston may have been acting in concert with QSM’s receiver or

10	Affidavit of A M Moyes sworn 8 December 2014, Exhibit A.
11	At Exhibit B.

liquidator.  Kervus also submitted that there was no evidence that Aston had fulfilled its duty to take reasonable care to obtain the best price reasonably obtainable at the time of sale.12

[33]     I accept that Mr Moyes’ evidence does not address many of these matters.  It is, however, for Kervus to adduce evidence of disentitling conduct.  The matters of which it complains do not, in my view, warrant a finding that by its conduct Aston has forgone the right to exercise its power of sale.   Moreover, Aston’s duty as to price is owed to QSM, to Gartmore and to other interested parties but it is not owed to Kervus.13

Exercise of power of sale

[34]     The next issue is whether Aston has in fact exercised its power of sale. Kervus relies on two matters in submitting that Aston has not done so.

[35]     First, Aston served the PLA notice in November 2012.  Kervus submitted that the notice was “stale” by November 2014 when Aston entered into the Aston/Fisher ASP.  No authority was cited for this proposition.  If the submission were correct, however, Aston would be unable to exercise its power of sale in the absence of service of a fresh notice and a failure to remedy within the period specified in the notice.

[36]     Section 119(1) PLA requires service of the notice:

... on the person who, at the date of the service of the notice, is the current mortgagor; ...

and a failure to remedy the default within the period specified.

[37]     The “current mortgagor” is defined as:14

in relation to mortgaged property, means a mortgagor who is currently the owner of the property.

12	Property Law Act 2007, s 176(1).
13	Section 176(1).
14	Section 4.

[38]     On the evidence before me the notice was served in accordance with s 119(1) and the default unremedied.   Without more, I would not be willing to accept a submission that Aston could not rely on the PLA notice as of November 2014.

[39]     There is, however, substance in the second and alternative submission made by Kervus, specifically that is there is insufficient evidence that Aston has, in fact, exercised its power of sale.

[40]     In support of this submission, Kervus referred again to the deficiencies in Mr Moyes’ evidence (see [32] above) and to the absence of evidence that conditions in the Aston/Fisher ASP have been satisfied.

[41]     A sale takes place when a mortgagee enters a binding contract for sale.15   In

Davison v Westpac Banking Corporation Randerson J said: 16

Where there is a conditional contract, it will be a question of construction whether, in the circumstances of the case, the parties are bound to complete
...

[42]     The Aston/Fisher ASP is conditional on:

(a)       Aston  reaching  a  full  and  final  settlement  of  the  body  corporate dispute on terms and conditions acceptable to Aston and Fisher, such condition to be satisfied “by 21st November 2014 or such later date as the parties may agree”.

(b)       Due diligence by Fisher “by 21st November 2014”.   Fisher is not required to state any reason for this condition not being satisfied and there is an acknowledgement by the parties that the condition is inserted  for  Fisher’s  sole  benefit  and  that  it  may  be  waived  by
Fisher.17

15	Davison v Westpac Banking Corporation HC Auckland CP/490/98, 5 November 1998 at 12.
16	At 12.
17	Affidavit of A M Moyes, above n 3, Exhibit I.

[43]     The Aston/Fisher ASP has  been  prepared  using  the  REINZ/ADLS  Ninth Edition 2012(2) form.  The parties have, however, deleted many of the printed terms, including  all  of  clause  9,  which  in  turn  includes  clause  9.8(1).    Clause  9.8(1) provides that any condition expressed in the agreement is a condition subsequent unless otherwise expressly provided.   Given the deletion, an issue may arise as to whether the conditions to which I have referred are conditions precedent or subsequent.

[44]     Regardless, there is no evidence that the conditions have been satisfied or waived, or that the parties have agreed to extend time for their satisfaction.

[45]     The failure to adduce evidence to this effect leaves me in doubt as to whether Aston has in fact exercised its power of sale.  Mr Moyes must know the position but he has not disclosed it to Kervus or to the Court.

[46]     As I have said, it is a sale by a mortgagee under its powers that extinguishes the caveatable interest which Kervus otherwise enjoys.  I am not willing to make the order sought unless I am satisfied that the power of sale has been exercised.   I propose to decline this application accordingly.

Conclusion

[47]     I am satisfied that Kervus had a caveatable interest in the land.   I am not satisfied,  on  the  evidence  before  me,  that  Aston  consented  to  the  sale  or  has otherwise conducted itself in such a manner as to preclude it exercising its power of sale.  I am not satisfied, however, that Kervus has established an arguable case that Aston has exercised that power of sale.

[48]     I decline to make the order sought.  I grant Aston leave, if leave is required, to make a further application pursuant to s 143 LTA if circumstances arise which make it appropriate to do so.

Costs

[49]	Having  failed  in  this  application,  Aston  must  pay  Kervus’s  costs  on  a

2B basis, with disbursements to be fixed by the Registrar in the event of dispute.

..................................................................

M Peters J