CSR Building Products Ltd v United States Gypsum Company

[2025] APO 26

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2024-404-3347

[2025] NZHC 26

UNDER THE

Land Transfer Act 2017

IN THE MATTER OF

an application for orders that Caveats not lapse

BETWEEN

CARTER BUILDING SUPPLIES LIMITED

trading as CARTERS Applicant

AND

ANDRIUS MITALAUSKAS AND LYAN XIE

Respondents

Hearing:

20 January 2025

Appearances:

C R Russell for the Applicant

No appearance for the Respondents

Judgment:

21 January 2025

Reissued:

22 January 2025

JUDGMENT OF HARVEY J

This judgment is delivered by me on 21 January 2025 at 4.00 pm

pursuant to r 11.5 of the High Court Rules.

Solicitors:
Stace Hammond, Hamilton

CARTER BUILDING SUPPLIES LTD v MITALAUSKAS & XIE [2025] NZHC 26 [21 January 2025]

Introduction

[1]                  On 24 July 2018, Carters Building Supplies Ltd (Carters) entered into a terms of agreement for supply with Euro Renovation Ltd (ERL). Mr Andrius Mitalauskas was the sole director of ERL, and he and Ms Liyan Xie are ERL’s only shareholders. On 31 July 2018, the parties entered a deed of guarantee and indemnity where payment of all monies owing by ERL to Carters was guaranteed by the respondents. Between 3 May 2021 and 24 June 2021, Carters provided ERL with building supplies.

[2]                  Carters claimed ERL failed to pay for the goods it supplied. A statutory demand was issued on 4 September 2024 for an overdue debt of $13,181.93. On 5 September 2024, Carters lodged caveats on the titles to the respondents’ properties in reliance on the agreement and the guarantee. On 3 October 2024, Carters served District Court proceedings on the respondents to recover the debt. On 4 October 2024, ERL paid Carters $13,181.93.

[3]Following that, on 28 November 2024, Associate Judge Lester awarded Carters

$2,663.95 in costs against ERL. $1,624.75 in District Court costs was also sought. If successful, Carters argues it would then be owed a total of $4,288.70 in costs.

[4]                  On 16 December 2024, Land Information New Zealand issued two Notices of Lapse of Caveat under s 145A of the Land Transfer Act 2017 (LTA). On 20 December 2024, Carters filed its originating application for orders that its two caveats lodged against titles to seven Auckland properties owned by the respondents not lapse. Carters makes the current application in reliance on s 143 of the LTA, r 19.2(l) of the High Court Rules 2016 and the Court’s inherent jurisdiction. Carters also seeks interest and costs.

[5]                  Mr Mitalauskas and Ms Xie did not file any opposition to the orders sought. They did not attend the hearing or instruct counsel.

[6]                  The issue for determination is whether Carters’ application that the caveats not lapse should be granted. At the conclusion of the hearing, I confirmed that the application was successful and that written reasons would follow.

Legal principles

[7]                  The relevant principles have been summarised by the Court of Appeal in Lu Trustee Ltd v Parklane Infrastruct Ltd:1

(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;

(b)It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;

(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and

(d)When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.

Discussion

[8]                  The respondents owe the costs as ordered by Associate Judge Lester.2 It is also possible that they will owe District Court costs. The issue is whether Carters has a caveatable interest in the properties. Carters claims to have lodged its caveats in reliance on the agreement and the guarantee. Clause 8.2(c) of the agreement and cls 1 and 6 of the guarantee are relevant. They provide that the respondents have a contractual obligation to pay Carters its legal costs reasonably incurred in attempting

1      Lu Trustee Ltd v Parklane Infrastruct Ltd [2020] NZCA 682, (2020) 21 NZCPR 740 at [39], citing

Philpott v Noble Investments Ltd [2015] NZCA 342 at [26] (footnotes omitted).

2      The potential costs award in the District Court has not yet been determined and will therefore be put to one side. Although, there is a potential argument that these may also fall within the meaning of “Guaranteed Debt” (see below at [11]), being money which may in the future be owing by ERL to Carters under cl 8.2(c) of the agreement.

to recover debt under its agreement with ERL. Clause 6 of the guarantee attempts to secure that obligation by providing Carters with the right to mortgage or lodge a caveat against the respondents’ property.

Contractual arrangements

[9]Clause 8.2(c) of the agreement provides that if an event of default occurs:

(c) CARTERS is entitled to recover from the Customer all costs that CARTERS may reasonably incur in attempting to collect the Amount Owing (including actual legal costs and expenses and costs of collection) and any other moneys owing by the Customer to CARTERS from time to time, whether in relation to any contract or on any other account whatsoever.

[10]              ERL’s failure to pay Carters’ accounts as and when they fell due would amount to an event of default under the agreement.   Carters would then be entitled under    cl 8.2(c) to recover from ERL its actual legal costs in attempting to recover the debt due. While Carters could have sought these costs through a claim for contractual damages, it has instead sought them through the award made by Associate Judge Lester. In any event, the fact that ERL has now been ordered to pay costs by this Court does not obviate ERL’s contractual obligation to pay those costs.

[11]              In addition, cl 1 of the guarantee defines the “Guaranteed Debt” as being “all moneys which are now or may in the future be owing or remain unpaid by the Customer to CARTERS under any contract with CARTERS”. Accordingly, the costs award made by Associate Judge Lester falls within the meaning of “Guaranteed Debt” because it is an amount owed by ERL to Carters under cl 8.2(c).

[12]Clause 6 of the guarantee provides as follows:

6.   The Guarantor agrees that CARTERS shall have the right, at its absolute discretion:

a)  to complete and register a mortgage (in the form of the then current Auckland District Law Society all obligations mortgage) over any interest in any property owned or held by the Guarantor (whether a beneficial or legal interest and as trustee or otherwise); and

b)  to lodge a caveat against the title to any property in respect of which the Guarantor owns or holds an interest (whether a beneficial or legal interest and as trustee or otherwise),

to secure the Guaranteed Debt and the Guarantor hereby irrevocably appoints CARTERS as the attorney of the Guarantor for the purpose of CARTERS exercising its rights under this clause whilst any Guaranteed Debt remains outstanding …

(emphasis added)

[13]              As mentioned, the Guaranteed Debt secured by cl 6 seems to include the costs award issued by Associate Judge Lester. Clause 6 attempts to secure this Guaranteed Debt by providing Carters with the ability to register a mortgage or lodge a caveat over the respondents’ property. However, although cl 6 purports to provide Carters with the right to lodge a caveat, it is necessary to determine whether cl 6 of the guarantee provides Carters with a caveatable interest. In general terms, there appear to be two ways by which cl 6 might provide Carters with a caveatable interest — an equitable mortgage or an equitable charge.

Equitable mortgage

[14]              The general position is that an agreement to mortgage, if the necessary requirements of an equitable mortgage are met, can confer a caveatable interest in land.3 However, a security agreement in which the debtor or the guarantor agrees to grant a mortgage if requested does not, before the request, give the creditor an equitable mortgage or caveatable interest.4

[15]              Clause 6(a) of the guarantee appears to fit neither of these scenarios neatly. It is not an agreement to mortgage, and nor is it an agreement to grant a mortgage if requested. Rather, it is an agreement that Carters can complete and register a mortgage at its discretion and may act as the respondents’ attorney for this purpose. It would appear that this is more like the situation where a creditor has the right to obtain a mortgage upon request as, until Carters actually completes the mortgage or communicates its decision to do so, there is no agreement nor intent to mortgage the property. Even so, given my findings concerning equitable charges, it is not necessary to determine whether Carters has made a reasonably arguable case that cl 6(a) provided it with an equitable mortgage over the properties.

3      See DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [10.009(n)]. See also Neil Campbell and others Principles of Land Law in New Zealand (3rd ed, Lexis Nexis, Wellington, 2020), Chapter 10.

4      Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA).

Equitable Charge

[16]Hinde McMorland and Sim Land Law in New Zealand states:5

A registered owner of land sometimes grants the right to lodge a caveat over that land to another person with whom the registered owner is contracting. Where the effect of the contract, quite apart from the clause granting the right to caveat, is to confer a caveatable interest on the other person, the clause is otiose. Where the contract does not, apart from the clause, confer a caveatable interest, it is not clear whether the clause is effective to vest a right to lodge a caveat in the other person. Two possibilities should be distinguished.

First, it may be that the clause granting the right to caveat necessarily implies that the registered owner intended to confer a caveatable interest on the other person. Such an implication should arise only where the nature of the interest that the registered owner intended to confer is clear from the contract. Where such an implication does arise, the other person will have a caveatable interest that can be protected in the ordinary way by a caveat.

Second, the clause granting the right to caveat may occur in a contract in which no caveatable interest of any sort is conferred by the registered owner. In such a case the other person has no caveatable interest, and therefore has no right to lodge a caveat under s 138 of the Land Transfer Act 2017. None the less, where that person does lodge a caveat, it is submitted that the clause granting the right to caveat will have some effect. An application by the registered owner under s 142 of the Land Transfer Act 2017 for removal of the caveat would, it is submitted, be a breach of contract (it being implicit that the registered owner would not derogate from the grant of the right to caveat by applying for removal). The caveator would at least have a remedy in damages, and might be able to enjoin the registered owner from continuing with the application for removal. However, the clause granting the right to caveat will bind only the registered owner, so that third parties would be free to invoke the procedure under s 142 for removal of the caveat, or the procedure under s 143 for the lapse of the caveat.

[17]              Focusing on the first class, several New Zealand decisions have recognised that a right under an agreement to caveat a property has given a caveatable interest (or equitable charge) by implication.6 In particular, the facts of the current case appear broadly analogous to Kilmartin v Monk where a creditor was entitled under a deed of acknowledgment of debt to register and maintain a caveat to secure its interest in the agreement until the debt was repaid.7 Clause 4 of that deed also empowered the

5      McMorland, above n 3, at [10.009(y)] (footnotes omitted).

6      See Yuan v Te Construction Ltd HC Auckland CIV-2003-404-3019, 12 August 2003; Kilmartin v Monk (2005) 6 NZCPR 405 (HC); Sunrise 9 Trustees Ltd v North Shore Aero Club Inc [2017] NZHC 17904, (2017) 18 NZCPR 838; and Murphys Park Development LP v Green City Developments Ltd [2020] NZHC 813, (2020) 21 NZCPR 104.

7      Kilmartin v Monk, above n 6.

creditor to, upon written request, obtain a mortgage over the relevant property. After considering relevant Australasian decisions, Hansen J held:

[18]                I consider it is at least arguable that cl [3] of the deed, read in the context of the deed as a whole, and in particular having regard to the provisions of cl [4], carried with it the implication that the respondent intended to confer a caveatable interest on the applicant.

[19]                On this basis, I conclude there is an arguable case that at the time the caveat was registered, the applicant had an interest in the land sufficient to support it. Although the matter is not free from doubt, I consider the applicant has discharged the onus on him.

[18]              Here cl 6(b) should be read in the context of the guarantee as a whole and with regard to the right of Carters to obtain a mortgage over the property via cl 6(a). I agree with the approach taken by Hansen J and others that, in the present case, cl 6(b) could imply an intention by the respondents to confer a caveatable interest on Carters, being in the nature of an equitable charge. It therefore appears to fall within the first class of clauses discussed in Hinde McMorland and Sim Land Law in New Zealand. Accordingly, Carters has a reasonably arguable case to support the interest it claims

— in other words, it is not patently clear that its caveats cannot be maintained.

[19]              Lastly, there appears to be no basis for exercising any residual discretion to remove its caveats. Therefore, as foreshadowed, the orders sought by Carters are appropriate.

Decision

[20]              I accept that Carters has sufficiently discharged its onus to put forward a reasonably arguable case that it holds a caveatable interest over the land on the certificates of title NA1120/204 and NA122A/84, protected by caveat number 13100887.1, and over the land on the certificates of title 886724, NA65D/97, NA65D/98, NA66B/407 and NA97C/741 protected by caveat number 13100887.2. I therefore make orders that these caveats do not lapse.

[21]                As Carters has been successful, it is entitled to costs. If costs cannot be resolved by agreement, Carters may file a memorandum of up to three pages within

10 working days of this judgment. Mr Mitalauskas and Ms Xie will have a further 10 working days to file any response.

[22]Costs will then be dealt with on the papers.

Harvey J