Able Ventures Limited v Bolton
[2022] NZHC 1957
•9 August 2022
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2021-470-39
[2022] NZHC 1957
UNDER Section 105 of the Land Transfer Act 2017 IN THE MATTER
of an application for orders discharging mortgages
BETWEEN
ABLE VENTURES LIMITED
First Plaintiff
NELSON MATTHEW BELL and JUDITH KAY BELL
Second PlaintiffsAND
JOHN GRAHAM KENNETH BOLTON
First Defendant
ELWOOD ALAN ROBERT BOLTON, RAQUEL SAPPHO KYLAH GYPSY
TANIA MILLER and the estate of ADELIA PAN FINLAY
Second Defendants
Hearing: 15 and 17 February 2022 Appearances:
G Grant and B Foster for the Plaintiffs
No appearance for or on behalf of the First Defendant J Delaney for the Second Defendants
Judgment:
9 August 2022
JUDGMENT OF DUFFY J
This judgment is delivered by me on 9 August 2022 at 4pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors/Counsel: Grant & Co, Auckland
Keam Standen, Tauranga
J Delaney, Barrister, Tauranga
ABLE VENTURES LIMITED v BOLTON [2022] NZHC 1957 [9 August 2022]
[1] The first plaintiff, Able Ventures, is a registered company, and one of the second plaintiffs, Nelson Bell, is its sole director and shareholder. His wife Judith Bell is the other second plaintiff. Since 16 December 1996 Able Ventures has been the registered proprietor of land situated at 23 Bain Street Mount Manganui and held in certificates of title SA11D/699 and SA46A/890 (the Bain St titles). The plaintiffs bring proceedings under s 105 of the Land Transfer Act 2017 for discharge of three mortgages registered against these titles on the ground that recovery of funds secured under the mortgagees is time barred.
[2] The first defendant, John Graham Kenneth Bolton (known as Ken), is the registered mortgagee of the subject mortgages.1 These are: B388436.5, registered on 16 December 1996 (the 1996 mortgage); B674837.1, registered on 23 August 2001 (the 2001 mortgage); and M6484677.2, registered on 6 July 2005 (the 2005 mortgage). Ken Bolton has taken no steps in this proceeding.
[3] Two of the second defendants are related to Ken Bolton; the third is the estate of his late mother. Disputes between the first and second defendants, including allegations of Ken Bolton defrauding the second defendants, colour the issue raised by the plaintiffs.
[4] The second defendants bring a counterclaim seeking rectification of the subject mortgages by removal of Ken Bolton and substitution of their names as mortgagees. They claim he was always acting as an agent for his late mother and the other individual second defendants. Alternatively, if rectification is not granted, they seek a declaration that Ken Bolton was acting as a constructive trustee when he registered his name as mortgagee, and an order requiring him to transfer the mortgages to them.
[5] The plaintiffs defend the counterclaim on the basis that after December 1996 (when the first mortgage in dispute was registered) the Bells believed they were dealing solely with Ken Bolton as lender/mortgagee.2 Secondly, any beneficial
1 Because Alan Bolton, who is one of the second defendants, is the brother of Ken Bolton I shall refer to them throughout this judgment by the names by which they are known and their family names.
2 As a registered company Able Ventures can only act through its directors. When incorporated both Mr and Mrs Bell were directors. From 2001 Mr Bell has been the sole director.
interest the second defendants may have in the subject mortgages is worthless because it is unregistered and does not allow them to exercise the mortgagee’s power of sale. Thirdly, any court orders requiring Ken Bolton to transfer the mortgagees to the second defendants would be futile because the mortgages are now time barred. Fourthly, there is nothing to transfer because Ken Bolton’s interest in the mortgages has been extinguished by s 18 of the Limitation Act 1950.
[6] The second defendants contest the plaintiffs’ claims for discharge of the subject mortgages on the following grounds. First, the right to recover the debts secured by them is not time barred because the debtors have made acknowledgements of liability to pay which have the effect of extending the limitation periods. Second, the subject mortgages are registered against Land Transfer Act land and the rights of a mortgagee of such land, including the exercise of the power of sale, are not and never have been subject to any statutory time limit.3
[7]The key issues for determination are:
(a)Whether recovery of the money secured by the subject mortgages is now time barred;
(b)If recovery of the money secured by the subject mortgages is time barred, whether the registered mortgages should be discharged, given the funds secured by the mortgages have not been repaid;
(c)Whether the mortgage securities should be rectified in the way the second defendants seek, or whether Ken Bolton should be ordered to hold the registered mortgages on trust for the second defendants.
[8] Whether the mortgages are discharged only directly affects Able Ventures. The Bells’ liability is limited to their personal covenants under the subject mortgages. Obviously, if the mortgages are not discharged this will affect the Bells indirectly,
3 See s 250 of the Land Transfer Act 2017 and s 19(3) of the Limitation Act 2010; and see s 64 of the Land Transfer Act 1952 and s 6(2) of the Limitation Act 1950. See also DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at 15.159.
insofar as a company in which Mr Bell holds shares will continue to have the mortgages registered on its titles.
Background
[9] The subject mortgages reflect negotiations between the Bells and Ken Bolton over the years, which have seen three successive mortgages executed and registered against the Bain St titles. The secured debt for each mortgage was the sum of an original loan advanced in 1992 to the Bells plus capitalised unpaid interest. The total sum was recorded as an advance made under the new mortgage. This process was repeated several times, and on each occasion the secured debt increased. No lawyers were involved in the preparation or execution of the loan documentation, including the subject mortgages. This has affected matters.
[10] The background to the subject mortgages is helpfully set out by Mr Bell in his affidavit evidence. Mr Bell deposes that in 1992 he and his wife borrowed $250,000 from Enid Adelia Pan Finlay (known as Pan), her son Elwood Alan Robert Bolton (known as Alan), and Pan’s granddaughter Raquel Sappho Tania Miller (known as Rachel). The lender was recorded as Ms Miller (then Raquel Bolton), but the funds were provided jointly by Mrs Finlay, Alan Bolton and Ms Miller. This loan was negotiated with and prepared by Ken Bolton, who is Alan Bolton’s brother and the late Mrs Finlay’s son. Mr Bell refers to this loan as the “original Pan loan” and I shall use this as a reference as well. Mrs Finlay died in 2020, which complicates matters because initially Alan Bolton and Ms Miller left matters regarding the loans/mortgages to Mrs Finlay and Ken Bolton.
[11] In 2019 Mrs Finlay affirmed an affidavit; however, that evidence is more directed at claims the second defendants may have against Ken Bolton. The affidavit does, however, set out a narrative on how loans to the Bells in 1992, 1993 and mid 1996 came about. Mrs Finlay’s account is consistent with the accounts given by the Bells and the available mortgage/loan documents, which show there were a series of separate successive loans rather than the continuation of an original loan by extension of its terms and its assignment to Ken Bolton. It is clear from Mrs Finlay’s affidavit that Ken Bolton was involved from the outset in 1992 when the original loan
was made, however, he was only recorded as a mortgagee from December 1996. Mrs Finlay deposed that no funds from Ken Bolton were ever advanced under any of the loans/mortgages, which is also consistent with the Bells’ evidence.
[12] Ms Finlay’s death means she has not been available to address later evidence from the Bells. Then there is the failure of Ken Bolton to take steps in this proceeding. Accordingly, a full picture of the relevant circumstances from the perspective of both lenders and creditors is not available to me. However, the aforementioned narrative is not disputed.
[13] Mr Bell deposes that the Bells obtained the original Pan loan of $250,000 to allow them to inject capital into a company they owned at that time. Mortgage instruments were executed by the parties on the same day as the funds were advanced, but these mortgages were never registered.
[14] Mr Bell further deposes that in 1993 he and his wife could not pay the original Pan loan. A further loan/mortgage was drawn up by Ken Bolton. This loan was for the original principal sum in the 1992 loan plus capitalised unpaid interest owing on the earlier loan. This time the mortgagee was recorded as Mrs Finlay, and the secured sum was $275,000. Mortgages were registered over 128 Oceanview Road (which was then owned by the Bells) and the Bain St titles, which were then owned by the late Matthew Bell (who died in 2005). Matthew Bell was the father of Mr Bell.
[15] By July 1996 nothing had been paid under the 1993 loan. A third loan was negotiated with Ken Bolton. The amount was $450,000 which represented the principal sum owing as at 1992 plus capitalised unpaid interest from the 1992 and 1993 loans. This loan was secured by the mortgages Mrs Finlay already held over 128 Oceanview Rd and Bain St.
[16] Then on 16 December 1996 a series of transactions occurred: (a) Matthew Bell transferred the Bain St titles to Able Ventures; (b) mortgage B388436.6 with Matthew Bell as mortgagee was registered against the Bain St titles; (c) the 1993 registered mortgages were discharged; and (d) the 1996 mortgage recording Able Ventures as
mortgagor, the Bells as covenantors and Ken Bolton as mortgagee was also registered against the Bain St titles.
[17] The original discharge documents for the 1993 mortgage are no longer available. There are concerns over how the discharge was achieved. Mrs Finlay believed she had not signed the discharge and that Ken Bolton had forged it. However, in her evidence Mrs Bell says that Ms Miller conceded in a conversation they had that Mrs Finlay may have signed the discharge. The relevant documents cannot be obtained from LINZ now. This proceeding was conducted on affidavit evidence with no cross-examination. There is not enough evidence to enable me to conclude the discharge was fraudulently obtained, nor is that determination necessary for these proceedings.
[18] Mr Bell deposes that Ken Bolton never advanced money to either the Bells or Able Ventures and that the series of mortgages outlined herein secured nothing more than the original Pan loan money plus capitalised unpaid interest as it accrued over the years. The second defendants do not dispute this.
[19] Mrs Bell’s evidence is that Able Ventures assumed no liability for making repayments on the loan, it only provided the mortgage security. However, this is contrary to the 1996 mortgage document which clearly makes the mortgagee (Able Ventures) liable to repay money secured by the mortgage.4 The same applies for the subsequent mortgages of 2001 and 2005. Further Able Ventures received the Bain St titles from Matthew Bell; and while he held the titles the 1993 mortgage was registered against them.5
[20] Mr Bell was adjudicated bankrupt on 22 May 1997 and subsequently discharged from bankruptcy on 22 May 2000.
4 Mortgages for land that came into operation before 2008 are subject to the Property Law Act 1952. Clause 1 of the Fourth Schedule to that Act implies into every mortgage of land a covenant that the mortgagor will pay the principal sum, with interest thereon, in accordance with the provisions of the mortgage. The mortgages executed by Able Ventures do not expressly exempt the company from liability to pay the principal and interest owing under those mortgages.
5 It may have been therefore that Able Ventures received the titles from Matthew Bell on the basis the mortgage liability he owed under the 1993 mortgage would then manifest in the 1996 mortgage.
[21] On 23 August 2001, a new mortgage was registered with Ken Bolton as mortgagee. This mortgage was registered against 128 Oceanview Rd and the Bain St titles. The previous 1996 mortgage on the Bain St titles was not discharged by Ken Bolton. The 2001 mortgage recorded Able Ventures and Mr and Mrs Bell as mortgagors.
[22] Mrs Bell was adjudicated bankrupt on 18 February 2002, and subsequently discharged from bankruptcy on 18 February 2005.
[23] In 2005, Matthew Bell died. He held mortgages over 128 Oceanview Rd and the Bain St titles. The secured debts were called up by the executors of his estate. This forced a situation where the Bells needed to find funds to avoid a mortgagee sale. At the time Ken Bolton was a first-ranked mortgagee on 128 Oceanview Rd. This meant the Bells were unable to sell 128 Oceanview Rd to pay Matthew Bell’s estate without Ken Bolton’s cooperation. The Bells—they argue under duress—signed another loan agreement (2005 loan agreement) of $1.7 million and agreed to a new mortgage on the Bain St titles (2005 mortgage). This mortgage was registered on 6 July 2005. Able Ventures was recorded as mortgagor, Mr and Mrs Bell were recorded as covenantors and Ken Bolton was recorded as mortgagee. On the same day, the mortgage Ken Bolton held over 128 Oceanview Rd was discharged and the mortgage Matthew Bell held over the Bain St titles was discharged.
[24] Nothing further happened in relation to the mortgages until 2011 when Ken Bolton contacted the Bells demanding payment. There is an issue as to whether an acknowledgement of debts owed by the Bells or Able Ventures under the mortgages was made either during this communication or a follow up communication made by Mr Bell to Ken Bolton. The second defendants argue that there were subsequent acknowledgments of liability to pay the secured debts. They say the several acknowledgments of debts have the effect of removing any time bar against legal action to recover payment. This will be addressed in detail later.
[25] Then in either 2018 or 2019 the second defendants contacted the Bells about the loan transactions/mortgages. There is a suggestion that Ken Bolton was attempting to defraud the second defendants. The second defendants also rely on the exchanges
that then occurred to establish an acknowledgement of liability that would extend the relevant limitation periods. The present proceeding now follows.
Issue 1: Is the recovery of money secured by the subject mortgages now time barred?
[26] A mortgage comprises both a personal covenant by the mortgagor and a charge over the mortgagor’s land. The mortgagee has remedies against the mortgagor under both heads.6 The recovery of money secured by the mortgage comes under the first head.
[27] There are three debtors to the personal covenants under the three subject mortgages. These are Able Ventures and Mr and Mrs Bell. However, the present application is for discharge of the registered mortgages on the ground recovery of the secured debt is time barred, and therefore no purpose is served by the mortgages remaining on the titles. Thus, the focus of this application is on whether Ken Bolton as mortgagee could recover the secured debt from Able Ventures.
[28] As will be explained below, I have found that the application to discharge the mortgages has been commenced after the expiry of the original limitation periods. However, those periods can be extended if a debtor has acknowledged liability to pay to his or her creditor.
[29] Accordingly, the key issue is whether Able Ventures has acknowledged it is liable to pay the secured debts. To be binding on Able Ventures the acknowledgment would need to be made by its director or someone whom the company had appointed as its agent.7 Mr Bell is the sole director and shareholder of Able Ventures. Mrs Bell was a director, but New Zealand Companies Office records show that she retired as a director in 2001. She confirms her retirement as a director in her evidence.
[30] The second defendants have put in evidence copies of documents registered with the New Zealand Companies Office which show Mrs Bell registering annual
6 DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at 15.159.
7 Limitation Act 2010, s 47(3)(b).
accounts on behalf of Able Ventures and describing her role as secretary. However, the fact she has acted in this way cannot constitute evidence Able Ventures authorised her to act as its agent for the purpose of making an acknowledgement of liability to pay the secured debts in issue here. Thus, the only person legally capable of making any such acknowledgement was Mr Bell.
Limitation period
[31] It is helpful first to identify the original limitation periods and the legislation that imposes them.
[32] The enforcement rights that Ken Bolton held under the 2005 mortgage and loan (both of which identified Able Ventures as a borrower of funds from Ken Bolton) accrued while the Limitation Act 1950 was in force. The same applies to any such rights under the earlier mortgages if they were not extinguished by the succeeding mortgage. Accordingly, all relevant enforcement rights continued to be subject to the Limitation Act 1950 right up to the expiry of the original limitation periods imposed by that Act; this is despite the Limitation Act 2010 having come into force part way through the original limitation period.8
[33] Section 20 of the Limitation Act 1950 created a 12-year limitation period on actions for recovery of money secured by a mortgage. Actions for recovery of interest owing under the mortgage were limited to a six-year time bar.9 There is a good argument that once a new loan and mortgage were executed, that had the effect of replacing the previous secured loan, so that at all times there was only ever one loan and one actionable security. On this view the only potentially actionable registered mortgage would be the 2005 mortgage. However, for the purpose of ascertaining whether debt recovery is time barred I shall look at each mortgage separately.10
8 See s 61 of the Limitation Act 2010 which inserted s 2A of the Limitation Act 1950.
9 I focus on whether the principal sums secured by the mortgages are time barred. If they are it necessarily follows that recovery of interest will be as well given the shorter limitation period applicable thereto.
10 If for example the 2005 mortgage were in some way a defective security then in principle the mortgagee might look to the next earlier registered mortgage. The terms of the 1996 and the 2001 mortgages secure future indebtedness between Able Ventures and Ken Bolton.
[34] Even if all three mortgages secured on the Bain St titles serve to secure separate debts each is now prima facie time barred. Section 20 of the Limitation Act 1950 required all actions to recover money owed under the 2005 mortgage to be commenced by 2017, actions to recover money owed under the 2001 mortgage needed to be commenced by 2013, and actions for recovery under the 1996 mortgage needed to be commenced by 2008. These proceedings were commenced in 2021, which is well outside any of the limitation periods.
[35] It is worthwhile identifying the respective original limitation periods for each mortgage because it shows how old they are. Whether the relevant time bars preclude recovery of the secured debts depends on whether the second defendants can establish that liability to pay has been acknowledged in the way the law requires for the limitation period to begin again.
Acknowledgment of debt
[36] There was no communication with Ken Bolton from 2005 to 2011. There was a telephone discussion between Mr Bell and Ken Bolton in 2011. This needs to be assessed to see if anything that was stated has revived the time bar on the 1996, 2001 and 2005 mortgages. There were subsequent communications and other statements, which the second defendants also rely on as reviving the original limitation periods for those mortgages.
[37] In circumstances like the present where the right to bring a claim commenced during the currency of the Limitation Act 1950 but an acknowledgment of debt is alleged to have been made after the Limitation Act 2010 had come into force s 47 of the current Act governs whether the limitation period starts again or not. This is because an acknowledgement of liability creates a fresh right to bring a claim, and this right is governed by the legislation in force at that time. This is of some consequence because claims to recover a principal sum secured by mortgage under the Limitation Act 1950 had a 12-year time bar, whereas, the same claims under the current Act generally have a six-year time bar.11 With both Limitation Acts the acknowledgment
11 See Limitation Act 2010, s 11.
of liability to pay could revive the creditor’s right to bring a claim even when the acknowledgment was made after the expiry of the original limitation period.12
[38] The Bells argue that no acknowledgement of debt could have been made under the Limitation Act 1950 because it ceased to apply on 31 December 2010. I agree, but I do not see how this argument helps them. The evidence the second defendants rely on to establish there have been acknowledgments of debt by the Bells relates to events that occurred after 31 December 2010, and at a time when the Limitation Act 2010 was in force. Those alleged acknowledgments must be assessed under s 47 of the Limitation Act 2010.
[39] The first acknowledgement of debt is said to be the communications between Mr Bell and Ken Bolton in 2011. Mr Bell deposes that in 2011, while he and his wife were away on holiday in New Caledonia, he received a telephone call from Ken Bolton demanding payment of $350,000 in cash. Mr Bell refused to do so and the telephone call ended abruptly. The content of this communication cannot constitute an acknowledgment of debt. Further it is not in writing, which is one of the requirements of s 47(1)(a) of the Limitation Act 2010.
[40] Mr Bell says that he emailed Ken Bolton stating that “we wouldn’t be paying him any money because we hadn’t borrowed anything from him, but that we would be happy to discuss repayment of Pan’s original loan with his family members”. Mr Bell says he received no response to this email. He no longer has a copy of this email. I am not satisfied that the substance of the communication constitutes an acknowledgement of debt that would revive the right to bring a claim against Able Ventures.
[41] In Crawford v Heaven Tompkins J helpfully set out relevant authority on the circumstances that must exist for an acknowledgement to bind the debtor.13 First, the Judge referred to Good v Parry where Lord Denning MR said:14
There need only be an acknowledgement of a debt or other liquidated amount. That means, I think, that there must be an admission that there is a debt or
12 Brown v Adams [1939] NZLR 226.
13 Crawford v Heaven HC Auckland 314/98, 14 September 1999.
14 Good v Parry [1963] 2 All ER 59.
other liquidated amount outstanding and unpaid. Even though the debtor says in the same writing that he will never pay it, nevertheless it is a good acknowledgement.
[42] Second, Tompkins J considered Dungate v Dungate where it was found to be sufficient if the acknowledgement identified a general indebtedness, provided that the amount of the debt could be ascertained by extraneous evidence.15
[43] Third, in Re Flynn (deceased) (No 2) Buckley J held that the document alleged to contain the acknowledgement must be read as a whole.16 He went on to say:17
… in my judgment, the authorities do establish the principle that the acknowledgement properly interpreted must be an acknowledgement of liability on the part of the person making the acknowledgement and not merely an acknowledgement of certain facts which, taken in isolation, would give rise to a liability but which are alleged by the person who is said to have given an acknowledgement not to give rise to a liability by reason of other surrounding circumstances.
[44] Finally, in Surrendra Overseas Limited v Government of Sri Lanka Kerr J, after referring to the above authorities, said:18
What I draw from these authorities, and from the ordinary meaning of ‘acknowledges the claim’, is that the debtor must acknowledge his indebtedness and legal liability to pay the claim in question … taking the debtor’s statement as a whole, as it must be, he can only be held to have acknowledged the claim if he has in effect admitted his legal liability to pay that which the plaintiff seeks to recover. … In effect ‘acknowledges the claim’ means that the statement in question must be an admission of that indebtedness which the plaintiff seeks to recover notwithstanding the expiry of the period of limitation.
[45] Based on the above authorities I consider the available written account of the email communication does not operate as an acknowledgment by Mr Bell, in his capacity as a director of Able Ventures, that the company owed a debt to Ken Bolton or to the second defendants. As narrated by Mr Bell in his evidence the email went no further than Mr Bell stating that the Bells would be happy to discuss repayment of “Pan’s original loan with [Ken Bolton’s] family members.” This indicates no more than a willingness to discuss the original loan with family members of Ken Bolton. It
15 Dungate v Dungate [1935] 3 All ER 818, at 820.
16 Re Flynn (deceased) (No 2) [1969] 2 All ER 557.
17 At 562.
18 Surrendra Overseas Ltd v Government of Sri Lanka [1977] 2 All ER 481 at 489.
is not an acknowledgement that Able Ventures would pay any of the secured loans that it owed to Ken Bolton.
[46] Nor was it possible for Able Ventures (through its director Mr Bell) to acknowledge liability to pay indebtedness arising from the original loan. The company was never a debtor/mortgagor under the 1992 and 1993 mortgages.19 It only became a debtor when it became mortgagor of the 1996 mortgage and its successors. Unless liability under the earlier loans/mortgage was in some way assigned to Able Venture (which it was not) the company could never be liable for them.
[47] Ken Bolton has taken no steps in the proceedings and so there is nothing from him in evidence to suggest the 2011 email stated anything different from what Mr Bell deposes.
[48] The second defendants submit that an application to the Court may include an acknowledgement of liability to pay a debt if the application is also addressed to and served on the creditor.20 Here the second defendants submit that the joinder and service of written documents in these proceedings on them constitutes a written acknowledgement. They contend that the original pleading of the current application stated that the 2005 mortgage concerned “debt owed to Pan, Alan and Rachel, not to the respondent”. Mr Bell has given evidence of “preliminary discussions with Pan, Alan and Rachel about how we might go about paying back the funds that we had originally borrowed from them” and that the repayment “has however been complicated by the fact that [Ken Bolton] holds three registered mortgages over our properties”.
[49] Also, the second defendants contend that the second plaintiffs’ undertaking to support the second defendant’s proceedings to remove Ken Bolton as mortgagee made statements to the effect of acknowledgement:
(a) “We never denied the debt to Adelia [Pan], Rachel and Alan”.
19 The company was not incorporated until 1994.
20 Lewis v McFarland [1874] 2 NZJur1; and Crawford v Heaven (2000) 6 NZBLC 103,039 at [61].
(b) “We therefore placed both properties up for sale, with the intention of paying both the second mortgage and the first mortgages to Adelia [Pan], Rachel and Alan”.
(c) “I told her I had never denied the debt and that we want to repay the debt”.
[50] I accept the second defendants’ submission that the requisite written acknowledgement can be made in something like a court document, provided that document is also served on the creditor.21 However, the statements the second defendants identify do not constitute an acknowledgement by Able Ventures that it is liable to pay them a debt. The focus of the above statements is the original loan to Pan, which was in 1992 and therefore at a time when Able Ventures did not exist. The company has no connection with the 1992 loan/unregistered mortgage. Further, the general rule is that a mortgage does not secure pre-existing debts and very clear language would be required before that outcome was achieved.22
[51] To draw Able Ventures into liability for the 1992 loan, the second defendants would need to show that the 1996 mortgage and subsequent mortgages that Able Ventures executed as mortgagor operated to secure pre-existing debt created in 1992, in addition to the indebtedness stated on the 1996, 2001 and 2005 mortgages. The fact the secured debts created in the subject mortgages may have replaced earlier debts and by executing those mortgages Able Ventures became liable to pay the substitute debts does not mean it can be treated as having assumed a legal liability to pay the earlier debts. If that were the intended outcome very clear language to that effect would be needed on the mortgage documents for 1996, 2001 and 2005. Such language is not there.
[52] Accordingly, I am satisfied there has been no acknowledgment of liability to pay debts secured by the subject mortgages that is capable of satisfying s 47 of the Limitation Act 2010. The original time limit for suing Able Ventures for recovery of
21 Lewis v McFarland [1874] 2 NZJur1; and Crawford v Heaven (2000) 6 NZBLC 103,039 at [61].
22 See DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at 15.032 and the cases cited therein.
the secured monies under the subject mortgages has not been extended. It follows that recovery of those monies has been time barred since 1 August 2017 at the latest for the 2005 mortgage and earlier than that in respect of the two other mortgages. It also follows that recovery of interest owing under those mortgages is also time barred.
[53] None of the mortgages discussed herein were prepared by solicitors. Mr Bell’s signature on the 2005 mortgage was witnessed by a solicitor but there is nothing recorded on the mortgage document that identifies a solicitor acting for any of the named parties to it. From the outset the parties were seemingly prepared to engage with each other without the benefit of legal assistance. The fact the chosen legal form of their transactions may not have the legal effect the parties have severally attributed to them in their evidence is a consequence of lay persons attempting to carry out complex conveyancing transactions without legal assistance.
The Bells’ indebtedness as personal covenanters under the mortgages
[54] The Bells have also advanced arguments as to why as against them personally neither Ken Bolton nor the second respondents can recover money owed under any of the loans/mortgages. Mr and Mrs Bell argue that they cannot be liable for the various debts now in issue because they were released from liability for all their debts on their respective bankruptcies. Thus, no debts exist following their respective discharges from bankruptcy. The difficulty the Bells face with this argument is that their respective discharges from bankruptcy were before they executed the 2005 mortgage as covenantors. If the 2005 mortgage is regarded as creating a new separate indebtedness, which is what on its face it appears to do, the earlier bankruptcy discharges may be ineffectual as defences. On the other hand, the only consideration to support the 2005 mortgage is, from the Bells, the transfer of an obligation to meet past indebtedness and, from the mortgagee, a forbearance to sue. If as regards the Bells that indebtedness was extinguished following discharge from bankruptcy this may be a good defence.
[55] The application for me to determine is an originating application seeking orders discharging mortgages under s 105 of the Land Transfer Act 2017. The subject mortgages are not registered against land the Bells personally own. Accordingly, for
the purpose of the present application I see no reason to determine whether (by reason of any acknowledgements of liability each may have made) they remain personally liable under the subject loans/mortgages. The live issues for their present application are whether the mortgages securing recovery of those loans allow for their recovery as against Able Ventures, and if not whether the mortgages should, therefore, be discharged. The plaintiffs’ purpose of establishing the secured debts are time barred is not to defend an action for debt recovery, but to provide a foundation for their argument that the subject mortgages should be discharged from the Bain St titles.
[56] The present proceedings have not addressed all issues material to determining whether the second defendants can bring a debt recovery claim against the Bells as covenantors under the 2005 mortgage. These proceedings have been coloured by how the respective parties viewed the relevant debts rather than how those debts are legally characterised. This has not prevented me from reaching a view on the legal issues relating to Able Ventures. However, the question of the Bell’s liability needs more attention before it can be decided. Because answering this question is not within the confines of the present application for discharge of mortgages I propose not to address the matter. I also observe that the present form of the proceeding with affidavit evidence and no cross-examination is not well suited to determining matters the Bells have raised in their defence.
[57] I have found for Able Ventures on the first issue for determination – recovery of money secured by the subject mortgages is time barred (at least as against Able Ventures). I now turn to consider whether the subject mortgages should be discharged from the Bain St titles.
Issue 2: Should the subject mortgages be discharged?
[58] The application for discharge of the subject mortgages is brought under s 105 of the Land Transfer Act 2017, which provides:
105 Court may order mortgage to be discharged if mortgagee’s remedies barred by Limitation Act 2010
(1) The court may, on application by the registered owner of an estate or interest in land that is subject to a registered mortgage, order that the mortgage is discharged if the court is satisfied that—
(a) a proceeding by the mortgagee for payment of money secured by the mortgage is barred by the Limitation Act 2010 or any other enactment; and
(b) except for an application under subpart 1 of Part 4, any other proceeding by the mortgagee for a remedy in respect of the mortgaged land would also be barred by the Limitation Act 2010 or any other enactment.
(2) The Registrar must register the order discharging the mortgage on lodgement of a sealed copy of the order.
(3) The mortgage is discharged on registration of the order.
(4) The court may direct that—
(a) public notice of an application be given under this section:
(b) notice of the application be served on any person the court specifies.
[59] I have found that recovery of the money secured by the subject mortgages is time barred by the Limitation Act 1950. This Act qualifies as “any other enactment” for the purpose of engaging s 105(1)(a) of the Land Transfer Act 2017.
[60] Counsel for the plaintiffs argues that in Le v Khang, which involved circumstances where recovery of the secured debt was time barred, this Court made orders discharging the mortgage from the title.23 The plaintiffs contend that both the first and second defendants have sat on their hands for a considerable time. Neither has attempted recovery under the mortgages, and their first action has been the counterclaim in these proceedings. To the extent the second defendants claim they were defrauded by Ken Bolton, there is no suggestion the plaintiffs were involved. The mortgages over 23 Bain St are pointless as they cannot be enforced nor can there be any personal liability on behalf of the Bells.
[61] The plaintiffs also argue that any claim the second defendants have to recover the mortgaged land is time barred by s 7 of the Limitation Act 1950 and s 118 of that Act has extinguished the mortgagee’s “title” to the mortgaged land.
23 Le v Khang [2013] NZHC 2985.
[62] The second defendants argue that the subject mortgages should not be discharged even if action based on Able Ventures’ personal liability under the mortgages is now time barred, and therefore the secured debt/s are beyond recovery. They argue that the right of a mortgagee to sell the mortgaged land never becomes statute barred.
[63] The second defendants further argue that the s 105 power is discretionary, and the Court must be satisfied of the equity of the order. Here they say it would be inequitable to grant the order given that (a) the plaintiffs have never made any payments on the loans (which allow them to own or control multimillion dollar assets);
(b) they brought these proceedings (and failed to properly advise the Court of the second defendant’s interests) despite encouraging the second defendants to apply to the Court to replace Ken Bolton as a mortgagee and subsequently settle; and (c) they sought to put their property out of reach (by transfer to Able Ventures) when declaring bankruptcy, and so their properties were not sold to repay creditors.
Discussion
[64] The circumstances of this case are unique. Typically, an application for discharge is made when a mortgage has been repaid, but the security remained on the title with no one taking any action until much later, and because for whatever reason the mortgagee has not signed a discharge.24 There are few cases where the mortgage debt is unpaid (either wholly or partially), recovery is statute barred and the Court is faced with an opposed application for discharge of the mortgage.
[65] Helpful assistance can be found from several decisions of this Court in the 1950s. The discretionary power to discharge was then conferred by s 43 of the Statutes Amendment Act 1939, which became s 112 of the Land Transfer Act 1952. The language of these earlier provisions was essentially the same as s 105 of the Land Transfer Act 2017.
[66] At that time a difference of view appears to have developed about who carried the burden of persuading the Court to grant a discharge. Callan J in Re A Mortgage
24 Le v Khang [2013] NZHC 2985; and Re F L Jeffries and Co Ltd [2019] NZHC 1790.
(Pearce to Sansom) held the view that a discharge should be made unless there was “a distinct balance of equities in favour of the mortgagee and against the making of the order”.25 On the other hand, Faire J in Re Dalton, and Cooke J in Thomson v Commissioner of Stamp Duties, took the view that it was for the applicant to make out a case for the mortgage to be discharged.26 Cooke J later reaffirmed his approach in Re A Mortgage (Presland v Death).27
[67] In Re A Mortgage (Presland v Death) a father had lent money to his daughter secured by a registered mortgage on the title of her property. Recovery of the mortgage debt was statute barred. The daughter applied for discharge of the mortgage. Her father, the mortgagee, did not oppose the application, but had refused to sign a release. Cooke J treated the matter as if there was a refusal to discharge.
[68] Counsel for the daughter/mortgagor argued that the discretion should be exercised and an order of discharge made against the father/mortgagee, unless he showed both that he desired to enforce his power of sale and that he had good reason for having slept on his rights. Cooke J described this argument as “putting the matter too strongly against the mortgagee”.28 He described the task of the Court as one which required him to have regard to “conduct or inaction of both mortgagee and mortgagor and, taking all the circumstances into consideration, to decide whether the mortgagor has made out a case for the exercise of the discretion”.29 Based on the “meagre” evidence before him Cooke J found the mortgagor had not made out a case for discharge of the mortgage.
[69] Cooke J regarded the “non-insistence by the father on the payment of interest or principal” as more likely to be due to a desire to be considerate to and to help his daughter than to any inaction in the nature of carelessness or neglect.30 In Cooke J’s view that conduct should not be treated as weighing against the father. Cooke J also considered that if the transaction as between father and daughter were viewed as an imperfect gift, equity would not assist to perfect the gift. Cooke J did not think there
25 Re A Mortgage [1951] NZLR 331 [Pearce to Sansom].
26 Re Dalton [1953] NZLR 167; and Thomson v Commissioner of Stamp Duties [1952] NZLR 39.
27 Re A Mortgage [1954] NZLR 933 [Presland v Death].
28 At 934.
29 At 934.
30 At 934.
was any other method of approach that would in the circumstances justify him treating the inaction of the father as a sufficient reason for exercising the discretion in a manner adverse to him. Accordingly, the application for discharge was dismissed.
[70] Later in Thomson v Inland Revenue Commissioner,31 a majority of a Bench of four Judges of this Court each delivered decisions in which they approved of and applied the approaches taken by Faire J in Re Dalton and Cooke J in Thomson v Commissioner of Stamp Duties and in Re A Mortgage (Presland v Death). Adams J expressed the point in this way:32
…it is desirable to say something about s 43 [of the Statutes Amendment Act 1936]. As between the opposing views which have been expressed by Callan J, on the one hand and by Fair and Cooke JJ on the other, I have no hesitation in adopting the latter.
While Hutchinson J found:33
When s 43 provided that the Court might in its discretion make the orders that, in my view, required that a case be made out by the applicant for the exercise of the discretion. It follows that, in my opinion, the view of s 43 taken by Faire and Cooke JJ is the correct one.
The decision of McGregor J was to the same effect.
[71] Thomson v Inland Revenue Commissioner was about the appropriate valuation for death duties of several registered mortgages when recovery of the secured debts was time barred.34 The facts again involved a mortgagee father and a mortgagor daughter. During his lifetime the father had not enforced the mortgages. Under his will he had forgiven all debts his daughter owed to him, however, a codicil to the will removed the forgiveness of debt provisions. Accordingly, the mortgages were held as assets by his estate and the question was how to value them for death duties, given recovery of the secured debts was time barred.
[72] Each member of the majority was satisfied that the mortgagor/daughter had not discharged the onus of satisfying the Court that equity and good conscience would
31 Thomson v Inland Revenue Commissioner [1955] NZLR 69.
32 At 97.
33 At 88.
34 Thomson v Inland Revenue Commissioner [1955] NZLR 69.
have required discharge of the mortgages in issue.35 Instead, they each found that the mortgage securities retained their value less a discount of 10 percent to reflect the litigation risk of a hypothetical application under s 43 to discharge the mortgage.36 Despite recovery of the secured debt being statute barred the securities remained in existence and in this regard, they were of value. Adams J explained the principle as follows:37
It is not for the mortgagee to show grounds why an order should be refused, but for the applicant to show grounds why it should be granted. This is the general rule where a judicial discretion is conferred, and it applies a fortiori to a discretion of the kind now under consideration. A mortgagee under the Land Transfer Act whose personal remedies have become statute-barred is still the registered proprietor of a mortgage, possessing as such a statutory charge on the land and entitled still to exercise its powers of sale and other powers that have not been extinguished. His rights are unchanged except for the operation of the statute which prevents him for exercising some particular right or rights. Section 43 empowers the Court to destroy his remaining rights and in cases where the mortgage has not in fact been repaid this is a process of expropriation without compensation and to the advantage or for the benefit of an applicant out of whose pocket or out of whose property the mortgage ought to be repaid. There are many cases where it cannot be said with certainty that the mortgage has not been repaid and its survival on the title may be due merely to a careless omission many years before to get it discharged when payment was made. In such cases the making of an order may involve no expropriation. But the jurisdiction is one that must always be exercised bearing in mind the fact that its exercise will or may result in expropriation. I reject emphatically the idea that an applicant is entitled to an order as of right on mere proof of the statutory conditions which give rise to the discretion. Such proof does no more than invest the Court with the discretion and impose upon it the duty of considering how the discretion should be exercised. In my opinion, the Court should never act under the section unless the mind of the Judge is satisfied upon proper material that the order is one that ought in all the circumstances to be made.
[73] The majority also rejected an argument that the intention of the discretion given in s 43 of the Statutes Amendment Act 1939 was to treat mortgages under the Land Transfer Act in the same manner as mortgages under the Deeds Registration Act; the latter were treated as extinguished once the secured debt was statute-barred. This
35 The majority were agreed the evidence showed the mortgagee had not sought to recover interest.
36 Earlier in Thomson v Commissioner of Stamp Duties Cooke J had found that the same mortgage securities could be valued by assuming a hypothetical application for discharge of the mortgages as at the date of the mortgagee’s death and assessing what the outcome of that application might be. The majority in Thomson v Inland Revenue Commissioner approved of this approach.
37 Thomson v Inland Revenue Commissioner [1955] NZLR 69 at 97–98 (emphasis added).
argument was rejected on the grounds it would have been easy for the legislature to provide for that outcome in the Land Transfer Act had that been its intention:38
It was argued that the policy of the legislature was to assimilate Land Transfer mortgages to common law mortgages, merely interposing a discretion which might be exercised in favour of the mortgagee on good cause shown. We are not entitled to speculate as to the motives of the Legislature, and there is nothing of this in the words of the section. If the legislation had been as suggested, I think the wording would have expressed it more clearly.
[74] The above passages from considered decisions of this Court show that the discretion to discharge a Land Transfer Act mortgage was then regarded as having a clear purpose. Further, effluxion of time was then regarded as a threshold condition for when the discretion might be exercised, rather than being a sound reason for exercising this discretion.
[75] In addition to this background, it should also be noted that with the Limitation Act 2010 and the Land Transfer Act 2017 Parliament has chosen to use essentially the same language as appears in the earlier comparable legislation, albeit in a modern form. The Limitation Act 2010 has reduced the recovery period for mortgage debts from 12 years to six years but, as with the earlier legislation, it places no time limit on the exercise of the mortgagee’s power of sale or the retention of a mortgage security. The discretion to discharge once found in s 43 of the Statutes Amendment Act 1943 and then s 112 of the Land Transfer Act 1952, and which is now to be found in s 105 of the Land Transfer Act 2017 is essentially unchanged. There is nothing in the language of s 105 of the present Act that suggests Parliament intended to depart from the legally understood position under the earlier legislation. Accordingly, I am satisfied that I should follow the approach and reasoning of the majority in Thomson v Inland Revenue Commissioner.
[76] It follows that Able Ventures carries the onus of persuading me that the subject mortgages should be discharged, and this requires more than reliance on the secured debts being time barred. However, there is little else that Able Ventures can point to in support of discharge.
38 Thomson v Inland Revenue Commissioner [1955] NZLR 69 at 98 (emphasis added).
[77] The present case is different from Le v Khang, on which the plaintiffs rely. In that case the secured debt had been repaid to the lender.39 The registered mortgagee was not the lender and had refused to co-operate in discharging the mortgage.
[78] Able Ventures argues that it received no funds under the mortgages. That may be. However, the record of activity as shown on the Bain St titles is not consistent with circumstances where Able Ventures held clear titles and the subject mortgages were then secured against those titles without Able Ventures receiving the benefit of any advance under those mortgages. The titles show that the 1993 mortgage held by Mrs Finlay was registered against the Bain St titles when they were held by Matthew Bell. On 16 December 1996, at the same time the 1993 mortgage was discharged the titles were transferred from Matthew Bell to Able Ventures, the 1996 mortgage with Ken Bolt as mortgagee was registered and so was a mortgage to Matthew Bell. Such circumstances could be consistent with Able Ventures receiving the transfer at a value which reflected the presence of the 1996 Ken Bolton mortgage and the fact the indebtedness secured by the 1993 mortgage was not repaid.
[79] The terms on which Matthew Bell transferred the Bain Street titles to Able Ventures are not in evidence. Those terms would be known to the Bells because at the time both were directors of Able Ventures. The Bells have not explained in evidence the basis on which the Bain St titles were transferred from Matthew Bell to Able Ventures, and whether the fact the 1993 mortgage was discharged and the 1996 mortgages were to be registered against those titles was something reflected in the consideration Able Ventures paid for the transfer. If Able Ventures received the titles at a reduced price, because the 1996 Ken Bolton mortgage was to be registered against the titles, it has in this way received a benefit from the mortgage.
[80] Evidence that would explain the basis of the transfer to Able Ventures could have been given by the Bells. Even if records were no longer available they could have given an oral account of what happened. When a party has evidence known to it and it chooses not to adduce this evidence it is open to a Court to conclude the party made its choice because this evidence would not be helpful to its case.40 Here there is
39 Le v Khang [2013] NZHC 2985.
40 Ithaca (Custodians) Ltd v Perry Corporation [2004] 1 NZLR 731 at [152]–[153].
good reason to believe that if, as the Bells depose, Able Ventures did not receive any funds under the 1996 mortgage (or its successors) the Bells have only provided the Court with a partial account of how the company came to have registered mortgages on its titles. Accordingly, I am not prepared to place any reliance on the argument Able Ventures received no money under the mortgages, and therefore no benefit from their registration, as a ground for discharge.
[81] Able Ventures argues that a claim for possession of land is also subject to a 12-year time bar under the Limitation Act 1950. However, this cannot influence whether the subject mortgages should be discharged. Section 7 of the Limitation Act 1950 imposed a 12-year limit on actions to recover land. A mortgagee does not have a right simpliciter to recover possession of the mortgaged land because it never has possession in the first place. The mortgage security is no more than a statutory charge on the title. However, an action by a mortgagee for an order for possession of land could qualify under the extended definition of an action to recover land in s 2(5) of the Limitation Act 1950. Section 2(5) defined references to a right of action to recover land to include the right to enter into possession of the land. Thus, such action by a mortgagee would be subject to the 12-year time bar. In the present case, Ken Bolton’s ability to bring an action to possess the mortgaged land is now time barred.41 However, such action is separate from the right to exercise the power of sale under the mortgage, or the right simply to retain the mortgage security; both of which sit outside either the Limitation Act 1950 or the Limitation Act 2010. In this way Parliament has chosen to make some of the mortgagees’ rights subject to a limitation period, but not others.42
[82] Able Ventures also relies on s 118 of the Limitation Act 1950, which provided that at the expiration of the period prescribed by this Act for any person to bring an action to recover land, the title of that person to the land shall be extinguished.43 This has led Able Ventures to argue that the mortgagee’s “title” has been extinguished, and so there is no security for Ken Bolton to enforce or to assign to the second defendants.
41 The limitation provisions regarding exercise of the right to enter into possession of land are mirrored in s 21(1)(b) of the Limitation Act 2017; unlike with the recovery of secured debts under the current Limitation Act, claims for recovery of land remain subject to a 12 year time limit. Section 4 of the Limitation Act 2017 repeats the extended definition of a claim to recover land to include a claim to a right to possess land.
42 This was referred to by Adams J in Thomson v Commissioner of Inland Revenue at 97–98.
43 This provision is essentially repeated in s 27 of the Limitation Act 2017.
I reject that argument. A mortgagee of Land Transfer land never has any title to that land. The mortgage is a registered statutory charge on the title, but it is not itself a title to the mortgaged land.
[83] It follows that the plaintiffs’ arguments based on ss 7 and 18 of the Limitation Act 1950 fail.
[84] There is nothing else that Able Ventures has relied on for discharge of the subject mortgages.
[85] In line with Cooke J in Re A Mortgage (Presland v Death) I propose first to consider the conduct or inaction of both mortgagor and mortgagee. Regarding the mortgagor here, the obvious point is that it has taken no action whatsoever to repay the secured debt/s. This is not a case like Re A Mortgage (Presland v Death) or Thompson v Inland Revenue Commissioner where the mortgagor and mortgagee were closely related family members. In those cases, the close family connection between mortgagor and mortgagee could explain why the mortgage debts were not paid. Here there is no such available explanation. From the perspective of the Bells and Able Ventures, they have always known there were mortgages registered against the Bain St titles, and that the monies owing under those mortgages have never been repaid. They have offered no explanation for why Able Ventures could expect it would not have to repay those mortgages.44 There is evidence to show there were times when the Bells could not afford to pay their debts, but that is not an excuse for non-payment, nor does it explain why Able Ventures has not repaid the secured debt.
[86] On the other hand, in terms of assessing the mortgagee’s conduct here the case for the mortgagee is being advanced by the second defendants who also seek with their counterclaim either to have the mortgage documents rectified with them being named as mortgagee, or for Ken Bolton to be found to be holding his interests in the mortgages on a constructive trust for the second defendants, who then seek an order that he assign the mortgages to them. From their perspective, the second defendants’
44 At the time the 1996 mortgage was registered both Mr and Mrs Bell were directors of Able Ventures. Later since 2001 Mr Bell has been the sole director/shareholder. The company could only act through its directors which at all times have been either the Bells or solely Mr Bell.
inaction is more understandable than that of the mortgagors. Until such time as they could take Court action against the mortgagors in their own names they were relatively powerless to act. Any action they wanted taken needed to be done through Ken Bolton or they would have needed to bring legal proceedings to have him removed as mortgagee.
[87] When the series of loans to the Bells and subsequently Able Ventures commenced the key players from the perspective of the mortgagees appear to have been Ken Bolton, who was always responsible for preparing the mortgaged documents and Mrs Finlay, who was the mother of Alan Bolton and the grandmother of Ms Miller. It is understandable that Alan Bolton and Ms Miller may have deferred to Mrs Finlay during her lifetime. Why Mrs Finlay allowed Ken Bolton to act in the way he did is something that may not now be known. Towards the end of her life she appears to have realised Ken Bolton was not acting in the best interests of his other family members, but whether she realised that earlier is difficult now to know. As matters stand the current defendants are two family members, who I consider took a back seat (for understandable reasons) in the mortgage transactions earlier on, and the estate of Mrs Finlay.
[88] Turning then to the considerations identified in Thompson v Inland Revenue Commissioner, as was recognised by Adams J, there is a benefit in having a registered mortgage on the title even when recovery of the debt is statute-barred. The right of a registered mortgagee to exercise the power of sale over the registered land cannot be statute barred.45 This is clear from s 19(3) of the Limitation Act 2010, which makes that Act subject to the Land Transfer Act 2017. The same applied under the previous legislation.46 There are also other powers that have not been extinguished, including the control that the registration on the titles gives to a mortgagee over how the mortgagor deals with its land. Such rights remain unchanged. The statutory limitations on commencement of certain legal claims only restrict the exercise of some of the bundle of rights a mortgagee usually enjoys.
45 DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at 15.159.
46 Limitation Act 1950, s 6(2).
[89] I agree with the view of Adams J in Thomson v Inland Revenue Commissioner that where the Court acts to destroy the mortgagee’s remaining rights when he or she has not in fact been paid, this is a process of expropriation without compensation that is to the advantage of, or for the benefit of, the mortgagor applicant, who is the party that should have repaid the mortgage.
[90] From the perspective of the “mortgagee”, which I use to include the second defendants, the presence of the mortgages on the Bain St titles could be viewed as a long-term investment. The usual prompts that cause mortgagees to seek to recover monies owed to them do not appear to have pressed on Mrs Finlay. Such prompts would not press on Ken Bolton because he never advanced any of the mortgage monies. I have already outlined why I consider that Alan Bolton and Ms Miller were more removed, and it may well be that they viewed the mortgages as something from which they might expect in time to receive a benefit. If they became registered mortgagees they would still have the power of sale, which might enable them to recover the monies that remain owing. Further, by simply retaining a registered mortgage the mortgagee enjoys a benefit. Here, while they remain on the Bain St titles, the subject mortgages are a burden for Able Ventures insofar as the company cannot sell the titles, and it may have difficulty raising finance from other potential mortgagees. If the company wants to enjoy the full benefit of the titles it would need to have the subject mortgages removed, which it can do if it repays the mortgage debt. Accordingly, I consider these mortgages are of value to the second defendants, particularly if they are transferred to them.
[91] There is no dispute from the Bells that they initially received monies as a result of the first Pan loan, and they would have avoided repayment of that loan by the creation of the successive loans secured by the mortgages on the Bain St titles. Whether it was proper for the Bells to encumber Able Ventures with secured debts that were a substitute for the earlier debts of the Bells is an issue between the company and its director and former director. It is not a complaint Able Ventures can raise as a reason to deny the second defendants the remaining benefits of the subject mortgages. Nor do I see any reason why the second defendants should not continue to enjoy those benefits.
[92] I have placed no weight on the second defendants’ arguments that: (a) the plaintiffs brought their application without informing the Court of the second defendants’ interests, allegedly encouraging the second defendants to apply to replace Ken Bolton as mortgagee then settle; and (b) the second plaintiffs sought to put property out of reach of creditors. These arguments appear to be addressed at the conduct of the Bells in their personal capacities rather than at Able Ventures and Mr Bell as its director. They also raise matters that are not directly relevant to the weighing of the equities identified in the earlier case-law that I have followed.
[93] It is clear from the earlier case law that it is for the applicant for an order discharging registered Land Transfer Act mortgages securing time barred debts to persuade the Court they should be discharged. Effluxion of time is not a reason for discharge. Able Ventures has not persuaded me to do so. I find the relevant factors identified above weigh against discharge.
[94]Accordingly, the application for discharge is dismissed.
Issue 3: Should the 1996 and 2005 mortgages be rectified?
[95] The second defendants seek rectification of the mortgages. While the second defendants’ statement of counterclaim only refers to the 1996 mortgage and the 2005 mortgage, their submissions state that “if rectification and/or a declaration of constructive trust is given in respect of the 1996 mortgage, it must also be given for the 2001 and 2005 mortgages”. It appears the omission of the 2001 mortgage from the counterclaim may have been in error.47
[96]Rectification requires:48
(a) The parties to the mortgage had a common continuing intention in respect of a particular matter in the instrument to be rectified;
(b) There was an outward expression of accord;
(c) The intention continued at the time of the execution of the instrument to be rectified;
47 If the omission of the 2001 mortgage from the counterclaim was an error the second defendants have leave to apply to the court to correct the error.
48 Chartbrook Ltd v Persimmon Homes Ltd [2009] 4 All Er 677 at [48] (HL) as applied in Davey v Baker [2016] NZLR 776 at [37].
(d) By mistake, the instrument did not reflect the common intention.
[97] The second defendants submit that the common prior intention of the parties was for the mortgagee to be the persons that loaned the money. Ken Bolton was initially acting as an agent for the second defendants, and the plaintiffs understood this. He never took an assignment for any loan as the plaintiffs suggest. The plaintiffs always understood the loans and mortgages to be related to the original loan plus capitalised interest. The plaintiffs’ denial that they owe Ken Bolton money is inconsistent with their statement that Ken Bolton was the mortgagee.
[98] Here the asserted mistake is Ken Bolton’s deception. The second defendants submit that Haira v Burbery Mortgage Finance & Savings Ltd is in support on this point, and in the context of equity the Court should not take a narrow interpretation.49
[99] Further, the second defendants submit the plaintiffs previously agreed to rectification by encouraging the second defendants to make an application to the court to achieve it, which included reviewing the second defendant’s affidavits and offering to provide evidence in support. The plaintiffs would otherwise support rectification, but they have opportunistically pursued discharge to avoid paying the loan.
[100] The plaintiffs submit there was a conscious and deliberate agreement that Ken Bolton would be named the mortgagee. Ken Bolton explained to the Bells that he was “taking over” the debt from his family.
[101] Second, the plaintiffs submit that Able Ventures has indefeasible title over 23 Bain St. It would be beyond the scope of rectification to encumber its title with a mortgage that was not one to which it had agreed.
[102] Third, the plaintiffs submit there is no basis for saying the second defendants had a common intention with Ken Bolton. Ms Miller’s evidence does not assist as she was not a party to any of the discussions with the Bells about the loans and mortgages. Because the second defendants have the onus of proof, their claim must fail.
49 Haira v Burbery Mortgage Finance & Savings Ltd [1995] 3 NZLR 396.
Discussion
[103] I am not prepared to order rectification. To do so, I would need to be satisfied Alan Bolton, Rachel Miller and the late Mrs Finlay intended to be recorded as mortgagees. However, those persons were never all recorded as lender/mortgagee. From the outset, the mortgage documents have never recorded the names of all persons who were advancing the funds. The original loan recorded Ms Miller only as mortgagee, when clearly on all parties’ accounts the funds came from Mrs Finlay, Alan Bolton and Ms Miller. The 1993 and mid-1996 mortgage recorded Mrs Finlay as lender/mortgagee, when that mortgage secured a substitute debt for the 1992 loan. At all times the apparent intention was to not include all lenders in the loan/mortgage documents.
[104] Against that background I am not prepared to say the 1996 and 2005 mortgages (being the only mortgages subject to the request for rectification) should be rectified by removing Ken Bolton’s name and replacing it with the names of the second defendants.
Issue 4: Should a constructive trust be granted over the 1996 and 2005 mortgages?
[105] The second defendants seek a declaration that Ken Bolton was acting as constructive trustee in respect of the 1996 and 2005 mortgages and an order requiring Ken Bolton to transfer the mortgages to them. Again, it appears the 2001 mortgage has been omitted from the counterclaim.
[106] The second defendants submit that Ken Bolton acted as an agent and breached his fiduciary duties as such agent by fraudulently conveying the mortgage to himself. An agent who refuses to reconvey land to the principal will be treated as holding property on trust. A constructive trust will arise where a fiduciary fraudulently conveys land (including an interest in land) to himself where it was intended by the parties to be held on behalf of the principal. In such circumstances, the second
defendants submit equity will intervene to prevent the defendant from fraudulently reneging on their undertaking.50
[107] The second defendants say Ken Bolton acted fraudulently when he discharged Ms Finlay’s mortgage in 1996. Ms Finlay has no recollection of signing the document and had no contact with Ken Bolton between 1996 and 1998. He again acted fraudulently by registering the subsequent mortgage in his own name, despite the mortgage securing no more than the original loan given by the second defendants plus interest. Further he refused to reconvey the mortgages to the second defendants when asked in 2019.
[108] The Bells say they understood that prior to 1996 they were dealing with the Bolton family through Ken Bolton. However, in 1996 when the loan and mortgages changed into Ken Bolton’s name, they believed his explanation that he was taking over the debt. Additionally, they say the second defendant’s remedy is against Ken Bolton. The Bells and Able Ventures were not parties to any suggested fraud, nor is there any suggestion by the second defendants that they were.
[109] Even if the second defendants have a beneficial interest in the subject mortgages, the plaintiffs say that interest is worthless to the second defendants. It is unregistrable and they do not have any of the powers of the registered mortgagee. If the Court orders Ken Bolton to transfer the mortgages, the second defendants would receive time-barred mortgages. Additionally, the plaintiffs argue Ken Bolton’s title has been extinguished by s 18 Limitation Act 1950 and he could not in any case follow the order.
Discussion
[110] It is common ground that Ken Bolton acted as the agent for Mrs Finlay, Alan Bolton and Ms Miller in relation to the first three mortgages (1992, 1993 and July 1996). The funds came from those persons. It is also common ground that the only advance made to the Bells was the original advance in 1992. After that, their
50 Charles Rickett and Jessica Palmer “Constructive Trust” in Peter Blanchard (ed) Civil Remedies in New Zealand (online ed, Thomson Reuters) at [51.10.2.3], citing for example Rochefoucauld v Boustead [1897] 1 Ch 196.
indebtedness under subsequent loans/mortgages increased only because they never paid any of the principal or interest owing under earlier loans. Thus, each successive mortgage recorded a higher sum which reflected the original advance plus capitalised interest.
[111] There is no evidence before me that Alan Bolton and Ms Miller, together with the late Mrs Finlay, either jointly or severally assigned their rights as lenders/mortgagees under the earlier mortgages to Ken Bolton. The evidence suggests that in late 1996 Ken Bolton substituted himself for Mrs Finlay as mortgagee. Until then she would have held the mortgage on trust for herself, Alan Bolton and Ms Miller. This would have been known to Ken Bolton because from the outset he was responsible for preparing the mortgage documentation. There is also no evidence to suggest that this valuable interest was ever transferred or assigned to Ken Bolton.
[112] How Ken Bolton represented himself to the plaintiffs from 1996 onwards cannot detract from the strong grounds for finding he holds the mortgages from that time on trust for the second defendants. Ken Bolton has not participated in these proceedings, and therefore he has provided no evidence or argument to contradict the second defendants’ case.
[113] Accordingly, the second defendants have satisfied me that Ken Bolton held the mortgagee’s interest in the subject mortgages on trust for the second defendants. I find they are entitled to the declaration they seek. There is no prejudice to the plaintiffs with this declaration and they accept that.
[114] After the hearing of these proceedings counsel for the plaintiffs filed a memorandum seeking to clarify a matter concerning the second defendants’ constructive trust claim. At the end of the hearing I had asked the plaintiffs if they had any objection to the relief sought by the second defendants in their counterclaim. Counsel confirmed that the plaintiffs had no objection to a declaration of constructive trust being made against Ken Bolton in favour of the second defendants, if I were satisfied all elements of the claim were proven. I was advised that the plaintiffs understood and accepted that such declaration may assist the second defendants in
pursuing Ken Bolton for alternative remedies, and they did not wish to stand in the way of any such recovery action by the second defendants.
[115] However, on reviewing matters the plaintiffs altered their position. The relief the second defendants seek is:
(a)a declaration that Ken Bolton is registered as the mortgagee of mortgages B.388436.5 and M6484677.2 as constructive trustee for the second defendants; and
(b)an order requiring Ken Bolton to transfer those mortgages to the second defendants.
[116] The plaintiffs’ position now is that they would consent to the declaration, but not the order. They consider the order would directly impact on them as it is essentially the same as the rectification claim but by an alternative route. I agree that in substance the order would have the same effect as rectification.
[117] However, the refusal to grant the discharges that Able Ventures seeks recognises the subject mortgages have real value for the second defendants. In such circumstances I consider they should have control of those mortgages. Ken Bolton has shown himself to be a man of straw. His actions have adversely affected the second defendants. Registering himself as mortgagee may have been no different from the use of Mrs Finlay as mortgagee on behalf of others as well as herself. But that would only be if Ken Bolton had then acted in the best interests of the persons who had actually advanced money under the first loan (only for it to be replaced with successive loans/mortgages). That is not how he acted.
[118] The evidence shows that Ken Bolton has not over the years acted in the best interests of the second defendants or the late Mrs Finlay. His failure to participate in these proceedings can be taken to indicate he could not have given evidence that was helpful to himself. This suggests he has no defence to the adverse claims made about his conduct. Based on the available evidence I consider he should be removed as mortgagee by the Court ordering him to transfer the mortgages to the second
defendants. This may mean Able Ventures is faced with mortgagees who decide to take an active interest in their rights under the mortgage/s however that is an outcome that is not unfairly prejudicial to the plaintiffs. It may also mean the second defendants examine whether there is an argument the personal covenants given by the Bells under the mortgages have been re-invigorated by any acknowledgements of liability to pay that they may establish against the Bells. These outcomes are the typical outcomes of mortgaging land, they cannot be regarded as prejudicial to the plaintiffs.
Final matters
[119] In this judgment I have refused to discharge the subject mortgages. The plaintiffs sought discharge of those mortgages and the defendants opposed that outcome. No one directly addressed whether mortgages other than the 2005 mortgage should be discharged on the ground the debt secured by the 2005 mortgage was a substitute for the debts secured by the earlier mortgages. I am not prepared to address whether discharge of the 1996 mortgage would be appropriate (for instance, because the 2005 mortgage now secures a new substitute debt which in law means the earlier secured debt has been repaid) without hearing from the parties on that subject. Accordingly, I reserve leave under this judgment for the parties to return to Court to address that matter.
[120] Additionally, as I have mentioned, there appears to be an inconsistency between the second defendants’ statement of counterclaim and their submissions regarding the 2001 mortgage. I cannot see any reason on the face of things why the 2001 mortgage has been so omitted, but I hesitate to grant a constructive trust over a mortgage where it has not been pleaded. I therefore also reserve leave for the second defendants to seek a declaration that Ken Bolton holds a constructive trust over the 2001 mortgage and an order that he transfer it to them.
Result
Plaintiffs’ claim
[121] The secured debts Able Ventures owe under mortgages B.388436.5, B674837.1 and M6484677.2 are now statute barred. No claims for recovery or payment of those loans can now be brought.
[122] The application to discharge mortgages B.388436.5, B674837.1 and M6484677.2 is declined.
Second defendant’s counterclaim
[123]The application to rectify mortgages B.388436.5 and M6484677.2 is declined.
[124] A declaration is made that Ken Bolton is registered as the mortgagee of mortgages B.388436.5 and M6484677.2 as constructive trustee for the second defendants.
[125] An order is made requiring Ken Bolton to transfer mortgages B.388436.5 and M6484677.2 to the second defendants.
Other matters
[126]The parties have leave to file memoranda on costs.
[127] The second defendants have leave to address the omission of mortgage B674837.1 from the relief they have sought.
Duffy J
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