Advanced Design and Build Limited v Porter
[2021] NZHC 2889
•28 October 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000823
[2021] NZHC 2889
UNDER the Land Transfer Act 2017 BETWEEN
ADVANCED DESIGN AND BUILD LIMITED
Applicant
AND
ANDREW ROBIN PORTER, MELISSA CAROL PORTER and KNOBLOCH
TRUSTEES NUMBER 8 LIMITED
Respondents
Hearing: 6 September 2021 Appearances:
L Turner for the Applicant
N G Lawrence for the Respondents
Judgment:
28 October 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 28 October 2021 at 4.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Martin Fine Business Law, Hamilton Whaley Garnett, Auckland
R J Hollyman QC, Auckland
ADVANCED DESIGN AND BUILD LTD v PORTER [2021] NZHC 2889 [28 October 2021]
Introduction
[1] This is an application to sustain a caveat registered against 29 Roseneath Road, Karaka (Roseneath Road).1 The property is owned by Melissa and Andrew Porter, and Knobloch Trustees Number 8 Ltd (together, the Trust). The applicant caveator is a design and build construction company, Advanced Design and Build Ltd (ADBL).
[2] ADBL was engaged to build a residential dwelling at Roseneath Road for the Trust. Construction reached practical completion, and the Porters now live in the dwelling. However, the Trust has not paid a sum which ADBL says is owing under the building contract. ADBL has responded by lodging a caveat, claiming an interest in Roseneath Road in the following terms:2
Pursuant to an agreement to mortgage dated the 31st day of March 2017 in respect of the land contained in the above certificate of title and made between Andrew Robin Porter and Melissa Carol Porter on behalf of the registered proprietors, as mortgagor and the abovenamed caveator as mortgagee.
[3]The issues to be determined are accordingly:
(a)Does ADBL have a reasonably arguable interest in Roseneath Road to sustain a caveat? The basis for the caveat is ADBL’s claimed interest in the property pursuant to an agreement to mortgage, said to be contained within the contract between the parties. Whether the contract does in fact represent a caveatable agreement to mortgage is the crux of this application.
(b)If ADBL has a reasonably arguable interest in Roseneath Road, should the Court exercise its residual discretion to remove the caveat?
(c)If ADBL’s caveat is sustained, should this be subject to conditions?
[4] An application to sustain a caveat is determined on a summary basis in which the Court has regard to the following principles:3
1 Pursuant to s 142(3) of the Land Transfer Act 2017.
2 Caveat 11256527.1 registered on 12 October 2018.
3 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. See also Philpott v Noble Investments Ltd [2015] NZCA 342.
(a)The applicant caveator bears the onus of presenting a reasonably arguable case that they have an interest in the land sufficient to support a caveat. However, they need not establish that definitively.
(b)An order for a caveat’s lapse will only be made if it is obvious it cannot be maintained — either because there was no valid ground for lodging it in the first place or, alternatively, because such ground has now ceased to exist.
(c)A conflict between affidavits will generally be resolved in the caveator’s favour.4 The process by which these applications are determined is ill-suited to resolving disputed questions of fact. However, the Court is not bound to accept uncritically statements in an affidavit that are equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable.5
(d)Where the applicant has discharged its burden, the Court retains a residual discretion to remove the caveat. The Court will exercise this discretion cautiously and must be completely satisfied removal would not prejudice the caveator’s legitimate interest.6
Does ADBL have a reasonably arguable interest in Roseneath Road to sustain a caveat based on an agreement to mortgage?
[5] The agreement to mortgage referenced in the caveat forms part of a building contract signed by the parties on 31 March 2017 (the Building Contract). The Building Contract provided that ADBL would construct a residential dwelling at Roseneath Road for $2,196,487.07. Pursuant to an addendum,7 the Trust was to fulfil certain objectives, including supplying and erecting all structural steel for the project.
4 Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.
5 Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175, citing Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC 331 (PC) at 341; Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
6 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
7 Also dated 31 March 2017.
[6] Section 12 to the Building Contract governs the payment and adjustment of the contract price. It includes the following provisions:
12.3 Failure to pay progress claims
Should the Owner fail to pay the Builder in accordance with the provisions of clauses 12.1 or 12.2 [which refer to the Payment Schedule] then the Builder…shall be entitled to charge interest at the rate stated in Item I of the Specific Conditions of Contract8 compounding daily upon all overdue payments from the due date until the date of payment whether or not judgment has been issued…
…
12.5Form of securities
The Owner agrees to charge its interest in the land comprising the Site as security for the payment to the Builder of all moneys payable under this Agreement.
To give effect to this clause 12.5, the Owner hereby irrevocably nominates and appoints the Builder to be the attorney of the Owner for the purposes of giving and executing in favour of the Builder a registrable memorandum of mortgage over the Site (on the then current Auckland District Law Society…All Obligations form) to secure the amount outstanding from time to time to the Builder under this Agreement. The Owner acknowledges that the appointment of the Builder to be [the] Owner’s attorney is made for valuable consideration and is irrevocable.
12.6Costs
The Builder shall be entitled to recover from the Owner, on an indemnity basis, all costs and expenses (including legal costs on a solicitor/client basis) incurred in connection with the recovery of any amount due and payable by the Owner under the Building Contract including, without limitation, all costs and expenses incurred:
(a)repossessing and/or selling any goods or materials;
(b)registering any memorandum of mortgage or caveat; and
(c)in relation to any court proceedings.
[7] The works began around April / May 2017. There were delays, for which each party considers the other responsible. The parties agreed to a mediation with the Master Builders Association, however it ended without resolution in August 2018. By mid-October that year, ADBL had lodged the caveat.
8 Item I of the Specific Conditions of Contract specifies that Interest on Overdue Payments is to be 15 per cent per annum compounding daily.
[8] On 15 November 2018, ADBL advised that Practical Completion had been achieved, that interest would accrue under the Building Contract on unpaid amounts, and that the caveat would remain on the title until the outstanding disputes between the parties were resolved.
[9] The parties eventually agreed that the Trust would take possession of Roseneath Road with a specified amount outstanding ($47,298.20), on the basis that it would be resolved by later agreement or dispute resolution. The outstanding amount was for specific items and was recorded in a spreadsheet exchanged and discussed between the parties. The Trust paid the balance, leaving the agreed amount outstanding. ADBL and the Trust’s solicitor met on 14 February 2019 but did not resolve most of the outstanding disputes.
Submissions
[10] Mr Turner, for ADBL, submits that the Building Contract clearly provides an agreement to mortgage that is not conditional on further agreement by the Trust or anything else. He submits cl 12.5 does not require any request to be made by ADBL and ADBL is not dependent on any other person to effect the mortgage. Nor, he submits, does ADBL have to await the occurrence of some event as a precondition to the right accruing. Clause 12.5 is an agreement to mortgage with no relevant conditions. Such a right may be protected by a caveat.
[11] Mr Lawrence, for the Trust, submits that cl 12.5 does not provide for a caveatable interest because the interest is contingent on the execution of a mortgage in the appropriate ADLS form and there being an amount owed to the applicant. More specifically, Mr Lawrence submits:
(a)The courts will take a strict approach to enforcing contractual provisions granting security, as such provisions can impose onerous restrictions.9
9 He cites Brougham v Regan [2020] NZSC 118, [2020] 1 NZLR 315.
(b)The first paragraph of cl 12.5 does not contain an express reference to an agreement to grant a mortgage; it states the owner agrees to charge its interest in the land comprising the site (Roseneath Road) as security. He contrasts this to the caveats addressed in Topa Partners Ltd v JWL International Ltd10 and Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd.11
(c)An equitable mortgage only arises where the agreement to mortgage is capable of specific performance. The first paragraph of cl 12.5 is the only part of the clause capable of being interpreted as an agreement to mortgage, and it is not capable of enforcement by specific performance because it is conditional on the second paragraph.
(d)Where an agreement to mortgage is subject to conditions, there may not be a caveatable interest until the conditions are satisfied.12 The first paragraph of cl 12.5 is conditional on the second paragraph, as signalled by the words “To give effect to this clause 12.5…”. Any security interest in cl 12.5 is therefore ineffective unless the two conditions in the second paragraph of cl 12.5 are met.
(i)The first condition is the execution and registration of a memorandum of mortgage on the ADLS All Obligations form. This condition has not been fulfilled. The requisite mortgage form is not in evidence and, as the caveat instrument itself refers to the Building Contract containing the mortgage, it is clear no mortgage was ever executed in the required form.
(ii)The second condition is that there is an amount outstanding. This condition has not been fulfilled either. The parties’
10 Topa Partners Ltd v JWL International Ltd [2020] NZHC 182, (2020) 21 NZPCR 591 at [28].
11 Pacific Homes, above n 6.
12 Topa, above n 10.
agreement that the retained sum is in dispute undermines any suggestion that there is an amount “outstanding”. While this second condition appears similar to the claimed condition in Topa, this condition is distinguishable because ADBL agrees that the amount outstanding is disputed and requires further agreement or resolution.
Agreements to mortgage – legal principles
[12] Before addressing these submissions, I will discuss some of the key decisions that have considered agreements to mortgage giving rise to equitable interests in land.
[13] An equitable mortgage of land transfer land confers on the mortgagee an equitable interest in the land that will support a caveat.13 Two common kinds of equitable mortgage are agreements to mortgage and unregistered memoranda of mortgage. An agreement to mortgage is essentially a contract to grant a registrable mortgage. The mortgagee can obtain a registrable mortgage by enforcing the contract.14
[14] In Somme Ltd v Central House Movers Ltd,15 Kós J discussed at length how an agreement to mortgage can give rise to a caveatable interest in land. In that case, Central House Movers Ltd (CHML) supplied and moved four houses to Vakamon Ltd. Vakamon only paid one third of the price. CHML and Vakamon signed a “Deed of Acknowledgement of Debt” prepared by Vakamon’s solicitors. The solicitors’ letter stated that the signed deed “will provide [CHML] with security over the property concerned”. The letter later referred to execution “creating the right to the security offered”.
[15] The deed actually provided that, when the property was subdivided, CHML would be entitled to place caveats on each of the subdivided titles on which the four houses were located. The deed said:
13 Neil Campbell Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at [10.009].
14 Campbell, above n 13.
15 Somme Ltd v Central House Movers Ltd [2012] NZAR 295 (HC).
[Vakamon] agrees that once the land at 141B No 3 Line, Wanganui, is subdivided into separate titles that [CHML] would then be entitled to register a caveat against the titles on which each of the four houses are located and the debtor agrees to enter into an agreement to mortgage so as to provide that security.
…
The parties acknowledge that no such caveat should be lodged until such time as the subdivision has been completed so as to avoid any delay or stopping of any such subdivision.
[16] Vakamon did not subdivide the property, but instead sold it to Somme Ltd. CHML removed three of the four houses. Somme sued CHML for trespass and conversion. One of CHML’s defences was that the houses, as fixtures, were subject to a security interest given by Vakamon in the Deed of Acknowledgment of Debt.
[17] So, Kós J was presented with a situation where the debtor’s agreement to grant a mortgage, and the creditor’s right to register a caveat against the titles, was dependent on the debtor completing a future objective, the subdivision of land. It was the debtor’s obligation, and within the debtor’s control, to fulfil the objective.
[18]Kós J said:
[70] In my opinion it is arguable that the deed of acknowledgment of debt in this case had the effect of creating an equitable mortgage, at least at the point at which Vakamon repudiated its obligation to seek subdivision consents and instead opted to negotiate with Somme.
[71] First, as in Cantab Management,16 it is clear that the deed related to specific land. The relevant property was clearly identified.
[72] Secondly, the draftsman’s letter accompanying the deed told CHML the document would “provide security over the property concerned”. A conditional right to caveat the land was conferred by the deed. The deed referred on two occasions to the future entry into an “agreement to mortgage”…
…
[74] [T]hirdly and fundamentally, I do not think it consonant with Equity for the debtor to be able to simply defeat the conditional right to security, by sale. Equity’s response in this respect will depend on the conduct of the debtor (and its transferee) … Where… the debtor contrives to defeat the nascent equitable interest by transfer, it does not seem to me right that the debtor can just thumb its nose at the creditor and say, “the condition for grant of a
16 Cantab Management Ltd v Greagh Investments Ltd HC Hamilton M95/02, 20 November 2002.
mortgage has not occurred”. That would be to allow the debtor to rely on, and profit from, its own wrong. Action to defeat the condition should mature the condition.
[75] Had CHML been aware of the turn of events (sale, not subdivision), it would have been entitled to call for the mortgage and to caveat the property in the meantime. This is no more than Equity deeming done that which ought to be done.17 A caveat lodged in these circumstances would likely have survived attack. And at the very least CHML would likely have been entitled to injunctive relief.
[76]Support for this approach is found in the Court of Appeal decision in
Bevin v Smith.18 …
“We agree with the recent Australian authorities19 to the effect that the equitable estate passes when equity will, by injunction or otherwise, prevent the vendor from dealing with the property inconsistently with the contract of sale, i.e. inconsistently with the purchaser's contingent ownership rights.”
…
[77] …[T]he same approach should be taken where the Court is dealing not with a conditional contract of sale (or option to purchase), but an agreement to grant a mortgage. Hitherto in such a case the availability of specific performance has been seen to be the pre-condition for passage of an equitable interest.20 But the true talisman is surely…the ability to secure protection by any equitable remedy, including injunction. It is only if Equity would not provide protection that the putative mortgagee should be regarded as bereft of an equitable interest.
[78] Of necessity, that will require a fine-grained factual assessment. In most circumstances, a transfer calculated to defeat a condition precedent to the grant of security should command injunctive relief…
[19] Associate Judge Paulsen referenced Somme in Topa Partners Ltd v JWL International Ltd.21 Topa had agreed to undertake electrical works pursuant to a building contract with JWL for the motel, hotel and restaurant JWL was constructing at Salisbury Street, Christchurch. When JWL disputed Topa’s invoices, Topa lodged a caveat against the certificate of title for the site. It claimed an interest “by virtue of an equitable charge and agreement to mortgage” in the building contract. Judge Paulsen heard the application that its caveat not lapse.
17 See Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (PC) at 4.
18 Bevin v Smith [1994] 3 NZLR 648 (CA) at 665.
19 Legione v Hateley (1983) 152 CLR 406 (HCA); Stern v McArthur (1988) 165 CLR 489 (HCA) at 522.
20 See [64].
21 Topa, above n 10, at [28].
[20]The building contract provided, relevantly:
10.1[JWL] grant[s] [Topa] a registrable mortgage over the Property to secure any amount owing under this Agreement. Such mortgage is to be in a form of an all obligations mortgage produced by the Auckland District Law Society and approved by the Registrar General of Land. [Topa] do[es] not require [JWL] to sign a registrable Memorandum of Mortgage unless [JWL] fail[s] to pay any amount due under this Agreement by the Due Date …
10.2For the purposes of giving and executing such a mortgage pursuant to this clause, [JWL] hereby irrevocably appoint[s] [Topa] to be [JWL’s] attorney …
10.3[Topa] may register a caveat against the title of the Property pursuant to the agreement to mortgage contained in this clause if [JWL] fail[s] to pay any amount due under this Agreement by the Due Date …
(Emphasis added).
[21] JWL argued that the sentences emphasised rendered the agreement to mortgage (and Topa’s right to lodge a caveat) conditional upon JWL having first failed to pay an amount due under the contract. JWL said that condition had not been satisfied because Topa’s invoices were not issued as payment claims under the contract, so when Topa lodged its caveat, there were no amounts due by JWL to Topa. Judge Paulsen rejected that argument:22
The scheme of clause 10.1 is plain. The first sentence is an immediate grant by JWL to Topa of a registrable mortgage of Salisbury Street. It is forward looking and secures amounts that will be owed to Topa for work to be performed. The second sentence describes the form of the registrable mortgage. It will be an all obligations mortgage in the Auckland District Law Society form as approved by the Register General of Land. The third and fourth sentences are the mechanism for the creation, execution, and registration of the security.23 The third sentence provides that JWL will only be required to sign a Memorandum of Mortgage in registrable form if it defaults in the payment of money due under the building contract. Related to this, should JWL not sign a registrable Memorandum of Mortgage when required to do so Topa has the power under clause 10.2 to do so as its attorney. Understood in this way, the third sentence does not impose any condition upon the first sentence. The first and third sentences deal with entirely different matters.
[22] Further, Judge Paulsen found that insofar as the building contract conferred a caveatable equitable interest on Topa in Salisbury Street, cl 10.3 was otiose. It did not
22 At [37].
23 Pacific Homes, above n 6, at 657.
render conditional JWL’s grant to Topa of a registrable mortgage. It was permissive and appeared to contemplate that Topa may lodge a caveat should JWL default in payment. It did not purport to deprive Topa of its right to lodge a caveat in other circumstances.
[23] Judge Paulsen also discussed Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd.24 There, Pacific Homes applied for the removal of a caveat lodged by Consolidated Joineries Ltd (CJL) against parcels of land belonging to Pacific Homes.
[24] CJL was owed a sum for kitchen joinery supplied to Pacific Homes. It claimed a caveatable interest in the land in reliance on conditions of sale that provided:
[CJL] shall be entitled to reasonable security from [Pacific Homes] in respect of any amounts which become overdue to [CJL] and [Pacific Homes] hereby grants a registrable mortgage over any land owned by [Pacific Homes] into which products of [CJL] have been incorporated in breach of these conditions and where products are incorporated into land not owned by [Pacific Homes] over any land which is owned by [Pacific Homes] and/or debenture and/or chattel mortgage to [CJL] on terms identical to those for the time being standard to the Auckland District Law Society, in respect of all amounts overdue for a period of more than 14 days …
[25] The Court of Appeal found that the conditions were enough to confer on CJL an equitable interest capable of supporting a caveat because:25
… Supplies are contemplated to be afterwards made by [CJL]. Where “in breach of these conditions” the joinery becomes a fixture on Pacific Home’s land there is to be a mortgage of that land. Where joinery becomes a fixture on land not owned by Pacific Homes then there is to be a mortgage over “any land” owned by Pacific Homes… The futurity of the provision can be seen from its context, especially the next sentence which contains a mechanism for the creation, execution and registration of a security, obviously one in registrable form, and from the expression “where products are incorporated”. Another indicator is the reference to granting a registrable mortgage itself. The conditions were obviously not in a form capable of registration under the Land Transfer Act 1952. It cannot have been thought by the draftsperson that they would themselves suffice as a registrable security. When the conditions speak of the granting of a mortgage over land owned by the purchaser, Pacific Homes, it amounts to an agreement to grant a mortgage in registrable form if the contemplated circumstances arise at a later time.
Such an agreement to mortgage land is sufficient to give rise to an equitable interest which will support a caveat. Accordingly, on a proper construction of the conditions there is a reasonable basis for [CJL]’s claimed interest.
24 Pacific Homes, above n 6.
25 At 657.
The present case
[26] Applying these principles to this case, it is my view that the correct interpretation of cl 12.5 is as follows. By the first paragraph, the Trust unconditionally agreed to grant a registrable mortgage to ADBL to secure the Trust’s payment to ADBL of all monies payable under the Building Contract. Although the agreement within cl 12.5 was of immediate effect, it was forward-looking in the sense that the mortgage was to secure amounts that would become payable under the Building Contract in the future. Obviously, when the Building Contract was agreed, no amounts were payable as the work had not yet commenced.
[27] The second paragraph of cl 12.5 described the form that the registrable mortgage would take (an ADLS All Obligations mortgage) and conferred on ADBL the right to execute the registrable memorandum of mortgage as attorney for the Trust. This second part of cl 12.5 is not a condition to the first. It concerns the means by which ADBL could enforce the agreement between the parties in the first part, to obtain a registrable mortgage.26
[28] Therefore, an equitable mortgage capable of supporting a caveat arose immediately on the execution of the Building Contract, as the contract included an agreement to mortgage.
[29] I now respond to the Trust’s specific submissions. First, I do not consider that the absence of express reference to the word “mortgage” in the first paragraph of cl
12.5 is significant. It is clear from the second paragraph that the agreement in the first paragraph was able to be given effect to by a registrable mortgage. Plainly therefore, the subject of the agreement in first paragraph is also a mortgage. Further, even if the first paragraph of cl 12.5 did not give rise to an equitable mortgage (and I have found that it did), it would still give ADBL a caveatable interest in Roseneath Road by way of an equitable charge. An equitable charge is a security conferring an equitable interest in land that is not capable of registration, but nonetheless creates an interest that will support a caveat.27
26 Campbell, above n 13.
27 Campbell, above n 13.
[30] Second, the characterisation of the second paragraph of cl 12.5 as a condition on the first paragraph is misconceived. An equitable mortgage, arising out of an agreement to mortgage, is by its nature not a registrable mortgage. It is Equity’s way of recognising and protecting an interest in land in the absence of a registrable legal instrument. It makes no sense therefore to contend that an agreement to mortgage, and therefore the equitable interest capable of sustaining a caveat, is conditional upon the execution of a registrable legal instrument.
[31] The cases addressing conditional agreements to mortgage have been concerned with situations where the debtor agrees to grant a mortgage on some future event, typically when requested to do so by the creditor.28 The relevant agreements in these cases clearly spell out that they constitute rights to request a mortgage, as opposed to agreements to mortgage: in Philpott v NZI Bank Ltd, the agreement included the words “on request”;29 and in Lakeside Estate Ltd (in rec) v Bright, the agreement specified “if called on by”.30 Just as Master Faire distinguished these cases from Cantab Management,31 I distinguish them from this case. Here, ADBL does not need to request anything further of the Trust. It is not an agreement to grant a mortgage on request. To borrow Master Faire’s words, “the agreement is what it says it is, an agreement to grant a mortgage.”32
[32] Nor is this a situation akin to Somme, where the contract expressly said that the right to lodge a caveat did not arise until a specific event happened. This was signalled by the clear words in that case, “once the land at 141B No 3 Line, Wanganui, is subdivided”, absent from this one.
[33] As to the submitted second condition, being that there must be an “amount outstanding” before a security interest accrues, that fails for two reasons. First, it is wrong to characterise that as a condition on the agreement to mortgage. As I have said, the agreement to mortgage was of immediate effect and was intended to cover
28 Philpott v NZI Bank Ltd (1989) 1 NZConvC 190,246 (CA); Lakeside Estate Ltd (in rec) v Bright HC Auckland CP 598/00, 26 September 2001. See also the discussion in Somme, above n 15, at [65].
29 Philpott v NZI Bank Ltd, above n 28: cl 7.01 of the Banking Terms Conditions Precedent.
30 Lakeside Estate Ltd, above n 28, at [5]: cl 2 of the agreement.
31 Cantab Management, above n 16, at [43]–[44].
32 Cantab Management, above n 16, at [45].
all future amounts payable under the contract. The agreement is not conditional on amounts becoming payable. Of course, if no amounts ever became payable, there would be nothing for the equitable mortgage to secure.
[34] Second, the suggestion that outstanding amounts that are in dispute are excluded from the security lacks commercial reality. This argument was made in Topa and rejected by Judge Paulsen: that construction of the contract would have deprived Topa of its security if JWL disputed its payment claims, until the dispute had been adjudicated. Judge Paulsen said that it would be incongruent if Topa, when most vulnerable and in need of its security, was prevented from relying on it. I agree with his observation, and with the submission made by Mr Turner on this point. It would be absurd if the security was only to apply to amounts invoiced which the payer did not dispute but did not pay; or to disputed invoices but only after the disputes were adjudicated. That would substantially undermine the purpose of the clause.
[35] Finally, to the Trust’s submission that an equitable mortgage does not arise because the agreement to mortgage, if there is one, is not capable of enforcement by specific performance, this requirement was softened by Kós J in Somme. Recall his conclusion that “the true talisman is… the ability to secure protection by any equitable remedy, including injunction. It is only if Equity would not provide protection that the putative mortgagee should be regarded as bereft of an equitable interest”. Furthermore, the agreement to mortgage was unconditional; and therefore, conceivably enforceable by specific performance.
[36] If the contract conferred an unconditional agreement to mortgage, as I have found that it did, I can see no reason why Equity would not prevent the Trust from dealing with the property inconsistently with ADBL’s interest.
Should this Court exercise its residual discretion to remove the caveat?
[37] Mr Lawrence submits that even if ADBL has a caveatable interest, the Court should exercise its residual discretion to remove the caveat because:33
33 Notice of Opposition, dated 4 June 2021.
(a)ABDL has not advanced recovery of the amounts it says are owing after more than two years;
(b)there is no suggestion that the Trust is impecunious;
(c)the caveat should not be allowed to remain indefinitely in circumstances where ADBL has not pursued recovery of the amount it says is outstanding;
(d)the caveat is being used by ADBL as a bargaining chip in lieu of addressing the underlying dispute;
(e)the effect of the caveat, in preventing the Porters from using their house for security is severe when compared to the value of ADBL’s claim; any prejudice suffered by ADBL in removing the caveat is outweighed by the prejudice suffered by the Trust if the caveat remains;
(f)ADBL has abandoned and/or repudiated the Building Contract;
(g)most of the Building Contract price has been paid to ADBL and the Porters now wish to use their house as security for other developments.34
[38] Most of the points raised by Mr Lawrence are not relevant to the exercise of the Court’s residual discretion. A broader view of the scope of this discretion to accommodate balance of convenience or other considerations35 has been rejected by the Court of Appeal for standard cases.36 The broader approach has, since Holt v Anchorage Management Ltd and Sims v Lowe,37 been recognised as having arisen
34 Affidavit 4 June at [53].
35 Deriving from Eng Mee Yong v Letchumanan [1980] AC 331, [1979] 3 WLR 373 (PC).
36 Orams Marine (Auckland) Ltd v Ports of Auckland Ltd (1994) 6 TCLR 88 (CA) at 92. See also Campbell, above n 13, at [10.020].
37 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 116; Sims v Lowe [1988] 1 NZLR 656 at 660.
“partly through a misapplication to New Zealand of the observations of Lord Diplock in the Privy Council in Eng Mee Yong v Letchumanan.”38
[39] The focus now is on whether there is any practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. As the Court of Appeal said in Pacific Homes:39
… [Where] there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest … the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interest of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator’s interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.
[40] In Stewart v Kaipara Consultants Ltd, the Court of Appeal again emphasised that the residual discretion to remove a caveat, notwithstanding an arguable case for the claimed estate or interest, should be exercised on a cautious basis. The caveat should be removed only where the Court can be “completely satisfied” that the caveator’s legitimate interests will not be prejudiced.40
[41] None of the points at [37](a)–(g) provide assurance that ADBL’s caveatable interest will not be prejudiced if the caveat is removed. There is no suggestion that the respondents are impecunious, but they dispute the secured amount and have not taken any steps in two years to resolve the dispute and pay ADBL whatever is determined to be due through agreement or arbitration. In those circumstances, it is not apparent that there is no practical advantage to ADBL in maintaining the caveat.
[42] The Trust also submits that it has made a number of open offers of settlement to ADBL which it says would adequately cover ADBL’s claimed interest. In the most recent offer in evidence, dated 2 September 2021, the Trust offered to put $50,000 in
38 Hayball v Lewis [1996] 1 NZLR 717, (1995) 14 FRNZ 227 at 720.
39 Pacific Homes, above n 6, at 656.
40 Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [23].
the Porters’ solicitor’s trust account to cover any amount found to be due to ADBL following arbitration, if ADBL removed the caveat. In an earlier offer, rejected by ADBL, the Trust asked that ADBL agree to permit a prior ranking security to be registered over the Trust property up to a maximum of $2 million, said to leave equity of at least $800,000 for ADBL’s security.
[43] Mr Turner submits that those offers do not adequately protect ADBL’s interest. In addition to the $47,298.20 outstanding for specific disputed items as at December 2018, ADBL claims contractual interest under the “specific conditions of contract”, and cl 12.3 of the Building Contract; and costs under cl 12.6.41
[44] ADBL maintains that the outstanding sum, contractual interest and costs are “moneys payable under the [this] Agreement” and therefore the subject of the equitable mortgage created by cl 12.5. It says that at the end of August, the Trust owed it $88,000, including interest and costs. Therefore, it says that the Trust’s offers do not adequately address the full extent of ADBL’s equitable interest.
[45] At the hearing, the Trust did not dispute that interest and costs were “moneys payable under the [this] Agreement” and therefore covered by the equitable mortgage. There could be some argument about that. But, ADBL has at least a reasonable argument that these amounts do form part of the amount secured. Contractual interest, if upheld, continues to accrue. As will legal costs. In these circumstances, I cannot be completely satisfied that ADBL’s interests will be adequately protected by a payment into Court in the order of that proposed by the Trust, if the caveat is removed.
[46]Therefore, I decline to exercise my residual discretion to remove the caveat.
If ADBL’s caveat is sustained, should this be subject to conditions?
[47] Mr Lawrence submits that if the caveat is to be sustained, it should be sustained on the condition that the underlying dispute should be resolved by arbitration (unless otherwise agreed by the parties).
41 See [6].
[48] ADBL does not object to such a condition. It proposes that the issues for arbitration are:
(a)whether the specific disputed items are payable to ADBL; and
(b)whether contractual interest according to cl 12.3 and solicitor/client costs under cl 12.6 is payable.
[49]An order in those terms will be made.
Result
[50] I order that, pending further order of the Court, caveat no. 11256527.1 lodged against Record of Title NA123A/122 will not lapse.
[51] The order in paragraph [50] is conditional upon the parties appointing an arbitrator to determine the parties’ dispute about: whether the specific disputed items are payable to ADBL; and whether contractual interest under cl 12.3 and solicitor/client costs under cl 12.6 is payable, within 15 working days of this judgment.
[52] If the parties cannot agree on an arbitrator, then they will request AMINZ to provide one within 30 working days of this judgment.
[53] In relation to costs, as ADBL is the successful party, it will be paid its costs and disbursements by the Trust. Scale costs on a 2B basis are payable now. I reserve leave for ABDL to seek top-up costs in the event it establishes, through arbitration, a contractual entitlement to costs under cl 12.6.
[54] If counsel cannot agree on the quantum of 2B costs, memoranda of not more than five pages may be filed by ADBL within 15 working days, and JWL 10 working days afterwards.
Associate Judge Gardiner
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