Ali v West Village Capital Partners Limited
[2022] NZHC 3045
•22 November 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-002298
[2022] NZHC 3045
BETWEEN DANIEL ALI
Plaintiff / Respondent
AND
WEST VILLAGE CAPITAL PARTNERS LIMITED
First Defendant
M P LIMITED (formerly Echinus Limited) Second Defendant
FARHAD MOINFAR
Third DefendantPERPETUAL CORPORATE TRUST LTD (ABN 990000 341 533) and A.C.N. 634 927
469 PTY LTD (as trustee for the Union Green Trust) (ACN 634 927 469) Fourth Defendants / Applicants
ANDREW JAMES FAWCET
First Third Party
Hearing: 7 June 2022 Appearances:
P J Wright and J Barrow for the Plaintiff/Respondent
M Kersey and A R MacDuff for the Fourth Defendants/Applicants
Judgment:
22 November 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 22 November 2022 at 11.30 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
ALI v WEST VILLAGE CAPITAL PARTNERS LTD [2022] NZHC 3045 [22 November 2022]
Introduction
[1] West Village Capital Partners Limited (West Village) developed the Union Green development in central Auckland. Since completing the development, it has been placed in receivership and liquidation.
[2] A.C.N. 634 927 469 Pty Ltd (as trustee for the Union Green Trust), part of the Qualitas group of companies (Qualitas), loaned West Village money for the development. West Village granted Qualitas a mortgage over the development property as security for the loan. The mortgage is held by Perpetual Corporate Trust Limited (Perpetual) as custodian for Qualitas. Perpetual wants to exercise its power of sale as mortgagee to sell units in the completed development to meet the around
$57 million West Village owes it.
[3] Daniel Ali claims to have an equitable interest in four units in the development. West Village sold two of the four units before it was placed in receivership. Mr Ali has a caveat in place over the two unsold units. In an earlier decision, this Court sustained the caveat and required Mr Ali to file proceedings to advance his claimed interest.1 Mr Ali does so in these proceedings. He claims to be entitled to the proceeds of sale of the two sold units; and seeks orders preventing Perpetual from exercising its right as mortgagee to sell the two remaining units, and that the two units are transferred to him.
[4] Qualitas and Perpetual (the fourth defendants) apply to strike out Mr Ali’s cause of action against them, or for summary judgment of their defence. They also apply for an order that Mr Ali’s caveat is removed to enable them to sell the units.
Issues
[5]Across the three applications, the substantive issues for determination are:
(a)Does the statement of claim disclose a reasonably arguable in personam
claim against the fourth defendants?
1 Ali v West Village Capital Partners Ltd [2021] NZHC 3090.
(b)Do the fourth defendants have a mortgage over the units at issue?
(c)Should the caveat be removed to enable the fourth defendants to sell the units as mortgagee?
Factual background
Mr Ali’s alleged interest
[6] Associate Judge Andrew set out the contractual arrangements between Mr Ali and M P Limited (formerly Echinus Limited) in the caveat judgment.2 The following summary borrows from that judgment.
[7] I note that Mr Ali has not filed any evidence in response to the fourth defendants’ applications and relies on his evidence in the caveat proceeding. He has leave to do so, as do the fourth defendants.
[8]Mr Ali is an Indonesian national. In mid-2014, he decided to invest
$1.5 million in New Zealand to support his and his family’s application for permanent residency. As part of that, he invested $1.25 million in Echinus.
[9] Mr Ali’s investment was structured through several related agreements. First, there was a subscription agreement by which Mr Ali received redeemable shares in Echinus in the value of $1.7 million.
[10] Second, there were four sale and purchase agreements by which Echinus would sell four units to Mr Ali in a proposed development at 396 Queen Street, Auckland Central. The sale and purchase agreements were conditional upon Mr Ali’s redemption of the shares.
[11] Third, Mr Ali also entered into an agreement with West Village under which it would rent out the apartments and pay Mr Ali the rental income. West Village is a related entity to Echinus.
2 See Ali v West Village Capital Partners Ltd [2021] NZHC 3090 at [9]–[27].
[12] Pursuant to these agreements, Mr Ali paid $1.25 million to Echinus in August and September 2014. He was issued with redeemable shares and sent a corresponding share certificate.
[13] A very short time later, Echinus paid $500,000 of the funds provided by Mr Ali to West Village for the purchase of properties in the Union Green development. Mr Ali says he was unaware of this payment at that time and was only advised about it much later.
[14] Mr Ali says that most of his dealings with Echinus were through Farhad Moinfar, a director of both Echinus and West Village.
[15] The 396 Queen Street development did not proceed. In 2015, Mr Moinfar suggested to Mr Ali that he might wish to replace his right to four units in the 396 Queen Street development with a right to four units in Union Green.
[16]Mr Ali entered into a new arrangement with Echinus comprising:
(a)a new subscription agreement entitled “subscription agreement for redeemable shares”; and
(b)four new sale and purchase agreements between Mr Ali and Echinus for four units in Union Green.
[17]The terms of the new subscription agreement included the following:
(a)The agreement was backdated to 16 July 2014.
(b)Under the definitions:
(i)“apartments” are defined as four specified units in Union Green;
(ii)“issue date” is defined as 21 July 2014, or another date the parties shall agree in writing; and
(iii)“redeemable shares” is defined as the $1,700,000 redeemable shares in Echinus – the terms of which are set out below at (f).
(c)By clause 4.4:
Agreements for sale and purchase: On the issue date, [Echinus] and [Mr Ali] will enter into an agreement for sale and purchase of each of the Apartments together with associated auxillary [sic] units which shall be in the form prepared by [Echinus] for that purpose and shall be conditional upon the redemption of the relevant number of Redeemable Shares for each Apartment pursuant to clause 3 of the Terms of the Redeemable Shares set out in schedule 1.
(d)Clause 6.1 provides the process for redeeming the shares:
Each notice or other communication given under this agreement must be in writing and sent by facsimile, personal delivery or by post to the address or facsimile number of address, and marked for the attention of the person, set out under that party’s name at the end of this Agreement.
(e)Clause 7.1 is a standard form “entire agreement” clause combined with a non-oral modification clause.
(f)Schedule 1 sets out the “terms of redeemable shares”. As relevant:
(i)Clause 2 provides:
Redeemable by the holder from Completion: The Redeemable Shares will be redeemable in whole or in part by notice in writing accompanied by share certificates for the Redeemable Shares being redeemed (if any) (Apartment Redemption Notice) given by the holder to the Company, specifying the number of Redeemable Shares to be redeemed and the Apartment number(s) (Relevant Apartments) that they are to be redeemed for:
(a) at any time following completion of the Developments;
(b) either in part of in full as follows:
Unit 403 477,275 shares
Unit 404 360,125 shares
Unit 405 427,100 shares
Unit 505 435,500 shares
Upon receipt of an Apartment Redemption Notice, the Company must use reasonable endeavours to secure the release of the Relevant Apartment(s) from any security covering them, and keep the holder informed as to its
progress. When the Company is satisfied that it can obtain any such releases, it must as soon as practicable notify the holder in writing, and such notice shall render the agreement for sale and purchase of the Relevant Apartment(s) entered into between the Company and the Investor unconditional, with settlement 90 days thereafter.
(ii)Clause 3 provides:
Redeemable by the holder in 4 years: Any Redeemable Shares that have not already been redeemed will be redeemable in whole … by notice in writing accompanied by share certificates for the Redeemable Shares being redeemed
… given by the holder to [Echinus] at any time within the period commencing on the fourth anniversary of the Issue Date and ending one calendar month thereafter for the sum of
$1 per Redeemable Share. [Echinus] must redeem any Redeemable Shares covered by a Cash Redemption Notice within 90 days of receipt of a Cash Redemption Notice by making payment to the bank account advised by the holder.
(iii)Clause 4 is a sunset clause:
Automatic Redemption on specified date: Any Redeemable Shares still outstanding on the fifth anniversary of the Issue Date will be automatically redeemed by [Echinus] for $1 per Redeemable Share by making payment to the bank account advised by the holder.
[18]In terms of the Agreements for Sale and Purchase (ASPs):
(a)They are stated to be conditional upon:
(i)The Vendor obtaining resource and building consents to the Vendor’s satisfaction in all respects [120] days from the date of the Agreement.
(ii)The Vendor arranging finance to enable the Development to be completed on terms and conditions acceptable to the Vendor in all respects by [120] days from the date of the Agreement.
(iii)The Vendor achieving the adequate number of sales to be able to satisfy the finance conditions by [120] days from the date of the Agreement.
(b)The term “Financier” is defined as “any Bank or other person who provides financial accommodation to the Vendor for the Vendor’s purchase of the Building or to assist in the construction of the Development of which the unit forms part.”
(c)A further condition is contained at clause 23 that:
23.0Conditional on Redemption of Shares
23.1 This agreement is conditional upon the Purchaser giving notice of its intention to redeem its shareholding in Echinus Limited, subject to the terms and conditions of the separate Share Purchase Agreement entered into between the Vendor and Purchaser.
23.2 Consideration for the full purchase price of the property shall be by way of the redemption value of the shares as stipulated in the Share Issue Agreement between the Parties.
(d)Clause 19.4, “transfer”, provides:
19.4 The Purchaser shall not be entitled to a transfer of the Property or to call for settlement in accordance with the provisions of this Agreement until:
(a) all conditions precedent (if any) have been satisfied; and
(b) a new certificate of title for the Property has been issued.
(e)They contain standard form no-caveat clauses (cl 19.18) which also provide for the appointment of Echinus as Mr Ali’s attorney to remove any caveat.
[19] At the time he entered into these new arrangements with Echinus, Mr Ali says that he was advised and understood that Echinus would develop Union Green.
[20] On 19 May 2015, the solicitors for Echinus and West Village sent a letter to Mr Ali’s solicitors, stating:
At the time of the issue of shares in [Echinus], it was anticipated that [Echinus] would itself be undertaking developments in Auckland city. However, [Echinus] itself has become an investor in the commonly owned group and developments rather than undertaking the development itself.
[21] In about June 2015, Echinus and Mr Ali also entered into a memorandum of understanding (MOU). Under the MOU, Mr Ali:
(a)was given an option to purchase two carparks in Union Green;
(b)was, from 16 September 2015, entitled to a coupon in the amount of 8 per cent per annum on the redemption value of the redeemable shares, being $8,500 per month.
[22] In September 2015, Mr Ali signed an individual employment agreement with Echinus.
[23] Echinus made coupon payments up until August 2021. West Village says payments Echinus made to Mr Ali after September 2018 were in error.
Fourth defendants’ legal interest
[24] On 4 September 2015, West Village, as borrower, entered into a property finance facility agreement (Facility Agreement) with Alta Twenty Twenty Limited (ATTL), as lender.
[25] As security for the obligations owed by West Village to ATTL under the Facility Agreement, West Village granted various securities in favour of ATTL, including:
(a)a general security deed dated 4 September 2015 (the GSD) registered on the Personal Property Securities Register on that date; and
(b)a mortgage over land used for the development pursuant to Mortgage Instrument number 10168064.3, incorporating the provisions of Mortgage Memorandum 2011/4301, registered on LINZ on 7 September 2015 (the Mortgage);
(together, the Security).
[26] On 7 October 2015, ATTL assigned its rights under the Facility Agreement and associated securities (including the Security) to Twenty Twenty Property Finance
Limited as general partner of the Twenty Twenty Property Finance Partners Limited Partnership (TTP).
[27] West Village also obtained financing from ANZ Bank New Zealand Limited. As part of this arrangement, ANZ became the first ranking secured lender and mortgagee and TTP became the second ranking secured lender and mortgagee.
[28] On 30 July 2019, under a Loan Sale and Purchase agreement (Loan SPA), Qualitas took an assignment of all TTP’s rights, title and interests, present or future, vested or contingent under and in connection with, amongst other interests, the Facility Agreement and the Security. As part of that transaction, the Facility Agreement was amended and restated pursuant to a deed dated 30 July 2019 (A&R Facility Agreement).
[29] The Mortgage Instrument was transferred to Perpetual, as custodian for Qualitas, on 30 July 2019. Perpetual was recorded on the certificates of title for the development as mortgagee pursuant to the Mortgage Instrument.3
[30] There were originally eight certificates of title associated with the land used for the development. As the development was completed, new certificates of title were issued.4 The development was completed in two separable portions on 26 June 2020 and 30 June 2021. The current titles for units 403, 404 and 405 were issued on 23 February 2021. Titles were also issued for units 505 and 1203 on 23 and 22 February 2021 respectively but new titles were later issued for those units on 16 June 2021 and then on 23 December 2021.
[31] On or about 8 July 2021, West Village’s debt to ANZ was discharged in full (ahead of the debt to Qualitas, as second-ranking secured creditor). Accordingly, since
8 July 2021, Perpetual has been the first-ranking mortgagee in respect of the mortgaged property and sole general secured lender to West Village and the development.
3 Transfer of Mortgage dated 31 July 2019.
4 Affidavit of Peter Brian Lawlor affirmed 26 May 2022 at [47].
Mr Ali’s caveat
[32] In February 2020, Mr Ali became aware that the Union Green apartments were being advertised for sale. He says that when he inquired with the real estate agent, he was informed it was an error.
[33] On 2 January 2020, West Village entered into a sale agreement for unit 404 to a third party. The sale completed on 31 May 2021.
[34] On 24 January 2021, West Village entered into a sale agreement for unit 505 to a third party.
[35] On 14 June 2021, Mr Ali, by his solicitors, issued a redemption notice. West Village and Echinus maintain that Mr Ali’s right to redeem his shares for the units expired on 16 July 2018, and according to cl 4 on 21 July 2019 his shares should have been automatically redeemed for cash.5
[36] On 16 November 2020, West Village entered into a sale agreement of unit 405 to a third party. The sale completed on 14 June 2021.
[37] On 16 June 2021, Mr Ali lodged a caveat over the two remaining, unsold units (403 and 505), claiming:
… A beneficial interest in the [caveat units] as cestui que trust of which [West Village] is trustee.
Receivership and liquidation
[38] On 14 September 2021, Andrew Grenfell and Kare Johnstone were appointed as receivers of West Village by Perpetual. Also on 14 September 2021, Grant Reynolds was appointed liquidator of West Village.
[39] The receivers say West Village’s current indebtedness to Qualitas is in the order of $57 million. They say West Village’s remaining assets (including the caveated units) hold substantially less value than the facility debt. Therefore, Qualitas’s
5 Affidavit of Farhad Moinfar sworn 26 August 2021 at [17]–[25].
position is that it is entitled to all realisations from West Village’s assets. Qualitas says that it has the benefit of all securities granted originally by West Village to ATTL. They include the GSD (under which the receivers were appointed) and the mortgages over the unsold units (including the caveated units).
[40] On 14 September 2021, the liquidator consented to the receivers acting as agents for West Village for the duration of their appointment in accordance with s 31(2) of the Receiverships Act 1993.
[41] On 17 September 2021, solicitors for the receivers served notices on West Village under s 119 of the Property Law Act 2007 on behalf of both the receivers and Perpetual as mortgagee. The notices expired on 15 November 2021.
[42] On 29 September 2021, the liquidator gave his consent to these proceedings continuing.6
Status of each unit
[43] Of the four units at issue, two are unsold and are subject to Mr Ali’s caveat (instrument number 12156577.1):
(a)Unit 403 with title identifier 917652;
(b)Unit 505 with title identifier 1036504 which, as noted, is subject to a sale agreement to a third party.
[44] Two units were never subject to the caveat and were sold by West Village prior to receivership:
(a)Unit 404 with title identifier 917653; and
(b)Unit 405 with title identifier 917654.
6 Companies Act 1993, s 248.
[45] Accessory unit 67P, a carpark, is also subject to the caveat. It was formerly attached to title identifier 1036505, in respect of unit 1203 of the development. Mr Ali has never claimed an interest in unit 1203 other than by reason of having the carpark attached to it. However, subsequently the carpark has been transferred to unit 505 and remains subject to the caveat.
STRIKE-OUT APPLICATION
[46] The fourth defendants apply to strike out paragraphs 89 and 90 of Mr Ali’s statement of claim dated 1 December 2021 on the basis that the claim discloses no reasonably arguable cause of action against them.
[47] This statement of claim pleads seven causes of action. The first and second causes of action are against West Village for common intention constructive trust and proprietary estoppel respectively. Mr Ali claims that it was unconscionable of West Village to sell the two units and refuse to transfer the remaining two units to him and pay him the proceeds of sale of the sold units. He seeks orders that West Village transfer the remaining unsold units to him; and pay him the proceeds of sale of the two sold units. Alternatively, he pleads a third cause of action against West Village and M P Limited on the basis that his subscription payments were impressed with a Quistclose or other trust. He seeks return of his subscription payment or compensation. As a further alternative cause of action against M P Limited, he pleads breach of contract. His fifth cause of action is against West Village and M P Limited for misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986. He pleads a sixth cause of action against M P Limited for breach of s 174 of the Companies Act 1993 (conduct of the affairs of a company in a manner oppressive, unfairly discriminatory or unfairly prejudicial to a shareholder).
[48] Finally, his seventh cause of action is against Perpetual and Qualitas. Described as “Mortgagee has no priority ahead of plaintiff”, the key aspects of the cause of action are:
[88] Having regard to the definition of Real Property in the General Security Deed and/or having regard to the limited recourse repayment provision in the Amended Loan Agreement the mortgage security did not apply to the units and does not apply to the remaining units.
[89] Further or alternatively Perpetual and Qualitas have no priority pursuant to or in respect of the mortgage over the plaintiff's interest in the units and in particular Perpetual and/or Qualitas had, or are deemed to have had or should have had knowledge of the plaintiff's interest in the units such that it would be unconscionable for them to assert and rely on any such priority and exercise rights as a mortgagee over the units or the remaining units and/or have no such rights.
[90] In particular, Perpetual and Qualitas knew or should have known of the plaintiff's interest in the units having regard to the history of the development, the investigation of the first defendant's assets and circumstances they should have carried out at the time as to the value of the security having regard to the amount Qualitas would pay for the assignment and the cap on the first defendant's liability further particulars of which are presently unknown to the plaintiff.
[91] In the circumstances set out here in Perpetual and Qualitas are not entitled to sell the remaining units in reliance on the mortgage.
[92] In the circumstances set out here in Perpetual and Qualitas must account to the plaintiff for such proceeds of sale of the transferred units as have come into their possession.
[49] Mr Wright, for Mr Ali, proffered a proposed amended statement of claim with his written submissions. This claim expands on the above paragraphs in the existing statement of claim, effectively splitting the allegations into three separate causes of action. The first cause of action (against the fourth defendants) is for accessory liability for breach of a common intention constructive trust. The second cause of action is for proprietary estoppel. The third is for an order prohibiting the fourth defendants from exercising their right as mortgagee in respect of the units on the basis that the mortgagee security does not apply to the units.
[50] Mr Kersey for the fourth defendants had the opportunity to make oral submissions concerning the proposed amendments to the statement of claim. I therefore consider the applications to strike-out and for defendant summary judgment taking into account these proposed amendments.
Strike-out legal principles
[51] A court may strike out all or any part of a pleading under r 15.1(a) of the High Court Rules 2016 if (amongst other matters) it discloses no reasonably arguable cause of action.
[52] The established criteria for strike-out can be summarised in the following principles:7
(a)Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b)The cause of action or defence must be clearly untenable. It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.
(c)The jurisdiction is to be exercised sparingly, and only in clear cases. This reflects the Court's reluctance to terminate a claim or defence short of trial.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e)The Court should be particularly slow to strike out a claim in any developing area of the law.
(f)If the claim depends on a question of law capable of decision on the material before the court, the court may determine the question even though extensive argument might be necessary to resolve it.
Does the statement of claim disclose a reasonably arguable in personam claim?
[53] Mr Ali claims to have an equitable interest in the four units in question because of his subscription payment or share purchase which amounted to a contribution towards the acquisition of the base land and/or construction of the units.8 He claims that he and West Village intended and/or reasonably expected that he would acquire
7 See Attorney-General v Prince [1998] 1 NZLR 262 at 264; endorsed by the Supreme Court in
Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
8 Statement of claim dated 1 December 2021 at [35]; proposed amended statement of claim dated 31 May 2022 at [82] (in relation to the claim against the fourth defendants for accessory liability for breach of common intention constructive trust).
an interest in the units.9 As such, Mr Ali contends that West Village holds the two remaining units and the proceeds of sale of the sold units subject to a common intention constructive trust, of which he is the beneficiary.10 In the caveat proceeding, Associate Judge Andrew held that it was reasonably arguable that, based on the terms of the subscription agreement and the ASPs, there was an institutional constructive trust over the units.11
[54] As mentioned, Perpetual as custodian for Qualitas holds a first registered mortgage over the land used for the development. The Mortgage is recorded on the certificates of title of the four units over which Mr Ali claims to have an interest. The Mortgage Instrument has been noted on the relevant certificates of title since 7 September 2015 when it was granted. The Mortgage Instrument was transferred to Perpetual when the fourth defendants acquired the rights, assets, and liabilities of TTPF on 30 July 2019. Mr Ali lodged his caveat over unsold units 403 and 505 after the Mortgage was transferred to the fourth defendants.
[55] The principle of indefeasibility of title under the Torrens system is enshrined in s 51 of the Land Transfer Act 2017 (LTA). When a person is registered as the owner of an estate or interest in land under the LTA (including a mortgagee interest), that person obtains a title to the estate or interest free of interests that are not registered or noted on the title, unless one of the recognised exceptions is satisfied. The exceptions are contained in ss 52 to 56 and 204 of the LTA. One exception is if the estate or interest is acquired by the registered owner through fraud.12
[56] Therefore, unless one of the statutory exceptions apply, on the fourth defendants registering the mortgage in the development, they obtained their interest unencumbered by any unregistered equitable interest Mr Ali may have in the units.
[57] Mr Ali does not plead fraud or any of the statutory exceptions against the fourth defendants. Rather, he asserts an in personam claim against the fourth defendants for
9 Statement of claim at [37]; proposed amended statement of claim at [82].
10 Statement of claim at [39]; proposed amended statement of claim at [82].
11 Ali v West Village Capital Partners Ltd [2021] NZHC 3090 at [49]–[50].
12 Land Transfer Act 2017, s 52(1)(a).
accessory liability for breach of a common intention constructive trust (knowing receipt or knowing assistance); or proprietary estoppel.
[58] The in personam jurisdiction is expressly preserved by s 51(5) of the LTA. An in personam claim is a claim against a registered owner of an interest in property. It is a claim against the person rather than a right of property. As the Supreme Court stated in Regal Castings Ltd v Lightbody:13
An in personam claim against a registered proprietor looks to the state of the registered proprietor’s conscience and denies him the right to rely on the fact he has an indefeasible title, if he has so conducted himself that it would be unconscionable for him to rely on the register. Such a claim is concerned with the personal obligations of the registered proprietor rather than with the sanctity of their title. A successful in personam claim indirectly affects the registered proprietor’s title, such as when a decree of specific performance is made; but the claim is not a claim to the land as such. It is a claim that the registered proprietor perform the contract of sale.
[59] It is common ground that there are three elements to an in personam claim against a registered owner of an interest in land:14
(a)a recognised legal or equitable cause of action against the registered owner;
(b)unconscionable conduct by the registered owner such that it would be contrary to good conscience for them to rely on their indefeasible title to defeat the claim;
(c)that depriving the registered owner of the protection of indefeasibility would not be contrary to the policy and purposes of the Torrens system.
[60]The leading cases in New Zealand are C N & N A Davies Ltd v Laughton and
Duncan v McDonald.15
13 Regal Castings Ltd v Lightbody [2008] NZSC 87 at [148].
14 At [157]-[160].
15 C N & N A Davies Ltd v Laughton [1997] 3 NZLR 705 (CA); Duncan v McDonald [1997] 3 NZLR 669 (CA).
[61] In Davies, a creditor whose claim under a guarantee was secured by a registered mortgage was restrained from exercising the power of sale in the mortgage. Although the mortgage was registered, the mortgagee was responsible for unconsented material alterations to the underlying bargain between the debtor and the creditor which the guarantee and mortgage were intended to secure. The effect of the unconsented alterations would be to release the mortgagee guarantors.
[62] The Court of Appeal held that by virtue of making material alterations to the bargain between the debtor and the creditor without the mortgagor’s knowledge or consent, the mortgagee relinquished the benefit of an incidence of its title which equity would not allow it to deny. As against the world, however, its title remained indefeasible.
[63] The Court discussed the principles concerning indefeasibility and claims in personam:16
Indefeasibility and claims in personam
It is well settled that the doctrine of indefeasibility of title does not deprive the Courts of their equitable jurisdiction. A claim in personam against the registered proprietor may be maintained in respect of a transaction involving the claimant and the registered proprietor. Providing no conflict with the title exists, the recognition of an in personam remedy is not inconsistent with the concept of indefeasibility and the objective of protecting persons who deal with the registered proprietor on the face of the register.
…
Lord Russell of Killowen pointed out that the Privy Council in Frazer v Walker, while recognising that the registered proprietor is immune from adverse claims because of the concept of indefeasibility inherent in the system of registration under the Land Transfer Act, made it clear that “this principle in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a Court acting in personam may grant”. His Lordship referred to Boyd v Mayor of Wellington [1924] NZLR 1174 at p 1223, and Tataurangi Tairuakena v Mua Carr [1927] NZLR 688 at p 702, as examples of earlier cases in which this principle had been recognised in New Zealand.
…
The express reservation in Frazer v Walker, now endorsed by the further declaration in Oh Hiam v Tham Kong at p 9454, that the concept of indefeasibility does not interfere with “the ability of the court, exercising its
16 C N & N A Davies Ltd v Laughton [1997] 3 NZLR 705 (CA) at 711-713.
jurisdiction in personam to insist upon proper conduct in accordance with the conscience which all men should obey” leaves no room for doubt. Rights in personam may be enforced against a registered proprietor notwithstanding the doctrine of indefeasibility of title.
…
In our view, therefore, indefeasibility of title does not interfere with the personal obligations of a registered proprietor, and the principle that contracts, or trusts, or any personal equity can be enforced against the registered proprietor merely serves to indicate the limits of the doctrine.
...
Properly perceived, the principle sits comfortably with the concept of indefeasibility. Designed to protect a transferee from defects in the title of the transferor and not to release him or her from the burden of interests which they may have undertaken, the principle has as its basis the enforcement of personal claims arising out of the registered proprietor's conduct. It is essentially non- proprietary in nature. The key element is the involvement in or knowledge of the registered proprietor in the unconscionable or illegal act or omission in issue. It is such involvement or knowledge which gives rise to the equity or legal right in the innocent party as against the registered proprietor in person. Indefeasibility is no answer to a claim based on such an equity or legal right. When granted, it is true, a remedy may restrict the registered proprietor in what he or she can do or require them to give up in whole or in part their registered interest, but until that event occurs the title remains conclusive as against third parties. See eg Breskvar v Wall (supra), at pp 384 — 385.
Nor is there any detriment to the objective of indefeasibility. It is now over a century since the nature and purpose of the Torrens system was described by the Privy Council in Gibbs v Messer [1891] AC 248 at p 254. The object is to save persons dealing with registered proprietors from the trouble and expense of going behind the register in order to investigate the history of the title and to satisfy themselves of its validity. This end is accomplished by providing that everyone who purchases land, without fraud and for value, from a registered proprietor and enters his or her deed of transfer or mortgage on the register thereby acquires an indefeasible right notwithstanding any infirmity in the title. Admitting in personam claims against a registered proprietor whose very acts or omissions give rise to the claim does not compromise this objective.
[64] In Duncan, the registered mortgagee was not permitted to enforce the mortgage to its full value where both the mortgagor and the mortgagee had been parties to a fraudulent and illegal scheme pursuant to which the mortgage had been granted. The Court of Appeal observed:17
In personam claims must be recognised causes of action: Garofano v Reliance Finance Corporation Pty Ltd (1992) NSW Conv R 59,659 at 59,662-59,663 and Grgic v Australian and New Zealand Banking Group Ltd (1994) 33
17 Duncan v McDonald [1997] 3 NZLR 669 (CA) at 683-684.
NSWLR 202 at 222- 3. The causes of action may be legal or equitable but the relief is equitable. Although the precise limits of in personam claims have not yet been determined, it would be plainly inconsistent with the Land Transfer Act to allow such a claim against a registered proprietor in all circumstances in which an owner’s rights could be defeated under a deeds system. It is a question of fact and degree when a registered proprietor’s behaviour will give rise to an equity of sufficient strength to support an in personam claim. Compare Bahr v Nicolay (No 2) (1988) 164 CLR 604 with Ryan v Brain [1994] 1 Qd R 681. In Bahr purchasers who agreed to honour their vendor’s contractual commitment to sell land to third parties were held liable to do so at the suit of the third parties.
In Ryan restrictive covenants under a building scheme were found not to be enforceable by neighbours against a purchaser who knew of the building scheme but had contracted with the vendor subdivider on a less restricted basis. The latter case illustrates that more is required than the act of registering an instrument with knowledge of a competing claim by a third party. More is also required than knowledge of an irregularity in or relating to the instrument.
Before a registered proprietor is susceptible to an in personam claim it must be shown that he or she has acted or is acting unconscionably in obtaining or taking advantage of the registered interest, but the registered proprietor’s conduct need not have involved actual dishonesty towards the in personam claimant. An attempt by the registered proprietor to enforce an interest knowingly obtained by his or her unlawful behaviour may be found to be unconscionable.
Mr Ali’s in personam claim against the fourth defendants
[65] Mr Ali submits that the three elements of an in personam claim described by the Supreme Court in Regal Castings are satisfied.
[66] In terms of the first element, he says, with reference to the proposed amended statement of claim, that he has a recognised cause of action against the fourth defendants for accessory liability for breach of constructive trust. The pleaded elements of this cause of action, which is based on the first cause of action against West Village for common intention constructive trust, are as follows.
[67] First, Mr Ali claims to have an equitable interest in the units under a constructive trust arising out his share purchase/subscription payment, which amounted to a contribution towards the land and/or construction of the units.18 He claims that he and West Village intended and/or reasonably expected that Mr Ali would acquire an interest in the units. Therefore, West Village holds the remaining units and
18 Statement of claim at [35]; proposed amended statement of claim at [82].
the proceeds of sale of the sold units subject to a common intention constructive trust of which he is the beneficiary.19
[68] Second, Mr Ali claims that West Village breached this constructive trust by enabling the fourth defendants to become mortgagees and/or by selling and/or purporting to sell and/or asserting the right to sell and/or denying Mr Ali’s entitlement to the units and/or proceeds of sale.20
[69] Third, Mr Ali says the fourth defendants knew, or ought to have known, of the constructive trust and West Village’s breach of that constructive trust.21 Therefore, by proceeding with a mortgagee sale the fourth defendants would be knowingly assisting West Village’s breach of constructive trust or, alternatively, would be knowingly receiving the property or the benefit of the property (the remaining units) subject to a constructive trust.22
[70] Finally, Mr Ali pleads that in these circumstances it would be unconscionable for the fourth defendants to act inconsistently with the constructive trust and/or undertake any action which would amount to knowingly assisting a breach of constructive trust and/or knowingly receiving the property of that trust.
[71] Mr Ali’s second (proposed) cause of action against the fourth defendants is that they knew or should have known of his interest in the units by way of proprietary estoppel as against West Village; and therefore, it would be unconscionable for the fourth defendants to act inconsistently with the proprietary estoppel by exercising their rights as mortgagee in respect of the remaining units. Alternatively, the fourth defendants must account to Mr Ali for any proceeds of sale of the remaining units.
[72] Referring to the second element required for an in personam claim (unconscionability), Mr Ali argues that as unconscionability is an element of knowing receipt and knowing assistance, it follows that the second element is satisfied.
19 Statement of claim at [39]; proposed amended statement of claim at [82] and [91].
20 Proposed amended statement of claim at [93]–[94] and [96].
21 Proposed statement of claim at [92] and [99].
22 Proposed amended statement of claim at [100]–[101].
[73] As to the third element, Mr Wright submits, referring to Davies, that admitting in personam claims against a registered proprietor whose very unconscionable acts or omissions give rise to the claim does not compromise the objective of the Torrens system.23 In this respect, Mr Wright submits that the decision of Toogood J in JEB Management Ltd v Grubz United Whanau Trust24 relied on by the fourth defendants is not good law.
Discussion
[74] In my view, Mr Ali’s existing (and proposed amended) statement of claim does not disclose a reasonably arguable cause of action against the fourth defendants because it fails to establish the first two elements of an in personam claim. Namely, it does not involve a recognised cause of action against the fourth defendants; and it is not unconscionable for the fourth defendants to assert their legal interest as mortgagee.
[75] The fourth defendants’ actions said to constitute knowing receipt and/or knowing assistance are first, taking the mortgagee interest; and second, now seeking to exercise their rights as mortgagee knowing of Mr Ali’s claimed interest.25 Mr Ali asserts that these acts found a cause of action for accessory to a breach of constructive trust.
[76] The act of taking the mortgagee interest can only be knowing receipt or knowing assistance if West Village acted in breach of the constructive trust by enabling the fourth defendants to become mortgagees. This is where Mr Ali’s case is flawed.
[77] As Associate Judge Andrew found, the basis for the constructive trust (if one exists) is the second subscription agreement and the ASPs. Accordingly, the nature of Mr Ali’s equitable interest (if any) is defined by those agreements.
[78] Under the subscription agreement, Mr Ali acquired shares in Echinus which he could redeem for the specified units once the development was completed. But Mr Ali’s right to the specified units was expressly conditional on Echinus using its
23 C N & N A Davies Ltd v Laughton [1997] 3 NZLR 705 (CA) at 714.
24 JEB Management Ltd v Grubz United Whanau Trust [2015] NZHC 157.
25 Plaintiff’s submissions dated 31 May 2022 at [57].
“reasonable endeavours to secure the release of the relevant Apartment(s) from any security covering them and keeping Mr Ali informed of progress” as set out at [17](f) above.
[79] Under the ASPs discussed at [17][g] above, his rights as purchaser were conditional upon (amongst other matters) the developer arranging finance on terms and conditions acceptable to it to enable the development to proceed.
[80] Thus, the agreements that allegedly gave rise to the constructive trust expressly contemplated that the developer would obtain finance for the development, and that would involve the giving of security over the property, including the (yet to be built) specified units. Further, that Echinus might not be able to discharge any security granted over the units.
[81] To use constructive trust terms, the documents clearly show that it was the common intention and the expectation of Mr Ali and Echinus/West Village that the developer would obtain finance for the development, that this would involve granting security over the property, and that Mr Ali’s interest in the units (if any) would necessarily be subject to that security interest insofar as it attached to those units. This position accords with common sense: a development of this nature would necessarily require finance (well beyond Mr Ali’s investment) and obviously any financier would require security over the development property.
[82] On this point, Mr Ali submits that because his agreements were with Echinus (not West Village), West Village, who he accepts was authorised to mortgage the property, cannot rely on the fact that those agreements authorised the mortgage to defeat his claim. That submission is unsustainable. Mr Ali relies on the contractual arrangements between himself and Echinus as the basis for the alleged constructive trust as between West Village as trustee and himself as beneficiary. He cannot rely on some aspects of those arrangements and reject others as irrelevant.
[83] Therefore, there was no breach of trust by West Village as trustee when it granted ATTL the Mortgage over the property in September 2015 to enable it to carry out the development and build the units. There was nothing illegal or improper about
West Village granting a mortgage interest in the land, even with Mr Ali’s equitable interest in the (yet to be built) units.
[84] As there was no breach of trust by West Village in granting the Mortgage, it follows that the fourth defendants were not accessories to a breach of trust when they received that Mortgage interest on 30 July 2019 (even if they were aware of Mr Ali’s equitable interest).
[85] It also follows that the fourth defendants are not knowingly assisting a breach of constructive trust by seeking to exercise their rights as mortgagee to sell the units now.
[86] Therefore, the cause of action against the fourth defendants in knowing assistance and/or knowing receipt is not reasonably arguable.
[87] I note that Mr Ali claims that West Village also breached the alleged constructive trust by denying his entitlement to the units, selling two units and denying him the proceeds of sale. Mr Ali does not plead that the fourth defendants were involved in and therefore an accessory to those acts. The pleaded acts of knowing receipt and knowing assistance against the fourth defendants are receiving the assignment of the Mortgage and acting on the rights conferred by that Mortgage to sell the units by mortgagee sale.26 Therefore, Mr Ali’s claims against West Village in relation to the sale of two units and their refusal to transfer title to the units and/or the proceeds of sale do not provide a basis for an in personam claim against the fourth defendants.
[88] Moreover, the second element of an in personam claim against the fourth defendants is not satisfied. An in personam claim requires that the registered owner has acted or is acting unconscionably in obtaining or taking advantage of the registered interest.27 It is a question of fact and degree, and depends on the conduct and circumstances, as to whether a registered proprietor’s behaviour will give rise to an equity of sufficient strength to support an in personam claim.
26 Proposed amended statement of claim at [100]–[101].
27 Duncan v McDonald [1997] 3 NZLR 669 (CA) at 683.
[89] It follows from the previous analysis that the fourth defendants did not act unconscionably in obtaining the mortgagee interest by being an accessory to a breach of trust by West Village. There was no breach of trust by West Village in granting the Mortgage in the first place.
[90] Nor was it unconscionable for the fourth defendants to obtain the Mortgage knowing of Mr Ali’s alleged equitable interest arising out of the subscription agreement and ASPs (assuming they were so aware). Registering an instrument with knowledge of a competing interest is by itself insufficient to establish unconscionable conduct.28
[91] As the fourth defendants did not act unconscionably by obtaining the Mortgage, there is nothing unconscionable about the fourth defendants seeking to exercise their rights of sale as mortgagee now.
[92] As an aside, I acknowledge the submissions of both counsel concerning this Court’s decision in JEB Management Ltd v Grubz United Whanua Trust.29 In that judgment, Toogood J considered that a claim of knowing receipt of trust property could not be brought as an in personam exception to indefeasible title. He stated that although a claim in knowing receipt satisfies the first two limbs of the three limbs identified in Regal Castings (that the plaintiff must have a recognised cause of action and that there must have been unconscionable conduct from the registered proprietor), the third (that the remedy cannot be used to undermine the fundamental concepts of the Torrens system) is problematic.30 It is not necessary for me to express a view on this decision as I have found that, on the facts of this case, the first two limbs of the Regal Castings test are not satisfied. That is, there is no cause of action for knowing receipt against the fourth defendants.
[93] The proposed second cause of action against the fourth defendants concerning proprietary estoppel does not disclose a reasonably arguable cause of action either. For the same reason that there was no breach of constructive trust by West Village by
28 Duncan v McDonald [1997] 3 NZLR 669 (CA) at 683.
29 JEB Management Ltd v Grubz United Whanau Trust [2015] NZHC 157.
30 At [44].
granting a mortgage over the property, West Village was not estopped from doing so. Moreover, a claim of proprietary estoppel against West Village does not, on its own, result in a recognised cause of action against the fourth defendants. The proposed claim that because the fourth defendants knew or ought to have known of Mr Ali’s “interest in the units by way of proprietary estoppel” it would be unconscionable for them to act inconsistently with the proprietary estoppel or be a breach of that proprietary estoppel to exercise their rights as mortgagee, does not disclose a recognised cause of action.
[94] For these reasons, I find that paragraphs 89 and 90 of the seventh cause of action against the fourth defendants in the statement of claim (taking into account the proposed amendments) do not disclose a reasonably arguable cause of action and must be struck out.
SUMMARY JUDGMENT APPLICATION
[95] The fourth defendants also seek summary judgment in defence against Mr Ali in respect of the seventh cause of action in the statement of claim. There are two aspects of the cause of action that they say cannot succeed on the evidence, so are correctly addressed through an application for summary judgment rather than strike-out.
[96]The two aspects are:
(a)the claim that the fourth defendants account to and pay Mr Ali for any proceeds of sale of the sold units they have received; and
(b)the claim that the mortgage security does not cover the four units in question.
Summary judgment legal principles
[97]Rule 12.2(2) of the High Court Rules provides:
The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[98] Master Venning summarised the effect of the rule in Ferrymead Tavern Ltd v Christchurch Press Co Ltd, drawing upon commentary in McGechan on Procedure:31
…an application for summary judgment by a defendant is similar to a striking- out application except the defendant has to show that all of the plaintiff’s causes of action cannot succeed. The major difference between an application for summary judgment and a strike-out application is, of course, that a defendant making an application for summary judgment may put evidence before the Court by way of affidavit. If that evidence is disputed or is insufficient to satisfy the Court then the matter will have to proceed to a full hearing. The onus is on the defendant to satisfy the Court the plaintiff has no arguable answer to the defence raised.
[99] More recently, the Supreme Court has emphasised that this is a heavy onus on the defendant, observing that a defendant should apply for summary judgment only “where there is a complete and incontrovertible answer on the facts (in which case summary judgment can be entered for the defendant)”.32
[100]However, as with plaintiff applications for summary judgment,33 this Court:34
…will not normally resolve material conflicts of evidence of assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable…
Proceeds of the sale of the sold units
[101] As mentioned, the fourth defendants seek summary judgment in defence insofar as the statement of claim seeks that they account to and pay Mr Ali for any proceeds of sale of the sold units they have received.35 Peter Lawlor, director of Qualitas Group, deposes that the fourth defendants did not receive the proceeds from the sale of the sold units. Rather, ANZ received the proceeds from the sold units.36
31 Ferrymead Tavern Ltd v Christchurch Press Co Ltd (1999) 13 PRNZ 616, [1999] NZAR 529 (HC) at [11]. See also Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [32]–[35].
32 Body Corporate 207624 v North Shore City Council [2012] NZSC 83 at [4], as cited in Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [32].
33 Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [35].
34 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
35 Statement of claim at [92].
36 Affidavit of Peter Brian Lawlor affirmed 26 May 2022 at [12].
[102] Mr Ali has not filed any evidence to dispute this. Accordingly, I am satisfied that this part of Mr Ali’s statement of claim cannot succeed.
Does the mortgage security apply to the units?
[103]At paragraph 88 of the statement of claim, Mr Ali alleges that:
Having regard to the definition of Real Property in the General Security Deed, and/or having regard to the limited recourse repayment provision in the Amended Loan Agreement, the mortgage security did not apply to the units, and does not apply to the remaining units.
[104] This is a distinct argument to the constructive trust and proprietary estoppel claims, and indeed in the proposed amended statement of claim is a separate and alternative cause of action entitled “No right of recourse to the units”.
[105] Mr Wright’s submissions, and the proposed amended statement of claim, refine the argument to the limited recourse repayment provision at page 3 and 4 of the Facility Schedule in Appendix 1 of the amended facility agreement. This provision states:
Notwithstanding anything to the contrary in this Facility Agreement or any other Relevant Document, the maximum amount that the Borrower will be obliged to pay the Lender and/or Custodian under the Relevant Documents whether on the Termination Date or on any other date shall be limited to the amount realisable from the Borrower's assets less the aggregate of:
(a)all amounts at that time that are owing to any creditor with a prior ranking claim to those assets; and
(b) $1,000.
[106] Mr Ali submits that this provision limits the assets over which the fourth defendants have security and means that the fourth defendants’ mortgagee interest is not attached to the units at issue.
[107] Such an interpretation cannot succeed. First, it is clear from the words of the clause that the common intention of the parties was to limit the amount payable to the Lender and/or Custodian to the value of West Village’s assets at any given time. It was a limit on the liability of West Village rather than a limitation on the mortgagee’s
interest. This interpretation is reiterated by the heading of the provision: “Maximum borrower liability provision”.
[108] Second, the terms of various documents that the original lender and mortgagee entered into with West Village demonstrate that the units once built were always intended to be subject to the Mortgage:
(a)the Mortgage Instrument incorporated the provisions of the Mortgage Memorandum creating a mortgage over the land used for the development;37
(b)the titles listed in the definition of "Land" in cl 1.1 of the Loan SPA in the A&R Facility Agreement each include all of the original eight title identifiers that have since been split into the various titles that comprise the development, including the four units in question;
(c)completion under the Loan SPA was conditional upon West Village delivering the assets (including the Land) free and clear of competing security so that the Lender would be the second-ranking mortgagee over the Land;
(d)there are various references in the Loan SPA and the A&R Facility Agreement to the Mortgage being granted over the "Land";
(e)the same eight titles are noted in the Transfer of Mortgage Instrument recording the transfer of mortgage from TTP to Perpetual;
(f)West Village represented to the fourth defendants that the Mortgagee will hold the second-ranking mortgage over the "Land", that it is the sole legal and beneficial owner of its assets and has good title to the "Land"; and
37 Mortgage Instrument registered on 7 September 2015 affecting the eight original certificates of title: NA103/98, NA106/152, NA15B/1189, NA15D/1254, NA1855/42, NA36C/307, NA609/167, NA80/152.
(g)West Village is obliged to apply the proceeds of sale of the "Land" to debt owed to the Lender under the A&R Facility Agreement, which reflects the fact that such property is mortgaged in favour of the Lender.
[109] Third, the Mortgage appears on the certificates of title for the four units at issue as a clear indication to the world of the common intention of West Village and the fourth defendants (and ATTL and TTP before them) that the units, together with the other units in the development, were to be subject to the Mortgage.
[110] In summary, there is no evidence that West Village did not consider all of its land assets to be mortgaged to the mortgagee pursuant to the Mortgage. Mr Ali has not produced any evidence to suggest that the Mortgage was not intended to apply to the units in issue (as with all other units in the development).
[111]Accordingly, paragraph 88 of the statement of claim cannot succeed.
[112] Considering my finding under the strike-out application, this means that there is no part of the sole cause of action against the fourth defendants that can succeed. On that basis, an order for summary judgment of the statement of claim as against the fourth defendants will follow.
APPLICATION TO REMOVE CAVEAT
[113] The fourth defendants apply under s 142 of the LTA for an order that the caveat is removed from the titles of the remaining units, to enable their sale.
[114] As noted, there are two units still subject to Mr Ali’s caveat (instrument no. 12156577.1):
(a)title identifier 917652, in respect of unit 403;
(b)title identifier 1036504, in respect of unit 505.
[115] The caveat prevents the fourth defendants from transferring unit 505 to a purchaser who signed an agreement for sale and purchase with West Village prior to
the completion of the development, and before the receivers were appointed; and from being able to market unit 403 for sale.
Removal of a caveat legal principles
[116] A person who has an estate or interest affected by a caveat against dealings may apply to the High Court under s 142 of the LTA for an order that the caveat be removed.
[117]The relevant principles are well-settled:38
(a)The applicant caveator bears the onus of demonstrating that they have an interest in the land sufficient to support a caveat. However, they need not establish that definitively. It is enough if they present a reasonably arguable case.
(b)The process by which these applications are determined is ill-suited to resolving disputed questions of fact. An order for a caveat’s lapse will only be made if it is patently clear it cannot be maintained — either because there was no valid ground for lodging it in the first place or, alternatively, that such ground has now ceased to exist. A conflict between affidavits will generally be resolved in the caveator’s favour.39 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.40
(c)Where the applicant has discharged its burden, the Court retains a residual discretion to remove the caveat. The Court will exercise this
38 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. See also Philpott v Noble Investments Ltd [2015] NZCA 342.
39 Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.
40 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].
discretion cautiously and must be satisfied removal would not prejudice the caveator’s legitimate interest.41
Should the caveat be removed?
[118] Associate Judge Andrew found that it was reasonably arguable that a common intention constructive trust existed between West Village and Mr Ali, with West Village as trustee and Mr Ali as beneficiary. He maintained the caveat on that basis but observed that Mr Ali will face obstacles at trial.42
[119] That judgment did not concern any rights or interests Mr Ali claims to have against the fourth defendants, who were not parties to that proceeding. Indeed, the Judge observed:43
Mr Ali’s rights and interests vis-à-vis the mortgagee have not been, and cannot be, properly tested in this application.
[120] Even where a caveator shows an arguable case to an interest in land (as here), the caveat will usually be removed to enable a mortgagee to exercise its power of sale.44 This is because the caveator’s claim is against the mortgagor’s estate, and that estate is subject to the mortgagee’s power of sale.45 So where a mortgagee has not consented to an agreement for sale and purchase by the mortgagor to a third party for example, the third party’s caveatable interest arising out of that agreement is subject to, and extinguished by, the mortgagee’s power of sale.46
[121] This is consistent with s 103 of the LTA which governs the effect of the registration of a transfer pursuant to a mortgagee power of sale. Section 103 provides that the purchaser from a registered mortgagee obtains clear title, except in respect of any other mortgage or interest that has priority over the registered mortgage, or that is
41 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
42 Ali v West Village Capital Partners Ltd [2021] NZHC 3090 at [54].
43 At [60].
44 DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [10.020(d)].
45 National Mutual Finance (1988) Ltd v Berryman HC Wellington M451/91, 2 October 1991;
Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZ Conv 192, 571 at 192,577 (HC).
Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZ Conv 192, 571 at 192,577 (HC).
binding on the registered mortgagee. The caveat must therefore be removed or allowed to lapse to allow the registration of the transfer to the purchaser.
[122] However, the caveat should remain until the registration of the transfer to the purchaser. Until registration of that transfer, the caveator is entitled to maintain its claim against the mortgagor’s estate in the land.47 Notably though, a mortgagee need not wait until a contract of sale has been entered into in exercise of the power of sale before they apply to the Court for removal of the caveat under s 142.48
[123] It is quite clear, therefore, that Mr Ali’s interest in West Village’s estate, held to be arguable by Associate Judge Andrew, is subject to the fourth defendants’ power of sale as mortgagee. Accordingly, the caveat must be removed to enable the purchaser to obtain clear title from the fourth defendants.
[124] Mr Ali asserts that his in personam claim against the fourth defendants is at least arguable and provides grounds for denying the fourth defendants’ application for removal of the caveat. But as noted, an in personam claim gives rise to a personal remedy against the registered owner. It does not result in the claimant having a proprietary interest.49 Only an estate or interest in land, including a beneficial estate or interest in land, can support a caveat.50
[125] Therefore, even if, contrary to my conclusion on the strike-out application, Mr Ali has an in personam claim against the fourth defendants, the caveat must be removed to enable them to exercise their power of sale.
[126] Accordingly, orders will follow that while the caveat remains on the caveated titles, it is to be automatically removed upon presentation of the transfer for registration.
47 See the discussion at DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [10.020(d)], in particular the cases at n 80 to 84.
48 Public Trust v Toussaint HC Wellington CIV-2004-485-859, 20 July 2004.
49 Mau Whenua Inc v Shelly Bay Investments Ltd [2019] NZHC 3222.
50 Land Transfer Act 2017, s 138.
Result
[127]I order:
(a)paragraphs 89 and 90 of the statement of claim dated 1 December 2021 are struck out; and
(b)summary judgment is entered for the fourth defendants against the plaintiff in respect of the seventh alternative cause of action in the statement of claim dated 1 December 2021; and
(c)in respect of the fourth defendants’ application for relief under s 142 of the Land Transfer Act 2017:
(i)the fourth defendants have leave to commence that application by way of interlocutory application; and
(ii)the caveat will be automatically removed from the titles for units 505 and 403 in the Union Green development on presentation of a transfer to a purchaser following the fourth defendants exercising their power of sale as mortgagee.
[128] My preliminary view is that the fourth defendants should be paid their costs on a 2B basis, and reasonable disbursements, by Mr Ali. The parties are encouraged to agree costs. If this is not possible, they may each file memoranda of not more than three pages within 15 working days.
Associate Judge Gardiner
Solicitors:
Murdoch Price, Auckland Russell McVeagh, Auckland
P J Wright / J Barrow, Auckland
1
0
0