ANZ Bank New Zealand Limited v Te Kooti

[2019] NZHC 1305

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-000606

[2019] NZHC 1305

BETWEEN

ANZ BANK NEW ZEALAND LIMITED

Plaintiff

AND

LESLIE CARON TE KOOTI

First Defendant

THE OFFICIAL ASSIGNEE of TAREHA RICHARD NOAKES

Second Defendant

Hearing:	29 May 2019
Appearances:	R Richter for the Plaintiff
Judgment:	11 June 2019

JUDGMENT OF HINTON J

This judgment was delivered by me on 11 June 2019 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Counsel:
Gibson Sheat, Wellington

ANZ BANK NEW ZEALAND LIMITED v LESLIE CARON TE KOOTI [2019] NZHC 1305 [11 June 2019]

[1]                 The plaintiff, ANZ Bank New Zealand Limited (the bank), applies to the Court by way of an interpleader claim to determine who out of the first defendant or second defendant should be paid the surplus funds held in the bank’s trust account following a mortgagee sale.

[2]                 The second defendant, Mr Noakes, was the owner of a block of land near Kaikohe which was sold at mortgagee sale. He is bankrupt.

[3]                 The Official Assignee has responded to, but taken a neutral position, on the interpleader proceeding.

[4]                 The first defendant, Ms Te Kooti, lodged a caveat which was removed by Court order after the second defendant undertook to hold the surplus proceeds. The first defendant has taken no steps since the caveat was removed.

Background

[5]                 I have set out the background in some detail because I consider it reinforces my conclusion that Ms Te Kooti does not have a direct interest in the surplus funds.

[6]                 Mr Noakes purchased the Kaikohe property in 2001 and entered two loan agreements with the bank in 2001 and 2005.

[7]                 In March 2011, a caveat was lodged by a William Horwarth, on behalf of Okaka Farms Limited, which was the vendor to Mr Noakes, but Mr Noakes’ solicitors brought about the lapse of that caveat.

[8]In August 2015, Mr Noakes went into arrears with the bank.

[9]                 On 8 March 2016, the bank served Mr Noakes with a PLA notice by substituted service. In June 2016, the bank conducted a mortgagee sale and entered into a sale and purchase agreement with a Mr Leslie, (after a marketing exercise). Settlement of that agreement was due in November 2016. That agreement seems to have fallen through.

[10]              On 11 July 2016, Mr Noakes’ solicitor, Mr Davidson, wrote to the bank saying he has been asked to arrange a sale of the property to a family member.

[11]              On 12 July 2016, the bank replied to Mr Noakes referring to the emails from his financial adviser and solicitor and the default notice dated 8 March 2016 and said, “We have been advised that you are in the process of selling your property to a family member and, subject to conditions being met, ANZ would defer mortgagee sale action until 22 July 2016 to allow you to achieve an unconditional sale.”

[12]              The bank was then sent an agreement for sale and purchase dated 15 July 2016 between Mr Noakes and a purchaser called B J Property Ltd or nominee. That company does not appear to have any connection to Ms Te Kooti.

[13]              There is then a letter dated 22 August 2016 from Gibson Sheat, the bank’s solicitors, to Mr Noakes saying the bank mortgage has not been repaid and nor is it likely the agreement of 15 July 2016 will settle, therefore the bank will proceed with a mortgagee sale.

[14]On 10 October 2016, Mr Noakes was adjudicated bankrupt.

[15]              On 28 October 2016, a caveat was lodged by Ms Te Kooti, the first defendant. It said that she had an interest “as a beneficiary in relation to a variation of a deed of acknowledgement of debt dated 28 May 2001, under which the registered proprietor, Mr Noakes-Court, is an equitable mortgagor and the caveator is the assignee of the creditor, who holds an express right to caveat the title”.

[16]              On 7 November 2016, Mr Hall, acting for Ms Te Kooti, wrote to the bank saying, “Our client does not wish to release the caveat. Our client would like to exercise the right of redemption on behalf of the mortgagor. Please provide us with a statement. The property was acquired by the current proprietor, not through a standard terms agreement for sale and purchase, but through a deed of acknowledgement of debt between the proprietor and a party whose interests have been assigned to our client. ANZ in preparing to provide finance should have been aware of this document in conducting its due diligence. The consideration provided under that deed was

considerably less than the value of the property. A trust deed was signed on 7 June 2001 acknowledging the nature of ownership of the property as being in trust. ANZ may not have been informed of the second deed. However, ANZ should have been on notice to the likelihood of its existence because of the substantial difference between the amount loaned under the first deed and the value of the property.”

[17]              There is sworn testimony from a bank officer that neither of the documents referred to in Mr Hall’s email has ever been provided to the bank. The bank was given the usual solicitor’s certificate on behalf of Mr Noakes at the time of purchase confirming that there were no prior registered interests and encumbrances. (That certificate is dated 28 March 2001.)

[18]              At the end of an email of 7 November 2016 from Mr Hall to the bank, he says, “Our client is prepared to negotiate separately with the Howarth interests.” This seems to be a reference back to the caveat lodged in  March 2011, which was  lapsed by  Mr Noakes.

[19]              It seems that immediately before 7 November 2016, the bank had entered into a mortgagee sale agreement for the property.

[20]              On 7 November 2016, the bank replied, “Hi John, it is too late to redeem the mortgage as the property has been sold by the bank. There is no evidence in your email that indicates your client has a caveatable interest and that is further reinforced by the comment that your client will negotiate with the Howarth interests separately.” The bank then required Mr Hall to see to removal of the caveat. They said that the Official Assignee had agreed that the net proceeds of sale could be held in their trust account pending determination as to who has priority.

[21]              On 8 November 2016, Mr Hall wrote to the bank and said, “We have now had the opportunity to discuss this matter. Your client provided finance to Mr Noakes on the settlement of a transfer of the property from our client’s assignor in 2001. The consideration was partially financed by the mortgage, partially financed by a deed of debt, of which our client is the assignee and holds explicit right to register their interest on the property and partially of a trust. Your client has an obligation when lending to

make reasonable enquiries as to whether the credit they advanced would meet the borrower’s requirements. The bank has been made aware verbally of the nature of the finance being provided to Mr Noakes. We do not see how your client can avoid our client’s right to redeem the mortgage. Let us know a figure for settlement.”

[22]              On that same day, the bank replied saying, “You have not provided any evidence regarding the interest claimed by your client. There is no evidence the bank had any knowledge at the time it advanced its mortgage. The mortgage cannot be redeemed. The property has been sold. You must provide a release of caveat.”

[23]              On 9 November 2016, Mr Hall wrote to the bank saying, “We do not consider it our responsibility to provide your client with the evidence we have of the interest that our client claims. This evidence should already be held by your client in their records of their due diligence.” He asks a number of questions and asks on what basis the bank was able to lend money to “the trustee” (Mr Noakes) without reference to Mr Hall’s client’s assignor. He says it is also unclear what interest the Official Assignee can have in the property.

[24]              Still on 9 November 2016, Mr Hall wrote again saying, “We have been informed that our client is ready to pay off the mortgage, dependent of course upon the urgent provision of your statement for full and final settlement.” It seems the bank then rang Mr Hall, and Mr Hall wrote again, saying, “We have been informed the registered proprietor would be prepared to provide an affidavit that he had advised your client prior to draw-down of their mortgage of the matters we have discussed – in particular, of the nature of the transfer being in trust and our client’s interest in the property. Let me know if that makes a difference.”

[25]              Still on 9 November 2016, Mr Hall wrote again saying, “Due to there being no response to our responses, we have now advised our client to withdraw the caveat. This is without prejudice to our client’s rights, but we thought it best that we now advise our client to comply with your deadline.” The bank replied saying it would agree to pay the costs of the withdrawal of the caveat.

[26]              On 11 November 2016, there was an email to the bank from “Dianna” of “Admin Solutions Incorporation, trading as Total Admin Services”. It says, “I have been asked to confirm the settlement details to you directly. Please be advised that payment was made yesterday in the amount of $68,900 as full and final settlement of the mortgage on the property at 199 Okaka Road. Proof of payment and letter to ANZ is attached. The bank is required to re-assign the mortgage to the estate of Geoffrey Martin Smith.”

[27]              The cheque gave a written order to pay $1, which contradicted the numeric description of $68,900. Both the account name and number on which it was drawn were obscured. The cheque was therefore invalid. Apparently accompanying the cheque was a letter dated 8 November 2016 from a “Geoffrey Martin Smith Estate”, Executor Office, P.O. Box 102, Huntly, signed “Geoff Smith, Liquidator”, which says, “Please find attached a bill of exchange for the amount of $68,900 as full and final settlement of the mortgage. Your lawyers have failed to give a settlement figure, so I have paid it this way. Any attempt to sell will be fought vigorously. The caveat will not be removed. A bill of exchange discharges all liability. If ANZ New Zealand Ltd intends to float the bill of exchange on the open market or add it to its assets and hypothecate it, that is consented to by me.” He then says, “As the estate of Geoffrey Martin Smith has paid the mortgage in full, please assign the first mortgage held by ANZ New Zealand Ltd to the estate of Geoffrey Martin Smith.” There is no indication as to what Geoffrey Martin Smith’s connection or relationship is to Ms Te Kooti.

[28]              On 16 November 2016, the bank wrote yet again  to  Mr Hall  and  also  to Ms Te Kooti reiterating their earlier position that the bank had exercised its power of sale and it was not possible for the mortgage to be redeemed.

[29]              On 17 November 2016, there was an email from a Tane Rakau to the bank. There is also no indication as to Mr Rakau’s connection or relationship to Ms Te Kooti. That email says, “We will appoint a team to fight the removal of caveat. Issues are follows: 1. Flawed. 2. Annexure 23, the website reference. 3. Mortgage agreement, the right to sell in July. 4. Flawed. … gains by the bank. 5. Another reference to be inserted.” That letter is copied to Dame Sian Elias.

[30]              On 20 January 2017, the bank applied to the Court to have the caveat removed, relying on an affidavit sworn by Jennifer Alarcon, bank officer.

[31]              On 7 February 2017, Venning J made an order that the caveat be removed. He determined that there was no proper or reasoned basis to maintain the caveat given the plaintiff’s solicitors could hold the surplus funds on trust until an agreement was reached (or Court order).

[32]              In February 2017, the bank settled the sale of the property, and was left with surplus funds of $126,220.11.

[33]              On 30 November 2017, Gibson Sheat on behalf of the bank, wrote to the Official Assignee on behalf of Mr Noakes, bankrupt; to Ms Te Kooti, at Okaka Road, and to Mr Noakes himself, reporting that in February 2017, the bank sold the property by way of a mortgagee sale, and that surplus funds were held on trust by Gibson Sheat. The bank requested the parties reach agreement over any competing claim by 8 January 2018.

[34]              Since completion of the mortgagee sale, there has been no correspondence from Ms Te Kooti, Mr Noakes, “Mr Geoffrey Smith, Liquidator”, or any of the other parties apparently connected or possibly connected to the first defendant. There have been two emails from the Official Assignee, who has taken a neutral position and asked to be kept informed of progress.

Interpleader claim

[35]              The bank was then left with little choice but to bring the present interpleader proceeding, which it filed on 6 April 2018. The matter has finally come to a formal proof hearing, following substituted service on Ms Te Kooti on Friday, 7 September 2018 at 143 Whakataha Road, Kaikohe, by affixing the documents to the front door.

[36]              For the sake of completeness, the background to substituted service was also addressed by Ms Alarcon. She swore an affidavit dated August 2018 which said that the bank instructed Scope Precision Intelligence Ltd to conduct a trace search on the first defendant, then Ms Te Kooti, with the aim of locating her for service. Scope

advised the plaintiff of its search results locating the address of 143 Whakataha Road, attending at the property and speaking to a person who identified himself as the first defendant’s cousin. Scope then telephoned the first defendant on a telephone number provided by the cousin. The first defendant confirmed she resided at the property, but was currently away and due back the following week. Scope then arranged to meet her at the property that next week and attended the property to find she was not there. They then arranged to meet her again and the meeting did not occur. She would not confirm a meeting time and appeared to be evading service. So, the order was made that the documents be affixed to the main entrance door of the property, which then occurred.

Analysis

[37]              The first defendant’s claim to be an assignee of an equitable mortgage over the property, and therefore to have a direct interest in the surplus funds, has not been supported by any evidence, just by repeated statements in correspondence. As noted, on 9 November 2016, after every opportunity had been given for evidence to be provided, Mr Hall expressly declined to provide evidence on behalf of Ms Te Kooti. I note further that, although the basis of the claim has been fairly consistently stated, many features are suspicious. Ms Te Kooti’s name or claim does not seem to be raised until after Mr Noakes’ bankruptcy. Although incidental, the cheque arrangement and a number of other features of the ongoing correspondence are also highly misleading or very odd to say the least. Overall, the circumstances and correspondence suggest the claim was not genuine, but rather made to try to circumvent surplus funds going to the Official Assignee.

[38]              Ms Te Kooti has not only not defended this interpleader proceeding, she seems to have avoided service. She can reasonably be assumed to have received the documents nevertheless.

[39]              Furthermore, the claim as expressed in the first defendant’s caveat appears to be that she is an assignee of a loan advance. Depending on the (unproven) terms of the alleged original loan agreement, that might not create an equitable interest in the

land and/or any priority over other creditors in the second defendant’s bankruptcy, in any event.

[40]              I therefore conclude that Ms Te Kooti does not have a valid claim to any interest in the surplus funds. It may be that it is not too late if Ms Te Kooti wishes to pursue a claim as an unsecured creditor, to pursue it with the Official Assignee, along with other creditors. The Official Assignee would undoubtedly still require some proof that Mr Noakes did owe a debt and to whom, and that it has been assigned to Ms Te Kooti.

Order

[41]              The surplus funds are therefore to be paid to the Official Assignee, on behalf of the former owner of the property, Tareha Noakes, now bankrupt.

Costs

[42]              Ms Richter seeks indemnity costs under r 4.6.4 which allows for indemnity costs for interpleader claims. I find that the bank is entitled to indemnity costs on a reasonable basis, those costs to be deducted from the surplus fund. Ms Richter has since the hearing filed a careful, itemised memorandum as to costs and disbursements totalling $13,621.04 and I fix costs and disbursements in that amount.

[43]              Finally, I wish to thank Ms Richter for her written and oral submissions which I found very helpful.

Hinton J