Aorangi Forests Limited v Vegar-Fitzgerald
[2013] NZHC 3370
•16 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-004198 [2013] NZHC 3370
BETWEEN AORANGI FORESTS LIMITED Applicant
ANDPATRICIA ANNE VEGAR- FITZGERALD
Respondent
Hearing: 15 November 2013
Appearances: B J Burt for Applicant
P H Lowndes for Respondent
Judgment: 16 December 2013
JUDGMENT OF ELLIS J
This judgment was delivered by Justice Ellis on 16 December 2013 at 11.30 am
pursuant to R 11.5 of the High Court Rules.
Registrar / Deputy Registrar
Date……………………….
AORANGI FORESTS LTD v VEGAR-FITZGERALD [2013] NZHC 3370 [16 December 2013]
[1] In these proceedings Aorangi Forests Limited (AFL) seeks an order removing a caveat placed by the respondent, Mrs Vegar-Fitzgerald, over 15.7363 hectares of land at Matakana, which is comprised in Certificate of Title 337336, North Auckland Land Registration District (the Matakana land).1
[2] AFL is a New Zealand company owned by Burvle and Carolie Swindle, who live in the United States. Mr and Mrs Swindle are also directors of the company.
[3] The registered proprietor of the Matakana land is Vegar Properties Limited (VPL), which is part of a group of companies owned, directly and indirectly, by the Vegar family, who are involved in the wine industry in the Matakana region.
[4] The background to the application is a little complex, but the detail is of some significance to the issues at hand. I therefore set it out below.
Background
The OSL loan and associated securities
[5] In early 2009 AFL entered into two written facility agreements, pursuant to which it agreed to advance $1.5m to another New Zealand company, Orakei Securities Limited (OSL). OSL then on-lent that sum to two companies associated with the Vegar family and known as Vintage 2009 (A) Limited and Vintage 2009 (B) Limited (the Vintage companies). To that end, on 9 March 2009, the following instruments were executed:
(a) two term loan facility agreements whereby OSL lent $600,000 to
Vintage (A) and $900,000 to Vintage (B);
(b)a general security deed in favour of OSL over all the present and future assets and undertakings of each of the Vintage companies; and
1 There are also parallel proceedings brought by Mrs Vegar-Fitzgerald in which she seeks specific performance by VPL of the sale to her of the Matakana land: CIV -2013-404-003585. AFL is named as a party to those proceedings.
(c) a guarantee and indemnity from Paul Frederick Vegar, Ivan Thomas Vegar, Helen Jean Vegar and VPL in relation to the Vintage companies’ debts.
[6] Clause 2.4 of the guarantee and indemnity agreements provided as follows:
Agreement to mortgage: If for any reason the Principal Debtor defaults in the due and punctual payment to the Lender of the Guaranteed Indebtedness or any part thereof or defaults in due and punctual performance and observance of the Guaranteed Obligations or any of them then the Vegar Properties Limited [sic] agrees to grant to the Lender a mortgage over the Property. Vegar Properties Limited acknowledges that this clause 2.4 is intended to constitute an agreement to mortgage the property entitling the Lender to lodge a caveat against the title to the Property. Vegar Properties Limited undertakes to the Lender that it will not transfer, mortgage or encumber the title to the property without the prior written consent of the Lender.
[7] Thus, in the event of default by the Vintage companies, OSL would hold a registrable mortgage over the Matakana land.
[8] Shortly after the execution of these documents, on 12 March 2009, OSL unconditionally assigned all of its rights and interests in these facilities, together with the accompanying securities, to AFL. It is not in dispute, however, that OSL did not give notice of this assignment to VPL until a year later on 25 March 2010.
The BNZ loan, VPL’s default and the proposal to sell the Matakana land
[9] On 26 June 2009, VPL entered into a loan facility with BNZ, pursuant to which BNZ agreed to advance $2m to the company. This facility was secured by (inter alia) a first ranking, registered mortgage over the Matakana land.
[10] During the latter part of 2010 it became clear that VPL was having difficulties meeting its obligations to BNZ. There were discussions between VPL’s director, Paul Vegar, and the bank about the possibility of finding a purchaser for the Matakana land. The Bank acquiesced, in principle, to the proposal, but was always careful to reserve its final right to approve (or disapprove) any sale. In due course, the land was scheduled for auction, but the auction was cancelled due to lack of interest.
[11] On 3 February 2011, as a result of defaults by VPL under the BNZ loan and also in relation to amounts payable to Auckland Council (which also constituted a breach of the BNZ facility), BNZ issued a notice to VPL under ss 119 and 128 of the Property Law Act 2007 (the PLA). VPL failed to comply with the PLA notice on or before 18 March 2011 which was the date for compliance specified in the notice.
[12] In April 2011, Paul Vegar sought BNZ’s consent to sell the land to his mother, Mrs Vegar-Fitzgerald, for $500,000. Although the proposed price was based upon a registered valuation obtained by Mr Vegar, the land had previously been valued (in May 2009) at $3.5m. And a short time later, on 2 December 2011, was valued at
$1.695m.
[13] In response to Mr Vegar’s request for consent to the proposed sale, BNZ agreed to forbear from “taking any further action prior to 22 July 2011” provided that “no later than close of business on 4 May 2011 (time being of the essence)”:
(a) the $50,000 deposit payable by Mrs Vegar-Fitzgerald in respect of the sale was applied in permanent reduction of VPL’s indebtedness to BNZ; and
(b)a draft settlement statement was provided by VPL’s solicitors to BNZ, to confirm the amount expected to be received on settlement date, and the settlement statement was acceptable to BNZ in all respects.
[14] Neither of these conditions was, however, fulfilled. Rather, it was not until
11 May 2011 that Mr Vegar and his mother concluded the agreement for sale and purchase. And although, on the same day, Mrs Vegar-Fitzgerald provided to Mackeys Real Estate Limited (the real estate agency acting on behalf of VPL) a personal cheque for the $50,000 deposit, she instructed Mackeys, “not to present [the cheque] until certain legalities had been sorted out”.
[15] Nonetheless, on 16 May VPL’s solicitors wrote to BNZ enclosing a copy of
the sale and purchase agreement, asking:
Please confirm that you will provide us with a discharge of mortgage on the basis that net proceeds of the sale are forwarded to you on settlement date.
[16] The BNZ responded on the same day, saying:
The Bank’s agreement to discharge the mortgage is conditional upon receiving a draft settlement statement and this being acceptable to the Banks in all respects.
[17] Two days later (and prior to any draft settlement statement being provided) the BNZ’s position was qualified somewhat by way of letter from the its lawyer, Mr Toebes, to VPL’s solicitors, which stated:
The undertaking will be to provide a release of mortgage upon payment to the Bank in cleared funds without set off or deduction on the settlement date of the approved quantum of net sale proceeds. In that regard, we would be pleased if you could forward to us a draft disposition statement showing the gross sale price, plus GST if any; less the proposed costs of sale and thus the resultant amount available to the Bank as net sale proceeds.
[18] At about 10 am on 24 May VPL’s lawers sent a settlement statement to
Mr Toebes, saying:
We would like to be able to settle today if possible so your early assistance in this matter would be greatly appreciated.
[19] Mr Toebes responded at 1.30 pm on the same day. He said:
In preparation for settlement we undertake that we have signed and certified the Discharge of Mortgage in dealing 8769299.
In consideration of you depositing the sum of $493,774.72 into Bank of new Zealand account number ... by bank cheque (cleared funds) or electronic funds transfer as soon as possible on Tuesday, 24 May 2011, we undertake to release the above discharge in to the Landonline workspace into your control and not to withdraw such release or attempt any alteration of the discharge following settlement or release.
(emphasis in original)
[20] Again, however, no payment of any kind was received by BNZ on that date or subsequently.
VPL’s default on the OSL loan and AFL’s acquisition of the BNZ securities
[21] In the meantime, the Vintage companies had also defaulted on the OSL loan. As a result, on 17 October 2010 OSL registered a caveat on the title to the Matakana land claiming an interest as mortgagee.
[22] Subsequently, on 2 March 2011, OSL served letters of demand on the guarantors of the Vintage (A) and (B) loans (including VPL). The demand was for the sum owing under the loans as at 20 August 2010, totalling $1,555,197.31.
[23] As I have said, on 25 March 2011, OSL’s solicitors formally notified Mr Vegar that the Vintage (A) and (B) loan agreements and associated securities had been assigned to AFL.
[24] On 12 April 2011 OSL’s representative, Mr Kingsley Turner, asked Mr Vegar if Mrs Vegar-Fitzgerald was intending to purchase the Matakana land and was told that she was.
[25] On 12 May 2011 Mr Vegar told Mr Turner that the agreement to sell the Matakana land to his mother had been signed and, on 16 May, the Vegars’ solicitor wrote to OSL’s solicitor formally advising of the sale. The Vegars’ solicitor said that because all of the net proceeds would need to be applied to the BNZ loan there would be nothing available to pay OSL. On that basis she asked OSL to discharge its caveat over the title to enable the sale to go ahead. An authority and instruction form was subsequently sent to Mr Turner for that purpose.
[26] Mr Vegar has deposed that early on the morning of 24 May 2011 he had a discussion with Mr Turner in which Mr Turner agreed to remove OSL’s caveat. Mr Vegar says that at 9.30 that morning he emailed Mr Turner thanking him for consenting to remove the caveat and permitting the sale to go through.
[27] Mr Turner denies consenting to the removal of the caveat and denies ever receiving this email. It is not in dispute that, later that same day, he sent an email to Mr Vegar’s solicitors saying:
By way of background to Orakei’s position, Orakei’s caveat relates to a loan to the Vegar group which was funded by way of a third party investor, an elderly American couple based in the US. Since the loan fell into default Orakei has had no capacity to release securities without specific authorisation from the investor.
This morning I met with their NZ advisor. We recommended that the caveat withdrawal be made available and this was supported by their NZ advisor. He has now gone to the couple in the US seeking authorization for us to execute the withdrawal. It normally takes a couple of days for the elderly couple to respond to their emails.
[28] The following day, Mr Turner emailed BNZ’s solicitors offering to purchase
the securities granted to BNZ by VPL.
[29] On 27 May 2011 Mr Vegar emailed Mr Turner, expressing his annoyance that he had not yet received consent from the Swindles, and that he had:
(a) “stalled [BNZ] as long as possible”; and
(b) informed BNZ that AFL’s consent was “coming”.
[30] Mr Turner replied that afternoon stating that it would be a few more days before he was provided with any instructions on the matter.
[31] On 9 June 2011 Mrs Vegar-Fitzgerald placed a caveat on the title to the land, based on her interest in it arising as a consequence of the sale and purchase agreement.
[32] On 16 June 2011, BNZ assigned and transferred absolutely to AFL all of BNZ’s right, title and interest in the debt owed by VPL to BNZ pursuant to the BNZ facility and the securities granted by VPL to BNZ.2
[33] Accordingly, from that point onwards, AFL held a first ranking registered mortgage, together with a second ranking unregistered mortgage over the Matakana
land.
2 As at the working day prior to that assignment (13 June 2011) VPL was indebted to BNZ pursuant to the BNZ facility agreement in the amount of $2,079,814.06 with interest continuing to accrue at 10.4 per cent per annum.
[34] On 23 June 2011 AFL expressly revoked any consent which BNZ had given to the sale to Mrs Vegar-Fitzgerald. On 8 July 2011, AFL appointed receivers to VPL.
[35] Subsequently, on 21 December 2012, AFL entered into an agreement to sell the land to Greenhill Farms Limited (Greenhill), a third party, for $1.659m. The agreement is unconditional but there is provision for it to terminate if the respondent’s caveat is not removed on or before 30 June 2014.
[36] Hence the present application.
Should Mrs Vegar-Fitzgerald’s caveat be removed?
Relevant law
[37] Section 143 of the Land Transfer Act 1952 (the LTA) confers a wide discretion on the Court to make an order that a caveat be removed.3 The onus is on Mrs Vegar-Fitzgerald to establish that she has an arguable case to clog the title.
[38] The general position is that caveats will be removed under s 143 where the Court is satisfied that there is no caveatable interest to protect. But in the present case it is necessarily accepted that a purchaser of mortgaged land such as Mrs Vegar- Fitzgerald generally has standing to claim an interest in land capable of sustaining a caveat.
[39] But the Court’s exercise of discretion to remove under s 143 is not limited to cases in which it is satisfied that there is no caveatable interest. This was made clear by the Court of Appeal in Pacific Homes Ltd v Consolidated Joineries Ltd where the Court said:4
We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation which was then before the Court and were not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a
3 Provided the caveator has been served, the Court “may make such order in the premises, either ex parte or otherwise, as to the Court seems meet.” The breadth of the discretion was confirmed in Pacific Homes Ltd v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).
4 Pacific Homes Ltd v Consolidated Joineries Ltd, ibid at 656.
caveatable interest. In such circumstances 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 interests 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.
(emphasis added)
[40] Mr Burt submitted that the present case is one of those, more unusual, cases that was contemplated by the Court of Appeal here. He relied for that submission on the line of authority that has recently been summarised by Associate Judge Osborne in ASB Bank Ltd v Lambert.5 The relevant passage from the judgment is (rather tellingly) headed “The banks unanswerable case”, and reads as follows:
[20] I apply the same principles as Associate Judge Faire applied in his judgment in Rabobank New Zealand Ltd v Lambert:
The registered mortgagee’s title is paramount; that includes themortgagee’s right to exercise its power of sale: Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd.6
Section 105 Land Transfer Act 1952 provides:
105 Transfer by mortgagee
Upon the registration of any transfer executed by a mortgagee for the purpose of exercising a power of sale over any land, the estate or interest of the mortgagor therein expressed to be transferred shall pass to and vest in the purchaser, freed and discharged from all liability on account of the mortgage, or of any estate or interest except an estate or interest created by any instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.”
I refer also to the judgment of Master Venning in Canterbury Finance Ltd v Sagar Trust Ltd.7 That was a case also where the registered proprietor entered into a sale agreement with another person before the mortgagee conducted a mortgagee sale. The land was sold at the mortgagee sale to Canterbury Finance Ltd which
5 ASB Bank Ltd v Lambert [2013] NZHC 947.
6 Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd
[1984] 2 NZLR 704 (HC).
7 Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZ ConvC 192,571 (HC).
then brought the High Court proceeding. The Court found that the sale agreement could support a caveat but ordered the caveat to be removed. That was because, as the headnote accurately records,:8
If a mortgagee does not consent to a sale the mortgagee is not bound. Sagar’s interest in the land being subject to the mortgagee’s power of sale was extinguished by the sale to the mortgagee: National Mutual Finance (1988) Ltd v Berryman.
[21] Accordingly the interest claimed by the caveator as an interest as purchaser under a sale and purchase contract has no priority and is entitled to no protection in respect of the registration of any transfer executed by a mortgagee for the purpose of the exercise of the mortgagee’s power of sale over the land.
[22] Ms Lambert’s case to protect her caveat must fail in this case (as it has in earlier proceedings) for that, if for no other reason.
[41] I agree with Mr Barr that the present is a case of a similar kind. On that basis, I consider that Mrs Vegar-Fitzgerald can only have a reasonable expectation of obtaining a benefit from continuance of the caveat if I am satisfied that both BNZ and AFL consented to VPL’s sale of the land to her. Otherwise, their rights as mortgagees prevail, and s 105 of the LTA would operate to enable AFL to transfer the Matakana land to Greenhill. In AFL’s case there was also a contractual requirement that any consent be given prior to the sale and in writing. But in either event any consent given must be clear and unequivocal.
[42] Accordingly it is on that issue of consent that the removal application turns.
Did BNZ and AFL consent to the sale to Mrs Vegar-Fitzgerald?
[43] Before turning to consider this, essentially factual, issue, I record my acceptance that, in general terms, it is not appropriate to resolve disputed issues of fact in the context of an application such as the present. As the Court of Appeal said in Sims v Lowe:9
It is clear that this summary procedure for the removal of a caveat against dealings is wholly unsuitable for the determination of disputed questions of fact. From this it follows, and has been consistently held, that an order for the removal of such a caveat will not be made under s 143 unless it is
8 At [4] of Headnote referring to National Mutual Finance 1988 Ltd v Berryman HC Wellington
M 451/91, 2 October 1991; Jenssen v Jenssen, Charles Ashton Ltd CA 246/90, 13 December
1990 and Mewhinney v Permanent Building Society of Otago [1882] 1 NZLR 270).
9 Sims v Lowe [1988] 1 NZLR 656 (CA) at 659-660.
patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so. ... The patent clarity referred to will not exist where the caveator has a reasonably arguable case in support of the interest claimed.
(cases and citations omitted)
[44] But as was also noted by the Court in Canterbury Finance Ltd v Sagar Trust
Ltd:10
... it is nevertheless the case that when considering the affidavit evidence before it, the Court is not required to accept uncritically every statement of facts in the affidavit, no matter how equivocal, lacking in precision, inconsistent with contemporary documents or other statements by the same deponents, or inherently improbable in itself: per Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331 p341.
[45] It is therefore with both the general principle and that specific qualification in mind that I now turn to consider the facts as disclosed in the affidavits filed in the present case.
Did BNZ consent?
[46] In support of his submission that BNZ did consent to the sale (and to release the mortgage), Mr Lowndes relied generally on the BNZ’s acquiescent course of conduct throughout the latter part of 2010 and early 2011. When pressed on the issue of precisely when the BNZ consented to the sale to Mrs Vegar-Fitzgerald, however, he said that it was given through Mr Toebes on 18 and 24 May (see [17] and [18] above).
[47] I accept that the BNZ was clearly minded to consent to the sale at that point. But the difficulty with the submission is that Mr Toebes made it clear on both the occasions relied upon that its consent was conditional. On 18 May the consent was conditional on receipt by the BNZ of the approved quantum of net sale proceeds on settlement date. The BNZ’s undertaking on 24 May was similarly phrased, but
Mr Toebes was more specific as to quantum.
10 Canterbury Finance Ltd v Sagar Trust Ltd HC Christchurch M414/97, 7 August 1997 at 4.
[48] The reality is that while settlement did occur on 24 May no payment of any amount was ever paid to or received by the BNZ. The prerequisites to the BNZ’s consent were not met; the BNZ did not, therefore consent.
[49] In my view that finding is sufficient to dispose of the matter. The BNZ’s rights as mortgagee (now assigned to AFL) continue to pertain, and to trump Mrs Vegar-Fitzgerald’s caveatable interest. For completeness, however, I turn to consider the parallel issue of AFL’s consent.
Did AFL consent?
[50] At the outset it can be noted that there is no dispute that, contrary to the obligations imposed on VPL by clause 2.4 of the guarantee and indemnity, no written consent (or indeed any consent at all) was obtained from AFL prior to the sale to Mrs Vegar-Fitzgerald on 11 May 2011. Again, that probably suffices to dispose of the matter.
[51] But even if that were not the case I do not accept that there is credible evidence that establishes that Mr Turner did, in fact, consent to the sale on behalf of AFL at any time. I accept that Mr Vegar has deposed that Mr Turner gave his consent on behalf of AFL on the morning of 24 May. But that evidence must be weighed against the following matters.
[52] First, Mr Vegar knew by then (or should have known, by virtue of the notice of assignment) that the securities were owned by AFL, not OSL. In my view there is no evidence to suggest that Mr Turner was AFL’s agent and no evidence that he was he held out by AFL to be such.
[53] Secondly, the evidence discloses that Mr Turner in fact had a meeting planned with AFL’s New Zealand representative for later that same day. That evidence is entirely consistent with Mr Turner’s advice to Mr Vegar later that day that consent was required from AFL’s US owners.
[54] And lastly, there is Mr Vegar’s own email to Mr Turner of 27 May in which he expressed impatience that consent from AFL had not yet been received.
[55] I accept that the communications between Mr Turner and Mr Vegar suggest that there may have been a modicum of dissembling on Mr Turner’s part. In particular I accept that he appears to have been suggesting to Mr Vegar that AFL’s consent was likely to be forthcoming when that was not, in fact, so. Indeed, it seems quite clear that AFL were executing “Plan B” by making quite contrary arrangements with BNZ. But while Mr Turner was playing his cards close to his chest I do not consider that this constituted either consent or vitiating conduct on his part. Accordingly, in my view, AFL did not consent to the sale either. It certainly did not do so in writing and prior to 11 May.
Conclusion
[56] In summary, I consider that neither BNZ nor AFL gave their consent to the sale to Mrs Vegar-Fitzgerald. Accordingly, on the basis of the authorities to which I have referred above, the rights of BNZ and AFL to sell the land pursuant to their respective mortgages take priority. By virtue of s 105 of the LTA, AFL would be entitled to transfer the property to Greenhill; Mrs Vegar-Fitzgerald can have no reasonable expectation of obtaining a benefit from continuance of her caveat.
[57] I make an order that Mrs Vegar-Fitzgerald’s caveat be removed accordingly.
AFL is also entitled to its costs on this application, on a 2B basis.
[58] As a post-script I note that Mrs Vegar-Fitzgerald will need now to consider whether and in what form she wishes to pursue the separate claim she has filed against VPL and AFL. A claim for specific performance cannot (in light of my conclusions above) now be maintained. The matter is to be placed in the Duty Judge list early in the new year in order that the Court may be updated as to her intentions
and make any directions required.
Rebecca Ellis J