Cashmere Capital Limited v Crossdale Properties Ltd HC Christchurch CIV 2008-409-000825

[2008] NZHC 2678

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2008-409-000825

BETWEEN

CASHMERE CAPITAL LIMITED Plaintiff

AND

CROSSDALE PROPERTIES LTD First Defendant

AND

GARRY WILLIAM CAMPBELL Second Defendant

AND

PATRICK KEVIN CARROLL Third  Defendant

AND

THOMAS WILLIAM RAINEY Fourth  Defendant

AND

B V STRANGER Fifth  Defendant

AND

MARGARET MARY TERESA CUNNEEN

Sixth  Defendant

AND

PATRICK KEITH BROWN Eighth  Defendant

AND

JUNE H PARSONS Ninth Defendant

AND

MARY ELLA LORY Tenth  Defendant

Hearing:

9 September 2008

Appearances: G A Hair for Plaintiff

T D Holton for Third Defendant
N Till QC for Fourth-Sixth and Eighth-Tenth Defendants

Judgment:      13 November 2008

JUDGMENT OF FOGARTY J

CASHMERE CAPITAL LIMITED  V CROSSDALE PROPERTIES LTD AND ORS HC CHCH CIV 2008-

409-000825  13 November 2008

INDEX

Para No. Introduction      [1]

The facts  [7] The issues   [13] The jurisdiction to strike out or dismiss the claim   [15]

Issue 1:  Whether the occupation loan agreements are leases in terms of the Property Law Act 2007, and the Land Transfer Act, so that by virtue of s 138 of the Property Law Act and s 119 of the Land Transfer Act Cashmere is not entitled to physical possession

of the land because it has consented to the residents’ leases  [20]

Property Law Act  [20] Land Transfer Act  [20] The plaintiff’s argument  [22] Whether the occupation loan agreements are leases  [23] Did Cashmere consent to the occupation loan agreements?            [26] The response of the residents  [31] Analysis

A liberal or a restrictive interpretation of the standard of

“consent”  [35] The relevance of mistake  [56] The significance of the mutual covenant that the rights of

resident under the Occupancy Loan Agreement do not

entitle a resident to any proprietary interest or charge  [62]

Issue 2:  Whether variouis provisions of the Retirement Villages Act apply to prohibit Cashmere as a holder of a security interest

from exercising any right to dispose of the retirement village

other than in accordance with the Act  [66]

The plaintiff’s argument  [66] The defendants’ argument  [69] Analysis     [71] Retirement Village  [71] Operator    [76] Plaintiff’s argument  [97] Third defendant’s argument  [100] Analysis   [104]

Conclusion  [112]

Introduction

[1]      In August 2006 Cashmere as lender loaned Crossdale $875,000 in two loans. There was a third advance on 28 September for $65,000.   The loans were secured by one registered instrument over eight titles, one for each residential unit.  When these proceedings commenced the eight residents were the third to tenth defendants.  The sixth and eighth defendants took up occupation after the mortgage, replacing occupiers who had been on similar terms.  The seventh defendant has vacated and is not an active party to these proceedings.

[2]      At the time Cashmere lent the money the registered titles did not then, or at any time subsequently, identify or notify an interest in favour of any of the occupiers of the dwellings.  No memorial under the Retirement Villages Act 2003 was or ever has been registered against the titles.   Crossdale defaulted under the loans.   The guarantor to the loan, Crossdale’s director, Mr Campbell, the second defendant, has been bankrupted.   The Official Assignee has advised the Court that Crossdale is likely to be put into liquidation.

[3]      In these proceedings Cashmere contends that as first mortgagee it has right to the vacant possession of the properties and to give clear title to an eventual purchaser free of any right or interest that the defendants may have.

[4]      The defendant occupiers have agreements with Crossdale giving them life occupancy.

[5]      Cashmere seeks declarations:

1.        These agreements are not binding on it as mortgagee.

2.        It is not an operator within the meaning of s 5 of the Retirement

Villages Act.

3.It is entitled to enforce its power of sale and to give clear title to an eventual purchaser.

4.It is entitled as against the defendants to vacant possession of the properties.

5.        It seeks an order that the defendants vacate the properties.

[6]      On 9 September I adjourned the hearing to 3 November to hear and resolve the  defendants  application  that  the  plaintiff’s  claim  should  be  struck  out,  or otherwise dismissed, whether under r 186 or r 136 of the High Court Rules.

The facts

[7]      The facts that I have referred to in [1] and [2] above are not in dispute.  The following facts would be contested only by the first and second defendants who did not participate in these hearings.   Cashmere’s officers contend that Mr Campbell mislead them at the time he applied to refinance his existing first mortgage on eight of the units.

[8]      Mr Campbell had approached Cashmere for short term financing.  The loans were to be for a term of one year.   Cashmere learned that he was developing a retirement home business in Invercargill known as Abbotsleigh.  The plan was that within 12 months that that development would have reached  a point where the retirement home would be generating sufficient revenue to enable Mr Campbell to refinance at a lower rate and in that context repay Cashmere.

[9]      As part of his application to Cashmere Mr Campbell submitted valuations of the Curletts Road properties.   These valuations were unorthodox.   They did not disclose the terms of occupation of the residential units.  The valuations did not state the income stream being derived from the units.   Mr Campbell is said to have

advised Cashmere that the occupiers of these units were paying rent at $185 a week, which altogether would suggest an annual rental income of about $60,000 a year.

[10]     To  the  contrary,  the  occupiers  of  the  units  had  loaned  Mr  Campbell’s company, interest free, various sums from $40,000 to $50,000.   The occupiers obtained in return the right to occupy the unit for life and the benefit of various ongoing obligations of the landlord including maintenance of the properties and the grounds. The residents did have an obligation under these agreements to pay a small amount of money per week, of the order of $35.  Each occupier had entered into an agreement which were called Occupation Loan Agreements.   In these agreements Crossdale was described as the landlord.  The occupier was described as the resident and the properties overall were described as a village complex known as Crossdale Courts Retirement Community.

[11]     It would appear that Cashmere took Mr Campbell’s application for loans at face value and made no enquiries, notwithstanding the unorthodox character of the valuations, particularly the lack of any detail as to the terms of occupancy.  It is not in dispute that Cashmere knew they were taking security over occupied residential units.  It is true they presented like a tired motel or set of flats.  All the more so the value would normally be related to the capitalisation of the revenue from the units.

[12]  When  Crossdale  defaulted  the  solicitor  for  Cashmere  received communications from another finance company, Furniture Finance, on a prospect that that company would repay Cashmere and take a first mortgage.  Ultimately that did not happen.  By February 2008 Cashmere was considering a sale by mortgagee auction.  At that time Cashmere anticipated selling the land subject to the tenancy agreements, which it thought were in place.   However, on 2 February one of Cashmere’s employees, Ms Cheryl Hamilton, was advised by some of the occupants that  they  were  in  fact  the  owners  of  the  units  and  learned  that  they  had  paid Mr Campbell  various  sums  from  $40,000  to  $50,000.    On  14  February  all  the occupiers received a letter from Cashmere’s solicitors advising of the default and then relevant to these proceedings saying as follows:

1.We act as solicitors for Cashmere Capital Limited who hold a first mortgage registered against the title to the property owned by Crossdale Properties Limited which we understand you occupy.

2.We are writing to you to advise you that the owner of the property Crossdale Properties Limited is in breach of the provisions of the mortgage registered over your unit being mortgage 7024033.4.  As a result of this a Property Law Act Notice has been issued and served and there has been a failure to remedy the default.

3.        As a consequence of this the property has been listed with Real

Estate Agents (Harcourts) for sale by auction at a mortgagee sale.

4.Our client as a result has elected to become mortgagee in possession and requires vacant possession of the premises that you are an occupier of.

5.This letter will be delivered personally to you.   Please ensure that you  vacate  the  premises.     There  can  be  a  discussion  on  the timeframe that you  require to vacate but that does need to be of a short timeframe.

6.We  understand  that it is contended  by you  that  you  have  some arrangement with Crossdale Properties Limited.   Our client was unaware of any such arrangement which was not disclosed to it.  Nor has any arrangement you might have noted on the title nor do we believe from what has been indicated to us is it capable of being noted on the title.  Those are matters that you will need to take up with Crossdale Properties Limited.

The issues

[13]     The occupiers of the dwellings argue, contrary to the declarations sought [5], that Cashmere has no reasonable causes of action for the remedies it seeks.  They advance three separate reasons:

1.Cashmere consented to their tenancies so that any exercise of their powers as mortgagee have to be subject to their rights by reason of the application of ss 137 of the Property Law Act 2007 and 119 of the Land Transfer Act 1952.  (cf declarations 1, 3 and 4)

2.        The property is a retirement village and by the Retirement Villages

Act 2003 their position is protected.  (cf declaration 2)

3.       If  it  is  not  a  retirement  village  they  are  tenants  protected  by the

Residential Tenancies Act 1986.

[14]     It is not possible to rely both on the Retirement Villages Act and on the Residential Tenancies Act.  Those two arguments are in the alternative.  See RVA s 107.

The jurisdiction to strike out or dismiss the claim

[15]     The High Court Rules 136 and 186 provide:

136      Judgment where there is no defence or where no cause of action can succeed

(1)       The Court may give judgment against a defendant if the plaintiff satisfies  the  Court  that  the  defendant  has  no  defence  to  a  claim in  the statement of claim or to a particular part of any such claim.

(2)       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.

186      Striking out pleading

Without prejudice to the inherent jurisdiction of the Court in that regard, where a pleading—

(a)       Discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(b)       Is  likely  to  cause  prejudice,  embarrassment,  or  delay  in  the proceeding; or

(c)       Is otherwise an abuse of the process of the Court,—

the Court may at any stage of the proceeding, on such terms as it thinks fit, order that the whole or any part of the pleading be struck out.

(Emphasis added)

[16]     The submissions of the plaintiff refer to r 186, and I address that rule first. The authorities are clear that the burden is on the applicants to show that the causes of action must be so clearly untenable that they cannot possibly succeed.   It is a jurisdiction which is exercised only in a clear case.  The Court has to be satisfied that

it has the requisite material.  The Court assumes that the facts pleaded by the plaintiff are true.

[17]    This is a case where the relevant facts can be, and have been, set out emphatically in the plaintiff’s favour.  This Court proceeds on the assumption in the plaintiff’s   favour   that   it   is   the   victim   of   dishonest   misrepresentations   by Mr Campbell.   (Mr Campbell has not had a hearing.   This is an assumption made against his interest.   The Official Assignee advised the Court on 9 September last that Mr Campbell is believed to be in Australia.)

[18]     The three propositions relied on by the applicants carry within them difficult questions of law, which have required extensive argument.   The difficulty is not because of any doubt of fact.   In all three cases the difficulty is because there are problems as to the meaning to be given to statutory provisions.   In Gartside v Sheffield, Young and Ellis [1983] NZLR 37, Richardson J said at 45:

… if a claim depends on a question of law capable of decision on the material before the Court the Court should determine that question even though extensive argument may be necessary to resolve it …

[19]     To a considerable degree the standards in rr 186 and 136 are the same. However, I think r 136(2) is the rule more applicable to the issues.  This is a case where a trial will not improve on the assumption I have made in the plaintiff’s favour.  The facts aiding the plaintiff can only be weakened at trial.  They cannot be strengthened.   They can only be weakened were Mr Campbell to participate and persuade the Court that he did not mislead the plaintiff.   The plaintiff has filed extensive affidavits and exhibits together totalling hundreds of pages.  None of this has been disputed by the defendants.     Where questions of law require extensive argument to be resolved they are, of course, difficult.  Our legal system proceeds on the assumption that once resolved the Court has found the only correct conclusion, subject only to rights of appeal.   For these reasons, notwithstanding the need for extensive argument cases which do not need to go to trial to resolve issues of fact can and will be disposed of without trial, by findings on the decisive issues of law. In Pemberton v Chappell [1987] 1 NZLR 1, Somers J for the Court of Appeal said at

4:

Where the only arguable defence is a question of law which is clear-cut and does not require findings on disputed facts or the ascertainment of further facts the Court should normally decide it on the application for summary judgment, just as it will do so on an application to strike out a claim or defence before trial on the ground that it raises no cause of action or no defence: cf R Lucas & Son (Nelson Mail) Ltd v O'Brien [1978] 2 NZLR 289; and see European Asian Bank AG v Punjab and Sind Bank [1983] 2 All ER

508, 516.

Subsequent authorities are consistent.  See McGechan on Procedure at HR 136.02.

Issue 1:   Whether the occupation loan agreements are leases in terms of the Property Law Act 2007, and the Land Transfer Act, so that by virtue of s 138 of the Property Law Act and s 119 of the Land Transfer Act Cashmere is not entitled to physical possession of the land because it has consented to the residents’ leases

[20]     A number of provisions of the PLA and the LTA are relevant to this case. The most important of these provisions are ss 137 and 138 of the PLA and 105 and

119 of the LTA.  The provisions setting the standard of “consent” are highlighted.

Property Law Act

137      Exercise of power to enter into possession

(1)       If a mortgagee becomes entitled under a mortgage, after compliance with subpart 5, to exercise a power to enter into possession of mortgaged land or goods, the mortgagee may exercise that power by—

(a)       entering into or taking physical possession of the land or goods  peaceably  and  without  committing  forcible  entry  under section 91 of the Crimes Act 1961; or

(b)       asserting management or control over the land or goods by requiring a lessee or occupier of the land, or a lessee or bailee of the goods, as the case may be, to pay to the mortgagee any rent or profits that would otherwise be payable to the current mortgagor; or

(c)       applying to a court for an order for possession of the land or goods.

(2)       A mortgagee may do all or any of the things referred to in subsection (1) before or after taking any steps to exercise any power to sell the mortgaged land or goods.

…

(4)       Unless the context otherwise requires, a reference in this subpart to land or goods includes a reference to land and goods.

138Mortgagee  may  not  enter  into  or  take  physical  possession  if mortgagee has consented to lease

(1)       If a mortgagee has consented to a lease of all or part of the mortgaged land or goods, the mortgagee may not, in accordance with section 137(1)(a), enter into or take physical possession of any land or goods that are subject to the lease, except in the exercise of a power conferred by section 147.

(2)       Subsection (1) applies whether the consent was given,  or the lease was entered into, before or after—

(a)      the mortgagee entered into the mortgage; or

(b)      the default occurred; or

(c)      the goods became at risk.

(Emphasis added)

Land Transfer Act

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.

(Emphasis added)

119      Lease not binding on mortgagee without consent

No lease of mortgaged or encumbered land shall be binding upon the mortgagee except so far as the mortgagee has consented thereto.

(Emphasis added)

[21]     It may be noted immediately that the provisions do not conflict.  They reflect a  policy  that  an  estate  or  interest  (including  a  lease)  whether  registered  or unregistered can have priority over the mortgagee’s interest by reason of the consent

of the mortgagee.  That consent is not required to be in any particular form let alone be in writing.

The plaintiff’s argument

[22]     Mr Hair, for the plaintiff, argued:

•   The occupation loan agreements are not leases.

•   Cashmere did not consent to them.

Whether the occupation loan agreements are leases

[23]     Mr Hair did not argue this point fully in front of me, but is preserving the right to take it on appeal.   This is because of the earlier hearing of 9 September, where in oral argument it became apparent to him that I regarded these agreements as amounting to leases for the purposes of both the PLA and the LTA.   The oral judgment did not set out my reasons in full, because it anticipated this hearing.   I repeat paragraphs [3] and [4] of that judgment.

[3]       The defendants all rely on a contract that they entered into with the first defendant whereby the first defendant is described as a landlord and they, each of them, in each contract, is described as the resident and the property is described as a village complex known as Crossdale Courts Retirement Community.   The agreements are apparently in similar form, although I have only studied one, the agreement between the first defendant and the third defendant.  In it the third defendant, Mr Carroll, has paid to the landlord:

… by way of an interest free loan the sum of Forty Nine Thousand

Dollars ($49,000.00) (hereinafter called “the Occupancy Loan”) …

[4]       Mr Carroll has other obligations to pay various payments, including a weekly service charge, and in return the landlord has covenanted to permit Mr Carroll to occupy the unit for his life and the landlord has entered into various other obligations including maintenance, paying outgoings, and so on.

[24]     In these agreements Crossdale is described as the landlord.  Paragraph 1 of the preamble provides as follows:

The Landlord is establishing a village complex known as “Crossdale Courts Retirement Community” situated at 7c Curletts Road, Christchurch (hereinafter called “the Complex”) with individual units for occupancy by eligible persons as determined by the Landlord.

[25]     The occupants are described in the document as “the residents”.  The right of occupancy is for the life of the resident.  That is certain as to the termination event, but uncertain as to the date. The premises are defined.   The agreements grant the residents exclusive possession of the dwelling units.   There is no doubt that the residents have a right to occupy and so have an interest in the land and are lessees or tenants of Crossdale.

Did Cashmere consent to the occupation loan agreements?

[26]     Mr Hair submitted that Cashmere did not consent for the following reasons:

•   Nobody sought Cashmere’s consent to the occupation loan agreements.

•   Cashmere was not aware of the occupation loan agreements.

•   When  subsequently  requested  (in  2008),  the  defendants  refused  to provide copies of the occupation loan agreements.

•   It  would  be  commercially unreal  for the  mortgagor  or  any  party  to expect Cashmere to consent to the occupation loan agreements; the mortgagor (Crossdale) had every reason to hide the occupation loan agreements from Cashmere and the other mortgagees.

•   The  occupation  loan  agreements  would  clearly  diminish  Cashmere’s loan agreements as mortgagee, the very last thing it would consent to. Under the occupation loan agreements lump sums were paid by way of unsecured loans to Crossdale and the revenue strength on the properties removed for the term of the agreements (the defendants’ lives).

[27]     Mr Hair also argued that even if a broad definition were given to “consent” a further issue would arise as to whether a mortgagee, even if it was on notice on the actual terms of the occupation loan agreements could thereby be found to have consented.

[28]     He also relied on the following mutual covenant:

8(a)      The rights of the Resident under this Agreement are the rights and privileges  herein  expressly  granted  and  notwithstanding  anything  herein

before contained or implied do not entitle the Resident to any proprietary interest in or charge over the properties or assets of the landlord not (sic) does this agreement constitute a registerable lease.

(This clause has appeared as 8(b) in at least one agreement.)

[29]     As I understand his argument Mr Hair did not rely on this clause to argue that the agreement was not a lease at all.  But he did submit that this clause amounted to a representation to any third party that any interest registered under the LTA would prevail and take priority.  He argued that any third party, including a mortgagee on notice of the agreement, would be justified in proceeding on the basis that its registered  interest  would  take  priority and  such  had  been  acknowledged  by the residents and as such the residents would be estopped from asserting the mortgagor consented by mere notice of these terms.

[30]   When elaborating on these arguments Mr Hair frequently referred to indefeasibility and the purposes of the LTA.  He repeatedly argued that his client had been entitled to rely on the certificate of title, which made no reference to these agreements.

The response of the residents

[31]     Mr Till QC argued that Cashmere had notice that the defendants had an occupation interest.  The evidence, from Cheryl Marie Hamilton is:

We understood that the units … were rental units and that Crossdale was receiving regular rental income of $185 per week from each unit.

[32]     This  knowledge  existed  at  least  as  to  occupation  and  rent  prior  to  the advancing of the loan.  The loan application identified:

… the Curletts Road properties all being rented.

Mr Hamilton, a director of the company, said that that rental was taken into account when approving the loan.

[33]     Mr Till submitted that because Cashmere made the loans and took its security with the knowledge and reliance on the income from tenancies of the units that amounts to consent.   He submitted Cashmere did fail to make full enquiry but it cannot argue that because its consent was mistaken, due to misrepresentation, it had not consented to the leases.

[34]     Mr Holton’s argument was similar.   He submitted that Cashmere was well aware that there were tenants in the premises.   They recorded that rent was being paid  and  that  by going  ahead  with  the  lending  and  the  mortgage  security they accepted the lessees’ interests.  Cashmere’s conduct was a positive affirmative act amounting to consent; that it was irrelevant that Cashmere did not know the correct terms.  Its directors or employees could have required copies of the agreement to be made  available  to  them.    They choose  not  to.    The  directors  and  managers  of Cashmere were indifferent to the exact terms of the leases.  Cashmere cannot now withdraw their consent and attempt to avoid the terms of the lease.

Analysis

A liberal or a restrictive interpretation of the standard of “consent”

[35]     Before going to the more recent authorities on the “consent” standard in PLA s 138 and LTA ss 105 and 119, it is useful to draw attention at the outset to the nature of the estate or interest of the mortgagee under the LTA.  As is reflected in the text of s 105 a mortgage under the LTA is a charge or security, so that when the mortgagee exercises the power of sale the transfer is still the transfer of the mortgagor’s interest.

[36]     In my view the early analysis of Williams J in Thomson v Finlay (1887)

5 NZLR 203, while not directly on point, is valuable. It contributes to explaining why unregistered estates and interests can be recognised, and are intended by Parliament to be recognised, as a qualification of the principle of indefeasibility of title, and helps explain why I think that Parliament intends that such interests be

readily  recognised  by  a  liberal  and  substantive  application  of  the  concept  of

“consent”.

[37]     In Thomson v Finlay the owner of a dairy farm, Page, had mortgaged it to Sievwright and then after that leased the farm to Thomson and Chipp.   After the payment of the first quarter’s rent Thomson and Chipp paid the rent directly to Sievwright.  A year later Page executed a second mortgage to Sievwright.  A little over two years after that Sievwright in pursuance of the powers of sale contained in both mortgages, sold the land to Finlay.   The advertisement stated the land was under lease to Thomson and Chipp for a term of five years and seven months and named the rental.  Finlay bought the land and argued that he bought it in a bona fide belief that the lease to Thomson and Chipp was not binding on him.

[38]     Williams J said at 206:

Now, under the Land Transfer Act, the mortgagee has not the legal estate in the land, nor, indeed, is any estate in the land, legal or equitable, transferred to him by the mortgage.  All he has is a charge with a power of sale.  The mortgagor, therefore, without the concurrence of the mortgagee, can create a valid term of years in the land, and can enter into a contract which could be enforced specifically to create such a term.  The only person who can avoid the  term  is  the  mortgagee,  and  he  only  if  through  the  default  of  the mortgagor he becomes entitled to take possession of or to sell the land.  The position of the parties is, therefore, entirely different from what it would have  been  under the old system.    The  English cases  decided  upon  that system not only do not apply, but tend rather to darken counsel.

Now, what the mortgagee sells under his power of sale is not  his  own interest, but the interest of the mortgagor in the property:   “Land Transfer Act 1885,” sections 99, 102; and sales or contracts made under the power by the mortgagee are to be as valid and effectual as if made by the mortgagor: section 99.  The interest of the mortgagor so sold would be subject to any rights created by him in favor of third persons which were antecedent to the mortgage, or which the mortgagee might choose to recognise as antecedent  to  his  mortgage.    If  the  mortgagee  in  selling  chooses  to recognise a contract for a lease made by the mortgagor as one by which the mortgagor’s estate is bound, then, as the mortgagee is the only person who can say the estate is not bound by it, the purchaser of the  mortgagor’s interest would, in my opinion, provided he had sufficient notice, buy subject to the contract.  The intended lessees have an equity against the mortgagor and against the mortgaged property, which the mortgagee can override if he chooses;  but if he does not choose to do so, the equity remains.  It seems to me, if the mortgagor has entered into a contract with respect to his estate which can only be avoided by the mortgagee, and the mortgagee sells the estate of the mortgagor subject to the contract, that the result would be the same as if the mortgagor himself had sold his estate subject to the contract.

The contract is a valid one, and the ordinary rule would apply, that when a person buys an estate subject to a valid contract he is bound to carry it out.

(Emphasis added)

[39]     Williams J never refers to the predecessor to s 119 which was, at that time, s 88 of the Land Transfer Act 1885 which provided:

No  lease  of  mortgage  or  encumbered  land  shall  be  binding  upon  the mortgagee except so far as such mortgagee shall have consented thereto.

The issue was as to what bound Finlay, the purchaser.   So the section was not directly applicable.  But we can have no doubt that this eminent Judge would have considered his analysis to be consistent with all the provisions of the Act, including s 88.   His analysis suggests that where a mortgagee has taken security over land which the mortgagor has already leased then the mortgagee’s rights will be subject to the lease.

[40]     The Courts of Australasia have never fully worked out the tensions between the founding concept that the certificate of title should be the complete register of all interests and, on the other hand, the recognition and accommodation within the Land Transfer Act of the continuance of unregistered interests, of which ss 105 and 119 are instances of such accommodation.  The Torrens statutes have never adopted the founding concept absolutely.

[41]     The statutory standard of “consent” in those two sections is clearly different from the imposition of a trust or recognition of an estoppel by way of the application of principles of equity.  Those are in personam remedies.  The constraints in ss 105 and 119 of the LTA, and 138 of the PLA, have an in personam quality but in my view should not be confused with, or confined by, the ability of the Courts in equity to give relief against persons, whatever the terms of the LTA and PLA.

[42]     There are observations on the relationship between remedies in personam and indefeasibility of title in the recent decision of the Supreme Court in Regal Castings Limited v Lightbody [2008] NZSC 87. The Court in that case was not considering restraints imposed directly by the LTA and PLA in respect of unregistered estates or interests. In that respect Regal Castings is not of direct assistance.  But, in support

of the perspective I am bringing to the issues it is appropriate to quote three paragraphs from the judgment of Tipping J:

[154]  All that said, it is important to recognise, as the in personam jurisdiction does, that the registered proprietor does not take free of interests (whether   registrable   or   not)   which   his   own   conduct   binds   him   to acknowledge.   That conduct may give rise to contractual obligations or to obligations which equity requires the registered proprietor to observe.  Those obligations create interests in other parties over which s 62 does not give paramountcy. The classic example of such an interest is that of a beneficiary where the registered proprietor holds the land as trustee.   A trustee’s indefeasible title does not prevent the enforcement of trust obligations, they being  an  obvious  case  when  the  registered  proprietor’s  conscience  is engaged.

[155]    The in personam jurisdiction and its associated jurisprudence have always recognised that the essential purpose of Sir Robert Torrens’ system was to simplify and make more certain transactions involving transfer and other dealings in respect of land.  Vulnerability to non-notified unregistrable interests would not be consistent with that purpose.  The Torrens system was not, however, designed to remove all scope for equitable intervention against those who are registered proprietors of land.191 In giving the advice of the Privy Council in Oh Hiam v Tham Kong, Lord Russell said that the Torrens system did not deprive “equity of the ability to exercise its jurisdiction in personam on grounds of conscience”.192   He added that the Court could make “an order in personam that the registered proprietor should defeat his own title”.193

[156]   That may be done when it would be contrary to good conscience for the registered proprietor to rely on the register so as to defeat a claim or remedy  which  equity  would  otherwise  enforce  or  grant  against  him.  A decree of specific performance of a contract to sell Land Transfer Act land is another classic example of equity working alongside rather than in defiance of s 62 of the Land Transfer Act.   In short, the in personam jurisdiction exemplifies  the  role  which  equity  has  always  performed  of  preventing people from relying on their rights at law if it would be unconscionable for them to do so; and, in the present instance, provided that equitable intervention would not undermine the statutory purposes of the Act.  Against that background I move to examine whether and to what extent Regal can maintain an in personam claim against the trustees of the Lightbody family trust.

[43]     I use those paragraphs in this case as supporting a liberal and substantive application of the consent standard, rather than the restrictive approach urged by Mr Hair, in order to limit recognition of exceptions to the principle of indefeasibility of title.  I think that Mr Hair’s constant reference to the importance of indefeasibility

192 [1980] 2 MLJ 159 at p 164.

193 At p 164.

of title is in error of law in this case because he does not recognise that within the scheme of the LTA, and in the counterpart sections in the PLA, Parliament has imposed on mortgagees of registered mortgages recognition of unregistered leases in most situations.

[44]     Such a policy is not surprising.   The Court should not be hostile to it.   It reflects  the  basis  upon  which  lenders  normally  advance  money.    Normally  the tenancy or leasing of premises enhances the market value of commercial premises, and so its value as collateral to a loan.  Most mortgagees are not only content to take security over premises which are leased but seek to obtain the benefit of those leases as  and  when  they execute  the  security.    The  Parliamentary policy also  reflects broadly the law of equity.

[45]     As Richardson J explained in the decision of Mills v Dowdall [1983] NZLR

154,  at  159-160,  a  substance  over  form  analysis  is  not  just  confined  to  the application of the law of equity but will be used by the Courts when on a proper interpretation of a statute that is what Parliament requires.

[46]     In my view there is no doubt that these relevant provisions of the PLA and LTA represent a measure of protection intended by Parliament for lessees whether the leases be registered or unregistered.  This policy has its roots in the law of equity, although it is not a simple application of the law of estoppel or fiduciary obligation. It is a statutory measure, which has to be interpreted as a measure influenced by the principles of equity underlying the remedies in personam.  However, it is a measure which is broader than the remedies available by in personam relief.

[47]     For all these reasons I am of the view that the correct application of the standard of consent as deployed in these material provisions of the LTA and the PLA requires  a  liberal  and  a  substance  over  form  analysis.    All  equity  analysis  is substance over form.

[48]     A number of modern cases on the question of consent were cited to me.  In none of them was the lease in existence prior to the execution of the mortgage.  In my view this significantly qualifies the application of these decisions.

[49]     The first decision is that of the Court of Appeal in Registered Securities Limited v Christensen Potato Company Limited [1991] ANZ ConvR 57. RSL had advanced $223,000 to Mr Murray Christensen and his wife on a security of a second mortgage over their farm property. The property was registered in December 1985 by which time the mortgagors had got into default and s 92 notices were being issued at three monthly intervals. In late 1986 100 acres of the farm was ploughed for the purpose of sowing potatoes and Mr and Mrs Christensen and CPC (the respondent) entered into a deed whereby CPC would lease the 100 acres for 12 months. This followed a meeting a month before on the property at which a director of RSL was present. In March 1987 RSL entered into possession and the property was eventually sold and purchased by RSL. CPC claimed that RSL had consented to the lease and was wrongly excluding CPC from its occupation of the leased land. It sought an injunction and enquiry into damages. Somers J delivered the decision for the Court. He began by considering the position at common law. He explained that while a mortgagor would be bound to the lease the tenant would have no defence against a mortgagee’s claim to possession, unless the mortgagee recognised the lessee as tenant or was otherwise estopped from denying the tenancy, that the onus lay on the tenant to show the mortgagee must recognise his right of occupation and mere knowledge of the existence of the lease is not enough. Plainly, that is not the case under the LTA as Williams J pointed out in Thomson.

[50]     Somers J then turned to the position under the Land Transfer Act, citing s 119 and Thomson.   However, he did not analyse Thomson because s 88 had not been mentioned  and  seemed  to  have  no  bearing on  the  case.    He  then  analysed  the evidence in this fashion at 5:

… Thus the evidence is that RSL did not know the terms of the lease to which it was claimed to have given consent.  The evidence for CPC was to the effect that RSL agreed in general terms to a lease for the purpose of growing the crop or that it simply consented to the crop being grown.  We are of opinion that if RSL agreed with the mortgagor that his brother might lease some land on which to grow potatoes or merely agreed that the brother might grow such a crop for his own benefit and the brother grew the crop on such an understanding then RSL could not be heard to claim the benefit of the crop.  (at 5)

(Emphasis added)

In my view the words in bold are applying a liberal and substantive standard of consent.

[51]     In NZ Fisheries Limited v The Napier City Council  [1990] 1 NZ Conv 190,

342 New Zealand Fisheries had leased premises from Deep Sea Fisheries.   The premises were mortgaged to Charles Ashton Ltd.  It was unregistered.  Mr Ashton, who spoke for his company, knew in general terms about the occupation of the premises.  He knew that New Zealand Fisheries Limited was to take over one of the businesses  in  the  premises.    Charles  Ashton  Ltd  registered  its  mortgage  and exercised a power of sale.     Delivering the judgment for the Court Casey J cited from Somers J, reviewing the position at common law, and went on at 190, 344:

As the dictionary definition indicates, ‘consent’ involves agreement to a proposal or request.   Mere acquiescence in a state of affairs would not be enough.   …   acquiescence involves no more than the passive standing by without objection, whereas consent requires a positive affirmative act such as written or oral acceptance or even an implied acceptance by conduct.

On that test the Court held there was no evidence of any specific request for consent in this case.

[52]     The analysis and language chosen by the Court of Appeal Judges in those two cases is obviously coloured by the facts that they were considering.  Commercially there is a considerable difference between a lender deciding to take as security premises which are tenanted, from a lender acquiescing or positively consenting to a subsequent lease.  As already noted, in the former case, and particularly where the premises are commercial, the presence of quality tenants will enhance the value of the property as a security.   In the latter instance the mortgagor will usually be obliged by contract to obtain the mortgagee’s consent to any alteration in the leasing of the premises.   Indeed, if a subsequent lease is to be registered, s 115(4) of the Land Transfer Act requires the consent of the mortgagee to be obtained.   If the subsequent leases are informal and entered into without the knowledge of the mortgagee there is no relevant principle of common law or equity that would make it meritorious that the mortgagee should be bound.

[53]     On the other hand, where the mortgagee has approved the property as a security, in part because it is leased, there is suggestion of an injustice if the same mortgagee subsequently seeks to deny the lessee’s interest. The law of equity leans against persons seeking to take advantage of a fact and then deny the fact as it suits. That thinking is embedded in the reasoning of Somers J in RSL, highlighted in bold above, and generally in the reasoning of Williams J in the passage set out above in Thomson.

[54]     It is important to keep in mind that at common law the purchaser obtains title from the mortgagee who, by reason of the mortgage, holds the legal title, whereas under the Land Transfer Act, as Williams J  explains, the purchaser obtains the mortgagor’s title.  So if the mortgagee under the Land Transfer Act has consented to the obligations assumed by the mortgagor there is no basis in justice for either the mortgagee or the purchaser to have better title.

[55]     For these reasons there is no doubt in my mind that the reason why there are no cases where a mortgagee has even tried to disavow unregistered leases in place before the mortgage was granted, is because it is very unlikely that there will be a set of facts justifying such a disavowal.

The relevance of mistake

[56]     On  these  facts  the  mortgagee  has  consented  to  the  residents’  leasehold interests.  This  is  to  both  the  existing  residents,  and  future  residents  because Cashmere knew the units were occupied by residents and understood them to be paying rent.  From the context Cashmere knew that there were and would be lessee interests on an ongoing basis.  So that consent endures to the periodic turnover of residents, as occurred in the case of the units occupied by the sixth and eighth defendants, for the premises taken as security was a business.

[57]     To my mind the crux of this case is whether the position should be any different where, as I assume here, the mortgagee’s consent to the residents’ occupation was due to a mistake of fact as to the terms of the leasehold interest, occasioned by misrepresentation on the part of the mortgagor.

[58]     The answer to this question is determined by keeping in the forefront of one’s mind  that  the  statutory  provisions  do  not  require  any  communication  let  alone contract or agreement between the mortgagee and the tenants before the mortgagee is obliged to recognise their rights.  Second, there is no reason in that context why the mortgagee should be able to take advantage of a misrepresentation whether innocent or deliberate by the mortgagor in derogation of the obligations that the mortgagor has as landlord to the tenants.  It follows that any mistake or deceit on the part of the mortgagor, in derogation of the mortgagor’s obligation as landlord to the tenants cannot be taken advantage of by the mortgagee.

[59]     In practice this interpretation of the law is not harsh on the mortgagee.  The facts of this case are unusual because the mortgagee was presented with very unusual valuations of the properties and took no steps to obtain the terms of the tenancies from the landlord.

[60]     On my understanding of the law as set out above, this case does not turn on any exploration as to why the mortgagee proceeded without further enquiry.   Nor does it require any finding of any obligation on the part of the mortgagee to enquire as to the terms.  The law is that the mortgagee’s consent to the lease is given within the relationship with the mortgagor.  So that if the mortgagee chooses to believe the mortgagor, without caring to sight the relevant documentation, that is at the mortgagee’s risk.   The mortgagee, however, cannot take advantage of any misrepresentation by the mortgagor for the statutory policy, under both statutes, does not require or intend that the tenants be engaged in the process whereby the mortgagee gives consent.

[61]     I conclude that once the mortgagee has consented to the leasehold interest, the  mortgagee  cannot  void  the  consent  by  subsequently  pleading  ignorance  or mistake as to the terms.

The significance of the mutual covenant that the rights of the resident under the Occupancy Loan Agreement do not entitle a resident to any proprietary interest or charge

[62]     The terms of this mutual covenant 8(a)/(b) are set out in paragraph [28] above.   This mutual covenant has to be read in context and on the assumption that it is intended to be consistent with the obligation of the landlord in clause 7(a) which relevantly provides:

7. THE Landlord hereby covenants and agrees with the Resident as follows:

(a)To permit (the Resident performing and observing all and singular the  covenants  and conditions on  the  part of the  Resident  herein contained and implied) the Resident to occupy the Unit for the life of the Resident, or if there shall be more than one Resident signing this agreement, the survivor of them or until the Residents occupancy of the said Unit is terminated in accordance with the provisions hereof and to allow the Resident quietly to hold and enjoy the Unit without any interference or interruption by the Landlord or any person claiming under it.  The Resident shall have the use of such indoor and  outdoor  social  recreational  and  other  communal  facilities  as shall be available within the Complex.

[63]     Reading these two provisions together, it is plain that the intent in clause 8(b) is that the resident does not acquire any legal interest or charge over the premises. However, it does not exclude the ability of the resident to obtain from equity an injunction restraining the landlord from ejecting the resident from the premises.  It does not prevent the resident from applying to equity for a decree of specific performance requiring the landlord to carry out the landlord’s obligations, such as keeping the exterior and roof of all the buildings in good and proper state of repair (covenant 7(b)).

[64]     As I have already had occasion to note, the four relevant provisions of the PLA and LTA apply to unregistered leases.  Where the mortgagee has consented to them the mortgagee is obliged to respect the residents’ rights under the agreement as a contract and with that the remedies available to the residents at law and at equity.

[65]     That being so, there is simply no basis at all for the mortgagee drawing an inference, were the mortgagee in this case to have seen the agreement, that this

mutual covenant 8(b) was a representation by the residents that the resident would not assert a right to remain in a unit for life against the interest of the mortgagee, so as  to  prevent  the  mortgagee  exercising  the  power  of  sale  delivering  vacant possession.

Issue 2:   Whether various provisions of the Retirement Villages Act apply to prohibit Cashmere as a holder of a security interest from exercising any right to dispose of the retirement village other than in accordance with the Act

The plaintiff’s argument

[66]     Mr Hair submitted that the issue as to whether or not the properties are a retirement village is a question of fact and unsuitable for determination in these proceedings.   Cashmere has not applied to the Court for a judicial review of that order.  I assume that  such  a step  is  still  possible.   There  are  no  time  limits  to applications for judicial review.

[67]     He then went on to argue that Cashmere is not the operator.   This was his principal argument.  He argued that the RVA has to be construed within the wider context of the established land transfer system and so understood it was Parliament’s intention that a mortgagee’s rights would only be affected if a retirement village was registered and a memorial had been lodged against the title.   He argued that the interpretation sought by the defendants would render nugatory protection for security holders provided by ss 21 and 22;  that Parliament never intended retirement villages to have an immediate priority without registration ahead of a registered mortgagee’s interest.  Parliament never intended the concept of an operator exercising effective management or control to extend to a mortgagee in possession or exercising its power of sale.

[68]     Finally, he submitted that in the present case Cashmere has simply sought to exercise its power of sale.  It is not in possession.  It has not requested, and in any event, has not received any revenue from the properties.   Accordingly, he argued Cashmere is not in effective management or control.

The defendants’ argument

[69]     By an Order in Council on 30 June 2008 the property known as Crossdale Courts (22 titles inclusive of the units occupied by the defendants) was declared to be a retirement village for the purposes of the Retirement Villages Act 2003.  The order came into force on 31 July 2008.

[70]     The defendants argue that the property is a retirement village.   In breach of the  Act  it  has  not  been  registered.    However,  upon  the  default  by  Crossdale, Cashmere is now the operator because it is “in effective management or control” of the village.   As operator Cashmere is obliged to register the retirement village. Registration will have the consequence of a memorial being noted on the certificates of title or computer register.  Upon entry of the memorial, Cashmere, as holder of security interests, is then prohibited from exercising any right under the security to dispose of the village other than as a going concern or to disclaim the occupation right agreements of the resident defendants or to evict the resident defendants as residents.

Analysis

Retirement Village

[71]     This Court can, by way of collateral review, examine whether there is any prospect of Cashmere persuading a Court by way of judicial review to set aside the Order in Council.

[72]     The Retirement Villages Act 2003 s 6 provides:

6         Meaning of retirement village

(1)       In this Act, but subject to subsections (2) to (6), retirement village means the part of any property, building, or other premises that contains 2 or more residential units that provide, or are intended to provide, residential accommodation together with services or facilities, or both, predominantly for  persons  in  their  retirement,  or  persons  in  their  retirement  and  their spouses or partners, or both, and for which the residents pay, or agree to pay, a capital sum as consideration and regardless of whether—

(a)       a  resident's  right  of  occupation  of any residential  unit  is provided by way of freehold or leasehold title, crosslease title, unit title, lease, licence to occupy, residential tenancy, or other form of assurance, for life or any other term; or

(b)       the form of the consideration for that right is a lump sum payment or deduction, or a contribution or a payment in kind of any form, a periodic payment or deduction, or any combination of such payments or deductions, whether made before, during, or after occupancy; or

(c)       the consideration is actually paid or agreed to be paid by a particular resident or particular residents or on behalf of that resident or  those  residents,  or  by  another  person  for  the  benefit  of  that resident or those residents; or

(d)       the  resident  makes  an  additional  payment  or  periodical payment (for example, a service fee) for any services or facilities or access to such services or facilities; or

(e)       the services or facilities, or both, are provided by the owner of the property, building, or other premises, or by any other person under an arrangement with the operator of the village.

(2)       A retirement village includes any common areas and facilities to which residents of the retirement village have access under their occupation right agreements.

(3)       Despite subsections (1) and (2), if 1 or more of the residential units referred to in subsection (1) are located in a rest home or hospital care institution, the only parts of that rest home or hospital care institution that comprise, or are included in, the retirement village are—

(a)       the residential unit or units themselves; and

(b)       the  common  areas  and  facilities  within the rest  home  or hospital care institution (if any) to which the resident or residents of the unit or units have access only by reason of their occupation right agreement.

(4)       For the avoidance of doubt, the following are not retirement villages for the purposes of this Act:

(a)       owner-occupied residential units registered under the Unit Titles Act 1972 or owner-occupied cross-lease residential units that in either case do not provide services or facilities to their occupants beyond those commonly provided by—

(i)        similar  residential  units  that  are  not  intended  to provide  accommodation  predominantly  for  retired  people and their spouses or partners; or

(ii)      residential units occupied under tenancies to which the Residential Tenancies Act 1986 applies:

(b)       boarding houses, guest houses, or hostels:

(c)       halls of residence associated with educational institutions.

(5)       Whether or not a property or building is, or any other premises are, a retirement village must be determined according to the nature, substance, and economic effect of the operation of the property, building, or premises and other facts, and independently of its or their form or description in any document.

(6)       For the avoidance of doubt,—

(a)       a property, building, or other premises does not cease to be a retirement village by reason only that persons in their retirement cease to predominate amongst residents of the village:

(b)       a retirement village does not include any land or building that is under development as a retirement village, or as part of a retirement village, that is not occupied by any resident.

(7)       This section must be read in conjunction with section 103 (which authorises the making of regulations declaring specified property, buildings, or other premises, or property, buildings, or other premises of a specified class, to be or not to be a retirement village for the purposes of this Act).

[73]     In the Loan Occupation Agreements the premises is called the “Crossdale Courts Retirement Community”.   The agreements provide for the occupation of residential units for life against an occupation loan.  However, the village does not provide many services.  The landlord has a duty of maintenance, and an attenuated duty to arrange for medical care, at the cost of the residents.  It is certainly not a five star retirement village.

[74]     Plainly, Parliament recognised that there might be a question of degree as to whether or not a complex was a retirement village.  This is reflected in s 6(5) and (6) (set out above).  It is also reflected in s 103 of the Act which provides:

103      Regulations defining retirement villages

(1)      The Governor-General may, by Order in Council made on the recommendation of the Minister, declare specified property, buildings, or other premises, or property, buildings, or other premises of a specified class, to be or not to be a retirement village for the purposes of this Act.

(2)       The  Minister  must  not  recommend  the  making  of  any  Order  in Council under subsection (1) unless, in the opinion of the Minister, the Order in Council is necessary—

(a)       to prevent the avoidance of obligations under this Act as a consequence of any scheme or arrangement; or

(b)       to clarify whether—

(i)        specific property, buildings, or other premises; or

(ii)      property, buildings, or other premises of a specified class—

whose status is in doubt are or are not a retirement village.

[75]     A successful application for judicial review would have to show that the recommendation of the Minister and the Order in Council fall outside the bounds of s 6.  From the record before the Court it is plain the facts were carefully examined. Mr Hair did not avert to the prospect of challenging the Order in Council by way of judicial review.  I raised that possibility. I am satisfied that there is no prospect in this case of a successful challenge by way of judicial review to the Order in Council. For the Loan Occupation Agreements conform to the reality that this is a community of the elderly, most of whom, maybe all, attended the hearings of this Court.

Operator

[76]     To do justice to Mr Hair’s arguments that Cashmere is not the operator  it is now necessary to discuss, with a little detail, the scheme and purpose of the Retirement Villages Act.  Section 3 of the Act provides:

3        Purpose

The purpose of this Act is—

(a)       to protect the interests of residents and intending residents of retirement villages:

(b)       to enable the development of retirement villages under a legal framework readily understandable by residents, intending residents, and operators:

(c)       for the purposes in paragraphs (a) and (b),—

(i)        to  promote  understanding  of   the   financial  and occupancy interests of residents and intending residents of retirement villages:

(ii)      to   provide   an   industry-focused   regulatory   and monitoring regime for retirement villages in which compliance costs are minimised:

(iii)      to provide external oversight of the conditions of entry into, and the continuing operations of, retirement villages:

(iv)      to introduce requirements and procedures necessary to  give  effect  to  the  regulatory  and  monitoring  regime referred to in subparagraph (ii):

(v)       to provide an environment of security and protection of rights for residents of retirement villages:

(vi)      to confer on the Registrar of Retirement Villages and the Retirement Commissioner  powers, functions, and duties relating to this Act.

[77]     As is apparent from s 3(c)(vi) there is to be Registrar of retirement villages and a Register of the same.  Once the complex is registered then ss 21 and 22 apply:

21       Memorial on certificates of title of retirement villages

(1)      The Registrar must notify the Registrar-General of Land of the registration of a retirement village, and of any change to the property, building, or premises comprising the retirement village notified to the Registrar in accordance with section 13 or section 17.

(2)       The  notification  must  contain  a  description  of  the  land  that comprises the retirement village and identifies the particular certificates of title or computer registers required to be noted under subsection (3), a copy of any written consent to registration of the village lodged with the Registrar under section 12(1)(c), and the address of the holder of any security interest that is registered against the title.

(3)       The Registrar-General of Land must note on every certificate of title or computer register relating to a registered retirement village the words “Subject to section 22 of the Retirement Villages Act 2003 (which provides priority for the rights of residents ahead of the rights of holders of security interests)”.

(4)       The Registrar-General of Land must, when the memorial referred to in subsection (3) is noted, give notice of the memorial to the holder of any security interest registered against the certificate of title.

22       Effect of memorial

(1)       If a memorial is entered under section 21, then, unless all residents of the retirement village have received independent legal advice and at least

90% of those residents have consented in writing, the holder of a security interest  or  any  receiver  or  liquidator  or  statutory  manager  of  property

comprising the retirement village or of any operator of the village must not exercise any right to—

(a)      dispose  of  the  retirement  village  other  than  as  a  going concern; or

(b)      disclaim any occupation right agreement relating to the retirement village as onerous property under section 269 of the Companies Act 1993 or section 117 of the Insolvency Act 2006; or

(c)       evict any resident or exclude any resident from the use of any facilities or any part of the retirement village to which that resident is ordinarily entitled.

(2)       Subsection  (1)  applies  whether  or  not  the  security  interest  is registered against the certificate of title.

(3)       The holder of the security interest, or any receiver or liquidator or statutory manager of property comprising the retirement village or of an operator of the village, may apply to the High Court for an exemption from any  requirement  of  subsection  (1),  and  that  exemption  may  be  granted subject to any conditions that the Court considers appropriate.

(4)       This section does not affect—

(a)       the exercise of any right conferred on any person under an occupation right agreement (including, without limitation, any right to specified services or any right conferred on the operator of a retirement village to terminate the occupation right of a resident or exclude a resident from the use of any facilities or part of the village, or to reduce or cancel services); or

(b)       the exercise of any specified right by a person who—

(i)        was the holder of a security interest in the retirement village on 31 December 2002 (being a security interest that continues to secure the payment or repayment of all or any part of a sum secured by it on that date, that has not been paid or repaid); and

(ii)      has not, since that date, obtained any new security interest in the village or agreed to any increase—

(A)      in the term of the security interest; or

(B)      if  the  holder  offers  a  credit  facility  (for example,   an   overdraft),   in   the   maximum   sum secured by that security interest; or

(C)      if any other sum is secured by the security interest,  in  the  maximum  sum  secured  by  that interest; and

(iii)      has failed or refused to consent to the registration of the village.

(5)       In subsection (4)(b), specified right means any right conferred by the security interest referred to in subsection (4)(b)(i) (being a right provided in that security interest as at 31 December 2002).

The obligation to register a retirement village is imposed on the operator by s 10.  It is sufficient to set out s 10(1).

10       Retirement villages to be registered

(1)      The operator of a retirement village must ensure that it is registered.

…

[78]     Operator is defined in s 5 as follows:

operator, in relation to a retirement village, means any person who is 1 or more of the following:

(a)       a person who is, or will be, liable to fulfil all or any of the obligations under occupation right agreements to residents of the village:

(b)       a holder of a security interest who is exercising effective management or control of the retirement village:

(c)       a receiver of the property comprising the retirement village, or the liquidator of the person to whom either of paragraph  (a) or paragraph (b) applies

[79]     It can be seen immediately that Parliament intended a mortgagee, who is exercising effective management or control, to be the operator, or one of them.

[80]     Mr Till has argued that at least from the Order in Council taking effect, from the end of July this year, Cashmere has an obligation under s 10 to ensure that the retirement village is registered.  He argues this is a continuing obligation and cannot be postponed behind the exercise by Cashmere of its power of sale.  To do otherwise would be to thwart the purposes of the Act.

[81]     The critical question is whether or not Cashmere can be said now to be exercising effective management or control of the village.

[82]     Cashmere is not recognising the village as a retirement village.   In these proceedings it is challenging that proposition.   Rather, its goal is to obtain declarations and an order from this Court whereby the occupants have to vacate the properties leaving Cashmere in a position to either exercise its power of sale to give

clear title with vacant possession to an eventual purchaser or to take possession of vacant premises.

[83]     In that sense it is obvious that Cashmere has not in any way acknowledged the Occupation Loan Agreements.  It does not want to do so.  Were it to do so, or be forced to do so, it would have to confront the properties as offering much lower value as collateral to the outstanding debt that was expected when entering into the mortgages.

[84]     Whether or not a set of residential units is subject to the Retirement Villages Act does not depend on the intentions of its owners.  This is made clear by s 6(5) of the Act which I set out again:

6         Meaning of retirement village

…

(5)       Whether or not a property or building is, or any other premises are, a retirement village must be determined according to the nature, substance, and economic effect of the operation of the property, building, or premises and other facts, and independently of its or their form or description in any document.

[85]     Accordingly it follows that it is Parliament’s intention to “to protect the interests of residents and intending residents of retirement villages” (s 3(a)) whether or not the owners of the properties want the Act to apply.  This Parliamentary policy continues through ss 10, 21 and 22 set out above.

[86]     It is in this context that the definition of operator has to be examined.   In other words, one keeps in mind that a person will be an operator if they fulfil the requirements of s 5 whether they want to be or not.

[87]     In my view it is clear from the inclusive definition of operator and from the general scheme and purpose of the legislation that Parliament intends that there always will be an operator of a retirement village.  It is no part of the scheme of the Act for there to be a retirement village without an operator.  Second, it is also part of the scheme of the Act that it be interpreted substantively, not according to form. Crossdale Properties Ltd, the registered proprietor, was the vehicle of Mr Campbell,

now  bankrupt.    The  Official  Assignee  has  advised  this  Court  that  Crossdale

Properties Ltd is likely to be placed in liquidation.

[88]     Crossdale Properties Ltd is in default of its mortgage to Cashmere.  There is no prospect at all of Crossdale Properties Ltd’s directors and shareholders assuming any of the responsibilities as operator of a retirement village.   The only possible operators now are Cashmere as holder of security interest or the liquidator of Crossdale Properties Ltd.

[89]     In practical terms Crossdale is incapable of fulfilling any of the obligations to the residents in the village.   However, it is apparent from paragraph (c) of the definition of operator that Parliament intends that companies which are in liquidation can still be considered as qualifying under (a).  That suggests to me that Parliament does not intend the definition of operator to be read restrictively.   It conforms with the general scheme of the Act that at all times there has to be at least one person who is the operator.

[90]   There is no doubt that Cashmere is in a position to exercise effective management or control of this village.  The Official Assignee is standing back. Of the three different persons defined in the definition of operator it is only Cashmere who is in an active relationship with the occupiers.

[91] It is Cashmere who wrote to the occupiers on 14 February last, set out in [12]. That letter essentially told the occupants to leave. In a substantial sense it represented an election by Cashmere to endeavour to obtain control of the premises.

[92]     It is unrealistic to suggest that Cashmere is not continuing to endeavour to take control of these premises.  To be sure, it is denying that the premises are subject to the RVA and as part of that it does not want to assume any obligations as an operator.  Viewed from the perspective of the occupiers Cashmere is the entity they are dealing with.   Cashmere says it is not receiving the money for maintenance. However, Mr Till was right to say that the occupiers still have an ongoing obligation to make those payments.  Cashmere as a holder of security interest is endeavouring to obtain control of the premises.  In my view that fact is sufficient for Cashmere to

be  the  operator  if,  as  here,  the  premises  is  a  retirement  village.    I  conclude accordingly that Cashmere is an, if not the, operator.   (There is potential for the liquidator of Crossdale to be a co-operator.)

[93]     It follows then that Cashmere is obliged to register the retirement village and is thereby subject to the constraints of s 22.

[94]     Mr Hair argued that s 22 does not apply until the memorial is registered.  Mr Hair also argued faintly for some priority under the LTA because the mortgage was registered ahead of the memorial.  There is no such policy in the RVA.  Once the memorial is entered on the title the holder of security interest is subject to the restraints of s 22.     There is nothing in that section which exempts holders of registered securities in place prior to the entry of the memorial on the certificate of title.  Indeed s 22(2) is to the contrary.

[95]     Section 22(3) reserves the right of Cashmere to apply to the High Court for an exemption from any of the requirements of subs (1).  There is, however, on these facts no prospect of Cashmere obtaining an order to dispose of this retirement village other than as a going concern, or to disclaim the Occupation Loan Agreements or to evict any of the residents.  Mr Hair did not suggest, and could not, in any realistic fashion, that he had any prospects of success under that reservation in s 22.   The purpose of the RVA would be defeated were it to be interpreted in the manner which would enable Cashmere to simply refuse to ensure that the retirement village is registered and then to proceed under its mortgage instrument.  Mr Till was correct to submit  that  Parliament  intended  the  benefits  of  the  statute  to  be  available  to qualifying retirement villages.

[96]     It is not necessary to take the analysis any further.  I have already held that Cashmere has consented to the leases, and is constrained thereby independently of the application of the RVA.  It is also constrained by the terms of the RVA.

Issue 3:  If the RVA does not apply whether the Occupation Loan Agreement constitutes a fixed term tenancy so that the plaintiff is bound by its terms by virtue of the Residential Tenancies Act 1986

Plaintiff’s argument

[97]     Mr Hair argues that the RTA cannot apply because the occupants are not obliged to pay any rent or anything in the nature of rent.   Section 2 of the RTA defines tenancy:

Tenancy, in relation to any residential premises, means the right to occupy the premises (whether exclusively or otherwise) in consideration for rent; and includes any tenancy of residential premises implied or created by any enactment; and, where appropriate, also includes a former tenancy:

The same section defines rent:

Rent means any money, goods, services, or other valuable consideration in the nature of rent to be paid or supplied under a tenancy agreement by the tenant; but does not include any sum of money payable or paid by way of bond:

[98]     The Occupation Loan Agreements do not provide for rent.  They provide for a lump sum loan advance and some minor payments for ongoing maintenance.

[99]     Secondly, Mr Hair argues that capital never became bound as that term is used in s 58(1)(e).   He argues that Cashmere did not receive any notice of the Occupational Loan Agreements.   The agreements in fact were a fundamentally different character.   The word “bound” is coloured by the subsequent words “consented in writing” and mere consent is not enough, let alone mistaken consent.

Third defendant’s argument

[100]   Mr Holton relies on a decision of Asher J in Ziki Investments (Properties) Limited v McDonald   [2008] 3 NZLR 417 where it was held that a life tenancy constitutes a residential tenancy in terms of the Act.

[101]   Section 58 of the Act provides:

58       Mortgagee or other person becoming entitled to possession

(1)       Where a mortgagee or other person becomes entitled (as against the landlord) to possession of the premises, the following provisions shall apply:

(a)       The   tenancy   shall   continue   notwithstanding   that   the mortgagee or other person has become entitled (as against the landlord) to possession of the premises:

(b)       For the purposes of sections 15, 21A, and 43 of this Act, the mortgagee or other person shall be deemed to have acquired the landlord's interest in the premises, and the provisions of those sections, with any necessary modifications, shall apply accordingly:

(c)       The mortgagee or other person shall have the same rights (if any) as the landlord had under the tenancy agreement or this Act to give notice terminating the tenancy or to apply to the Tribunal for an order terminating the tenancy or for an order for possession of the premises:

(d)       Without limiting paragraph (c) of this section, but subject to paragraph (e) of this section, in the case of a fixed-term tenancy, the mortgagee or other person shall have the same right to give notice terminating  the  tenancy  as  the  landlord  would  have  had  if  the tenancy had been a periodic tenancy:

(e)       Paragraph  (d)  of  this  section  shall  not  apply  where  the mortgagee or other person is bound by the tenancy or consented in writing to its creation.

(2)       Subsection (1) of this section shall apply notwithstanding anything to the contrary in the Property Law Act 2007  or the Land Transfer Act 1952 or any other enactment.

[102]   For this argument to succeed it is necessary to avoid sub-paragraph (d) by finding that the mortgagee is bound by the tenancy or has consented to it in writing.

[103]   Mr Holton relies on paragraph [61] of Asher J’s judgment which provides:

[61]     This  interpretation  of  s  58(1)  can  undoubtedly  be  seen  as  an exception  to  the  doctrine  of  indefeasibility  of  title.  However,  that  is expressly contemplated by s 58(2) of the Act when it states that s 58(1) shall apply notwithstanding the provisions of the Land Transfer Act. Further, it is in accord with the general tenor of the Act and the emphasis in s 85(2) of applying  the  general  principles  of  law  and  considering  “the  substantial merits and justice of the case.” It means, as Mr Molloy for Ziki points out, that  any  prospective  purchaser  or  mortgagee  of  a  residential  property knowing of a tenancy should check its conditions prior to entering into a mortgage or sale and purchase agreement. Such a requirement is not exceptional, and can be seen as in accord not only with ordinary notions of

fairness and justice but with sound commercial practice. The standard ADLS agreement for sale and purchase form provides explicitly for the recording of the details of any tenancy of the property. A wise mortgagee will also check any known tenancies of the mortgaged property before entering into the mortgage.

Analysis

[104]   The material facts of Ziki are different from here.  In particular there was a provision for a rental payment per week.  The relevant terms of the occupancy are usefully  captured  in  paragraph  [3]  of  the  judgment  of  Asher  J  which  reads  as follows:

[3]       In 1985 Mr McDonald and his wife, Diane, purchased a property at

15 Rimu Road, Manurewa, Auckland (“the property”).  By 2005 they wished to raise some cash to pay off debts and make some purchases as by then they were an elderly couple and in poor health.  Mr McDonald was then 78 years old.  The McDonalds were introduced to a financier called Mr Deo Narayan. Mr Narayan and Mr McDonald signed a sale and purchase agreement dated

18 August 2005 (“the McDonald agreement”).  The agreement recorded that the property was sold to Mr Narayan for $150,000. This figure was considerably less than its true market value, which appears to have been at least $222,000.  The agreement also provided in a handwritten clause (“the McDonald tenancy”) inserted under the “Other terms of sale” heading:

1.The  purchaser  agrees  that  upon  settlement  of  the  property  the vendors, JG and DC McDonald, will remain in the house as tenants at a fixed rental of $80 pw until the death of both Mr McDonald and Mrs McDonald, at which time the tenancy will come to an end.

2. The purchaser agrees that no development work will be undertaken on the property until the death of both Mr and Mrs McDonald. This includes work to the existing house or any development on the rear section.

Clause 1 had originally provided for the tenancy to come to an end on the death of whichever of Mr McDonald or Mrs McDonald died first, but that part of the clause had been crossed out and altered.

[105]   On those facts Asher J had no trouble finding that Mr and Mrs McDonald remained in the house as residential tenants.  This case is similar inasmuch as the term of occupation is like the McDonalds, for life.  But unlike the McDonalds, the residents here derive their right of occupation for life from the loan that they advanced.

[106]   The definitions of tenancy and rent set out above raise questions of degree. That is that there is room for reasonable persons to disagree as to whether or not a contractual relationship amounts to a tenancy or the consideration amounts to rent.

[107]   The definition of rent is broad, it encompasses consideration in the nature of rent.  It is possible to argue that the interest free loan enables the owner to effectively obtain interest on the sum paid during the period of occupancy, keeping in mind the obligation to repay the capital sum at a later date and that that interest is valuable consideration in the nature of rent.

[108]   For this reason I am of the view that it is possible to characterise the facts here as a residential tenancy.   I am, however, in some considerable doubt as to whether or not such a characterisation would be in accord with the purpose of the Residential Tenancy Act.  I do not think it is necessary to resolve the issue in this case because I have already found on two separate bases that the plaintiff is not entitled to the remedies that it seeks in these proceedings.

[109]   I note that were I to find the Act did apply the next question would be whether or not the standard “bound” found in s 58(1)(e) applies.  Notwithstanding the standard “bound” is different from the standard “consent” Asher J’s reasoning was very similar to that we have seen adopted by Williams J and Somers J in Thomson and RSL respectively.

[110]   Asher J in [55] and [56] considered that “bound” meant bound under law or equity, putting to one side the doctrine of indefeasibility of title contained in the Land Transfer Act, because s 58(2) provides that s 58(1) applies notwithstanding anything to the contrary in the Property Law Act and the Land Transfer Act.

He also found at [59]:

Notice is the key to the landlord being “bound”.

[111]   He then went on:

[60]     This interpretation of “bound” is also consistent with the use of the phrase  “consented in writing” in  s  58(1)(e).  It  involves  the  same

element of knowledge of the tenancy, but exact knowledge of the terms is not a requirement.  In both situations it would be inequitable for a mortgagee or other purchaser then to reject the tenancy. Interpreting “bound” in this way means that s 58(1)(e) meets the intention implicit in the subsection of protecting a tenant against an inequitable refusal by a landlord or mortgagee to honour a known tenancy.

…

[62]      I conclude that the word “bound” means “bound” in equity, putting to one side the indefeasibility provisions of the Land Transfer Act. In this respect I differ from the learned District Court Judge.

Conclusion

[112]   The defendants have satisfied the Court that the plaintiff cannot succeed in these proceedings.  It has consented to the leases.  The fact that this may have been as a result of a misrepresentation does not vitiate the consents.  Accordingly, ss 138 of the Property Law Act and 105 and 119 of the Land Transfer Act apply against the plaintiff, in favour of the defendants.

[113]   Independently s 22 of the RVA applies to protect the defendants.  The effect of the application of these sections is that Cashmere’s powers of sale have to be executed recognising that the occupants are in possession of the residential units for life and that the buyer acquires the obligations of Crossdale under the Occupation Loan Agreements.

[114]  Accordingly, these proceedings are resolved by giving judgment for the defendants.  Leave is reserved to apply to settle the terms of this judgment, vis-à-vis the titles schedules to the mortgage instrument.

[115]   The defendants are entitled to costs calculated on a 2B basis.  If the parties are unable to resolve the question of costs I will receive written submissions limited to five pages per counsel.

Solicitors:

Malley & Co, Christchurch, for Plaintiff (Counsel: G Hair)

Cameron & Co, Christchurch, for Third Defendant (Counsel: T D Holton)

Steel & Co, Christchurch, for Fourth–Sixth and Eighth-Tenth Defendants (Counsel: N Till QC)