CBI Company Limited v D & E Buses Limited

[2015] NZHC 3205

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2015-404-002386 [2015] NZHC 3205

BETWEEN

CBI COMPANY LIMITED

Applicant

AND

D & E BUSES LIMITED Respondent

Hearing:	14 December 2015
Appearances:	H P Holland for the Applicant L Meys for the Respondent
Judgment:	15 December 2015

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

15.12.15 at 3:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

CBI COMPANY LIMITED v D & E BUSES LIMITED [2015] NZHC 3205 [15 December 2015]

[1]      D  &  E  Buses  Limited  (DEL)  lent  $1.7M  to  Adams  Holdings  Limited

(Adams). A registered mortgage over Adams property secured the loan.

[2]      The loan was for a year but an interim payment had fallen into default.  DEL

was kept informed of efforts by Adams to sell the property.   On 4 March 2014

Adams said it entered into an agreement with CBI Trustees Limited to sell the property, an agreement which included 4 collateral agreements for the sale of various businesses and land owned by the guarantors of Adams loan.

[3]      DEL issued  a  notice  of  default  when Adams  failed  to  make  an  interest payment on 21 March 2014.

[4]      On 16 October 2014 DEL served a s 119 Property Law Act 2007 (PLA)

notice.

[5]      Adams and DEL cooperated regarding conduct of a sale tender process from

February to May 2015 but by the end of that in May 2015 only two bids of less than

$2M were received.

[6]      Shortly after DNA Developments Limited (DNA) showed interest in buying the property.  Adams advised CBI was still interested also.  DEL requested proof of that interest and in response a copy of an undated CBI Trustees Limited agreement was provided to DEL’s lawyer on 27 May 2015 showing a purchase price of $2M.

[7]      DEL responded advising it did not believe the conditions to the undated CBI Trustees Limited agreement could ever be fulfilled and DEL entered into a conditional agreement to sell the property to DNA.  Shortly later DEL cancelled that agreement when CBI declared the undated CBI Trustees Limited agreement was unconditional.

[8]      On 5 June 2015 Mr Denize crossed out the name of CBI Trustees Limited from the 4 March 2014 agreement and wrote CBI Company Limited (CBI) above, initialling the change.

[9]      Shortly after CBI Trustees Company Limited was placed into liquidation.  It is  to  be  recalled  the  undated  4  March  2014  agreement  was  with  CBI Trustees Limited i.e. neither of the entities associated with the events in June 2015.

[10]   In July 2015 DEL discovered the undated CBI Agreement was not unconditional.  At about that time the director of CBI, Mr Green granted a power of attorney to Mr Denize who was until recently before then an undischarged bankrupt.

[11]     In August CBI confirmed it could not meet finance and other conditions of the undated agreement.  Soon after DEL notified CBI that an agreement to sell the property to DNA had been entered into dated 6 August 2015 and which was declared unconditional on 19 August 2015.

[12]     On 17 September 2015 DNA paid the purchase price of the property and received possession of the land.  DEL then attempted to transfer the title to DNA. However on the date of settlement CBI lodged a caveat over the title to the property on the basis of the purported 4 March 2014 agreement, as amended on 5 June 2015.

[13]     On 1 October 2015 CBI entered into  a new agreement for the sale  and purchase of part of the Adams property at 3 Tidal Road.

[14]     On 2 October 2015 DEL expressly confirmed cancellation of the purported 4

March 2014 agreement after receiving a copy of it.

[15]     On 19 November 2015 CBI failed to pay the deposit due on 8 October 2015 required for the purchase of Tidal Road and the Adams Trust formally cancelled the

1 September 2015 agreement to sell that to CBI.

[16]     The evidence is that DNA has since taking possession of the property on 17

September 2015, spent hundreds of thousands of dollars on it and is planning to continue spending further sums in the short term.

CBI’s application to sustain its caveat

[17]     It is advanced on the grounds, inter alia:

(a)      DEL is a mortgagee and therefore is not the registered proprietor of any estate or interest in the land protected by the caveat and has no standing to give notice under s 145(A) of the Land Transfer Act (the Act) for the caveat to lapse.

(b)CBI claims to be entitled to or beneficially interested in the land or estate by virtue of being a purchaser pursuant to an agreement for sale and purchase dated 4 March 2014.

(c)      CBI has an interest in the land.

[18]     Mr Denize has sworn an affidavit in support.  He said CBI entered into an agreement for sale and purchase on 4 March 2014.

[19]     Mr Denize says he attended many meetings including at the offices of DEL’s solicitors, Neilsons concerning the sale of the property to CBI.  He says DEL has had a copy of the agreement since it was signed.

[20]     In a second affidavit Mr Denize provides a copy of a finance offer signed on

9 November 2015.  Mr Denize says the funds are available for drawdown and that

CBI can settle the purchase from Adams at any time.

[21]     Mr Adams of Adams has filed an affidavit in support dated 10 November

2015.

[22]     Mr Adams annexes a copy of the 4 March 2014 agreement noting the change of the name of the purchaser as at 5 June 2015.

[23]     Adams believes the mortgagee sale process adopted by DEL was flawed.

[24]     He recalls an email from DEL’s solicitors, Neilsons stating:

In the event the loan is not paid by 31 January 2015 D & E Buses Limited will look to work with Adams Holdings Limited to ensure that a maximum price is obtained for the mortgaged property…

[25]     Mr Adams said there had been months of negotiations with CBI and says claims that DEL sold the property to DNA are concerning, that DEL had breached its agreement (to work with Adams to obtain a sale).  Mr Adams says he had not seen that agreement until it was provided by DEL’s solicitor in an email dated 6 August

2015 to Adams’ solicitor wherein DEL’s solicitor stated his client had completely lost faith that the sale to CBI would settle and that accordingly it would be signing a conditional agreement for the sale of the property to another (DNA) that afternoon.

[26]     In that email DEL’s solicitor also commented:

In addition to the ongoing extensions and delays in settlement it is concerned that Adams Holdings Limited is devaluing the asset by undertaking activities at the quarry (dumping) which are contaminating the property and are potentially illegal.   D & E Buses Limited requires such activity to cease immediately.

It has also learned via a third party that Webber Capital is not satisfied with the value of the security.  It seems that there are never ending requirements by the Lender that we would expect to have been completed long ago given that we were advised that finance was approved and the transaction unconditional many weeks ago.

D & E Buses Limited cannot agree to any further extensions and lose the opportunity to accept the other offer that it has received.   This has been communicated by our client’s representative to Mike Adams directly.

We will keep you informed of progress of the transaction with the other party.

[27]     Regarding the DNA offer Mr Adams deposed that at a meeting earlier this year they offered to buy Adams property for $3M and an agreement was drawn up. Adams did not accept that offer because the CBI offer was still on foot and had offered more.   Now Mr Adams is aware that DNA’s offer was only $2.4M.   He believes the maximum price has not been obtained.

[28]     Mr Adams also challenges claims that DEL served a valid Property Law Act

2007 (PLA) notice.  Mr Adams said the interest on the loan was to be capitalised at the end of the term.  He says DEL accepted more than 3 months interest after the expiry of that PLA notice.  Mr Adams refers to his lawyer’s letter to Neilsons dated

30 September 2015 wherein he noted:

…We have significant concerns with the exercise of the sale process which

we highlight as follows:

1.We understand that interest on the loan has capitalised pursuant to the terms of the Loan Agreement, meaning that interest has in fact been  received  on  the  loan.    This  amounts  to  the  acceptance  of interest after the expiry of the PLA notice which has invalidated the PLA notice that was to expire on 14 November 2014.

[29]     Mr Adams complains DEL was secretive in pursuing its own sale; that there was no sale process; and that it was sold to DNA for $600,000 less than what had earlier been offered.

CBI’s case

Caveat lapsing process

[30]     The lapsing process is provided by sections 143, 145 and 145A of the Act.

[31]     CBI  says  the  lapsing  process  is  not  available  to  DEL because  it  was  a mortgagee.

[32]     Ms Holland notes s 143(1) provides that an applicant or registered proprietor or any other person having a registered estate or interest may apply to the Court for an order that a caveat be removed.

[33]     Section 145 provides for the caveat to be deemed to have lapsed if within the prescribed period the caveator has not applied for it to be sustained.

[34]     Section 145A permits the registered proprietor of any estate or interest in the land protected by a caveat to apply to the Registrar for the caveat to lapse.

[35]     Ms Holland accepts, indeed as case authority is clear, that it is the caveator’s

responsibility to justify its caveat to be sustained and to remain on the register.

[36]     Ms Holland submits it is clear from the wording that s 145A is only available to the registered proprietor who is the owner whilst s 143 is worded more widely and may be utilised by others.  She relies upon the decision of the Court of Appeal in

Raiser Developments Limited v Trefoil Properties Limited1.   In that judgment the

Court noted:

[32]     Section  145A  was  introduced  with  effect  from  12  June  2003 following an axmen of s 52 of the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002.  It provided an ability for a registered proprietor to apply to the District Land Registrar for the caveat to lapse.   This contrasted with the original procedure under s 145, when an application that a caveat not lapse had to be commenced by registering an instrument affecting the land, estate or interest the caveat sought to protect. Other than the change to the gateway process, there is no material difference between ss 145 and 145A that would justify the latter being interpreted in any different manner to the former.

[37]     It is submitted therefore that the s 145A process used by DEL is invalid and the caveat cannot be sustained.

The test to be applied

[38]     It is submitted that if that position is not accepted by the Court then (adopting the decision of the Court of Appeal in Sims v Low2) the summary procedure for the removal of a caveat is wholly unsuitable for determination of disputed questions of fact.

[39]     It is clear that the caveator bears the burden of establishing a reasonably arguable case for the interest claimed.   Counsel submits the summary procedure involved is wholly unsuitable for the determination of disputed questions of fact and that an order for removal should not be made unless it is clear the caveat cannot be maintained either because there was no valid ground for lodging it or such valid ground as then existed no longer does.

[40]     In this case CBI relies upon the agreement for sale and purchase signed 4

March 2014 and amended on 5 June 2015.  The applicant says its interest subsists

and is not lost by DEL’s mortgagee sale process which Adams says was an invalid process.

1 [2008] NZCA 73 at [32].

2 [1988] 1 NZLR 656 (CA).

[41]     Reference is made to DEL’s solicitor’s email of 18 November 2014 that DEL would look to work with Adams to ensure the maximum price is obtained.  Instead, it is claimed DEL adopted a secretive sale process whereby they failed to obtain a maximum price – for reasons earlier noted.

[42]     Further it is claimed the capitalisation of interest invalidated the PLA notice. [43]     As well the following alleged defects are reported:

(a)      DEL did not advertise the property for sale nor provided any evidence of an open sale process.

(b)Adams says DEL consented to the sale of CBI and therefore s 105 of the Act  applies  namely  that  upon  the  registration  of  any  transfer executed by a mortgagee the estate or interest of the mortgagor shall pass and vest in purchaser, freed and discharged from any liability on account of the mortgage.

(c)      That DEL did by its conduct and words in meetings with CBI consent to an agreement for sale to CBI.

(d)Regarding the Court’s discretion it is submitted in this case that CBI has shown it has a finance offer and can proceed with the purchase in a sum sufficient to repay DEL’s mortgage.   Also that there are significant issues of fact between representatives of the disputing parties such that these ought not to be resolved in a summary hearing like the present one.

Considerations and conclusions

[44]     It is clear that following delivery of its mortgagee notice DEL delayed the sale process for an extended period – nearly a year to allow Adams to explore options to repay the loan in default.

[45]     The parties met often and there was a regular exchange of communication including with CBI who was updated with progress with negotiations for a sale to DNA.  CBI had long been aware when the settlement of the DNA agreement was to be concluded and on that same day registered its caveat.

[46]     Ms Holland submitted s 145A is only available to the owner of the property and not the mortgagee.

[47]     The Court does not agree as s 2 of the Act notes:

Proprietor means any person seized or possessed of any estate or interest in land, at law or in equity, in possession or expectancy.

Estate or interest means every estate in land, also any mortgage or charge on land under this Act;

Mortgagee means the proprietor of the mortgage.

[48]     Section 35 of the Act provides:

The person named in any grant, certificate of title, or other instruments are registered as seized of or taking any estate or interest shall be deemed to be the registered proprietor thereof.

[49]     As Mr Meys notes that by reference to those definitions to s 145A ought to be read:

Any person seized or in possession of any estate or interest (including any mortgage) in land protected by a caveat against dealings […] may apply to the registrar for the caveat to lapse.

[50]     Mr Meys submits it is clear that it is impossible to read s 145A as excluding the right of a mortgagee to apply to the Registrar to lapse a caveat.

[51]     Respectfully the Court agrees.  There is, as Mr Meys notes, a range of case authority endorsing that approach.

[52]     Regarding  claims  by  CBI  that  DEL  had  a  copy  of  the  4  March  2014 agreement for sale and purchase, it is clear that such was not provided until 27 May

2015.   Indeed the copy annexed to Mr Denize’s first affidavit is clearly not a full

copy because of the existence of collateral agreements referred to at clause 18 of the further terms of sale which have not been provided to this Court.

[53]     DEL submits the 4 March 2014 agreement was void for uncertainty and/or unenforceable in mid-2014 for a number of reasons including:

(a)       The purchaser CBI Trustees Limited never existed.

(b)At the time Mr Denize purported to have signed it, he was an undischarged bankrupt and did not have power of attorney to bind the purported purchaser.

(c)       There was no date for payment of a deposit or for settlement.

(d)It was conditional on 4 collateral agreements for sale of various assets from various related entities settling contemporaneously.

(e)      A breach of condition of one of those collateral agreements is deemed a default of the others.

[54]     In the Court’s view there is significant uncertainty about the agreement’s validity having regard to its terms and concerning the collateral agreements.

[55]     Mr Meys submits that even if the 4 March 2014 agreement was enforceable in mid-2014 then it was only enforceable by CBI Trustee Company Limited which has been in liquidation since 5 June 2015.  It was on that date Mr Denize purported to have changed the name of the purchaser by crossing out CBI Trustees Limited and writing CBI Company Limited.

[56]     As Mr Meys notes and the Court agrees there was no consideration (at least none advised) for this purported disposition of land from one entity to another.  To have been effective CBI Trustees Limited would have needed to execute a deed of nomination or assignment.  Also there was no witness to the purported change of purchaser to bind Mr Denize.

[57]     Mr Meys submits and the Court agrees Mr Denize’s actions can only amount to a new contract or a nullity.   Also there is no evidence that Adams signed a variation of that change.

[58]     Also the Court agrees the collateral agreements would need to have been assigned or nominated by a deed at the same time as the 4 March 2014 agreement. One of those collateral agreements was the sale of the business of Blue Rock to CBI Trustees Limited.  Even if Mr Adams had signed a variation agreement as director of Blue Rock his actions would be invalid because that company was placed into liquidation on 27 May 2015.  There is no evidence of a liquidator having signed a variation of the purported 4 March 2014 agreement including the collateral agreements.

[59]     Mr Meys submits the evidence appears to confirm any claim of a caveatable interest has been extinguished.  In May 2015 CBI presented DEL with the undated CBI agreement for the sale of the property.  The purchaser in that undated agreement is the same party as the purported 4 March 2014 agreement.  It follows therefore that for the undated agreement to be entered into for the same property and between the same parties then the earlier 4 March 2014 agreement must have come to an end.

[60]     The evidence also suggests the continued failure by CBI to satisfy purchase conditions.   On one occasion this was confirmed by advice on 21 May from Mr Adams’ lawyer that a condition dated 20 May 2015 was not met. Also it appears that when  CBI’s  lawyer  declared  on  29  June  2015  that  CBI’s  agreement  was unconditional that was a reference to the share transfer element which provided only part of the purchase price required. Also at that time one of the collateral agreements concerned Blue Rock which by then was in liquidation.

[61]     When  DEL became  aware  of  the  purported  4  March  2014  agreement  it cancelled that agreement in writing.

[62]     Mr Denize deposed by his affidavit dated 10 November that funds were available for the purchase by CBI as soon as Adams could confirm it would provide clear title and so long as all the other collateral agreements settle.   But, the clear

evidence is that those claims are incorrect.  Also it is clear that on 22 November

2015 some 4 of the companies identified as vendors by collateral agreements, were placed into liquidation.

[63]     CBI’s submissions place significance upon the email dated 18 November

2014 from Neilsons.  For CBI it is claimed that email constitutes DEL’s agreement to obtain a maximum price for the property and that it provided DEL’s consent to the sale to CBI.

[64]     The Court does not accept that assessment. The email did not constitute an agreement for it provided no consideration and nor was there any certainty regarding its terms, but even if it had provided consent for the sale to CBE it had been revoked before any sale to DNA.

[65]     Regarding  claims  that  the  s  119  notice  was  invalid  for  “acceptance  of interest” it is clear that claim is misconceived.   The loan did not have capitalised interest but was a loan for a principal sum plus interest.

[66]     In the Court’s view DNA paid $2.4M in good faith.  It has been in possession since 17 September 2015 and has been occupying and operating the property as though it was the owner. To that end it has spent considerable sums of money.

[67]     By contrast CBI is unable to purchase the property by reference to the 4

March 2014 agreement therefore there is no practical benefit for its caveat to remain.

[68]     CBI’s claims are capable of resolution in another proceeding where damages

would be an appropriate remedy.

Result

[69]     CBI has not sufficiently established its claim of a caveatable interest and nor do the circumstances provide sufficient reason for deferring issues raised upon this application for determination by other process at a later time.

[70]     Claims of breach by a mortgagee of obligations to secure the best available resale price are based on speculation and assumption.  A lengthy tender process was undertaken prior to the sale to CBI.  The services of real estate agents was engaged and despite, it is to be inferred, an extensive marketing process two tenders only were received and those were for less than $2M.  The property was eventually sold by the mortgagee to DNA for $2.4M.

Judgment

[71]     The application for an order that CBI’s caveat not lapse is dismissed.

[72]     Costs will be paid by CBI on a 2B basis for which purpose a half day’s

hearing time is certified.

Associate Judge Christiansen