Clear White Investments Ltd v Otis Trustee Ltd
[2017] NZHC 344
•6 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2016-404-2295 [2017] NZHC 344
BETWEEN CLEAR WHITE INVESTMENTS LTD
Plaintiff
AND
OTIS TRUSTEE LTD Defendant
Hearing: 3 March 2017 Counsel:
J Heatlie and J Wood for Plaintiff
D W Grove for DefendantJudgment:
6 March 2017
JUDGMENT OF HEATH J
This judgment was delivered by me on 6 March 2017 at 4.00pm pursuant to Rule
11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Rainey Law, Auckland
Ewart & Ewart, Auckland
Counsel:
D W Grove, Auckland
CLEAR WHITE INVESTMENTS LTD v OTIS TRUSTEE LTD [2017] NZHC 344 [6 March 2017]
The application
[1] On 25 November 2016, Associate Judge Bell made an order removing a caveat that Clear White Investments Ltd (Clear White) had lodged against a parcel of land registered in the name of Otis Trustee Ltd (Otis).1 At the end of his judgment, the Associate Judge summarised his reasons for reaching that conclusion:
[71] Overall I am satisfied that Clear White Investments Ltd does not have a caveatable interest in the Te Kauwhata property. While it may have arguable claims against Otis arising out of the negotiations between 18 and
20 July 2016 and the failure of any firm financing arrangement to eventuate, those claims could not result in the court granting relief recognising a current
interest in the property. Clear White can hope for only monetary relief at
best. Accordingly it does not have a caveatable interest in the land.
[2] Clear White appealed against Judge Bell’s decision. On the premise that counsel agreed to make a joint application for the appeal to be entered on the Court of Appeal’s Fast Track, Otis consented to an order that the caveat remain registered against the title until the Court of Appeal determined the appeal. That order was made on 19 December 2016, and states:
3. The following orders were made:
(a) Caveat 10541263.1 (South Auckland Land Registry District) shall not lapse until the Court of Appeal gives its Judgment on the appeal from the Judgment of this Court dated 25
November 2016.
[3] Unfortunately, the Court of Appeal declined to enter the appeal on its Fast Track, and set it down for hearing in September 2017. The substantive hearing of the disputes between Clear White and Otis is scheduled to begin in this Court on 3
April 2017. As there is now no prospect that an appeal from the removal order will be determined before judgment is given on the substantive claim, Otis applies to discharge the order.
[4] Two questions arise:
(a) Are there grounds on which it is appropriate to allow Otis to revisit the consent order?
(b)If so, should the order remain in place, pending determination of the substantive proceeding?
Background facts
[5] Clear White’s caveat was registered against a property situated at 40 Te Kauwhata Road, Te Kauwhata on 23 August 2016. The estate or interest in the land that the caveat sought to protect was said to arise:
By virtue of a constructive trust created on or about 20 July 2016 pursuant to which [Otis] holds the property as trustee on trust for [Clear White] as beneficiary.
[6] Two causes of action could, with an appropriate evidential foundation, give rise to a constructive trust of the type that is alleged to support the caveat. The first follows an orthodox analysis of the circumstances in which a party will hold property as a constructive trustee for another, on the basis of a common intention that it do so. The second is based on equitable estoppel. On either approach, Associate Judge Bell considered that relief of the type claimed could not be granted, even if the facts alleged by Clear White were found to be true.
[7] Clear White’s claim has its origins in an agreement for sale and purchase of the Te Kauwhata property, into which it entered on 15 December 2015. At that time, the registered proprietors of the land were the trustees of the Whata Trust. They agreed to sell the property to Clear White for a purchase price of $2 million plus GST, if any. Clear White paid a deposit of $200,000. Settlement was to be effected on 1 July 2016.
[8] Clear White was unable to complete settlement on that date. A settlement notice was issued on 1 July 2016. Under that notice, Clear White was required to complete the purchase by 20 July 2016. Continuing the narrative, Judge Bell said:2
[5] A few days before the settlement notice was to expire, Mr Chevin approached Mr Ian McKay for assistance. He is the director of Otis Trustee Ltd. After negotiations, Clear White entered into a written agreement to on- sell the Te Kauwhata property to Otis Trustee Ltd for $1,811,463.78. That was the amount Clear White needed to pay its vendors. On 20 July 2016
Clear White’s purchase and its on-sale to Otis both settled. Otis Trustee Ltd has remained the registered proprietor since. Mr Chevin passed on to Mr McKay reports that he obtained from consultants and Mr McKay has continued with work to obtain a subdivision consent.
[9] Clear White alleges that, as part of the agreed arrangements, it had an option to buy the property back. While there is some evidence to support that suggestion, in the form of a draft “agreement” prepared following a meeting held on 11 August
2016, at which Mr Chevin and Mr McKay were present, the document is not (on any view) sufficient of itself to establish an enforceable “buy back” contract between Otis and Clear White.
[10] On 19 August 2016, Mr Chevin forwarded a copy of the draft “agreement” to his solicitor, asking him to “arrange to lodge a caveat on the title”. As previously indicated, the caveat was registered on 23 August 2016.3
The consent order
[11] Ms Heatlie, for Clear White, submitted that there was no jurisdiction for me to lift the stay4 that was ordered by consent on 19 December 2016. In taking that position, she relies on authorities collected in Kain v Hutton.5 In Kain v Hutton, the Court of Appeal was considering whether a consent order entered into to resolve a family dispute of some magnitude ought to be set aside. Putting the test on a broad
basis, Glazebrook J, delivering the judgment of the Court, observed that:6
Consent orders of this kind are not easily disturbed. It needs to be demonstrated that it is in the interests of justice to withdraw the order.
[12] Ms Heatlie contends that the order should not be set aside because Clear White did not breach its undertaking to pursue its appeal diligently. The reason why the appeal against the removal of the caveat cannot be determined promptly is the
decision of the Court of Appeal not to put the appeal on its “Fast Track”. Further,
3 See para [5] above.
4 I use the term “stay”, even though the order is expressed as one that the caveat “do not lapse”: see para [2] above. The intent of the order was to suspend Otis’ ability to compel removal of the caveat, pending the appeal.
5 Kain v Hutton [2007] 3 NZLR 349 (CA).
Ms Heatlie submits that Otis has not established that it will be prejudiced if the caveat remains in place.
[13] Mr Grove, for Otis, submits that it will suffer significant prejudice if the caveat were not removed before the substantive hearing. His primary ground is that Otis has discovered that the land is contaminated. As a result, substantial earthworks are required to be completed to decontaminate the land. A resource consent has been sought to enable that work to be undertaken. About $700,000 will need to be borrowed to enable the work to be undertaken. Otis wishes to borrow those funds, with the financier obtaining the benefit of a mortgage over the subject property.
[14] Mr McKay has also indicated that Otis wishes to carry out other development work, such as the installation of power and to seek “pre-sales” once the development is in a sufficient state to do so. Clear White contends those steps will prejudice its own position.
[15] Mr Grove also referred to the email of 19 August 2016, in which Mr Chevin appears to have given his first instructions to his solicitor to lodge a caveat.7
Mr Grove submits that this “new” evidence is significant because it tends to counter the proposition that Mr Chevin previously believed that Clear White had an interest in the land, as opposed to an obligation to repay the money advanced by Otis.
[16] Further, Mr Grove points to the lack of evidence that Clear White could repay a sum in excess of $2 million in order to obtain title to the land. He referred to the fact that Mr Chevin has been adjudged bankrupt on three occasions, and, more recently, has been convicted on charges laid by the Financial Markets Authority. I was told that Mr Chevin was sentenced to nine months’ home detention on 1 March
2017.
[17] Contrary to the optimistic position taken by Ms Heatlie, on Mr Chevin’s instructions, I am not confident that Mr Chevin will be in a position to take active steps to ensure finance can be obtained for a substantial development project, while serving a sentence of home detention. Although his probation officer gave
permission for Mr Chevin to attend upon Ms Heatlie to swear an affidavit, I doubt whether regular permission will be granted for business activities alone.
[18] Overall, I am satisfied that Otis, in agreeing to the stay, acted on the basis that Clear White’s appeal could be determined promptly. That, through no fault of the parties, has not proved possible. In my view, the “interests of justice” demand that the parties be restored to the position that pertained immediately before the stay was ordered. That approach causes prejudice to neither party. Before me, each had an opportunity to be heard on the question whether a stay should be imposed.
Should the caveat be removed pending trial?
[19] I consider whether the caveat should remain pending determination of the 3
April 2017 trial by reference to the best possible outcome for Clear White, if it were successful on the constructive trust claim at trial.
[20] I am satisfied that decontamination works are required, and that they will be extensive.8 Further, I accept that the work must be undertaken promptly, in April at the latest. Were the work not to be undertaken at that time, it is unlikely that it could be done before the spring. That would mean a delay of some considerable time for Otis to develop the property, should its position be upheld at trial.
[21] If successful on that claim, the following steps would follow:
(a) Clear White would be obliged to pay a sum of money to Otis to obtain title to the land. On the best view of Clear White that will be a minimum of $2 million. It may well be considerably in excess of that. There is no evidence of any realistic prospect that Clear White could obtain such funds. I characterise Mr Chevin’s evidence that he could raise the finance as optimistic speculation.
(b)In any event, if Otis were to undertake the decontamination work, the property would be improved in value. Although a mortgage would be registered against the title to protect a financier’s interests as lender, it
is very unlikely that a mortgagee would secure a sum of money that put the equity of the property at risk. The importance of that consideration is that any purchase moneys that could be paid by Clear White to Otis would be used by Otis to discharge the mortgage before title would pass.
(c) There may well be counterclaims against Clear White if the land were improved in value, so that it does not receive any windfall from the work undertaken by Otis to facilitate a development.
Post-hearing developments
[22] The hearing on 3 March 2017 began at 9am and lasted about one hour. Ms Heatlie filed a memorandum later in the day in which she indicated that Clear White had considered whether it would be prejudiced if the removal order took effect. She had obtained instructions from Mr Chevin.
[23] Ms Heatlie conveyed instructions from Clear White that it would consent to the stay being set aside on the following terms:
5.[Clear White] will consent to the Consent Order being set aside on the following terms:
(a) That Otis shall be entitled to encumber the property to obtain funding for the decontamination work and power supply to the property; (b)
That the priority amount under any mortgage (registered or unregistered) be no more than $1,000,000;
(c)
That Otis undertake to the court that it will not transfer, agree to sell or further encumber the property without the leave of the Court, on application with notice;
(d)
That Otis be required to notify [Clear White] by email to its solicitors immediately on default under any mortgage and/or receipt of any Property Law Act Notice issued by the mortgagee.
[24]
I directed
that the memorandum be served on Mr Grove, for Otis.
He
responded by memorandum this morning, submitting:
2.In relation to the terms set out at [para 5 of Ms Heatlie’s memorandum], [Clear White] is seeking more than it is entitled to, even with the caveat being on the title. By way of example only, it is not for [Clear White] to determine what works [Otis] can complete on the site. [Otis] can complete whatever works it requires to pursue the development.
3.Otis is prepared to undertake as set out below, on the basis that the caveat is lifted:
(a) Otis shall be entitled to encumber the property to obtain funding for works, the priority of the amount under any mortgage (registered or unregistered) shall be no more than
$1m.
(b) Otis undertakes to notify [Clear White] by email to its solicitors forthwith on any default under any mortgage and/or receipt of any Property law Act Notice issued to the mortgagee.
(c) Otis undertakes that it will not transfer the entire property to a third party pending conclusion of the substantive trial or Court order.
4. In relation to paragraph 3(c) above, the property is being developed.
It is likely that an initial subdivision will be completed as quickly as possible. Accordingly, Otis must be allowed to obtain pre-sales to
progress the development. Again however, those pre-sales are of no
prejudice to Clear White. If Clear White is successful in the substantive proceeding it will obtain the benefit of any pre-sales.
[25] The undertakings that Otis has been prepared to give eliminate any residual concerns I harboured about ordering that the stay be set aside. The approach taken by Otis is responsible and acknowledges concerns on the part of Clear White.
Discovery
[26] Two questions of discovery were raised with me. There is no need to identify the nature of the issues. Counsel agreed to discuss possible solutions, in light of suggestions that I made at the hearing.
[27] I reserve leave for either party to apply at short notice, should any discovery order be required before trial.
Result
[28] For those reasons, Otis shall file and serve an undertaking reflecting para 3 of
Mr Grove’s memorandum of 6 March 2017.9
[29] On filing of that undertaking, the Registrar shall seal an order that the order made by Judge Bell on 19 December 2016 be set aside with immediate effect. On sealing of the order, Otis will be able to take appropriate steps to have the caveat removed.
[30] Despite the fact that the issues argued on 3 March have been resolved on the basis of terms that reflect submissions made after the hearing, it was still necessary for Otis to make the application to lift the stay. In my view, nothing that happened during or after the hearing disentitles Otis from costs on the application. Costs are awarded in favour of Otis on a 2B basis, together with reasonable disbursements.
Both shall be fixed by the Registrar.
P R Heath J
Delivered at 4.00pm on 6 March 2017
9 Set out at para [24] above.
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