Compound Group Limited v I'Anson
[2024] NZHC 337
•27 February 2024
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2023-429-69
[2024] NZHC 337
BETWEEN COMPOUND GROUP LIMITED
Applicant
AND
MALCOLM BASIL I’ANSON
Respondent
Hearing: 19 February 2024 Appearances:
E J Walton and A C Kelland for Applicant
J A Frampton and O K Kemp for Respondent
Judgment:
27 February 2024
JUDGMENT OF ASSOCIATE JUDGE LESTER
COMPOUND GROUP LIMITED v I’ANSON [2024] NZHC 337 [27 February 2024]
[1] Compound Group Limited (Compound) is a building company. In January 2022, Compound agreed to build a property for Mr I’Anson pursuant to a detailed written agreement.
[2] Compound commenced the building works. Unfortunately, and for reasons that I need not detail, the relationship between the parties broke down. Compound claimed Mr I’Anson failed to pay a sum it says is due under the contract.
[3] In April 2023, Compound lodged a caveat pursuant to what it says is an agreement to mortgage contained in the building contract. Mr I’Anson says the contract does not create an agreement to mortgage but rather it only entitles Compound to call for a mortgage and unless and until there is a call in accordance with the requirements of the contract, no caveatable interest exists.
[4] It is common ground the contract has been cancelled, albeit it is disputed as to who was entitled to cancel.
[5] It is not necessary to detail the nature of the disputes between the parties or detail the amount claimed to be outstanding.
The caveat
[6]The caveatable interest claimed is:
Pursuant to Agreement to Mortgage contained in Building Contract Agreement entered into between the Registered Owner Malcolm Basil I’Anson (as Mortgagor) and Compound Group Limited (as Mortgagee) dated 3 January 2022, the Registered Owner agreed to hold the land under registered title OT205/291 as security for the mortgage under the Building Contract Agreement.
[7] Compound says cls 123 to 126 of the contract create the caveatable interest. It is sufficient to set out cls 123 to 125 which are as follows:
123.If the Owner fails to pay any money payable to the Builder under this Building Contract on the due date for payment, then on demand the Owner will straight away provide the Builder with an executed and registrable memorandum of mortgage over the Land (for the purpose of securing all money owing from time to time by the Owner to the Builder under the Building Contract). That mortgage will be in
the form of the All Obligations for produced by the Auckland District Law Society and approved by the Registrar General of Land under number 2011/2200 together with Memorandum number 2011/4300. The Owner also undertakes to complete any Authority and Instruction (“A & I”) form that is necessary to register that mortgage and to instruct their solicitor (or other relevant agent) to take whatever steps are necessary to register that mortgage.
124.The Owner also acknowledges that the Builder is entitled to register a caveat or similar charge against the title of the Land in circumstances where the Builder is entitled to demand a registrable memorandum of mortgage.
125.The Builder must notify the Owner in writing and given the Owner five Working Days to remedy the default before demanding a registrable memorandum of mortgage over the Land or registering a caveat over the Land.
[8] It is common ground no call for a mortgage was made prior to the caveat being registered.
What Compound must show to sustain the caveat
[9] The general principles governing applications to sustain caveats are well established (which I adopt from the submissions by Ms Walton, counsel for Compound).
[10] The principles were summarised by the Court of Appeal in Philpott v Noble Investments Ltd:1
(a)The applicant bears the onus of demonstrating she holds an interest in the land sufficient to support the caveat (but does not need to establish that definitively).
(b)The applicant only needs to put forward a reasonably arguable case.
(c)This summary procedure is not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists.2
(d)The Court retains a discretion to remove the caveat which it exercises on a cautious basis. However, the Court must be satisfied there is no
1 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26], albeit that case was decided under the previous Land Transfer Act 1952.
2 Sims v Lowe [1988] 1 NZLR 656 at 660 and Zwarst v Saxton [2012] NZHC 448 at [12(c)].
practical advantage to maintaining a caveat and the caveator will not be prejudiced by removal.3
[11] A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land.4 A claim in debt and a claim for damages are personal claims and do not give rise to an interest in land.5
[12] It is also well established the Court ought not finally determine the rights of the parties on applications of this kind (especially where the facts are disputed).6 Fisher J noted in Macrae v Rapana:7
… since this is merely an application to uphold a caveat pending a proper exploration of the parties’ rights at a substantive trial, this will not be the occasion for resolving any conflicts in evidence. Except where patently lacking in credibility on its face, the evidence advanced by and on behalf of the plaintiff should be accepted as correct for present purposes.
[13] It is well accepted the threshold for sustaining a caveat is not a high one and the threshold requires the caveat be sustained unless it is “patently unmaintainable”.8
The approach in this case
[14] Counsel agreed the issue is one of interpretation. Ms Walton having reviewed a number of authorities, submitted:
Counsel for both parties could trawl the innumerable cases on caveatable interests and equitable mortgages emphasising nuances here and there. However, the real question is, in all the circumstances, were the Memorandum of Mortgage clauses an agreement to mortgage? The Owner agreed to provide an executed and registerable memorandum of mortgage on demand, and he appointed Compound his attorney to do so. Had the Owner refused to provide a registerable mortgage when Compound demanded it, Compound could have executed and registered it under the power of attorney. It is submitted the Memorandum of Mortgage clauses in the Contract created an equitable mortgage and an enforceable agreement to mortgage.
3 Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [22], citing Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 at 656.
4 Guardian, Trust, and Executors Co of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025; and Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA), [1990] ANZ ConvR 242.
5 Development Construction Co Ltd v MacKenzie [2021] NZHC 546, (2021) 22 NZCPR 116 at [5].
6 Murphys Park Development LP v Green City Developments Ltd [2020] NZHC 813, (2020) 21 NZCPR 104 at [26].
7 Macrae v Rapana HC Auckland M 633-94, 17 June 1994 at 3, cited in NDM Construction Ltd v North Ride Living No 3 Ltd [2022] NZHC 320, (2022) 22 NZCPR 985 at [28].
8 Philpott v NZI Bank Ltd, above n 4, at 7, per Cooke P.
Does cl 123 create an equitable mortgage absent a demand?
[15] Ms Walton submitted cl 123 created an equitable mortgage activated without more in the event Mr I’Anson failed to pay any amount due to Compound under the contract. Ms Walton submitted the fact a registerable mortgage is to be provided when demanded, is not determinative of whether an equitable mortgage exists or not. She submits cl 123 is just the “mechanism for the creation, execution and registration” of that mortgage.9
[16] Ms Walton explained “activated” was the term used by Kós J in Somme v Central House Movers Ltd.10 In Somme, a developer granted a creditor an agreement to mortgage, it being express the agreement to mortgage and the right to lodge a caveat arose upon the issue of new titles upon the completion of a subdivision. The developer did not complete the subdivision and instead sold the entire development block to Somme. The creditor had supplied relocatable houses to the original developer which it uplifted following the sale to Somme. In defence to a claim from Somme, the creditor asserted it had a security over the houses based on the agreement to mortgage.
[17] Kós J concluded there was an arguable defence to Somme’s application for summary judgment on the basis that even though the condition attaching the agreement to mortgage was not satisfied, it created an equitable mortgage “at least at the point at which (the developer) repudiated its obligation to seek subdivision and consents and instead opted to negotiate with Somme”.11 His Honour said at [78]:
… a conditional agreement to grant a mortgage should activate an equitable mortgage of the land concerned at the point where the conditions are met, or where the condition would be dispensed with by [e]quity.
(emphasis added)
9 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 657.
10 Somme v Central House Movers Ltd [2012] NZAR 295 at [78].
11 At [70].
[18] Kós J accepted an agreement to grant a mortgage can itself confer a proprietary interest in the property as if it is capable of enforcement by a decree of specific performance, it is capable of taking effect as an equitable mortgage.12
[19] Ms Walton submitted the purpose of cl 123 was to protect Compound in the event Mr I’Anson failed to pay. Referring to Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd,13 Ms Walton submitted cl 123 gave rise to an equitable mortgage if the contemplated circumstances, that is a failure by Mr I’Anson to pay, occurred without more.
[20] The relevant part of the clause in question in Pacific Homes Ltd was that a joinery company was entitled to reasonable security from Pacific Homes Ltd for amounts which became overdue and that Pacific Homes Ltd:14
… hereby grants a registerable mortgage over any land owned by the purchaser into which products of the company have been incorporated in breach of these conditions…
[21]The Court said:15
When the conditions speak of the granting of a mortgage over land owned by the purchaser, Pacific Homes, it amounts to an agreement to grant a mortgage in registerable form if the contemplated circumstances arise at a later time.
[22] Again, Ms Walton submitted the “contemplated circumstances” in this case were simply Mr I’Anson failing to pay an amount due given the purpose of cl 123.
[23] Ms Walton submitted cls 124, 125 and 126 only come into play should Compound wish to convert its equitable mortgage into a registerable mortgage. In this way, Ms Walton submits the reference to “on demand” in cl 123 is only relevant if Compound calls for a registerable mortgage — not to whether it created an equitable mortgage.
12 At [64], citing Tebb v Hodge (1869) LR 5 CP 73 (Ex Ch); P Young Law of Mortgages of Land in New Zealand (Butterworths, Wellington, 1995) at 24-25; and Hinde, McMorland & Sim Land Law in New Zealand (LexisNexis, Wellington, loose leafed) at [15.008].
13 Pacific Homes Ltd, above n 9.
14 At 654.
15 At 657.
[24] In Advance Design and Build v Porter, another authority referred to by Ms Walton, Associate Judge Gardiner said:16
An equitable mortgage arising out of an agreement to mortgage, is by its nature not a registerable mortgage. It is [e]quity’s way of recognising and protecting an interest in land in the absence of a registerable legal instrument. It makes no sense therefore to contend that an agreement to mortgage, and therefore the equitable interest capable of sustaining a caveat, is conditional upon the execution of a registerable legal instrument.
[25]The security document being considered by Associate Judge Gardiner began:17
The Owner agrees to charge its interest in the land comprising the Site of security for the payment to the Builder of all moneys payable under this Agreement.
[26]Accordingly, there was nothing conditional about the agreement to charge in
Advanced Design & Build.
[27] A further authority emphasised by Ms Walton was Cantab Management Ltd v Greagh Investments Ltd, a decision of Master Faire.18 Cantab involved an application to sustain a caveat.
[28] In a sense, Cantab is the high point of the cases referred to by Ms Walton as the clause began that the land owners “… shall if called upon grant to Cantab and Harris a valid registerable mortgage secured over Certificate of Title 44A/5 …”.19 The clause went on to say that:20
… Cantab and Harris shall be entitled to lodge a caveat to protect this agreement to mortgage to secure moneys owed PROVIDED THAT Cantab and Harris shall not lodge their caveat until new titles have issued and the 1st and 2nd mortgages are repaid unless:
a. A default notice is issued under the first or second mortgage [or other conditions were met].
[29] Accordingly, at face value the clause was an agreement to mortgage if the landowner was ‘called upon to grant’ a registerable mortgage. However, the clause
16 Advanced Design and Build v Porter, [2021] NZHC 2889, (2021) 22 NZCPR 742 at [30].
17 Advanced Design and Build v Porter, above n 16, at [6].
18 Cantab Management Ltd v Greagh Investments Ltd HC Hamilton, M95/02, 20 November 2002.
19 At [7].
20 At [7].
went on to describe the clause as being “this agreement to mortgage”. Master Faire said, “What is important is that the parties have described the document as an agreement to mortgage. That and its other terms are consistent with it being an agreement to mortgage”.21
[30] Master Faire noted in the recitals to the agreement Cantab required to be secured in order to complete the work it was undertaking and that the land owner had agreed to Cantab and Harris “being secured behind the second mortgage … on the terms hereinafter appearing”.22 His Honour said: “On its face, the agreement is what it says, an agreement to mortgage”.23 Accordingly his Honour concluded that the caveat would not lapse.
[31] I do not accept Ms Walton’s carefully constructed argument. Ms Walton urged upon me that the clauses require a commercial construction. I accept that is appropriate. However, the requirement to adopt a commercial approach cuts both ways. Mr I’Anson is entitled to assume that the property may only become subject to a caveat or mortgage if he has been called upon to provide a mortgage.
[32] As already noted, an equitable mortgage arises from an agreement to grant a registerable mortgage. The agreement to mortgage that exists in this case is to grant an equitable mortgage upon a demand in writing. Compound could not have sought an order for specific performance of the obligation to give a registerable mortgage absent a demand. This is because a demand was a condition of Compound having a right to a registerable mortgage.
[33] In that sense, an equitable mortgage is parasitic, that is, its existence is dependent upon there being a specifically enforceable agreement to mortgage.
[34] So much can be seen from a review of the authorities where the clause in question required the caveator to request or demand the granting of further security from the property owner.
21 At [42].
22 Cantab Management Ltd v Greagh Investments Ltd, above n 18, at [6].
23 At [45].
[35]In Philpott v NZI Bank Ltd, the clause reads:24
The Customer will, immediately on request, provide the Bank with such alternative or additional security for the obligations of the Customer as the Bank may require.
[36] While NZI Bank Ltd had made an enquiry as to whether the Customer would give security over their home, the Court held mere enquiry did not create a caveatable interest by way of agreement to mortgage because no call for the security had been made.
[37]In the judgment of Cooke P, his Honour said that until a demand is made:25
… the customer is free to deal with any of his or her properties without any obligation in respect of them to the Bank and no charge by way of security, legal or equitable, nor any other interest in them is created in favour of the Bank. That is to say, until there has been a request and requirement the Bank has no interest in any specific property.
(emphasis added)
[38] I pause here to recognise that Philpott has been distinguished on the basis that the clause in question did not identify any particular property to which the charge might relate but that point does not, in my view, alter the authority of Philpott of when an equitable mortgage arises.
[39]The point is directly confronted by Rodney Hansen J in Kilmartin v Monk:26
Equitable mortgage
[10] An equitable mortgage of land confers on the mortgagee an equitable interest that will support a caveat. An equitable mortgage may be created by an agreement to mortgage but a security agreement in which the debtor merely agrees to grant a mortgage if requested to do so by the creditor will not by itself create an equitable mortgage. In order for an equitable mortgage to come into existence, an effective request to grant a mortgage over the property must be made by the creditor …
(emphasis added)
24 Philpott v NZI Bank Ltd above n 4, at 1, per Bisson J.
25 Philpott v NZI Bank Ltd, above n 4, at 3.
26 Kilmartin v Monk (2005) 5 NZ ConvC 194,122, (2005) 6 NZCPR 405.
[40]To similar effect are the comments of Master Venning (as he then was) in
Lakeside Estate Ltd (in rec) v Bright.27 His Honour said:28
… as a matter of law, where the debtor, in this case Lakeside, agrees to give security if and when called upon by the creditor at a later date, then even the occurrence of the contingency does not by itself create a security interest. The debtor, Lakeside, must either give a completed mortgage or make a new agreement for security over it. In the latter case the agreement will need to be supported by new value in order to constitute an equitable security: Goode Commercial Law (2nd edn, 1995, p662, 680). At p680 of the text the author states:
… the prerequisites for recognition of security interest by a court of equity must be satisfied; that is to say, the agreement must manifest an intention to create a present security, as opposed to one which is merely contingent, … an agreement framed not as a present assignment or charge of future property but as an agreement to assign or charge it after acquisition if and when called upon to do so or on the occurrence of some other uncertain event is a mere contract which does not create a security interest. It follows that the subsequent demand for security or the occurrence of the specified contingency does not by itself bring a security interest into existence.
(footnotes omitted) (emphasis added)
[41] It is the first line from Goode on Commercial Law above that brings us back to the fact the existence of an equitable mortgage is dependent upon a security interest that would be recognised by a court of equity, that is, through the Court exercising its specific performance jurisdiction. Equity will not grant specific performance of an interest “… which is merely contingent …”.
[42] Topa Partners Ltd v JWL International Group Ltd is another an authority relied on by Ms Walton, but Ms Frampton emphasised [28] of Associate Judge Paulsen’s judgment:29
Agreement to mortgage
[28] An agreement to grant a mortgage of land as security for performance of an existing or future obligation that is capable of being the subject of a decree of specific performance takes effect as an equitable mortgage and gives rise to an equitable interest which will support a caveat.30 However, a security agreement where a debtor agrees to grant a mortgage only if
27 Lakeside Estate Ltd (in rec) v Bright [2001] BCL 1110.
28 At [19].
29 Topa Partners Ltd v JWL International Group Ltd [2020] NZHC 182, (2020) 21 NZCPR 591.
30 Neil Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at 25. Somme Ltd v Central House Movers Ltd, above n 10, at [64].
requested to do so by its creditor, or, subject to a condition that a requirement be first met, may not suffice to confer a caveatable interest.31
(emphasis added)
[43] The clause in Topa provided that JWL International Group Ltd (JWL) agreed to grant Topa a registerable mortgage over a property as follows:32
10.1 You grant us a registerable mortgage over the Property to secure any amount owing under this Agreement. Such mortgage is to be in a form of an all obligations mortgage produced by the Auckland District Law Society and approved by the Registrar General of Land. We do not require you to sign a registerable Memorandum of Mortgage unless you fail to pay any amount due under this Agreement by the Due Date. Our solicitor will prepare the necessary documents at your cost.
[44] Associate Judge Paulsen held the clause created a caveatable interest and rejected JWL’s argument that for Topa to rely on the agreement to mortgage, JWL must have first failed to pay an amount owing under the building contract.
[45] In Building Choices Ltd t/a PlaceMakers Riccarton v Carpe Diem Contracting Ltd (in liq), the cl in PlaceMaker’s Terms and Conditions was as follows:33
10. Mortgage:
To better secure the amounts payable to PlaceMakers, whether in relation to these terms or on any other account, the Customer agrees, upon request by PlaceMakers, to grant to PlaceMakers a registrable mortgage over any land owned by the Customer from time to time. Such mortgage to be given is to be in the form of the then current Auckland District Law Society All Obligations mortgage. PlaceMakers may request a mortgage under this clause if an Event of Default occurs.
[46]In relation to the above clause, Associate Judge Matthews said:
[18] In my opinion, the clause relied on in Pacific Homes is materially different from clause 10. In Pacific Homes, the purchaser granted registrable mortgage, if certain events should occur, over any land owned by Pacific Homes. In clause 10, however, Carpe Diem agrees that will grant a mortgage
31 However, for a discussion of the point see Somme Ltd v Central House Movers Ltd, above n 10, at [64]-[79].
32 At [9].
33 Building Choices Ltd t/a PlaceMakers Riccarton v Carpe Diem Contracting Ltd (in liq) [2015] NZHC 1266 at [3].
on request. Unlike the clause in Pacific Homes, there are no words in clause 10 by which Carpe Diem actually grants any interest at all. It merely agrees that if it is asked to do so, it will grant a registrable mortgage. The distinction is between the immediate creation of a charge over any land owned by Pacific Homes, on one hand, and an agreement by Carpe Diem to grant a mortgage at a future time if requested to do so, on the other hand. Under clause 10, there is no grant of an interest unless and until an event of default occurs, followed by a request that a registrable mortgage be granted.
[47] When the clause in PlaceMakers, set out in [45] above, and the clause in Topa set out at [43] above are compared the distinction made by Associate Judge Matthews is readily understood.
[48] Ms Walton’s argument, while not expressed in this way, amounts to saying it was implicit in the charging clause that an equitable mortgage arose at the moment Mr I’Anson defaulted in a payment. Again, Ms Walton did not argue for an implied term to that effect but I cannot interpret the charging clauses in Compound’s building contract as having the meaning Ms Walton submits.
[49] In my view, the plain language of the term and the commercial sense of the clauses is that where a default occurs Compound must call on Mr I’Anson to remedy the default (cl 125). If he does not do so then Compound may demand an executed and registerable mortgage pursuant to cl 123. It is only upon making demand, that is satisfying the condition that must be met before Mr I’Anson must sign a registerable mortgage, that a caveatable interest arises.
[50] At the risk of repetition, Compound could not seek specific performance of the obligation on Mr I’Anson to provide a registerable mortgage without first having demanded one. If it could not seek specific performance of Mr I’Anson’s obligation to grant a registerable mortgage then an equitable mortgage did not arise. As to what an agreement to mortgage is, Ms Walton’s submissions said:
An agreement to mortgage has been described by academics and the judiciary as a contract to grant a registerable mortgage. The mortgagee can obtain a registerable mortgage by enforcing the Contract.34
34 Advanced Design and Build Ltd v Porter, above n 16, at [13], citing Neil Campbell Campbell on Caveats (3rd ed Lexis Nexis, Wellington, 2019) at [10.009].
[51] I am unable to find a contractual obligation by Mr I’Anson to grant any interest over his property in cls 123-125 of the contract that is not dependent upon Compound first demanding a registerable mortgage.
[52] Ms Walton’s submissions sought to distinguish a number of authorities that held a demand was required by reference to those authorities not identifying the land over which a mortgage could be registered. Where land is not identified and a demand is required before a mortgage can be registered, it is the demand that will specify the land over which the mortgage is required. When the land is not identified in a clause, it emphasises the significance of the need for a demand. But I do not accept that because a clause identifies the property to be charged upon demand itself removes the need for demand.
[53] It follows from the above discussion, I am satisfied that in the absence of a demand being made for a registerable mortgage that Compound’s caveat cannot be sustained.
A contractual right to caveat?
[54] As noted, Ms Walton’s submissions were on the basis that a right to caveat granted by contract is ineffective.35 The authorities suggest there is some uncertainty whether the right to lodge a caveat may be granted by contract.36 Given Ms Walton did not seek to maintain the caveat on the basis of cl 124 alone, I need Ngāi Tahu to address this issue further.
[55]It follows that the application to sustain the caveat 12719169.1 is dismissed.
Costs
[56] Mr I’Anson is entitled to costs on a 2B basis plus disbursements as fixed by the Registrar. If Mr I’Anson wishes to make other submissions in respect of costs he
35 See Campbell on Caveats, above n 34, at [10.009(y)]; (3rd ed) para 10.009(y) and “Can a right to lodge a caveat be granted by Contract?” (2014) 16 BCB 89 at 89.
36 Scutter v Tawa Ltd Partnership [2022] NZHC 848, [2022] NZCLR 15 at [149].
must do so within five working days and no more than three pages in length. If no such submission is made then the order as to costs just made will come into effect.
Associate Judge Lester
Solicitors:
Malley & Co, Christchurch (for Applicant) Lane Neave, Christchurch (for Respondent)
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