Development Construction Company Limited v MacKenzie

[2021] NZHC 546

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2210

[2021] NZHC 546

BETWEEN

DEVELOPMENT CONSTRUCTION COMPANY LIMITED
Applicant

AND

DEAN MATTHEW MACKENZIE

Respondent

Hearing:	16 March 2021
Appearances:	Miles Beresford the Applicant Rajiv Rao for the Respondent
Judgment:	16 March 2021

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Natalie Tabb/Miles Beresford, Auckland, for the Applicant

Inder Lynch (Rajiv Rao), Papakura, Auckland, for the Respondent

Copy for:
Miles G Beresford, Auckland, for the Applicant

DEVELOPMENT CONSTRUCTION COMPANY LIMITED v MACKENZIE [2021] NZHC 546 [16 March 2021]

[1]    Development Construction Ltd applies to sustain caveat 11752354.1 lodged against record of title NA54D/772 for the residential property at 22 Larsen Street, Ōtara, Auckland. Dean Mackenzie, the respondent, the registered proprietor, lives in Kazakhstan. The interest claimed in the caveat is:

The abovenamed caveator, Development Construction Ltd, claims a beneficial interest in the land contained in the above Certificate of Title NA54D/772 as a beneficiary under an implied Trust in respect of which the Registered Proprietor Dean Matthew MacKenzie is a Trustee.

The caveat was lodged on 19 May 2020. The main question is whether Development Construction Ltd has a caveatable interest.

General principles on caveat applications

[2]    In Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act 1952:1

Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat"). Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).

[3]    Although the Holt case was decided under the Land Transfer Act 1952, that statement equally applies to caveats under the Land Transfer Act 2017. That Act applies in this case, as the caveat was lodged after the 2017 Act came into force.2

[4]    In caveat applications under ss 142 and 143 of the Land Transfer Act 2017, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. That interest must come within s 138(1):

1      Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.

2      Land Transfer Act 2017 Commencement Order 2018, s 2.

138     Caveats against dealings with land

(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—

(a)claims an estate or interest in the land, whether capable of registration or not; or

(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or

(c)is transferring the estate or interest in the land to another person to be held on trust; or

(d)is the registered owner of the estate or interest in the land and—

(i)has an interest that is distinct from that of registered owner; or

(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.

[5]    A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land.3 A claim in debt and a claim for damages are personal claims and do not give rise to an interest in land. Something more than a potential or future interest is required. An interest that would arise only upon the court making an order is not an existing interest in the land.

[6]A caveat must contain the “prescribed information”, which includes:4

A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) …

Details of how the estate or interest claimed is derived from the registered proprietor.

[7]    Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation any statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same person, or

3      Guardian, Trust, and Executors Company of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025; Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA).

4      Land Transfer Act 2017, s 138(3) and Land Transfer Regulations 2018, sch 2.

inherently improbable it may be. To establish a reasonably arguable case, there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or evidence, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. As a qualification to the reasonably arguable standard, where there are allegations of fraud or other reprehensible conduct, it is necessary to show a prima facie case.5

[8]    For a caveat to be removed it must be patently clear that the caveat cannot stand, either because there was no ground for lodging it at the outset, or because any such ground no longer exists. The court also has a residual discretion not to uphold a caveat, but that is exercised cautiously as when the caveat could serve no useful purpose, or alternative safeguards are available.6

The evidence

[9]    Mr Mackenzie is subdividing his property at 22 Larsen Street, Ōtara. For this subdivision he had to carry out earthworks and drainage works. Development Construction Ltd did that work between September 2019 and February 2020. It charged Mr Mackenzie $166,169.55. Mr Mackenzie has paid $117,210.44. Development Construction Ltd says that it is still owed $48,959.11.

[10]   Development Construction Ltd considered that Mr Mackenzie was giving it the run-around. It began a proceeding against Mr Mackenzie in the Auckland District Court. On a “without notice” application, the District Court made an order restraining disposition of the property pending further order of the court. Development Construction also began an adjudication process against Mr Mackenzie under the Construction Contracts Act 2002.

5      Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].

6      See the principles stated in  Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd  [1996] 2 NZLR 652 (CA) at 656 (and repeated in Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [22]).

[11]   For its caveat claim, Development Construction Ltd relies on a reservation of title clause in its terms and conditions of contract:

7.  Ownership of any goods and/or materials supplied by DCL as part of work for the Client shall not pass to the Client until all invoiced amounts owing by the Client in respect of the services and goods and/or materials provided by DCL have been paid in full.

[12]   In his affidavit in response, Mr Mackenzie says that he disputes his liability to Development Construction Ltd. He says that the claim is for the final 30 per cent of the contract price, and it is only payable on completion of final inspection of works and sign-off by various entities. So far those entities have not given the sign-off. He says that he is aware of the order of the District Court barring him from disposing of the property, and he intends to abide by it.

[13]   So far as the adjudication under the Construction Contracts Act is concerned, he says that the adjudicator gave a determination on 11 November 2020. In the hearing today, Mr Rao provided me with a copy of the adjudicator’s decision. Mr Mackenzie has been largely vindicated in that decision. A small amount was held to be payable, but not the bulk of the final amount claimed by Development Construction Ltd.     Mr Rao advised that Mr Mackenzie has paid the amount ordered under the decision of the adjudicator.

[14]   Development Construction has not filed any evidence in reply. I understand that in the District Court proceeding, Development Construction had applied for summary judgment, but that application has not yet been heard.

A caveatable interest?

[15]   Development Construction Ltd claims its interest on the basis of its retention of title clause. It is not clear how that could give rise to an interest arising under a trust. Mr Beresford did not try to justify any beneficial interest arising under a trust. He instead put the case that there was arguably an equitable charge over the land. For

that he relied on Hinde, McMorland & Sim’s discussion of what claims may support a caveat. He relied on this passage in the text relating to equitable charges:7

An equitable charge on land is a security that confers an equitable interest in the land upon the creditor. It differs from an equitable mortgage in that it gives the charge-holder (that is, the creditor) no right to compel the debtor to execute a memorandum of mortgage. An equitable charge is not capable of giving rise to a registrable instrument. Equitable charges arise in a variety of circumstances, but “most frequently in respect of loans or guarantees, debts due to builders, or for goods”.8 An equitable charge has been recognised as creating an interest in land that will support a caveat.

I add that an equitable charge arises contractually and can be distinguished from an equitable lien that arises as a matter of law independently of any party’s contractual rights.

[16]The text also discusses reservation of title clauses:9

Suppliers of goods frequently include clauses in their contracts that provide that the supplier is to retain title to the goods until they have been paid for in full. When building materials, joinery and hardware are supplied for installation in a building that is in the course of construction a problem arises for the supplier. As soon as the goods are incorporated into the structure of the building, they become fixtures and therefore part of the land, and the supplier’s title to them is extinguished. However, often the reservation of title clause also gives the unpaid supplier the right to enter the land to remove the goods, even once they have become fixtures. There is authority, not conclusively adopted in New Zealand, that this gives the supplier an equitable interest in the land or in the fixtures. The preferable view is that the supplier has merely a contractual right to enter to remove the fixtures, but no equitable interest. On that view the supplier’s right of entry and removal will not support a caveat.

[17]   The authorities that support the right to enter and remove items as giving an equitable interest are English: Melluish (Inspector of Taxes) v BMI (No 3) Ltd and Elitestone Ltd v Morris.10 In New Zealand the courts have been more cautious. One authority recognising that a contractual provision allowing entry on the land to remove materials installed in a building does give an interest in the land is Trust Bank Central

7      Hinde, McMorland and Sim Land Law in New Zealand (loose-leaf ed, LexisNexis, Wellington, 2004) at [10.009(o)].

8 Editorial comment (1996) ANZ ConvR 165. See Rising Developments Pty Ltd v Hoskins (1996) 39 NSWLR 157.

9      Land Law in New Zealand, above n 7, at 10.000(r).

10     Melluish (Inspector of Taxes) v BMI (No 3) Ltd [1996] AC 454 (HL) at 475, and Elitestone Ltd v Morris [1997] 1 WLR 687 (HL) at 690.

Ltd v Southdown Properties,11 but on appeal the Court of Appeal indicated that it did not necessarily agree with that.12 The important thing about these cases is that if an interest in land can arise, it is only because of a contractual provision giving the contractor the right to enter on the land and remove materials installed in the structures on the land. Such a provision is missing here.

[18]   The trend of authority in New Zealand is that provisions giving a contractor the right to enter the land and remove materials supplied is no more than a licence and does not give an interest in the land. Last year Associate Judge Paulsen reviewed the matter in Topa Partners Ltd v JWL International Group Ltd.13 In that case a building contractor had lodged a caveat against the title to the site where it had carried out work. The building contract included these terms:14

9.1 Ownership of all Goods supplied to you under this Agreement  (including the circumstance that Services are also supplied concurrently with this Agreement) by us will not pass on Delivery, but will remain with us until we have received full payment in clear funds of all moneys you owe us (whether relating to those Goods, the supply of Services, or any other property supplied). We hold a Security Interest in all Goods supplied to you and the proceeds of any re-sale of the Goods for payment of those moneys.

…

9.4 Where you are in default, you agree to TOPA PARTNERS LIMITED entering your premises or any other place where the Goods are located, or where TOPA PARTNERS LIMITED reasonably believes that the Goods are located, and taking possession of and selling the Goods even if TOPA PARTNERS LIMITED does not have priority over other persons having a Security Interest in  the  Goods.  Sections 108, 109 and 120(1) of the Personal Properties and Securities Act 1999 (“PPSA”) do not apply to the extent that they are inconsistent with this clause.

There was another contractual provision under which the employer agreed to give the contractor a registrable mortgage over the property.

[19]   Associate Judge Paulsen upheld the contractor’s caveat because of the agreement to mortgage. It was not necessary for him to consider the reservation of

11     Trust Bank Central Ltd v Southdown Properties (1991) 1 NZ ConvC 190,851 (HC) at 190,863.

12     Whenuapai Joinery (1988) Ltd v Trust Bank Central Ltd [1994] 1 NZLR 406 (CA) at 411.

13     Topa Partners Ltd v JWL International Group Ltd [2020] NZHC 182.

14 At [8].

title clause. Nevertheless, he considered that the reservation of title clause did not create an equitable interest in the property. He referred to Campbell on Caveats15 which contains the same text on reservation of title clauses as appears in Hinde, McMorland & Sim. He referred to Carter Holt Harvey Merchandising Group Ltd v Southern Cross Building Society16 where a building merchant’s conditions of contract allowed it to enter land and sever and remove goods. That decision held that the condition was no more than a licence to enter and did not create any interest in land. He also referred approvingly to “Retaining Title to Fixtures” by David Cooper.17 Associate Judge Paulsen followed those decisions and held that the reservation of title clause, with the associated right to enter the property and remove materials supplied, did not give an interest in the building site. The trend of authority in New Zealand is that retention of title clauses, with an express right to enter, do not give rise to an interest in land. Accordingly, a reservation of title clause without an express right to enter also cannot give rise to an interest in land.

[20]   I have discussed generally whether a reservation of title clause can give rise to a caveatable interest without concerning myself too much whether that is the interest claimed under the caveat or is some other interest – for example, an equitable charge. That is because Mr Beresford, recognising that there were difficulties with a trust argument, wanted to be able to apply under s 146 of the Land Transfer Act 2017 to lodge a second caveat if the one claiming an interest under a trust was removed. I am satisfied that on whatever basis Development Construction Ltd may put its claim, it does not have a caveatable interest in the property under the reservation of title.

[21]   There is also the question of a charging order under the Construction Contracts Act. I understand from Mr Rao that the adjudicator did approve a charging order under s 49 of the Construction Contracts Act, but that was to cover liability for a small sum which has since been paid. It might nevertheless be claimed that the ability to obtain

15     Neil Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at 25.

16     Carter Holt Harvey Merchandising Group Ltd v Southern Cross Building Society (1991) 1 NZ ConvC 190,870 (HC).

17     David Cooper “Retaining Title to Fixtures” (1991) 6 Auckland U L Rev 477 at 500.

a charging order might support a caveat. But there is authority against that in Boat Harbour Holdings Ltd v Steve Mowat Building & Construction Ltd.18

[22]   Accordingly, I am satisfied that Development Construction does not have a caveatable interest in the property at Larsen Street, Ōtara, and the caveat should be removed. I note that Development Construction has a freezing order, and that gives protection against the property being disposed of. There is an element of “belt and braces” in a caveat after a freezing order had already been obtained.

[23]   I dismiss the application to sustain the caveat and I order that the caveat is to be removed. Development Construction Ltd is to pay costs to Mr Mackenzie. I trust that counsel will be able to resolve costs but if they cannot memoranda may be filed.

[24]   Finally, I want to acknowledge Mr Beresford’s appearance today. He was instructed very late. Original counsel briefed in this case was not able to take part because of ill health. I appreciate Mr Beresford’s efforts to deal with the case at short notice.

…………………………………….

Associate Judge R M Bell

18     Boat Harbour Holdings Ltd v Steve Mowat Building & Construction Ltd [2012] NZCA 305, (2012) 13 NZCPR 489 at [53]–[56].