FM Custodians Limited v Stewart Street Properties Limited (in rec) HC Auckland CIV 2011-404-7181

[2011] NZHC 1724

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-7181

UNDER  Section 143 of the Land Transfer Act 1952

BETWEEN  FM CUSTODIANS LIMITED Applicant

ANDSTEWART STREET PROPERTIES LIMITED (IN RECEIVERSHIP) First Respondent

ANDELIZABETH MARY LAMBERT Second Respondent

Hearing:         1 December 2011

Appearances: RB Hucker for applicant

No appearance on behalf of first respondent
EM Lambert, second respondent in person

Judgment:      2 December 2011 at 4:45 PM

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application that caveat be removed]

Solicitors:           Webb Farry, PO Box 5541, Dunedin

And To:             EM Lambert, 31A Bailey Street, Huntly

FM CUSTODIANS LIMITED V STEWART STREET PROPERTIES LIMITED (IN RECEIVERSHIP) HC AK CIV 2011-404-7181 2 December 2011

[1]      The applicant applies for an order pursuant to s 143 of the Land Transfer Act

1952  that  Caveat  No 8874615.1  lodged  against  certificate  of title NA35A/1476 (more particularly described as Lot 1 Deposited Plan 71073 on Lot 2 Deposited Property Law Act notice 48984) be removed and for certain related orders.

[2]      Mr Hucker confined his submissions to the application for removal of the caveat. Accordingly, it is that part of the application that I now deal with.

[3]      The  registered  proprietor  of  the  property  against  which  the  caveat  is registered is the first respondent.  Separate proceedings have been issued in the High Court under CIV 2011-404-6621 in which the receiver of the first respondent seeks possession of the subject property.

[4]      The applicant holds a registered mortgage.  It was registered against the title of the subject property on 25 August 2009.

[5]      The caveat, which is the subject of this proceeding, was registered against the title to the subject property on 28 September 2011.   The grounds on which the caveator claims an interest from the registered proprietor is a sale and purchase agreement completed with Stewart Street Properties Ltd, vendor, Bonnie Johnson, director of Stewart Street Properties Ltd and Elizabeth Mary Lambert, purchaser.

[6]      The reason for the application is that the applicant alleges a default has been made by the first respondent in respect of its obligations to the applicant under a loan agreement which is secured by the mortgage.  The applicant has issued appropriate notices under the Property Law Act 1952 and is now proceeding with a mortgagee sale.  The property is being marketed by Bayleys Real Estate Ltd.  It is claimed that the existence of the caveat is having an adverse affect on the marketing of the property.

[7]      This application was first called before Brewer J on 11 November 2011.  At that time his Honour noted that the actual subject of the application is the second respondent.  He also recorded that she had requested a period of two weeks in order to file her documents in opposition.  His Honour then made orders for the filing, by

25 November 2011, of her grounds of opposition and an affidavit in support of those grounds.   The case was adjourned to a date to be fixed by the Registrar.   That adjourned date was the reason for the call before me on 1 December 2011.

[8]      The  applicable  principles   which   apply  when   considering  applications pursuant to s143, 145 and 145A of the Land Transfer Act 1952 are well known and can be shortly stated. They are:

(a)      Ss 143, 145 and 145A of the Land Transfer Act 1952 give no guide as to the circumstances in which the Court may make an order that a caveat not lapse:  Catchpole v Burke;[1]

[1] Catchpole v Burke [1974] 1 NZLR 620 (CA).

(b)If it is clear that there was no valid ground for the lodging of a caveat, or that the interest which in the first place justified the lodging of the caveat no longer exists, such a caveat should be removed:   Sims v Lowe;[2]

[2] Sims v Lowe [1988] 1 NZLR 656 (CA) at 659.

(c)      The onus under ss 143, 145 and 145A of the Land Transfer Act 1952 lies on the caveator to show that he has a reasonably arguable case for the interest he claims:  Castlehill Run Ltd v NZI Finance Ltd;[3]

[3] Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 (CA) at 104–106.

(d)The caveat, being a creature of statute, may be lodged only by a person upon whom a right to lodge it has been conferred by statute.  It is not enough to show that the lodging and continued existence of the caveat  would  be  in  some  way  advantageous  to  the  caveator: Guardian Trust & Executor Co of New Zealand Ltd v Hall;[4]

[4] Guardian Trust & Executor Co of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025, Callan J.

(e)      What the caveator must establish is an arguable case for claiming an interest of the kind referred to in s 137 of the Land Transfer Act 1952;

(f)      Even if the caveator establishes an arguable case for the interest in the land  claimed,  the  Court  retains  a  discretion  to  make  an  order removing the caveat although it will be exercised cautiously:  Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd.[5]

[5] Pacific Homes Ltd (in receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652

[9]      The second respondent opposes the application.  Her grounds in summary are that the document which supports the caveat is in fact a valid sale and purchase agreement. The fact that words sale and purchase have been deleted and amended to read transfer of guardianship are of no effect because they were additions to the document made after its execution by the second respondent and the other parties and without the second respondent’s authority.  The second respondent further says that, as purchaser she lodged  the caveat relying on  it to protect her interest in possession of the property.   She claims that her caveat does not interfere with the interests of the mortgagee, in particular the right to receive payment of the moneys due under the mortgage.

[10]     An affidavit has been sworn by Bonnie Dawn Johnson, which in substance confirms Ms Lambert’s assertion that the contract was signed by Ms Johnson and Ms Lambert in its unaltered form, that is as an agreement for sale and purchase and before deletion of the words  sale and purchase and their change to  transfer of guardianship.

[11]     Mr Hucker first submitted that the document that was said to be the basis for the caveat simply was not a sale and purchase contract and therefore could not support the interest claimed in the caveat.   What the precise circumstances surrounding the execution of the agreement were, cannot be resolved in this caveat application and, indeed, for reasons that I will shortly set out, it is not necessary to deal with them for the purposes of protecting the applicant’s position.

[12]     The caveat and the sale and purchase contract are both subsequent in time to the registration of the mortgage and the notices that were issued under the Property Law Act 2007 with a view to establishing a breach justifying the exercise of the

power of sale.  Mr Hucker also drew attention to the fact that a sale of the property

without the mortgagee’s consent is a default in respect of the mortgage terms by clause 15(d)(1).   He further drew attention to the fact that the applicant had to consented to any transfer.

[13]     In Westpac Banking Corporation v Famularo I had to deal with a similar issue to that which arises in this case.[6]  I recorded at paragraph 6:

[6] Westpac Banking Corporation v Famularo HC Auckland M1092/98, 23 September 1998.

What then is in issue is whether the interest acquired by Mr Famularo under his sale and purchase contract overrides the rights of the mortgagee and in particular, the right to effect the sale where a default has occurred.  The short answer is, they cannot.  The authority for that proposition is contained in the decision of McGechan J in National Mutual Finance (1988) Ltd v Berryman (High Court Wellington M451/91, 2 October 1991) and in the unreported decision in the Court of Appeal in Jensen v Jensen, Charles Aston Ltd & Anor (CA 246/90, 30 December 1990).

[14]     The registered mortgagee’s title is paramount.  That includes the mortgagee’s

right to exercise its power of sale.[7]

[7] Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd [1984] 2 NZLR 704.

[15]     Section 105 of the Land Transfer Act 1952 provides:

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.

[16]     The interest claimed in the caveat asserting an interest as purchaser under a sale and purchase contract has no priority and is entitled to no protection in respect of  the  registration  of  any transfer  executed  by  a  mortgagee  for  the  purpose  of exercising the mortgagee’s power of sale over the land.   In short, the registered proprietor’s  interest  in  the land ends  with  the transfer by the mortgagee to  the mortgagee’s purchaser.  From that point in time nothing will support a caveat.  When that position is taken into account the appropriate exercise of jurisdiction under s 143 of the Land Transfer Act 1952 is to make an order which provides for the lapsing of

the caveat and its removal from the title upon the registration of a transfer by the

mortgagee to the mortgagee’s purchaser pursuant to the power of sale.   A sealed court order to that effect should answer any concerns which a prospective purchaser may have.

[17]     Although I am unable to resolve the first ground advanced by Mr Hucker in favour of the removal of the caveat, as I have earlier recorded, this second ground achieves the objective of clearing the title in the event that there is an exercise of the mortgagee’s power of sale.

[18]     Accordingly, I conclude it is appropriate to make an order that the caveat the subject of this application shall lapse and be removed from the subject property’s title upon the registration of a transfer by the applicant to the applicant’s purchaser pursuant to the applicant’s exercise of its power of sale.

[19]     The  applicant  has  been  successful  in  its  application  and  is  accordingly entitled  to  an  order  for  costs  based  on  Category  2  Band B  together  with

disbursements as fixed by the Registrar.

JA Faire

Associate Judge