Forster v Haines
[2022] NZHC 549
•23 March 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-459
[2022] NZHC 549
BETWEEN CISCA FORSTER and
HARRY MEMELINK as trustees of the Link Trust (No. 1)
ApplicantsAND
QUENTIN STOBART HAINES
First Respondent
BPE TRUSTEES (NO. 1) LIMITED
Second RespondentEASTLIGHT ASSET TRADING NO. 5 LIMITED
Third Respondent
STOBART HOLDINGS LIMITED
Fourth Respondent
CIV-2021-485-457 BETWEEN
CISCA FORSTER and
HARRY MEMELINK as trustees of the Link Trust (No. 1)
Applicants
AND
STOBART HOLDINGS LIMITED
Respondent
Hearing: 15 March 2022 Counsel:
D Livingston for Applicants in both proceedings Q S Haines in person
J D Dallas for Second and Third Respondents
A O’Connor for Stobart Holdings Limited in both proceedingsJudgment:
23 March 2022
FORSTER & ANOR v HAINES & ORS [2022] NZHC 549 [23 March 2022]
JUDGMENT OF CHURCHMAN J
The applications
[1] On 12 August 2021, the applicants filed an originating application for an order that a caveat not lapse. The caveat in question was Caveat/Notice of claim 12113911.1 over a property situated at 29B Eastern Rise, Manakau (the property).
[2] The application also sought relief by way of an interim order that the caveat not lapse if the substantive application could not be determined before 9 September 2021. By a minute of 1 September 2021, Johnston AJ made such an interim order.
[3] The applicants made a further application. On 14 January 2022, the applicants sought in addition or alternatively, an interim injunction restraining the fourth respondent from disposing the property or entering into any security arrangement in respect of it. Both the caveat and injunction applications are addressed in this decision.
Background
[4] Mr Harry Memelink, one of the trustees of the applicant Trust, and Mr Quentin Haines, the first respondent, were once friends. Mr Haines was previously a solicitor and had provided litigation services to Mr Memelink. He was not Mr Memelink’s only solicitor at the times relevant to these proceedings. Mr Memelink also used other solicitors including Collins and May, Mr Brendon McDonnell of Petone Law and Mr Fintan Devine of Devine Law for commercial and conveyancing matters. Mr Memelink and Mr Haines intertwined their business and personal affairs in a way that went well beyond the boundaries of any normal professional relationship.
[5] The arrangement for payment for professional services provided by Mr Haines to Mr Memelink also appears, at times, to have had some highly unorthodox components, including the provision of professional services by Mr Haines in return for various financial accommodations by Mr Memelink or his interests.
[6] It is one of these transactions that has ultimately led to these applications being made.
The transaction
[7] Mr Memelink provided a guarantee in relation to certain borrowing entered into by Mr Haines. The details of that borrowing are set out in the decision of Grice J in Memelink v Haines.1
[8] All that need be said for the purposes of this decision is that there were three loans involved: two from Fico Finance (Fico) and one from Bright Enterprise Holdings Ltd (Bright). The first Fico loan was dated 22 December 2016 and involved an initial sum of $79,000, the Bright loan was dated 21 February 2017 for an initial sum of
$260,400, and the second Fico loan was dated 21 April 2017 and for an initial sum of
$261,800 (together “the loans”).
[9] The first Fico loan was secured against a property owned by the applicant Trust in Lower Hutt; the Bright loan was secured against a different property owned by the Trust in Lower Hutt; the second Fico loan was secured by a first mortgage against two other Lower Hutt properties owned by the Trust as well as a second mortgage against another Trust property and the property in Manakau then owned by Mr Haines’ Trust,2 which is the subject of these proceedings.
[10] It was common ground that the initial reason that Mr Haines had sought funding was for the purpose of acquiring his wife’s interest in their former relationship property. For reasons not relevant to these proceedings, the transaction in relation to Mr Haines’ relationship property did not proceed.
[11] As at 21 April 2017, which was the date upon which Mr Memelink signed the guarantee for the loans at the offices of his then solicitor, Brendon McDonell, Mr Memelink was aware that the loan he was guaranteeing was being used for purposes other than the relationship property buyout. The guarantee document he signed also explicitly provided that the security being provided by the Haines’ interests
1 Memelink v Haines [2021] NZHC 1992 at [18]-[30].
2 The QSH Trust, the trustees of which were Mr Haines and BPE Trustees (No. 1) Limited.
was a second mortgage over the Manakau property. The first mortgage in place over the property at that time was to Basecorp Finance Limited (Basecorp).
[12] The personal relationship between Mr Memelink and Mr Haines appears to have deteriorated in the latter part of 2017, and by 2018 they appear to have fallen out in spectacular fashion. That falling out has generated a raft of litigation.3
[13] The most relevant of the prior decisions is the decision of Grice J in Memelink v Haines.4 That was a decision in relation to the liability of Mr Haines on the personal covenants to pay arising from his obligations recorded in the deed in which Mr Memelink guaranteed the loans.
[14] Grice J gave summary judgment on liability but refused to give judgment on quantum, specifically refusing to make the interim payment of $50,000 sought by the plaintiffs. She said:5
I am satisfied that liability has been established and that there is no tenable defence in relation to liability. However, I am not satisfied that the plaintiffs are likely to obtain judgment for a substantial sum. In addition, taking into account the counterclaim that the defendants are entitled to make, I do not think the payment of $50,000, or any sum, is just. The quantum must be determined at trial.
[15]Grice J also referred to what she described as “Interparty Loans”.
[16] At [27] and [28] of her judgment, Grice J detailed some seven separate Interparty Loans totalling $83,425.59 made from the Trust account of Mr Haines’ then
3 Haines v Memelink [2021] NZSC 14 (extension of time for leave to appeal); Memelink v Haines [2021] NZCA 116 (appeal against bankruptcy adjudication); Memelink v Haines [2021] NZCA 205 (application to strike out appeal); Re Memelink, ex parte Haines [2021] NZHC 3205 (rehearing of bankruptcy adjudication); Memelink v Haines [2021] NZHC 2570 (Costs); Re Memelink, ex parte Haines [2021] NZHC 2333 (Costs); Forster v Haines [2021] NZHC 1992 (application for summary judgment for liability and for strike out claims in counterclaim); Haines v Memelink [2021] NHZ 1063 (Costs); Re Memelink, ex parte Haines [2020] NZHC 434 (Bankruptcy Adjudication); Haines v Memelink [2020] NZHC 188 (Costs); Memelink and Lynx Trustees Limited as trustees of the Link Trust No 1 v Haines [2020] NZCA 205; Re Haines, ex parte Memelink [2019] NZHC 3154 (Costs); Haines v Memelink [2019] NZHC 2802 (Costs); Haines & Ors v Memelink & Anor [2019] NZHC 2169 (Application to set aside statutory demands); Haines v Memelink [2019] NZHC 1086 (Costs on interlocutory application); Haines v Memelink [2019] NZHC 401 (Application for interim injunction); Haines v Memelink [2018] NZHC 3460 (Interim injunction restraining dealing with property); Haines v Memelink [2018] NZHC 3373 (Application for without notice interlocutory application for injunction).
4 Memelink v Haines above n 1.
5 At [161].
solicitor (Langford Law) to the Memelink interests. There appears to be no dispute that funds from the second Fico loan were the source of these payments.
[17] It appears that the Memelink interests made some payment in reduction of these Interparty Loans as, at [136] of her decision, Grice J referred to the balance outstanding as being $60,825.59. The final amount, if any, owing by Mr Haines to the Memelink interests pursuant to the personal covenants remains yet to be determined.
The mortgage
[18] The applicants’ interest in the property against which the caveat is registered, stems from the second mortgage described in [9] above. The second mortgage was obviously at all times subject to the first mortgage to Basecorp. Like the second mortgage, the first mortgage fell into arrears and Basecorp exercised its power of sale.
[19] Mr Livingston, for the applicants, did not suggest that there was anything unlawful about Basecorp’s actions in exercising its power of sale. The first mortgage was then in default. The mortgagee was entitled to exercise its power of sale. The argument advanced by Mr Livingston appeared to be that there was something fraudulent about the transaction as a result of the activities of Mr Haines.
[20] This argument seemed to revolve around Mr Haines’ use of s 102 of the Property Law Act 2007 (PLA).
[21] Section 102 of the PLA permits a mortgagor to request a mortgagee to transfer a mortgage to a nominated person. This section had, in fact been used by Mr Memelink in order to avoid the mortgagee’s exercise of a power of sale under the second mortgage. Mr Memelink had arranged for a transfer of the mortgage pursuant to s 102 PLA to his interests.
[22] On 18 January 2019 after the second mortgage had been transferred to Mr Memelink’s interests, Mr Haines had emailed Mr Memelink asking him for the sum required to redeem the second mortgage. He had requested this information be provided by 10am on 22 January 2019.
[23] Mr Memelink replied the same day. He did not provide the figure requested. The words unhelpful and obstructive could appropriately be applied to his response. He demanded Mr Haines provide him with certain information. There does not appear to be any legal basis for him having made the provision of the redemption sum conditional upon Mr Haines providing the information requested. The redemption of the second mortgage therefore did not proceed and it was still in existence as at the date of the mortgagee sale by Basecorp.
The auction
[24] On 2 May 2019, Harcourts Real Estate, on instructions from Basecorp as first mortgagee, conducted a mortgagee auction. Mr Haines attended the auction and bid on the property. He had obtained prior permission from Basecorp to do this. He was the successful bidder at $810,000. Mr Memelink also attended the auction but did not bid.
[25] Prior to the auction, Mr Haines had entered into an arrangement with a company called Solutions Group Investments Limited (Solutions). Solutions was the same company that had previously agreed to fund the acquisition of the second mortgage which had been unable to proceed because Mr Memelink would not provide the redemption figure. Solutions is not a party to these proceedings.
[26] Mr Craig Urquhart, the sole director of Solutions, filed an affidavit explaining the role played by his company. He deposed that Solutions was an investment company which performed property transactions including transactions for clients who were facing mortgagee sales. The transactions involved:
(a)Solutions entering into a contract to purchase a property;
(b)Solutions offering the previous owners the right to remain as a tenant in the property at a market rental; and
(c)Solutions offering to resell the property to the original owner at an agreed increased price at any time within the agreed period.
[27] The affidavit confirmed that prior to the transaction, Mr Urquhart had never met or had any business dealings with any of the parties to these proceedings.
[28] There was a delay in Mr Haines providing the agreed $20,000 deposit following the mortgagee auction. On 9 May 2019, he emailed Warren Mayall at Basecorp to arrange payment of the deposit. However, Mr Memelink had already been in touch with Mr Mayall. By email the same day, Mr Mayall advised that he would not accept the amount of $20,000 as the date for payment of the deposit had passed. The relevant passage in the email says:
…we have a duty of care to all subsequent mortgagees and that the S&P currently in place needs to be cancelled as per non-payment of deposit notice having now expired.
[29] Basecorp then entered into a contract with Morgan Gray, who had been an underbidder at the auction, to sell the property for $812,000.
[30] Before the sale could be completed, Mr Haines served his own request under s 102 PLA on Basecorp requesting that the first mortgage be assigned to Eastlight Asset Trading (No. 5) Limited (Eastlight). Eastlight was a company controlled by Mr Kooiman, a friend of Mr Haines. Inclusive of interest and costs, the amount paid to Basecorp’s lawyers by Eastlight’s lawyers to redeem the mortgage was
$764,225.45.
[31] Basecorp assigned the mortgage and all its rights in respect of the mortgage to Eastlight by way of deed of assignment dated 17 May 2019. The deed specifically recorded the transfer to Eastlight of all Basecorp’s powers under the mortgage. The deed had attached to it a copy of the notice of assignment given by Basecorp to the borrower (Mr Haines and BPE Trustees (No. 1) Limited). Pursuant to s 178(2) PLA,6 Eastlight’s lawyers cancelled the mortgagee sale agreement between Basecorp and Morgan Gray by notice of 20 May 2019, addressed to Mr Gray’s lawyers, Collins and May.
6 Section 178(2) PLA permits a mortgagee who is entitled to sell a mortgaged property to cancel an existing contract for sale of the mortgaged property and resell the property.
[32] Eastlight, as mortgagee exercising the power of sale under the mortgage, then promptly sold the property to Solutions for the sum of $813,000 for settlement on 20 May 2019. The sale was conducted by way of private contract rather than auction.
[33] Solutions entered into an arrangement with Mr Haines for him to rent the property for 12 months with the right to purchase it at the conclusion of that period.
[34] Mr Haines was not in a financial position to purchase the property himself at that point but his father, Cavan Stobart Haines (Mr Haines (Snr)) did. Mr Haines (Snr) filed an affidavit in which he deposed that when he became aware that Mr Haines was unable to purchase the property, he decided to form a company (Stobart Holdings Limited)7 that would purchase the property and rent it to his son. His affidavit records that his objective in doing this was to provide “…the dual benefit of giving me a known investment and giving Quentin certainty of home.”
[35] Mr Haines (Snr), in his affidavit, also explains why the property was initially transferred by Solutions to Mr Haines and then by Mr Haines to Stobart Holdings Limited. Mr Haines (Snr) affidavit says that part of the arrangement between Solutions and Mr Haines in the exercise of the buyback option involved Solutions advancing some of the purchase price by way of second mortgage to Mr Haines.
[36]Stobart Holdings Limited had funded the balance of the purchase by borrowing
$600,000 (plus fees and charges) from Fico Finance Limited. A copy of the loan document attached to the affidavit of Mr Haines (Snr) shows Stobart Holdings Limited as the debtor with the guarantors being Mr Haines (Snr), his wife Penelope Ann Haines, and his son Rupert Hyam Haines.
[37] Mr Quentin Haines’ affidavit of 16 September 2021 also deposes that he took title to the property as trustee for Stobart Holdings Limited pending a refinance (of the Solutions second mortgage) and ultimately effected the transfer to Stobart Holdings Limited in October 2020.
7 Mr Haines (Snr) is the sole director and shareholder of this company.
The law
[38] In an application for an order that a caveat not lapse, the Court of Appeal has defined the onus as being:8
…on the caveator to demonstrate that it holds an interest in the land which is sufficient to support a caveat. The caveator must put before the Court a reasonably arguable case to support the interest it claims. An order for the removal of a caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively that such ground as then existed has now ceased to exist. There is a residual discretion, once a reasonably arguable case has been established as to whether to make an order removing the caveat. This will be exercised only cautiously, for example where the Court finds there is no practical advantage to maintaining a caveat and the caveator will not be prejudiced.
(footnotes omitted)
[39] Evidence in proceedings of this nature is given by way of affidavit. Neither side sought leave to cross-examine any of the deponents. There was considerable conflict between the evidence on a number of material points.
[40] It is not the role of the Court in an interlocutory hearing of this nature to attempt to resolve issues of conflict. In Macrae v Rapana, Fisher J said:9
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.
[41] Evidence will be “patently lacking in credibility on its face” if it is clearly contradicted by documentary records or other reliable objective evidence. In the present case, there are a number of claims which fall into that category. I will return to this point when discussing the applicants’ various assertions.
[42] The present registered proprietor of the property is the fourth respondent, Stobart Holdings Limited. This presents a further challenge to the applicants as a result of the concept of indefeasibility of title. In the case of Pepper New Zealand (Custodians) Limited v Schmidt, Heath J said:10
8 Botany Land Development Limited v Auckland Council [2014] NZCA 61 at [24].
9 Macrae v Rapana HC Auckland M633/94, 17 June 1994 at 3.
10 Pepper New Zealand (Custodians) Limited v Schmidt HC Auckland, CIV-2011-404-5497, 15 November 2011 at [17].
Under the indefeasibility principle, [the registered proprietor’s] interests are paramount, unless fraud is established. In order for [the applicant] to justify the continued registration of her caveat and for herself and her husband to be granted an interim injunction to prevent the registered mortgagee from entering into possession or selling the mortgaged land, a foundation for a finding of fraud must be established. The test I apply is whether [the applicant] can point to allegations of primary fact which, if proved and not challenged by evidence from other parties, could result in an inference of fraud being drawn.
(footnotes omitted)
[43] Heath J also went on to describe what the concept of fraud in these circumstances involved.11
To establish fraud, [the applicant] must demonstrate actual dishonesty on the part of [the registered proprietor] and [a director of the registered proprietor], or, perhaps, proof that [the registered proprietor] (through [its director]) had cause to suspect a competing claim but deliberately refrained from making further inquiries that an honest purchaser would make.
(footnotes omitted)
[44]As to whether a mortgagee of a property has acted fraudulently, Heath J said:12
A registered mortgagee will only be fixed with knowledge of fraud if it were actually complicit in it or has knowledge imputed to it, by virtue of an agent’s acts.
[45] In support of that, Heath J referred to the decision of Nathan v Dollars & Sense Limited.13
The arguments
[46] Mr Livingston accepted that in order to overcome indefeasibility of title, he had to establish fraud. The issue here is whether there is a reasonably arguable case of fraud sufficient to support the interest which the caveator claims.14
[47] It is not been easy to clarify exactly whose actions were said by the applicants to have been fraudulent or what facts were relied on.
11 At [18].
12 At [19].
13 Nathan v Dollars & Sense Limited [2008] NZSC 20, [2008] 2 NZLR 557 at [32].
14 See Botany Land Development Limited v Auckland Council [2014] NZCA 61.
[48]In his written submissions, Mr Livingston referred to:
…a highly unusual and prejudicial series of transactions conducted by Mr Haines which saw him remove the Trust as a mortgagee of the Property whilst retaining ownership and occupation of the home.
[49]It was said to be:
As a result of these unusual and prejudicial transactions [that] the applicant filed proceedings pleading fraud …
[50] The first allegation of fraud relates to a claim that Mr Haines misappropriated or stole the funds when he used them for a purpose other than purchasing his wife’s share in their former matrimonial home. Mr Livingston specifically submitted:
The Trust did not agree that their guarantee could be used to finance the Property, they agreed it could be used to finance the purchase of relationship property, namely Mr Haines’ half-interest in his matrimonial home) [sic].
[51] Mr Livingston also submitted, “The Trust was never notified that the funds will be used to purchase the Property.”
[52] The respondents point to the fact that by the time Mr Memelink signed the guarantee:
(a)he was aware that the proposed purchase of his wife’s interest in the former matrimonial property by Mr Haines was no longer proceeding;
(b)that Mr Haines intended to purchase the property;
(c)that there was a first mortgage on the property (to Basecorp) and that the guarantee documents specifically noted that the security over the property was to be by way of second mortgage;
(d)that the funds drawn down were applied to the benefit of both Mr Haines and Mr Memelink; and
(e)that Mr Memelink provided Mr Haines with written instructions on how funds were to be applied in settling the applicant Trust’s separate
mortgage defaults with its own mortgagee (First Mortgage Trust) together with other creditors.
[53] During the course of oral argument, Mr Livingston conceded that at the time he signed the guarantee, Mr Memelink was aware that the relationship property transaction was no longer proceeding and that the document Mr Memelink signed made it clear that the security interest being provided by Mr Haines’ interest over the property was a second mortgage.
[54] The evidence clearly establishes that Mr Memelink, who was acting on behalf of his Trust, knew that the funds to be advanced were not going to be used by Mr Haines for the matrimonial property transaction and that he personally directed that some of the funds (the Interparty Loans referred to by Grice J and noted above), be applied to the benefit of himself or his interests. The claim that Mr Haines stole or misappropriated the funds by not using them for the matrimonial transaction is untenable.
[55] Mr Livingston’s written submissions also contended that at the time Mr Memelink on behalf of his Trust guaranteed the loans, Mr Haines was the Trust’s lawyer and that the Trust did not receive independent legal advice. This is not consistent with the objective evidence. Mr Livingston accepted that Mr Haines only acted for the Memelink interests in relation to litigation matters. Mr Haines clearly had his own lawyer in relation to the loan transaction. This was John Langford of Langford Law. The objective evidence shows that the proceeds of the loan were paid into Mr Langford’s trust account and that the ‘Interparty Loans’ were disbursed by him from that account.
[56] The guarantee document signed by Mr Memelink was signed by him in the offices of Brendon McDonell. There is no evidence that Mr McDonell was acting for Mr Haines. When I put the proposition to Mr Livingston that Mr McDonell was Mr Memelink’s lawyer, Mr Livingston said that he did not know whose lawyer Mr McDonell was.
[57] While ultimate resolution of these contested facts will have to wait until disposition of the substantive proceedings, on the basis of the evidence referred to me, the applicants’ claim that Mr Haines was acting for the Memelink interests in this transaction seems highly improbable as does the claim that Mr McDonnell was acting as Mr Haines’ lawyer and not Mr Memelink’s.
[58] The second allegation of fraud related to the sale by Eastlight to Solutions. The fraudulent aspect of the transaction was said to be sale at an undervalue. There are also some claims that seem to be advanced to establish that the sale was somehow unlawful. It is not clear whether these matters are said to be fraudulent as well but in case they are, I will deal with them.
[59] The first relates to the date of the sale. Mr Kooiman, in an affidavit of 24 September 2021, deposed that:
On 21 May 2019, Eastlight sold the Property to Solutions pursuant to its power of sale as mortgagee.
[60]Mr Livingston’s submission was:
It is more likely than not that the date of the agreement was 17 May 2019 given the settlement date (which was amended from 16 May 2019 to 17 May 2019 and initialled by all parties). As of 17 May 2019, Eastlight had no legal right to sell the Property.
[61] Mr Livingston is effectively inviting the Court to reject Mr Kooiman’s evidence without being able to point to any evidence to the contrary. As of 21 May, the mortgage had been transferred to Eastlight along with the mortgagee’s rights to sell by way of mortgagee sale for default. The fact that the transfer may have been drafted and signed prior to that date does not make the transfer illegal.
[62] The next matter referred to was that “The sale was done without notice to the Trust, the registered second mortgage”.
[63] There are two responses to this. Firstly, Mr Livingston accepted that there was nothing unlawful about Basecorp’s exercise of its rights to sell the property. He did not suggest that Basecorp had not given notice of intention to the second mortgagee.
The right to sell exercised by Eastlight was the right transferred to it by Basecorp. Eastlight was entitled to rely such notices that Basecorp had given.
[64] The second point is that it is s 119 PLA which provides that notice of the intended exercise of powers of sale by a mortgagee must be given to the mortgagor. It is s 121 that requires service on a subsequent mortgagee. Even had Basecorp not served notice on the second mortgagee, that would not render the sale invalid. Section 121(2)(d) specifically states that a failure to comply with s 121 does not prevent the exercise of the mortgagees’ or receivers’ power to sell the mortgaged land.
If there is failure to comply with s 121, the appropriate remedy is damages.15
[65]A further allegation made by the applicants was that:
The agreement to sell the Property was not marketed publicly and conducted behind closed doors.
[66] This submission would appear to overlook s 178(1)(e) PLA which expressly authorises a mortgagee sale to be by way of public auction or by private contract.
[67]The applicants refer to the fact that:
Solutions agreed that Mr Haines could buy back the Property within a certain date.
[68] There is nothing fraudulent about this. As set out in the affidavit of Mr Urquhart, Solutions was in the business of buying up properties about to be sold at mortgagee sale and entering into arrangements of the type entered into with Mr Haines. They had no prior connection to Mr Haines. There is no basis for saying that transaction was fraudulent. Neither can there be anything fraudulent about Stobart Holdings Limited buying the property from Solutions and leasing it to Mr Haines.
[69] Solutions had acquired an indefeasible title. They were therefore able to pass that indefeasible title to Stobart Holdings Limited. There is nothing unlawful let alone fraudulent about Stobart Holdings Limited leasing the property to Mr Haines.
15 Property Law Act 2007, s 121(c).
[70] The basis for the claim that Eastlight fraudulently sold the property at an undervalue to Solutions was described in the applicants’ submissions as being:
The mortgagee sale price was set at $813,000 despite Mr Haines holding valuation of the Property at $1,250,000.
[71]In his written reply submissions, Mr Livingston claimed:
On 26 April 2019, the Property was valued at $1,250,000 by “AG Wagenaar” a registered public valuer.
[72] No copy of the valuation in the sum of $1,250,000 was put before the Court. No reason for that was advanced by Mr Livingston. The Court is therefore unable to put any reliance on this, being an unsubstantiated assertion made by counsel.
[73] The actual value of the property needs to be ascertained by reviewing the objective evidence. The evidence before the Court disclosed that the rating valuation for the property as at 1 August 2016 was $735,000.
[74] The QSH Family Trust purchased the property in March 2017 for $945,000. After the purchase, an event occurred which appears to have significantly affected the value. This was the confirmation that the Otaki/Levin bypass would be constructed right on the boundary of the property.
[75] Basecorp instructed Harcourts to provide an estimate of value of the property for the purposes of conducting the mortgagee sale. That estimate, dated 4 April 2019, expressed the view that the market value prior to the motorway bypass decision was between $950,000 and $1 million. But, as a result of the decision to locate the bypass right on the boundary, the value was substantially less possibly in the late $700,000 to early $800,000 range and maybe a little more if there was sufficient competition at the auction.
[76] The only registered valuation before the Court was one undertaken by Blackmores Registered Valuers issued on 18 April 2019 which was prepared for and provided to Basecorp.
[77] This valuation also noted that the location of the proposed new State Highway 1 between Otaki and Levin would negatively impact the property’s future saleability. The valuation said an “as is” market value was said to be $825,000. The value under the forced conditions of a mortgagee sale was said to be $745,000. The valuer also expressed the opinion that the $945,000 paid by the QSH Family Trust in 2017 represented the top-end of the property’s value range as at transaction date and, as a result of the Stage Highway 1 realignment would not be achievable at the time of the valuation.
[78] Perhaps the best evidence of value is the outcome of the auction conducted by Basecorp. Mr Haines was successful at $811,000 and when Basecorp cancelled the contract for failure to pay the deposit, Mr Gray offered $812,000 which was accepted.
[79] When measured against the objective evidence, the assertion that the value of the property was $1,250,000 is untenable. Accordingly, that basis for an allegation of fraud evaporates.
[80] An allegation of fraud is a serious one and, in order to be sustained must be supported by appropriate evidence. I adopt the formulation of Heath J in Pepper New Zealand (Custodians) Limited v Schmidt that, in order to overcome the indefeasibility principle, an applicant must be able to point to allegations of primary fact which, if proved, and not challenged by evidence from other parties, could result in an inference of fraud being drawn.16
[81] I also accept Heath J’s analysis in the same case that, to establish fraud, an applicant must demonstrate actual dishonesty on the part of the registered proprietor or alternatively proof that the registered proprietor had cause to suspect a competing claim and deliberately refrained from making further inquiries that an honest purchaser would make.17
[82] There are no primary or undisputed facts established which could result in an inference of fraud. There is nothing that could support a finding of actual dishonesty
16 Pepper New Zealand (Custodians) Limited v Schmidt above n 10.
17 At [18]; citing Assets Co Ltd v Mere Roihi [1905] AC 176 (PC) at 210.
on the part of the registered proprietor or a director of the registered proprietor. For the purpose of this interlocutory application, the applicants have been unable to meet the tests that would justify the Court in granting the application that the caveat not lapse on the grounds of there being primary facts which would support an argument of fraud.
Alternative argument
[83] The applicants also alleged the existence of an institutional constructive trust. Some of the grounds advanced in support of this claim were the same as the grounds relied upon to establish fraud. I will not repeat my analysis of those grounds.
[84] A further ground was that Mr Haines owed a fiduciary relationship to the applicants “as their lawyer and benefactor of the lending they had guaranteed”. The specific pleading was:
Mr Haines breached his fiduciary relationship when he purchased the property rather than his wife’s share in their matrimonial home and further breached this relationship when he entered into transactions designed to prejudice the Trust as a creditor.
[85] These allegations cannot survive the findings I have made to the effect that, by the time he signed the guarantee, Mr Memelink was aware that the funds would not be used for the relationship property matter. Nor can they survive the finding that Mr Haines only represented the Trust in litigation matters and had never acted for the Trust in a conveyancing matter of this nature.
[86] While the various transactions implemented by Mr Haines had the ultimate effect of prejudicing the applicants, that is something different from the assertion that the transactions were designed to prejudice the applicants.
[87] On the face of things, the transactions were entered into in order to avoid the first mortgagee exercising the power of sale and, so far as the current registered proprietor is concerned, to provide an investment for Mr Haines (Snr), and somewhere for Mr Haines to live.
[88] There is no unconscionability that the applicants are able to point to. The reality appears to be that when the property was sold for what I have concluded was, in the circumstances, a fair value, there was not sufficient equity to discharge all the mortgages registered against the property.
[89] There is, of course, an obligation on a party selling at mortgagee auction to account for any surplus to a subsequent secured creditor, or, if there is no other secured creditor to return it to the registered proprietor.
[90] The position for the respondents was that there was in fact no surplus after taking into account the full amount owing under the mortgage and the costs related to the mortgagee sale. The applicants’ claim was that they had never received a detailed statement.
[91] On the state of the evidence before me, it is not possible for me to reach any concluded view on this point.
[92] At the substantive hearing, Eastlight will have to justify its claim that there was no surplus. If it cannot do that, then it will be liable to the applicants for whatever sum the Court determines should have been paid to it. However, that is the liability of Eastlight and it is not the liability of the registered proprietor, Stobart Holdings Limited. It is also a liability that can be measured in damages and does not support an application that a caveat not lapse.
[93] As an additional alternative argument to the constructive trust proposition, Mr Livingston advanced what he acknowledged was a novel argument to the effect that a discharged subsequent mortgagee can reregister its mortgage if the defaulting mortgagor, at some time after a sale by a first mortgagee under the mortgage, manages to have the property transferred back to himself.
[94] In support of that argument, Mr Livingston referred to a decision of the Court of Appeal in the United Kingdom in Bristol & West Plc v Bartlett.18 However, that case refers to the entirely uncontroversial proposition that the personal covenant to
18 Bristol & West Plc v Bartlett [2002] EWCA CIV 1181.
pay on the part of a debtor continues notwithstanding the discharge of the mortgage providing security for that covenant.
[95] As discussed above, Grice J in the present case, has already found that liability exists in relation to those personal covenants, although the quantum of that liability remains to be determined.
[96] The second reason that this argument fails is that, contrary to Mr Livingston’s assertion, the original proprietor at the time of the mortgage (the QSH Trust) has not ever been returned to ownership. Mr Haines was briefly the owner as a result of the transfer from Solutions. However, there is no evidence that would justify a conclusion that he took ownership on behalf of the QSH Trust. He says that he took ownership on behalf of Stobart Holdings Limited. The applicants say he took ownership on his own account. Whichever one of these contentions is ultimately upheld in the substantive proceedings, it cannot be said that ownership was returned to the original proprietor, the QSH Trust.
Interim injunction
[97] The interim injunction was applied for as an alternative to application in respect of the caveat. As found by the Court of Appeal in Botany Land Development Limited v Auckland Council, having filed an application to lapse a caveat does not preclude a claimant from seeking other remedies such as an interim injunction preventing dealing with the land.19
[98] However, the grounds relied upon in support of the interim injunction largely covered the same matters said to support an allegation of fraud.
[99]Additionally, the applicants contend that:
…it is reasonably arguable Quentin Haines was insolvent when the property was transferred to Eastlight, then to Solutions, back to himself and then to his father …
19 Botany Land Development Limited v Auckland Council above n 8.
[100] Firstly, there was no evidence put to the Court that would justify the argument that Mr Haines was insolvent at any of these times. Secondly, it was not Mr Haines who transferred the property to Eastlight. Eastlight served a s 102 PLA notice. Neither did Mr Haines transfer the property to Solutions. That was done by Eastlight.
[101]The three basic requirements for an interim injunction are:20
(a)the applicant must establish that there is a serious question to be tried;
(b)the balance of convenience must favour the granting of an injunction; and
(c)an assessment must be made as to the overall justice of the matter.
[102]The applicants here fail at the first hurdle of establishing a serious question.
[103] However, even if there was a serious question, the balance of convenience would favour declining the injunction. Damages would appear to be an adequate remedy. It is uncertain what surplus from the mortgage sale, if any, might have existed. Given my finding, for the purposes of this interlocutory application, that the mortgagee sale was validly conducted, the best financial result that the applicants could hope for is damages for an amount somewhere between the discharge figure paid to Basecorp on the first mortgage, and what I have found to be a fair value sale price at $813,000. If the contentions of Eastlight are correct and there was no surplus, then the applicants will not get anything from the proceeds of the mortgagee sale.
[104] As already mentioned, the party liable is Eastlight in those circumstances, not the current registered proprietor.
[105] A fact relevant to assessing the balance of convenience is the undertaking as to damages.
20 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12] and affirmed in Intellihub v Genesis Energy Ltd [2020] NZCA 344 at [23].
[106] High Court Rule 7.54 requires an applicant for an interlocutory injunction to file a signed undertaking that the applicant will comply with any order for the payment of damages to compensate the other party for any damage sustained through the issue of an injunction. No such undertaking as to damages was filed with the application. It was only, during the course of the hearing, when it was pointed out by Mr Haines that no such undertaking had been filed, that one was produced.
[107] As the Courts have indicated, where there is a likelihood of financial detriment to a respondent, an applicant for an interlocutory injunction has an obligation to provide the Court with sufficient information to enable the Court to assess the worth of the undertaking and that if no information to support an undertaking is provided, then this is likely to be an important factor in assessing the balance of convenience.21
[108] Here, no such information was provided. The respondents raised questions as to the worth of any undertaking given the applicants did not provide the relevant information. In these circumstances, the balance of convenience weighs against the granting of an interim injunction.
[109] Standing back and assessing overall justice, that does not favour the granting of the interim injunction sought either.
[110] As Grice J held, there is no certainty that anything is still owed by the first defendant to the applicants. To the extent that the applicants have any claims, they would appear to be against the first or third respondents, not the registered proprietor.
[111]For these reasons, the application for an interlocutory injunction is dismissed.
Outcome
[112] The applicants have failed on both their applications. Counsel are invited to settle costs but in the absence of agreement, the respondents are to file memoranda of no greater than three pages in length within 14 days of the date of this decision, with
21 See Sanson v Energy Products Limited HC Auckland CIV-2009-404-5464, 4 December 2009 at [40]; citing Jireh Holdings Ltd v Porchester Ltd HC Auckland M1466/02, 18 December 2002; and Eide v Huxford Holdings Ltd HC Dunedin CIV 2003-412-677, 1 October 2003.
the applicants having 14 days to respond. The question of costs will be dealt with on the papers.
Churchman J
Solicitors:
Livingston & Livingston, Wellington for Applicants
J D Dallas, Wellington for Second and Third RespondentsIorns Legal, Porirua for Fourth Respondent
cc Q S Haines
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