GLW Group Ltd v Lepionka & Co Investments Ltd
[2018] NZHC 1658
•6 July 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-2168
[2018] NZHC 1658
BETWEEN GLW GROUP LIMITED
Plaintiff
AND
LEPIONKA & COMPANY INVESTMENTS LIMITED
First Defendant
LEPIONKA & COMPANY LIMITED
Second DefendantSTEFAN JOZEF LEPIONKA and NIGEL
WARREN HUGHES as trustees of the SJ Lepionka Family Trust
Third Defendants
STEFAN JOZEF LEPIONKA
Fourth Defendant………………continued
Hearing: 21 May 2018; further evidence/submissions 25 and 31 May and
5, 6, 11 and 12 June 2018
Counsel:
MD O'Brien QC and MG Colson for defendants/applicant DW Grove for plaintiff/second respondent
No appearance for fourth and fifth respondents
Judgment:
6 July 2018
JUDGMENT OF FITZGERALD J
[As to application for stay/removal of caveat]
This judgment was delivered by me on 6 July 2018 at 2 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar ……………………………… Date……………………
GLW Group Limited V Lepionka & Company Investments Limited [2018] NZHC 1658 [6 July 2018]
CIV-2018-404-690
UNDERthe Land Transfer Act 1952 and Part 19 of the High Court Rules 2016
BETWEENLEPIONKA & COMPANY INVESTMENTS LIMITED
Applicant
AND GARTH BOWKETT PATERSON
First Respondent
GLW GROUP LIMITED
Second Respondent
GARTH BOWKETT PATERSON
Third Respondent
ELIZABETH ANNE O'NEILL
Fourth Respondent
NADIA DAPAS
Fifth Respondent
Contents
Factual background............................................................................................. [5]
The appeal and caveat....................................................................................... [11]
Representation at the hearing........................................................................... [18]
LCIL’s application to remove the caveat
Approach to an application to remove a caveat.............................................. [25]
LCIL’s submissions.......................................................................................... [32]Mr Paterson’s submissions............................................................................... [33]
Discussion........................................................................................................ [40]
Conclusion on application to remove caveat................................................... [60]
Orders restraining further caveats from being lodged.................................... [61]
GLW’s application for a stay of judgment
Approach to applications for a stay of judgment............................................. [76]
The scope of GLW’s application....................................................................... [77]
LCIL/Lepionka Purchasers’ undertaking and GLW’s response to it................ [79]Discussion........................................................................................................ [83]
Result.................................................................................................................. [90]
Costs.................................................................................................................... [92]
[1] This judgment is the latest in continuing litigation between GLW Group Ltd (“GLW”) and Lepionka & Company Investments Ltd (“LCIL”) (and related entities), concerning a 24-hectare block of development land located adjacent to the Tuki Tuki River in Hawkes Bay (“Land”).
[2] I delivered a substantive judgment in the main proceedings in December 2017.1 GLW has appealed against a number of the findings in that judgment. Pending determination of its appeal, it seeks a stay of execution of judgment, to prevent settlement of two agreements for sale and purchase of lots in the Land. The relevant lots are to be sold to entities associated with Mr Stefan Lepionka, LCIL’s principal. In this judgment, I will refer to the sale and purchase agreements as the “Lepionka Purchase Contracts”, and to the purchasers under them as the “Lepionka Purchasers”.
[3] Mr Paterson is GLW’s former (sole) director. He is an undischarged bankrupt, both in New Zealand and Australia. In January 2018, he lodged a caveat over the Land. LCIL seeks orders removing the caveat.
[4] Given the overlap between the issues arising on GLW’s application for a stay and LCIL’s application to remove the caveat, the applications were heard together and both are the subjects of this judgment.
Factual background
[5] GLW is the registered proprietor of the Land but, since at least 2010, has been in financial trouble. By 2014, its financial position had become acute, resulting in Westpac Bank, which was then first mortgagee in respect of the Land, issuing Property Law Act 2007 notices to enforce its rights as mortgagee. Prior to enforcement, in late March 2015, Westpac assigned its mortgage to LCIL. There is also an unregistered second mortgage over the Land, in favour of an Australian entity named AFI Management Pty Ltd (“AFI”). GLW owes substantial sums to AFI, presently estimated to be around AUD 7.25 million.
1 AFI Management Pty Ltd v Lepionka & Co Investments Ltd [2017] NZHC 3116.
[6] In March this year, AFI served GLW with a statutory demand in relation to approximately AUD 4 million of that debt. In a judgment delivered on 19 June 2018, I declined GLW’s application to set aside the demand.2 I also declined AFI’s application for an order immediately putting GLW into liquidation. AFI must therefore follow the ordinary course and separately apply to liquidate GLW.
[7] Returning to the underlying chronology, after taking the assignment of Westpac’s mortgage, in early April 2015, LCIL entered into possession of the Land. Utilising its powers under s 179 of the Property Law Act, it also adopted the Lepionka Purchase Contracts.
[8] Later in 2015, each of GLW and AFI commenced proceedings against LCIL, alleging that it had breached its duties as first mortgagee, including by adopting the Lepionka Purchase Contracts. Those claims, and a raft of other issues, were the subject of my substantive judgment in December 2017. Relevantly, I found that:
(a)LCIL’s adoption of the Lepionka Purchase Contracts amounted to the exercise by LCIL of its power of sale; and
(b)LCIL had breached its equitable duties as mortgagee in adopting those contracts.
[9] I did not, however, set aside LCIL’s adoption of the Lepionka Purchase Contracts, or the contracts themselves. Rather, I concluded it would be inequitable to set aside either the adoption or the contracts, because:
(a)The contracts had been negotiated and entered into by GLW itself. There was therefore nothing objectionable about the contracts themselves.
(b)GLW had delayed seeking the remedy of setting aside. Until a few months before trial, its claim had been limited to damages, and in the intervening period, LCIL had expended considerable sums on the
2 GLW Group Ltd v AFI Management Pty Ltd [2018] NZHC 1460.
development (in anticipation of the Lepionka Purchase Contracts settling).
(c)GLW did not come to the Court with clean hands. In particular:
(i)It was GLW who had originally negotiated and entered into the Lepionka Purchase Contracts and, in doing so, had entered into contractual arrangements which conflicted with its obligations to purchasers of other lots in the Land. It was this conflict which, in part, led to LCIL’s action in enforcing the mortgage and adopting the Lepionka Purchase Contracts.
(ii)GLW, through its then principal, Mr Paterson, had misused deposits paid under the Lepionka Purchase Contracts, and had actively sought to mislead both the Lepionka Purchasers and AFI in various dealings in relation to the Land.
[10] Although GLW’s remedy was confined to damages, I did not make any findings in my substantive judgment on damages, given their determination turns on a number of matters which will be ascertained only once the Land’s development is complete and the Lepionka Purchase Contracts have settled. But for the caveat, that process is anticipated to be completed in or around mid-July this year. A damages hearing, and an account as between LCIL as first mortgagee and AFI as second mortgagee, could potentially take place later this year.
The appeal and caveat
[11] My substantive judgment was delivered on 14 December 2017. GLW filed its notice of appeal 1 February 2018. It took no further steps on its appeal until after another post-judgment hearing before me in April 2018, at which I inquired as to the appeal’s status. By that time, nothing had been done other than the appeal filed. GLW confirmed it would thereafter take steps to progress the appeal with urgency.
[12] On 18 April 2018, GLW filed an application for a priority fixture. On 1 May 2018, the Court of Appeal declined that application and stated that the appeal would
be deemed abandoned unless an application for an extension of time for filing the case on appeal was made the following day. GLW filed that application the following day. LCIL did not oppose it and it was granted.
[13] In parallel, on 31 January 2018, Mr Paterson lodged a caveat against the Land. The caveator is stated as being “Garth Bowkett Paterson”. The estate or interest claimed is said to be:
Pursuant to a cestui que trust agreement dated 16 November 2016 between the registered proprietor GLW Group Ltd and the abovenamed caveator.
[14] On 13 April 2018, LCIL filed an originating application (pursuant to s 143 of the Land Transfer Act 1952) to have the caveat removed. That application names Mr Paterson, in his capacity as trustee of an unknown trust, as first respondent; GLW as second respondent; and Mr Paterson in his personal capacity as third respondent.3
[15] On 4 May 2018, the first, second and third respondents filed a notice of opposition. The notice of opposition states that “the first and third respondent” (Mr Paterson in both capacities referred to at [14] above) “does not claim any caveatable interest in the property and undertakes not to personally lodge any caveat”. GLW stated that “it has a caveatable interest in the property and the caveat has therefore been properly lodged”.
[16] The position advanced at the hearing was, however, the complete opposite.4 Mr Paterson advanced a case for a caveatable interest in the Land, though his alleged status in that regard was somewhat confused. Conversely, Mr Grove, counsel for GLW, disclaimed GLW having any caveatable interest in the Land, and filed a memorandum stating that:
I confirm that I have spoken to the Fourth Respondent [GLW’s current director] and she has confirmed that [GLW] consents to an order against it in terms of 1(b) of the originating application dated 13 April 2018.
3 GLW’s current director (Mr Paterson’s ex-wife) is named as fourth respondent, and Mr Paterson’s current partner as fifth respondent.
4 It was suggested that the notice of opposition had been in error, and was not intended to convey that GLW had a caveatable interest.
[17] The order sought at 1(b) of the originating application is, in effect, an order restraining each of the respondents from lodging any further caveats over the Land without prior leave of the Court.
Representation at the hearing
[18] Mr Grove appeared at the hearing for GLW, on its application for a stay. Mr Paterson appeared in person, in opposition to LCIL’s application to remove the caveat. He did not file any submissions in advance, but emailed written submissions on the morning of the hearing.
[19] Mr Paterson was adjudged bankrupt on 5 April 2016. I was therefore concerned as to Mr Paterson’s status to lodge the caveat, as well as his ability to appear in opposition to it being removed. I accordingly caused inquiries to be made of the office of the Official Assignee, whether it was aware of these proceedings, and whether Mr Paterson was permitted to appear on them. In my minute to the Official Assignee I noted that:
It appears, though it is not presently clear to the Court, that Mr Paterson will state that his beneficial interest in the land is in turn being held by him personally and/or for the benefit of himself and other family members.
[20] Counsel for the Official Assignee helpfully filed a memorandum during the course of the hearing. They advised that:
The Assignee was advised that the claimed interest in the land arose from a contract whereby Mr Paterson and his family had the right to construct and have the exclusive use of a fishing hut.
Property held on trust by a bankrupt does not vest in the Assignee: s 104 of the Insolvency Act 2006. If the contract only provides for the benefit of Mr Paterson then the right to lodge a caveat would vest in the Assignee and only the Assignee could lodge a caveat. However, the Assignee understands that Mr Paterson claims that the contract provides that he holds the occupation right on trust for his family. If that is the case the right to lodge a caveat does not vest in the Assignee.
(Emphasis added)
[21] The question of Mr Paterson’s standing in relation to the caveat accordingly turns on whether the alleged caveatable interest is held by him personally, or held by him on trust for others.
[22] During the hearing, Mr Paterson purported to disclaim any personal interest in the Land, and stated that the caveat had been lodged to protect the interests of other members of his family, in particular, his children. I simply note at this point, before turning to the nature of the alleged interest, that as with any lay litigant, Mr Paterson is not entitled to appear or act in proceedings on another person’s behalf.
[23] Given these issues were not resolved at the hearing itself, I permitted Mr Paterson to appear and speak to his written submissions. Mr Paterson needs to be aware, however, that such indulgences will not be granted in the future.5
[24] With that background in mind, I turn to the applications themselves. I have found it helpful first to consider LCIL’s application to remove the caveat.
LCIL’s application to remove the caveat
Approach to an application to remove a caveat
[25] The legal principles which govern an application to remove a caveat are well settled.
[26] The onus is on the caveator to establish that the caveat ought to remain on the title. In Sims v Lowe, Somers J stated:6
The caveator seeks to clog or fetter the proprietary interest of another. As a matter of principle it seems right that he must justify the continued existence of his caveat. He will do that if he can show he has a reasonably arguable case for the interest he claims.
[27] In addition, if there was no valid ground for lodging a caveat, or the interest which in the first place justified the lodging of the caveat no longer exists, such a caveat should be removed.7
5 This is not the first instance of irregular appearances in related matters. Similar issues arose in litigation concerning an earlier caveat lodged over the Land by an entity associated with Mr Paterson: see Lepionka & Co Investments Ltd v Horseshoe Bend Hawkes Bay Ltd [2017] NZHC 1482 at [5].
6 Sims v Lowe [1988] 1 NZLR 656 (CA) at 660. Somers J delivered a judgment for himself and Gallen J. Bisson J delivered a separate judgment in agreement.
7 At 659–660 per Somers and Gallen JJ.
[28] A caveat must also describe with sufficient certainty the land and the interest claimed, and how it is derived from the registered proprietor.8 The Court of Appeal has observed that the requisite degree of certainty is a matter of degree, and “what is important is that the registered proprietor and the Court understand the nature of the interest claimed and the basis of that claim.”9
[29] Further, a caveator will generally not be entitled to rely on grounds to support the caveat which do not appear in the caveat itself. So, for example, in Colin Adams Ltd v Baker, the caveat stated that the caveatable interest arose from a written agreement dated 22 July 1997.10 On the caveat being challenged, the caveator sought also to rely on a letter dated 9 April 1998. The Court of Appeal held the caveator could not rely on that letter, stating:11
The [caveator] having chosen to indicate that the basis of [its] claim was the letter of 22 July 1987 [sic], cannot therefore rely on the subsequent material.
[30] Where a caveator shows an arguable case in a challenge to the caveat by a mortgagee exercising its power of sale, the caveat will usually be removed or allowed to lapse.12 That is because the caveator’s claim is against the mortgagor’s estate, and that estate is subject to the mortgagee’s power of sale. Exceptions to this are estates or interests having priority over the mortgagee, or estates or interests created by an instrument that, by reason of the consent of the mortgagee, is binding on the mortgagee. In the absence of either of these exceptions, the mortgagee obtains a clear title.13
[31] Finally, a failure to particularise the land for which the interest is claimed may also be fatal to sustaining a caveat.14 The purpose behind this rule is to ensure that the caveat protects only the caveator’s interest in the land, leaving the registered proprietor to deal freely with the remaining interest in the land.15
8 Land Transfer Act 1952, s 137(2).
9 Zhong v Wang (2006) 5 NZ ConvC 194,308, (2006) 7 NZCPR 94 (CA) at [53].
10 Colin Adams Ltd v Baker CA 178/98, 5 May 1999.
11 At [5].
12 Neil Campbell Campbell on Caveats (2nd ed, LexisNexis, Wellington, 2016) at 75.
13 At 75.
14 Howard v Rangeview Investments Ltd (2006) 7 NZCPR 473 (HC) at 481.
15 Taylor v Couchman [1995] 3 NZLR 336 (HC) at 341.
LCIL’s submissions
[32] LCIL submits the caveat should be removed for each and all of the following reasons:
(a)First, Mr Paterson is a bankrupt and has no standing to lodge a caveat. Any personal interests he had in the land at bankruptcy or acquired during bankruptcy, and all associated powers, have vested in the Official Assignee.
(b)Second, there is in any event no caveatable interest:
(i)The caveat refers to an agreement between Mr Paterson and GLW dated 16 November 2016, but no evidence of such an agreement has been disclosed.
(ii)Even if such an agreement did exist, it cannot be binding on LCIL as mortgagee over the land, given:
(A)LCIL, in exercise of its power of sale, has adopted agreements for sale and purchase for lots on the Land and was mortgagee in possession of the Land at the time the alleged agreement was entered into; and
(B)the purchasers of those lots from LCIL obtain clear title unless an exception in s 105 of the Land Transfer Act applies (and none do).
(c)Third, the lodging of the caveat and/or defending an application to remove it is an abuse of process. If GLW or Mr Paterson properly had such a claim, it should have been raised in the main proceeding.
(d)Fourth, if again they had any such claim, it no longer exists due to the progress of the development and related resource consents, and the substantial delay in the lodging of the caveat. Mr Paterson’s delays in
advancing his claim means that any interest he may have had can no longer be provided.
(e)Finally, and alternatively, even if the respondents were able to demonstrate a reasonably arguable case for the caveat, the Court should exercise its discretion to remove it.
Mr Paterson’s submissions
[33] Mr Paterson says “the Garth Paterson family” have a caveatable interest in the Land and that he was acting as a trustee of their interest when he lodged the caveat. Mr Paterson points to certain provisions in the Lepionka Purchase Contracts as the basis for the caveatable interest. I address those provisions below. For present purposes, I note that Mr Paterson says the trust (presumably between himself and “the Garth Paterson family”) has been in existence since at least the date of execution of the Lepionka Purchase Contracts in January 2014, but only became operable as of 16 November 2016 when GLW ceased to own Lot 6.
[34] In his written submissions filed in opposition to the LCIL application, Mr Paterson also suggests that when GLW originally purchased the Land in 2009, it did so “as bare trustee” for Mr Paterson, in his capacity as “parent trustee” for his sons. Mr Paterson goes on to state, however, that his role as trustee was relinquished some years ago, and that “in this matter I am merely acting as my family’s representative”. In an affidavit filed after the hearing (for which I granted Mr Paterson leave), he then reverts to the stated position of trustee, saying that he “has the permission of the Official Assignee to assist and participate in this litigation as trustee for the [Garth Paterson family] members’ interests in the land held in trust by [GLW]”.
[35] I interpolate to note that Mr Paterson has not provided any evidence that the Official Assignee has permitted him to assist and participate in this litigation. Rather, and as noted above, the Official Assignee simply noted in its memorandum to the Court that if Mr Paterson indeed holds the caveatable interest on trust, then it has not vested in the Official Assignee as part of Mr Paterson’s estate in bankruptcy.
[36] To support the caveatable interest, Mr Paterson points to cls 4 and 11 of the Lepionka Purchase Contracts, both of which concern the “GLW fishing hut”. It is appropriate to set out the relevant text in full.
[37]Clause 4 provides as follows:
4.GLW Fishing Hut: The vendor [GLW] while it owns Lot 6, and Garth Paterson and his family and guests, shall have the right to an exclusive use area on Lot 7 to construct the GLW Fishing Hut for the use of such persons, on the following basis:
(a)such area to be approximately the same size as proposed Lot 10 on the Land;
(b)such area to be in a location that will have at least the same distance/privacy from Lot 8 as there is between any of the lots. The vendor will specifically engage with the purchaser to ensure, and will ensure, privacy for Lot 8, and will not interfere with the easement referred to in clause 3(a);
(c)such area to be in a location that does not unreasonably interfere with Lot 8 and its related easements; and
(d)the vendor shall be responsible for obtaining all consents required to construct the GLW Fishing Hut and, subject to sub-clauses (b) and (c), the purchaser will not lodge any objection to any such consent.
(e)The purchaser acknowledges and accepts that, notwithstanding clause 11(f)(vi), the vendor, or associated entity, shall have the right to register a covenant over Lot 7 to protect it’s right for the exclusive use area for the GLW Fishing Hut. The covenant shall be in a form acceptable to the vendor and the purchaser (both acting reasonably), and shall be in place prior to settlement.
[38]Clause 11 relevantly provides:
…
(d)The vendor and the purchaser agree that (subject to the obtaining of all applicable approvals):
(i)the GLW Fishing Hut area will exist in perpetuity as an exclusive use area for the vendor or an associated entity, and for Garth Paterson, his family and guests with the following terms attached:
(A)while Lot 6 remains owned by the vendor or an associated entity, Garth Paterson and his family and
guests shall have the benefit of the Lot 6 right to roam on Lot 7 at no additional cost;
(B)if lot 6 is no longer owned by the vendor or an associated entity, Garth Paterson and his family and guests as exclusive users of the GLW Fishing Hut shall have a right to roam over Lot 7 in common with all other lot owners (including the Lot 4 Fishing Hut), provided that they shall at that point contribute on a Pro-rata basis to the costs of Lot 7 as with all other lot owners…
[39] Mr Paterson says it had therefore been accepted by all parties to the Lepionka Purchase Contracts that if Lot 6 was no longer owned by GLW, “myself and my family retained what was referred to in the contracts as an exclusive use in perpetuity [of the] fishing hut site”. Mr Paterson also refers to an email sent by him to Mr Lepionka on 20 February 2018, which he says clearly explains the basis for the caveat, and thus there can have been no confusion on LCIL’s part in that regard. Mr Paterson’s email stated that one of the lots to be created in the Land, Lot 12, is the lot associated with the GLW fishing hut, and that once Lot 6 had been transferred to the new purchaser, “lot 12 (and the interests and benefits associated with it), became the exclusive property of [the Garth Paterson family]”. His email went on to record that “I have been asked by [the Garth Paterson Family] to represent them in relation to their interest in the land owned by GLW.” Mr Paterson also states in his written submissions that the Garth Paterson family:16
asserts its rights as the “related entity” [pursuant to clause 4(e)] to register the covenant, and prior to that being done, protects the right to do so by way of caveat.
Discussion
[40]I have reached the clear conclusion that the caveat ought to be removed.
[41] As a preliminary point, I am satisfied the alleged interest in the Land has been stated in the caveat with sufficient certainty. Indeed, the purported interest in this case is framed in similar terms to that in Zhong v Wang, namely “as cestui que trust of which the registered proprietor, Jia Yi Wang, is trustee”.17 In Zhong v Wang, Wild and
16 With reference to Neil Campbell Campbell on Caveats (Lexis Nexis, Wellington, 2012) at 44.
17 Zhong v Wang (2006) 5 NZ ConvC 194,308, (2006) 7 NZCPR 94 (CA) at [21] per Wild and Heath JJ.
Heath JJ in the Court of Appeal observed that while it would have been preferable for Mr Zhong’s caveats to refer expressly to a resulting or constructive trust, the nature of the interest claimed was sufficiently clear.18 The majority also held that the derivation of that alleged interest from the registered proprietor was also stated with sufficient certainty, namely pursuant to a trust of which the registered proprietor was said to be trustee.19 The same observations apply here.
[42] Despite the above, however, the caveat is defective for a number of other reasons.
[43] First, the caveator is stated to be Mr Paterson himself. Although the caveat refers to a trust (as between GLW and Mr Paterson), nowhere does the caveat state or suggest that Mr Paterson lodged the caveat in his capacity as a trustee for others.20
[44] As an undischarged bankrupt, Mr Paterson has no standing in his personal capacity to lodge a caveat. Any personal interest he might have had in the Land has vested in the Official Assignee. Any caveat and related litigation would therefore need to be lodged and conducted by the Official Assignee.
[45] Second, no evidence has been adduced to support the alleged caveatable interest in any event. No agreement between Mr Paterson and GLW dated 16 November 2016, in the nature of a trust or otherwise, was offered in evidence. And as the Court of Appeal confirmed in Colin Adams Ltd v Baker, to the extent Mr Paterson relies on certain terms of the Lepionka Purchase Contracts of January 2014, it is not open to him to rely on materials not referenced in the caveat itself.
[46] Third, and even having regard to the relevant terms of the Lepionka Purchase Contracts, those terms do not give rise to a trust, either between GLW and Mr Paterson; between GLW and “the Garth Paterson family”; or between Mr Paterson and “the Garth Paterson family”. Rather, at its very highest, and subject to the discussion of
18 At [54]. William Young P agreed with the outcome of the case but wrote separate reasons not addressing the point.
19 At [55].
20 Nor for that matter, even if relevant, does Mr Paterson’s email to Mr Lepionka of 20 February 2018. That email simply says that the Garth Paterson family has asked Mr Paterson to “represent them” in relation to their alleged interest in the Land.
those contractual terms below, once GLW no longer owned Lot 6, the argument would be that Mr Paterson and separately, other members of his family (and their guests), have contractual rights (enforceable through the doctrine of privity of contract), in relation to the proposed GLW fishing hut. No trust is suggested.
[47] Fourth, and even assuming for present purposes that Mr Paterson purported to lodge the caveat as trustee for “the Garth Paterson family”, Mr Paterson did not adduce any evidence of any alleged trust between himself and other members of his family.21 Indeed, and as noted earlier, in his written submissions, Mr Paterson expressly disclaimed any such trust, and confirmed that he simply appeared as a “representative” of the Garth Paterson family. Mr Paterson’s suggestion that he holds contractual rights arising from the Lepionka Purchase Contracts on trust for his family accordingly appears to be an attempt to avoid the consequences of his own bankruptcy.
[48] Fifth, the caveat is stated to be in respect of the entirety of the Land. As Campbell on Caveats notes, in the case of land to be subdivided, a purchaser should ordinarily obtain sufficient protection by lodging a caveat that asserts an interest only in the particular lot to be purchased, which can be defined by annexing a proposed subdivision plan to the caveat.22 In the present case, any potential interest arising from cl 4 and/or cl 11 of the Lepionka Purchase Contracts could only be in relation to a very small area of Lot 7, with an associated right to roam on Lot 7 itself. No interest is suggested or claimed in any of the other proposed lots, including those to be sold under the Lepionka Purchase Contracts.
[49]Finally, Mr Paterson confirms in his written submissions that:
GLW has recently agreed to allow all the Lepionka purchase lots (they being 3, 4, 5 and 11) to settle. This was agreed on the proviso that there is to be an agreement for the lots to be re-transferred to the GLW interests, pending the result from the [Court of Appeal]. If GLW is successful, the property will be transferred back to the GLW interests, and subject to the [Court of Appeal], the current encumbrances will be resituated on the titles. Although the offer has been submitted to LCIL, so far there has not been any final agreement.
21 Or any trust arrangement between GLW and Mr Paterson which was said to exist at the time GLW purchased the Land.
22 Neil Campbell Campbell on Caveats (2nd ed, LexisNexis, Wellington, 2016) at 10.013(e).
[50] As discussed in more detail below, LCIL and the Lepionka Purchasers have now offered undertakings to the above effect, namely to “unwind” settlement of the Lepionka Purchase Contracts, should the Court of Appeal so order. In that way, the position would revert to that which currently exists, with any contractual rights accruing to members of the Garth Paterson family remaining extant. Mr Paterson also confirmed at the hearing that he is keen to see the Lepionka Purchase Contracts settle quickly, so that the resulting sales proceeds can be allocated against the mortgage.
[51] Had it been necessary to exercise my residual discretion under s 143 (which the Court of Appeal has described as “wide”),23 these matters would also have militated in favour of removing the caveat. That is because the underlying purpose of Mr Paterson’s caveat, namely to prevent settlement of the Lepionka Purchase Contracts without recognising what is said to be the Garth Paterson family’s interest in (an aspect of) the Land, is adequately protected by the undertakings now offered.
[52] The above points are sufficient to dispose of LCIL’s application. However, for completeness, I record that I do not consider Mr Paterson, or individual members of his family, or their guests, have a reasonably arguable case for the claimed caveatable interest in any event.
[53] As discussed, Mr Paterson relies on the effect of cls 4 and 11 of the Lepionka Purchase Contracts, as a consequence of the sale of Lot 6 to Tuki Tuki Ltd (“TTL”), which settled on 16 November 2016.
[54] The text of cl 4 is set out at [37] above. I interpret its opening words as granting GLW the right, while it owned Lot 6, to an “exclusive use area” on Lot 7, on which it could construct the GLW fishing hut (for the use of Mr Paterson, his family and guests).24 GLW’s right ceased upon it no longer owning Lot 6.
[55] I do not read the clause as granting the same right to Mr Paterson, his family and guests, after GLW ceased to own Lot 6. If that were correct, once GLW no longer
23 Varney v Anderson [1988] 1 NZLR 478 (CA) at 479.
24 Mr Paterson referred in his submissions to “lot 12” in the Land being for the GLW fishing hut lot. However, cl 4 is clear that any interest associated with the GLW fishing hut was to be an “exclusive use area” only, and would not give rise to a separate lot.
owned Lot 6, Mr Paterson’s family’s guests, for example, would have the right to construct a fishing hut on Lot 7. That would not make sense. Rather, the clause envisages that, once GLW had constructed the GLW fishing hut, and despite GLW no longer owning Lot 6, Mr Paterson, his family and their guests would have a continuing right to use it.
[56] That the right to construct the GLW fishing hut rested solely with GLW, and not with Garth Paterson, his family or their guests, is reinforced by cl 4(e), which gives GLW or “an associated entity” the right to register a covenant over Lot 7 to protect “its” right for the exclusive use area for the GLW fishing hut. Mr Paterson submits that the Garth Paterson family is an “associated entity” for the purposes of cl 4(e). I disagree. “The Garth Paterson family” is not an entity in its own right. Further, other clauses make a clear distinction between GLW and an associated entity on the one hand, and Garth Paterson, his family and guests on the other.25
[57] In addition, GLW’s rights in relation to the GLW fishing hut area, and its use, were subject to GLW obtaining all necessary consents and approvals.26 LCIL submits that approval from the owners of Lot 1, the Edgars, was required but never obtained.27 At the hearing, Mr Paterson suggested that GLW’s agreement with the Edgars had been amended, to incorporate the Edgars’ consent to the GLW fishing hut. I granted Mr Paterson leave to file a supplementary affidavit annexing the correspondence relied on (and LCIL to file a brief memorandum in response).28
[58] Having reviewed that correspondence, I do not consider it evidences consent from the Edgars to the GLW fishing hut on Lot 7. Rather, the correspondence simply comprises a letter from GLW’s then solicitor to the Edgars’ solicitor. It does not contain or record any consent from the Edgars. Irrespective of this fact, however, the point remains that GLW did not construct the GLW fishing hut while it owned Lot 6.
25 See cl 11(d)(i), cl 11(d)(i)(A) and cl 11(d)(i)(B); reproduced at [38] above.
26 See cl 4(d) (at [37] above) and cl 11(d) (at [38] above).
27 Clause 10(iv) of the original agreement between GLW and the Edgars envisaged one fishing hut being built on Lot 7, namely a communal fishing hut, able to be used by all lot owners.
28 Mr Paterson filed a supplementary affidavit on 25 May 2018 and, on 31 May 2018, LCIL filed a memorandum in response. Despite not being granted leave to do so, Mr Paterson then filed a further memorandum in reply. Consistent with the Practice Note at [1968] NZLR 608, I have not taken Mr Paterson’s further memorandum into account.
[59] Finally, cl 11(d)(i)(B) provides that Mr Paterson, his family, and their guests’ right to roam over Lot 7 (after GLW ceases to own Lot 6) is in their capacity “as exclusive users of the GLW fishing hut”. This again reinforces that the GLW fishing hut was to be built by GLW while it owned Lot 6. In addition, given the GLW fishing hut has never been built, the right to roam, as exclusive users of it, never came into effect. That clause does not confer on Mr Paterson, his family or their guests a continuing right to roam generally over Lot 7.
Conclusion on application to remove caveat
[60] For all the above reasons, there will accordingly be an order in terms of paragraph 1(a) of LCIL’s originating application dated 13 April 2018 to remove the caveat.
Orders restraining further caveats from being lodged
[61] In addition to removal of the caveat, LCIL seeks orders against all respondents restraining them from lodging any further caveats over the Land without prior leave of the Court.
[62] Similar orders were made in ASB Bank Ltd v Lambert.29 In that case, Mrs Lambert (personally, and in her capacity of trustee) had lodged no less than 10 caveats, each of which had been found to have been improperly lodged. Ronald Young J concluded that Mrs Lambert’s bankruptcy had not stopped her pursuing her disruptive tactics, continuing to cost various mortgagees thousands of dollars in legal fees. In those circumstances, Ronald Young J had no hesitation in granting orders restraining Mrs Lambert from lodging any further caveats against the title of the land in that case, without first applying to the Court for leave to do so.30
[63] It was not suggested on this hearing that the Court does not have jurisdiction to make similar orders. Indeed, as noted, s 143 of the Land Transfer Act confers on the Court a wide discretion on an application for removal of a caveat. Relevant commentary also endorses the availability of such orders, particularly where the
29 ASB Bank Ltd v Lambert [2013] NZHC 2135.
30 At [46].
alternative remedy of a damages claim under s 146 is not likely to be attractive in the case of a caevator of doubtful solvency.31
[64] As noted at [16] above, GLW consents to the order sought at paragraph 1(b) of LCIL’s originating application being made against it.
[65]In terms of the other respondents, I consider Mr Paterson first.
[66] I have carefully considered this issue and have reached the conclusion that such an order against Mr Paterson is appropriate.
[67] First, Mr Paterson’s approach and conduct in relation to this particular caveat is concerning. As will be evident from this judgment, he has taken differing positions as to the basis upon which he lodged the caveat, and relied on a variety of documents and alleged trusts to support it, without proper evidence of such matters.
[68] Second, I remain concerned at Mr Paterson’s actions as an undischarged bankrupt, both in taking steps to issue a caveat and then appearing on the subsequent application to remove it. This concern reflects more general concerns I expressed in a separate hearing in these proceedings, as to Mr Paterson’s continuing involvement in GLW’s activities and decisions.32 His claim to hold contractual rights on trust for his family is hollow, unsupported by evidence. I conclude it was a device to enable him to continue to pursue these matters personally, despite his status as undischarged bankrupt. If members of Mr Paterson’s family properly considered they had a caveatable interest in the Land, it was open to them to have taken legal advice on those matters and lodged a caveat in their own name, if considered appropriate.
[69] Third, Mr Paterson was responsible for another caveat improperly lodged over the Land, in that case, by a company named Horseshoe Bend Hawkes Bay Ltd (“HBHB”). Those proceedings were determined in September 2016 by Associate Judge Sargisson.33 She found there to be “no room for the slightest inference that the
31 See Neil Campbell Campbell on Caveats (2nd ed, LexisNexis, Wellington, 2016) at 10.022A.
32 GLW Group Ltd v AFI Management Pty Ltd [2018] NZHC 1460 at [8].
33 Lepionka & Company Investments Ltd v Horseshoe Bend Hawkes Bay Ltd [2016] NZHC 2318. Due to persistent timetable breaches by HBHB, its notice of opposition was struck out. LCIL’s application for the caveat to be removed accordingly proceeded by way of formal proof.
sales contracts referred to in [HBHB’s] caveat afford [HBHB] the interest in Lot 7 that its caveat claims.”34 The Judge accordingly ordered that the caveat be removed. Despite Mr Paterson’s evidence in the main proceedings to the contrary, I found that that caveat had been lodged to frustrate the settlement of the sale of Lot 2 in the Land.35 Mr Paterson now accepts that he was responsible for causing HBHB to lodge that caveat (though continues to maintain it was lodged for genuine reasons).
[70] Fourth, Mr Paterson’s actions (and those of others associated with him, for example, in the HBHB proceedings) has undoubtedly caused loss to LCIL, such as the legal costs and expenses involved in dealing with these issues. This is exacerbated by irregularities as to appearances, and confusing and inconsistent approaches being taken in the materials filed in support of the caveat. Any award of damages, or costs against Mr Paterson personally (even on an increased or indemnity basis), is unlikely to be of practical benefit given his present status. Further, the Court’s scarce resources are diverted unnecessarily from other litigants.
[71] Fifth, an order requiring Mr Paterson to seek leave of the Court before lodging a further caveat will not prevent Mr Paterson from lodging a caveat altogether. It will, however, inject a degree of appropriate discipline into any further steps Mr Paterson might wish to take in this regard. And if there is an arguable basis for such a caveat, leave is likely to be granted.
[72] Finally, an order against Mr Paterson will similarly not prevent any other person who independently considers they have a proper basis to lodge a caveat from doing so.
[73] There will accordingly be orders against Mr Paterson in terms of paragraphs 1(b) of LCIL’s originating application.
[74] I do not consider it appropriate or necessary to make similar orders against the fourth or fifth respondents at this time. They have each given an undertaking not to
34 At [35].
35 AFI Mangement Pty Ltd v Lepionka & Co Investments Ltd [2017] NZHC 3116 at [138].
lodge further caveats, though I note those undertakings are in qualified terms.36 Nevertheless, each of Ms O’Neil and Ms Dapas will no doubt:
(a)seek appropriate legal advice before taking steps to lodge a caveat, including in relation to a caveat in respect of the purported “carve out” for payment in whole or in part of AFI’s second mortgage over the Land, including in circumstances where AFI already has a caveat over the Land; and
(b)take a responsible approach generally to any future purported caveatable interest, given the issues that have arisen in relation to caveats in the HBHB and these proceedings.
[75]I turn now to GLW’s application.
GLW’s application for a stay of judgment
Approach to applications for a stay of judgment
[76] The principles applicable to an application for a stay of judgment are not in dispute. In summary:
(a)The Court is to balance the competing rights of the party who obtained the judgment appealed from against the need to preserve the appellant’s position against the event of the appeal succeeding.
(b)That object, where it can fairly be achieved, is to enable the appeal court to do justice between the parties, whatever the outcome of the appeal may be.
(c)Factors to be taken into account in the balancing exercise include:
36 Ms O’Neil’s undertaking carves out, for example, any caveat to protect the interests of GLW under an alleged institutional constructive trust in relation to sales proceeds received by LCIL as mortgagee. As noted, however, GLW has since consented to an order that will it not lodge a caveat without prior leave of the Court.
(i)whether the appeal may be rendered nugatory by the lack of stay;
(ii)the bona fides of the applicant as to the prosecution of the appeal;
(iii)whether the successful party will be injuriously affected by the stay;
(iv)the effect on third parties;
(v)the novelty and importance of the questions involved;
(vi)the public interest in the proceedings; and
(vii)the overall balance of convenience.
The scope of GLW’s application
[77] GLW’s application for a stay of judgment is framed in broad terms, simply seeking an order “staying enforcement of the judgment dated 14 December 2017, pending appeal by the plaintiff”. As LCIL notes in its submissions, the judgment did not make any positive orders against GLW. It is accordingly assumed that what GLW seeks is a stay of [494](i) of the judgment, namely my order rescinding orders made by Peters J on 15 March 2017, that LCIL be restrained from settling the Lepionka Purchase Contracts or disposing of or further encumbering the land pending the substantive hearing.37
[78] It became evident from GLW’s written submissions, and from hearing from Mr Grove at the hearing, that [494](i) is indeed the target of GLW’s application. GLW also has a particular concern that (but for the caveat), Lot 4’s settlement is imminent. GLW accordingly submits that:
If that is allowed to occur pending conclusion of the appeal, the Court of Appeal will no longer have the ability to set aside contracts which have been
37 AFI Mangement Pty Ltd v Lepionka & Co Investments Ltd [2017] NZHC 3116.
settled. Further, if Lot 4 is settled, that will mean that the third party sale to the Bamboo Trust for $4.5 million plus GST cannot be settled.
LCIL and the Lepionka Purchasers’ undertaking, and GLW’s response to it
[79] Most of GLW’s concerns fall away in light of the undertaking LCIL and the Lepionka Purchasers have offered on the application. Indeed, Mr Grove confirmed at the hearing that, save for issues arising in relation to Lot 7, the undertaking will satisfactorily preserve GLW’s position.
[80] Under the Lepionka Purchase Contracts, the balance lot, namely Lot 7, is to transfer into ownership of a company, which is to be owned by the various lot owners in the development. A similar (but not identical) outcome is envisaged under sale and purchase agreements for other lots in the development, including Lots 2 and 6 (which have already settled). Common to all these arrangements is that the owners of the lots from time to time will control and manage the common area comprised of Lot 7. So, for example, all agreements envisage lot owners holding a share in any company formed to take ownership of Lot 7.
[81] GLW submits that while the Lepionka Purchase Contracts themselves could be unwound, arrangements concerning Lot 7 could not be, given those arrangements involve third parties. GLW says this is problematic for two reasons:
(a)First, pursuant to the sale of Lot 1 to the Edgars, a communal fishing hut was to be built on Lot 7. GLW submits that LCIL’s current plans do not provide for that hut, so that once Lot 7 has passed into the ownership of a separate company, there can never be a communal fishing hut on that lot.
(b)Second, because of the issues arising in relation to the GLW fishing hut, as discussed earlier in this judgment. As this hut is also to be located on Lot 7, GLW says that once Lot 7 has passed into the ownership of a corporate entity, the Garth Paterson family’s right to own the GLW fishing hut site on Lot 7, and to roam over Lot 7, will be lost forever.
[82]GLW submits that the Lepionka Purchase Contracts envisage ownership of Lot
7 transferring to a corporate entity at any time within a four-year period from completion of those agreements. It therefore says there is no urgency to transfer Lot 7 into separate ownership. Further, GLW notes that agreements for sale and purchase of other lots in the development have already settled, without transfer of Lot 7 into separate corporate ownership, such that a further delay of some months will not give rise to any undue prejudice to other lot owners.
Discussion
[83] Subject to the question of Lot 7, I am satisfied the detailed undertaking proffered by the respondents adequately protects GLW’s interests pending the appeal. Ultimately Mr Grove confirmed at the hearing that “it is only Lot 7 between us”. Mr Grove accordingly submitted that, based on the proffered undertakings, the Lepionka Purchase Contracts ought to settle, but there should be orders restraining Lot 7 being transferred into separate ownership pending the outcome of GLW’s appeal.
[84] I do not consider such orders in relation to Lot 7 are necessary to preserve GLW’s position pending the appeal.
[85] First, the current resource consent and plans for Lot 7 do include a separate lot for a communal fishing hut. That is Lot 11. Accordingly, transferring Lot 7 into the ownership of a separate company will not compromise development of the communal fishing hut.
[86] Second, I have already addressed why I consider GLW’s right to build the GLW fishing hut ceased once it no longer owned Lot 6, and that the Garth Paterson family and its guests’ rights were to use that hut (once it had been constructed), with an associated (rather than general) right to roam over Lot 7. Transferring Lot 7 into the ownership of a separate company will not, therefore, compromise any remaining rights in relation to the GLW fishing hut.
[87] Third, GLW is incorrect when it suggests there is four years from completion of the Lepionka Purchase Contracts in which to transfer Lot 7 into the ownership of a
corporate entity. Transfer is in fact to occur on or prior to the date that is four years after the date of the agreements themselves.38 The agreements were executed on 28 January 2014. The time has accordingly already passed for the transfer to occur. Unsurprisingly, the Lepionka Purchasers have made it clear that they will not settle the Lepionka Purchase Contracts without this term being complied with.
[88] Finally, contractual arrangements in relation to other lots (namely Lots 2 and 6 which have been sold to TTL) also require Lot 7 to be transferred into the ownership of a corporate entity. GLW does not challenge or otherwise seek any relief in relation to those arrangements. Accordingly, even if the Court of Appeal were to set aside the Lepionka Purchase Contracts, that would not itself affect the requirement that Lot 7 be transferred into the ownership of a separate corporate entity.
[89] For these reasons, and subject to the formal provision of the respondents’ undertakings, GLW’s application for a stay is declined.
Result
[90]On LCIL’s originating application concerning the caveat:
(a)There is an order in terms of paragraph 1(a) of that application.
(b)There is an order against Mr Paterson in terms of paragraph 1(b) of that application.
(c)By consent, there is an order against GLW in terms of paragraph 1(b) of that application.
(d)LCIL’s application for orders in terms of paragraph 1(b) against the fourth and fifth respondents is dismissed.
[91] Subject to undertakings in the form set out in paragraph 15 of LCIL’s memorandum dated 11 June 2018, signed by each of the defendants/respondents,
38 Clause 11(b).
being lodged with the Court within 5 working days of the date of this judgment, GLW’s application for a stay of judgment is dismissed.
Costs
[92] The parties are to seek to agree costs. Failing agreement, any party seeking costs on either or both applications may file a memorandum to that effect within 15 working days of the date of this judgment.
[93] Any memoranda in response are to be filed and served within a further five working days.
[94]No memorandum is to exceed five pages in length.
[95]I will thereafter determine costs on the papers.
Fitzgerald J
Solicitors: Bell Gully, Wellington
Foy & Halse, Auckland
To: GB Paterson, Napier
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