GP96 Ltd v F M Custodians Ltd
[2019] NZHC 1183
•28 May 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2011-409-000627
[2019] NZHC 1183
BETWEEN GP96 LIMITED
Plaintiff
AND
F M CUSTODIANS LIMITED
Defendant
CIV-2019-409-000089 BETWEEN
PVG SECURITIES TRUSTEE LIMITED
ApplicantAND
GP96 LIMITED
First Respondent
F M CUSTODIANS LIMITED
Second Respondent
Hearing: 15 – 16 April 2019 Appearances:
J Moss for GP96 Limited
E Bayley for F M Custodians Limited K C Francis for PVG Securities Limited
Judgment:
28 May 2019
JUDGMENT OF GENDALL J
Introduction
[1]Before the Court are two applications:
(a)An application by the applicant in proceeding CIV-2019-409-89 PVG Securities Trustee Limited (PVG) for an order to remove
GP96 LIMITED v F M CUSTODIANS LIMITED [2019] NZHC 1183 [28 May 2019]
caveat 11228460.1 (the Caveat) lodged by the first respondent GP96 Limited (GP96) against a commercial property located at 96 Lichfield Street, Christchurch, being all the land in Certificate of Title CB22F/432 (the Property); and
(b)An application by GP96 as the plaintiff in proceeding CIV-2011-409- 627 for orders:
(i)Restraining the defendant in that proceeding, FM Custodians Limited (FMC) from completing settlement under an Agreement for Sale and Purchase dated 11 December 2018 relating to the sale of the Property, chattels and a security system at the Property, and an insurance claim to a purchaser, Elizabeth Harris (Ms Harris); and
(ii)Restraining FMC from discharging or authorising any discharge of its registered mortgages 7114247.13 and 8346521.1 (Canterbury Registry) over the Property or assigning or registering any transfer of those mortgages.
[2] The second application by GP96 in effect seeks orders extending an interim injunction (the 2011 Interim Injunction) already granted in GP96’s favour against FMC pursuant to a judgment of Chisholm J in this Court dated 24 May 2011 in that proceeding CIV-2011-409-000627.
[3]Both of the applications referred to in para [1] are opposed.
[4] It is appropriate to consider the Caveat removal application noted at para [1](a) above first as, depending on the outcome, this may effectively determine the dispute between the parties on GP96’s application noted at [1](b) above. Shortly I will turn to consider that Caveat removal application and, if necessary, the second application.
[5]But, first, some brief factual background to this matter is helpful.
Factual background
[6] The Property the subject of this proceeding since the Christchurch earthquake sequence has been unoccupied and, according to PVG, since at least the February 2011 earthquake has been untenantable. It is one of a number of properties in and around “SOL Square” in Christchurch, originally controlled by Mr David Henderson (Mr Henderson) through his company, Property Ventures Limited (in liquidation) (PVL) and its subsidiaries, prior to those companies being placed in liquidation.
[7] The registered owner of the Property is Lichfield Ventures Limited (in liquidation) (LVL), a wholly owned subsidiary of PVL. Both PVL and LVL have been in liquidation since 2010.
[8] GP96 is a company also associated with Mr Henderson. It lodged the Caveat in question against the title to the Property on 12 September 2018. The Caveat claims an interest alleging GP96 is the lessee of the Property under an unregistered lease originally granted by LVL as lessor to Livingspace Properties Limited (in liquidation) (Livingspace) (the Lease). Livingspace is another subsidiary of PVL. GP96 claims as assignee of the Lease from Livingspace under a Deed of Assignment signed by Mr Henderson on behalf of all the parties involved, GP96, Livingspace and LVL, at a time when certain of Livingspace’s assets were in receivership.
[9] GP96 says it lodged the Caveat to protect its leasehold interest over the Property and to uphold the 2011 Interim Injunction orders made in this Court. Those Interim Injunction orders prevented FMC as the first mortgagee of the Property at the time from:
…demolishing, selling or leasing the building (at the Property) until the substantive matter is heard or until further order of the Court.
[10] According to GP96, it had sought the 2011 Interim Injunction orders to prevent its Lease being forfeited and those orders still remain extant because the substantive matter is yet to be heard.
[11] PVG currently holds a second mortgage over the Property under which a substantial amount remains outstanding. It had taken a transfer of the mortgagee’s
interest in the second mortgage from the previous mortgagee, Dominion Finance Ltd (Dominion), in August 2018. PVG seeks to sell the Property so it can realise some value from its security towards repayment of this long overdue debt. Property Law Act 2007 (PLA) default notices with regard to this overdue mortgage debt had been issued by PVG on 6 September 2018 and these expired unremedied on 5 October 2018.
[12] On 11 December 2018, as I note at [1](b)(i) above, PVG, as second mortgagee, in exercise of this power of sale under the PLA entered into the agreement to sell the Property (the Sale Agreement) to the third party Ms Harris at a price of $2 million. The Sale Agreement is conditional upon removal of the Caveat lodged by GP96. The indebtedness owing to PVG under that second mortgage, I am told, currently stands at over $13 million.
[13] The Sale Agreement is also conditional upon settlement occurring under two other agreements which are:
(a)An agreement dated 21 December 2018 for discharge of the mortgage/s on the title to the Property between FMC and PVG (the Discharge Agreement); and
(b)An agreement also dated 21 December 2018 for the sale and purchase of chattels, insurance claims and a security system between FMC and Ms Harris (the Chattels Agreement).
The interim injunction
[14] On 24 May 2011 Chisholm J in this Court granted the 2011 Interim Injunction noted at [9] above in favour of GP96. GP96’s injunction application, as I have outlined, was brought in order to protect what it said was its leasehold interest in the Property under the Lease pending resolution of the substantive proceeding between the parties. In granting the Interim Injunction, Chisholm J held first, that there was a serious question to be tried and, secondly, that the balance of convenience lay with GP96 because he said it had a “relatively strong case” that it held a valid lease related to the building on the Property and this lease had over 16 years left to run.
[15] The terms of the 2011 Interim Injunction orders, as I have outlined above, prevented FMC from:
…demolishing, selling or leasing the building until the substantive matter is heard or until further order of the Court.
[16] Given the purpose of those interim orders was to preserve GP96’s claim to a leasehold interest in the building until final determination of the dispute, a substantive hearing to reach that determination was originally set down for hearing on 8 August 2011. However, that hearing was adjourned at the time and the parties, it seems, have not taken any steps since. The interim orders remain therefore. They are binding on FMC until any further order this Court might make.
[17] It seems that the principle reason for this delay and the fact that no steps were taken on the substantive proceeding at the time was because FMC had been dealing with a long-running insurance claim relating to substantial damage which had occurred to the building on the Property, particularly from the February 2011 earthquake.
[18] FMC has now settled that insurance claim. The settlement occurred in 2018 when FMC received approximately $12.2 million as the insurance proceeds. Those funds were not used to reinstate the building, however, but instead FMC applied them in repayment of its defaulting mortgage, which it says it was entitled to do pursuant to the standard ADLS mortgage provision at cl 8(b) in the mortgage which states:
If insurance monies become payable in respect of the destruction of or damage to any building or other improvement on the land then the security holder may, at the security holder’s sole option, apply the insurance proceeds or direct that they be applied either in or towards rebuilding or repairing the buildings and improvements or in or towards payment of the secured monies (even though those monies may not have otherwise fallen due)…
[19] It is claimed by GP96 that FMC intends now to participate in and do all it can to facilitate the sale of the Property in breach of the terms of the Interim Injunction. GP96 accordingly seeks the orders that I note at para [1](b) above. These are to prevent the sale of the Property and to prevent the discharge of FMC’s mortgages.
The position concerning PVG
[20] PVG is now the mortgagee under what were the second mortgages 7416995.1 and 7114247.1 over the Property. These mortgages were originally in favour of Dominion as mortgagee. They were registered against the title to the Property on 18 June 2007 and 15 November 2006 respectively. Dominion’s interest as mortgagee, however, was transferred to PVG on 27 August 2018.
[21] GP96 claims it is of some significance here that PVG is a company which has as its sole director the ex-wife of Mr Robert Walker (Mr Walker). Mr Walker is the liquidator of a number of companies in the PVL Group and is also liquidator of other companies formerly associated with Mr Henderson. A number of disputes and significant litigation outside the present proceedings have developed over the years between Mr Henderson and his interests and Mr Walker.
[22] GP96 contends here that if FMC completes its original obligations under the Chattels Agreement and the Discharge Agreement (thus making the Sale Agreement unconditional) it will be in breach of the 2011 Interim Injunction orders and therefore it should be restrained now from completing those agreements.
[23] GP96 also seeks an extension of the original 2011 Interim Injunction orders. This is to further restrain FMC from entering into any other agreements to discharge, assign or otherwise transfer its mortgages, again until further order of this Court is made.
[24] It is GP96’s contention first, that unless PVG’s application to remove the Caveat here fails and secondly, unless GP96’s extended 2011 Interim Injunction orders are granted, then there will be no obstacle to FMC facilitating PVG’s sale of the Property freed of the Lease. In this event, GP96 says it will suffer the same irreparable harm that the 2011 judgment of Chisholm J in this Court and the interim orders sought to avoid. That harm, of course, is the danger of GP96 losing its right to pursue its leasehold interest in the building on the Property which it claims it is ready and able to pursue.
[25] I turn now to the position of PVG. In summary, it maintains that GP96’s claimed interest under the Lease over the Property is not binding on or enforceable against PVG. That interest GP96 claims (again, I note being as lessee under the purported assignment to it of the earlier Lease to Livingspace), PVG says was entered into without either its consent or the consent of its predecessor as second mortgagee of the Property. Therefore, PVG says it is not bound by any such Lease, even if one may exist.
[26] This position advanced by PVG is supported by FMC, the original first mortgagee of the Property.
[27] In essence, PVG, as the registered second mortgagee of the Property, says that it simply wishes to exercise its statutory rights to sell the Property free of the Lease to which neither it nor its predecessor in title have consented. It maintains that the exercise of these statutory rights as mortgagee cannot be an abuse of process when there is no order against PVG preventing it from doing so. Nor, it maintains, despite GP96’s suggestion to the contrary, can the present caveat removal application constitute an “abuse of process” designed to frustrate the effects of the 2011 Interim Injunction.
[28]I turn now to consider PVG’s application for an order removing the Caveat.
Application to remove the Caveat
Legal principles: caveat
[29] The Land Transfer Act allows caveats to be lodged in a variety of circumstances. The new Land Transfer Act 2017 (LTA 2017), which came into force on 12 November 2018, replaces the Land Transfer Act 1952 (LTA 1952) and applies to the current proceeding.
[30] A person may lodge a caveat against dealing with an estate or interest in land on the basis that the person claims an estate or interest in that land.
[31] In September 2018, GP96 lodged the Caveat against the title/s in question to the Property.
[32] The Caveat claims an interest in the Property as tenant or lessee under the Lease. The wording in the Caveat instrument describes that interest as being:
Pursuant to a Deed of lease dated 5 November 2009 between the Registered Proprietor as Landlord and Livingspace Property Limited which was assigned to the Caveator as Assignee and now Tenant by way of a Deed of Assignment of Lease dated 23 July 2010.
[33] Section 142 of the LTA 2017, which re-enacts s 143 of the LTA 1952, allows a person who has an estate or interest affected by a caveat against dealings to apply to the Court to have the Caveat removed.
[34] Section 141 provides that a caveat automatically lapses on a mortgagee sale where the caveatable interest arises under a subsequent or unregistered mortgage, but does not expressly address the position of an unregistered lease.
[35] It is clear here that legal principles governing the removal of a caveat under its predecessor provision, s 143 of the LTA 1952, remain applicable.
[36] A number of principles were established that guided the courts’ approach to applications under s 143 of the LTA 1952. These are the same as the principles applied to applications under ss 145 and 145A of the LTA 1952 (the lapse of a caveat). They were summarised in Botany Land Development Ltd v Auckland Council where the Court of Appeal noted:1
[24] The onus is 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 practicable advantage to maintaining a caveat and the caveator will not be prejudiced.
1 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813 at [23] – [25].
[25] Any application to lapse a caveat, and any challenge to that application, does not preclude a claimant from seeking other remedies such as an interim injunction preventing dealing with the land.
(citations omitted)
[37] Hinde, McMorland & Sim, Land Law in New Zealand2 states “a lease, by definition, creates an interest in land”. It also notes that a Deed of Lease that cannot be converted into a registrable lease will support a caveat only if the broad view of caveatable interests is accepted.3 However, this no longer appears to be the case following the enactment of the LTA 2017. This expressly allows a person claiming “an estate or interest in the land, whether capable of registration or not” to lodge a caveat.4 Accordingly, an unregistrable lease can create a caveatable interest in land.
[38] Where a mortgagee cannot take advantage of s 141(3) and (4) of the LTA 1952 (now s 141 of the LTA 2017),5 it has always been necessary for the mortgagee to take steps to remove the caveat. The learned authors of New Zealand Land Law state:6
…It is quite common in these circumstances for the residual discretion to be central to the court’s determination. Essentially, the registered mortgagee will argue that, although the caveator may have an arguable case, the effect of s 105 of the LTA 1952 means that the caveat should be removed so that the mortgagee can exercise its power of sale.
For example, in Chen v ANZ National Bank Ltd, the caveator claimed an interest in the land arising from an agreement for sale and purchase and lease. Neither the sale nor the lease had been consented to by the mortgagee, which had exercised its power of sale to a third party. In deciding that the caveat should lapse, the High Court did not consider whether or not the caveator had an arguable case. Rather, the Court noted that caveats such as this cannot be sustained so as to frustrate a mortgagee’s power of sale. The combined effect of ss 105 and 119 was that the interests claimed in the caveat had no priority and were entitled to no priority in relation to any transfer executed by a mortgagee under its power of sale.
(citations omitted)
2 N R Campbell Hinde, McMorland & Sim, Land Law in New Zealand (online ed, Lexis Nexis, updated to March 2018) at [10.009(s)].
3 N R Campbell Hinde, McMorland & Sim, Land Law in New Zealand, above n 2.
4 Above n 2.
5 These sections will apply if a caveat protects an unregistered mortgage later in date than the date of registration of the mortgage under which the sale has taken place. If s 141 applies, there will be an automatic lapse of the caveat by the Registrar-General on the lodgement of the transfer under the mortgagee sale: New Zealand Land Law at 4.5.07(8). The equivalent section under the new LTA 2017 is s 140.
6 New Zealand Land Law, B France-Hudson and E Toomey, at 4.5.08(5)
[39] Hinde, McMorland & Sim, Land Law in New Zealand also confirms that even where a caveator may show an arguable case, on a mortgagee sale where the mortgage constitutes a prior interest, the caveat will usually be removed because the caveator’s claim is against the mortgagor’s estate, and that estate is subject to the mortgagee’s power of sale.7
Discussion
[40] A key issue between the parties here is whether or not it can be argued that PVG consented to the Lease between LVL as landlord and Livingspace as tenant and the 23 July 2010 assignment of this lease to GP96. If so, it is suggested that PVG is therefore bound by the lease and both the current caveat and the injunction must remain.
[41] On this aspect, an initial question arises as to whether the purported Deed of Lease and the Deed of Assignment were at arms-length, given that Livingspace was associated with PVL and Mr Henderson. As I have noted above, the Assignment of Lease was signed by Mr Henderson himself on behalf of all parties, LVL, Livingspace and GP96, and it is suggested no apparent consideration was paid by GP96 to LVL for this assignment.
[42] It is noted also that the date of the purported Assignment of Lease corresponds to a time when certain assets of Livingspace were in receivership. It precedes by some three days all of Livingspace’s assets being placed into receivership. It is also only some four days, before the liquidation of LVL’s parent company, PVL.
[43] Whilst this initial question may deserve some further enquiry at a later time, I simply leave it on one side here as no definitive decision is required.
[44] I turn now to the Lease itself. This was purportedly entered into in November 2009 and assigned to GP96 in July 2010, both events being while the receivers over
7 Hinde McMorland & Sim, Land Law in New Zealand at 10.020(d), which refers to National Mutual Finance (1988) Ltd v Berryman (High Court, Wellington M451/91, 2 October 1991, McGechan J); Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZ Conv C 192,571 at 192,599 per Master Venning.
all the assets and undertaking of Dominion were in office. Receivers were also appointed to PVL on 5 March 2010 and to Livingspace on 18 June 2010.
[45] From the evidence before the Court it does seem that nothing is available to suggest that the Lease and the Assignment of Lease were brought to the attention of the receivers of Dominion or that their consent was sought or provided. Nor is there any record retained by Livingspace as lessee or LVL as lessor and/or their parent company PVL indicating that Dominion as mortgagee had consented to the Lease and the Assignment of Lease.
[46] For completeness, I note at this point that FMC as first mortgagee did consent to the Lease itself, but it seems it did not consent to the assignment of the lease.
[47] Before me, PVG has submitted and I accept that the Lease does not take priority over the interests of PVG as second mortgagee and is, therefore, not binding on PVG.
[48] The caveatable interest asserted by GP96, therefore, must in my view yield to PVG’s registered mortgage.
[49]This is clear from the provisions of the Land Transfer Act.
[50] Registration under that Act confers on mortgagees an indefeasible title related to the interest of the registered proprietor in the fee simple which, subject to various exceptions, is immune from adverse claims not registered prior to the mortgage, such as claims from a later lessee where no consent to the lease was provided.
[51] Section 105 of the LTA 1952 addressed this issue. Section 103 of the LTA 2017 re-enacts s 105 and provides:
103 Transfer of mortgaged land by mortgagee sale
(1)The estate or interest of a mortgagor in land vests in the purchaser of the land on registration of a transfer instrument executed by a mortgagee for the purpose of exercising a power of sale under a mortgage.
(2)The estate or interest transferred vests in the purchaser freed of and discharged from—
(a)liability under the mortgage; and
(b)any other mortgage or interest that does not have priority over the mortgage or that is not binding on the mortgagee.
…
[52] Section 105 of the LTA 1952 did recognise two exceptions to the rule that the purchaser from a mortgagee selling in exercise of its power of sale will receive an indefeasible title:
(a)The situation where there is an instrument which ranks in priority to the mortgage; and
(b)The situation where the mortgagee has consented to a particular interest in the mortgaged land.
[53] Essentially under this previous section, s 105, the use of the word “consent” appears to be an exception to the general rule of indefeasibility under the Land Transfer Act. Although the word “consent” no longer appears in s 103 of the LTA 2017, the new wording in simplifying what was previously outlined in the old s 105 does not seem to have been intended to substantively change what must be established by an alleged lessee to defeat a mortgagee’s statutory right of sale.
[54] Given here that PVG’s position is that the alleged lease interest claimed by GP96 is not binding on it as neither PVG nor its predecessor second mortgagee has consented to the lease, I am satisfied that the principles established under s 105 of the LTA 1952 apply here.
[55] In the present case, the second mortgage/s originally registered in June 2007 clearly have priority over the Lease entered into in November 2009 and the Assignment of Lease entered into in July 2010. This position, however, is subject to change if the Lease and Assignment of Lease were consented to by the second
mortgagee. A key issue for determination, therefore, is whether PVG or its predecessors consented to the Deed of Lease and/or the Assignment of Lease.
[56] A leading authority on the issue of “consent” is the Supreme Court decision in Cashmere Capital Limited v Carroll.8 In that case, McGrath J for the Supreme Court stated:
[79] These decisions indicate that a consent which, under s 105 and 119, binds a mortgagee to the competing estate or interest in another instrument, requires conduct which affirms the lease. A mortgagee who is aware of a third party’s interest, and passively stands by, making no objection, has not consented. For there to be a valid consent the mortgagee must either have been aware of the essential terms of the lease or be shown to have consented to the lease whatever its terms may be. Only then does the mortgagee consent to the terms of the other instrument, in the sense of agreeing to be bound by it. Making an advance as mortgagee, while being aware of the other instrument and another party’s interest in it, of itself, does not amount to consent.
[57] This decision in Cashmere Capital has been followed by this Court on a number of occasions. Essentially, it confirms that a mortgagee’s “consent” under the Land Transfer Act requires both an awareness of the terms of a lease and an affirmative acknowledgment that it will be bound by those terms.
[58] From all the evidence which is before me, I am satisfied that there is nothing before the Court to support any suggestion that PVG or its predecessor mortgagee have consented to the Lease to GP96. I reach this conclusion noting also that the onus of proof here lies on GP96 to show an arguable case that PVG or its second mortgagee predecessor did so consent. At best, evidence before me, including that of Brendon Wilson, Dominion’s loan manager between 2006 and 2009, establishes simply that Dominion as the original second mortgagee expected that a lease arrangement for the property would be put in place at some point in the future and that, once this had occurred, it might have considered giving its consent to such a lease. There is no suggestion from Mr Wilson, however, that Dominion was aware of the terms of any lease ultimately entered into and much less that Dominion gave its consent to such a lease. And the authorities show too that mere knowledge of the existence of a lease
8 Cashmere Capital Limited v Carroll [2009] NZSC 123.
and passively standing by and making no objection to it, cannot itself amount to consent.
[59] For all these reasons I find that, given PVG and its predecessors as mortgagees have not consented to the Lease and the Assignment by which GP96 claims its interest as lessee here, a transfer of the property by PVG pursuant to a mortgagee sale in terms of s 103 of the LTA 2017 will vest title to the purchaser freed from the leasehold interest claimed, as it neither has priority over the mortgage nor is it binding on the mortgagee.
[60] This conclusion is sufficient to dispose of PVG’s application to remove the Caveat. That application must succeed here.
[61] For completeness, however, I will go on to address certain additional arguments which were before me in considering that application.
Asserted lease surviving the alleged disclaimer of the property?
[62] LVL is the original registered proprietor of the property and the party through Mr Henderson which on 5 November 2009 entered into the lease to Livingspace. LVL was placed into liquidation some time in 2010. The then liquidators of LVL as lessor disclaimed the property on 22 December 2010. As a result, PVG contends as an alternative argument now that the rights asserted by GP96 as lessee under the Lease are in respect of a Lease with a lessor (LVL in liquidation) who has disclaimed and now has not owned the leased property for over eight years. The interests of LVL as Lessor and GP96 as Lessee have terminated. No explanation is before the Court from GP96 as to how it is able to continue to assert rights as lessee when its lessor no longer owns the property and is able, for example, to promise quiet enjoyment, to insure the Property or to receive rent.
[63] Authorities make clear that a liquidator of a lessor company is entitled to disclaim a lease and, importantly, the effect of such a disclaimer is to bring an end to the lease.9
9 Willmott Growers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed) (in liquidation) [2013] HCA 51 at [54] – [55].
[64] In Body Corporate 207715 v McNish, Katz J in this Court considered a situation where property disclaimed by an owner was the subject of a dispute which had arisen between the lessee and the body corporate as to body corporate fees.10 There, Katz J considered it arguable that the disclaimer of the property automatically terminated the lease and said:
It may well be arguable that the effect of the liquidator’s disclaimer of LVO Limited’s interest in Unit AQ has operated to terminate the lease, on the basis of the principles set out by the High Court of Australia in Willmott Growers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed) (in liquidation). In that event, Mr and Mrs McNish would have no right to continue living in Unit AQ.
[65] Although it is not necessary for me to definitively decide this issue (given my finding that GP96 has been unable to identify any evidence that PVG or its predecessor consented to the Lease), in my view, the point advanced by Mr Francis for PVG that the Lease in any event did not survive the disclaimer, nevertheless has merit. I leave on one side, however, issues that might arise here over fulfilment or otherwise of any disclaimer requirements that may have been necessary.
Residual discretion favours removal of the Caveat
[66] Notwithstanding my findings noted above, even if GP96 had been able to establish that it had an arguable interest in the Property under the Lease enforceable against PVG (and I have found otherwise) this Court has a residual discretion to remove the Caveat. A number of grounds for that residual discretion were outlined in Botany Land Development Ltd v Auckland Council.11
[67] On this aspect, I note that in the Lease which GP96 itself relies upon, cl 42.1 specifically provides:
Land Transfer Title or Mortgagee’s Consent
42.1 The landlord shall not be required to do any act or thing to enable this Lease to be registered or be required to obtain the consent of any mortgagee of the Property and the tenant will not register a caveat in respect of the tenant’s interest hereunder.
(emphasis added)
10 Body Corporate 207715 v McNish [2015] NZHC 2848,
11 Botany Land Development Ltd v Auckland Council, above n 1 at [25].
[68] It must follow, therefore, that the Caveat was lodged by GP96 in breach of the terms of the Lease claimed to have been assigned to it.
[69] From decisions such as Mortre Holdings Ltd v ANCL Investments Ltd12 it is clear that while a “no caveat” clause in a lease such as this does not prevent a caveatable interest from arising, it is nevertheless relevant to the Court’s residual discretion as to whether to sustain the caveat. The Court, therefore, in any event, has a power if there is a “no caveat” clause to decline to sustain a caveat in a situation such as the present. Courts will not lightly condone a breach of contract, especially where the terms of the contract have an obvious commercial purpose. It is clear also that the threshold for exercising the Court’s discretion to remove a caveat filed in breach of a “no caveat” clause, in a situation like the present, is not generally a high one.
[70] Further, in this case, as I understand it, the evidence points to the fact that the property was significantly damaged by the Canterbury earthquake sequence and was located within the area of central Christchurch known as the “Red Zone”. According to PVG the property remains severely damaged. It has not been, nor has it been able to be, occupied since the earthquakes. It does seem the evidence before the Court provided by FMC suggests that even if they could be carried out, substantive repairs to the property to enable it to be occupied and tenanted again would take between one and two years.
[71] GP96 has been unable to benefit from its purported lease for at least something in excess of the last eight years. Issues have arisen too over whether, in any event, repairs could be carried out and whether, finally, GP96 would be able to benefit from the Lease continuing due to the substantial building damage that has occurred. I leave on one side here the question as to whether the earthquake damage to the building in any event rendered the premises untenantable such that in terms of cl 26.1 of the Lease the Lessor could have terminated the Lease.
[72] Allegations of abuse of process, Land Transfer Act fraud or dishonesty on the part of PVG (or FMC) are also to an extent suggested here by GP96. No evidence of any of this is provided, however. And, as I see the position, the present situation facing
12 Mortre Holdings Ltd v ANCL Investments Ltd [2016] NZCA 494.
the Court involves simply a long overdue and defaulting mortgage and the resulting arms-length commercial mortgagee sale transaction with an independent third party, Ms Harris. I find that there has been no abuse of process here on the part of PVG (or FMC). I reject also an argument tentatively raised by Mr Moss for GP96 that there has been a derogation from the grant of the Lease here by FMC or indeed by anyone else. What has occurred in this case is simply that GP96’s tenure as Lessee under the Lease either ended with the disclaimer or will without question be coming to an end now on the mortgagee sale of the property.
[73] And lastly, in my view, the balance of convenience in this case must favour removal of the Caveat. The rights of third parties here such as PVG and Ms Harris are important and require protection over and above the strong wish GP96 has simply to keep some degree of control over the Property.
[74] For these reasons, a reasonable argument exists, in any event, that, even if GP96 had been able to establish against PVG an arguable interest in the property enforceable by caveat (and I have found otherwise), the Court in this case should use its residual discretion to remove the caveat.
Order sought by PVG preventing the Caveat from being relodged
[75] This Court has jurisdiction to restrain further caveats being lodged particularly in cases where caveats have been lodged not for the purpose of protecting some interest in land but simply to impede an impending mortgagee sale.13
[76] It is useful to note here also the decision in this Court of Ronald Young J in ASB Bank Ltd v Lambert14 where the Court granted an injunction preventing the respondent from lodging or attempting to lodge any further caveats against the relevant property in not dissimilar circumstances.
[77] In the present case, Mr Francis for PVG seeks an order preventing a further caveat from being relodged. He does so on the grounds of needing to prevent further
13 Clos Farming Estates Pty v Easton [2001] 10 BPR 18,845 – cited in Hinde McMorland and Sim, Land Law in New Zealand at [10.022A].
14 ASB Bank Ltd v Lambert [2013] NZHC 2135.
interference by GP96 with PVG’s proper mortgagee sale process. He maintains that an order such as this will cause no prejudice to GP96 as this Court should find (as it has) that GP96 has no caveatable interest here against the property which is enforceable against PVG. Mr Francis notes that, in any event, GPS can seek leave to file a further caveat if an appropriate basis can be identified, although Mr Francis contends this prospect is unlikely.
[78] In all the circumstances here, it is my view that the order sought by PVG preventing a further caveat from being relodged is appropriate. An order to this effect is to follow.
Second application by GP96 for further orders relating to the 2011 interim injunction
[79] Given my decision with respect to the first application before the Court, which effectively removes GP96’s caveat, in reality this disposes of most of the issues relating to the second application before the Court brought by GP96 outlined at para [1](b) above. Nevertheless, for the sake of completeness I now address briefly that application.
[80] As I note at [2] above, GP96’s application effectively seeks an order extending the 2011 Interim Injunction. I repeat the comments above that the 2011 Interim Injunction orders were made against FMC and prevented it as the first mortgagee of the Property at the time from:
…demolishing, selling or leasing the building (at the Property) until the substantive matter is heard or until further order of the Court.
[81] Para [16] of my judgment above notes that a substantive hearing to finally determine this matter was originally set down for 8 August 2011 but was adjourned at that time and until now has simply lain dormant.
[82] What is clear, however, is that this Court ultimately retains an inherent jurisdiction to rescind or vary an order such as the 2011 Interim Injunction order “should the circumstances change and so require in justice that recission or a
variation”.15 And, in any event, here the Interim Injunction order was granted “until further order of the Court” such that it remains within the authority of this Court to vary and/or to rescind the order as circumstances require.
[83] In the present case, as I have noted above, a reasonable argument exists that the liquidator of LVL disclaimed LVL’s reversionary interest in the Property soon after that company was placed into liquidation, and this disclaimer effectively terminated the Lease.
[84] If I may be wrong in this conclusion that the Lease has not survived the disclaimer, however, I am satisfied on all the evidence before the Court here, that the landlord has not received any insurance monies as a result of the earthquake damage to the building to use for repair or replacement because the first mortgagee, FMC, has properly applied all of those insurance monies towards the secured indebtedness of LVL as mortgagor as its mortgage entitled it to do. As a result, in accordance with its provisions, the Lease, is therefore terminated because the insurance monies received by the landlord/registered proprietor were effectively nil and consequently “inadequate for the repair or reinstatement” of the building.
[85] It must follow, therefore, that GP96 has no ongoing basis for its claim to a permanent or interim injunction over the Property to preserve its position as lessee just as I have found above that it has no basis to sustain the Caveat it registered against the title claiming this interest as Lessee.
[86] Finally, if the Lease itself was to continue, and I have found otherwise, in any event, the sale by PVG to Ms Harris is not subject to the Lease as neither PVG nor its second mortgagee predecessors consented to the Lease. The third party purchaser, Ms Harris, will take title from PVG free of the Lease. GP96 therefore has no basis to either sustain the Caveat nor, given this impending sale, to enlarge the Interim Injunction order to preserve its claimed position as lessee as against FMC. I note also that, although FMC was originally the target of the Interim Injunction, PVG was not a party bound by this court order.
15 Foodtown Supermarkets Ltd v TSE [1987] 2 PRNZ 545 at 546.
[87] In conclusion here, I am satisfied that what are significant changed circumstances in this case since the 2011 Interim Injunction order was granted some eight years ago render the continuation of, or any extension to, that order itself no longer appropriate.
[88] As I have noted above, GP96’s caveat is to be removed from the title to the Property. Similarly this Court, invoking its supervisory jurisdiction, must make an order lifting the Interim Injunction order. One additional matter needs to be mentioned here. As I understand it, in 2018 GP96 was invited to put forward its best offer to purchase the damaged Property given that the insurance proceeds which had been received were held by the mortgagee. Nothing it seems happened until after PVG had entered into the sale agreement with Ms Harris at the price of $2 million. GP96 then it appears purported to make an “offer” at a figure $10,000 above that price. No confirmation of the proposed purchaser’s ability to complete that agreement was provided, however, and there does seem to be something in the submission advanced before me by counsel for FMC that all this simply “savours of tactical manoeuvring by GP96”. In my view, none of this has any bearing on PVG’s entitlement as second mortgagee to sell the property to the third party, Ms Harris. This was the critical issue for determination here.
[89] I am satisfied too, as I have noted above that there has been no Land Transfer fraud or abuse of process on the part of PVG or FMC in this case, nor in all the circumstances here has there been any direct breach of the 2011 Interim Injunction order on the part of FMC.
[90] Nor do I find there is any basis for FMC to be restrained from discharging its mortgage in this case as GP96 appears to seek in its present application. Redemption of the mortgage must always be properly available and that is simply what is occurring here.
[91] Lastly, I turn to address one final matter. This relates to the assets which FMC is selling under the Chattels Agreement. From evidence before the Court, these assets are sold by FMC as owner/vendor rather than as securityholder, FMC having
purchased these for value from FVL through its receivers in June 2013. Those chattels therefore are not the subject of any lease.
[92] Further, the insurance claim pertaining to the flooding of the basement in the building on the Property which occurred early in 2018 related to an insurance policy covering the period 1 June 2017 to 1 June 2018. This insurance policy on the evidence was one taken out by FMC as the insured party given that LVL’s interest in the building had been disclaimed more than seven years earlier. It is apparent therefore that this cannot constitute insurance placed by the Lessor under the Lease and FMC has never been under any obligation to insure as if it was the Lessee.
[93] Finally, as I understand it, two batteries and an associated security system were purchased by FMC some time ago for the purpose of securing the Property. Again, these were outside the terms of any lease even if one did continue to exist. It follows, therefore, that no jurisdiction exists for GP96 to seek any interim “freezing” order to prevent FMC from transferring or disposing of these assets, assets which it owns personally, whether this is in the context of the Chattels Agreement or otherwise. As I understand the position, GP96 has made no claim against these assets, nor does it have any valid claim. No order sought by GP96, therefore, is appropriate relating to these assets.
[94] In conclusion, and so far as the injunctive relief sought by GP96 is concerned, any serious issue to be tried has dropped away as a result of the changed circumstances here which include PVG’s impending sale of the Property. Moreover, the balance of convenience in this case cannot favour restraining FMC from discharging its mortgages and completing settlement under the Discharge Agreement, given the significant prejudice that would result to PVG and Ms Harris otherwise. The overall justice in this matter clearly rests with PVG and FMC.
Result
[95] For all the reasons I have outlined above, first, the application by PVG to remove the Caveat succeeds and secondly, the application by GP96 to enlarge the 2011 Interim Injunction and further to seek the orders noted at para [1](b) above fails.
[96]So far as the Caveat is concerned, orders are now made as follows:
(a)That the Caveat No. 11228460.1 lodged against Certificate of Title CB22F/432 be removed.
(b)That GP96 is prevented from relodging a caveat against Certificate of Title CB22F/432 or Certificate of Title 288051, being the two titles to the Property, without the leave of this Court.
[97] So far as the 2011 Interim Injunction order is concerned, an order is now made lifting this order.
Costs
[98] PVG, having succeeded in its application to remove the Caveat and FMC, having succeeded in its opposition to the application by GP96 for Interim Injunction relief, are each entitled to an award of costs on this matter in the usual way.
[99] Costs are therefore awarded against GP96 on this matter on a category 2B basis together with disbursements as approved by the Registrar in favour of PVG and FMC.
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Gendall J
Solicitors:
Jai Moss, Barrister, Christchurch Rhodes & Co, Christchurch Meredith Connell, Auckland
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