Harbour City Construction 2012 Limited v Link Technology 2000 Limited
[2017] NZHC 451
•16 March 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-000782 [2017] NZHC 451
BETWEEN HARBOUR CITY CONSTRUCTION
2012 LIMITED Plaintiff
AND
LINK TECHNOLOGY 2000 LIMITED First Defendant
HARRY MEMELINK AND IAN TREVOR NEILL HAMILTON both in their capacities as trustees of LINK TRUST No. 1
Second Defendants
Hearing: 12 December 2016 Counsel:
M Freeman for Plaintiff
C J Nicholls for the First and Second DefendantsJudgment:
16 March 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (Harbour City) applies for summary judgment against the defendants for a declaration that it is not bound by a lease interest asserted by the first or second defendants in a commercial property situated in Victoria Street, Alicetown, Lower Hutt (the property).
[2] Harbour City purchased the property from the Bank of New Zealand (the Bank) at an auction sale conducted by the Bank in July 2015 in the exercise of the power of sale contained in a mortgage held by the Bank over the property. Harbour City completed settlement, and became the registered proprietor, on 23 July
2015.
HARBOUR CITY CONSTRUCTION 2012 LIMITED v LINK TECHNOLOGY 2000 LIMITED [2017] NZHC
451 [16 March 2017]
[3] Prior to Harbour City’s purchase of the property, the second defendants Mr Memelink and Mr Hamilton (who I will refer to jointly as “the Trust”) were the registered proprietors of the land, they having acquired the land in December 2013. Prior to that, the property had been owned by Mr Memelink and Mr Patrick John Renshaw, or by Mr Memelink and C M S Trustees Ltd. Mr Renshaw and C M S Trustees Ltd are former trustees of the Link Trust No. 1.
[4] Following Harbour City’s acquisition of the property, Mr Memelink advised its solicitor that there was an existing lease of the property. Mr Memelink produced a deed of lease dated 21 April 2011 between himself and Mr Renshaw (as trustees of the Link Trust No. 1) as lessors, and the first defendant (Link Technology) as lessee (the Lease).
[5] Harbour City says that when it bought the property it had no knowledge or notice of the existence of any lease, contract or commitment binding on the property or the property owner. The defendants assert that the Lease is binding on Harbour City. They say that both the Bank and the Bank’s agent (Bayleys) knew of Link Technology’s interest in the property under the Lease.
[6] Link Technology or the Trust have assorted building materials and miscellaneous items on the property which they have refused to move. They have issued trespass notices to Harbour City, and Link Technology has issued invoices to Harbour City claiming a monthly “rent” of $152.17 plus GST and a “monthly penalty” of $4,000. Those sums are alleged to be payable by Harbour City as lessor under the Lease.
[7] In its statement of claim, Harbour City claims damages in respect of alleged trespass by the defendants, in an amount to be determined at trial. It also asks for costs on an indemnity basis.
[8] Harbour City accepts that its claim for damages for the alleged trespass is not appropriate for the summary judgment procedure. It accordingly asks that summary judgment be entered as follows:
1.An order by way of Summary Judgment, declaring [Harbour City] is not bound by any terms of a lease between itself and [Link Technology] in respect of [the property].
2.An order declaring that continued occupancy of [the property] by [the Trust] through the storage of chattels and materials on [the property] constitutes a trespass notice on [the property].
3.An order directing a trial of damages sustained by Harbour City by reason of [the Trust’s] trespass.
The defendants’ notice of opposition
[9] The defendants assert that the Lease was validly entered into and is legally binding on Harbour City. They contend that Link Technology’s rights under the Lease continue by virtue of s 231 of the Property Law Act 2007 (the PLA), and the fact that Link Technology has continued to meet its obligations under the Lease. They plead that the Bank as vendor was aware of the Lease prior to the sale of the property to Harbour City, and that the defendants were not under any duty to advise Harbour City of the existence of the Lease prior to Harbour City’s purchase. They say that Link Technology is entitled under the Lease to quiet enjoyment of the property, and to keep on the property any building materials or other things it chooses.
The defendants’ evidence
[10] It will be convenient to summarise the defendants’ evidence first.
[11] In his affidavit sworn in opposition to the application, Mr Memelink says that the then trustees of the Link Trust No. 1 originally purchased the property in 1990. It was then bare land. In subsequent years, the property was leased out to various people and entities.
[12] In 2011 the trustees decided to develop the property by constructing a commercial building on the property. Their intention was to offer a long-term lease to Mr Memelink’s company Link Technology.
[13] On 21 April 2011 Mr Renshaw and Mr Memelink signed the Lease on behalf of the Trust. Mr Memelink also signed the Lease in his capacity as director of Link
Technology, and as guarantor of Link Technology’s obligations to the Trust. Mr Memelink says that the Lease was designed so that Link Technology would only pay what was in effect a peppercorn rental for the property while the building work was in progress. Once the building had been completed and Link Technology was able to occupy the property, the rent would increase to a commercial level.
[14] The Lease contained certain penalty provisions which would operate against the lessor if construction of the building was not completed within five years of the date on which the parties entered into the Lease.
[15] The Trust sought finance from the Bank, and it provided the Bank with copies of the Lease and the building contract with Steel Frame. The Trust offered a number of properties as security for the finance, including the property. Mr Memelink says that the Bank approved the finance in August 2011.
[16] Mr Memelink produced a copy of an email dated 13 July 2011 from the Bank to Link Technology, in which the Bank officer advised that she had credit approval to advance a total of $650,000, on security of three properties, one of which was the property. The Bank’s email went on to advise that the Bank required “the following information to be provided and satisfactory in all respects”. There followed a list of items, one of which was:
6. A copy of the Lease between Link Trust No. 1 and Link Technology.
[17] The Trust entered into a building contract with Steel Frame Concepts Ltd (Steel Frame) for the construction of the building, in April 2014. Mr Memelink says that the projected cost of the development was originally a little over $300,000.
[18] Mr Memelink says that the building project stalled for a variety of reasons, none of which are relevant to the issues in this proceeding. In the event, the Trust was unable to keep its payments up on the mortgage to the Bank, and the Bank issued notices under the PLA. It subsequently sold the property in the exercise of its power of sale.
[19] At the time the Bank was selling the property, the Trust had on the property part of the building kit which was necessary for the completion of the construction work. All of the materials to build the structure were there except windows, doors, fitting and plumbing equipment. Also, Link Technology had stock on the property associated with the business it would operate on the property. Mr Memelink says that various other items belonging to the Trust or Link Technology were also on the property, including a motor vehicle, steel beams, motors and a kitset spray booth- powder coating booth.
[20] Following the sale of the property by the Bank to Harbour City, Mr Memelink obtained copies of Bayleys’ form of Information Memorandum which had been used in marketing the property. He also acquired a copy of the signed agreement for sale and purchase between the Bank and Harbour City. Neither document referred to the Lease, and the Information Memorandum contained a recommendation that all recipients make their own inquiries relating to the property.
[21] Mr Memelink says (and Harbour City has not disputed) that the sale from the
Bank to Harbour City contained the following clause:
The property is sold subject to existing tenancies or occupations including holding over by the mortgagor, and the Vendor is not required to give vacant possession on the Completion Date.
[22] Mr Memelink also refers to a “no warranties” clause in the Bank’s standard form of sale agreement. This clause is said to have provided that the land being sold was sold on an “as is where is” basis, and that the purchaser must verify all matters to the purchaser’s own satisfaction, relying solely upon the purchaser’s own judgment.
[23] Mr Memelink asserts that, prior to the sale of the property by the Bank, noone from Harbour City (or any other prospective purchaser) made any inquiry of him as to whether he knew of any entity having an interest, by lease or otherwise, in the property. He asserts that the Bank and Bayleys did not permit him to attend the auction.
[24] Mr Memelink says that since Harbour City has become the owner of the property he has ensured that Link Technology met its obligations under the Lease by paying rent at the rate of $175 per month. No payments have been missed, and none of the money paid has been returned.
[25] The Lease contained provision for renewal every five years. The first renewal date fell on 21 April 2016. Mr Memelink says that on 21 January 2016
Link Technology sent to Harbour City’s registered office a notice that it intended to
renew the Lease for another five years from 21 April 2016.
[26] As there was no building for Link Technology to occupy from 21 April 2016, Link Technology also invoked the clause in the special conditions in the Lease, under which the lessor was obliged to pay a penalty in the event of the building on the property not being ready for the lessee’s occupation within five years. Link Technology demanded $48,000 plus GST per annum from Harbour City as a penalty under the relevant special condition.
[27] Mr Memelink complains that, since the present dispute arose, Harbour City has removed from the property items valued at approximately $100,000 that were owned by, or under the control of, Link Technology. He says that he went onto the property to try to remove these items, but when he did so he received a trespass notice from Harbour City. Police assistance was sought to have him removed from the property.
Harbour City’s evidence
[28] In an affidavit sworn in support of the summary judgment application, Mr Callis, a director of Harbour City, deposes that when he inspected the property prior to purchase he noted that certain materials had been left there by a previous occupant. The materials were considered to be low value items that had simply been left on the property. The various items appeared to have been exposed to the weather for a considerable time, and the property was “completely overgrown with vegetation”. Mr Callis says that there had clearly been no activity on the property for many months, if not years.
[29] Mr Callis says that inquiries made of the local authority revealed nothing to suggest there was any tenant at the property, or active business operating on the property. There was a building consent for the property, which had been issued in
2007 for a relocatable building.
[30] On 23 July 2015, the same day it became registered proprietor of the property, Harbour City’s solicitors gave written notice to Mr Memelink that all “vehicles, items, and other assorted rubbish materials” on the property were to be removed by 12pm on 3 August 2015, failing which Harbour City would treat the items as having been abandoned.
[31] Mr Memelink responded by emails dated 27 and 30 July 2015, asserting that “none of the gear on the land is abandoned, and not allowed to be removed from the [sic] sight”. Mr Memelink sought urgent discussions with the new owners. He also asked for full proof of purchase, including copies of the selling promotion leaflets/documents from Bayleys. Mr Memelink concluded his 30 July 2015 email by referring to the building consents held by the Trust, and his wish to talk to the new owners “about this and moving forwards”.
[32] On 23 August 2015, when Harbour City had not withdrawn its notice to the defendants to remove items from the property, Link Technology caused a notice to be served on Harbour City under s 4 of the Trespass Act 1980. The notice described Link Technology as the lawful occupier of the property under the Lease (a copy of which was attached to the notice).
[33] When Mr Memelink drew Harbour City’s attention to the Lease, Mr Callis
says that inquiries were made of both Bayleys and the Bank. He says that on
25 August 2015 a senior solicitor employed by the law firm acting for the Bank advised that her instruction was that the Bank had never been made aware of, or been provided with, any lease documentation or occupancy arrangement in respect of the property. The solicitor told Harbour City that, as recently as May 2015, the Bank had been advised by the previous mortgagor (the Trust) that there was no lease in place. The solicitor concluded:
It follows that the Bank has at no time provided consent to any lease or occupancy arrangement in respect of [the property].
[34] On 15 June 2016 Harbour City sent an email to Mr Memelink asserting that it had purchased the property with no lease. Harbour City said that its lawyers, Bayleys, and the Bank had all confirmed that there was no lease at the time of the sale. Harbour City contended that the invoices which Link had begun sending to Harbour City on 21 May 2016 (claiming the “penalty” for which the lessor under the lease would be liable to the lessee if the building on the property was not completed by 21 April 2016) were fictitious and without any legal standing.
[35] Mr Memelink responded to Harbour City on the same day, contending that “there was and still is a lease, and it’s in breach, till my building is built”. In his reply email of 15 June 2016, Mr Memelink asserted that the Bank had paid the builder direct against the builder’s invoices, under the condition that there was a lease in place for the land and building once it was up. He contended that the Bank at first denied the lease, then finally accepted it as they had not realised that the loan was conditional on the lease being in place “and a small lease till the building was up to cover costs and rates etc”.
[36] Mr Callis says that Harbour City has been “constantly harassed and threatened by Mr Memelink”. He says that Mr Memelink has filed a claim in the Disputes Tribunal, seeking to enforce the “monthly penalty” of $4,000.
[37] Mr Callis produced a copy of a chattels valuation dated 3 May 2016, which put a value of $1,800 in total on the building supplies which had been left on the property.
[38] Harbour City elected not to file any affidavit in reply to Mr Memelink’s
affidavit.
Plaintiffs’ applications for summary judgment – legal principles
[39] The Court may enter summary judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the
plaintiff’s statement of claim, or to a particular part of any such cause of action.1 An application for summary judgment is made by interlocutory application, with supporting affidavits. There is not normally any cross-examination of deponents at the hearing of a summary judgment application – the issue is whether the plaintiff has produced sufficient evidence in the affidavits to show that the defendant has no reasonably arguable defence which should be allowed to go forward to trial.
[40] In Pram Enterprises Ltd (in liq) v Mansfield I summarised the relevant principles in the following terms:2
[31] The principles to be applied in considering an application for summary judgment have been clearly established through decisions of the Court of Appeal such as Pemberton v Chappell, Grant v NZMC Ltd, and Westpac Banking Corporation v M M Kembla New Zealand Ltd. The following broad principles are to be applied:
(a) The plaintiff must satisfy the Court that the defendant has no arguable defence to the claim brought against it. The issue is whether there is a real question to be tried.
(b) It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.
(c) Although the Court should adopt a robust approach, summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.
[32] In Pemberton v Chappell, the Court of Appeal held:
Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident – that is to say satisfied – that the defendant’s statements as to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Yong v Letchumanan.
[33] In Eng Mee Yong, the Privy Council said:
1 High Court Rules 2016, r 12.2(1).
2 Pram Enterprises Limited (in liq) v Mansfield [2016] NZHC 230 (footnotes omitted).
Although in the normal way it is not appropriate for a Judge to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements made by the same deponent, or inherently improbable in itself it may be.
Issues
[41] The following issues fall to be considered: (1) Did the Bank consent to the Lease?
(2)If the Bank did consent to the Lease, was Link Technology’s interest under the Lease extinguished by the operation of s 105 of the Land Transfer Act 1952 (the LTA)?
(3)What is the effect of Harbour City receiving and retaining the payments made by Link Technology between 26 August 2015 and 3
March 2016?
[42] I will first address issues (1) and (2).
Issue 1: Did the bank consent to the lease?
Issue 2: If the Bank did consent to the Lease, was Link Technology’s interest
under the Lease extinguished by the operation of s 105 of the Land Transfer Act
1952 (the LTA)?
[43] Section 119 of the LTA provides:
119 Lease not binding on mortgagee without consent
No lease of mortgaged or encumbered land shall be binding upon the mortgagee except so far as the mortgagee has consented thereto.
[44] Consistent with s 119, s 105 of the LTA provides that a purchaser who acquires land from a mortgagee selling in the exercise of the mortgagee’s power of sale does so “freed and discharged” from any third party estate or interest, except
(inter alia) an estate or interest which “by reason of the consent of the mortgagee is
binding on him”. The wording of s 105 is as follows:
Upon the registration of any transfer executed by a mortgagee for the purpose of exercising a power of sale over any land, the estate or interest of the mortgagor therein expressed to be transferred shall pass to and vest in the purchaser, freed and discharged from all liability on account of the mortgage, or of any estate or interest except an estate or interest created by any instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.
[45] Section 105 applies in this case, as the Bank sold the property to Harbour
City in the exercise of the Bank’s power of sale as mortgagee.
[46] It will be seen that s 105 recognises two exceptions to the rule that a purchaser from a mortgagee selling in the exercise of its power of sale will receive an indefeasible title:
(1)the situation where there is an instrument which has priority over the mortgage; and
(2)the situation where the mortgagee has consented to a particular estate or interest in the mortgage land.
The parties’ submissions
[47] For Harbour City, Mr Freeman submits that there was no consent under s 105 of the LTA, and that that section had the effect of extinguishing the lease as soon as the transfer from the Bank to Harbour City was registered on 23 July 2015. Mr Freeman submits that s 231 of the PLA cannot assist the defendants, because the
PLA is expressly made subject to the provisions of the LTA.3
[48] Mr Freeman emphasises the principle of indefeasibility of title under the LTA, referring to ss 62 and 182 of the LTA, in which the general principle of indefeasibility of title except in cases of fraud is established.
[49] Section 62 of the LTA materially provides:
3 Property Law Act 2007, s 8(5)(a).
62 Estate of registered proprietor paramount
Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which but for this Act might be held to be paramount or to have priority but subject to the provisions of Part 1 of the Land Transfer Amendment Act 1963, the registered proprietor of land or of any estate or interest in land under the provisions of this Act shall, except in case of fraud, hold the same subject to such encumbrances, liens, estates, or interests as may be notified on the folium of the register constituted by the grant or certificate of title of the land, but absolutely free from all other encumbrances, liens, estates, or interests whatsoever,—
(a) except the estate or interest of a proprietor claiming the same land under a prior certificate of title or under a prior grant registered under the provisions of this Act; and
(b) except so far as regards the omission or misdescription of any right of way or other easement created in or existing upon any land; and
(c) except so far as regards any portion of land that may be erroneously included in the grant, certificate of title, lease, or other instrument evidencing the title of the registered proprietor by wrong description of parcels or of boundaries.
[50] Section 182 of the LTA materially provides:
182 Purchaser from registered proprietor not affected by notice
Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, direct or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.
[51] Mr Freeman refers to the judgment of Tipping J in the Supreme Court in Regal Castings Ltd v Lightbody, in which the learned Judge commented on s 62 of the LTA in the following terms:4
The in personam jurisdiction must not, however, be allowed to impinge on the fundamental purpose of the Torrens system. In terms of s 62, that purpose is to make the registered proprietor’s estate (or title, as it is usually put) paramount against interests which are not notified on the register. It is, in my view, immaterial whether such an interest could have been registered.
4 Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 at [149]–[150].
Hence, if Regal had an unregistrable interest in the land which was not susceptible to in personam relief, that interest would not prevail against the paramountcy provisions of s 62.
That section is simply expressed and deliberately so. Except in the case of fraud, the registered proprietor takes free of all interests that are not notified. The certainty and simplicity of that proposition should not be watered down by reference to whether the interest qualifies for registration. It is the fact of non-notification which is crucial. The absence of the interest from the register, for whatever reason, is what matters in a system which has, from earliest times, proceeded on the basis that, as Edwards J put it in Fels v Knowles, “the register is everything”. If you have an interest, whether registrable or not, of which you wish to give notice, you should, if possible, protect it by caveat. I can find nothing in either the text of [the LTA] or in its underlying purpose to support the view that the paramountcy afforded by s 62 does not apply against unregistrable interests. (Footnotes omitted)
[52] Mr Freeman notes that the Court need not consider in this case whether the lease was a registrable lease under the LTA: the lease was in the Auckland District Law Society’s Standard Form (2008 edition), and was on its face a long-term lease (ie a lease for a period of more than one year). It was therefore a registrable interest
under the LTA, and in a form capable of registration.5
[53] Mr Freeman also refers to the decision of the Court of Appeal in Duncan v McDonald.6 Blanchard J, giving the judgment of the Court, noted that registration of an instrument under the LTA is the event which creates or transfers a legal interest in the land (s 41 of the LTA). If it happens that the person who becomes registered has been guilty of actual dishonesty in that connection, fraud in the LTA sense, the title will be defeasible. But until set aside the registered interest remains a potential source of title for a bona fide third party.7
[54] In the New Zealand Fisheries Ltd case,8 the Court of Appeal considered the meaning of “consent” in s 105. The Court adopted the approach of the English Court of Appeal in Bell v Alfred Franks & Bartlett Co Ltd,9 where the Court was concerned
with the contrasting statutory expressions “acquiescence” and “consent” in the
5 Land Transfer Act 1952, s 115.
6 Duncan v McDonald [1997] 3 NZLR 669 (CA).
7 At 681 per Blanchard J.
8 New Zealand Fisheries Ltd v Napier City Council (1990) 1 NZ ConvC 190, 342 (CA) at
190,344.
9 Bell v Alfred Franks & Bartlett Co Ltd [1980] 1 All ER 356 (CA).
context of a landlord’s response to alleged breaches of covenant by a tenant. Megaw
LJ considered that:10
“consent” involves some affirmative acceptance, not merely a standing by and absence of objection. The affirmative acceptance may be in writing …; it may be oral; it may conceivably even be by conduct, such as nodding the head in a specific way in response to an express request for consent. But it must be something more than merely standing by and not objecting.
[55] Mr Freeman notes that Harbour City was not required to make any inquiries about the possibility of unregistered third party interests in the property,11 and he submits that the Bank’s mere knowledge of the lease was irrelevant to the issue of consent under s 105 of the LTA.
[56] Nor can the “subject to any tenancies” clause in the Bank’s agreement for the sale of the property to Harbour City assist the defendants (relying on the judgment of Baragwanath J in Son v Ko12).
[57] The Son v Ko case addressed the effect of a provision in the sale contract from the mortgagee to the purchaser, under which the parties agreed that the property was sold “subject to existing tenancies or occupancies (if any) including holding over by the mortgagor”. Baragwanath J considered that it would be commercially unreal to construe the general language of the Information Memorandum and of the clause in the sale agreement as an implicit consent of the mortgagee, with its superior rights, to subordinate the priority it could confer on a purchaser at mortgagee sale to an unspecified third party claimant to some kind of unregistered tenancy. Any such construction would tend to diminish the value of the interests the mortgagee was seeking to sell; the very last thing it would be likely to intend. Rather, the clause was to be construed as having the opposite effect: of strengthening, rather than weakening the mortgagee’s position, by adding a
contractual belt to the s 105 statutory braces.13
[58] Son v Ko was a case in which the plaintiffs had acquired title to a former motel complex on the registration of a transfer to them made by a former mortgagee
10 Bell v Alfred Franks & Bartlett Co Ltd, above n 9, at 362-363.
11 Citing Land Transfer Act 1952, s 182.
12 Son v Ko (2006) 7 NZCPR 649.
13 At [34].
in the exercise of the mortgagee’s power of sale. The plaintiffs claimed possession from one of the former registered proprietors of the land. The defendants opposed the claim for possession, contending that the third defendant (a company called New World Vision Centre Ltd) was entitled to retain possession under an unregistered lease which had been granted by Mr and Mrs Ko’s predecessors in title. On the question of whether the mortgagee had consented to the unregistered lease, Baragwanath J considered it reasonable to impute to the mortgagee knowledge of the contents of the information memorandum circulated by the mortgagee’s real estate agent, which recorded that the property was being operated as a homestay for a
Korean Bible College (the tenant under the unregistered lease).14 But his Honour
noted that mere knowledge by the mortgagee of the existing lease was not enough.15 “Consent” within the meaning of s 105 of the LTA means more than mere acquiescence on the part of the mortgagee.
[59] Referring to the email from the Bank’s solicitor dated 25 August 2015, in which the solicitor advised that as recently as May 2015 the Bank had been advised by “the previous mortgagor” that there was no lease in place, Mr Freeman submits that, for the purposes of s 105 of the LTA, any consent had to be current as at the time of the transfer from the mortgagee to the purchaser. In this case, the solicitor’s email suggests that any leasehold interest which may have existed was no longer in existence by May 2015.
[60] Mr Freeman submits that the evidentiary onus must be on the defendants to show an arguable case of consent by the Bank, sufficient to meet the requirements of s 105 of the LTA, and that the defendants have failed to meet that threshold.
[61] For the defendants, Mr Nicholls submits that it is arguable that the Bank consented to the Lease.
[62] He relies particularly on Mr Memelink’s evidence that the Bank was fully aware of the Lease, a copy of which was provided to the Bank (on the Bank’s
request) in 2011.
14 At [33].
15 Citing Registered Securities Ltd v Christensen Potato Co Ltd CA121/88, 1 September 1989 at 4 and New Zealand Fisheries Ltd v Napier City Council (1990) 1 NZ ConvC 190,342 (CA).
[63] Mr Nicholls submits that, in lending money to the Trust, the Bank was naturally concerned to ensure that the Trust would have an income stream from the property to assist the Trust in servicing the mortgage. The Bank accordingly required a copy of the Lease, and advised that it would have to find the Lease (with the other information requested) “satisfactory in all respects”. Mr Nicholls submits that, at that point, the Bank arguably consented to Link Technology’s estate or interest in the property under the Lease, with the result that the property passed to Harbour City subject to the Lease.
[64] Mr Nicholls refers also to Part 4 of the Act, relating to leases of land, and in particular to s 231 of the Act. That section provides:16
231 Burden of lessor's covenants to run with reversion
(1) If the reversion expectant on a lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the obligations imposed by every covenant of the lessor—
(a) run with the reversion; and
(b) may be enforced by the person who is from time to time entitled to the leasehold estate or interest against the person who is from time to time entitled to the reversion.
(2) Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance.
(3) In subsection (1), the reference to every covenant of the lessor is,—
(a) for a lease that comes into operation before 1 January 2008, a reference to every covenant of the lessor that refers to the subject matter of the lease; and
(b) for a lease that comes into operation on or after that date, a reference to every covenant of the lessor, whether it refers to the subject matter of the lease or not.
[65] Mr Nicholls submits that, while the reversion previously held by the Trust ceased as a result of the mortgagee sale, the obligations that the Trust previously held to Link Technology were transferred to Harbour City. He submits that, regardless of Harbour City’s apparent lack of any prior notice of the Lease, the Lease continued in
full effect following Harbour City’s acquisition of the property.
16 Property Law Act 2007, s 231.
[66] With respect to the email from the Bank’s solicitor dated 25 August 2015, Mr Nicholls notes that the contention by the Bank’s solicitor is inconsistent with Mr Memelink’s evidence and the Bank’s 13 July 2011 email. Mr Nicholls also points to the fact that Harbour City has elected not to reply to Mr Memelink’s evidence. Specifically, it has failed to produce any direct evidence from the Bank to contradict Mr Memelink’s evidence about the Bank’s requirement in respect of the Lease.
[67] Mr Nicholls submits that the likelihood that the Bank’s staff handling the mortgagee sale apparently did not turn their minds to the July 2011 consent, does not mean that the consent exception in s 105 does not apply. Nor does the fact that the Bank, at the time the property was marketed for sale, omitted to disclose its earlier consent to prospective purchasers, change the fact that the Bank had consented to the lease.
[68] Mr Nicholls submits that the Court in Son v Ko relied on the facts that there was no evidence that the mortgagee ever saw the agreement to lease, and that the mortgagee’s interest was prior in time to the claimed leasehold interest. He submits that the present case is different, in that there is evidence that the Bank probably did see the Lease prior to approving the mortgage. There is a proper evidential basis for the Court to find it arguable for the defendants that the Bank did consent to the Lease, and that the exception in s 105 of the LTA applies.
Discussion and conclusions on Issue 1
[69] Consent for the purposes of s 105 of the LTA requires a positive affirmative act such as written or oral acceptance, or an implied acceptance by conduct.17
Acquiescence by the mortgagee without more will not do; still less mere knowledge
of the existence of the lease.18
17 New Zealand Fisheries Ltd v Napier City Council, above n 8, at 190, 344.
18 Registered Securities Ltd v Christensen Potato Co Ltd (1991) ANZ ConvR 57 (CA), and
Hong Kong and Shanghai Banking Corporation Ltd v Erceg HC Auckland CIV-2009-404-4035,
14 October 2009.
[70] The Court of Appeal’s approach in New Zealand Fisheries was adopted by the Supreme Court in Cashmere Capital Ltd v Carroll, where the court held19:
(a) the general legislative principle established by the Land Transfer Act
1952 is that of indefeasibility of title. That general principle is stated in s 62 of the Act;
(b) ss 105 and 119 Land Transfer Act 1952 create exceptions to that general legislative principle of indefeasibility of title;
(c) statutory language expressing an exception to a general legislative principle must be interpreted to reflect the purpose underlying that principle; and
(d) applying the Privy Council’s decisions in Gibbs v Messer [1891] AC
248 (PC), and British American Cattle Co v Caribe Farm Industries Ltd [1998] 1 WLR 1529 (PC), an expansive approach to the meaning of “consent” would be inconsistent with the underlying purpose of the legislation, given that “consent” appears in ss 105 and
119 in the context of an exception to the general legislative principle.
[71] A mortgagee who is aware of a third party’s interest but passively stands by making no objection, has not consented.
[72] The position was summarised by the Supreme Court in Cashmere, in the following terms:20
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.
[73] On the face of it, the first three lines of the passage from Cashmere quoted at para [72] above might be read as a statement that it will be sufficient to establish consent for the purposes of s 105 if the mortgagee was aware of the essential terms of the lease (the position in this case). But I do not think that would be a correct reading of the judgment. The critical matter is whether the mortgagee agreed to be bound by the lease, and that requirement remains whether or not the mortgagee was aware of the essential terms of the lease. That interpretation of the judgment is
consistent with the context of the case, where the respondents were arguing that,
19 Cashmere Capital Ltd v Carroll [2009] NZSC 123, [2010] 1 NZLR 577, at [72] – [75].
despite the mortgagee not knowing the exact terms of the lease, there would be consent where the mortgagee took its security knowing that there were tenants, and indeed relied on rental income stream in accepting the security in the first place. The argument was that making an advance in those circumstances was a positive action amounting to consent. The Court, however, found that making an advance as mortgagee, while being aware of the other instrument and another party’s interest in
it, did not of itself, amount to consent.21
[74] A number of cases in this Court show that a mortgagee’s consent should not be inferred for the purposes of s 105 unless an informed third party would consider that the mortgagee had agreed to subordinate the rights it would otherwise have under its mortgage (including the right to enter into possession in the event of default by the mortgagor) to those of the holder of the unregistered instrument.
[75] In ASB Bank Ltd v Thompson,22 the bank had advanced money on first mortgage security to Fallowfield Trust. The defendants argued that the bank had consented to, and was bound by, a lease. They contended that one of the bases on which the loan was granted was that the lease would be granted to the first-named defendant. Associate Judge Doogue stated:23
[29] On its face the most that this averment shows is that the first-named defendant intended to generate income from the property by leasing it to her company. Even if this evidence was accepted without question, it would not demonstrate that she had stipulated for a condition that the proposed lease would continue in effect even if the defendants, as borrowers, defaulted under the loan from the plaintiff. Still less would it establish that the plaintiff agreed to such a term.
[30] What seems likely is that whether solicited or otherwise the defendants mentioned the proposed lease as providing a source from which they would earn income which would support the mortgage. The fact that a mortgagee was informed that such a lease was intended does not mean that it was incumbent upon the mortgagee to say in the circumstances that “of course if you default, our rights to possession will remain unimpaired and we will take possession even if there is a lessee on the property” or something to that effect. I mention that because, of course, there is no evidence that the mortgagee ever explicitly agreed that such would be a term of the mortgage. The only way in which it could be supportive of the
21 At [79].
22 ASB Bank Ltd v Thompson [2015] NZHC 1802.
position of the defendants would be if an inference would be taken by a reasonable and properly informed third-party hearing the discussion that the bank should be taken as agreeing to a proposition of the kind such as that the mortgagee agreed that it was waiving rights it would otherwise have to retake possession of the property so long as the lessee was in possession.
[76] In Gold Band Finance Ltd v Philpott,24 the applicant (Gold Band) sought an order removing caveats which related to access and services interests before it exercised its power of sale. It was argued that Gold Band had consented to the interests protected by the caveats, in part because it had sought and been provided with copies of the relevant agreements and options, and it had made it a precondition to drawndown that it and / or its solicitors were to be satisfied with the agreement
and option. Funds were subsequently advanced.25 The Judge found that none of the
arguments amounted to “anything more than an arguable knowledge of or acquiescence in the caveats by Gold Band. The evidence disclosed neither a request for nor an express consent to the creation of the relevant interests. The Associate Judge considered that the evidence was largely aimed at establishing Gold Band’s knowledge of the caveator’s interest.”26
[77] And in Son v Ko Baragwanath J considered that the concept of “consent” for the purposes of s 105 required agreement by the mortgagee to subordinate the priority it could confer on a purchaser at a mortgagee sale, to the interest of the holder of the unregistered tenancy. His Hounour noted that any such construction would tend to diminish the value of the interest the mortgagee was trying to sell – the very last thing the mortgagee would be likely to intend.27
[78] In this case, any consent for the purposes of s 105 of the LTA would have to be inferred from the Bank’s conduct, in particular its statement in the 13 July 2011 email that it would have to be satisfied “in all respects” with (among other matters) the Lease, and the Bank’s subsequent action in advancing the loan to the Trust.
(Given that the Bank requested a copy of the Lease, and the evidence is that the loan
24 Gold Band Finance Ltd v Philpott, [2015] NZHC 2383, (2015) 16 NZCPR 749.
25 At [31].
26 At [36].
27 Son v Ko, above n 12, discussed at paras [57] and [58] of this judgment.
was subsequently granted, it is reasonable to infer that a copy of the Lease was
supplied to the Bank, and that the Bank was “satisfied” with its terms).
[79] Following Cashmere, and the High Court authorities to which I have referred, I conclude that making an advance as a mortgagee, even with knowledge of the express terms of the other instrument and another party’s interest in it, does not amount to consent for the purposes of s 105. Requiring as a condition of advancing funds that a satisfactory lease be in place is not in my view sufficient to constitute consent in the sense required by s 105, namely consent to the lease ranking ahead of the registered interest the lender will be taking.
[80] Applying that approach to the meaning of consent in ss 105 of the LTA, the defendants’ case on the consent argument falls short: there is no evidence of the Bank agreeing to subordinate its rights as mortgagee (including, for example, its right to enter into possession of the property in the event of default by the Trust) to Link Technology’s rights under the Lease.
[81] Details of the arrangements made between the defendants and the Bank were obviously available to the defendants, and they could have produced any evidence showing that the Bank consented to the Lease, in the sense of waiving its rights as mortgagee insofar as those rights were inconsistent with the terms of the Lease, if such evidence existed. The Defendants have produced no such evidence. All they have produced is evidence that the Bank was aware of the terms of the Lease and was “satisfied” with it, in the context of the Bank having a clear interest in the income stream the Lease would produce and whether that income stream would be large enough and reliable enough to support a decision to lend. On the authorities, including Cashmere and ASB Bank Ltd v Thompson, that is not enough to establish an arguable case of consent for the purposes of s 105 of the LTA. I accordingly find for Harbour City on issues (1) and (2).
[82] In the view to which I have come it is not necessary to address the email from the Bank’s solicitors dated 25 August 2015, and Mr Freeman’s alternative submission that no lease was in fact in existence between the Trust and Link Technology at the time of the mortgagee sale.
Issue 3: What is the effect of Harbour City receiving and retaining the payments made by Link Technology between 26 August 2015 and 3 March
2016?
[83] My findings on issues (1) and (2) mean that the Lease was terminated on registration of the transfer of the property from the Bank to Harbour City on
23 July 2015. The question on this issue is whether any new lease agreement came into existence after 23 July 2015, which would preclude Harbour City’s claim for possession of the property.
[84] I am of the view that the defendants have failed to show any arguable case that a new lease came into existence.
[85] First, Harbour City clearly gave notice to Mr Memelink on 23 July 2015 that it required possession of the property. That notice does not appear to have been withdrawn by Harbour City, and on 15 June 2016 Harbour City confirmed its view that Link Technology had no lease. It rejected Link Technology’s invoices (purportedly sent under the terms of the Lease) as “fictitious and without any legal standing”.
[86] There is no evidence of any written or oral agreement between the parties under which Link Technology became entitled to a new lease of the property. The highest the case could be put for Link Technology is that Harbour City retained the “rent” payments which Link Technology paid to it, and that a new rental agreement should be inferred from Harbour City’s ongoing acceptance of those payments.
[87] I do not think such a submission is arguable on the evidence presented. As I have said, Harbour City immediately sought possession of the property when it became the registered proprietor, and it is entitled to the benefit of s 213(2) of the PLA.
[88] That section materially provides:
213Lessee remaining in possession without consent of lessor, or lessor accepting rent, after termination of lease
…
(2) A lessor who accepts rent for any period after the lease has been terminated or the term of the lease has expired is not, only because of that fact, to be treated as having—
(a) consented to the lessee remaining in possession of the land;
or
…
[89] The effect of s 213(2) is that Link Technology cannot rely on the fact of its “rent” payments made after 23 July 2015, without more, to make a case that Harbour City has consented to it remaining in possession of the property. There is no evidence going beyond the “rent” payments, and thus nothing to challenge Harbour City’s contention that it never agreed to Link Technology remaining in possession. In those circumstances, the defendants have no arguable case on this issue.
Result
[90] Harbour City having prevailed on all issues, I enter summary judgment for
Harbour City as follows:
(a) I make a declaration that Harbour City is not bound by the terms of the Lease.
(b)I make a declaration that the continued occupancy of the property by the defendants (or either of them), whether through the storage of chattels or materials on the property or otherwise, constitutes a trespass on the property.
(c) Harbour City’s claims for damages are to proceed to trial. The defendants are directed to file any statement of defence on that issue, within fourteen days of the date of this judgment.
(d)Harbour City has succeeded with its application, and it is entitled to costs accordingly. I make an order in favour of Harbour City for costs
against the defendants on a 2B basis, with disbursements as fixed by the Registrar.
Associate Judge Smith
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for Plaintiff
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