Harris-Iles v M & E Property Investment 2007 Limited
[2017] NZHC 587
•29 March 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-794 [2017] NZHC 587
BETWEEN ROBYN ANN HARRIS-ILES
Applicant
AND
M & E PROPERTY INVESTMENT 2007
LIMITED
First respondentMICHAEL ARTHUR ILES Second respondent
Hearing: 23 March 2017 Appearances:
D M Fraundorfer for the applicant
No appearance for the first respondent
M A Iles in person, with his McKenzie Friend E Wallis-IlesJudgment:
29 March 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (Ms Harris-Iles) is the executor in the estate of her late mother, Nancy Isobel Shirtcliff, who died on 15 September 2015. The second respondent (Mr Iles) is Ms Harris-Iles’ brother. The first respondent is a company in which Mr Iles holds a substantial shareholding and of which he was until recently a director.
[2] The proceeding concerns a caveat (caveat no. 8133322.1 – “the caveat”) which the late Ms Shirtcliff had lodged against the title to a property situated in Martin Square, Te Aro, Wellington, owned by the first respondent. The property over which the caveat was registered was the land comprised and described in Unique Identifier 146305, Wellington Land District. In this judgment, I will refer to
it as “the Te Aro property”.
HARRIS-ILES v M & E PROPERTY INVESTMENT 2007 LIMITED [2017] NZHC 587 [29 March 2017]
[3] On 20 September 2016 the second respondent caused an application to be made for the removal of the caveat, under s 145A of the Land Transfer Act 1952 (the LTA). Notice of the application was duly given to Ms Harris-Iles as the personal representative of the late Ms Shirtcliff, and Ms Harris-Iles filed an application to sustain the caveat within the time allowed by s 145A of the LTA and pt 6 of the Land Transfer Regulations 2002. In terms of those regulations, the caveat would lapse if an order sustaining the caveat was not obtained from this court, and served on the Land Registrar, within 28 days (in the circumstances of this case, by 2 November
2016).
[4] Through inadvertence, no order sustaining the caveat was obtained by
2 November 2016, and the caveat lapsed automatically under the provisions of s 145A(3) of the LTA.
[5] None of the parties were aware at the time that the caveat had lapsed. On
7 November 2016 a notice of opposition was filed by the solicitors then acting for the respondents, but it did not refer to the fact that the caveat had already lapsed.
[6] It appears that it was not until 22 November 2016, when the issue of the caveat having lapsed was raised by the court, that the parties appreciated that the application to sustain the caveat could not succeed.
[7] Ms Harris-Iles and her solicitors responded quickly. On 22 November 2016 an application was filed under s 148 of the LTA for an order granting her leave to lodge a second caveat. Section 148 of the Act provides:
No second caveat may be entered
(1) If a caveat has been removed under section 143 or has lapsed, no second caveat may be lodged by or on behalf of the same person in respect of the same interest except by order of the High Court.
(2) For the purposes of verifying that a caveat does not contravene the prohibition in subsection (1), the Registrar is not obliged to inquire further than the current folium of the register or computer register for the land.
[8] At the same time, Ms Harris-Iles applied for an interlocutory injunction, to preserve the position until the application for leave to file the second caveat could be
heard. Interim orders were made on an ex-parte basis on the interlocutory injunction application, and that application came before Dobson J on an inter partes basis on
5 December 2016. By then the respondents no longer had legal representation, but Mr Iles was present at the hearing. His Honour extended the interim injunction order by consent, restraining Mr Iles from selling or otherwise dealing with the Te Aro property until further order of the court.
[9] Mr Iles has filed documents described as “statements of defence” (and a “counterclaim”) in opposition to the application for an order granting leave to file a second caveat. He has also filed affidavits dated 2 December 2016 and 24 January
2017. Ms Harris-Iles has not filed any affidavits in reply.
Background
[10] The late Ms Shirtcliff entered into a number of property arrangements with the respondents and Mr Iles’ wife Erica Wallis-Iles, in the period from July 2007 through to February 2009.
[11] First, in July 2007, Ms Shirtcliff borrowed $40,400 from the Bank of New Zealand, secured by a first registered mortgage over a property then owned by her in Dimock Street, Titahi Bay. She lent this sum to the first respondent to enable it to pay a deposit on the purchase of the Te Aro property. The first respondent agreed to repay the $40,400 to Ms Shirtcliff.
[12] Secondly, the parties decided to purchase a new property in which they would all reside. On 14 December 2008 Mr Iles signed an agreement, on behalf of the three of them, to buy a property in Aspiring Terrace, Aotea, Porirua (the Aspiring Terrace property). The agreement to purchase the Aspiring Terrace property was unconditional, and settlement was to take place on 20 February 2009.
[13] A third transaction was entered into on 8 February 2009, when Ms Shirtcliff agreed to sell the Dimock Street property to the first respondent. This agreement was also unconditional, and settlement was also scheduled for 20 February 2009.
[14] At that time, Mr Iles owned a property in Webb Street, Mt Cook, Wellington
(the Webb Street property).
[15] Ms Shirtcliff, the respondents, and Ms Wallis-Iles recorded their agreement concerning these transactions in a property sharing agreement dated 19 February
2009 (the property sharing agreement). The property sharing agreement recorded the basis on which the purchase of the Aspiring Terrace property would be funded, and title taken, as follows:
(a) Ms Shirtcliff would contribute $175,000 from the proceeds of the sale of the Dimock Street property.
(b)Mr Iles and Ms Wallis-Iles would contribute the balance of the purchase price by borrowing from the ANZ National Bank Limited (the National Bank). $340,000 was to be borrowed on fixed term loan, and they were to contribute a further $17,000 funded by revolving credit facility with the National Bank. The National Bank would take a registered first mortgage over the Aspiring Terrace property, and Ms Shirtcliff would provide a personal guarantee of the National Bank lending, limited to a total of $357,000 plus interest and costs.
(c) Until that debt of $40,400 (relating to the first respondent’s acquisition of the Te Aro property) was repaid to Ms Shirtcliff, the parties would take title to the Aspiring Terrace property as tenants-in- common in the following shares:
(i) Ms Shirtcliff would hold a 410/1000th share. (ii) Mr Iles would hold a 295/1000th share
(iii) Ms Wallis-Iles would hold a 295/1000th share
(d) On repayment of the $40,400 debt, Ms Shirtcliff’s ownership share in
the Aspiring Terrace property would be reduced to a one third share.
[16] The property sharing agreement provided for Ms Shirtcliff’s exposure on her personal guarantee to the National Bank to be secured, as between the parties to the property sharing agreement, in the following way. Mr Iles and the first respondent agreed:
…
3.1to grant mortgages over the Webb Street property and the [Te Aro property] respectively to [Ms Shirtcliff] as security for [Ms Shirtcliff’s] liability under the guarantee to the National Bank;
3.2To execute and register the mortgages (in the form of the Auckland District Law Society Memorandum 2007/4238) if requested by [Ms Shirtcliff] to do so; and
3.3pending registration of the mortgages, if requested [Ms Shirtcliff] may register caveats against the titles to [the Webb Street property and the Te Aro Property]; and
3.4If [Mr Iles or Ms Wallis-Iles] default on their payments to the National Bank pursuant to clause 5 [Ms Shirtcliff] may enforce mortgages of either or both [the Webb Street property and the Te Aro property] to recover any moneys she has paid to the National Bank pursuant to the guarantee.
3.5It is acknowledged that once the National Bank have released [Ms Shirtcliff’s] guarantee entirely the provisions of clause 3 will no longer apply.
…
[17] Pursuant to para 3.3 of those provisions, Ms Shirtcliff registered the caveat against the title to the Te Aro property. She also registered a caveat against the title to the Webb Street property (the Webb Street caveat). That occurred on 16 April
2009.
[18] The estate or interest claimed in the caveat was described as follows:
Pursuant to an agreement to Mortgage dated 19 February 2009 in respect of the land contained in the above Certificate of Title dated 19 February 2009 in respect of the land contained in the above Certificate of Title and made between the registered proprietor [the first respondent] as mortgagor and the caveator [Ms Shirtcliff] as mortgagee.
[19] It appears that shortly before the caveat was registered there had been a falling out between Mr Iles and Ms Shirtcliff. Ms Shirtcliff left to live with Ms Harris-Iles in or about March of 2009.
[20] In March 2013, Mr Iles filed with the Land Registrar an application to lapse the Webb Street caveat. Ms Shirtcliff filed an application to sustain the Webb Street caveat, relying on the provision in the property sharing agreement under which she was entitled to a mortgage over the Webb Street property to secure her exposure as guarantor of the loans from the National Bank (at that time, the National Bank had not agreed to release Ms Shirtcliff from her guarantee).
[21] The dispute was referred to a judicial settlement conference, which was convened by Gendall J on 12 June 2013. Terms of agreement were reached at the conference, and the following orders were made by consent (the consent orders):
After reading the Consent Memorandum dated 12 June 2013 and on the application of counsel on behalf of the Applicant, and the Respondent, and Erica Wallis-Iles and M & E Property Investments 2007 Limited, this Court orders by consent:
Aspiring Terrace
(1) Nancy Shirtcliff is to take full responsibility of 22 Aspiring Terrace including managing the sale of the property and repayment of all weekly outgoings on the property.
(2) Nancy is to receive fully and absolutely the balance of sale proceeds from the sale of the Aspiring Terrace Property once all liabilities on this property have been met.
(3) Michael Iles and Erica Wallis-Iles agree to consent to any agreement which Nancy may require in regard to the property including sale and tenancy agreements.
Sale of Webb Street
(4) Nancy is to receive the full balance of sale proceeds from the sale of
Unit 40, 29 Webb Street, Wellington.
(5) Nancy agrees to remove the caveat over this property.
Loan to M & E Property Investments 2007 Limited
(6) M & E Property Investments 2007 Limited agrees that it owes Nancy the sum of $40,400 (forty thousand four hundred dollars) only.
(7) Nancy agrees that his lending is advanced on an interest free basis. (8) Nancy agrees that this lending is to be repaid upon the sale of
504/20 Martin Square, Te Aro, Wellington.
(9) It is further agreed that there is no timeframe for either the sale of
504/20 Martin Square, Te Aro, Wellington or the repayment of the lending to M & E Property Investments 2007 Ltd.
(10) The lending will be secured by way of mortgage registered by means of caveat over the title for this property.
(11) Nancy agrees that the caveat over this property will be removed immediately upon sale of this property.
(12) This agreement is in full and final settlement of all maters arising between the parties under the Property Sharing Agreement dated 19
February 2009.
(13) Nancy agrees to file a Notice of Discontinuance pending formalisation of this agreement.
[22] It will be seen that the agreement reached at the conference was in full and final settlement of all matters arising between the parties under the property sharing agreement.
[23] On the face of it, the consent orders appear to provide that Ms Shirtcliff would receive the net proceeds of both the Aspiring Terrace property and the Webb Street property. Separately, the first respondent would pay Ms Shirtcliff the $40,400, from the proceeds of sale of the Te Aro property. In the meantime the $40,400 would be secured by way of mortgage “registered by means of caveat over the title [to the Te Aro property]”. Ms Shirtcliff would remove this caveat upon the sale of the Te Aro property.
[24] Unfortunately, the agreement apparently reached by the parties at the June
2013 settlement conference has not resolved the disputes. Mr Iles contends that the debt of $40,400 was repaid to Ms Shirtcliff out of the subsequent sale of the Webb Street property. He contends that there is now nothing owing by the respondents to Ms Shirtcliff’s estate, and there is accordingly no remaining basis for Ms Harris-Iles to register a caveat on the title to the Te Aro property. In his view, if the first respondent were required to repay Ms Shirtcliff’s estate the $40,400 under paras 6 to
8 of the consent orders, that sum would have been paid twice.
[25] That interpretation is rejected by Ms Harris-Iles. As I understand her position, she contends that the consent orders entitle the estate to the $40,400
referred to in paras 6 to 8 of the consent orders in addition to the net proceeds of sale of the Webb Street property and the Aspiring Terrace property.
[26] Mr Iles also challenges the validity of the consent orders. He says that he was not represented by counsel at the settlement conference, and alleges that he was wrongly prevented from leaving the conference before a consent memorandum setting out the proposed terms of settlement (about which he had misgivings) was signed. If the correct interpretation of the consent orders is that Ms Shirtcliff is entitled to have the $40,400 repaid in addition to receiving the net proceeds of sale of both the Aspiring Terrace property and the Webb Street property, he says that the consent orders do not reflect what he agreed to at the conference.
[27] The Aspiring Terrace property has been sold since the June 2013 settlement conference, but I have not been provided with any details of the sale price. No evidence has been produced to suggest that Ms Shirtcliff’s estate still has an exposure on the personal guarantee given to the National Bank, and Mr Fraundorfer, counsel for Ms Harris-Iles, did not suggest in his submissions that any such contingent liability remains.
Discussion and conclusions
Preliminary issue
[28] At the hearing I raised with Mr Fraundorfer the question of the whether the court has any jurisdiction to make an order under s 148 permitting Ms Harris-Iles to lodge a second caveat. I noted that s 148(1) only precludes the lodging of a second caveat “in respect of the same interest”, and it appeared to me that the agreement to mortgage made in the property sharing agreement created a different interest from the later agreement to mortgage contained at para 10 of the consent orders. I noted that if that were the correct interpretation, the present application for leave would fail, but there would be nothing preventing Ms Harris-Iles from lodging a new caveat based on the agreement to mortgage referred to in the consent orders.
[29] I stood the matter down to allow the parties to confer to see if a sensible solution could be worked out under which the first respondent would be free to sell
the Te Aro property, on the basis that $40,400 from the sale proceeds would be held in an appropriate trust account while the issue of entitlement to that sum was determined in a separate proceeding or arbitration.
[30] Unfortunately the parties were unable to reach any such accommodation, and when the case was called again I heard submissions from Mr Fraundorfer and Mr Iles on the substantive application.
Jurisdiction under s 148 of the LTA
[31] Mr Fraundorfer endeavoured to persuade me that the claimed estate or interest in the Te Aro property which Ms Harris-Iles now seeks to protect by lodging a second caveat is the same estate or interest as that claimed in the caveat. He acknowledges that the estate’s only outstanding interest is in respect of the $40,400 loan, but submits that it is arguable that the consent orders reflected the parties’ intention that the caveat would remain on the title to the Te Aro property for the purpose of protecting Ms Shirtcliff’s right to call for a mortgage to secure the
$40,400 loan, in accordance with para 10 of the consent orders.
[32] On the issue of the Court’s discretion under s 148 if I find that I do have jurisdiction under that section, Mr Fraundorfer submits that Ms Harris-Iles acted promptly once she discovered the failure to obtain an order on the sustaining application, and that no party would be adversely affected if leave were given to lodge a second caveat.
[33] I am not persuaded by Mr Fraundorfer’s submissions on the s 148 jurisdiction point. The estate or interest claimed in the caveat was said to be an estate or interest created by the agreement to mortgage contained in the property sharing agreement. But the only relevant agreement to mortgage contained in the property sharing agreement was an agreement to provide a mortgage securing Ms Shirtcliff’s exposure on her personal guarantee given to the National Bank (which was associated with the funding of the purchase of the Aspiring Terrace Property). The advance of $40,400 to assist in the funding of the Te Aro property was to be secured by other means, namely Ms Shirtcliff taking a larger share in the ownership of the Aspiring Terrace property than she would otherwise have done. Further, the
agreement to mortgage which was contained in the property sharing agreement was expressed to no longer apply once the National Bank had released Ms Shirtcliff’s guarantee.1
[34] The effect of the property sharing agreement was accordingly that Ms Shirtcliff would cease to have the interest protected by the caveat when the National Bank lending relating to the Aspiring Terrace property was repaid and the National Bank provided Ms Shirtcliff with a release from her liability as guarantor. Indeed it seems likely that this is what has occurred: in the normal course the National Bank would have required repayment of the amounts owing to it when it released its mortgage (allowing the sale of the Aspiring Terrace property to proceed). And it appears to have been anticipated in the consent orders that the sale of the Aspiring Terrace property might take place before the Te Aro property was sold and the $40,400 was repaid to Ms Shirtcliff.
[35] The consent orders required the first respondent to provide a new mortgage securing the $40,400 said to be owing to Ms Shirtcliff, and I think any entitlement Ms Shirtcliff had to this new mortgage (which, assuming the consent orders were validly made, would continue while the $40,000 remained unpaid) was intended to survive the sale of the Aspiring Terrace property, the release of Ms Shirtcliff’s guarantee, and the consequential termination of Ms Shirtcliff’s right under the property sharing agreement to call for a mortgage over the Te Aro Property. If one interest has “died” and the second (claimed) interest “lives on”, I do not think the two interests can be the same.
[36] Ms Harris-Iles has elected to put her argument on the basis that no further caveat was necessary to protect the estate or interest she claims under para 10 of the consent orders, because the intention was that the caveat, lodged in April 2009, would serve that purpose. I do not accept that submission. In my view there could only have been two separate and distinct agreements to mortgage, one under the property sharing agreement protecting Ms Shirtcliff’s exposure to the National Bank on her personal guarantee, and the other (under the consent orders) designed to
secure the repayment of the $40,400 advance. If the agreement to provide a
1 Property sharing agreement, para 3.5.
mortgage over the Te Aro Property contained in the consent orders created a (new) caveatable interest over the Te Aro property which still subsists (a point I do not need to decide), that new caveatable interest could not be “the same interest” as that protected by the caveat. I accordingly conclude that the court has no jurisdiction under section 148 to grant leave to Ms Harris-Iles to lodge a second caveat. However (and as discussed with the parties at the hearing), the corollary of that finding is that there is nothing preventing Ms Harris-Iles from lodging a new caveat to protect the agreement to mortgage contained at para 10 of the consent orders (subject, of course, to any further application the first respondent might make to have any such new caveat removed).
Result
[37] The result is that the application for leave to lodge a second caveat is dismissed as unnecessary — there is nothing presently preventing Ms Harris-Iles from lodging a new caveat in respect of the (different) interest she claims as mortgagee under para 10 of the consent orders.
[38] In a memorandum sent to the court on 27 March 2017 the respondents have asked for costs. As the question of costs was not fully considered at the hearing, Ms Harris-Iles may file a memorandum in response, within 14 days of the date of this judgment. I will then deal with costs on the papers. In the meantime, the question of costs is reserved.
[39] There remains the issue of the interlocutory injunction granted by Dobson J on 5 December 2016. At present it restricts Mr Iles from selling the Te Aro Property, but that does not appear to be what was contemplated at para 6 of the consent orders. Mr Fraundorfer indicated at the hearing that the interlocutory injunction order could be rescinded in the event of leave being granted to file a second caveat, as the intent of the injunctive relief was only to preserve the position until the second caveat application could be heard. In the event that has not occurred, but Ms Harris-Iles’ ability to lodge a second caveat (without the court’s leave) may make the point moot.
[40] An Associate Judge does not have jurisdiction to make interlocutory injunction orders, and I doubt that I have the jurisdiction to rescind the interim
injunction made in this case in the absence of consent. In those circumstances I think the best course is for me to direct, as I do, that the interlocutory injunction application is to be referred to a Justice of court for the making of such further orders as may be appropriate. That should be done promptly, as the interlocutory injunction presently restrains Mr Iles from selling the property.
[41] The final matter to address is an oral application made by Mr Fraundorfer at
the hearing for an order that two exhibits attached to Mr Iles’ affidavit of 24 January
2017 (exhibits “MAI 9 and “MAI 10”) be removed from the court file, or be suppressed or excluded. The application was based on a contention that the attachments contain unsubstantiated and harmful allegations against Ms Harris-Iles which had no relevance to the issues. Mr Fraundorfer relies on s 8 of the Evidence Act 2006, which provides that the court must exclude evidence if its probative value is outweighed by the risk that the evidence will have an unfairly prejudicial effect on the proceeding or needlessly prolong the proceeding.
[42] In the event, I have been able to resolve the second caveat application without reference to Mr Iles’ exhibits (MAI 9 and MAI 10), but I accept the general thrust of Mr Fraundorfer’s submission that those exhibits do contain serious allegations against Ms Harris-Iles that had no relevance to the application. In the circumstances I think the situation can best be dealt with by making an order that no person other than the parties and their solicitors and counsel may inspect Mr Iles’ affidavit sworn on 24 January 2017 on the court file, without leave of a judge. There will be an order accordingly.
The future conduct of the dispute
[43] I strongly urge the respondents to take legal advice on their position before they embark on further litigation over this matter. It was apparent at the hearing that Mr Iles was expecting the court to make a final determination on the first respondent’s liability or otherwise for the $40,400, but no such determination was ever likely to be made on a caveat application such as that filed by Ms Harris-Iles. The most the court might have determined was whether or not Ms Harris-Iles arguably had a caveatable interest in the Te Aro property based on the consent
orders. In the event I have found that even that question did not need to be determined.
Associate Judge Smith
Solicitors:
Holland Beckett, Tauranga for the applicant
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