Kane v Body Corporate 325261
[2020] NZHC 1736
•17 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001882
[2020] NZHC 1736
BETWEEN MARY PATRICIA KANE
Plaintiff
AND
BODY CORPORATE 325261
Defendant
Hearing: 2 June 2020 Appearances:
K M Wakelin and H D Morrison for Plaintiff N R Campbell QC and C Baker for Defendant
Judgment:
17 July 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 17 July 2020 at 2.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………
KANE v BODY CORPORATE 325261 [2020] NZHC 1736 [17 July 2020]
Introduction
[1] The plaintiff, Ms Kane, as mortgagee, applies for summary judgment against the defendant (the Body Corporate), alleging it is the mortgagor for amounts said to be outstanding and secured against four apartments in the C-Vu apartment block in central Auckland (the apartments).
[2] The Body Corporate is the current registered proprietor of the apartments, having obtained an order from this Court on 9 July 2018, vesting the apartments in it. It is also the Body Corporate for the apartments. The Body Corporate says it obtained the vesting order with the intention that it would register it only as part of a settlement under which the mortgage over the apartments was discharged. The Body Corporate did not want to register the vesting order in advance of such a settlement because it understood that, if it registered the order, it might become liable under the mortgage to Ms Kane. The Body Corporate did not want that to happen.
[3] Ms Kane registered the vesting order without the Body Corporate’s knowledge, consent or authority.
[4] There is a cross-application for summary judgment by the Body Corporate, as defendant, against Ms Kane. It also seeks summary judgment on its counterclaim in which it seeks a declaration that it is not liable to Ms Kane under the mortgage.
[5] At issue is the interpretation of s 203 of the Property Law Act 2007 (PLA), on which Ms Kane relies. The question is as follows: Does a person “accept”, under section 203 of the PLA, a transmission of mortgaged land subject to a mortgage, when that transmission is registered without their knowledge or consent?
Factual background
[6] Ms Kane was a shareholder and director of a company called Wellpark Trustees No 4 Limited (Wellpark), which previously owned the apartments.
[7] The C-Vu building suffered from weathertightness issues. The Body Corporate and a number of unit owners issued a proceeding against the designer and builder, and against the Auckland Council. They claimed the cost of remedial works for defects, totalling more than $27m.
[8] That proceeding settled, but the unit owners still faced a shortfall to complete the works. The Body Corporate levied unit owners for the shortfall.
[9] Wellpark did not pay its remediation levies for the apartments, which the Body Corporate says totalled $481,103.74. But all the units in the building, including the apartments, had to be (and were) fixed to achieve code compliance. Because Wellpark did not pay its remediation levies, the other unit owners had to cover Wellpark’s share.
[10] Wellpark was placed into liquidation in 2013. The apartments were subject to a mortgage to the ASB Bank, as well as substantial outstanding levies owing to the Body Corporate. On 2 December 2013, the liquidator disclaimed the units as onerous property under s 269 of the Companies Act 1993. Following completion of the liquidation, Wellpark was removed from the Companies Register.
[11] In June 2018, the Body Corporate applied under s 269(5)(b) of the Companies Act 1993 for an order that ownership of the apartments be vested in the Body Corporate. The Body Corporate says that it did so with the intention that it would then market the units for sale, but not register the vesting order except as part of a settlement under which the mortgage was discharged. The Body Corporate says that this was because it understood that, if the vesting order was registered, it might become liable under the mortgage to the mortgagee. As noted already, the Body Corporate did not want that to happen.
[12] The Body Corporate obtained the vesting order from the High Court on 9 July 2018. However, it refrained from registering the vesting order.
[13] On 18 September 2018, Ms Kane obtained an assignment of the mortgage from the ASB Bank. She paid the ASB Bank $647,850.11.
[14] On 26 September 2018, Ms Kane served a notice of default on the Body Corporate; and on 1 October 2018, she served a notice under s 119 of the PLA, again, on the Body Corporate. Both notices asserted that the Body Corporate was the current mortgagor of the units, pursuant to the vesting order. The notices required the Body Corporate to pay over $1.1m to Ms Kane.
[15] In response to those notices, the Body Corporate advised Ms Kane of its position that it was not the mortgagor of the units. The Body Corporate claimed that s 203 of the PLA had not been triggered for two reasons: “The effect of s 99 of the [Land Transfer Act 1952] and the Body Corporate not having registered the vesting order”.
[16] Ms Kane’s response was to register the vesting order herself, on 26 July 2019. She did this without the Body Corporate’s knowledge or consent. She had also been told of the Body Corporate’s position. Ms Kane says that she secured the registration having grown frustrated with the Body Corporate’s failure (she says) to provide her with a full breakdown of the levies and levy notices for each of the apartments.
[17] In registering the vesting order, Ms Kane’s solicitor signed a certificate as “Applicant Representative”. The applicant for the vesting order was the Body Corporate. It is not in dispute that the solicitor signing the certificate has never been the Body Corporate’s representative.
[18] On 16 August 2019, Ms Kane’s solicitor advised the Body Corporate’s solicitor that the vesting order had been registered. On 2 September 2019, the Body Corporate requested the Registrar-General of Land cancel the registration of the vesting order. The Registrar-General declined to do so, saying that any reversal of the vesting order was for the Court.
[19] On 23 October 2019, Ms Kane’s solicitors served the Body Corporate with a second notice, issued pursuant to s 119 of the PLA. The amount then said to be owing under the mortgage was $1,374,966.79. Included within that PLA notice was the alleged default of the mortgagor to pay $613,465.18, said to be owing in respect of Body Corporate levies for the apartments.
[20] Following the registration of the vesting order, Ms Kane (without entering into possession) has conducted a mortgagee sale process through Ray White Real Estate, and says that she has recently entered into an agreement to sell the apartments. That agreement is now unconditional. However, Ms Kane says that she has been unable to provide the purchaser with a pre-settlement disclosure statement, as required under both the Unit Titles Act 2010 and the agreement. Ms Kane says that the Body
Corporate has refused to supply the necessary information to prepare the statutory disclosure statement.
Relevant legal principles
(a)Plaintiff’s application for summary judgment
[21]Rule 12.2(1) of the High Court Rules 2016 (HCR) provides:
The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[22]The principles are summarised in Krukziener v Hanover Finance Ltd:1
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But is need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at
341. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
(b)Defendant’s summary judgment
[23] Rule 12.2(2) of the HCR allows the Court to enter summary judgment against a plaintiff where a defendant shows that none of the causes of action against it can succeed.
[24] A defendant should apply for summary judgment only “where there is a complete and incontrovertible answer on the facts (in which case summary judgment can be entered for the defendant)”.2
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
2 Body Corporate 207624 v North Shore City Council [2012] NZSC 83 per Elias CJ at [4].
Analysis and decision
[25]Section 203 of the PLA reads:
Person who accepts transfer, assignment, or transmission of land personally liable to mortgagee
(1) If a person accepts, subject to a mortgage, a transfer, assignment, or transmission of mortgaged land, –
(a)the person becomes personally liable to the mortgagee –
(i)for the payment of all amounts and the performance of all obligations secured by the mortgage; and
(ii)for the observance and performance of all other covenants expressed or implied in the mortgage; and
(b)the mortgagee has all remedies under or in connection with the mortgage directly against that person as if that person were the person who gave the mortgage.
(2) Subsection (1) applies whether or not the person who accepts the transfer, assignment, or transmission has signed the instrument of transfer, assignment, or transmission.
(3) Subsection (1) is subject to anything to the contrary expressed or implied in the mortgage or any other instrument.
(4) For the purposes of subsection (1), amounts secured by a mortgage do not include advances made by the mortgagee to a former mortgagor at any time after the mortgagee had actual notice of the transfer, assignment, or transmission of the land to the current mortgagor, or any intermediate former mortgagor, as the case may be, unless the mortgagee was under an obligation to make the advance –
(a)when the mortgagee received actual notice of the transfer, assignment, or transmission; and
(b)when the advance was made.
[26]Section 99 of the Land Transfer Act 1952 (LTA 1952) reads:3
Whenever any order is made by any court … vesting any estate or interest under this Act in any person, the registrar, upon being served with a duplicate of the order, shall enter a memorandum thereof in the register and on the outstanding instrument of title, and until such an entry is made the said order shall have no effect in vesting or transferring the said estate or interest.
3 That section was in force at the relevant time. The current equivalent section is now s 89 of the Land Transfer Act 2017.
(emphasis added)
[27] As I have noted, the critical and central issue in both applications for summary judgment is whether Ms Kane’s unilateral registration of the vesting order makes the defendant Body Corporate liable under the mortgage.
[28] It is not in dispute that, under s 203(1), personal liability only arises where the person “accepts” a transfer, assignment, or transmission of the mortgaged land.
[29] The ordinary and natural meaning of “accepts” is “consent to receive (a thing offered)”.4 I find this ordinary and natural meaning of “accepts” is the definition that applies to the term in s 203, and that this is confirmed by the common law and legislative background to the provision.
[30] The position at common law was that a transferee or a recipient of mortgaged land was not liable to the mortgagee unless they expressly agreed to be so liable.5
[31] The common law position was modified by s 104 of the Property Law Act 1952, which was the predecessor to s 203 of the PLA. Section 104 provided that, “[w]here a person acquires land by conveyance or transfer subject to any mortgage”, that person becomes liable to the mortgagee. However, liability under s 104 was still consensual. That is because liability depended on the person having “acquired” the land by conveyance or transfer, and any such acquisition would by its nature be consensual.
[32] This critical consensual requirement remains part of s 203 of the PLA. The critical element is that a person “accepts, subject to a mortgage”.
[33] The consensual requirement is confirmed by the relevant legislative background material. Section 174 of the Law Commission’s draft Property Law Act became s 203 of the PLA (with immaterial changes). The Law Commission said of its draft s 174:6
4 Tony Deverson & Graeme Kennedy (eds) New Zealand Oxford Dictionary (Oxford University Press, 2005).
5 Re Errington [1894] 1 QB 11 (Div Court); Nelson Diocesan Trust Board v Hamilton [1926] NZLR 342 (CA) at 347.
6 Law Commission A New Property Law Act (NZLC R29, 1994) at 345.
This section is an adaptation of s 104 of the 1952 Act and makes someone who acquires land subject to a mortgage personally liable to the mortgagee (despite not having signed the transfer document) for the payment of all moneys secured by the mortgage and for observance of all the mortgagor’s covenants. The mortgagee is given remedies directly against that person as if he or she were the original mortgagor. It should be noted that such a person comes within the definition of mortgagor in s 3 when he or she has accepted a transfer, assignment or transmission of the mortgaged land upon the basis that the transfer etc is made subject to the mortgage (para 116). It is not necessarily enough, in order that liability arise under the section, that there is a transfer etc of the land. The transferee etc must have expressly or impliedly agreed to be responsible for the mortgage, in the sense that his or her interest is to be subject to the charge. In a few cases the transferee may succeed in proving that a transfer was never accepted on this basis.
(emphasis added.)
[34] A similar explanation of the eventual s 203 appeared in the explanatory note to the Property Law Bill 2006:
Clauses 202 and 204 are an adaptation of section 104 of the 1952 Act and make someone who acquires land subject to a mortgage personally liable to the mortgagee (despite not having signed the transfer document) for the payment of all amounts secured by the mortgage and for observance of all the mortgagor’s covenants. The mortgagee is given remedies directly against that person as if he or she were the original mortgagor. It should be noted that such a person comes within the definition of mortgagor when he or she has accepted a transfer, assignment, or transmission of the mortgaged land upon the basis that the transfer is made subject to the mortgage. It is not necessarily enough, in order that liability arise under the subpart, that there is a transfer, assignment, or transmission of the land. The person must have expressly or impliedly agreed to be responsible for the mortgage, in the sense that his or her interest is to be subject to the charge. In a few cases the person may succeed in proving that a transfer was never accepted on this basis.
(emphasis added.)
[35] I reject the plaintiff’s submission that by seeking and obtaining a vesting order the Body Corporate has accepted transfer or transmission of the apartments. It is clear under s 99 of the LTA 1952 that a vesting order has no effect until registration. Where, therefore, the transfer only takes effect upon registration, a person only becomes liable under s 203 if that person has consented to the registration.7
[36] The Body Corporate did not consent to the registration of the order. On the contrary, registration was the very thing the Body Corporate did not want. Ms Kane knew of that, but nevertheless registered the order. She did so without the Body
7 In my view, the same result would be achieved under the current section, namely, s 89 of the Land Transfer Act 2017.
Corporate’s knowledge, consent, or authority, and in those circumstances, the Body Corporate cannot be said to have accepted a transfer or transmission under s 203.
[37] It may be that there is no discretion afforded to the Registrar under s 99, but that is not determinative of whether there was acceptance for the purposes of s 203.
[38] I also reject the plaintiff’s submission that the Body Corporate became the equitable owner of the units upon obtaining the vesting order. Equitable interests can be created by specifically enforceable contracts, but there is no underlying contract here conferring an equitable interest on the Body Corporate. In any event, s 203, read in conjunction with the LTA 1952, makes it clear that no transfer occurs until registration.
[39] I accept that the vesting order was not subject to any conditions and that neither the application for the vesting order nor the supporting affidavits made any mention of any conditions or limits on the effect of the vesting order. Again, however, those factors do not mean that the requisite consent was given for the purposes of s 203. On the contrary, the clear and undisputed intention of the Body Corporate (which was also made clear to the plaintiff) was that it would not become liable for the mortgage unless, and until there was, a settlement.
[40] I accept Ms Wakelin’s submission that s 203(2) states that s 203(1) applies regardless of whether the person who accepts the transfer, assignment, or transmission has signed any relevant instrument. However, in my view, like s 203(1), s 203(2) is predicated on the person having “accepted” the transfer. Subsection 2 simply makes clear that such acceptance does not require a signature.
[41] Section 203(3) states that s 203(1) is subject to anything to the contrary in the mortgage or in any other instrument. Again, however, that exception does not detract from the consensual requirement in subs (1) that the Body Corporate “accepts” the transfer. The exception only becomes relevant if the plaintiff can first establish liability under s 203(1).
[42] I further reject Ms Wakelin’s submission that to find the Body Corporate not liable for the mortgage here (despite its status as owner and registered proprietor) would entail the Court interfering with a mortgagee’s rights. As Mr Campbell
submitted, s 203 is concerned with personal liability, and the Body Corporate takes no issue that the mortgagee (whether the ASB Bank or Ms Kane) is still entitled to exercise remedies against the apartments.
[43] Ms Wakelin emphasised that the Court would not have granted the vesting order had it known the Body Corporate’s intention not to lodge it immediately to gain title. She also submitted that the Body Corporate had to lodge the order at some point, had it intended to sell units to another buyer to recoup its levies. However, even if those matters are correct (I simply, at this stage, assume they are), they do not alter the fact that only the Body Corporate had the right to decide whether or when it would become subject to liability for the mortgage. I reject the plaintiff’s submission that intention is irrelevant.
[44] For all these reasons, I conclude that the Body Corporate did not “accept” a transfer, subject to the mortgage, of the apartments. Accordingly, the Body Corporate is not liable to Ms Kane, as mortgagee, under s 203 of the PLA. The Body Corporate did not expressly or impliedly agree to be responsible for the mortgage. On that basis, Ms Kane’s application for summary judgment must fail.
[45] Ms Kane’s sole cause of action in her amended statement of claim is that the Body Corporate, by virtue of s 203 of the PLA, has become personally liable under the mortgage.
[46] I find that the defendant, the Body Corporate, has established that the cause of action against it cannot succeed and that, as defendant, it is entitled to summary judgment.
[47] I further find that the Body Corporate is entitled to summary judgment on its counterclaim, having established that the plaintiff, as the counterclaim defendant, has no defence. The defendant is entitled to the declaration sought (being the first cause of action on its counterclaim).
[48] In the circumstances, it is not necessary to address the issue of whether the registration of the vesting order by the solicitor for Ms Kane, which was without any authority from the Body Corporate, was valid. In any event, I incline to the view that
such an issue is inappropriate for summary judgment determination and the relevant evidence would need to be tested at trial.
Result
[49]I dismiss the plaintiff’s application for summary judgment.
[50] I grant summary judgment on the defendant’s first cause of action in its counterclaim and declare the defendant is not liable to the plaintiff under the mortgage.
[51] As to costs, the defendant, having succeeded, is entitled to costs on a 2B basis plus disbursements.
[52]The proceedings are adjourned to the Chambers List on 14 August 2020 at
2.15 pm for directions to be made in relation to the disposal of the balance of the proceedings.
Associate Judge P J Andrew
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