Kilmartin v Monk HC Auckland CIV 2005-404-1517

[2005] NZHC 1724

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2005-404-1517

BETWEEN

KEVIN BARRY GEORGE KILMARTIN

Applicant

AND

CLINTON BRIAN MONK

Respondent

Hearing:         21 April 2005

Appearances: BD Hayes for the Applicant

JW Chapman for the Respondent Judgment:    21 April 2005

ORAL JUDGMENT OF RODNEY HANSEN J

Solicitors:Alan Broadbent, P O Box 19652, Auckland for the Applicant Corban Revell, P O Box 21-180, Auckland for the Respondent

KILMARTIN V MONK HC AK CIV 2005-404-1517 [21 April 2005]

Introduction

[1]    The applicant applies for  an  order  that  a  caveat  registered  over  land  at 64 Routley Drive, Glen Eden, not lapse. I have heard argument at short notice in the Duty Judge list because the time for making any order that the caveat not lapse effectively expires tomorrow.

Background

[2]    The interest sought to be protected by the caveat arises under a deed of acknowledgement of debt, dated 19 February 2001, in which the respondent acknowledges that he owes the applicant $34,330 as the balance due on the sale by the applicant and his wife of their house property at Routley Drive.

[3]    The deed provided that in the event the debt was not paid by December 2001, the respondent would pay interest at the rate of 12% per annum. It  also  contained the following clauses:

“[3]The lender shall be entitled to register and maintain a  caveat against  64 Routley Drive, Glen Eden (CT 80B/435) to secure his interest under this agreement until the debt is repaid.

[4]The borrower shall upon written request by the lender, execute a second mortgage over 64 Routley Drive, Glen Eden (CT 80B/435) to secure the debt advanced by the lender. The lender shall hold the said mortgage unregistered unless default has been made in payment of the debt on the due date.”

[4]                 On 13 September 2004, the applicant’s solicitor wrote to the respondent recording that he had not repaid the debt. The penultimate paragraph stated:

“Paragraph 4 of the deed obliges you  to execute a  second  mortgage over  64 Routley Drive Glen Eden upon written request from Mr Kilmartin. This letter is a request that you honour your obligation to provide mortgage security for the debt.”

On the same day the caveat was registered over the land. It was dated 9 September 2004 and claimed an estate or interest by virtue of:

“Deed of agreement to mortgage dated 19 February 2001 in which the Caveator is mortgagee and the Registered Proprietor Clinton Brian Monk is mortgagor.”

[5]                 The respondent disputed that any part of the debt remained outstanding. In February 2005, he entered into an unconditional sale of the property. Through his solicitor, he asked the applicant to execute a withdrawal of caveat. His solicitor undertook to hold it until he was in a position to pay the balance of the debt together with the reasonable fees of the applicant’s solicitors. Subsequently, the applicant provided a settlement statement requiring payment of the sum of $47,524.85, comprising the principal sum of $34,330, interest at 12% and legal fees of $125.

[6]                 In his affidavit, sworn in support of the application, the applicant acknowledges that the settlement statement is incorrect. He says that the respondent had in fact made payments totalling $16,000 in reduction of the principal sum. They had not been included in the settlement statement, because the respondent had asked him not to mention the payments to anyone. He believed the reason for this was that the respondent was wanting to conceal the existence of the debt from his wife. In  any event, the net amount now claimed by the applicant to be due is $26,838.70, comprising the principal sum of $18,330 and $8,508.70 in interest.

[7]                 The respondent himself has not sworn an affidavit in opposition to the application but an affidavit by his solicitor confirms that he has entered into an unconditional  agreement  to  sell  the  property.  Settlement  was  to  take  place  on 8 April. The purchaser is now in a position to cancel the agreement.

General principles

[8]                 The principles which govern an application to sustain a caveat are well established. In summary they are:

a)The onus is on the caveator to show that he has an arguable case that he has an interest in the land which is sufficient to support the caveat.

b)An order for the removal of the caveat will be made only if it is clear that the caveator has no prospect of supporting the interest claimed. It must be clear either that there was no valid ground for lodging the caveat in the first place or that such grounds as then existed have now ceased to exist: Sims v Lowe [1988] 1 NZLR 656 at 659-60.

c)Once the onus has been discharged, the balance of convenience will, in the normal course and in the absence of any special considerations, favour leaving the caveat in existence until the proceedings to enforce the interest of claim are tried: Castle Hill Run Limited v NZI Finance Limited [1985] 2 NZLR 104 at 106.

Caveatable interest

[9]                 For the respondent, Mr Chapman submitted that there was no caveatable interest when the caveat was lodged. He argued that the respondent’s agreement to execute a mortgage did not create an interest sufficient to support a caveat until notice requesting the respondent execute a mortgage was given on 13 September. As the caveat, executed on 9 September, was not in existence at the time, he submitted that the required interest did not exist at the relevant time. Additionally,  he  submitted that cl 3 of the deed of acknowledgement of debt, which purported to give the applicant the right to register a caveat, was insufficient by itself to create a caveatable interest.

Equitable mortgage

[10]             An equitable mortgage of land confers on the mortgagee an equitable interest that will support a caveat. An equitable mortgage may be created by an agreement to mortgage but a security agreement in which the debtor merely agrees to grant a mortgage if requested to do so by the creditor will not by itself create an equitable mortgage. In order for an equitable mortgage to come into existence, an effective request to grant a mortgage over the property must be made by the creditor: Philpott v NZI Bank Limited (1989) 1 NZ ConvC 190,246 (CA).

[11]             As earlier noted, a request to grant a mortgage was made on 13 September, after the caveat was executed and on the same day as it was registered. The question then is whether the equitable mortgage thereby created provided the interest necessary to support the caveat at the time of registration.

[12]             Two issues arise. The first derives from Mr Chapman’s submission that the equitable mortgage had to exist at the time the caveat was executed. Was  it  sufficient for the interest to arise subsequently as long as it was in existence at the time of registration? The second issue is when the equitable mortgage came into existence. Was it on the day the request was made by the applicant for the mortgage to be executed or was it when the request was communicated to the respondent? If the latter, the equitable mortgage would not have been in existence at the time the caveat was registered.

[13]             As to the first issue, I consider that the time at which the caveatable interest must exist is when the caveat is registered. I see no reason why a caveat cannot be executed in anticipation of the necessary caveatable interest coming into existence at a future date but prior to the caveat being lodged.

[14]             As to the second issue, I consider it at least arguable that no effective request was made to the respondent to execute a mortgage until the letter had been received by him. It cannot be said that a request has been made until it has been communicated, at which point the relationship between the parties is transformed into one of a contract to grant a mortgage over the property: Philpott v NZI Bank Limited  (supra)  at  190,249.   There   is   nothing   to   suggest   that  the   letter  of 13 September was delivered or faxed on the day it was written. It consider  it probable therefore that the equitable mortgage did not come into existence until after the caveat was lodged. It could not therefore be relied on to support the caveat.

Agreement to caveat

[15]            Neither counsel contended that the agreement in cl 3 of the deed entitling the applicant to caveat was itself sufficient to support a caveat. However, in my view,  the issue is far from clear. Hinde McMorland and Sim, Land Law in New Zealand

2004 at para 10.009(y) have this to say about the effect of an agreement to caveat land:

“A registered proprietor of land sometimes grants the right to lodge a caveat over that land to another person with whom the registered proprietor is contracting. Where the effect of the contract, quite apart from the clause granting the right to caveat, is to confer a caveatable interest on the other person, the clause is otiose. Where the contract does not, apart from the clause, confer a caveatable interest, it is not clear whether the clause is effective to vest a right to lodge a caveat in the other person.:

Hinde McMorland and Sim go on to distinguish two possibilities:

“First, it may be that the clause granting the right to caveat necessarily implies that the registered proprietor intended to confer a caveatable interest on that other person. Such an implication should arise only where the nature of the interest that the registered proprietor intended to be conferred is clear from the contract. Where such an implication does arise, the other person will have a caveatable interest that can be protected in the ordinary way by the caveat provisions of the Land Transfer Act 1952.

Secondly, the clause granting the right to caveat may occur in a contract in which no caveatable interest of any sort is conferred by the registered proprietor. In such a case the other person has no caveatable interest, and therefore has no right to lodge a caveat under s 137 of the Land Transfer Act 1952. None the less, where that person does lodge a caveat it is submitted that the clause granting the right to caveat will have some effect. An application by the registered proprietor under s 143 of the Land Transfer Act 1952 for the removal of the caveat would, it is submitted, be a breach of contract so that the application should fail.”

[16]             In Yuan v Te Construction Limited (High Court, Auckland, CIV 2003-404- 3019, 12 August 2003, Master Lang), the Court considered whether a clause in a building project management agreement, which authorised the manager to caveat the property, created a caveable interest. In the course of a discussion which led him to the conclusion that it was at least arguable that it did, the Master referred to two Australian cases in which it had been found that an agreement to lodge a caveat may, as a matter of construction, bring an equitable charge into existence.

[17]             In Kingstone Construction Pty Limited v Crispel Pty Limited (1991) 5 BPR 11,987 the Supreme Court of New South Wales considered an agreement which purported to confer a caveatable interest on a person who had invested a substantial sum of money in a joint venture development. Young J concluded that on the construction of the agreement as a whole, an equitable charge might be held to exist.

In Troncone v Aliperti (1994) BPR 13,921, the Court of Appeal of New South Wales considered a loan agreement containing a clause authorising the lenders “to lodge a caveat on any property owned by the debtor to protect his interest”. The Court of Appeal said at 13,292:

“A caveat cannot be entered against land unless the caveator has the relevant proprietary interest in the land: see Real Property Act 1900, sec 74F(1) (‘a legal or equitable estate or interest in land’). Therefore, unless there be evident an intention to the contrary, the grant to the creditors of an authority to lodge a caveat on the relevant property carried with it by implication such an estate or interest in land as was necessary to enable that authority to be exercised. There was, in the present case, no intention to the contrary.”

[18]             I consider it is at least arguable that cl 3 of the deed, read in the context of the deed as a whole, and in particular having regard to the provisions of cl 4, carried  with it the implication that the respondent intended to confer a caveatable interest on the applicant.

[19]             On this basis, I conclude there is an arguable case that at the time the caveat was registered, the appellant had an interest in the land sufficient to support it. Although the matter is not free from doubt, I consider the applicant has discharged the onus on him.

[20]             Balance of convenience considerations support the caveat being sustained. It is not in dispute that a caveatable interest now exists by virtue of the request to execute a mortgage. If necessary I could have given the applicant leave to lodge a second caveat. There is nothing before me at this stage to contradict the applicant’s assertion that there is a balance due and owing under the deed. However, pending resolution of that issue, interim arrangements can be put in place which will ensure that the sale of the property by the respondent is not jeopardised.

Result

[21]             I make an order that the applicant’s caveat over the property not lapse. By consent, I also make the following consequential orders which the parties are agreed will best achieve a resolution of the underlying issue:

a)The applicant will on or before 4 May file and serve in the District Court at Waitakere proceedings to enforce the deed of acknowledgement of debt.

b)A statement of defence to such proceedings will be filed and served on or before 18 May.

c)Both parties shall file and serve verified lists of documents by 8 June and will complete inspection by 22 June.

d)The Registrar of the Waitakere District Court will be requested by the parties to convene a case management conference for the new proceeding at the earliest convenient date after 22 June for the purpose of:

i)Settling the final issues to be resolved.

ii)Dealing with any outstanding interlocutory matters.

iii)Ascertaining the parties’ position in relation to settlement.

iv)Setting a trial date, determining trial duration, fixing a setting down date and making any special trial directions.

e)Counsel shall file and serve memoranda two working days before the conference dealing with the above items.

[22]             Leave is reserved to the parties to apply for further or other orders in the event that either party is in default of these further orders.

Costs

[23]The applicant is entitled to costs on a Category 2 Band B basis.