Kohimarama Trust Limited v Melanesian Mission Trust Board
[2017] NZHC 298
•1 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-2870 [2017] NZHC 298
BETWEEN THE KOHIMARAMA TRUST LIMITED
Applicant
AND
THE MELANESIAN MISSION TRUST BOARD
Respondent
Hearing: 13 February 2017 Appearances:
M D Pascariu for the Applicant
A R Galbraith QC and G J Luen for the RespondentJudgment:
1 March 2017
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 1 March 2017 at 1:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………………………………….
Registrar/Deputy Registrar
Solicitors:
MinterEllisonRuddWatts (M D Pascariu), Auckland, for the Applicant
Hesketh Henry (G J Luen), Auckland, for the Respondent
Counsel:
Alan R Galbraith QC, Auckland, for the Respondent
THE KOHIMARAMA TRUST LIMITED v THE MELANESIAN MISSION TRUST BOARD [2017] NZHC
298 [1 March 2017]
[1] The main issue in this caveat case is whether the Melanesian Mission Trust Board as vendor was ready, willing and able to settle when it issued a settlement notice to the purchaser, The Kohimarama Trust Ltd. It was the purchaser by nomination under an agreement for sale and purchase of real estate dated 1 May
2015 for a freehold interest in a property at 19 Pamela Place, Kohimarama and interests in registered encumbrances over 21 neighbouring properties. Settlement was to take place on 29 April 2016 but The Kohimarama Trust Ltd did not pay the purchase price of $3,757,207. The trust board sent a settlement notice on 12 May
2016 requiring settlement by 30 May 2016. The Kohimarama Trust Ltd did not comply. On 23 August 2016 the board gave notice cancelling the agreement. One week later The Kohimarama Trust Ltd lodged the caveats in this proceeding. It now applies to sustain them. It contends that when it issued the settlement notice the trust board was not ready, willing and able because it was not prepared on settlement to give fresh unregistered encumbrances signed by the owners of the neighbouring properties. It contends the settlement notice was ineffective to make time of the essence and the cancellation was invalid. Accordingly the agreement for sale and purchase is still in force.
Facts
[2] During the 19th century, the Melanesian Mission Trust Board owned farmland at Kohimarama to the east of Auckland. During the second half of the 20th century, as more of the Auckland isthmus was converted into land for housing, the trust board subdivided its land into residential lots, which it sold. One property that it did not sell was 19 Pamela Place, at the end of a cul-de-sac with an area of 4,376m2. It is bare land. It has an unusual configuration. Access to the rear of the site is restricted by a pinchpoint. 19 Pamela Place is generally lower than neighbouring properties.
[3] The trust board holds encumbrances over 21 neighbouring properties. These are registered against the titles to the properties. It is common ground that the memoranda of encumbrance created rentcharges within the decision of the Court of
Appeal in Jackson Mews Management Ltd v Manere.1 While there are some minor differences among the encumbrances, the matters I set out apply to all. Under each memorandum the registered proprietor of the freehold estate encumbered the property in favour of the trust board with an annual rent of $1.00 but payment was suspended so long as the encumbrancer complied with the obligations in the schedule. I paraphrase some of the obligations under the schedule:
1 When called upon by the encumbrancee the encumbrancer is required to sign and deliver to the encumbrancee a registrable transfer of part of its land as marked on a plan attached to the memorandum without payment to the encumbrancer. This is the resumption power.
2 The encumbrancer is not to erect any building in the area marked on the plan for resumption.
3 The encumbrancer will keep the resumption area free of gorse and other noxious vegetation.
4 The encumbrancer will pay all the rates on the property.
5 The encumbrancee will pay all surveying and legal expenses including reserve fund contributions required to subdivide the property.
6 The encumbrancer will sign any plan required to carry out a subdivision by the encumbrancee, and will allow the encumbrancee’s engineers and surveyors to enter on the land.
7 If the encumbrancer sells the land, the encumbrancee is to obtain a similar memorandum of encumbrance in favour of the encumbrancee signed by the purchaser.
[4] Under each memorandum “encumbrancer” is defined to include executors, administrators and successors in title and “encumbrancee” includes its successors
1 Jackson Mews Management Ltd v Manere [2009] NZCA 563, [2010] 2 NZLR 347.
and assigns. Most but not all of the memoranda of encumbrance give the encumbrancee a power of attorney to sign any documents and to take any actions on behalf of the encumbrancer.
[5] The parts of the neighbouring properties which the trust board can require to
be transferred back are the “resumption land”. Its total area is 17,937m2. Combined,
19 Pamela Place and the resumption land come to 22,313m2. A registered valuer has described the resumption land as bush clad and medium to steep contour. Pamela Place is within a designated flood zone.
[6] The trust board has never exercised its powers under the encumbrances to require transfers of the resumption land. The earliest titles for the trust board’s subdivisions of the land in this case were issued in 1969. In almost all cases, the encumbered properties have been on-sold. Memoranda of encumbrance signed after titles were originally issued show that in many cases fresh encumbrances have been given on changes of ownership. The current copies of the titles show that the encumbrancers do not always match the current registered proprietors of the encumbered properties. Those owners have taken their properties subject to the memoranda of encumbrance already registered against the titles.
[7] On 1 May 2015 Olliver Trustee Ltd entered into a written agreement with the trust board to buy the Pamela Place property, plus the board’s interests in the encumbrances over the resumption land. They used the Auckland District Law Society form, but deleted some of the general terms and added further special terms. They struck out the usual requisition clauses and amended cl 5.2(1) so that it provided:
The purchaser is deemed to have accepted the vendor’s title.
[8] The purchaser acknowledged that it had bought the property as a result of its own investigations and not as a result of any warranty or representation made by the trust board. For this case I am not required to apply the discretion under s 4(1) of the Contractual Remedies Act 1979 to hold the purchaser to that acknowledgement, but the circumstances of the agreement suggest an arguable case for it. This was an
arm’s length transaction for the sale of a significant asset between experienced parties of roughly equal bargaining strength, each with legal advice, negotiated over an extended period.
[9] The description of the property to be sold on the front page of the agreement is “the respective land, estates and interests described in schedule 3”. That schedule lists the Pamela Place property and all the encumbrances. The schedule identifies the relevant estates including encumbrance numbers, addresses, area, lot numbers and deposited plans, and land registry identifiers.
[10] Under cl 20, the agreement was conditional on Olliver Trustee Ltd becoming unconditionally bound to sell a property at Paraparaumu to the Crown. The last day to satisfy the condition was 31 October 2015. The settlement date for the purchase of the Kohimarama property was the earlier of the date of settlement of the Paraparumu sale or 1 May 2016, being 12 months after the date of the agreement. As it happened, 1 May 2016 was not a working day. The settlement date was moved forward to 29 April 2016.
[11] Under cl 22 the purchase price of the property was to be fixed by a registered valuer as at the date the trust board ratified the agreement. That was 29 May 2015. Olliver Trustee Ltd could cancel the agreement within 10 working days of receiving the valuation if the property was valued at more than $2,783,000 plus GST. The trust board could cancel the agreement within the same period if the valuation put the market value of the property at less than $2,277,00 plus GST. Olliver Trustee Ltd was required to pay a deposit of $253,000 on two events occurring: the agreement became unconditional and Olliver Trustee Ltd received the deposit from the Crown for the Paraparaumu sale.
[12] On 30 October 2015, Olliver Trustee Ltd’s property lawyer (not the lawyers now acting for The Kohimarama Trust Ltd), wrote to the trust board’s lawyers advising that the Crown had acquired the Paraparaumu property and that cl 20 of the agreement was satisfied. A date for completion of the sale to the Crown could not be nominated as the sale was subject to valuation. The deposit would be paid once the government paid its deposit for the Paraparaumu property.
[13] During November 2015 the trust board’s lawyers forwarded to Olliver Trustee Ltd a valuation prepared for the agreement for sale and purchase by a registered valuer. The report fixed the market value of the freehold interest in
19 Pamela Place at $1,460,000 including GST and valued the interests in the resumption land under the registered encumbrances at $2,292,000 including GST, giving a total value of $3,752,000 including GST. The report records that under both the Operative District Plan and the Proposed Auckland Unitary Plan (as it was then)
subdivision to give a lot of 600m2 was a restricted discretionary activity.
[14] As to the resumption land, the report said:
To assess the value of the resumption encumbrances to the proprietor of each site we have undertaken a “before and after” approach to reflect the additional value to the adjoining owner. The before scenario assesses the value of the properties as is subject to the encumbrances. The after scenario values the sites without the encumbrance. The difference between the two values is the additional value attributed to the properties in the event of purchasing the encumbrance from the Board. There is direct benefit to the owners equivalent to the difference between the before and after scenario however we believe a discount would apply to the added value to entice the owner to act.
We have also been cognisant of the value for assemblage to create a single block less the costs and return required in doing so. This approach could be undertaken by the Board or any individual along Allum Street. This approach does not assess a higher and better value so the before and after approach is adopted as our principal approach to assessing the market values.
[15] On 10 December 2015, Olliver Trustee Ltd’s property lawyer advised the trust board’s lawyers that it accepted the purchase price under cl 22 of the agreement. That is important because Olliver Trustee Ltd was entitled to cancel the agreement under cl 22.2 as the market value of the property was over $2,783,000 plus GST.
[16] The question how the board was to transfer its interests in the encumbrances on settlement came up in April 2016. On 19 April 2016 the lawyers for Olliver Trustee Ltd sent to the trust board’s lawyers a document they called “Draft Assignment of Reversionary Interest”. The trust board’s lawyers replied that an assignment of reversionary interest was not required; on settlement the board would simply transfer the encumbrances (that is, by ordinary e-dealing). On 28 April the lawyers for The Kohimarama Trust Ltd sent the trust board’s lawyers notices of
transfer of encumbrance for signing and sending on to each encumbrancer. This was to be signed by the trust board’s lawyers and addressed to each encumbrancer, giving notice of transfer of the encumbrance for each encumbered property. The board’s lawyers’ replied that they could not be certain that the document was required.
[17] On 26 April 2016 Olliver Trustee Ltd nominated The Kohimarama Trust Ltd to be the purchaser under the agreement. The Kohimarama Trust Ltd adopted the obligations as purchaser. Settlement of the sale was set for Friday 29 April 2016. The lawyer for Olliver Trustee Ltd and The Kohimarama Trust Ltd advised that there had been delays in settlement with the Crown on the Paraparaumu property and funds had not been received. The purchaser now had to arrange bridging finance for settlement. The lawyer thought it unlikely they would be able to settle on the coming Friday.
[18] On 28 April 2016 the trust board’s lawyers sent a settlement statement
showing $3,749,899.53 payable on settlement. Settlement did not take place on 29
April. The lawyers for The Kohimarama Trust Ltd advised by email on 3 May 2016 that the bank needed a valuation updated, and that the valuer was overseas.
[19] On 5 May 2016 the trust board’s lawyers sent a settlement notice. That recorded the failure to settle on 1 May 2016, advised that the trust board was in all material respects ready, willing and able to settle and required The Kohimarama Trust Ltd to settle within 12 working days after service of the notice.
[20] On 12 May 2016 The Kohimarama Trust Ltd and one of the encumbrancers signed a deed of novation of an agreement made some years earlier that allows the encumbrancer access to Pamela Place. On the same day the board’s lawyers sent a fresh settlement notice in the same terms as the earlier notice. That required settlement by 30 May 2016. This second notice is the one in issue in this case.
[21] On 19 May 2016 the lawyers for The Kohimarama Trust Ltd emailed the trust
board’s lawyers:
The BNZ, in filing their offer, have raised the issue of compliance with the requirement in the encumbrances that the encumbrancee, on the transfer of
the property, shall obtain from the purchaser an encumbrance binding the new owners to the obligations contained in the encumbrance. Can you please confirm that you hold such encumbrances from each of the current registered proprietors?
[22] In response the trust board’s lawyers advised that the obligation is on the encumbrancer (the landowner) not the encumbrancee (the trust board). They also said that the obligation (under the seventh clause in [3] above) on a vendor to get a purchaser to sign a new encumbrance was superseded by s 203 of the Property Law Act 2007.
[23] Towards the end of May The Kohimarama Trust Ltd instructed the lawyers now acting for it. On 30 May 2016 those lawyers wrote to the trust board’s lawyers saying that to transfer good title to the resumption powers in the encumbrances, the board had to be in possession of memoranda of encumbrances signed by the current registered proprietors of each of the encumbered properties, and asked whether the board held such current memoranda. The board’s lawyers replied on 5 August 2016 that the trust board was in a position to transfer encumbrances and that what had been sought was unnecessary. On 17 August 2016 the lawyers for The Kohimarama Trust Ltd asked again whether the trust board held fresh encumbrances for the most recent transfers of the encumbered properties.
[24] On 23 August 2016 the board’s lawyers gave written notice cancelling the agreement for sale and purchase for non-compliance with the settlement notice which had expired on 30 May 2016.
[25] On 30 August 2016 the property lawyer for The Kohimarama Trust Ltd lodged caveats against each of the encumbrances. The caveat wording in each case is:
As purchaser of the reversionary interest secured by the encumbrance by virtue of the agreement for sale and purchase dated the 1st day of May 2015, between Olliver Trustee Limited as purchaser and the Melanesian Mission Trust Boad as vendor, the purchaser under that agreement having changed by virtue of the nomination by Olliver Trustee Limited of The Kohimarama Trust Limited as purchaser by deed of nomination dated 26 April 2016.
[26] On 5 September 2016 The Kohimarama Trust Ltd lodged a caveat against the
Pamela Place property. The interest claimed in that caveat is:
As purchaser under and by virtue of an agreement for sale and purchase dated the 1st day of May 2015 between Olliver Trustee Limited as purchaser and the Melanesian Mission Trust Board, the registered proprietor, as vendor. The purchaser under that agreement having changed by virtue of the nomination by Olliver Trustee Limited as purchaser by deed of nomination dated 26 April 2016.
[27] The Registrar gave notice under s 145A of the Land Transfer Act 1952 on
25 October 2016. An interim order that the caveats not lapse was made on
15 November 2016.
[28] Mr Olliver, director of The Kohimarama Trust Ltd, deposes that it remains ready, willing and able to settle under the agreement. He says that proceedings for specific performance will be commenced shortly. The Kohimarama Trust Ltd has not, however, given any evidence that it holds funds or has arranged finance for the purchase. It has not paid the deposit under the purchase, apparently because it has not received the deposit from the Crown on the Paraparaumu sale. As a matter of impression, The Kohimarama Trust Ltd may have difficulty raising significant finance using the property under the agreement as security. While no doubt a bank or other financier would accept the property at 19 Pamela Place as security, it was valued at $1,460,000 in 2015 without any indication as to how much it would be worth for security. It may be more difficult to use the encumbrances as security. Exercising the resumption power under the encumbrances may not be straightforward and they will therefore be less attractive as security. The following matters go to exercising the resumption power:
(a) There is no evidence that the current registered proprietors are aware of the sale to a property developer, or that they will co-operate in the resumption of parts of their properties under the encumbrances.
(b)Each encumbrance recognises that making over the land to the encumbrancee will entail a subdivision under s 218 of the Resource Management Act. That will be uncertain and will require time and expense. Given the valuer’s comments as to some of the land being steep or, in the case of the Pamela Place property, in a flood zone, the
consent authority may wish to be relevantly satisfied under s 106 of the Resource Management Act:
106 Consent authority may refuse subdivision consent in certain circumstances
(1) A consent authority may refuse to grant a subdivision consent, or may grant a subdivision consent subject to conditions, if it considers that—
(a) the land in respect of which a consent is sought, or any structure on the land, is or is likely to be subject to material damage by erosion, falling debris, subsidence, slippage, or inundation from any source; or
(b) any subsequent use that is likely to be made of the land is likely to accelerate, worsen, or result in material damage to the land, other land, or structure by erosion, falling debris, subsidence, slippage, or inundation from any source; or
(c) sufficient provision has not been made for legal and physical access to each allotment to be created by the subdivision.
(2) Conditions under subsection (1) must be—
(a) for the purposes of avoiding, remedying, or mitigating the effects referred to in subsection (1); and
(b) of a type that could be imposed under section 108.
General principles on caveat applications
[29] In Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act:2
Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat".) Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).
2 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
[30] In caveat applications under ss 143, 145 and 145A of the Land Transfer Act
1952, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 137(1) of the Land Transfer Act:
137 Caveat against dealings with land under Act
(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person—
(a) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or
(b) is transferring the land or estate or interest to any other person to be held in trust.
A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.3 Something more than a potential or future interest is required.4
[31] Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation, every statement in an affidavit, however equivocal, lacking in precision, inherently improbable, or inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable it may be. For a caveat to be removed, it must be patently clear that the caveat cannot stand either because there was no ground for lodging it at the outset or because any such ground no longer exists. In addition, the court has a residual discretion not to uphold a caveat but that is exercised cautiously, as when the caveat could serve no useful purpose or alternative safeguards are available. In Pacific Homes Ltd (in rec) v Consolidated
Joineries Ltd the Court of Appeal said:5
3Guardian Trust and Executors Company of New Zealand Limited v Hall [1938] NZLR 1020 (CA) at 1025.
4 Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA).
5 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656;
Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA).
We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation which was then before the Court and were not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. In such circumstances the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator's interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.
[32] To establish a reasonably arguable case there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavit, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. As a qualification to the reasonably arguable standard, where there are allegations of fraud or other reprehensible conduct, it is necessary to show a prima
facie case.6
Caveatability
[33] Under s 137 a caveat may be lodged “against dealings in any land estate or interest under this Act”. The freehold estate in the 19 Pamela Place property is of course a relevant estate or interest, given that the board is the registered proprietor. It is not disputed that the registered encumbrances are also estates or interests under the Land Transfer Act, but it should be explained. Ordinarily the obligations of an encumbrancer are covenants in gross. They are owed to the board as encumbrancee, not as the owner of a dominant tenement. Covenants in gross are not interests in
land. Accordingly an instrument containing such obligations will not normally be
6 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15], followed in Trustees Executors Ltd v Steve G Ltd [2013] NZHC 16 at [63]-[66]; Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2013] NZHC 1297 at [78] (overturned on appeal, but not on this point: Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2014] NZCA 164, (2014) 15
NZCPR 227); S & S Ltd v XYZ Ltd [2016] NZHC 26 at [6]; and Virtual Spectator v Rothlander
[2016] NZHC 499.
registrable against the title to the land. The recognised conveyancing means to overcome this difficulty and to create a registrable interest is to provide for a rentcharge – in this case $1.00 payable to the Board each year. The rentcharge means that the encumbrance is treated as a mortgage under the Land Transfer Act and the Property Law Act 2007.
[34] Under the Property Law Act, s 4, “mortgage” is defined to include:
(a) any charge of a property for securing the payment of amounts or the performance of obligations; and
(b) any registered mortgage; and
(c) any mortgage arising under a mortgage or debenture.
[35] Under s 2 of the Land Transfer Act, “mortgage” is defined:
mortgage means any charge on land created under the provisions of this Act for securing—
(a) the repayment of a loan or satisfaction of an existing debt:
(b) the repayment of future advances, or payment or satisfaction of any future or unascertained debt or liability, contingent or otherwise:
(c) the payment to the holders for the time being of any bonds, debentures, promissory notes, or other securities, negotiable or otherwise, made or issued by the mortgagor before or after the creation of that charge:
(d) the payment to any person or persons by yearly or periodical payments or otherwise of any annuity, rentcharge, or sum of money other than a debt
(Emphasis added)
[36] Under an unconditional contract for the sale of land, the purchaser obtains an equitable interest in the land on execution of the contract.7 Similarly, when a conditional contract becomes unconditional, the purchaser obtains an equitable interest in the land. The equitable interest may be protected by caveat. As the agreement for sale and purchase in this case became unconditional, when Olliver
Trustee Ltd elected to continue with the purchase at the price fixed by the valuer, it is not necessary to deal with caveatability under conditional contracts.8
[37] The trust board’s position is that even though Olliver Trustee Ltd, and later The Kohimarama Trust Ltd as nominee, had caveatable interests, they expired when the board cancelled the agreement for sale and purchase for non-compliance with the second settlement notice.
The challenge to the cancellation of the agreement
[38] The Kohimarama Trust Ltd challenges the cancellation. It says that the board was not entitled to issue the settlement notice, and therefore could not cancel for non-compliance with the notice. It relies on these provisions in the agreement for sale and purchase:
3.8 On the settlement date-
(1) the balance of the purchase price and interest and other monies, if any, shall be paid by the purchaser, including funds or otherwise satisfied as provided in this agreement (credit being given for any amount payable by the vendor under sub-clause 3.2 or 3.13);
(2) The vendor’s lawyer shall immediately thereafter:
(a) release or procure the release of the transfer instrument and the other instruments mentioned in sub-clause 3.7(1) so that the purchaser’s lawyer can then submit them as soon as possible for registration;
(b) pay to the purchaser’s lawyer the LINZ registration fees on all the instruments mentioned in clause 3.7(1) unless these fees are invoiced to the vendor’s lawyer by LINZ direct; and
(c) deliver to the purchaser’s lawyer any other documents that the vendor must provide to the purchaser on settlement in terms of this agreement.
3.9 All obligations under sub-clause 3.8 are inter-dependent.
…
10.1
(1) If the sale is not settled on the settlement date either party may at any time thereafter serve on the other party a settlement notice; but
(2) the settlement notice shall be effective only if the party serving it is at the time of service either in all material respects ready able and willing to pursue to settle in accordance with or is not so ready able and willing to settle only by reason of the default or omission of the other party.
[39] The case for The Kohimarama Trust Ltd is that under cl 3.8(2)(c) “any other documents” to be provided on settlement included memoranda of encumbrance signed by each new owner of a parcel of resumption land. It says that that the board is required to do more than transfer the registered encumbrances by e-dealing. If there has been a change of ownership since the registered encumbrances were signed and registered, fresh memoranda from the new owners are required. The board’s refusal to supply those fresh memoranda showed that it was not willing to perform its obligations under the agreement and therefore disqualified it under cl 10.1(2)
from giving a settlement notice.9
[40] Before considering the arguments for this requirement, it is helpful to understand how the resumption power under the encumbrance may be exercised under different circumstances:
(a) By the board against an owner who has signed an encumbrance;
(b)By the board against a new owner who has not signed the encumbrance but has taken title subject to it;
(c) By a purchaser of the board’s interest against an owner who has
signed an encumbrance;
(d) By a purchaser of the board’s interest against a new owner who has
not signed the encumbrance but has taken title subject to it.
9 The Kohimarama Trust Ltd does not rely on inability by the trust board to settle when it cancelled the agreement for sale and purchase. Under cl 10.8 a party serving a settlement notice is not in breach of an essential term by reason only of their failure to be ready and able to settle on the expiry of the notice.
[41] In the first case the encumbrancer is bound contractually. The board can exercise its resumption power against the encumbrancer whether or not the encumbrance is registered against the title. But there is a timing aspect. Before the trust board can require the encumbrancer to transfer a parcel of resumption land, it must create a separate lot for the parcel to be transferred. As noted above, that will require an application for subdivision consent under the Resource Management Act
1991. The registered valuer’s report noted that subdivision into lots of 600m2 is a
restricted discretionary activity. Seven of the resumption areas are less than that minimum lot size. On any application for subdivision consent any assessment of environmental effects made for an application for subdivision consent will typically include reports by appropriate consultants, such as engineers. On any application for subdivision consent, if the consent authority decides that the encumbrancer is a relevantly affected person, the encumbrancer may be notified and may use the opportunity to submit on the subdivision application. The memorandum of encumbrance does not appear to restrict an encumbrancer’s ability to lodge a submission on a subdivision application, even though the encumbrancer is required to co-operate if consent is granted.
[42] Under the encumbrance the trust board must pay all the costs of obtaining subdivision consent, even though it is not required to pay the encumbrancer for the transfer of the resumption lot. The encumbrancer is required to allow engineers and surveyors access to the property and to sign any survey plan required to complete the subdivision. Only when all the requirements under the Resource Management Act are satisfied, including any conditions of consent, and the consent authority has given a certificate under s 224(c) of the Resource Management Act will a survey plan be deposited and new titles issue. And only then will the board be able to call on the encumbrancer to provide a registrable transfer of the resumption parcel or, under contemporary practice, to co-operate in the required e-dealing under the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002. In summary, it will require time, expense and effort for the board to exercise its resumption power against an owner of resumption land who has signed an encumbrance. And a successful outcome is not a sure thing.
[43] The second case is that the trust board exercises its rights under a memorandum of encumbrance against a purchaser of a parcel of resumption land who has become a registered proprietor without signing a memorandum of encumbrance. While each memorandum of encumbrance requires any encumbrancer who sells to obtain from the purchaser a signed memorandum of encumbrance in the same terms, that did not always happen in practice. In many cases current registered proprietor of the parcel of resumption land did not sign memoranda of encumbrance when they purchased.
[44] The board is able to exercise its resumption power against a new registered proprietor, even if he or she has not signed a memorandum of encumbrance. The lack of contractual privity is not a bar. That is because of s 203 of the Property Law Act 2007:
203Person 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.
[45] In the case of owners who took title before the Property Law Act 2007 came into force,10 s 104 of the Property Law Act 1952 had similar effect:
104 Purchaser personally liable to mortgagee
(1) Where a person acquires any land by conveyance or transfer subject to any mortgage, the person acquiring the land shall, unless a contrary intention appears in the mortgage, and irrespective of whether he has signed the conveyance or transfer, become personally liable to the mortgagee for the payment of all principal money and interest secured by the mortgage, and shall also become personally liable to the mortgagee for the fulfilment and observance of any other covenant or agreement contained or implied in the mortgage as if he were an original mortgagor of the land and had covenanted with the mortgagee for such payment as aforesaid and for the fulfilment and observance of such covenants and agreements as aforesaid, and the mortgagee shall have remedy directly against that person accordingly, but nothing herein shall extinguish the liability of any original mortgagor under the mortgage or the liability of any intermediate transferee of the land acquired by him subject to the mortgage aforesaid.
(2) Nothing in this section shall render an executor or administrator or trustee personally liable in respect of the estate of a deceased person or in respect of the property subject to a trust, as the case may be, except to the extent of the property under his control as such executor or administrator or trustee.
(3) Notwithstanding anything to the contrary in any mortgage, it shall not be obligatory on any mortgagor or any person acquiring land as aforesaid to procure or execute any covenant or contract by that person for the payment of principal, interest, or other money secured by or the observance or performance of the covenants, conditions, or agreements contained or implied in the mortgage, and no covenant, contract, or condition by a mortgagor or by any such person acquiring the land as aforesaid (whether expressed in a mortgage or in any instrument collateral to the mortgage) to procure the execution of or to execute any such covenant, condition, or agreement shall have any effect whatever.
(4) This section applies to all mortgages where land subject to the mortgage is acquired as aforesaid after the commencement of this Act.
(5) For the purposes of this section the term conveyance does not include a lease, or a conveyance by way of security only.
10 1 January 2008 – Property Law Act 2007, s 2.
[46] Section 203(2) of the 2007 Act makes it clear that the encumbrance remains enforceable against a new owner, even if that owner has not signed the encumbrance. The new owner therefore cannot use the absence of any memorandum signed by him or her to dispute the encumbrancee’s exercise of its resumption power. As with the first case, the board will not be able to require the new owner to transfer the resumption parcel until a new title has issued following subdivision.
[47] For the third case, the owner of the resumption parcel is an original encumbrancer, but the board transfers its interest in the encumbrance to an assignee. The new owner of the encumbrance will be able to exercise the resumption power in the same way as the board, the original encumbrancee, could. It will be no defence for the encumbrancer to say that his encumbrance was with the board, not the assignee. Section 97 of the Land Transfer Act applies:
97 Transfer of lease or mortgage
(1) A registered mortgage or lease may be transferred by memorandum of transfer as aforesaid.
(2) Upon registration of any such memorandum of transfer the estate or interest of the transferor as set forth in the instrument, with all rights, powers, and privileges thereto belonging or appertaining, shall pass to the transferee.
(3) The transferee shall thereupon become subject to and liable for all and every the same requirements and liabilities to which he would have been subject and liable if named in the instrument originally as mortgagee or lessee of the land, estate, or interest; and by virtue of every such transfer as is hereinbefore mentioned the right to sue upon any memorandum of mortgage or other instrument, and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding that the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof:
provided that nothing in this section shall prevent a court of competent jurisdiction from giving effect to any trusts affecting the said debt, sum of money, annuity, or damages in case the transferee holds the same as a trustee for any other person.
[48] Now for the final case: the board transfers the memorandum of encumbrance for a parcel of land owned by someone who has taken title without signing a fresh memorandum of encumbrance. The owner of the parcel of resumption land holds it
subject to the memorandum of encumbrance by virtue of s 203 of the Property Law Act 2007. And because of s 97 of the Land Transfer Act the transferee of the encumbrance is entitled to exercise the resumption power in the same way as the board could. The new owner of the parcel is in the same position as if he had signed the memorandum of encumbrance. The transferee is in the same position as the board. The new owner of the parcel has no more rights to resist the exercise of powers under the encumbrance than if the trust board were to exercise those powers or if the owner had signed the encumbrance himself or herself. Similarly, the transferee will incur time, expense and effort in exercising the powers.
[49] The fourth case applies to most of the encumbrances under the agreement in this case. Because The Kohimarama Trust Ltd will have the benefit of all the powers of the board under an encumbrance and it will not matter whether any owner of a resumption parcel signed an encumbrance or not, there does not seem to be any reason for the board to obtain for settlement of the sale fresh signed memoranda of encumbrance from owners bound under s 203 of the Property Law Act. Under the agreement for sale and purchase, the trust board undertook to transfer to The Kohimarama Trust Ltd its interests in the encumbrances, whether the memoranda were signed by the current owners of parcels of resumption land or former owners. The trust board did not undertake to give The Kohimarama Trust Ltd anything more than what it owned itself. The transfer of the encumbrances is by standard e-dealing under the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002. The parties did not address me whether the board was also required to hand over on settlement the hard copy versions of the encumbrances it already held. For the purpose of argument, I assume that they are “other documents” under clause 3.8(2)(c). But under ordinary conveyancing practice the board is not required to create and deliver new memoranda signed by owners who are not original encumbrancers.
[50] The Kohimarama Trust Ltd submits otherwise. It says that the circumstances make this purchase different. Its case is:
(a) Olliver Trustee Ltd, and its nominee, The Kohimarama Trust Ltd, bought the Pamela Place property and the rights to the resumption
land for the purpose of residential development. In offering to sell the encumbrances, the trust board held out that it had the rights recorded under the encumbrances and that those rights were transferable. That therefore required that the trust board to provide fresh memoranda of encumbrance, because powers of attorney in the encumbrances would enable a swift transfer of the resumption land at no cost to The Kohimarama Trust Ltd. The absence of such powers of attorney would expose The Kohimarama Trust Ltd to litigation with associated delay and costs.
(b)The registered valuer who had provided the report to fix the purchase price under the agreement had not valued the encumbrances by taking into account the costs associated with exercising the resumption powers.
(c) Without these fresh memoranda, the rights and powers of The Kohimarama Trust Ltd under the encumbrances were only contingent and it was entitled to have the memoranda of encumbrance transferred to it free of any contingencies.
[51] I accept that anyone buying both the Pamela Place property and the associated encumbrances over the neighbouring properties is likely to do so for the purpose of residential development. That part of the case for The Kohimarama Trust Ltd does not turn on whether Mr Olliver conveyed his purpose to the trust board. It is in any case arguable that Mr Olliver did so.
[52] As a potential purchaser, Olliver Trustee Ltd had the opportunity to inspect the property and to assess the advantages or otherwise of buying it and carrying out any development. Having had time to take advice on the terms of the memoranda of encumbrance, Olliver Trustee Ltd and The Kohimarama Trust Ltd assumed the risk of buying the property for residential development, including any risks associated with exercising powers under the memoranda of encumbrance. The deletion of the usual requisition clauses and the acceptance of the vendor’s title is consistent with their having made proper inquiries.
[53] A fresh residential development in an affluent suburb may not always be welcome. Neighbours may object, even unjustifiably. That goes with property development. Co-operation from encumbrancers cannot be assured. The trust board did not want to develop the Pamela Place property but it gave the opportunity to a developer to do so. Apart from transferring its interest under the encumbrances to the purchaser, the Melanesian Trust Board Ltd is not required under the agreement to do anything to assist the purchaser in exercising its powers under the encumbrances. There is no express provision requiring it to do so. Nor is it possible to assert any such obligation by way of an implied term. It was submitted that such a term had to be implied to give the contract business efficacy. But that does not recognise that the purchaser assumed all the risk on exercising the rights and powers under the encumbrances. The Kohimarama Trust Ltd argued that the term was required to avoid litigation, costs and delay, but that is no more than an attempt to shift some of the costs of development onto the vendor. Under the agreement they always lay with the purchaser.
[54] The Kohimarama Trust Ltd’s reliance on the valuation of the interests transferred under the agreement for sale and purchase does not assist it. The valuation provided to The Kohimarama Trust Ltd in November 2015 was made after the agreement for sale and purchase by a valuer acting as an expert. The parties shared the costs of this valuation. The document can hardly be relevant to the interpretation of the agreement, even on the most liberal argument that subsequent
conduct can be taken into account.11 Further, a careful reading of the report would
have shown The Kohimarama Trust Ltd that there were costs associated with the enforcement of the encumbrances. That is apparent from the extract I quoted at [14] above, in which the valuer found that the before-and-after approach produced a higher and better value than creating a single block after taking account of the costs and return in doing so. While it does not matter for the interpretation of the agreement, it is interesting that Olliver Trustee Ltd elected to go ahead with the purchase after receiving the report, when it could have cancelled under cl 22.2 of the
agreement.
11 As under the Supreme Court’s decision in Gibbons Holdings Ltd v Wholesale Distributions Ltd
[2007] NZSC 37, [2008] 1 NZLR 277.
[55] The Kohimarama Trust Ltd’s submission as to taking the encumbrances free of contingencies does not help it. There is no term of the agreement that the trust board was to convey the encumbrances free of contingencies. The board did not give any undertaking or warranty as to the exercise of powers under the encumbrances. It is implicit in the memoranda of encumbrance that there are risks and uncertainties in resuming land under them, as in the recognition of the need for subdivision. Even if The Kohimarama Trust Ltd were to receive fresh encumbrances signed by current owners of resumption land, that would not relieve it of all the contingencies associated with exercising its powers under the encumbrances. It would, after all, still need to obtain subdivision consents.
[56] Overall, I am satisfied that under cl 3.8(2)(c) of the agreement for sale and purchase on settlement the trust board was not required to provide fresh unregistered memoranda of encumbrance as they are not part of the property to be transferred on settlement, as set out in Schedule 3. The trust board could carry out its obligations under the agreement by transferring all the property listed in schedule 3 to the agreement without obtaining fresh memoranda from owners who had taken title subject to encumbrances already registered. Because the trust board is not required to provide such fresh unregistered memoranda, its refusal to do so did not disqualify it under cl 10.1(2) from serving a settlement notice.
The claim for compensation
[57] The Kohimarama Trust Ltd says that it had a claim for compensation under cl 7 of the agreement for sale and purchase. The agreement has this errors and misdescriptions clause:
5.4 Except as provided by section 7 of the Contractual Remedies Act
1979, no error, omission or misdescription of the property or the title shall enable the purchaser to cancel this agreement but compensation, if claimed by notice before settlement in accordance with sub-clause 7.1 but not otherwise, shall be made or given as the case may require.
Clause 6.5 says:
6.5If the purchaser has not validly cancelled this agreement, the breach of any warranty or undertaking contained in this agreement does not defer the obligation to settle, and that obligation shall be subject to the rights of the purchaser at law or in equity, including any right under subclause 5.4 and any right of equitable set-off.
Clause 7 says:
a.If the purchaser claims a right to compensation either under subclause 5.4 or for an equitable set-off:
(i) The purchaser must serve notice of the claim on the vendor before settlement; and
(ii) the notice must:
(a) in the case of a claim for compensation under sub-clause
5.4, state their particular error, omission or mis- description of the property of title in respect of which
compensation is claimed.
(b) in the case of a claim to an equitable set-off, state the particular matters in respect of which compensation is claimed.
(c) comprise a genuine pre-estimate of loss suffered by the purchasers; and
(d) be particularised and quantified to the extent reasonably possible at the date of the notice.
b.For the purpose of subclause 7.1(1) “settlement” means the date for settlement fixed by the agreement unless, by reason of the conduct or omission of the vendor, the purchaser is unable to give notice by that date in which case notice may be given by the date for settlement fixed by a valid settlement notice serve by the other party pursuant to subclause 10.1.
c.If the amount of compensation is agreed, it shall be deducted on settlement.
Clause 7.4 provides for the case where the amount of compensation is disputed.
[58] The Kohimarama Trust Ltd says that the trust board failed to provide it with information from which it could have calculated a compensation claim under cl 7 of the agreement. The claim for compensation is said to arise out of the failure to provide new memoranda of encumbrance signed by owners of resumption land who
had not previously signed a memorandum of encumbrance. As already noted, the board would not breach the agreement if it did not provide those documents.
[59] As to the errors and misdescriptions clause, Olliver Trustee Ltd, as the original purchaser, accepted the titles to the property under the agreement. No error, omission or misdescription of title was identified in the agreement. The Kohimarama Trust Ltd suggested that there was some defect going to quality but I see none. Any contingencies associated with the exercise of resumption powers may go to the quality of the property sold under the property but the evidence does not show that the agreement has any arguable error, omission or misdescription in respect of the property to be sold.
[60] The written submissions for The Kohimarama Trust Ltd referred to the Contractual Remedies Act 1979 and the Fair Trading Act 1986, but there is nothing in the evidence to suggest that the trust board made any kind of misrepresentation or was involved in any misleading or deceptive conduct. The evidence includes an information document which the trust board had prepared to show to the Auckland Council with a view to selling the property. It also gave it to Mr Olliver. The Kohimarama Trust Ltd has not identified anything in that document that is a relevant misstatement of fact or is in any way misleading or deceptive. Accordingly there cannot be any arguable basis for alleging pre-contractual misrepresentation as a ground for equitable set-off under cl 7.1.
[61] Similarly The Kohimarama Trust Ltd has not shown any basis for a claim for compensation for breach of warranty that could lead to an assertion of equitable set- off under cl 6.5.
[62] Even if The Kohimarama Trust Ltd had any claim for compensation under cl
5.4 or for equitable set-off for pre-contractual misrepresentation or breach of warranty, it was required to make a claim for compensation under cl 7 in time. That means that it had to give the vendor notice before 29 April 2016, the date for settlement. It did not do so. It argues that it could not do so because the board was required to provide it with information so that it could formulate its compensation claim. There is no provision in the agreement requiring a vendor to supply a
purchaser with information to allow a compensation claim to be made. No authority for this obligation was cited and I am not aware of any. The board’s silence is accordingly not “conduct or omission” under cl 7.2 which deferred the time for making a compensation claim.
[63] Even if any conduct or omission of the trust board prevented it from making a claim (and no such conduct has been shown), the date for making a compensation claim under cl 7 was put back to the date for completion in the settlement notice issued on 12 May 2016, that is, 30 May 2016. The Kohimarama Trust Ltd did not make any such claim for compensation by then.
[64] The arguments as to compensation do not help The Kohimarama Trust Ltd. As it did not make a claim for compensation, it was required to pay the purchase price in full. The settlement notice required that. For reasons already given, the settlement notice was effective. The Kohimarama Trust Ltd did not settle by the date in the settlement notice. The default continued until the trust board cancelled the agreement in August 2016. With total non-performance by The Kohimarama Trust Ltd and the time for performance having been made of the essence under the settlement notice procedure, the cancellation was effective. That brought the interest of The Kohimarama Trust Ltd in the property as purchaser to an end. Accordingly, when it lodged its caveats, The Kohimarama Trust Ltd no longer had any caveatable interest in the Pamela Place property and the encumbrances.
The no tender argument
[65] The Kohimarama Trust Ltd submitted that it was not required to tender settlement because the correspondence between the parties’ lawyers showed that it would have been nugatory or futile to tender settlement. It cited Bahramitash v Kumar.12 It says that because the trust board wrongly asserted that it would not provide fresh memoranda of encumbrance signed by those who had taken title subject to existing registered encumbrances, it was relieved from tendering settlement. That repeats in another form its argument that the board was not ready,
willing and able to settle when it gave the settlement notice on 12 May 2016.
12 Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577.
[66] Just as the argument as to the settlement notice is not sound, the no tender argument is also no help to The Kohimarama Trust Ltd. The settlement notice was valid and effective. The trust board has been vindicated in its position. Accordingly The Kohimarama Trust Ltd was required to perform by paying the purchase price. If it did not do so, it continued to default under the agreement, when time had been made of the essence. There is nothing in the circumstances of this case that could relieve The Kohimarama Trust Ltd from paying the purchase price.
[67] Arguments as to tender of settlement (as opposed to actual performance) come up in other circumstances. One purpose of tender is to put the other party in breach of the agreement for sale and purchase. In Sale of Land, D W McMorland explains:13
…the basis for the requirement of a tender of settlement comes from the interdependent nature of the obligations for each party in carrying out the settlement. Because of that interdependence, neither party is in breach of their own promise unless and until the other party has tendered performance of their promise. That tender of performance by one party, usually the purchaser, A is necessary to trigger the obligation of the other party, usually the vendor, B, to perform. It is B’s failure to perform which then constitutes the breach. The tender of a settlement therefore places B in breach when they failed to perform; without it, B has no obligation to perform and is therefore not in breach. A therefore has no evidence against B based on breach by failure to settle.
[68] Another purpose is evidential: to show readiness to settle, as when the purchaser wishes to hold the vendor to the agreement, instead of cancelling for breach by the vendor. A purchaser seeking specific performance might tender performance to prove its ability to perform. However, for the reasons already given these reasons for tender do not apply here.
Result
[69] For the reasons given above, the application fails. I allow time for The
Kohimarama Trust Ltd to apply for interim relief, if it appeals.
13 D W McMorland Sale of Land, (3rd ed, Cathcart Trust, Auckland, 2011) paragraph 11.12(a) at
476.
[70] I make these orders:
(a) The caveats the subject of this decision will lapse on 17 March 2017. (b) The Kohimarama Trust Ltd will pay costs to the Melanesian Mission
Trust Board on this application. If counsel cannot agree costs, memoranda may be filed and I will decide costs on the papers.
………………………............
Associate Judge R M Bell
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