Kookmin Bank v Bourke HC Tauranga CIV-2011-470-146

[2011] NZHC 315

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2011-470-146

BETWEEN  KOOKMIN BANK Plaintiff

ANDJOHN BOURKE First Defendant

ANDANTHONY GRANT HARVEY Second Defendant

Hearing:         12 April 2011

(Heard at AUCKLAND)

Appearances: B Clarke for plaintiff

No appearance for first defendant
T Richardson for second defendant

Judgment:      12 April 2011

(ORAL) JUDGMENT OF LANG J [on application for removal of caveat]

KOOKMIN BANK V BOURKE HC TAU CIV-2011-470-146 12 April 2011

[1]      Just to the west of Rotorua is a golf course operated by the Lake View Golf Club.  Like most New Zealand golf clubs, it was originally owned and operated by its members.

[2]      Some years ago, the members of the Lake View Golf Club were approached by property developers who unveiled impressive plans to develop the course and surrounding land into a golf course and accommodation of an international standard. The members agreed to the proposal, and as a consequence they transferred the golf course and an adjoining block of land known as the Wynn’s Block to a company called Lake View Golf Resort Limited.  That company is now known as Ecohouse Limited.

[3]      The development has not proceeded, and the Wynn’s Block is now subject to a mortgage to Kookmin Bank.  That mortgage secures advances by the bank totalling approximately NZD$13 million.

[4]      Ecohouse Limited was placed in liquidation on 23 January 2008, and has now been struck off the companies register.  The liquidators disclaimed the Wynn’s Block and left it for the bank to realise in part-repayment of the debt owing to it.

[5]      The bank has now sold the land to the Rotorua District Council in exercise of its power of sale under the mortgage.  It has obtained a sale price of $795,000 for the property.  The sale is due to be completed no later than 17 April 2011.  At present the bank is unable to complete the sale because the second defendant, Mr Harvey, has lodged a caveat against the title to the property on behalf of the first defendant, Mr Bourke.

[6]      The caveat purports to protect Mr Bourke’s interest as mortgagee under an agreement to mortgage dated 8 August 2006.   The bank takes the view that Mr Bourke has no basis on which he can sustain his caveat.   For that reason it has

applied for an order under s 143 of the Land Transfer Act 1952 removing the caveat so that the sale to the Council can proceed.

[7]      Counsel for Mr Harvey has filed a memorandum abiding the decision of the Court, but seeking to be heard in relation to costs should the bank attempt to obtain an award of costs against him.   Mr Bourke has filed a notice of opposition and affidavit in opposition, but has not appeared today.

[8]      I am satisfied that Mr Bourke has had ample notice of today’s hearing by virtue of several e-mails that counsel for the bank has sent him over the past two weeks.   For that reason I propose to proceed in Mr Bourke’s absence, and on the basis of the material currently on the file.

[9]      The principles to be applied in applications such as this are well established through the decisions of the Court of Appeal in cases such as Sims v Lowe[1]and Pacific Homes Limited v Consolidated Joineries Limited.[2]I propose to apply the following principles in reaching my decision:

[1] [1998] 1 NZLR 656

[2] [1996] 2 NZLR 652

[a]      The onus is on the caveator to demonstrate that it holds an interest in the land sufficient to support the caveat.

[b]      The caveator must put forward a reasonably arguable case to support the interest it claims.

[c]      An order for the removal of the caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively, that such ground as then existed has now ceased to exist.

[d]      The present proceedings are wholly unsuitable for the determination of disputed questions of fact.

Decision

[10]     The starting point is the interest that Mr Bourke claims.  As I have already indicated, the caveat purports to protect his interest as mortgagee under an agreement to mortgage dated 8 August 2006.  The affidavit that Mr Bourke has filed does not, however, exhibit an agreement to mortgage, and he does not expressly confirm in his affidavit that an agreement to mortgage exists.

[11]     For that reason, Mr Bourke’s claim fails at the first hurdle.  He is unable to establish that he holds a caveatable interest in the Wynn’s Block under an agreement to  mortgage  between  himself  as  mortgagee  and  the  registered  proprietor  as mortgagor.

[12]     There is no independent evidence to support the existence of an agreement to mortgage in favour of Mr Bourke as mortgagee.   The liquidators completed the liquidation of Ecohouse Limited apparently unaware of the existence of any such document.   When they elected to disclaim the property, they therefore only gave notice to the bank.   It  is apparent from this that Mr Bourke never advised the liquidators that he held an agreement to mortgage in respect of the land.

[13]     Correspondence annexed to Mr Bourke’s affidavit is also inconsistent with the existence of an agreement to mortgage.  In that correspondence reference is made to the fact that Mr Bourke remains unsecured for advances that he has made to Ecohouse Limited.   That is inconsistent with the suggestion that he holds an unregistered agreement to mortgage.

[14]     Even if Mr Bourke was able to establish the existence of such an agreement, that interest would fail to defeat the bank’s interest under its registered mortgage.  It is trite law that a registered mortgage will defeat the interests of an unregistered instrument unless the registered instrument was procured through fraud.  There is no allegation here that the bank has acted fraudulently in any way.

[15]     Even if the bank had not registered its mortgage, it is party to an agreement to mortgage that Ecohouse Limited executed prior to 8 August 2006.  The agreement to mortgage between the bank and the registered proprietor was executed in late July

2006.  The arrangement was then formalised by the execution of the mortgage on 17

August 2006, and the registration of the mortgage on 22 August 2006.  The bank’s agreement to mortgage would therefore take priority over Mr Bourke’s agreement to mortgage.

[16]     There is also evidence to suggest that Mr Bourke has sought to use the caveat to prevent the bank from disposing of the property whilst he seeks to retrieve the development.    In  October 2010  the bank  entered  into  an  agreement  to  sell  the property  to  a  Mr Armitage.    Mr  Armitage  subsequently  failed  to  complete  the purchase, and the bank eventually cancelled that agreement in December 2010.  Mr Bourke contacted the bank’s solicitors at about this time, and told them that Mr Armitage had agreed to purchase the property on his behalf.  Mr Bourke also told the bank’s solicitors that he could tie the property up for a considerable period by lodging a caveat against the title to the property.

Result

[17]     For these reasons I am satisfied that Mr Bourke is not entitled to maintain his caveat.   I make an order under s 143 of the Land Transfer Act removing it with immediate effect.

Costs

[18]     The bank does not seek costs against Mr Harvey.  It accepts that Mr Harvey was acting at all material times in accordance with instructions from Mr Bourke. The bank seeks indemnity or increased costs, however, against Mr Bourke.  It says that he should never have lodged the caveat, and that he should never have opposed the present application.

[19]     Counsel for the bank is to file and serve a memorandum within 14 days setting out the legal costs that the bank has  incurred in relation to this matter, together with very brief submissions as to why Mr Bourke should be required to pay indemnity or increased costs.   Mr Bourke will then have 14 days within which to respond, with the bank having a further seven days thereafter to reply.  I will then deal with the issue of costs on the papers.

[20]     In the event that Mr Bourke has not filed submissions in relation to costs within 14 days after the date on which the bank’s submissions are filed and served, the Registrar is to refer the file to me so that I can determine the issue of costs based

on the memorandum of counsel for the bank.

Lang J

Solicitors:

Bell Gully, Wellington
Mr T Richardson, Tauranga

Tony Harvey, Solicitor, Greerton