LSK Builders 2011 Limited v Chamberlain
[2021] NZHC 2018
•5 August 2021
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2021-442-9
[2021] NZHC 2018
UNDER section 143 of the Land Transfer Act 2017 IN THE MATTER
of an application to sustain a caveat
BETWEEN
LSK BUILDERS 2011 LIMITED
Applicant
AND
MARK ELWYN CHAMBERLAIN and SUZANNE CATHERINE CHAMBERLAIN
Respondents
Hearing: 15 July 2021 Appearances:
G Pearson and M E Byczkow for applicant LS B Acland for respondents
Judgment:
5 August 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] This is an application pursuant to sub-pt 7 of pt 3 of the Land Transfer Act 2017 for an order that a caveat not lapse. The applicant is LSK Builders 2011 Ltd (LSK). The respondents are Mark and Suzanne Chamberlain.
[2] LSK is a building company. In July 2017 Mr and Mrs Chamberlain engaged LSK to build a home for them in Nelson. The build did not go smoothly. Virtually from the outset differences arose. The build has been completed, but the parties remain locked in a dispute. LSK is claiming that it is owed approximately $200,000. Mr and Mrs Chamberlain do not accept that they owe this.
LSK BUILDERS 2011 LIMITED v CHAMBERLAIN [2021] NZHC 2018 [5 August 2021]
[3] The contract contained a comprehensive dispute resolution provision in cl 7.5. This provided for an escalating process involving negotiation, mediation and arbitration (and catered also for the process contained in the Construction Contracts Act 2002).
[4] Notwithstanding this provision, the parties’ dispute is being litigated in the District Court. I am informed that this reflects an election by Mr and Mrs Chamberlain pursuant to s 11 of the Arbitration Act 1996. The proceeding was commenced by LSK in September 2019. It is still at the interlocutory stages, and nowhere near being set down for trial.
[5] The key clause in the contract for present purposes is cl 5.4 which is headed “Payment”. It provides for progress payments and payment following practical completion in fairly orthodox terms. It goes on to provide protections for the contractor in the event of a dispute about costs in the form of entitlements to lodge a caveat against, and register a mortgage over, the title to the property.
[6]Clauses 5.4.5 and 5.4.6 read:
5.4.5The Owner hereby irrevocably agrees and acknowledges that to secure payment of the monies due and owing to the Builder under this Contract, they shall grant a registered mortgage over the Site, the real property description of which is contained in the First Schedule hereof, in favour of the Builder. The form of the mortgage shall be the current Auckland District Law Society All Obligations Mortgage Memorandum (or in the event the Auckland District Law Society ceases to exist the form used by the lawyers for the Builder from time to time).
5.4.6For the purposes of clause 5.4.5, if the Owner refuses or fails for whatever reason to execute the necessary documentation to effect the mortgage security in favour of the Builder, the Owner hereby irrevocably appoints the Builder and, if the Builder is a company, the directors to be the attorney of the Owner at any time to:
a)execute and sign the mortgage in favour of the Builder; and
b)procure the registration of the mortgage; and
c)execute and perform any act or deed, matter of thing in accordance with this clause as fully and effectually as the Owner could do.
[7]And, cl 5.4.7 reads:
5.4.7The Owner irrevocably authorises the Builder to lodge and maintain a caveat against the title to the Site for the protection of the Builder’s rights in this Contract.
[8]Section 138 of the Land Transfer Act provides:
138 Caveats against dealings with land
(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—
(a)claims an estate or interest in the land, whether capable of registration or not; or
(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or
(c)is transferring the estate or interest in the land to another person to be held on trust; or
(d)is the registered owner of the estate or interest in the land and—
(i)has an interest that is distinct from that of registered owner; or
(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.
(2)A caveat against dealings document must be executed by the caveator or the caveator’s agent.
(3)A caveat against dealings document must contain the prescribed information.
[9] A caveat lodged pursuant to s 138 protects any interest the caveator claims in the land in question by precluding dealings that would or might be inconsistent with that interest.
[10] On 10 October 2018, LSK lodged a caveat against the title to Mr and Mrs Chamberlain’s property.
[11] Mr and Mrs Chamberlain have applied to the Registrar of Land for the lapse of LSK’s caveat. The Registrar has given LSK notice requiring it to apply to the Court for an order that its caveat not lapse. LSK did so by originating application dated 8 March 2021 supported by an affidavit sworn by the company’s managing director,
Mr Graham Vercoe. LSK’s application is opposed by Mr and Mrs Chamberlain. They have filed a notice of opposition dated 30 March 2021 and Mr Chamberlain has sworn an affidavit in support of their notice of opposition.
[12] The principles governing such applications are well settled and uncontroversial. They were summarised in Philpott v Noble Investments Ltd:1
(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b)It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and
(d)When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.
(Footnotes omitted.)
[13] LSK’s caveat was lodged pursuant to the Land Transfer Act 1952 (repealed). This raises an issue about the legislation that applies. As at 10 October 2018 the Land Transfer Act 1952 was in force. The Land Transfer Act 2017 came into force from 12 November 2018.
[14] The transitional provisions of the 2017 Act clarify the position. These are contained in sch 1. Paragraph 2 of sch 1 deals with “Instruments lodged and matters in progress before commencement date”. Paragraph 2(1)(a) provides that “an instrument lodged with the Registrar but not fully dealt with under pt 3 of the Land Transfer Act 1952 before commencement of this clause” is to be dealt with under the 1952 Act. However, once dealt with, it is treated as having been lodged under the 2017 Act.
1 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. See also Sims v Lowe [1988] 1 NZLR 656 at 660 (CA) and Zwarst v Saxton [2012] NZHC 448 at [12].
[15] The concept of an instrument being “dealt with” appears to me to refer to its being dealt with by the Registrar acting in his or her capacity as a recipient of the same. So, once LSK’s caveat was lodged against the title to Mr and Mrs Chamberlain’s property, it seems to me that it was dealt with in the sense that the phrase is used in para 2(1)(a), and from that point on it is governed by the 2017 Act.
[16] Caveats must state the basis or bases upon which they are lodged, and LSK’s caveat does so in the following terms:
Estate or Interest Claimed
Subject to the Caveator’s right to mortgage the property pursuant to cl 5.4.5. to 5.4.7 of the Residential Building Contract dated 27 July 2017 between the registered Proprietors and the Caveator.
[17] Although that description is perhaps not as clear as it might be, it is plain enough that LSK’s caveat was lodged in order to protect its contractual right to register a charge over the title to the property to secure any amount claimed by it under the contract.
[18] LSK was undoubtedly entitled to lodge its caveat when it did for that purpose, and Mr and Mrs Chamberlain do not contend otherwise.
[19] On 16 January 2019 LSK registered a charge in the form of a mortgage over the Chamberlain’s property to secure the amount in dispute between the parties under the contract pending the outcome of the proceeding in the District Court. Although there are issues as to whether LSK was entitled to register this charge without going through every stage of the process described in cl 5.4.6 of the contract, Mr and Mrs Chamberlain do not take this point.
[20] Mr and Mrs Chamberlain’s contention, and the basis for their opposition to LSK’s application for an order sustaining its caveat, is that once LSK registered its charge, its caveat was of no ongoing effect. In other words, they say that the interest originally protected by the caveat can be no greater than the interest now protected by the mortgage, rendering the continuing existence of the caveat pointless. On that basis, they contend that the caveat should not be allowed to remain.
[21] LSK contends otherwise. It says that caveats and mortgages perform slightly different functions, and that the caveat has an ongoing job to do here.
[22] The issue then is whether LSK can establish an arguable case to an interest in the land that the caveat is protecting.
[23] As I see the case, it is capable of being disposed of by reference to the following propositions, which are cumulative in effect:2
(a)A caveat can only be sustained if the caveator can point to a qualifying interest. This requires the caveator to point to an arguable interest in the land in question. An arguable cause of action against the registered owner will not suffice, unless it creates or carries with it an interest in land;
(b)Even a contractual right to register a caveat is not necessarily sufficient to meet the requirements of s 138 of the Land Transfer Act, unless that contractual right is linked to an arguable proprietary interest in the land in question;
(c)A contractual right to secure a debt by registering a charge over land is a qualifying interest because the security right gives rise to an interest in the land;
(d)In this case, LSK cannot and does not attempt to point to an interest in the Chamberlain’s land capable of supporting its caveat other than its contractual right to register a charge over the same, as is evident from the terms of its caveat;
(e)It follows that LSK’s caveat became redundant when LSK registered its mortgage over the Chamberlain’s land because, even if Mr Pearson is correct, as he almost certainly is, in submitting that, around the
2 These are drawn from Philpott v Noble Investments Ltd (above n1), and the earlier cases referred to therein.
margins, a caveat provides protection which is in some respects different from that provided by a mortgage, LSK cannot and does not point to an interest in the land other than the interest it has by reason of its contractual right to register its mortgage.
[24] In my judgment, those propositions lead to the conclusion that LSK cannot justify its caveat because it has no foundation for any claim to an interest in the land that is not covered by its mortgage security and thus the basis for maintaining the caveat no longer exists.
[25] I accept of course Mr Pearson’s submission that a caveator need only establish an arguable case as recently emphasised by the Court of Appeal in Cowan v Cowan,3 but I can see no route by which LSK could establish an interest in the land that is not also covered by its mortgage.
[26] Mr Pearson also raised in submission that LSK’s claim is now for a greater amount than it was as at the date of the registration of the mortgage, essentially because of accumulating interest and escalating costs. I do not accept that that alters the position. LSK’s arguable interest in the land extends only to the debt due under the contract. Any amount due under the contact could and should be covered by an all obligations security of the sort it was contractually entitled to register. Any claim not due under the contract does not constitute an interest in the land.
[27] For those reasons, LSK’s application for an order sustaining its caveat is dismissed.
[28] My preliminary view is that the Chamberlains are entitled to costs, which I would be inclined to order on a 2B basis, in relation to this interlocutory matter. But I have not heard from counsel as to costs and therefore reserve them. If counsel are unable to resolve costs, as I would expect them to do, they may revert by memorandum
3 Cowan v Cowan [2021] NZCA 31.
in the usual way.
Associate Judge Johnston
Solicitors:
Isherwood Le Gros Law Ltd, Nelson for the applicant Rout Milner Fitchett, Nelson for respondents
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