Luxe One Limited v Jarcel Investments Limited

[2018] NZHC 747

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV-2018-485-29

[2018] NZHC 747

IN THE MATTER

of s 145A of the Land Transfer Act 1952

BETWEEN

LUXE ONE LIMITED

Applicant

AND

JARCEL INVESTMENTS LIMITED

Respondent

Hearing:

16 April 2018

Counsel:

Mr Q Haines for the applicant

Mr J Toebes and Mr N Smith for the respondent

Judgment:

20 April 2018

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1]    This is an application by Luxe One Ltd (Luxe) pursuant to s 145A of the Land Transfer Act 1952 for an order that a caveat registered by it over the title to a property situated at 5 Wakefield Street, Alicetown, Lower Hutt not lapse. The property was formerly owned by a company by the name of Bypass Properties 2013 Ltd. That company was placed in liquidation on 13 March 2014. The liquidators subsequently disclaimed the property. Since then the mortgagee, Jarcel Investments Ltd (Jarcel), has effectively stood in the position of the registered owner. Certainly, it is common ground between the parties that at all material times Jarcel has been in a position to deal with the property. Jarcel opposes Luxe’s application.

[2]    I propose to issue a comparatively brief judgment in this matter, primarily because, by the conclusion of the hearing on 16 April 2016, counsel were in broad

LUXE ONE LIMITED v JARCEL INVESTMENTS LIMITED [2018] NZHC 747 [20 April 2018]

agreement as to the most appropriate outcome.   I express the Court’s thanks to     Mr Haines for Luxe and Mr Toebes and Mr Smith for Jarcel, for the helpful way they approached the matter. A further reason for issuing a briefer judgment than I had originally anticipated might be necessary is that the transaction behind the dispute was entered into nearly two years ago. My perception is that both parties need to get it resolved, and I do not wish to delay the issue of a judgment resolving it.

Background

[3]    On 28 April 2016, the parties entered into an agreement for sale and purchase whereby Jarcel agreed to sell and Luxe agreed to purchase the property.

[4]    The agreement was based on the Auckland District Law Society’s standard form agreement for the sale and purchase of real estate, but heavily modified. The property is a unit in a complex with a title issued under the Unit Titles Act 2010. The purchase price was $200,000. Settlement was to take place on 26 July 2016. Clause 10 of the standard form agreement, which in its unmodified form provides that, after the agreed settlement date, either party may issue a settlement notice requiring the other party to settle, was modified so as to provide that only the vendor, Jarcel, was entitled to do so.

[5]    The settlement date of 26 July 2016 came and went. In the various affidavits before the court, the only evidence of there having been any engagement between the parties or their solicitors prior to that date is a pre-settlement disclosure statement dated 1 July 2016, apparently issued by Jarcel pursuant to s 147(3)(a) of the Unit Titles Act and r 34 of the Unit Titles Regulations 2011.

[6]    On 6 October 2016, Jarcel’s solicitors emailed Luxe’s Managing Director,  Mr Michael Kooiman, saying:

We act for Jarcel Investments Ltd which as mortgagee was proposing to sell to you a property at Unit 7, 5 Wakefield Street.

We now advise the Vendor is not in a position to complete the sale of the property and hereby give notice pursuant to clause 27 cancelling the agreement. We understand no deposit was paid, but if a deposit was paid, it will be refunded in full pursuant to clause 28.

We do not know if you had instructed lawyers to act for you. If you did please pass this correspondence to them.

[7]Clause 27 of the Agreement for Sale and Purchase provides:

Vendor may cancel

27.1The Vendor may cancel the contract at any time upon notice in writing to the Purchaser but without serving a settlement notice if:

27.1.1it is for any reason other than its own default unable to complete the sale of the Property; or

27.1.2the Property has before settlement been sold by any other party or if an injunction or other order is issued or granted affecting completion of the sale whether upon terms or otherwise.

[8]    It will be immediately apparent that the email of 6 October 2016 was not as fulsome as one might expect a notice pursuant to cl 27 to be. It made it clear that Jarcel was purporting to cancel the contract under cl 27.1.1, and therefore on the basis that Jarcel was unable to complete the transaction, but it did not go on to say why it was unable to do so. It is difficult to see how the recipient of such a notice could ascertain whether or not the cancelling party had proper grounds.

[9]    Correspondence followed in which Jarcel was asked to explain the basis for its purported cancellation of the contract, but nowhere in that correspondence is there an unequivocal statement by Jarcel explaining the basis upon which it was purporting to cancel.

[10]   On 22 December 2017, at Jarcel’s request, the Registrar-General of Land issued a notice under s 145A(2) of the Land Transfer Act, effectively requiring Luxe to relinquish its caveat or make this application.

[11]   Luxe   commenced   this   proceeding   by    originating    application    on   18 January 2018. It was supported by an affidavit sworn by Mr Kooiman. Associate Judge Smith made an interim order sustaining Luxe’s caveat on 7 February 2018. Jarcel filed and served a notice of opposition on 19 February 2018, supported by an affidavit sworn by Ms Monica Blaser, one of Jarcel’s directors. Luxe filed five affidavits in reply. Mr Kooiman swore a second affidavit dated 13 February 2018;

there were also affidavits sworn by Mr Bruce Young, the solicitor acting for Luxe in relation to this transaction; Mr William Slater, who is connected with another company associated with Mr Kooiman, Gateway Holding Company No. 2 Ltd, which it was apparently envisaged would be nominated as the party to take title to the property if and when the transaction settled; Mr Scott Todd, a director of Fico Finance Ltd, a financier, and Mr Peter Harrison, the General Manager of Fund Managers Central Ltd, another financier.

[12]   On the morning  of  the  hearing,  I  received  a  third  affidavit  sworn  by  Mr Kooiman. As I understand it, this affidavit was intended to respond to some of the matters raised in submissions filed and served on Jarcel’s behalf for the hearing. There is no evidence of this affidavit having been served, and Mr Toebes informed me that he had not seen it prior to the hearing. On Jarcel’s behalf, he objected to the affidavit being read. He submitted that it was not filed in accordance with the Rules, and that if it were to be read it would be prejudicial to Jarcel’s position. In response Mr Haines submitted that Jarcel had not complied with its own obligations in relation to the filing and  service  of  its  notice  of  opposition  and  affidavit  evidence,  and   that   all  Mr Kooiman’s third affidavit did was provide further information about matters covered in earlier affidavits. I declined Luxe’s application that Mr Kooiman’s third affidavit be read.

The competing arguments

[13]   Luxe’s originating application and Jarcel’s notice of opposition ranged far and wide in terms of the grounds for the former’s application and the latter’s opposition. However, in argument, Mr Haines and Mr Toebes were more focussed.

[14]   The principles governing applications pursuant to s 145A of the Land Transfer Act are well settled, and were summarised by the Court of Appeal in Botany Land Development Ltd v Auckland City Council:1

(1)The onus is on the caveator to demonstrate that it holds an interest in the land which is sufficient to support a caveat.

1      Botany Land Development Ltd v Auckland City Council [2014] NZCA 61; (2014) 14 NZCPR813 at [24]–[25] (footnotes omitted).

(2)The caveator must put before the court a reasonably arguable case to support the interested claims.

(3)An order the removal of a 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.

(4)There is a residual discretion, once a reasonably arguable case has been established, as to whether to make an order removing the caveat. This will be exercised only cautiously, for example where the court finds there is no practical advantage to maintaining a caveat and the caveator will be prejudiced.

(5)Any application to lapse a caveat, and any challenge to that application, does not preclude a claimant from seeking other remedies such as an interim injunction preventing dealing with the land.

[15]   Mr Haines accepted that whilst there was no evidence of Jarcel pressing for the settlement of the transaction on 26 July 2016, nor was there any evidence of Luxe taking any active steps to settle. Indeed, it is a curiosity of this case that neither party seems to have been especially interested in a settlement on the original settlement date. Mr Haines offered no particular explanation of why that was so, and nor was he in a position to do so having regard to the evidence. However, as he observed, it is common for transactions for the sale and purchase of real estate not to settle on the originally agreed settlement date.

[16]   Mr Haines submitted that once a settlement date has passed, it becomes necessary for one of the parties to give notice to settle, and he emphasised that in the case of this agreement, only the vendor was in a position to do so. His submission was that until such time as Jarcel gave notice pursuant to cl 10 of the agreement, Luxe was under no obligation to take any particular step.

[17]   Mr Haines also emphasised that because this transaction involved the sale of a unit title under the Unit Titles Act 1910, Jarcel was obliged to provide Luxe with pre- settlement disclosure pursuant to s 147(3)(a) of that Act, in the form provided for in  r 34 of the Unit Titles Regulations. As to that, Mr Haines accepted that Jarcel had purported to provide such disclosure by notice dated 1 July 2016, but he contended that the notice did not comply with the statutory requirements in no fewer than seven respects. Mr Toebes submitted that these criticisms were highly technical in their

nature, and that all Luxe had to do was make the necessary enquiries to obtain any further information.

[18]   I do not accept that the criticisms levelled at Jarcel’s pre-settlement disclosure notice are all trifling matters. It was not dated and signed as required by the Act, and did not include all of the information required by the Regulations. In my judgment it was defective, and not a notice on which Jarcel was entitled to rely.

[19]   Finally, Mr Haines submitted that, in any event, Jarcel’s purported termination of the contract by email dated 6 October 2016 was ineffective. He submitted that the notice was inherently defective because it did not articulate why Jarcel was saying that it was unable to settle. He pointed to the correspondence between the parties following that email in which, it is fair to say, Luxe’s solicitor, Mr Young, sought further and better particulars as to the basis for Jarcel’s termination. He submitted that Jarcel never provided a satisfactory explanation.

[20]   In the affidavit evidence and the correspondence between the parties, there are suggestions that Jarcel was entitled to rely on cl 27.1.1, that is to say that it was unable to settle, because it had entered into earlier transactions to sell the property, first to a company by the name of Danseys Ltd, which was and is closely associated with Jarcel, and then subsequently to the trustees of a trust which appears to be controlled by a Mr Harry Memelink.

[21]   Although that contention was not pursued in argument before me, I should say that I would not have concluded that the earlier agreements justified Jarcel’s cancellation of the contract. For a start, Jarcel clearly repudiated any contract with Danseys Ltd by entering into the contract with the Memelink trustees (and Danseys Ltd must be taken to have accepted that repudiation), and, likewise, it clearly repudiated the contract with the Memelink trustees by entering into the contract with Luxe which is the subject matter of this proceeding (again the Memelink trustees must be taken as having accepted that repudiation). Even if one or either or both of those earlier agreements was an impediment to Jarcel proceeding with its agreement with Luxe, it could scarcely be said that Jarcel’s inability to proceed was not a result of its own “fault”.

[22]   In developing the argument for Jarcel before me, Mr Toebes placed no substantial reliance on the antecedent contracts that the company had entered into with Danseys Ltd and the Memelink trustees, no doubt for the reasons I have outlined. The upshot is that Jarcel’s notice was justified on grounds not articulated in its notice of cancellation; or in subsequent correspondence between the parties and their solicitors; or indeed at any stage prior to counsel’s submissions being filed and served.

[23]   Mr Toebes’ essential submission was that Luxe was never, or at least at no time prior to 6 October 2016 when Jarcel purported to cancel the agreement, in a position to settle the transaction. He contended that as Luxe had not tendered settlement prior to 26 July 2016, or at any time after that date and before 6 October 2016, it could not maintain that it was ready, willing and able to settle. It followed that Jarcel was entitled to cancel on that basis.

[24]   In support of this submission, Mr Toebes referred me to the Court of Appeal’s judgment in Dempsey v Howe2 and the Supreme Court’s judgment in Bahramitasa v Kumar.3

[25]   He submitted that in those cases the Court of Appeal and the Supreme Court made it clear that, in the generality of cases, a purchaser seeking to establish, in litigation after the event, that it had been ready, willing and able to settle must prove that it had tendered the settlement funds.

[26]   I accept that submission, but, in my judgement, there are features of this case which make it distinguishable from decisions such as Howe and Bahramitasa. Neither of those cases, nor any other case to which I was referred in the course of argument, involved a sale by a mortgagee in possession of a unit title where the parties had agreed that only the vendor was entitled to issue a notice to settle.

[27]   With respect to the first feature, Mr Young’s unchallenged evidence was that in the case of a sale by a mortgagee in possession of a unit title, only the vendor’s solicitors can prepare the settlement statement because they have access to information

2      Dempsey v Howe [2015] NZCA 9, (2015) 16 NZCPR 203.

3      Bahramitasa v Kumar [2005] NZSC 39, [2006] 1 NZLR 577.

which the purchaser’s solicitors (who in the usual course of events would be preparing the settlement statement) do not. As to the second feature, in the case of a sale of a unit title, s 17 of the Unit Titles Act requires the vendor to provide compliant pre- settlement disclosure. It is common ground that Jarcel did produce such a statement, but I have indicated that in my judgment this did not comply with the legislative requirements.

[28]   On the evidence, it seems to me to be a reasonable inference that both parties were prepared to allow the settlement date of 26 July 2016 to pass and that an argument can be made for the existence of an implied agreement for the delay of settlement of this transaction.

[29]   The 26 July 2016 settlement date having come and gone, by reason of cl 10 of the agreement, only the vendor was in a position to give notice to settle and no such notice was ever given.

[30]   In those circumstances, it seems to me to be arguable that Jarcel’s purported termination of the contract, based, as it is now contended, on Luxe’s financial inability to settle, was ineffective, and that the contract continued and remains extant. Certainly, I am satisfied that the applicant, Luxe, has a reasonably arguable case to that effect, and therefore a reasonably arguable case that it continues to enjoy a proprietary interest in the land.

[31]   That brings me full circle to the issue of the court’s residual discretion as to whether or not to make the order sought sustaining the caveat.

[32]   In relation to this, Mr Haines emphasised that his client’s position was that it had been ready, willing and able — and indeed anxious — to settle this transaction from the outset, and that that continues to be the position.

[33]   Mr Toebes forcefully contended that it was Jarcel which had been ready, willing and able to settle this transaction throughout, but that the reality was that Luxe had never had the financial wherewithal to do so. He said that if the Court were to

make an order sustaining Luxe’s caveat all that would happen is that Jarcel would issue a notice requiring settlement and Luxe would be unable to comply.

[34]   On the evidence, and in particular the evidence of Mr Kooiman, Mr Young, Mr Dodd and Mr Harrison, who all say in effect that Luxe had a line of credit available to it, I cannot conclude that Luxe never had the financial capacity to settle this transaction.

Conclusion

[35]   If there is one point which is obvious to me it is that this matter needs to be brought to a head. In discussions with counsel, I raised the possibility of conditions requiring an early settlement, and both Mr Haines and Mr Toebes indicated that the imposition of such conditions would be acceptable to their clients.

[36]   I have concluded that the applicant has a reasonably arguable case that it has an equitable interest in the property, and that it is entitled to the order it seeks, but I propose to impose conditions which ensure that if the matter does not settle within a short period of time, the caveat will lapse.

[37]I make the following orders:

(a)pursuant to s 145A of the Land Transfer Act 1952 I order that caveat no. 10433295.1 registered by Luxe One Ltd over the land known as unit 7. BC  68792,  located  at  5  Wakefield  Street,  Alicetown, Lower Hutt, not lapse, subject to orders (b) and (c) below;

(b)at Jarcel Investments Ltd’s invitation, I order that within 10 working days of the date of this judgment the company shall issue a settlement notice pursuant to cl 10 of its agreement for sale and purchase with Luxe One Ltd providing all information in Jarcel’s possession which will enable Luxe One Ltd to settle the transaction;

(c)upon the issue by Jarcel Investments Ltd of a settlement notice pursuant to (b) above, Luxe One Ltd shall tender the funds necessary to settle

the acquisition by it —or its nominee — pursuant to the agreement, and take all other steps necessary to effect a final settlement of the transaction, within 10 working days of the service of that notice;

(d)in the event that Luxe One Ltd does not tender the funds necessary under (c) within that time period, caveat no. 10433295.1 shall lapse.

[38]   As to costs, whilst Luxe may appear to have been successful in its application, the reality is that both parties have had a measure of success, and my preliminary inclination, without the benefit of hearing argument on the point, is that this is a case in which costs should probably be left to lie where they have fallen. However, if there are residual costs issues, and counsel are unable to agree on these, they may file memoranda and I will deal with costs on the papers.

Associate Judge Johnston

Solicitors:

Q H Law, Levin for applicant

Dyer Whitechurch, Auckland for respondent