Malhotra v ASB Bank Limited
[2025] NZHC 2735
•19 September 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2025-404-1136
[2025] NZHC 2735
BETWEEN SHRESHTH MALHOTRA
Applicant
AND
ASB BANK LIMITED
First Respondent
AND
ANKUSH SOOD
Second Respondent
AND
SALONI SOOD
Third Respondent
Hearing: 9 September 2025 Appearances:
D Purusram and L Kaur for Applicant
D M Hughes and V Ang for First Respondent
Second and Third Respondents self-represented (via VMR)Judgment:
19 September 2025
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 19 September 2025 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
………………………….
MALHOTRA v ASB BANK LIMITED [2025] NZHC 2735 [19 September 2025]
[1] Mr Malhotra applies to sustain caveats he has lodged over two properties in Sunny Hills, Auckland. The caveats were lodged on 4 February 2025 and in respect of each property, the interest claimed is the same, being:
By virtue of a now unconditional agreement for sale and purchase dated 10/10/2023 between the Registered Owners Ankush Sood and Saloni Sood (vendors) and the Caveator Shreshth Malhotra (purchaser) – for each property.
[2] ASB Bank Limited (ASB) on 14 May 2021, registered a mortgage against each of the two titles subject to Mr Malhotra’s caveats.
[3] ASB applied to lapse Mr Malhotra’s caveats. Mr Malhotra applied to sustain them.
[4] The second respondents, Mr and Mrs Sood, are the owners of the two properties and the vendors under the 2023 agreements for sale and purchase with Mr Malhotra.
[5] Mr and Mrs Sood have breached their obligations to ASB and ASB wishes to conduct a mortgagee sale of the two properties. There is no issue as to the breach by Mr and Mrs Sood or the steps taken by ASB to conduct a mortgagee sale.
[6] Mr Malhotra paid substantial deposits in respect of each purchase in instalments made between 11 October 2023 and 10 July 2024. In respect of Flat 1, the purchase price was $700,000 and Mr Malhotra paid a deposit of $200,000. In respect of Flat 2, the purchase price was $721,000 and Mr Malhotra paid a deposit of
$175,000.
[7] Mr and Mrs Sood are not in a position to settle their sales to Mr Malhotra as the amount they owe ASB exceeds the balance to be paid by Mr Malhotra under the agreements for sale and purchase. Mr Malhotra says that after agreeing to buy the two properties, he spent some $200,000 renovating them, with a view to selling the properties for a profit.
[8] Mr Malhotra understands Mr and Mrs Sood may have paid some or all of his deposit monies to ASB.
[9]In relation to the deposits, Mr Malhotra says in his affidavit:
… these funds were transferred by me with the clear intention of completing the purchases of the properties. ASB has no right, title, or claim to those funds, as they were paid for a specific purpose which can no longer be fulfilled. The Vendors have misappropriated my deposit by transferring it to ASB.
[10] Mr Malhotra is in a difficult situation. He acknowledges that ASB has a mortgage over the two properties and has a right to sell them.
[11] Mr Malhotra asserts that ASB, via Mr and Mrs Sood, was aware of his purchase of the two properties. Mr Malhotra suggests ASB has received benefits to his detriment (including by virtue of the renovations he has carried out, along with the deposits paid) and asserts:
ASB Bank is a trustee of all monies received from the Soods which are from the deposit funds. It is unfair for ASB to encash my deposit payment, make profit on a higher sale price of the house as a result of the renovation works and get first hand on all monies paid from the sale of the properties.
ASB’s position
[12] ASB says its interest as first mortgagee over the properties and its accrued power of sale are both indefeasible.
[13] ASB says it is not bound by the agreements for sale and purchase between Mr and Mrs Sood and Mr Malhotra from October 2023. Mr Hughes, counsel for ASB, submits that before Mr Malhotra’s interest could have priority over ASB’s interest as mortgagee, ASB would have to have consented to the agreements for sale and purchase. ASB’s evidence is that it only learnt of the agreements when informed of them by Mr and Mrs Sood on 20 January 2025. ASB says that at no time was its consent sought or given.
Legal principles
[14] In New Zealand Fisheries Ltd v Napier City Council,1 the issue was whether the mortgagee had consented to a lease by the mortgagor to the appellant before selling the premises in exercise of its power of sale. The mortgagee held an unregistered mortgage dated 9 July 1982. The relevant lease was executed in August 1984. The mortgagee’s representative was shown the original lease in 1985. The mortgagee subsequently registered its mortgage and exercised its power of sale through the Registrar of the Court. The respondent Council was the purchaser. The tenant unsuccessfully attempted to block the sale and issued proceedings against the Council. The Court found that the mortgagee knew the appellant had a lease but that the mortgagee was never formally approached for its consent to that lease, so had not consented, and the Council was accordingly not bound by the lease after the sale.
[15] The Court of Appeal found that the mere acquiescence to a state of affairs is not enough to constitute consent. In distinguishing between acquiescence and consent, the Court stated:2
… acquiescence involves no more than the passive standing by without objection, whereas consent requires a positive affirmative act such as written or oral acceptance or even an implied acceptance by conduct.
[16] New Zealand Fisheries Ltd case followed an earlier decision of Somers J, Registered Securities Ltd v Christensen Potato Co Limited. The Court of Appeal in that case said:3
The onus lies on the tenant to show that the mortgagee must recognise his right of occupation … Mere knowledge by the mortgagee of the existence of the lease is not enough.
[17] In Cashmere Capital Ltd v Carroll, the Supreme Court supported a narrow interpretation of “consent”. McGrath J stated:4
[79] These decisions indicate that a consent which, under ss 105 [the 1952 equivalent provision of s 103] and 119, binds a mortgagee to the competing estate or interest in another instrument, requires conduct which affirms the
1 New Zealand Fisheries Ltd v Napier City Council (1990) 1 NZ ConvC 190,342 (CA).
2 New Zealand Fisheries Ltd v Napier City Council, above n 1 at [69].
3 Registered Securities Ltd v Christensen Potato Co Ltd (1991) ANZ ConvR 57 at 4.
4 Cashmere Capital Ltd v Carroll [2009] NZSC 123 [2010] 1 NZLR 577.
lease. A mortgagee who is aware of a third party’s interest, and passively stands by, making no objection, has not consented. For there to be a valid consent the mortgagee must either have been aware of the essential terms of the lease or be shown to have consented to the lease whatever its terms may be. Only then does the mortgagee consent to the terms of the other instrument, in the sense of agreeing to be bound by it.
(emphasis added)
[18] The Supreme Court’s decision in Cashmere Capital Ltd was followed by Gendall J in GP96 Ltd v F M Custodians Ltd, where he said that decision:5
Essentially, … confirms that a mortgagee’s “consent” under the Land Transfer Act requires both an awareness of the terms of a lease and an affirmative acknowledgment that it will be bound by those terms.
[19] While the above passages are in the context of whether a lease has priority over a prior registered mortgage so that in a mortgagee sale the property is sold subject to the tenancy, the same principles apply in relation to an agreement for sale and purchase.
[20] As to authorities dealing specifically with whether a mortgagee is bound by an agreement for sale and purchase entered into by the mortgagor, I adopt the statement of the law from Mr Hughes’ submissions.
[21]In Canterbury Finance Ltd v Sagar Trust Ltd, it was held that:6
If a mortgagee does not consent to a sale, the mortgagee is not bound. Sagar’s interest in the land, being subject to the mortgagee’s power of sale, was extinguished by the sale to the mortgagee.
[22] In Vegar-Fitzgerald v Aorangi Forests Ltd, the Court of Appeal set out the following substantive principles:7
(1)In the ordinary course a party who enters into an agreement to purchase land acquires an equitable interest in the property which is entitled to the protection of a caveat.
(2)However, where the owner of property has encumbered its estate by mortgage, its rights are subject to the mortgagee’s prior rights.
5 GP96 Ltd v F M Custodians Ltd [2019] NZHC 1183 at [57].
6 Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZ ConvC 192,572 at 95-332.
7 Vegar-Fitzgerald v Aorangi Forests Ltd [2014] NZCA 200 at [13].
(3)In that situation the mortgagee’s title is paramount including its right to exercise its power of sale.
(4)If a mortgagee has not consented to a sale by the owner, the purchaser’s equitable interest is extinguished by a sale by the mortgagee in exercise of its powers and the caveat cannot be sustained.
(5)Consent in this context does not mean mere acquiescence or standing by … instead consent requires proof of a clear and unequivocal, that is, positive and demonstrative act or acts.
[23] The high point of the submission of Mr Purusram, counsel for Mr Malhotra, is his assertion that ASB was aware of the agreements for sale and purchase. The law, however, is clear. Awareness is not consent. Accordingly, even if ASB became aware of the agreements for sale and purchase, that knowledge would not result in the contracts having priority over ASB’s mortgage, that is, it would not mean ASB had to discharge its mortgage on settlement irrespective of whether Mr and Mrs Sood were in a position to pay what they owed ASB.
What became of the deposit?
[24] Mr Nicol, who provided evidence on behalf of ASB, addresses the deposits paid by Mr Malhotra and how they were disbursed by the solicitors acting for Mr and Mrs Sood. Of the $375,000 (the total of two deposits) $300,000 was paid by Mr and Mrs Sood’s lawyers to their Westpac account. Because those monies were deposited into a Westpac account, ASB has no knowledge of what became of them.
$75,000 was paid into the Sood family trust account with ASB and then immediately transferred across to Mr and Mrs Sood’s joint account. Of that $75,000, the amount of $62,000 was transferred to Mr Sood’s personal ASB account and then out to a Westpac account. $11,165 was transferred to Mr Sood’s joint loan deduction account.
[25] It is not possible for ASB to identify whether funds from Westpac accounts that may represent the deposit funds were subsequently transferred to ASB, but the short point is, ASB had no knowledge of the sales by Mr and Mrs Sood and no knowledge of their having received funds represented by Mr Malhotra’s deposit.
[26] ASB also has no way of knowing the nature or source of funds deposited into Mr and Mrs Sood’s accounts. Even if there had been evidence of ASB being aware of the funds being sourced from Mr Malhotra’s deposit, the contractual arrangements between him and Mr and Mrs Sood entitled Mr and Mrs Sood to receive the deposits when they were paid. The deposits became Mr and Mrs Sood’s to use as they wished. In any event, mere knowledge of the source of the funds without more cannot be equated to ASB giving clear and unequivocal consent to the sales, which is required before Mr Malhotra’s agreements for sale and purchase would have priority over ASB’s mortgage.
[27] At the hearing, Mr Purusram spoke to his submissions that referred to ASB holding the deposit funds as constructive trustee and possibly resulting trustee. I understood the submission to be that if such a trust existed, ASB would need to give a credit for those amounts when calculating the amount Mr and Mrs Sood had to pay to discharge the mortgages. If there was an arguable basis for such a trust, then a mortgagee sale could be avoided because Mr Malhotra would be willing to settle on that basis in the expectation that if ASB recognised the credits for the deposits, that would permit the mortgages to be discharged.
[28] The difficulty with that submission is, there is no conduct on behalf of ASB that could result in a constructive or resulting trust remedy. Again, ASB was not aware of Mr Malhotra’s agreements for sale and purchase, nor was it aware of the source of funds paid by Mr and Mrs Sood into the ASB account. The deposits, when paid by Mr Malhotra, were not subject to any trust obligation, albeit on settlement Mr and Mrs Sood would have to give a credit against the purchase price for the amount of the deposits. However, even if there had been some trust obligation around the deposits, ASB was unaware of it.
[29] It follows I am satisfied the application to sustain the caveats should be dismissed and I order accordingly. Mr Malhotra does not have a reasonably arguable basis for saying his agreements for sale and purchase have priority over ASB’s mortgages.
Costs
[30] Costs should follow the event on a 2B basis, plus disbursements as fixed by the Registrar, and I so order.
Associate Judge Lester
Solicitors:
Victorian Lawyers, Auckland (for Applicant) Anthony Harper, Auckland (for Respondent)
Copy to:
A Sood (self-represented Second Respondent) S Sood (self-represented Third Respondent)
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