Marac Finance Limited v Baldock HC Auckland CIV-2010-470-970

[2010] NZHC 2436

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-470-970

UNDER  Section 143 of the Land Transfer Act 1952

IN THE MATTER OF     Caveat 8117006.1 (Gisborne Registry) BETWEEN  MARAC FINANCE LIMITED

Applicant

ANDYVONNE GAYE BALDOCK Respondent

Hearing:         7 December 2010 (Heard at Tauranga)

Appearances: Mr T J G Allan for Applicant

Mr D J Sweet for Respondent

Judgment:      16 December 2010 at 10:00 AM

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

15.12.10 at  5 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:

Grove Darlow & Partners, Auckland - [email protected]

Sweet Legal, Mount Maunganui – [email protected]

MARAC FINANCE LIMITED V BALDOCK HC AK CIV-2010-470-970 16 December 2010

Background

[1]      The applicant seeks an order for removal of a caveat which the respondent lodged against the title to a property at Gisborne on 3 March 2009.  In lodging the caveat the respondent claims to rely upon  an  equitable interest arising from an agreement to mortgage which she alleges she entered into with the registered proprietors of the property.  The applicant accepts for the purposes of the proceeding that the respondent has an enforceable agreement to mortgage.

[2]      The applicant was registered as first and second mortgagee of the property on

3 October 2007 and 5 October 2007.   The mortgagors are in default under their mortgage and notices under s 119 of the Property Law Act 2007 expired unremedied on 18 February 2010.

[3]      The applicant qua second mortgagee took steps to sell the property by tendor in May of this year.  The applicant elected not to accept any of the tendors.  I make further reference to the tendors below.

[4]      One of the mortgagors was adjudicated bankrupt on 7 September 2010.  The other has gone to Australia with his last known address being in Queensland.  For practical purposes there is no prospect of any significant recovery against either mortgagor under the mortgagors’ covenants.

[5]      The respondent’s caveat is based on an agreement to mortgage dated 31

August 2004.   She lodged her caveat on 30 March 2009.   The prior registered charges on the land are:

a)       First mortgage to applicant  3 October 2007 b)       Second mortgage to applicant  5 October 2007 c)       Third mortgage to M J Broadmore                9 May 2008.

[6]      The respondent accepts, that her mortgage is likely to be defeated by the exercise of the power of sale in any of the first, second or third mortgages.

[7]      There is currently an interested purchaser in the property, a Mr Raudner- Mueller.  I accept that, as the applicant deposes, it is highly likely that the interested party will make settlement of any agreement conditional upon Marac removing the respondent’s caveat.   The applicant is not prepared to leave it to chance that the respondent will remove the caveat upon settlement.   The respondent has indicated she is prepared to consent to an order that the caveat:

Shall be removed upon presentation to the District Land Registrar of Wellington of a transfer for registration from the Public Trust as mortgagee to the mortgagee’s purchaser.

[8]      However, such an order would not be acceptable to the applicant.

[9]      The applicant contends that a sale at the currently indicated value of the property would leave nothing for the respondent.   To assess that submission it is necessary to briefly consider the issue of the value of the property and the debts secured over it.

[10]     A real estate agent who took part in attempts to sell the property in 2008 at the request of the then first mortgagee deposed that the price-level which prospective buyers were considering offers was then $400,000 - $500,000.  As well tendors were sought for the property earlier this year.   The applicant’s solicitor, Mr Morrison, confirmed that the highest conditional offer was $750,000 and the highest unconditional offer $270,000.   Mr Searle’s opinion is that the land and buildings on current market values would achieve $400,000 - $500,000.    As well, a registered valuation was obtained as at March 2010 which fixes the value of the land and buildings at $574,500.  I shall make further reference to that valuation below.

[11]     The respondent is sceptical about what she regards as the unrealistically low values that are now being described by the applicant.   One of the reasons for her doubts arises from the presence on the property of a bentonite mine.  Although the valuer, Mr Tietjen, had previously assessed the mine as having considerable value, his current opinion is that it is of little value at the present time.

[12]     Mr Sweet, in the course of the candid and clear submissions that he made on behalf of the respondent, strongly submitted that figures in the order of Mr Searle’s and Mr Tietjen’s represent an understatement of value.  It was his submission that at some time in the future the property may well have a significantly higher value.  His submission was that the respondent considers the bentonite mine could well appreciate in value significantly in the years ahead and that that could lift the value of the property overall.

[13]     On the basis of the material before me, I can only observe that while what Mr Sweet said about the value of the property, and the bentonite mine in particular, may turn out to be true, it would be speculative at the present time to assume that in the immediate future within which realisation of the property is likely to occur any figure greater than the one I mentioned earlier is likely to be obtained.  Given all of these circumstances and in the absence of any competing valuation evidence filed on behalf of the respondent, it is my tentative view that in the present market the property is unlikely to sell for anything in excess of $600,000.

[14]     If that is so, on the basis of the evidence filed in this proceeding, it would seem to be unlikely that a sale of the property will achieve anything for the respondent.   That is because a sum in the order of $1,500,000 would have to be realised in the sale of the land and buildings to pay off prior charges before she would receive anything of benefit from the sale.  While she has a mortgage, on the evidence before the Court it would seem unlikely that it provides security for her debt.

What order should the Court make?

[15]     In essence, the arguments for the applicant are that because of the factual considerations concerning the extent of the indebtedness which is secured by charges ranking in priority to the applicant’s charge and because it is highly probable that on realisation of the secured property by sale there will not be enough funds to pay out anything under the respondent’s mortgage, the continued existence of the caveat to support that mortgage is unjustified and it ought to be discharged.

[16]     The essential point of difference between the parties is that Mr Sweet for the respondent contended that where the caveator has shown a caveatable interest exists, the caveat should ordinarily be maintained until the mortgagee presents a transfer pursuant to that power of sale for registration of a purchase.  This is because it is not until that point that the caveatable interest is extinguished.  He submitted that until registration of that transfer the caveator’s interest as a subsequent chargeholder is still valid and the caveator is entitled to maintain its claim against the mortgagor’s interest in the land.  He submitted the appropriate order in this situation is the caveat should be removed on presentation of the transfer for registration.

[17]    In the Cantab Management Limited v Greagh Investments Limited case, Associate Judge Faire observed that having regard to s 105 of the Land Transfer Act

1952, the purchaser from the mortgagee is entitled to have a clear title.1   The caveat

creates no priority ahead of the rights, which are acquired upon the exercise of the power of sale.  He noted that the registered proprietors’ interest in the land ends with the transfer to the mortgagee’s purchaser.  He said at [29]:

.. From that point, there is no remaining legal interest in the land held by the person  who  was  the  former  Registered  Proprietor  and  which  remains available as an interest to which the caveat can attach.   There is simply nothing which will support the caveat.   What extinguishes the Registered Proprietor’s interest in the land, however, is the registration of the transfer. Up until that time, the caveator is entitled to maintain the claim against the registered proprietor’s interest in the land...

[18]     I respectfully agree with the Judge’s conclusions which are applicable to the position where the caveat is not removed prior to the point where settlement occurs on the sale by the mortgagee. In such circumstances orders cannot be made which have effect prior to the point where a transfer is presented for registration.  That is why Associate Judge Gendall in his decision in Public Trust v Toussaint made an order that the caveat be removed on presentation of a transfer in the exercise of the

power of sale of the mortgagee.2

1 Cantab Management Limited v Greagh Investments Limited HC Hamilton M95/02, 2 November

2002.

2 Public Trust v Toussaint HC Wellington CIV-2004-485-859, 20 July 2004.

[19]     But in its judgment in Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd the Court of Appeal expressed the opinion that the Court has power to remove a caveat even where it is clear that the caveat does actually support an extant interest which is held by the caveator.3    Such an order is able to be made under s

143.  The power under s 143 was described in the following terms:

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 the 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.

[20]     In the Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd case the Court concluded that the caveator did have an arguable interest which would support a caveat, it declined however to remove the caveat because the material which the appellant had put before the Court did not persuade it that there would be “in the end result ... no legitimate benefit to the respondent from maintaining its caveat”.  In that case the appellants had put before the Court valuations of properties and had expressed the opinion that there would be a shortfall for the appellant under its securities leaving no funds available for other creditors, including the respondent

to the appeal who opposed the removal of its caveat.4    The evidence, though, did not

go far enough in that case to justify an order being made.

[21]     Approaching the matter in the same way in this case, the Court will only remove the caveat pursuant to the power conferred by s 143 if it is clear that there is no reasonable basis upon which it could be supposed that maintaining the caveat will

benefit the caveator.

3 Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd CA 91/05, 27 June 1996.

4 Ibid, at 5.

[22]     In  this  case,  Mr  Sweet  emphasised  that  the  valuation  which  Mr  Tietjen provided 12 March 2010 contrasted materially with the valuation that he provided less than three years earlier and which was dated 10 August 2007.   In that earlier valuation the value of the land and improvements was estimated to be $1,172,000. There appears to have been included in that valuation a figure for a title which was not the subject of the latest valuation, GS6A/689, a block of land of 8.732 hectares which including improvements was valued at $125,000 and which therefore for purposes of comparison needs to be deducted from the 10 August 2007 valuation. Even after that deduction, though, the adjusted value for the land of $1,047,000 in Mr Tietjen’s valuation of August 2007 contrasted dramatically with a current valuation of $574,500 for the same properties.  Mr Sweet further drew my attention to the fact that the earlier valuation report made a reference to the bentonite mine providing  “added  value”  at  $750,000.    I assume  (although  it  is  not  clear)  that estimate of the value of the bentonite mine was taken into account in assessing the market value in the 10 August 2007 valuer’s report.  Mr Sweet asked how it is that less than three years on from the date of the 2007 valuation the deposits of bentonite were described in the latest valuation in the following terms:

Although the deposits may be of future value, we are of the opinion that they are of very little added value at this time.

[23]     In another passage in the 2010 report the valuer appears to view the fall in value of the bentonite deposits as being linked to the economic downturn.

[24]      If the Court is to make a reasonable assessment of the likely realisation values to be achieved on a mortgagee sale it would seem logical to assume a sale would be likely to take place in the next six to 12 months.   It would not be a reasonable expectation, in my view, to suppose that in that period of time the value of the property is going to appreciate to approximately $1,500,000 which at the very least would be necessary were Ms Baldock to realise anything from the sale of the property.  Such an outcome would only occur if there was a two to threefold increase in the value of the property over the period that I have mentioned and that seems to me to be highly unlikely. I am therefore satisfied that were an order to be made for the removal of Ms Baldock’s caveat, she would not thereby be prejudiced.

[25]     In the correspondence that was exchanged between the parties prior to the hearing, the solicitor acting for Ms Baldock on one occasion justified her position in declining to remove her caveat on the basis that so long as her caveat was in position she  would  be  kept  regularly  informed  of  what  steps  were  being  taken  by  the applicant to exercise its power of sale.   Mr Allan submitted that that was not a legitimate matter to take into account when the Court was making a determination whether there was any legitimate advantage to the caveator from maintaining her caveat.  I agree.  The benefits that the Court takes into account in the context of a removal of caveat case is the direct benefit that the caveator retains from his/her security.    It  does  not  extend to  collateral  matters of the kind  that  I have been discussing.

[26]     Mr  Allan  in  his  submissions  said  that  if  the  Court  wished  to  give  the respondent some measure of protection it could order – for what it is worth – in addition to removing the caveat, that any funds left over after paying all costs of sale and discharging the first, second and third mortgages are to be paid into Court.  I consider that attaching such a condition to an order under s 143 would put it beyond doubt that Ms Baldock would not be harmed by the removal of her caveat.

[27] For the reasons given, I conclude that there must be an order removing Ms Baldock’s caveat. I come to such a conclusion only after careful thought because I am mindful of the very considerable hardship that has been caused to her by her dealings with the Bloomfields. But retaining the caveat will not mitigate her difficulties. There will be orders in terms of paragraphs 1A and B of the originating application dated 5 November 2010. The order will be subject to the condition that I have set out in paragraph [26].

[28]     In the course of the hearing before me the parties made submissions on the matter of costs. That matter can therefore can be dealt with in this judgment.   The applicant has sought indemnity costs.  The respondent on the other hand seeks costs against  the applicant  or  alternatively an  order that  costs  lie where they fall.    I consider that the applicant ought to have costs because it is the successful party: see Rule 14.2(a).  I do not consider that the respondent in opposing the application has acted in one of the ways referred to in rule 14.6(4).  That is I do not consider that the

respondent has acted vexaciously, frivolously, improperly or unnecessarily in opposing the proceeding.   There are no other grounds upon which I consider an application  for  indemnity  costs  ought  to  be  made.    Nor  do  I  consider  that  an increased costs order is payable under Rule 14.6.   There has been a considerable number of exchanges between the parties as a background to this application with the one side providing reasons why Ms Baldock should voluntarily withdraw her caveat and the other side providing justification for her position in opposing that course.   The exchanges between the solicitors to which I am referring have been candid and comprehensive.  The fact that, notwithstanding the very full disclosure that has been provided by the applicants to Ms Baldock, she nonetheless maintained her position is one factor which could be seen as justifying an order for increased costs under Rule 14.6(3)(b).   On the other hand, her counsel was able to mount arguments of substance as to why the caveat ought not to be removed.  I consider

that costs should be on a 2B basis and I order accordingly.

J.P. Doogue

Associate Judge