McDonald v Toko aka Ngatai

[2020] NZHC 3512

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2020-406-25

[2020] NZHC 3512

IN THE MATTER

of an intended proceeding

AND

an application for an interim injunction

BETWEEN

LEAH MARCIA McDONALD

Applicant

AND

JERRY TOKO (also known as JERRY NGATAI)

First Respondent

SECURE FUNDING LIMITED

Second Respondent

On the papers:

Counsel:

P J Radich for Applicant

W D Hofer for Second Respondent

Judgment:

22 December 2020

JUDGMENT OF CHURCHMAN J

[1]        Leah Marcia McDonald (the applicant) filed an application on 21 December 2020 seeking an order that a caveat not lapse.

[2]        The application was filed on a without notice basis. It was supported by a memorandum of counsel dated 18 December 2020, and an affidavit of the applicant dated the same date.

McDONALD v TOKO & ANOR [2020] NZHC 3512 [22 December 2020]

Background

[3]        By statement of claim filed at Court on 19 August 2020, the applicant filed proceedings against the first respondent (Jerry Toko) and the second respondent (Secure Funding Limited) alleging courses of action against the first respondent in breach of trust, fraud and deceit, and against the second respondent in fraud and deceit.

[4]        The proceedings relate to two properties in Kaikoura. The first property is situated at 75 Athelney Road, Kaikoura being Lot 24 DP492239 and all of the land and Record of Title 714900. The applicant alleges that the first respondent fraudulently induced her to transfer that property to him.

[5]        The purpose of the transfer was alleged to be that the first respondent, who was in a stronger financial position than the applicant would be in a better position to borrow and to repair the earthquake damage to the property with the borrowed monies.

[6]        It is alleged that the applicant transferred the property to the first respondent at a price of $240,000; that the only cash paid by the first respondent was $2,000 and that $185,000 of the purchase monies was secured on first mortgage in favour of the applicant.

[7]        It is alleged that subsequently the first respondent sold the property at a price understood to be at least $500,000; that the applicant was induced to discharge the mortgage and to say that all the monies due by the mortgage secured had been paid and that was not the case.

[8]        It was further asserted that the sale proceeds were used to buy a property at 23 Ludstone Road, Kaikoura for the sum of $48,000, and that the first respondent used the sale proceeds of 75 Athelney Road for that purpose. It is this second property that has had the title caveated by the applicant.

[9]        It was alleged that the first respondent, in breach of his arrangements with the applicant, had the second property registered in his own name and further mortgaged it for a sum believed to be $248,000.

[10]      It was alleged that the applicant only discovered the state of affairs when the second respondent began a mortgagee sale process in respect of the property on     23 August 2020 because the first respondent had not met his obligations under the mortgage.

Legal proceedings

[11]      On 19 August 2020, the applicant applied for an interim injunction to prevent a mortgagee sale of the property scheduled to proceed on 20 August 2020. The application proceeded on a Pickwick basis. Dobson J granted the injunction.1

[12]      The judgment directed that the mortgagee was not to conduct an auction or other form of sale of the property until 22 September 2020 or further order of the Court. It also recorded an acknowledgement from the applicant that:2

… if her attempts to repay the mortgage are not able to be confirmed unconditionally by 22 September 2020, then no further steps to disrupt a sale by the mortgagee will be pursued.

[13]      The mortgagee was also directed to co-operate fully with the applicant’s solicitor in advising the breakdown of amounts outstanding under the mortgage, and other details relevant to possible repayment of that mortgage by those acting on behalf of the applicant.

[14]      The Court also directed that if the injunction lapsed and the mortgagee proceeded to sale, the balance of the net proceeds of sale after all reasonable claims by the mortgagee were satisfied were to be held by the solicitors acting for the mortgagee, pending resolution of issues as between Ms McDonald and Mr Toko, with such amounts to be released only with the concurrence of the applicant’s solicitor, or by further order of the Court.

[15]      The matter was not resolved by 22 September 2020 and came before the Court again by way of telephone conference on 6 October 2020.   Gwyn J, in a minute of   7 October 2020,3 noted the acknowledgement by the applicant that if her attempts to

1      McDonald v Toko [2020] NZHC 2104.

2      At [ 17].

3      Minute of Gwyn J, McDonald v Toko & Anor CIV-2020-406-25, 7 October 2020.

repay the mortgage were not able to be confirmed unconditionally by 22 September 2020, then no further steps to disrupt a sale by the mortgagee would be pursued.

[16]      The minute recorded that the Court had been advised by counsel for the second respondent that the injunction had now lapsed, and the second respondent was taking steps to market and sell the property.

[17]      The minute also noted that the applicant’s solicitor had lodged a caveat against the title to the property on the applicant’s behalf.

[18]At [8] of the minute, the Court said:

Mr Radich notes that the purpose of the applicant filing the caveat is not to disrupt any sale by the second respondent but to prevent any action by the first respondent to effect a sale of the property where the applicant could lose her entitlement to the balance of funds of the sale proceeds. Mr Radich accepts that the caveat cannot prevent a sale by a mortgagee whose mortgage was registered prior to the caveat being lodged. He states that the caveat will be withdrawn if the second respondent enters into an agreement to sell the property.

[19]      The minute confirmed the direction made by Dobson J that should the property be sold at mortgagee sale, the net proceeds would be held pending resolution of the applicant’s claim.

[20]      The second respondent was directed to provide the applicant with details of the amounts outstanding under the mortgage.

Recent developments

[21]      On 11 December 2020, the applicant received a notice of lapse of caveat from Land Information New Zealand in respect of an application by the second respondent. It stipulated that the caveat would lapse 10 working days after the notice is delivered, or deemed to be delivered, unless the Registrar General of Land received an order from the Court within those 10 working days that an application to the contrary had been made to the relevant Court.

[22]      In the affidavit filed in support of the application, Ms McDonald annexed a number of items of correspondence. These included email correspondence between her solicitor and the solicitor acting for the second respondent. Her solicitor asked on a number of occasions for an update as to the auction proceedings.

[23]      Exhibit C to the affidavit records the applicant’s solicitor writing to the second respondent’s solicitor saying:

[I]  cannot withdraw the caveat until the position is secure against Toko selling the property, paying off the mortgage and pocketing the balance.

I will remove the caveat if you will undertake that that risk will be protected against.

[24]      Exhibit F to the affidavit is a letter from the second respondent’s solicitor to the applicant’s solicitor. It indicates that the second respondent intends to continue to sell the property by auction. It further alleges that the presence of the applicant’s caveat on the title is impeding the marketability of the property and putting off prospective purchasers.

Without notice applications

[25]      Rule 7.23 of the High Court Rules 2016 (HCR) permits an application to be made without notice in circumstances where requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant.4 Rule 7.23 also permits an application where the interests of justice require the application to be determined without serving notice of the application.5 The applicant relies on both of these grounds.

[26]      The application also says that, notwithstanding that it is made without notice, the applicant is serving these documents on the solicitors acting for the second respondent and forwarding them to the last known email address of the first respondent.

4      Rule 7.23(2)(a)(i).

5      Rule 7.23(2)(a)(v).

[27]      In relation to the substantive application, the applicant says that while the provisions of the judgment by Dobson J discussed above, provide security for the applicant in the event of a sale by the mortgagee, they do not provide any protection to the applicant should the first respondent sell the property himself. It is asserted that the first respondent has taken steps to sell the property on Trade Me.

[28]      In the applicant’s affidavit there is also reference to a discussion between the applicant’s solicitor and the first respondent where the first respondent makes it clear that he believes the property is his because he is registered on the title, and records the first respondent asserting that it is only the finance company who is restrained from selling the property and implies that he is free to do so.

Analysis

[29]      The applicant’s caveat is not necessary in order to protect the position of the applicant viz-a-viz the second respondent. The provisions of Dobson J’s judgment discussed above clearly require the second respondent to retain in trust the net proceeds of any mortgagee sale pending resolution of the dispute between the applicant and the first respondent.

[30]      However, it is at least theoretically possible that the first respondent may be successful in attempting to sell the property himself. Of course, in order to be able to do that, he would need to pay the mortgage off and obtain a discharge from the second respondent. To date, there is nothing in the correspondence from the second respondent to the applicant’s solicitor that has been put before the Court that would give the Court confidence that the second respondent recognises the equitable claim of the applicant, or has even been prepared to co-operate with her solicitor. That is unfortunate. It is also relevant to an assessment of the extent of the risk faced by the applicant which night need to be protected by the caveat.

[31]      The second respondent is entitled to adopt the position that matters between the applicant and first respondent are none of its business but cannot complain that the applicant should try to protect her position viz-a-viz the first respondent, by both lodging the caveat opposing the notice that it lapse.

[32]      From the material on the Court file, it does not appear that the first respondent has filed any defence to the statement of claim filed by the applicant. One would have thought that, if the applicant’s claims were baseless, the first respondent would have promptly taken steps to defend the matter. The absence of such steps is a further matter to be weighed in the balance when assessing the risk faced by the applicant were the caveat to lapse.

[33]      The first respondent’s inaction and his apparent failure to respond to the request from the applicant’s solicitor to have his solicitor contact the plaintiff’s solicitor, are matters which justify drawing an adverse inference against the first respondent and his intentions viz-a-viz the property.

[34]      The solicitors acting for the second respondent may well be correct in that the presence of a caveat on the title may be adversely affecting their ability to market the property and to obtain the highest value for it. It is clearly in the applicant’s interest for the best possible price to be obtained for the property by way of mortgagee sale.

[35]      One would also have thought that it was in the first respondent’s interests for the highest possible price to be obtained.

[36]      The applicant, through her solicitor, has accepted that if the property is indeed sold by the mortgagee, then the caveat is required to be lifted. The caveat is required to be lifted in order for the sale to be completed. In those circumstances, the second respondent could not disburse the net sale proceeds without further order of the Court, and obviously the applicant’s position is then fully protected.

[37]      The only matter that would justify the Court issuing an order that the caveat not lapse would be if there is a real risk that first respondent may himself sell the property, discharge the mortgage and pocket all the sale proceedings. In those circumstances, the directions made by Dobson J arguably would not constrain the second respondent from discharging the second mortgage upon receipt of the outstanding monies, as their solicitor would not receive the sale proceeds, they would not be in a position to retain them pending further direction of the Court.

[38]      The first respondent should be able to provide undertakings which would resolve this matter. If, through his solicitor, he undertook to retain the net sale proceeds undisbursed, then the plaintiff would have no basis for continuing to maintain a caveat. However, the inaction by the first respondent allows the Court to draw an inference that there may be some substance in the claims filed by the applicant, and in her concerns that, if he got the opportunity, the first respondent may indeed sell the property and abscond with whatever the net sale proceeds might be, putting them beyond the reach of the applicant.

[39]      I am satisfied that unless the order sought is made, the applicant could suffer irremediable harm.

Without notice

[40]      Given the very strict time limits in relation to the action that the applicant must take in response to the service on her of the notice attached as Exhibit G to the affidavit of Leah McDonald, complicated as it is by the impending Christmas Court shut-down, I am satisfied that it was appropriate for this application to be bought on a without notice basis, and that undue delay or prejudice would be caused to the applicant if she were required to proceed on notice.

[41]      Accordingly, in terms of r 7.23, I permit the application to be made without notice.

[42]      It is also important that the second respondent have the opportunity of moving to rescind these orders, and I expressly reserve leave for the second respondent to proceed on notice for such an application.

[43]      The key to resolving this matter satisfactory would appear to be the first respondent. The provision of undertakings on his part as discussed above, could allow the caveat to be removed and any adverse effect on potential sale price alleviated.

[44]      The failure of the first respondent to act responsibly may also result in him becoming liable for costs incurred by both the applicant and second respondent. If the

first respondent has not already obtained legal advice, he would do well to consider doing that on an urgent basis.

Orders

[45]I make the following orders:

(a)the Court issues an order that the caveat not lapse in terms of the draft order filed with the application;

(b)leave is reserved to the respondents to move to set aside this order on five days’ notice;

(c)costs are reserved.

Churchman J

Solicitors:

Radich Law, Blenheim for Applicant

Tompkins Wake, Hamilton for Second Respondent