Mortre Holdings Limited v ANCL Investments Limited
[2016] NZHC 1413
•27 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-513 [2016] NZHC 1413
UNDER the Land Transfer Act 1952, Section 145A IN THE MATTER OF
an application for an order that caveat no.10333273.1 not lapse
BETWEEN
MORTRE HOLDINGS LIMITED Applicant
AND
ANCL INVESTMENTS LIMITED Respondent
Hearing: 1 June 2016 Appearances:
G Blanchard and E Morrison for the Applicant
D T Broadmore and L J Carruthers for the RespondentJudgment:
27 June 2016
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 27 June 2016 at 2:30pm
pursuant to Rule 11.5 of the High Court Rules
……………………………………………………
Registrar/Deputy Registrar
Solicitors:
Kirkland Morrison O’Callahan & Ho (Edwin Morrison), Auckland, for Applicant
Buddle Findlay (D Broadmore), Auckland, for Respondent
Counsel:
Greg Blanchard, Barrister, Auckland, for Applicant
MORTRE HOLDINGS LIMITED v ANCL INVESTMENTS LIMITED [2016] NZHC 1413 [27 June 2016]
TABLE OF CONTENTS
Paragraph
General principles on caveat applications [3] Background [8] The agreement for sale and purchase [10] Events since the agreement [14] Does Mortre Holdings Ltd have a caveatable interest in the property? [26] Clause 20.1 [30]
Clause 20.2 [32]
Clauses 20.3, 20.4 and 20.6 [35] The “no caveat” clause [38] The cautious approach to removal of a caveat [51]
Unequal bargain [52] Breach of reasonable endeavours obligation under cl 20.3 [53] The threat to sell the land in breach of cl 20.8 [59]
Outcome [65]
[1] Mortre Holdings Ltd owned a 6.9606 ha property, Lot 3 DP 203304, identifier NA131D/800 at Arabella Lane, Snell’s Beach, Warkworth. In late 2014 it was under financial pressure. On 24 October 2014 it sold the land to ANCL Investments Ltd for $3,700,000. That was less than the current market value. Under the agreement, ANCL was to carry out a development in two stages: stage 1, a subdivision into residential lots, and stage 2, building houses on those lots. If new titles issue within three years of the agreement two of the lots are to be transferred to Mortre. ANCL has been working on the first stage of the development, but Mortre is concerned that ANCL will not deliver the titles in time. It has lodged a caveat against the title. The interest claimed in the caveat is:
An interest as cestui que trust pursuant to a written agreement dated
24 October 2014 between Mortre Holdings Ltd as vendor and ANCL Investments Ltd as purchaser under which ANCL Investments Ltd has
agreed that upon becoming the registered proprietor of identifier
NA131D/800 (North Auckland Registry) it holds specified land within identifier NA131D/800 (North Auckland Registry) as trustee for the caveator
Mortre Holdings Ltd.
[2] It has applied under s 145A of the Land Transfer Act 1952 that the caveat not lapse. ANCL opposes on two broad grounds:
1 Mortre does not at present have a caveatable interest in the property;
2The agreement provided that Mortre would not lodge a caveat over the property.
General principles on caveat applications
[3] In Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act:1
Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat".) Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).
1 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
[4] In caveat applications under ss 143, 145 and 145A of the Land Transfer Act
1952, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 137(1) of the Act:
Caveat against dealings with land under Act
(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person—
(a) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or
(b) is transferring the land or estate or interest to any other person to be held in trust.
A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.2 Something more than a potential or future interest is required.
[5] Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable it may be. For a caveat to be removed, it must be patently clear that the caveat cannot stand either because there was no ground for lodging it at the outset or because any such ground no longer exists. In addition, the court has a residual discretion not to uphold a caveat but that is exercised cautiously, as when the caveat could serve no useful purpose or alternative safeguards are available. In
Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd the Court of Appeal said:3
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
2 Guardian Trust and Executors Company of New Zealand, Limited v Hall (No 2) [1938] NZLR
1020 (CA) at 1025, Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246.
3 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656 and
Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA).
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 a 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.
[6] To establish a reasonably arguable case there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavit, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. As a qualification to the reasonably arguable standard, where there are allegations of fraud or other reprehensible conduct, it is necessary to show a prima
facie case.4
[7] The above are general principles. This case has a special feature, a contractual bar on lodging a caveat. I deal with that separately below.
Background
[8] The Arabella Lane property has a split zoning under the Operative District Plan – East Coast Rural and Residential High Intensity. There is also a split zoning under the Proposed Unitary Plan – a rural zone and Mixed Housing Suburban. The area of proposed development of the property is within the parts zoned Residential High Intensity and Mixed Housing Suburban.
[9] Mortre had obtained a subdivision consent (R56767) to create four lots (one was to vest as a local purpose reserve). The area of proposed development in this
4 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15], followed in Trustees Executors Ltd v Steve G Ltd [2013] NZHC 16 at [63]-[66]; Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2013] NZHC 1297 at [78] (overturned on appeal, but not on this point: Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2014] NZCA 164, (2014) 15
NZCPR 227); S & S Ltd v XYZ Ltd [2016] NZHC 26 at [6]; and Virtual Spectator v Rothlander
[2016] NZHC 499.
case is within lot 3 of that proposed subdivision. While it obtained the subdivision consent and a variation of consent conditions, it did not carry out the subdivision to the stage of obtaining a certificate under s 224(c) of the Resource Management Act
1991.
The agreement for sale and purchase
[10] The parties used the Auckland District Law Society/New Zealand Real Estate Institute agreement for sale and purchase of real estate and added “further terms of sale”, which included the following:
20.0 The parties agree as follows:
20.1 In addition to the Purchase Price, subject to the terms of this agreement, the vendor retains the Vendor’s Contingent Interest in part of the Property.
20.2 The purchaser will, subject to clause 20.8, hold the Vendor’s Contingent Interest, should it crystallize, on trust for the vendor. The vendor will not at any stage lodge any caveat against the title to the Property to protect his interest.
20.3 The purchaser will use reasonable endeavours to proceed to obtain the Consents, and if obtained, subject to clause 20.8, to implement the Consents and to obtain the New Titles. At its discretion the purchaser (or any Subsequent Purchaser as referred to in clause 20.8 below (“Subsequent Purchaser”)) may sell any or all those parts of the Property generally shown as lots 1 & 2 on the Existing Plan and apply the proceeds in reduction of indebtedness.
20.4 Notwithstanding any other provision of this agreement, in the event that the New Titles have not issued within 3 years of the date of this agreement (time being of the essence), the Vendor’s Contingent Interest will not crystallize and the purchaser (including any Subsequent Purchaser) shall have no further obligation to the vendor, whether to provide it with the Selected Sites, pay any further consideration, or otherwise. Accordingly, for the avoidance of doubt, if the New title have not issued within 3 years of the date of this agreement (time being of the essence), the purchaser (or any Subsequent Purchaser) will then be entitled to do what it chooses in relation to the Property, which could include, without limitation., electing to sell the Property or any part of it with or without completing Development Stage 1 and/or Development Stage 2, or electing to retain the Property and proceed with an alternative development of it following which it may sell all or some of the Property.
20.5 On completion of the Development Stage 1 (if completed) the purchaser (or any Subsequent Purchaser) may, at its discretion, proceed with Development Stage 2.
20.6 Subject to clause 20.8, the Vendor’s Contingent Interest crystallizes:
on issuing of the New Titles referred to in clause 20.3 above (provided that the New Titles have issued within 3 years of the age of this agreement) should the purchaser (or any Subsequent Purchaser) not proceed with Development Stage 2 and in such event shall comprise the Selected Sites;
should the purchaser (or any Subsequent Purchaser) elect to proceed with Development Stage 2 (provided the New Titles have issued within 3 years of the date of this agreement) on the issuing of Code Compliance Certificates for the dwelling units to be erected on the Selected Sites by the purchaser or any Subsequent Purchaser (conforming to the purchaser’s or the Subsequent Purchaser’s designs for such sites) and in such event shall comprise the Selected Sites with the dwelling units thereon.
20.7 The Vendor’s Contingent Interest will be transferred to the vendor no later than 6 calendar months of the crystallization pursuant to clause 20.6 above.
20.8 The vendor acknowledges and agrees that the purchaser may elect to obtain the Consents (if it is able to obtain the Consents) and then sell the Property (or part hereof) with the benefit of the Consents, prior to the New Titles issuing. If so, the purchaser will obtain from such Subsequent Purchaser a deed of covenant, in a form prepared by the purchaser, in favour of the vendor, whereby the Subsequent Purchaser covenants to be bound by the relevant terms of this clause 20. Once it has obtained such deed of covenant from the Subsequent Purchaser, the purchaser is unconditionally and irrevocably released from any obligations that it may have pursuant to this agreement.
20.9 For the purposes of this clause 20 the following definitions apply:
“Consents” means all consents required for Development Stage 1 on terms and conditions satisfactory to the purchaser in its sole discretion.
“Development Stage 1” means the subdivision of the Property substantially in accordance with the development plan annexed as schedule 3.
“Development Stage 2” means the construction of dwelling units on the subdivided sections created following the completion of Development Stage 1 (if completed).
“Existing Plan” means the plan annexed as schedule 4.
“New Titles” means the computer interest registers to issue for the
sections comprised within Development Stage 1.
“Selected Sites” means one “beach cottage” site and one “boat shed”
site, being Lots “A” and “B” on the attached subdivision plan
annexed as Schedule 3(i) and 3(ii), and as further described in clause
20.6 above.
“Vendor’s Contingent Interest” means the interest of the vendor in that part of the Property comprising the Selected Sites contingent on firstly the New Titles issuing within 3 years of the date of this agreement and secondly on the purchaser (or any Subsequent Purchaser) proceeding with Development Stage 2.
20.10 If the purchaser (or any Subsequent Purchaser) elects, at its discretion, to proceed with Development Stage 2 and the territorial authority advises that New Titles cannot be issued until such time as Development Stage 2 has been completed, then provided that construction of the dwelling units referred to as part of Development Stage 2 has commenced within
3 years of the date of this agreement, the parties agree that the reference to “within 3 years of the date of this agreement” ion clauses 20.4, 20.6(b) and the definition of Vendor’s Contingent Interest, shall be deemed amended to read “on completion of construction of the dwelling units in Development Stage 2”.
21.0 The parties acknowledge that this is a short form agreement in respect of the matters covered in these Further Terms of Sale. As such, these Further Terms of Sale may not deal with some matters that may arise. Because of this the parties will work with each other in good faith to determine how these Further Terms of Sale are to apply to such matters on a case by case basis, having regard to the broad intentions of the parties in entering into this agreement.
[11] Schedule 3 to the agreement is two pages showing a concept subdivision plan, not prepared by a surveyor. It shows 32 lots. Two are marked “A” and “B” respectively as identifying the “Selected Sites”. Schedule 4 to the agreement is a surveyor’s plan of the subdivision under consent R56767. It is the “Existing Plan” under clause 20.9.
[12] While ANCL received all it contracted for when the purchase settled on
25 November 2014, Mortre did not. It has still to receive the two lots, the “selected sites”. It is not certain that it will receive them. That turns on whether ANCL can obtain titles to those lots by 23 October 2017. Mortre has little, if any, control over that. It is vulnerable to ANCL dragging its feet. It may be wondered whether ANCL will be incentivised to complete in time.
[13] Clause 21 provides that the parties will work with each other in good faith to
deal with matters not addressed in the agreement. In light of the Court of Appeal’s
decision in Wellington City Council v Body Corporate 51702 (Wellington), it is doubtful whether that is enforceable.5 The parties’ submissions implicitly assumed that the clause was severable. They treated the rest of the agreement as valid and enforceable.
Events since the agreement
[14] Vavasour Investments Ltd is a company associated with ANCL. Whereas ANCL holds the title, Vavasour is carrying out the development. Vavasour has engaged Special Projects Team Ltd as its project manager. Mr Peters of Special Projects Team Ltd has given an affidavit for ANCL. The general tenor of his evidence is that ANCL intends to complete a subdivision of the property substantially according to the development plan in Schedule 3 of the agreement. The number of building sites has been increased to 33. ANCL has been working hard to carry out the development. He believes that that there is a reasonable prospect of obtaining the titles by 23 October 2017.
[15] He describes parts of the resource consent process. A number of consultants have been engaged, including on planning, iwi consultation, architectural elements, landscape design, traffic, geotechnical, coastal hazards (because the area is close to the beach, the risk of inundation had to be addressed), landscape and visual assessment. He says that ANCL and the other companies involved required from November 2014 to December 2015 to prepare its resource consent application for development of Stage 1 under the agreement because the development was significant and required an extensive team of specialist consultants working sequentially, using each other’s work. New planning consultants were taken on because of work commitments of the original consultant.
[16] On 1 October 2015 Vavasour applied on behalf of ANCL for a land use consent (L65822) for earthworks to stockpile approximately 7,000 cubic metres of fill for future use on another part of the site. The council granted the consent on
5 November 2015.
5 Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3 NZLR 486 (CA) at
[30]-[31].
[17] On 21 December 2015 Vavasour applied for a subdivision consent (R66470) to create a six lot subdivision. This proposed subdivision is to replace the varied consent Mortre had obtained under R56767A. The Vavasour application was amended to a five lot subdivision. Consent was granted. Lot 3 in that subdivision is the area for development under the agreement with Mortre.
[18] ANCL has entered into separate agreements to sell lots 1 and 2 of that proposed subdivision. The agreements are of course conditional on title issuing but are in different terms from those in the agreement with Mortre. The lots to be sold are not within the development area in the Mortre agreement. The purchasers under these agreements have lodged caveats against the title. ANCL does not suggest that there is any issue with those caveats. The agreements expressly allow for the purchasers to lodge caveats. ANCL explains that it entered into these agreements to finance the first stage of the development under the Mortre agreement. Clause 20.3 of the Mortre agreement contemplates such sales.
[19] On 23 December 2015, ANCL filed an application for subdivision and land use consents (R66533) for an “integrated residential development and proposed subdivision”. This application was to carry out development stage 1 in the agreement for sale and purchase. The application provides for lot 3 under application R66470 to be divided into 33 residential units. Under the operative district plan, the proposal is a non-complying activity. Many aspects of the proposal have restricted discretionary activity status: sites with inundation potential, maximum height exceeded, height in relation to boundary exceeded, site coverage (50 per cent) exceeded, minimum private open space requirements not met, removal of protected trees, removal of vegetation close to a stream and an overland flow path, insufficient parking spaces and the like.
[20] The application appears comprehensive, with reports from a number of consultants including iwi consultation, architectural elements, landscape design, traffic, geotechnical, coastal hazards, landscape and visual assessment. Although the application proposed that it not be publicly notified under s 95A of the Resource Management Act, Mr Peters does not say whether the Auckland Council has decided to publicly notify. In the absence of any evidence as to a decision on notification, I
assume that no decision has been made yet. Mr Peters says that the most significant issue with the application is that the Council’s urban designer will not support the application. ANCL is carrying out further work to support the design.
[21] At the hearing, 1 June 2016, ANCL had approximately 17 months in which to obtain the resource consents, lodge a survey plan under s 223 of the Resource Management Act for approval, carry out the subdivision works (which will include earthworks and road formation) before obtaining a certificate under s 224(c) of the Resource Management Act and then to obtain the issue of new titles. Notwithstanding that, Mr Peters says that it has a reasonable prospect of obtaining the new titles by 23 October 2017.
[22] Mortre is critical of the way that ANCL has gone about the stage 1 development. Amongst other things, it says:
1ANCL did not need to apply for the five lot subdivision but could have worked off the subdivision consent it had obtained.
2Some of the matters that ANCL describes as areas of difficulty were already known, for example ground floor levels in relation to inundation risk. ANCL had been advised of them before purchase.
3Instead of vesting a coastal strip in the council ANCL chose to deal with the strip itself.
4A decision to remove a large Norfolk pine will create unnecessary delays.
5The lots Mortre is to take under the proposed consent are smaller than under the agreement for sale and purchase and in one case the lot will have less privacy and more traffic noise, with reduced views and ambience.
6The increase in house lots from 32 to 33 makes consent harder to obtain.
7 The earthworks consent is questionable as the soil to be used is
Onerahi chaos which is unsuitable for fill without lime stabilisation.
8 ANCL has taken too long.
9ANCL should have had a pre-application meeting with the council earlier.
[23] Mr Morison, Mortre’s director, lives in a house on lot 3 – the area for Development Stage 1. Under the Mortre agreement (clause 18), his tenancy of the house continues, subject to ANCL’s right to terminate it on giving no less than
60 days’ written notice. ANCL gave him written notice on 27 August 2015 and
26 February 2016, but Mr Morison has continued living in the house.
[24] Mr Morison says that on 15 October 2015 Mr Peters told him that ANCL’s plan was for a related company to buy the property from it on a new basis so that the new company would not have to provide for Mortre’s interest. In response, Mr Peters denies making that statement and confirms that ANCL does not presently intend to sell any parts of the property (apart from those parts subject to agreements for sale and purchase (lots 1 and 2 under subdivision R66740)). ANCL nevertheless reserves its right sell the property, but only in accordance with cl 20.8, that is, on obtaining an appropriate covenant from the purchaser.
[25] In his reply affidavit, Mr Morison reaffirms his earlier evidence.
Does Mortre Holdings Ltd have a caveatable interest in the property?
[26] In general, a potential interest in land is not sufficient for a caveat. The interest must exist at the time the caveat is lodged.6 Mortre cannot lodge a caveat solely on the basis that it will have an interest in the land later.
[27] On settlement of the purchase of the land, ANCL became registered proprietor but was required to transfer two lots to be created if the titles to the lots in
6 Guardian Trust and Executors Company of New Zealand Limited v Hall (No 2), above n 2;
Philpott v NZI Bank Ltd, above n 2.
the development of stage 1 issued within three years of the agreement. ANCL was required to use all reasonable endeavours to obtain the requisite consents. ANCL says that under the terms of the agreement any equitable interest will only arise upon all conditions being satisfied, that is, on new titles issuing within three years of the agreement under cll 20.3 and 20.6. Mortre says on the other hand that it held an equitable interest right from the time that ANCL became registered proprietor.
[28] In the case of agreements for sale and purchase of land, the traditional view was that a purchaser did not obtain an equitable interest in the land until the agreement became unconditional. Only then would the purchaser be able to bring a proceeding for specific performance against the vendor. That changed with the Court of Appeal’s judgment in Bevin v Smith:7
For these reasons we consider that an equitable interest in land should, and does, pass under a condition or contract of the kind involved here, even though specific performance of the contract in the strict sense is not available. We agree with the recent Australian authorities to the effect that the equitable estate passes where equity will, by injunction or otherwise, prevent the vendor from dealing with the property inconsistently with the contract of sale, ie consistently with the purchaser’s contingent ownership rights. It will be sufficient if the Court will order specific performance of the contract subject to the contingency. As McMorland points out (at para
10.03) the purchaser’s estate will remain contingent pending fulfilment or waiver of the condition. The interest will cease if the contract were avoided
for failure of the condition, in the same way as the interest may come to an end in several other situations: upon cancellation for breach; or upon non-
payment of the purchase price.
We stress that whether the equitable interest has passed must always depend on the terms of the contract itself. There will be some conditional contracts, particularly those subject to true conditions precedent, where the parties cannot be regarded as intending that equitable title will pass to the purchaser until the condition is waived or fulfilled. In the end it must be remembered that by saying the equitable title has passed, equity is doing no more than recognising that the purchaser must have acquired rights which should be protected in an appropriate manner. The sui generis of the trust arising under a contract for the sale and purchase of land, has long been recognised. (see eg Wall v Bright (1820) 1 Jac & W 393, 499). In the end equity must act according to the nature of the contract and the practical situation of the parties.
(emphasis added).
7 Bevin v Smith [1994] 3 NZLR 648 (CA) at 665.
It has recently been held by the Court of Appeal in Bevin v Smith ([1994]
3 NZLR 648) that equitable interest in land can be acquired pursuant to conditional contracts. The nature of the condition may be important. If it is such that until fulfilment it can be said that the parties did not intend to create any interest in land there will be no caveatable interest unless and until the condition is fulfilled. But, in the usual case where the parties intend to be bound and remain bound subject to the fulfilment of the condition, equitable interest in land can arise by means of such a conditional contract.
That recognition that an equitable interest in land may arise under some conditional contracts entails that a purchaser under such a contract has a caveatable interest.
ANCL emphasises that the question in each case turns on the terms of the particular contract. Its argument is therefore based on the terms of the contract in this case. All the same it is appropriate to recognise that it is now common practice (in default of express indications otherwise) to regard conditions in an agreement for sale and purchase of land as conditions subsequent. That allows for interests to arise, even though they may lapse through non-satisfaction of conditions. McMorland says:9
Because of the automatic and possibly unwanted results of a condition precedent, this was later seen to be an undesirable categorisation to adopt and the move was made to a standard categorisation of conditions as subsequent both in the standard form contract and in judicial constructions.
Consistent with that, the general terms of the agreement at 9.8 say:
If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:
(1) The condition shall be a condition subsequent.
[30] Now for the terms of the agreement.
Clause 20.1
20.1In addition to the Purchase Price, subject to the terms of this agreement, the vendor retains the Vendor’s Contingent Interest in part of the Property.
This expressly provides for the vendor to derogate from its grant. The “retention” of
an interest points to the interest remaining in existence rather than expiring and being revived later.
8 McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 (HC).
9 D W McMorland, Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) paragraph 5.01 at 183.
“Vendor’s Contingent Interest” means the interest of the vendor in that part of the Property comprising the Selected Sites contingent on firstly the New Titles issuing within 3 years of the date of this agreement and secondly on the purchaser (or any Subsequent Purchaser) proceeding with Development Stage 2.
“Contingent” denotes uncertainty. ANCL has not undertaken to convey the interest, come what may, but only in defined circumstances (referred to as “crystallisation”). In the light of the Court of Appeal’s decision in Bevin v Smith, such uncertainty does not mean that an interest has not arisen. The definition of “Vendor’s Contingent Interest” is consistent with the interest being retained (but potentially lapsing later).
Clause 20.2
20.2 The purchaser will, subject to clause 20.8, hold the Vendor’s Contingent Interest, should it crystallise, on trust for the vendor. The vendor will not at any stage lodge any caveat against the title to the Property to protect his interest.
[32] ANCL argues that, “should it crystallise” is a time provision showing that it will hold on trust only upon crystallisation, but not earlier, with the result that no interest arises before the crystallising events. There is, however, another meaning. It is conditional: in case it should crystallise. The equitable interest (admittedly contingent) already exists, but continues after crystallisation.
[33] ANCL submits that “crystallise” can mean “make” so that the interest in land only arises upon the crystallising events. “Crystallise” as used here is metaphorical. In this context it is more likely to refer by analogy to the former floating charge than to a chemical process. Before the Personal Property Securities Act 1999 a debenture by a company gave a floating charge over property such as stock in trade, which became fixed on defined events taking place. That change from floating to fixed charge was crystallisation. Its use recognises that the interest already exists but changes to become more definite when the defined events take place. “Crystallise” is used to indicate the end of contingency, nothing more. Before crystallisation it is uncertain whether the equitable interest will transmute into unconditional entitlement to legal title. After crystallisation, that uncertainty has gone.
[34] ANCL also relies on the “no caveat” provision in cl 20.2. It submits that it shows that no equitable interest could arise, because no caveat can be lodged. On the contrary, the “no caveat” clause is consistent with recognition of an equitable interest which could otherwise be protected by caveat. That is shown in particular by the words “not at any stage”. On ANCL’s case, the time of an equitable interest arising is deferred until crystallisation but the bar on lodging a caveat applies even after crystallisation.
Clauses 20.3, 20.4 and 20.6
[35] These provisions are neutral as to the existence of an equitable interest before crystallisation.
[36] In general, this case is similar to one where a purchaser buys a lot off the plans, where title has still to issue. In those cases, the purchaser’s interest in the lot is contingent: it depends on the vendor successfully completing the subdivision and arranging the issue of a title for the lot. Following Bevin v Smith, in standard cases the purchaser is regarded as having an equitable interest in the part of the property to be sold, notwithstanding the contingencies. The purchaser may enforce the vendor’s obligations under the agreement for sale and purchase and may protect his interest by way of caveat. Indeed, that is exactly what has happened in the case of the sales of lots 1 and 2 in this case.
[37] While the terms of the Mortre agreement are different from the agreements to sell lots 1 and 2, given the general practice and the particular terms of this agreement, this is not a case where the equitable interest is deferred until the crystallisation event. The interest has been there from the outset. As such, it is caveatable.
The “no caveat” clause
[38] ANCL relies on the no-caveat clause to say that the caveat should lapse, notwithstanding Mortre’s equitable interest under the agreement. Here is the clause again:
The vendor will not at any stage lodge any caveat against the title to the Property to protect his interest.
[39] In Landco Albany Ltd v Fu Hao Construction Ltd, the Court of Appeal held that a no caveat clause is enforceable and is not contrary to public policy.10 While Mortre otherwise had the right to lodge a caveat, it could renounce a right which existed solely for its own benefit. The underlying principle is that where words of a statute give a privilege, a party may forego that privilege.11 There may be legitimate reasons for a developer to stipulate in a contract that a purchaser should not lodge a caveat. The absence of a caveat gives the developer a freer hand to use the property for security to finance the development, including refinancing, and for the issue of new titles.
[40] Breach of the no caveat clause gives a more direct common law damages remedy for compensation for a wrongly lodged caveat. Without such a clause caveators are liable in damages under s 146 of the Land Transfer Act only if they lodge caveats without reasonable cause, something that may be difficult to prove. On the other hand breach of the clause gives a right to claim damages for breach of contract without having to prove absence of reasonable cause.
[41] A caveat protects against the operation of the indefeasibility rule under the Torrens system. It may be lodged as of right, so long as there is an interest to protect. If it can survive scrutiny on an arguable case basis it may remain on the title, even if there is no current threat to the interests of the caveator. There are other forms of protection, but they are less direct. Compensatory damages are awarded after the event. Equitable remedies (for example, injunctive relief) may be available earlier, but they will turn on the ability to show a case for intervention and may be subject to balance of convenience and other discretionary factors.
[42] Mortre wishes to hold ANCL to the agreement to provide the selected sites. While it claims that ANCL has breached the agreement in the way it has gone about
the development and has also repudiated, Mortre has not cancelled. That would
10 Landco Albany Ltd v Fu Hao Construction Ltd [2006] 2 NZLR 174 (CA) at [45].
11As an exception where there is a public as well as a private interest that governs the situation, the renunciation principle does not apply. See, for example, Johnson v Moreton [1980] AC 37 (HL) at 69 per Lord Simon of Glaisdale.
discharge ANCL from performance.12 Mortre accepts that the no-caveat clause is valid and enforceable and that it lodged the caveat in breach of the clause. Its case is that the court should not remove the caveat for these reasons:
1That would be consistent with the court’s cautious exercise of the discretion to remove a caveat laid down by the Court of Appeal’s decision in Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd.13
2 The agreement is an unequal bargain.
3ANCL has not used reasonable endeavours under clause 20.3 to obtain the resource consents and to implement them.
4ANCL has threatened to sell the land without obtaining a deed of covenant from the purchaser.
[43] As an assurance that it did not intend to use the caveat abusively, Mortre offered this undertaking:
Mortre Holdings Ltd shall consent to all reasonable dealings ANCL (or any subsequent owner) proposes in relation to the property that would enable the issue of new titles to vest in Mortre or the development in general provided that such dealings do not adversely impact on Mortre Holdings Limited’s contingent interest. The consent required in this shall be provided within a reasonable period of time from the date Mortre receives a written request from ANCL (or subsequent owner). If Mortre does not give its consent to a specific request then Mortre shall provide detailed reasons for it withholding its consent.
[44] In the hearing I inquired whether Mortre would give an undertaking as to damages.14 Afterwards it filed such an undertaking.
[45] There are decisions recognising that the court in its discretion may decide not to remove a caveat, notwithstanding breach of a no caveat clause. In Sail City
Motors North Shore Ltd v Reddish,15 Barker J referred to an unreported decision of
12 Contractual Remedies Act 1979, s 8(3)(a).
13 Above n 3.
14BP Oil New Zealand Ltd v Van Beers Motors Ltd [1992] 1 NZLR 211 (HC) is authority for requiring an undertaking as to damages on caveat applications.
15 Sail City Motors North Shore Ltd v Reddish HC Auckland M 1700-89, November 23 1989.
Williamson J in Harwood v McKenzie16 (in which one of the grounds for removing a caveat was breach of a non-caveat clause) and said:
However I do not find that case authority for holding that the court is precluded from sustaining a caveat in the presence of such a clause. The existence of a clause is a factor in deciding whether to uphold a caveat or not.
In Cash Handling Systems Ltd v Augustus Terrace Developments Ltd,17 Elias J said
(referring to Barker J’s decision):
I agree with the conclusions there expressed that a no-caveat clause cannot of itself prevent anyone with an interest in the land exercising the right to caveat conferred by statute. The existence of such a clause is relevant to but not determinative of the application to the court to sustain a caveat which would otherwise lapse.
In Landco Albany Ltd v Fu Hao Construction Ltd, the Court of Appeal endorsed the views of Barker and Elias JJ and said:18
[52] Further, whether such a clause might or might not be enforced by quia timet injunction will involve the exercise of a judicial discretion in light of the circumstances of any case. Similarly, circumstances will inform a judicial discretion whether or not to order the removal of a caveat, or to make or decline an order preventing lapsing. And depending on the nature of competing interests, the discretion may be informed by an agreement by the parties against the lodging of a caveat.
[46] The only decisions that I am aware of where the court has upheld a caveat notwithstanding a no caveat clause are Sail City Motors North Shore Ltd v Reddish and Alexander v Devlin.19 The first, an oral decision, does not set out any particular principles to be applied, apart from the passage quoted in the last paragraph. It was a decision on its own facts, but as an indication of his approach Barker J said:
I am not happy with such a clause which purports to restrict a party from exercising a right conferred by law. One can think of situations where a lessor acts dishonestly and the lessee’s only remedy to protect him or herself would be to lodge a caveat.
16 Harwood v McKenzie HC Christchurch M243-87, July 15 1987.
17 Cash Handling Systems Ltd v Augustus Terrace Developments Ltd HC Auckland [1996] BCL
729 (HC).
18 Landco Albany Ltd v Fu Hao Construction Ltd, above n 10, at [52].
19 Alexander v Devlin HC Auckland M 2037-90, 28 February 1991.
In Alexander v Devlin Master Gambrill followed Barker J in Sail City Motors. That was also a decision on its own facts.
[47] Mr N Campbell QC has proposed a more refined approach.20 In his view:
The only cases in which the caveat should be sustained are those satisfying two conditions: (1) the other contracting party has threatened action that would destroy the caveator’s interest; and (2) the caveat protects the caveator’s interest from that threatened action.
…
In all breach of contract cases not satisfying those conditions it is submitted that the caveat should be removed, notwithstanding that an arguable case has been shown for the claimed interest. It is true that removal of the caveat may expose the caveator to the danger of loss of priority or even loss of the equitable interest, but these are dangers that the caveator accepted when entering into a contract containing a “no caveat” clause. Moreover, where there is a threat to the caveator’s interest removal would occur only where the caveator offered no protection from that threat. In such cases the more appropriate course for the caveator is to seek injunctive relief.
Valuable as his proposal is, I am wary of adopting it in its entirety. A more incremental, case-by-case approach may be more useful, given the range of matters in which the question may arise.
[48] The starting point is that under a no caveat clause, the registered proprietor is entitled to a title uncluttered by a caveat lodged by the other party. That party has given away its right to lodge a caveat. With that, it is no longer appropriate to apply the cautious approach to removal of caveats once a caveatable interest has arguably been proved, as under the Court of Appeal’s decisions in Pacific Homes Ltd (in rec)
v Consolidated Joineries Ltd and Stewart v Kaipara Consultants Ltd.21 That
cautious approach is founded on the presumption that the caveator is entitled to protection of their arguable interest under s 137(1) of the Land Transfer Act without regard to balance of convenience considerations that may arise with interim
injunctive relief. That presumption has no place when there is a no caveat clause.
20N Campbell “Contracting around the right to caveat” in D Grinlinton (ed) Torrens in the Twenty-first Century (LexisNexis, Wellington, 2003); GW Hinde and others Hinde McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis, Wellington, 2015) at [10.008]; and Neil Campbell Campbell on Caveats (2nd ed, LexisNexis, Wellington, 2016) at
19-24.
21 Above n 3.
[49] Given the registered proprietor’s right to enjoy a title uncluttered by a caveat, the question is a matter of remedy: what relief should the registered proprietor have for a caveat lodged in breach of contract? The standard answer is removal of the caveat.22 In cases such as this damages are unlikely to be an adequate remedy. A disgruntled caveator can cause delays, wasted time and effort all of which are hard to measure and to capture in a damages award, once typical causation issues are thrown
into the mix. Given that interests in land are in issue, relief analogous to equitable remedies is appropriate. Compare equity’s greater willingness to order specific performance of agreements involving real estate. This is the converse of the cautious approach in the absence of a no caveat clause: there the norm is for the caveat to stay. Removal, or allowing the caveat to lapse, is still at the discretion of the court. Factors that may count against equitable relief may also apply in this case.
[50] Now to assess Mortre’s arguments for the caveat to remain.
The cautious approach to removal of a caveat
[51] For the reasons given above at [48], the reliance on the cautious approach in
Pacific Homes Ltd is misplaced.
Unequal bargain
[52] The unequal bargain submission is a disguised invitation to rewrite the parties’ contract. The court is not entitled to adjust the agreement because it considers it unfair to one side. Both sides accept that the agreement is valid and enforceable.
Breach of reasonable endeavours obligation under cl 20.3
[53] Mortre claims that ANCL has breached the reasonable endeavours obligation under cl 20.3 of the agreement for sale and purchase. Mortre’s concern is that ANCL will not produce the titles in time and it complains that ANCL has gone about
matters the wrong way.
22In Virtual Spectator Ltd v Rothlander, above n 4, a caveat was removed when the caveator had agreed to withdraw it, but failed to do so.
[54] It is arguable for Mortre that if ANCL does not use reasonable endeavours to obtain title within the three years, its interest under the agreement will not lapse. That is supported by a respectable line of authority going back to Coke:23
If a man make a feoffment in fee upon condition that the feoffee shall re- infeoff him before such day, and before the day the feoffor desseise the feoffee, and hold him out by force until the day be past, this date of the feoffee is absolute; for the feoffor is the cause wherefore the condition cannot be performed, and therefore shall never take advantage for non- performance thereof.
ANCL contends that cl 20.4 overrides that, but it would require clearer words than that clause to show that ANCL can avoid making over the selected sites by not using reasonable endeavours under cl 20.3.
[55] Here the issue is how to treat Mortre’s allegations of failure to use reasonable endeavours. Its fear is that with the way ANCL and its project manager have gone about matters, it looks increasingly unlikely that the titles will issue in time. Mr Peters’ assurances may seem hollow. Although it did not say so, it must be suspicious that ANCL’s tactic is to drag its feet surreptitiously.
[56] At this stage there is cause for concern whether titles will issue inside the three years. But the difficulty is in making that call part way through the project. We have all seen building projects which come in on time although for long periods seemingly little progress was made. Towards the end of the three years it will become clearer whether title will issue or not.
[57] If title will issue within the three years, there will have been no need for the caveat. If title will not issue inside the three years, but ANCL has used reasonable endeavours, there will be no justification for the caveat. Mortre could only justify a caveat if title will not issue inside the three years as a result of ANCL not using
reasonable endeavours under cl 20.3. That cannot be established now.
23(2) Co Litt 206b. See also New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1 (HL), followed in New Zealand by a line of cases including Barber v Crickett [1958] NZLR 1057 (SC), Eastmond v Bowis [1962] NZLR 954 (SC), Scott v Rania [1966] NZLR 527 (CA), Valley Ready Mix Ltd v Utah Finance and Development (NZ) Ltd [1974] 1 NZLR 123 (SC); and Connor v Pukerau Store Ltd [1981] 1 NZLR 384 (CA).
[58] Given ANCL’s right to be free of any caveat lodged by Mortre, any argument that the caveat should stay on the title because of a breach of cl 20.3 must take into account that Mortre took the risk of non-performance by ANCL without the protection of a caveat. There might be a case for a caveat, notwithstanding the contractual bar, if it were clear that ANCL had breached cl 20.3. That might be disentitling conduct that goes to relief. Absent adequate proof of disentitling conduct, the complaints of breach of cl 20.3 do not warrant leaving the caveat on.
The threat to sell the land in breach of cl 20.8
[59] There is no evidence that ANCL has entered into an agreement to on-sell the
land, whether in breach of cl 20.8 or not. Mr Morison’s evidence is that in October
2015 Mr Peters stated an intention by ANCL to sell. Nothing has seemingly happened since then. While ANCL has obtained a subdivision consent to create a separate lot for Development Stage 1, there is no evidence that the plan has deposited and a separate title has issued for the lot. Mortre has not given any evidence showing that any survey plan has been approved under s 223 of the Resource Management Act or that the Auckland Council has certified the subdivision works under s 224 of that act. That information is readily obtainable from a local authority.
[60] It is unlikely that ANCL would sell the property when it is only part-way through obtaining the required resource consents. While the property might be very marketable once it has obtained the resource consents, it would be less attractive to another developer without those consents. There are inevitable inefficiencies in taking over applications for resource consents lodged by somebody else or in starting the resource consent process afresh.
[61] Selling a property is done in public: by listings with land agents who advertise, by erecting ‘For Sale’ signs on the property, by showing the property to potential purchasers and by other marketing efforts. There is no evidence of any marketing of the property by ANCL. Mr Morison lives on the land which he says ANCL threatened to sell. He is likely to have noticed any marketing efforts.
[62] Mortre’s case is that ANCL will sell to a related party in breach of clause
20.8. That would be a futile way to cheat Mortre. The purchaser would not be protected by indefeasibility under the Land Transfer Act.24
[63] Mortre’s case is not strong enough to warrant findings that it is at risk of ANCL on-selling now in breach of cl 20.8. This ground does not justify retention of the caveat on the title.
[64] Finally there are Mortre’s undertakings. The position reached now is that Mortre has not shown a strong enough case to warrant denying ANCL the standard remedy of removal of the caveat. The place for the undertakings is if Mortre had made out such a case. They might be used as conditions of relief, but they cannot be used as a makeweight to provide a case.
Outcome
[65] ANCL stipulated for the right to conduct the development on the terms set out in the agreement, without being troubled by a caveat lodged by Mortre Holdings Ltd. It is entitled to continue with the development without that disturbance. The denial of a caveat does not leave Mortre Holdings Ltd impotent. It may, for example, take other steps including seeking equitable relief.
[66] It may happen that later on stronger evidence emerges that ANCL’s conduct would amount to threatened action to destroy Mortre’s interest. In that event, a caveat may be justified. Leave will be required under s 148 of the Land Transfer Act. If such a situation should arise, steps may have to be taken quickly. I do not exclude the possibility of an application for leave to file a second caveat heard on a Pickwick basis.
[67] In my judgment, ANCL’s contractual right to have the title free of any caveat
by Mortre entitles it to have the caveat removed. The concerns raised by Mortre do not justify withholding the normal remedy.
24 See for example Efstratiou v Glantschnig [1972] NZLR 594 (CA).
[68] I make these orders:
1 Caveat 10333273.1 is to be removed with effect from 11 July 2016;
2 Leave is reserved to apply for the caveat to remain on the title if
Mortre appeals this decision;
3Mortre is to pay ANCL costs on this application. If the parties cannot agree costs, memoranda may be filed and I shall decide costs on the papers.
……………………....................
Associate Judge R M Bell
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