Nags Head Horse Hotel Ltd v Forest Trustee Ltd
[2012] NZHC 3271
•6 December 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2012-404-001739 [2012] NZHC 3271
BETWEEN NAGS HEAD HORSE HOTEL LIMITED Plaintiff
ANDFOREST TRUSTEE LIMITED First Defendant
ANDOTIUM TRUSTEE LIMITED Second Defendant
ANDZEBRA CROSSINGS TRADING LIMITED AND PETER WILLIAM MAWHINNEY
Third Defendants
Hearing: 30 November 2012
Appearances: L A O'Gorman for the Plaintiff
P W Mawhinney in person, the Defendant
Judgment: 6 December 2012
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
06.12.12 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel:
L O’Gorman, Buddle Findlay, Auckland – [email protected] /
Copy to:
P Mawhinney - [email protected]
NAGS HEAD HORSE HOTEL LIMITED V FOREST TRUSTEE LIMITED HC AK CIV 2012-404-001739 [6
December 2012]
Background
[1] The hearing in this matter on 30 November 2012 was scheduled for the purpose of considering the plaintiff’s (Nags Head) interlocutory application for summary judgment upon its application for orders for specific performance of the defendants’ loan contract dated 24 August 2010.
[2] On 26 November 2012 Mr Peter Mawhinney filed a written request for an adjournment of the hearing pending determination of his application for an order restraining Nags Head’s solicitors from acting any further on behalf of Nags Head. I directed the application for restraint be heard on 30 November 2012 before consideration was given to hearing the summary judgment application.
[3] Mr Mawhinney’s application for a restraining order was filed on 15 October
2012, just two days prior to the hearing of Nags Head’s application for an interim injunction preventing the third defendant (including Mr Mawhinney) from further dealing with their mortgage over the subject property until the question of priority between two mortgages registered over the subject property in West Auckland was decided. The holder of one of those mortgages was Nags Head. The other registered mortgage was originally held by Sixty-Six Auckland Limited (Sixty-Six) but that was subsequently transferred to the second defendant (OTL) and then recently to the third defendants (Zebra and Peter Mawhinney).
[4] Nags Head is seeking to enforce a deed of priority executed by the then registered proprietor and Sixty-Six that it says is binding on the third defendants. It is that proceeding in Nags Head’s interlocutory application for summary judgment upon it, which was scheduled for hearing before me on 30 November 2012. Pending determination of the summary judgment application Nags Head sought interim relief preventing any further dealing with the Zebra/Peter Mawhinney mortgage.
[5] Although Peter Mawhinney’s application to restrain Buddle Findlay from acting any further for Nags Head was filed before the interim injunction application was heard, it was not able to be heard before Courtney J on 17 October 2012.
Application for restraint
[6] Mr Mawhinney filed an affidavit in support of his application. He deposes that in December 2008 he was introduced to a Ms Low, a senior solicitor with Buddle Findlay who specialised in tax matters. Mr Mawhinney says the reason for the introduction was that there were issues with the IRD as regards the Waitakere Forest Land Trust of which he was a trustee. He said one of the matters Ms Low advised him on concerned the land which is the subject of the competing mortgagee claims to be heard by me upon Nags Head’s summary judgment application. The property was transferred to a Mr R G Vesey in his capacity as a trustee of the Doug Vesey Trust, on 17 November 2008. The purchase was financed from a loan from OTL at a time when Mr Mawhinney was a shareholder and director of OTL. The loan was secured by a mortgage over the property.
[7] Mr Vesey claimed a GST refund of $625,000 on the purchase of the property. There was an agreement that part of the GST refund would be used to pay down some of the loan from OTL. The IRD investigated the claim for the GST rebate. To that end Mr Mawhinney says he attended many of the meetings between Mr Vesey and the IRD and he assisted Mr Vesey and his tax accountant with the preparation of responses to the IRD’s information requests.
[8] Mr Vesey was unable to service OTL’s loan. The consequences of default were investigated including the options available for OTL to sell the property by mortgagee sale.
[9] In about September 2009 Mr Mawhinney introduced Mr Vesey to Ms Low who on Mr Vesey’s behalf responded to IRD enquiries in relation to the purchase of the property.
[10] On 15 February 2010 the IRD wrote to Ms Low advising it was not satisfied that the Doug Vesey Trust was entitled to a GST input tax claim on the ground that there was no evidence that Mr Vesey was conducting a taxable activity.
[11] Mr Mawhinney says he discussed the outcome with Mr Vesey and that was agreed that the property would be transferred to OTL “as repayment of the principal sum of the loan to Mr Vesey”.
[12] On or about 25 March 2010 the IRD conducted an interview with Mr Vesey with Ms Low in attendance.
[13] Mr Mawhinney says that in September 2010 Ms Lowndes the director of Nags Head purchased the land in question together with associated parcels of property.
[14] Mr Mawhinney says that over a period of time Ms Low became “a close friend of mine and we exchanged numerous confidences, both in respect of the subject properties and our personal goals and expectations [and he] visited Ms Low on numerous occasions at her home...”. He said one of the topics they discussed was the use of the property’s security for borrowing to enable Ms Low to set up her own law business. Also they discussed the subdivision potential of the property.
[15] Apparently the IRD enquiries also focussed upon Mr Mawhinney’s connection to the Waitakere Forest Land Trust and the Court infers from what Mr Mawhinney has deposed, that he too personally was the focus of IRD enquiries over GST rebates that had been claimed – and presumably which he had recovered.
[16] Mr Mawhinney says that in about July 2010 he introduced Ms Low to Ms Lowndes. It appears from about that time Ms Lowndes engaged the services of Ms Low and Buddle Findlay on her behalf.
[17] Mr Mawhinney says that Ms Low ceased to communicate with him about Christmas 2011. By letter dated 29 February 2012 Buddle Findlay requested OTL to execute documents to enable the priority instrument to be registered giving the Nags Head Mortgage first priority. Although the letter was signed by another solicitor from Buddle Findlay it was stated also to be from Ms Low. When on 29 March 2012
Nags Head lodged a caveat against dealings over the property (which by now was
registered to the first defendant (FTL)) the address for service of the caveator was
noted as “C/- Buddle Findlay (Attention: Alexandra Lowe)”.
[18] Mr Mawhinney claims that he recognises that Nags Head’s statement of claim and the affidavit of Mr Lowndes filed in support is “drafted in the style of Ms Low”.
[19] Mr Mawhinney believes Ms Low has assisted the Auckland Council in its action to recover payment of outstanding rates owing on the property.
[20] Mr Mawhinney says “Ms Low and Buddle Findlay have obtained information from the defendants as to the subdivision potential and methods and potential profits that can be obtained from the subdivision of the property”.
[21] Mr Mawhinney says “There is a clear possibility that Nags Head intends to obtain those profits for itself by the litigation against the defendants it is presently undertaking represented by Buddle Findlay”.
[22] Responses to Mr Mawhinney’s affidavit have been sworn by Ms Low and Ms
Lowndes.
[23] Ms Low deposes she ceased to act for Mr Mawhinney in about July 2010 because he was unable to pay Buddle Findlay’s fees when rendered. She understands Mr Mawhinney was bankrupted on 22 July 2010.
[24] She deposes:
In July 2010 Mr Mawhinney suggested he introduce her to a new client and he then arranged a meeting with that new client on 8 July
2010. Previously he had sent an email dated 6 July with a note of issues that Buddle Findlay was to assist the new client Ms Lowndes with.
On 8 July 2010 Mr Mawhinney introduced Ms Low to Ms Lowndes whom he said need tax advice.
MsLow was concerned about the possibility of a conflict because some of the issues referred to in Mr Mawhinney’s notice of 6 July related to properties held on his behalf.
Shesaid however that none of the issues touched on matters she had been dealing with for Mr Mawhinney and had nothing to do with the tax issues he had with IRD. She said Mr Mawhinney indicated he was happy to waive any conflict.
After the meeting she discussed the potential conflict issue with Buddle Findlay’s conflicts committee which, notwithstanding Mr Mawhinney’s indication of waiver, was concerned that the scope of instructions be narrowed to ensure there was no risk for potential conflict.
It was agreed Ms Low would provide structuring advice to Ms Lowndes in respect of her contemplated business, but that Buddle Findlay would not act on the acquisition of the properties that related directly or indirectly to Mr Mawhinney.
That Ms Lowndes then instructed a lawyer from another firm to act in respect of the acquisition of those properties.
That Mr Mawhinney’s matter before the Court had nothing to do with the tax issues in respect of which Ms Low acted.
[25] In her affidavit Ms Lowndes says she has a clear recollection of events and confirms Ms Low’s account. She was at the 8 July 2010 meeting and expressly recalls Mr Mawhinney’s statement that he was happy to waive any conflicts of interest because he wanted Buddle Findlay to act for Ms Lowndes. She confirms that Buddle Findlay, to address any perceived conflicts, advised her that they could not act upon the acquisition of the properties that related directly or indirectly to Mr Mawhinney.
Consideration of claims of conflict
[26] In his submissions to me Mr Mawhinney asserts that Buddle Findlay’s letter concerning Nags Head’s mortgage priority claim was written “in Ms Low’s style”, notwithstanding it was signed by another solicitor. Mr Mawhinney says that style carries on into the style of the statement of claim because of:
The style of paragraph numbering. The subheadings used.
The paragraph layout.
The spacing between the lines. The language is similar.
[27] Mr Mawhinney says he was quite happy to waive any issues of conflict but that this waiver concerned only tax issues.
[28] Mr Mawhinney acknowledges that although the summary judgment application concerns a discrete issue of mortgage priority, “the proceeding is part of a larger strategy to obtain control of the subject land and to use some of the defendant’s ideas about how the land could be partitioned”.
Conclusions
[29] Mr Mawhinney’s restraining application has been filed somewhat at the eleventh hour. It was never pursued in relation to the injunction proceeding, nor was it referred to in any of the four affidavits Mr Mawhinney had filed before then. Nothing was earlier heard of this issue from Mr Mawhinney since 29 March 2012 when Nags Head proceeding was filed. The hearing date upon the summary judgment application was fixed about 5 weeks before the restraint application was filed.
[30] Mr Mawhinney’s perception of Ms Low’s influence in the drafting of the statement of claim appears misplaced, as is his perception of ulterior motives by Nags Head to secure the property in order to access its subdivision potential.
[31] Mr Mawhinney appears to accept that he provided a waiver in relation to any potential issues of conflict of interest, although he asserted in submissions before me for the first time that this waiver concerns tax advice only. Regardless, Ms Low’s evidence is that her advice to Nags Head was confined to tax issues. The proceeding filed in March 2012 was initiated, Nags Head says, upon the discovery of efforts of interests by Mr Mawhinney to secure a transfer of the property and in the process to remove Nags Head’s mortgage. None of Mr Mawhinney’s allegations concern the concise matters in issue upon Nags Head’s proceeding. Tax issues have no correlation to Nags Head’s proceeding.
[32] Mr Mawhinney’s concerns appear to be based on supposition and nothing else.
Result
[33] After hearing submissions on point I informed the Court that Mr Mawhinney’s restraining application would be dismissed. Thereupon Mr Mawhinney advised the Court he intended to appeal my decision. My response to him was that he was free to take whatever action he thought was appropriate in the circumstances.
[34] Mr Mawhinney then requested that the summary judgment application be adjourned until his appeal of my decision on the preliminary point was disposed of. My response to Mr Mawhinney is that I would not adjourn the summary judgment application. I then invited the parties to address me upon the summary judgment application.
The summary judgment application
[35] Nags Head is the mortgagee under mortgage 8576760.1 registered against the property. Nags Head’s proceeding concerns the priority between its mortgage and another mortgage registered against the property (mortgage 7998827.2).
[36] The first defendant (FTL) is the registered owner of the property (Anthony Mawhinney is and at all relevant times was the Director of FTL). OTL was the mortgagee under mortgage 7998827.2 when Nags Head’s proceeding was commenced in March 2012. The third defendants (Zebra and Peter Mawhinney) are the current registered mortgagees under mortgage 7998827.2 after a transfer was made during the course of this proceeding.
[37] Before the summary judgment hearing began the solicitors for FTL filed a notice with the Court seeking leave to withdraw on account they no longer had instructions to act. Leave was granted accordingly. This meant that none of the defendant companies was represented at the summary judgment hearing and that Mr Mawhinney was self represented in his capacity as a trustee of the third defendant whose interest in mortgage 7998827.2 was obtained only after Nags Head’s proceeding was filed.
[38] Mr Mawhinney has clearly been closely been involved, along with his brother Anthony, in a lot of the dealings concerning the property since well before those events surrounding Nags Head’s loan to the Doug Vesey Trust.
[39] Peter Mawhinney deposes that in April 2010 he became involved in a relationship with Ms Lowndes and that in the period May to August 2010 he negotiated with Ms Lowndes a loan from Nags Head to stop the property being sold at a mortgagee sale at the hands of the then first registered mortgagee. The Doug Vesey Trust, of which Mr R G Vesey was trustee, was the registered proprietor of the property from 17 November 2008 until 21 October 2011. OTL was a mortgagee at the time the Doug Vesey Trust acquired the property and upon the Trust’s acquisition of the property OTL registered a second mortgage being mortgage 7998827.2.
[40] On 3 August 2010 the mortgages were transferred from OTL to Sixty-Six.
[41] Nags Head’s loan of $420,000 on 24 August 2010 was recorded by a term loan agreement.
[42] The loan agreement included the following terms, among others: (a) The principal sum was repayable within three years.
(b)The loan agreement was to be secured by an all obligations, registered first mortgage over the property.
(c) Nags Head acknowledged that the property was to be transferred by Mr Vesey to FTL and agreed that it consented to such a transfer on the condition that FTL undertook and covenanted to be bound by the same terms as those contained in the loan agreement and to accept an assignment of the mortgage to be registered over the property in accordance with the agreement provided that:
(i) Mr Vesey must provide a guarantee of the obligations of FTL
to Nags Head.
(ii)FTL must agree to be bound by the deed of priority in the form annexed to the loan agreement and to execute any further deed of priority that Nags Head deemed necessary in order to secure such obligations.
[43] Mr Vesey then granted Nags Head a mortgage over the property being mortgage 8576760.1 with a priority amount of $840,000 plus interest. The mortgage provided:
If the mortgagee requires, the party giving this mortgage must promptly execute and deliver to the mortgagee all assignments, transfers, security interests and any other agreements and documents, and do anything else which the mortgagee may deem necessary to perfect a security interest created under this mortgage or secure the full benefit of the mortgagee’s rights under this mortgage.
[44] On 24 August 2010 Nags Head, Mr Vesey and Sixty-Six entered into a deed of priority to arrange priorities in respect to Nags Head’s and Sixty-Six’s mortgages. The deed included the following terms and conditions (among others):
(a) The Nags Head Mortgage, and all moneys secured from time to time under it, will have first priority over Mortgage 6815429.4 and Mortgage 7998827.2 for an amount not exceeding the First Mortgagee Priority Amount (clause 1, Schedule).
(b) The First Mortgage Priority Amount is $840,000 plus (among other things) interest, fees and expenses incurred by Nags Head in (among other ways) protecting the security under the Nags Head Mortgage (clause 13, Schedule).
(c) If required by Nags Head, Sixty-Six will immediately sign, and will consent to the registration in the relevant land register of, a priority instrument under which the Nags Head Mortgage is granted priority over Mortgage 6815429.4 and Mortgage 7998827.2 (clause 5, Schedule).
(d) Neither Nags Head nor Sixty-Six will transfer or assign any interest or right in or to its Mortgage to any person unless that person has agreed to be bound by the Document (clause 11).
[45] As at 24 August 2010 the directors of Sixty-Six were Anthony Mawhinney and a Mr William Mawhinney.
[46] The deed of priority was executed by:
(a) Mr Vesey, by his attorney Anthony Mawhinney. (b) Sixty-Six, by Anthony Mawhinney.
(c) Nags Head by its director Ms Lowndes.
[47] On 16 February 2011 Sixty-Six’s mortgages were transferred back to OTL. Nags Head says it received no notice of Sixty Six’s intention to transfer those and did not consent to them.
[48] On 6 September 2011 in exercise of the power of sale in one of those mortgages OTL transferred the property from Mr Vesey (as trustee for the Doug Vesey Trust) to Mr Vesey in person. Nags Head says it received no notice of this intention to transfer the property in exercise of the power of sale, and did not consent to it.
[49] On 21 October 2011 Mr Vesey transferred the property to FTL subject to
Nags Head’s mortgage and to mortgage 7998827.2.
[50] By letters to OTL and FTL dated 29 February 2012 and 1 March 2012 respectively, Nags Head requested them to immediately sign and consent to the registration of a priority instrument under which the Nags Head mortgage was granted priority over mortgage 7998827.2.
[51] FTL and OTL refused to sign or consent to the registration of a priority instrument by which the Nags Head mortgage was to be granted priority over mortgage 7998827.2.
[52] On 31 May 2012 a transfer instrument was executed transferring mortgage
7998827.2 from OTL to the third defendant. That transfer was registered on 30
August 2012.
[53] It is in the background of those events that Mr Mawhinney submits:
(a) That when the deed of priority was signed by Anthony Mawhinney (as attorney for Mr Vesey, and as a director of Sixty-Six) it was not brought to his attention that the arrangements required recognition of Nags Head’s priority mortgagee interest, nor of any obligation, if required, to complete appropriate documentation to give effect to that priority.
(b)That the transfer of the property from OTL to Mr Vesey that was executed under a power of sale contained in one of OTL’s mortgages took place before the contents of the deed of priority were brought to the attention of Anthony Mawhinney, and further before the land was on-sold to End of the Road Limited (EOTL) and entity in which neither Peter nor Anthony Mawhinney had an interest. Again it is claimed this occurred before the contents of the deed of priority were brought to notice by a letter dated 29 February 2012 from Buddle Findlay making demand for execution by OTL of a form of authorisation and instruction to enable the registration of a mortgage priority instrument.
(c) That there is evidence that Ms Lowndes consented to the transfer of Sixty-Six’s mortgage to OTL and did not at that time require a priority instrument to be executed and consequently any claim by Nags Head to priority was thereby foregone. In any event if Nags Head did not agree to the exercise of power of sale it only has itself to blame because it had not any earlier required a priority instrument to be executed.
(d)Whatever the intention was with the deed of priority it is Mr Mawhinney’s submission that no priority existed until an appropriate instrument was executed and therefore any of the subsequent dealings with the property were not invalidated by Nags Head’s claims of priority.
(e) There can be no requirement or any order made requiring FTL to execute any document to give effect to Nags Head’s claims of priority because FTL had sold its interest to an arms-length purchaser in EOTL. Besides, the deed of priority can only regulate the obligations as between mortgagees and cannot in that process defeat ownership rights acquired by a bona fide purchaser.
Legal principles - summary judgment
[54] The Court must be satisfied that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[55] To succeed, the applicant must show there is no bona fida defence or no reasonable grounds of defence or no reasonably arguable defence.
[56] A Court will usually refuse summary judgment when the affidavit evidence discloses material conflicts of evidence; where it is best to assess the credibility of affidavit deponents by cross examination at trial.
[57] Where a respondent raises a defence it is for the respondent to lay an evidential foundation for it, and the Court may take a robust and realistic approach where the facts warrant it.
Legal principles - priorities
[58] The priority of mortgages over land can be varied by registration of a mortgage priority instrument under s 103 of the Land Transfer Act 1952 (the Act), and/or by an unregistered deed of priority which binds the parties to the deed and also any person who has notice of the deed. [1]
[1] Bank of New Zealand v Development Finance Corp of New Zealand [1988] 1 NZLR 495 at 503.
[59] By s 105 of the Act when a transfer executed by a mortgagee is registered then the estate or interest of the mortgagor therein passes and vests in the purchaser
free of any liability on account of the mortgage but subject to any interest created by
an instrument which has priority over the mortgage in question or where the mortgagee consents to that other interest remaining.
[60] Prior interests include not only prior registered mortgages but subsequent registered interests with priority under an unregistered deed of which the selling mortgagee has notice. [2]
[2] Bank of New Zealand v Development Finance Corp. (supra).
[61] Should a mortgagor in substance buy the mortgaged land on a mortgagee’s sale, he or she is precluded by the principle of Otter v Lord Vaux [3] from invoking the provisions of s 105 of the Act to defeat the interests of subsequent mortgagees and encumbrances.
[3] (1856) 43 ER 1381.
[62] In Sussman v AGC Advances Limited [4] Kirby P held:
[4] [1996] ANZ ConvR 309 (CA) at 312, 313 and 314.
I agree with Bryson J that the principle stated in Otter v Lord Vaux is a general equitable principle. It is neither based on, nor limited by, particular contractual considerations. Rather, the rule is based on the equities which arise from a defined contractual relationship. It would be unconscionable for a mortgagor to pay out a first mortgage, and then attempt to rely on this newly bare security to escape from the burden of subsequent mortgages. That is why equity has established the applicable principle to resist such an obviously unconscionable transaction...
The principle laid down by Otter v Lord Vaux is therefore good law and applies to the Torrens title land.
...
This principle should be blind to legal distinctions which do not alter the substance of transactions. It should examine the substance, the economic reality, of the situation before the Court and not be subverted by form.
Legal principles – indefeasibility
[63] Concepts of indefeasibility do not prevent a plaintiff from pursuing an in personam claim against a registered proprietor or an owner or a mortgagee who has
knowledge of a prior interest. [5]
[5] CN & NA Davies Limited v Laughton [1997] 3 NZLR 705 (CA).
[64] Claims of indefeasibility must submit to principles of equity or legal right where a registered proprietor has knowledge of unconscionable conduct or an unlawful act that may be involved. Although the interests of innocent third parties should not be affected equity should permit in appropriate circumstances the Court to consider claims of registered proprietors who purport to rely on the indefeasibility of
their title. [6]
[6] Regal Castings Limited v Lightbody [2008] NZSC 87 at [160].
Legal principles – status of purchaser
[65] The indefeasibility provisions of the Act do not apply prior to the registration being completed. [7] In this case EOTL is claimed by the defendants to be an arms length purchaser. A transfer of FTL’s sale to EOTL has not been registered because LINZ requires further evidence to ascertain the validity of the transfer. Nags Head’s subsequent caveat of the title has prevented completion of the process for registration of EOTL’s transfer since.
[7] Perkins v Purea [2009] NZCA 541 at [65] and [68].
[66] A bona fide purchaser for value of legal estate requires that interest be free from prior equitable interests of which no notice was given.
Discussion
[67] Mr Mawhinney’s position is that the Nags Head mortgage should, in accordance with s 105 of the Act and s 183 of the Property Law Act 2007 have been discharged following the transfer under mortgage 6815429.1 on 6 September 2011 when by an exercise of the power of sale in that mortgage OTL transferred the property from Mr Vesey (as trustee of the Doug Vesey Trust) to Mr Vesey in person – in effect from Mr Vesey to Mr Vesey. At that time Anthony Mawhinney was the sole director of OTL.
[68] Similarly it is Mr Mawhinney’s claim that the Nags Head mortgage will be discharged if a transfer to EOTL is registered. Mr Mawhinney asserts that EOTL is the beneficial owner of the property and FTL is merely holding the property on trust
until a transfer can be registered.
[69] Mr Mawhinney contends that Nags Head was aware that the property was to be transferred from the Doug Vesey Trust to Mr Vesey and therefore in that process consented to relinquish any priority claims at that time.
[70] Mr Mawhinney asserts the transfer to EOTL was an arms length transaction and therefore there is no proper basis for challenging the validity of it or resisting inevitably a registration of transfer.
[71] In any event Mr Mawhinney contends that the deed of priority does not apply because none of those parties, whose interests in mortgage or land have since been transferred, was aware of the deed of priority as they were not original parties to the contractual obligations.
[72] Mr Mawhinney also contends that when Anthony Mawhinney signed the deed of priority on behalf of Mr Vesey and on behalf of Sixty-Six it was not drawn to his attention that it was being agreed that Nags Head was obtaining a first mortgagee interest in the property and could require from the covenanting parties their cooperation with the registration of that first mortgagee interest if it requested such cooperation.
[73] Nags Head’s position is that the registration of a mortgagee’s transfer does not affect a transfer of any estate wherein a priority mortgagee interest is retained or where the mortgagee has consented to that priority interest remaining. In this case Nags Head’s priority entitlement is binding on all of the registered interest holders because they all had notice of the true priority position before they acquired their interests.
[74] Nags Head disputes any claim that EOTL is the beneficial purchaser of the property, for reasons which I will shortly examine.
[75] That all of the defendants had knowledge of the deed of priority is, Nags Head says, undisputable and is proved by uncontested objective evidence in the form of Companies Office records, and from the evidence, pleadings and submissions of the defendants themselves.
That there is insufficient evidence for summary judgment purposes of knowledge of the loan agreement, the deed of priority and Nags Head’s mortgage because Mr Anthony Mawhinney allegedly had no opportunity to read or assimilate the contents of those documents.
[77] To the extent that position is advanced as an arguable defence it must fail. The relevant documents bear Anthony Mawhinney’s signature as either attorney for Mr Vesey or on behalf of Sixty-Six. He initialled every page of the deed of priority and he initialled the handwritten figures entered to record the priority amounts for the two mortgages to Sixty-Six. His full execution signature was witnessed by a lawyer who advised him and Anthony Mawhinney also attached a certificate of non revocation of power of attorney.
[78] Ms O’Gorman is correct when she submits it was incumbent upon the solicitor to advise Mr Mawhinney appropriately particularly given the mortgagor certifications that are required under s 164A of the Land Transfer Act and related regulations.
[79] Anthony Mawhinney refers to completing the documentation in a pressure type situation. He says he was only superficially aware of the content and ramifications of the documents. But he has not alleged that any erroneous explanation or description of those was given to him.
[80] Ms O’Gorman has correctly summarised the position when submitting that Mr Mawhinney’s entire argument is based on the allegation that Anthony chose not to take steps to read and understand the documents thoroughly prior to signing them. If this is so then he was negligent. There is certainly no basis for a claim that he believed that the documents he signed had a particular effect which is quite different than that which he understood to be the case. A plea of non est factum is supportable only if a proponent can show that notwithstanding his error, he acted with all reasonable care in the circumstances. A claim of mistaken belief cannot be sustained
in circumstances where a person did not take adequate steps to read and understand the document being signed.
Equity does not permit the principle in Otter v Lord Vaux to prevent a discharge of
Nags Head’s mortgage
[81] Nags Head says it did not know about or consent to the mortgagee sale resulting in the transfer of the property from Mr Vesey (as trustee) to Mr Vesey. Mr Mawhinney disputes this. It is clear that the purpose of the transfer was to effect a discharge of the caveat of another party. There is nothing in this nor in the evidence of Mr Lowndes to suggest that Nags Head consented to its mortgage being subordinated or extinguished. I accept Ms O’Gorman’s submission that it would not make any sense for Nags Head to agree to this without consideration, and none such was given.
[82] Further, I adopt Ms O’Gorman’s submission that there was no basis for the allegation that the principle in Otter v Lord Vaux not apply in the circumstances. The issue is not whether or not the transfer itself was unconscionable, but rather whether it would be inequitable for that transfer to extinguish Nags Head’s mortgagee interests.
The mortgagor, having placed the second mortgagee in a position of priority over itself, should not be allowed to subvert this priority. [8]
[8] Sussman (supra)
Nags Head’s interest never assumed priority
[83] This submission is based upon a claim that until Nags Head’s interest was registered as a priority interest it never assumed priority nor could claim any. Mr Mawhinney argued that Nags Head may only rely on its strict legal position of registered priority and that position would preclude it from relying on any contractual or equitable rights.
[84] In response I endorse Ms O’Gorman’s submission that there is simply no basis in law for this allegation.
[85] Mr Mawhinney submits Nags Head has unreasonably delayed its right to require the execution of the necessary documentation to register and give effect to the order of priority as agreed in the deed of priority, and then to commence this proceeding when that cooperation was not forthcoming.
[86] That defence cannot succeed. The acceptable evidence is that Nags Head, upon becoming aware of the transfers to OTL and FTL, took action promptly to require the necessary documentation to be completed.
Novation
[87] Mr Mawhinney alleges that Nags Head agreed to the transaction effecting a transfer of the property from Mr Vesey to Mr Vesey and therefore Nags Head has waived all rights under the deed of priority. Indeed, he says all those rights have been extinguished.
[88] For a claim of waiver to be advanced it must be proved that there was a clear and unambiguous and unequivocal representation that a party will not rely on its contractual rights.
[89] Mr Mawhinney claims there is a factual dispute between the parties concerning this. In appropriate cases the Court can resolve these without recourse to trial when it is clear the account of one party is to be preferred to the other because the other’s account is unrealistic and inherently improbable. That occurs in this case. Nags Head has not agreed to waive its strict contractual rights of payment. Even Mr Mawhinney agrees that the abiding purpose of the transfer was to clear the caveat of another. There can be no question that in that process, Nags Head agreed to waive its priority interest claim.
[90] Ms O’Gorman is correct when she submits that apart from the fact that there was no evidence of an unequivocal promise, there could be no credible suggestion that the defendants had ordered their affairs in reliance on it.
[91] Nags Head’s loan involved a substantial sum of money. The loan was effected by reference to formal written contracts. The defendants claim of waiver and of relinquishing its indefeasible mortgage security interest without consideration being paid, is neither realistic nor probable.
Arms length transfer to ELTO
[92] It appears from relevant records that none of the persons or entities associated with events prior to 2012 is connected to EOTL. Mr Mawhinney submits that FTL cannot be compelled to execute documentation to enable the registration of Nags Head’s priority interest because it was to FTL (as trustee of the Doug Vesey Trust) that Mr Vesey transferred the property on 21 October 2011 and that FTL has since agreed to a transfer of the property to EOTL.
[93] The Court does not accept EOTL was the beneficial purchaser of the property when with the use of Anthony Mawhinney’s power of attorney Mr Vesey transferred the property to FTL when Anthony Mawhinney was the sole director of FTL. Therefore FTL knew of the priority agreement under the deed of priority.
[94] On 28 January 2012 FTL entered into an agreement for sale and purchase with EOTL. The purchase price was $4,510,000 and included the following terms:
(a) It was agreed that EOTL would transfer back the property on 15
February 2012 to FTL or its nominee, and to that end EOTL agreed to execute a transfer instrument and to deliver it to FTL prior to the settlement date. EOTL did execute a transfer document.
(b)EOTL covenanted not to lodge any caveats and irrevocably appointed FTL or its nominee to be EOTL’s “true and lawful attorney” to execute any documents necessary to remove any such caveats.
(c) Anthony Mawhinney has EOTL’s power of attorney and has been
executing the documents relating to the sale on behalf of EOTL.
[95] The purchase by EOTL was funded under a term loan agreement between EOTL and Sixty-Six, to be secured by a mortgage. Under that term loan agreement Sixty-Six agreed to advance a principal sum of $4,509,990 for a period of three months. This meant that EOTL provided $10 of equity towards the purchase.
[96] Unsurprisingly LINZ requisitioned the documents because it required further evidence to ascertain the validity of the transfer.
[97] In response to that action OTL as mortgagee under mortgage 7998827.2 decided to adopt the sale and the transfer to EOTL but this too was requisitioned because a new transfer instrument was required to effect the transfer in the exercise of a power of sale.
[98] At some time between 24 April and 4 May 2012 Anthony Mawhinney, as attorney for EOTL amended the transfer instrument to record that it was a transfer in the exercise of power of sale. That transfer document was then relodged, along with evidence of Mr Mawhinney’s power of attorney for EOTL. However that dealing could not proceed because of the caveat that had meanwhile been lodged on behalf of Nags Head.
[99] Subsequently on 31 May 2012 OTL executed a transfer instrument to transfer mortgage 7998827.2 from OTL to the third defendants. That transfer was registered on 30 August 2012. It is not in dispute that at the time the transfer document was executed the third defendants knew of the priority agreement under the deed of priority.
[100] EOTL, FTL and the third defendants all hold their interests as trustees. As Peter Mawhinney himself acknowledged he is the current beneficial owner of the property.
[101] The comment of Courtney J in her decision to grant Nags Head’s application
for an interim injunction is appropriate:
[21] ...It seems obvious that, notwithstanding the apparent sale to EOTL at arms length, the legal and beneficial ownership of the property will ultimately come back to entities associated with and controlled by Peter and
Anthony Mawhinney. EOTL may not have had notice of the deed of priority. But I am far from convinced that it should be regarded as a bona fide purchaser...
Conclusions
[102] In the face of formal documents executed by Anthony Mawhinney he claims that he did not understand the documents to include a right that enabled Nags Head to prioritise its mortgagee interest over the mortgages of OTL, a company he was in control of. An analysis of the circumstances at the time those documents were executed suggests claims of lack of knowledge are ingenuous.
[103] Claims that Nags Head agreed to or failed appropriately to protect its right to require the execution of documents to enable its priority interest to be registered are improbable when there was no possible advantage to it - indeed there was the prospect of significant loss if this was to occur.
[104] There was no reason to register the priority documentation until it was clear Anthony and Peter Mawhinney were endeavouring to engineer a process to effect the discharge of Nags Head’s mortgagee rights entirely. Invariably this was done by Anthony Mawhinney utilising a power of attorney or acting in his role as a director. All of this for the purpose of ensuring it seems Peter Mawhinney’s position as the beneficial owner of the property.
[105] The Court is satisfied with the evidence that Nags Head has acted promptly to protect its interests as soon as it became clear what the purpose of Anthony and Peter Mawhinney’s actions were about.
[106] The defendants say FTL cannot be compelled to act in any way other than to ensure the transfer to EOTL is completed. The Court can therefore accept that none of the defendants would assist with the formal process to enable the registration of Nags Head’s priority interest.
[107] Nags Head has proved there is no arguable defence to its claims. It is entitled to an order for specific performance of the deed of priority and its mortgage.
Judgment
[108] There is an order directing:
(a) The first, second and/or third defendants within 21 days of the order to sign, and consent to the registration of, a priority instrument under which the Nags Head mortgage is granted priority over mortgage
7998827.2 and to otherwise comply with the terms of the deed of
priority and Nags Head’s mortgage.
(b)That in the event of the first, second and/or third defendants defaulting in compliance with the order in (a) above, the Registrar of this Court be appointed pursuant to s 3 of the Judicature Amendment Act 1910 to sign, and consent to the registration of, a priority instrument under which the Nags Head’s mortgage is granted priority over mortgage 7998827.2.
(c) There is a declaration that the Nags Head mortgage has priority over mortgage 7998827.2.
(d) The defendants jointly and severally shall be liable to pay Nags
Head’s costs in this proceeding. Those costs shall be fixed in a sum to be determined upon application for that purpose.
Associate Judge Christiansen
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