Nie v Guan
[2021] NZHC 2058
•10 August 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-384
[2021] NZHC 2058
UNDER THE Land Transfer Act 2017 BETWEEN
YUNFEI NIE and JUANJUAN MA
Applicants
AND
SHENSHEN GUAN
Respondent
Hearing: 25 May 2021 Appearances:
SWM Piggin for the Applicant
Ms S Guan, Respondent in person with Mr Lyttleton as McKenzie Friend
Judgment:
10 August 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 10 August 2021 at 4.30pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Northern Legal Ltd, Silverdale Vodanovich Law Ltd, Kumeu
SWM Piggin, Auckland Copy to:
S Guan, Auckland
NIE and MA v GUAN [2021] NZHC 2058 [10 August 2021]
Introduction
[1] This is an application by Mr Nie and Ms Ma that Caveat 11530129.1 lodged against the respondent’s interest in Record of Title WN 531/272 (Wellington Registry) not lapse.
[2] In lodging their caveat, the applicants rely on a document headed “IOU” which records that Ms Guan agreed to place two properties, including the property against which the caveat has been lodged, “as securities against my debt” and that she has “agreed to the creditors lodging a caveat against the interests of the above properties”.
[3] Ms Guan does not dispute that she owes the applicants money or that she signed the IOU but she says that she was coerced into doing so. These are factual issues that are not required to be determined in the current application. For the purposes of an application that a caveat not lapse, an applicant is only required to show that it has a reasonably arguable claim to an interest in land sufficient to support a caveat. The applicant does not need to establish the claim definitively. To determine final legal rights between the parties (including whether Ms Guan was coerced into signing the caveat as she alleges) it is necessary for general proceedings to be brought where full evidence can be given.
[4]The caveat describes the interest claimed as follows:
The caveators – Yunfei Nie and Juanjuan Ma as creditors and the registered owner Shenshen Guan as debtor reached an IOU on 2 August 2019. The registered owner agrees the caveators to have Mortgage to be secured by lodging a caveat against this title pursuant to the IOU. The agreement to mortgage is recorded in the IOU dated 2 August 2019.
[5] It is settled law that where there is an agreement to mortgage, there will be a caveatable interest in the property.1 The issue is whether the IOU recorded Ms Guan’s agreement to mortgage the property or, if not, whether it still provides a reasonably arguable basis for a caveatable interest.
1 Federal Capital Ltd v MTE 31 Ltd [2020] NZHC 811 at [19].
Factual background
[6] Mr Nie and Ms Guan have known each other since primary school in China and their families are friends.
[7] The applicants lent significant sums of money to the respondent between 2015 and 2017 which have not been repaid. The applicants allege that the amounts in arrears by February 2019 are in excess of $1 million when converted into New Zealand Dollars.
[8] The respondent, Ms Guan, accepts that there are amounts outstanding and that she is currently not in a position to repay them but says that the amounts need proper calculation.
[9] The exact details of the lending and how it came about are not relevant to the decision on this application that the caveat not lapse. This question solely depends on the terms of the IOU and whether it provides a caveatable interest.
[10]The wording of the IOU is as follows:
I, the undersigned Shenshen Guan, (Debtor) hereby confirm and acknowledge to Juanjuan Ma and Yunfei Nie (Creditors), hereinafter called the Creditors, that I am indebted to the said Creditors in the amount of $1,038,000.00 dollars as of the date set forth below. The amount does not include the accrued interest. I acknowledge and agree that I incurred the said debt and I am solely responsible for repayment of it to the Creditors. I also agree and acknowledge that I have no defense [sic] should the Creditors use this document in a court of laws as a confession of judgment on my part (where legally permissible). I have promised and agreed to pay the entire amount by 31 December 2019 and I will pay interest of $8,350.00 monthly.
I have agreed to place the properties at 4085 State Highway 5, Reporoa, 3083 described as estate in fee simple, Lot 19 Deposited Plan 46773, 2.4094 hectares more or less, being all the land described in Certificate of Title SA40C/376 and 17 Frederick Street, Tawa, Wellington, 5028 described as estate in fee simple, Lot 298 Deposited Plan 10265, 809 square metres more or less, being all the land described in Certificate of Title WN531/272 as securities against my debt. I have agreed to the Creditors lodging a caveat against the interest of the above properties.
[11] Ms Guan agrees that she signed the IOU before a Court Registrar who signed as a witness. The IOU is dated 2 August 2019.
[12] On 21 August 2019 the caveat in issue was lodged against the title of the Tawa property referred to in the IOU, with the description of the applicants’ interest as set out above. The description included that the applicants’ interest relied on the IOU and that it was an “agreement to mortgage”.
[13] Ms Guan says that she did not understand the IOU as an agreement to mortgage, did not have legal advice and was coerced into signing it, all disputed by the applicants. No steps were taken to remove the caveat, however, until early this year when a notice to lapse was filed.
Legal principles for applications that caveats not lapse
[14] In Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat under the Land Transfer Act 1952:2
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).
[15] Although Holt was heard under the Land Transfer Act 1952, McMullin J’s statement applies equally to caveats under the Land Transfer Act 2017.
[16] In caveat applications under ss 142 and 143 of the Land Transfer Act 2017, the onus is on the caveator to show a reasonably arguable case for the interest claimed. The right to lodge a caveat is provided by s 138, with the interest claimed required to fall within the interests described in that section. Section 138 provides:
138 Caveats against dealings with land
(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—
2 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
(a)claims an estate or interest in the land, whether capable of registration or not; or
(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or
(c)is transferring the estate or interest in the land to another person to be held on trust; or
(d)is the registered owner of the estate or interest in the land and—
(i)has an interest that is distinct from that of registered owner; or
(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.
[17] As s 138(1)(a) makes clear, the interest does not have to be registerable but a personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.3
[18] A caveat must contain the “prescribed information”, set out in the Land Transfer Regulations 2018 as including:4
A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) or, for a caveat under s 138(1)(d)(ii) of the Act, the matters that establish there is a risk that the estate or interest may be lost through fraud.
Details of how the estate or interest claimed is derived from the registered owner.
[19] The legal principles relating to sustaining a caveat are well settled.5 A party applying for a caveat not to lapse must demonstrate that it has a reasonably arguable case showing an entitlement to a beneficial interest in the land subject to the caveat. Such proceedings are determined on a summary basis with only affidavit evidence and so are considered unsuitable for the determination of the parties’ rights. This is particularly so if there are disputed questions of fact. The onus is on the caveator to
3 Guardian Trust & Executors New Zealand Ltd v Hall (No.2) [1938] NZLR 1020 (CA) at 1025;
Philpott v NZI Bank Ltd (1989) 1 NZConvC 190 (CA) at 246.
4 Land Transfer Act 2017, s 138(3) and Land Transfer Regulations 2018, sch 2.
5 Bishop Warden Property Holdings Ltd v Autumn Tree Ltd [2018] NZCA 285 at [22]–[25].
establish by affidavit and documentary evidence a reasonably arguable basis for the claim. Mere assertion will not be enough.6
Does the IOU provide a caveatable interest?
[20] The respondent accepts she owes the applicants money, that she signed the IOU, and that the property over which the caveat is lodged is one of the properties referred to in the IOU. The only matter for decision in this caveat application is therefore whether the IOU agreement provides a reasonably arguable basis for claiming a caveatable interest.
Properties as security against debt
[21] There is no question that the agreement in the IOU to “place the properties as securities against my debt” provides a reasonably arguable basis for the applicants to claim a caveatable interest. Placing “the properties” as security means that the security will relate to the land, meaning that it is “real security”, as opposed to personal security.
[22]There are three classes of real security:7
(1)mortgage securities;
(2)pledges and possessory liens; and
(3)equitable charges, statutory charges (other than mortgages) and non- possessory liens.
[23] The IOU does not specify which type of security Ms Guan is agreeing to but all three types of security provide a basis for a caveatable interest as they are interests in land,8 as opposed to purely contractual or personal rights.9
6 See for example Virtual Spectator Ltd v Rothlander [2016] NZHC 499 at [9].
7 DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (looseleaf ed, LexisNexis) at [15.001].
8 DW McMorland and others, above n 7, at [10.009(n), (o) and (p)].
9 DW McMorland and others, above n 7, at [10.009].
[24] For a caveat to be sustained, the interest relied on must be a present rather than a potential interest in land. The IOU creates a present interest as it simply states that Ms Guan “agrees to place the properties as securities”. By contrast, a potential interest requires a further step before the land will be available as security such as where a party agrees to grant security “upon request”. Here Ms Guan has already agreed to place the properties as security with no request necessary.
Agreement for caveat to be lodged
[25] In addition to stating that Ms Guan agreed “to place the properties as securities against my debt”, the IOU states that Ms Guan agrees “to the Creditors lodging a caveat against the interest of the above properties”.
[26] The wording in relation to the caveat may not be enough on its own to create a caveatable interest but where it is together with the agreement to “place the properties as securities”, it reinforces the position that there is a present (rather than a potential) agreement to create an interest in land. In Hinde, McMorland and Sim Land Law in New Zealand the authors discuss agreements that grant a right to lodge caveats over land and distinguish two types of agreement:10
First, it may be that the clause granting the right to caveat necessarily implies that the registered proprietor intended to confer a caveatable interest on the other person. Such an implication should arise only where the nature of the interest that the registered owner intended to confer is clear from the contract. Where such an implication does arise, the other person will have a caveatable interest that can be protected in the ordinary way by a caveat.
Second, the clause granting the right to caveat may occur in a contract in which no caveatable interest of any sort is conferred by the registered owner. In such a case the other person has no caveatable interest, and therefore has no right to lodge a caveat under s 138 of the Land Transfer Act 2017. Nevertheless, where that person does lodge a caveat, it is submitted that the clause granting the right to caveat will have some effect. An application by the registered proprietor under s 142 of the Land Transfer Act 2017 for removal of the caveat would, it is submitted, be a breach of contract (it being implicit that the registered owner would not derogate from the grant of the right to caveat by applying for removal). The caveator would at least have a remedy in damages, and might be able to enjoin the registered owner from continuing with the application for removal. However, the clause granting the right to caveat will bind only the registered owner, so that third parties would be free to invoke the procedure under s 142 for removal of the caveat, or the procedure under s 143 for the lapse of the caveat.
10 DW McMorland and others, above n 7, at [10.009(y)] (citations omitted).
[27] As to the first type of agreement, the cases have recognised that a right under an agreement to caveat a property can give a caveatable interest by implication. In Yuan v TE Construction Ltd, a clause in a contract said:11
The owner authorises the manager to caveat the property and the manager shall provide a release of the caveat upon the fulfilment of the terms and conditions of the agreement to the manager’s satisfaction.
This was held to give an equitable charge over the property, securing performance of a contractual obligation to pay a share of the proceeds of sale of the property to the caveator.
[28]In Kilmartin v Monk, a deed of acknowledgement of debt said:12
3.The lender shall be entitled to register and maintain a caveat against [address given] to secure his interest under this agreement until the debt is paid.
4.The borrower shall upon request by the lender execute a second mortgage over [address] to secure the debt advanced by the lender. The lender shall hold the said mortgage unregistered unless default has been made in payment of the debt on the due date.
Clause 3 was held to confer a caveatable interest by implication.
[29] In Sunrise 9 Trustees Ltd v North Shore Aero Club Inc a contractual provision giving the aero club the right to lodge a caveat was held to be an equitable charge securing obligations for a developer to make payments to the club.13
[30] In this case, there is no question that a caveatable interest is created by the agreement to place the properties as securities for repayment of the debt and the further agreement that the Creditors may lodge a caveat on the property reinforcing that.
Does the IOU create an equitable mortgage or equitable charge?
[31] It is not clear on the wording of the IOU whether the interest created is an equitable mortgage or an equitable charge.
11 Yuan v TE Construction Ltd HC Auckland CIV-2003-404-3019, 12 August 2003 at [17].
12 Kilmartin v Monk (2005) 6 NZCPR 405 (HC) at [3].
13 Sunrise 9 Trustees Ltd v North Shore Aero Club Inc [2017] NZHC 17904, (2017) 18 NZCPR 838.
[32] The distinction between an equitable mortgage and an equitable charge is that an equitable mortgagee has the right to compel the mortgagor to execute a registerable mortgage in accordance with a contract, but under an equitable charge the chargee cannot require registration of a legal interest.
[33] Section 138(1)(a) however says that a caveat may be lodged where a party claims an interest in land “whether capable of registration or not” and the courts have held that both an equitable mortgage and an equitable charge can support a caveat.14
[34] The description of the interest on the caveat is that “an agreement to mortgage is recorded in the IOU”, rather than an equitable charge.
[35] Ms Guan says that she never agreed to mortgage her property and nor could she have because the other registered owner of the property, Mr Zheng Zhao, did not consent to the IOU.
[36] At the time that Ms Guan signed the IOU, her interest in the property was as a tenant in common as to a half share in respect of which she was able to enter into dealings. The caveat refers under the heading “Registered Owner” to “Shenshen Guan as to that party’s interest”. It is therefore clear from the caveat that the interest is only in respect of Ms Guan’s interest in the property. The fact that Mr Zhao did not consent does not prevent it being held that there is a reasonably arguable case for a caveatable interest.
[37] The question of whether the agreement in the IOU is an agreement to mortgage or an equitable charge is a factual question that requires determination at trial.
[38] Hinde, McMorland and Sim Land Law in New Zealand15 states that where the caveator claims a particular estate or interest but, on a challenge to the validity of the caveat, is found to have a quite different estate or interest, the caveat will be held to be defective.16
14 DW McMorland and others, above n 7, [10.009(o)].
15 DW McMorland and others, above n 7.
16 At [10.013(a)], citing Francis v Taradale West End Ltd (1998) 3 NZ ConvC 192,762 and New Zealand Lightharness Ltd v Linn (1985) 2 NZCPR 374.
[39] The examples given are cases where the details of the agreement relied upon are incorrect. For example, in Colin Adams Ltd v Baker, the caveator had lodged a caveat claiming an easement by virtue of a written agreement dated 22 July 1997, but sought to support it by relying also on a letter dated 9 April 1998.17 The Court of Appeal held that the caveator could not rely on grounds that had not been included in the caveat.18
[40] In Dixon v Laurie McGoverne Ltd the court considered the validity of a caveat that claimed an interest by virtue of “an unregistered mortgage dated 20 January 2000”.19 At the hearing the caveator relied on a mortgage dated 23 December 1999. Master Venning (as he then was) said, without deciding the point, that there was force in the view that because of the different dates “the caveat is defective and ought to be removed on that ground alone”.20
[41] Here the description of the interest refers to the IOU with the correct date so there is no question as to the document the caveator is relying on for its interest.
[42] In Hinde, McMorland and Sim Land Law in New Zealand, the authors note that where a registered owner complains that a caveator has not stated the nature of the claimed estate or interest with sufficient certainty, often the real complaint is that the caveator has not satisfied the requirement of showing how the claimed estate or interest is derived from the registered owner.21 That requirement is strictly applied by the courts.
[43] In this case the caveat clearly describes how Mr Nie and Ms Ma derive their estate from Ms Guan by referring to the IOU. Furthermore, Mr Nie and Ms Ma do not rely on any other documents for claiming their interest in the property caveated.
17 Colin Adams Ltd v Baker CA 178/98, 5 May 1999.
18 At [5].
19 Dixon v Laurie McGoverne Ltd HC Christchurch M 254/00, 8 September 2000 at [11].
20 At [17].
21 DW McMorland and others, above n 7, at [10.013(a)]; cited with approval in Norrie v Registrar- General of Land (2005) 6 NZCPR 94.
[44] Whether there was an agreement to mortgage will depend on the context in which the IOU was signed. There are factors that provide a basis for there being at least a reasonably arguable claim to an agreement to mortgage. First, the caveat was lodged two weeks after the IOU was signed in 2019 and the caveat referred to the agreement in the IOU as being an agreement to mortgage. There was then no application to lapse until 2021 despite the fact that the caveat referred to the IOU as an agreement to mortgage.
[45] If there was no agreement to mortgage the IOU would instead be understood as an equitable charge, which is still a caveatable interest. This, together with the fact that the caveat makes it clear that the Mr Nie and Ms Ma’s interest arises from the IOU, means that the caveat should not lapse even though there is a question as to whether it is an agreement to mortgage or not.
Result
[46] The application by Mr Nie and Ms Ma that Caveat 11530129.1 not lapse is granted. Ordinarily where a caveat is sustained, it is on condition that proceedings are brought expeditiously by the caveator. In this case however Ms Guan agrees that she signed the IOU and that there is money owing. The parties indicated that once a decision was made in relation to the caveat, the parties may be able to resolve matters between themselves. If that is not the case, then substantive proceedings will need to be brought. Otherwise the caveat will remain in place until the debt is repaid or further order of the court.
Costs
[47] As Mr Nie and Ms Ma have succeeded in their application they are entitled to costs. If the parties are unable to agree on quantum, memoranda of no longer than five pages may be filed within four weeks of this judgment on behalf of Mr Nie and Ms Ma and a further two weeks following by Ms Guan.
Associate Judge Sussock