O'Leary v Sentiero Properties Ltd - [2006] NZCA 363

IN THE COURT OF APPEAL OF NEW ZEALAND
CA203/05

BETWEENLESLIE JOHN O'LEARY, ELAYNE JOY O'LEARY AND JOHN FRANCIS CLIFFORD HENDERSON

Appellants

ANDSENTIERO PROPERTIES LTD AND MAKITITI LIMITED

First Respondents
ANDTHE FARMERS TRADING COMPANY LIMITED

Second Respondent

CA204/05
AND BETWEEN THE FARMERS TRADING COMPANY LIMITED

Appellant

ANDSENTIERO PROPERTIES LIMITED AND MAKATITI LIMITED

First Respondents
ANDLESLIE JOHN O'LEARY, ELAYNE JOY O'LEARY AND JOHN FRANCIS CLIFFORD HENDERSON

Second Respondents

Hearing:22 May 2006

Court:Chambers, Rodney Hansen and Priestley JJ
Counsel:T G Stapleton for Appellants in CA203/05 and Second Respondents in CA204/05

D M O'Neill for First Respondents in CA203/05 and CA204/05
M Davies for Second Respondent in CA203/05 and Appellant in CA204/05

Judgment:18 December 2006 at 3 pm

JUDGMENT OF THE COURT

AThe appeals are allowed.
BThe orders made in the High Court on 26 August 2005 are set aside.
CThe first respondents in CA203/05 must apply to the High Court for the convening of a case management conference so that directions as to the future conduct of the proceeding may be given.
DThe appellants and second respondent in CA203/05 are entitled to costs in the High Court from the first respondents in CA203/05. If the parties cannot agree, quantum will be determined by the High Court.
EWith respect to costs in this court, the first respondents in CA203/05 must pay:
(a)$4,000 plus usual disbursements incurred in respect of both appeals to the appellants in CA203/05; and
(b)$6,000 plus usual disbursements incurred in respect of both appeals to the second respondent in CA203/05.

REASONS OF THE COURT
(Given by Chambers J)
Table of Contents

Para No

Competing equitable interests  [1]
Issues on the appeals  [10]
Is it reasonably arguable that Sentiero acquired an
           equitable interest in the property on entering into
           the May agreement?  [22]
Has Sentiero shown that Mr Young did not have actual or
           constructive notice of Farmers’ option before entering
           into the May agreement?  [35]
Does this case fall within the exceptions to the final
           sentence proposition?  [48]
What was the effect of the non-fulfilment of clause 14?             [51]
Conclusion  [55]
Competing equitable interests
[1]       This case is all about competing equitable interests in a commercial property in Rotorua.
[2]       In 2001, The Farmers Trading Company Limited agreed to take a lease of the property. One clause of the lease gave Farmers an option to purchase the property if the lessor wished to sell the premises during the term of the lease.
[3]       On or about 18 May 2004, the O’Leary trusts, who by that time owned the property, entered into an agreement whereby they conditionally agreed to sell the property to Sentiero Properties Limited. (We shall call that agreement “the May agreement”.) The trusts did not, prior to entering into the May agreement, check with Farmers as to whether it was interested in buying. Nor was the May agreement made conditional on Farmers not exercising its option. The May agreement was conditional, however, on Sentiero’s being satisfied within 40 working days that the property was suitable for it.
[4]       Farmers…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2006] NZCA 363
Decision Date: 18 December 2006

CaseChat Overview and Summary

The Court of Appeal of New Zealand was presented with a dispute over competing equitable interests in a commercial property in Rotorua. The Farmers Trading Company Limited (Farmers) held an option to purchase the property under their lease agreement, while Sentiero Properties Limited (Sentiero) had entered into an agreement to purchase the property from the O'Leary trusts. The O'Leary trusts decided to sell the property to Farmers, leading to the current dispute over which party has the superior claim to the property. Both Sentiero and Farmers appealed the decision of Simon France J, who had granted Sentiero an interlocutory injunction and sustained their caveat against the title.

The legal issues in this case revolved around the priority of competing equitable interests in the property. The central issue was whether Sentiero had acquired an equitable interest in the property when they entered into the May agreement and whether they had actual or constructive notice of Farmers' option before entering into the May agreement. Another issue was whether this case fell within the exceptions to the final sentence proposition, which states that an equitable interest acquired with notice of an earlier equitable interest cannot prevail over that earlier interest.

The Court of Appeal concluded that it was reasonably arguable that Sentiero acquired an equitable interest in the property on entering into the May agreement. However, Sentiero had not established a reasonably arguable case that Mr. Young did not have actual or constructive notice of Farmers' option before entering into the May agreement. As a result, Farmers' interest must prevail over Sentiero's, unless this case falls within the exceptions to the final sentence proposition. The Court found that this case did not fall within the exceptions, and thus, Sentiero had not established an arguable case that its later equitable interest should prevail.

In conclusion, the appeals were allowed, and the orders made in the High Court were set aside. Farmers are entitled to the property, and Sentiero's claim against the O'Leary trusts will be limited to damages.

Orders