Pacific Crest Limited v McDonald
[2021] NZHC 3072
•15 November 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1688
[2021] NZHC 3072
BETWEEN PACIFIC CREST LIMITED
Applicant
AND
BRIAN RONALD McDONALD
and
NORMA TIKA McDONALDRespondents
Hearing: 2 November 2021 Appearances:
Joshua Pietras for the Applicant Respondents are self-represented
Judgment:
15 November 2021
JUDGMENT OF ASSOCIATE JUDGE TAYLOR
This judgment was delivered by me on 15 November 2021 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Thomas Dewar Sziranyi Letts (Joshua Pietras), Lower Hutt, for the Applicant
Copy for:
Brian R McDonald and Norma Tika McDonald (the Respondents)
PACIFIC CREST LIMITED v McDONALD [2021] NZHC 3072 [15 November 2021]
Introduction
[1] This application to sustain a caveat arises from the purchase of a truck and trailer.
[2] The respondents, Mrs and Mr McDonald, are the directors and shareholders of McDonald Trust Trading Ltd (McDonald Trading),1 which conducts a scrap metal business in Panmure, Auckland. On 11 August 2020, the McDonalds approached finance broker Smart Money Ltd (the Broker), to arrange finance to purchase a truck and trailer in Blenheim from Smart Assets Ltd (the Vendor). They paid a deposit of
$17,700 to the Vendor on 2 September 2020.
[3] On 9 September 2020, McDonald Trading signed a Loan and Security Agreement (Loan Agreement) with the applicant, Partners Finance and Lease Ltd (Partners Finance), for a loan of $71,800.2 The agreement recorded McDonald Trading as purchaser, Partners Finance as vendor and the McDonalds as guarantors. Partners Finance took a security interest in the truck and trailer. Clause 28 provides for the unilateral assignment of the Loan Agreement:
[Partners Finance] may assign this loan and security agreement:
28.1 [Partners Finance] may assign or transfer, or otherwise create or permit a security interest in respect of some or all of our rights and obligations in this loan and security agreement or in the Goods to Pacific Crest Ltd or any other person without [McDonald Trading’s] consent. All our rights and powers under this loan and security agreement and in the Goods may be exercised by any assignee…
28.2 If [Partners Finance] assign[s] or transfer[s] this loan and security agreement to any other person [McDonald Trading] agree[s] that [Partners Finance is] not required to provide [McDonald Trading] with notice of the assignment and that the assignment does not in any way affect the terms of this loan and security agreement or [McDonald Trading’s] obligations.
[4] The Loan Agreement also includes a Guarantee and Indemnity, cl 6 of which provides:
1 McDonald Trust Trading Ltd changed its name to McDonald Trading NZ Ltd on 27 May 2021.
2 Total balance payable of $80,860.58.
To better secure the Guarantor’s obligations under this loan and security agreement in the event that the Customer is in breach of the Customer’s obligations under this agreement, the Guarantor agrees to mortgage all the Guarantor’s present and future interests in any land to us as security for any amount which the Guarantor may owe [Partners Finance] under this agreement and to secure the Guarantor’s performance of any obligations under this agreement. The Guarantor acknowledges and agrees that:
6.1[Partners Finance] may register a caveat over any land owned by the Guarantor; and
6.2The Guarantor will do any act which is necessary to give effect to this provision to ensure any mortgage is registerable and enforceable.
[5] The precise sequence of delivery of the truck and trailer and release of the loan funds is not clear. The McDonalds received the truck and trailer sometime before 21 September 2020. Mrs McDonald exhibits an email from the Broker dated 21 September 2020 indicating knowledge on the part of the Broker that there were some problems with the vehicle and that funds would not be settled until confirmation was obtained from Mr McDonald.3
[6] It appears that on 21 September 2020 the McDonalds had in fact taken delivery of the truck and trailer, that it had received the certificate of fitness as a pre-requisite to the sale from VTNZ in Blenheim, and they had taken the truck and trailer to Auckland. The Vendor was paid using the proceeds of the loan under the Loan Agreement.
[7] The McDonalds say that by that time they had found the truck and trailer to be faulty and renegotiated the purchase agreement. The truck and trailer are said to have undergone certificate of fitness rechecks, and to have failed these on 26 September 2020. The McDonalds say that they accordingly formally rejected the truck and trailer on 28 September 2020 and purported to cancel the Loan Agreement on 22 October 2020.
[8] The McDonalds stopped making repayments under the Loan Agreement in January 2021. They also allegedly refused to allow repossession of the truck and trailer.
3 Affidavit of Norma Tika McDonald sworn 27 September 2021, exhibit “NTM11”.
[9] In March 2021, Pacific Crest made demand on McDonald Trading and Mr and Mrs McDonald for payment of the total amount outstanding under the Loan Agreement.4 The letter of demand expired without remedy.
[10] Partners Finance had assigned the Loan Agreement to Pacific Crest, such assignment being agreed on 21 September 2020 and settled on 24 September 2020. On 19 May 2021, Pacific Crest registered caveat 12127256.1 against the title to 4 Court Crescent, Panmure, Auckland (the Property) claiming the following interest:
Agreement to Mortgage dated 21/09/2020 between the Registered Owners Brian Ronald McDonald and Norma Tika McDonald and… Partners Finance and Lease Limited, which security rights were subsequently assigned to the Caveator Pacific Crest Limited on 21/09/2020.
[11] The McDonalds wrote to Pacific Crest’s solicitors on 24 May 2021 alleging that the caveat had been wrongly registered because the Property was owned by a trust. The solicitors for Pacific Crest responded the following day requesting evidence of trust ownership.
[12] On 4 June 2021, Pacific Crest commenced debt recovery proceedings against the McDonalds in the District Court.5
[13] On 8 June 2021, the McDonalds provided Pacific Crest’s solicitors with a Deed of Resettlement, dated 4 July 2005. Pursuant to the Deed, the Property was resettled on the trustees of the McDonald Property Trust (the Trust), then Mrs McDonald and Mr William Tau’au. Accordingly, on 11 June 2021 Pacific Crest’s solicitors advised the caveat would be withdrawn.
[14] However, the caveat was never withdrawn. The failure to withdraw is said to have been due initially to Pacific Crest’s signatories being unavailable. Pacific Crest also decided to review its position and investigate the assertion that the Property is owned by a trust. On 26 July 2021 Pacific Crest’s solicitors obtained an historic title search for the Property, which confirmed that the Property had transferred from Norma McDonald and William Tau’au (as trustees) to Brian McDonald and Norma McDonald
4 Affidavit of Francis Jerome Fitzgerald sworn 19 August 2021 at [11].
5 CIV-2021-004-1009.
on 19 December 2012. On 13 August 2021 Pacific Crest’s solicitors wrote to Mr and Mrs McDonald requesting further information about the transfer of the Property on 19 December 2012.6
[15] The McDonalds applied for the caveat to lapse on 12 August 2021. Pacific Crest responded on 19 August 2021 with this originating application for the caveat to be sustained. Following the first call of the matter, Wylie J made the interim order for the caveat to be sustained.7
[16] On 7 October 2021 Pacific Crest’s solicitors again wrote to Mr and Mrs McDonald requesting evidence relating to the transfer of the Property on 19 December 2012.8 On 14 October 2021, Mr and Mrs McDonald sent a brief response to Pacific Crest’s solicitors to the effect that the Property was held in trust, and the documentation requested for confirmation of the Trust had already been provided. The relevant documentation was in fact provided by the McDonalds by email dated 21 October 2021, sent to the Court and to Pacific Crest’s solicitors. Attached to that email were the following documents:
(a)Deed of trust creating the McDonald Property Trust dated 22 June 2005 (the Trust Deed);
(b)Deed of appointment of new trustee and discharge of retiring trustee dated 19 December 2012; and
(c) Deed dated 19 December 2012 recording an amendment to the Trust Deed.
Application to sustain a caveat
[17] An application for the lapse of a caveat can be made to the Registrar under s 143(1) of the Land Transfer Act 2017 (the LTA). An application in response, for an order that the caveat not lapse, can be made pursuant to s 142(3).
6 Affidavit of Francis Jerome Fitzgerald sworn 19 August 2021, exhibit “FJF 6”.
7 Minute of Wylie J dated 1 September 2021.
8 Affidavit of Francis Jerome Fitzgerald sworn 15 October 2021, exhibit “FJF 8”.
[18] An application to sustain a caveat is determined on summary basis in which the Court has regard to the following principles:9
(a)The applicant caveator bears the onus of presenting a reasonably arguable case that they have an interest in the land sufficient to support a caveat. However, they need not establish that definitively.
(b)The process by which these applications are determined is ill-suited to resolving disputed questions of fact. An order for a caveat’s lapse will only be made if it is patent it cannot be maintained — either because there was no valid ground for lodging it in the first place or, alternatively, that such ground has now ceased to exist. A conflict between affidavits will generally be resolved in the caveator’s favour.10 However, the Court is not bound to accept uncritically statements in an affidavit that are equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable.11
(c)Where the applicant has discharged its burden, the Court retains a residual discretion to remove the caveat. The Court will exercise this discretion cautiously and must be satisfied removal would not prejudice the caveator’s legitimate interest.12
Has Pacific Crest presented a reasonably arguable case that it has an interest in the land sufficient to support a caveat?
The right to lodge a caveat
[19]The right to lodge a caveat is set out in s 138 of the LTA:
9 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. See also Philpott v Noble Investments Ltd [2015] NZCA 342.
10 Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.
11 Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175, citing Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC 331 (PC) at 341; Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
12 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
(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—
(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
…
…
(3)A caveat against dealings document must contain the prescribed information.
[20] The prescribed information referred to at s 138(3) of the LTA is set out in sch 2 of the Land Transfer Regulations 2018. The caveat must, relevantly, include:
A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) …
Details of how the estate or interest claimed is derived from the registered owner.
[21] The regulations are consistent with the courts’ long held view that the caveator must have a specific legal or equitable interest in the land caveated.13
The interest claimed
[22] Mr Pietras, for Pacific Crest, submits that Pacific Crest’s caveatable interest in the Property arises from cl 6 of the Guarantee and Indemnity in the Loan Agreement. Under that clause, the McDonalds agreed to mortgage all of their present and future interests in any land to Pacific Crest as security for any amount owed to Pacific Crest and agreed that Pacific Crest is entitled to register a caveat over any land owned by the McDonalds. Mr Pietras submits it is trite law that an agreement to mortgage gives the lender a caveatable interest over the property to which the agreement relates.14
[23] The McDonalds live at the Property and the record of title records them as the registered proprietors. In the credit application the McDonalds completed for the
13 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 114.
14 Botany Land Development, above n 9, at [24].
loan,15 they recorded that they had two properties, one of which was “owner/occupied” which referred to the Property. In addition, Mr Pietras submits that on the first page of the application the McDonalds ticked the box indicating “own home”, and he also points to the certification by the McDonalds contained in cl 3.2 of the application as to the truth, correctness and completeness of the information in the application.
[24] Mr Pietras submits it is clear the McDonalds represented that they personally owned the Property and their status as trustees is disputed. Further, he submits that even if the McDonalds are trustees, it is arguable that as guarantors, in their capacity as trustees of the Trust and as registered proprietors of the Property, the obligations under the agreement to mortgage set out in the Loan Agreement creates a caveatable interest in the Property. Mr Pietras submits, on an analysis of the Trust Deed, the McDonalds as trustees were empowered to give the guarantee of the loan in favour of Pacific Crest and to enter into the agreement to mortgage the Property. Accordingly, Pacific Crest has a caveatable interest in the Property.
The case for the McDonalds
[25] The McDonalds have three principal submissions. First, that Pacific Crest has no caveatable interest in the Property because it is held in trust. Second, that even if the Property were not held in trust, Pacific Crest would have no caveatable interest in the Property, because the McDonalds cancelled the Loan Agreement on 22 October 2020. Third, that even if the McDonalds did not cancel the Loan Agreement, Pacific Crest lacks standing to bring the claim because the assignment from Partners Finance was invalid.
McDonalds’ first submission
[26] In relation to the first of these submissions, Mrs McDonald deposes that on 4 September 2020 she called the Broker to clarify the situation regarding the Trust. Her evidence is that she told him there were two trusts: a trust holding the vehicles, plant and equipment, and a property trust.16 The evidence is disputed by the Broker, who deposes that at no point did Mrs McDonald mention any trust ownership in
15 Dated 31 August 2021.
16 Affidavit of Norma McDonald at [14].
relation to the Property.17 Mrs McDonald also submits that by the letter of 8 June 2021 to Pacific Crest’s solicitors, she forwarded to them documents relating to the McDonald Family Trust being:
(a)the McDonald Family Trust minutes dated 4 July 2005; and
(b)the Disposing Trust Deed dated 4 July 2005.18
[27] She then points to the correspondence between herself and Pacific Crest’s solicitors between the period 11 June – 22 July 2021. The upshot of this correspondence is that Pacific Crest’s solicitors appeared to accept the Property was held in trust and the caveat would be removed. There were various delays in the caveat being removed for the reasons set out in the correspondence from Pacific Crest’s solicitors. Mrs McDonald also submits that, following the provision of the remainder of the Trust documents relating to the transfer of the Trust Property on 19 December 2012, which were attached to her email of 21 October 2021, it was clear that the Property is held in trust with the McDonalds as trustees of the Trust. She submits the Property is not owned by the guarantors, and therefore it cannot be subject to the agreement to mortgage set out in cl 6 of the Loan Agreement.
[28] Mr Pietras in his submissions acknowledges that Pacific Crest’s solicitors did initially accept the Property was held in trust and that the caveat would be removed. Pacific Crest, after the commencement of the District Court proceeding, reviewed their position and decided to investigate the trust position further.
[29] I do not consider the initial acceptance by Pacific Crest’s solicitors that the Property was held in trust, and accordingly the caveat would be removed, to have any binding effect on Pacific Crest in these proceedings.
17 Affidavit of Stephen Reid in reply at [11].
18 These documents are attached to the affidavit of Norma McDonald as exhibits “NTM4” and “NTM5.
McDonalds’ second submission
[30] In relation to the second submission, Mrs McDonald submits that on 21 September 2020 the Broker confirmed by email that he would not pay the Vendor until the respondents were satisfied with the vehicles. Mrs McDonald alleges that this was a misrepresentation by the Broker and the proceeds of the loan were in fact paid to the Vendor on 21 September 2020.
[31] Mrs McDonald deposes that after the vehicles were tested in Auckland, they failed certificate of fitness checks and were rejected by the McDonalds on 28 September 2021. The McDonalds’ position is that:
(a)following the rejection of the vehicles due to their defects, they were entitled to, and did, cancel the Loan Agreement on 22 October 2020; and
(b)following cancellation of the Loan Agreement, cl 6 of the Guarantee and Indemnity ceased to apply and Pacific Crest accordingly had no basis on which to lodge a caveat.
[32] Mr Pietras in response to this argument asserts that any dispute as to the condition of the vehicles was a dispute between the McDonalds and the Vendor of the vehicles. The Loan Agreement was independent of the sale and purchase agreement and could not be cancelled by the McDonalds, irrespective of any issues between the McDonalds and the Vendor. Accordingly, the purported cancellation of the Loan Agreement by the McDonalds was invalid and the Loan Agreement, including cl 6 of the Guarantee and Indemnity, remained in force.
McDonalds’ third submission
[33] The McDonalds’ third submission is that the assignment from Partners Finance to Pacific Crest is invalid and accordingly Pacific Crest has no standing to bring this application to maintain the caveat. However, the legal basis for this claim is unclear
given that unilateral assignment is expressly permitted by cl 28 of the Loan Agreement.
[34] Accordingly, I do not consider this submission by the McDonalds prevents Pacific Crest from having a reasonably arguable caveatable interest in the Property.
Legal principles
[35] Campbell on Caveats notes that “the crucial question when deciding whether a person has a caveatable interest under s 138 of the Land Transfer Act 2017 is whether that person has a present (as distinct from a potential) interest in land. A purely contractual or personal right will not support a caveat.”19
[36] In Naran v Sim,20 the property in issue was owned by a trust of which Mr Naran was trustee and discretionary beneficiary. Ms Sim sought to maintain a caveat over the property as Mr Naran owed her a substantial sum of money. Venning J observed:
[13] It is also clear enough that [Ms Sim] cannot claim an interest against the land based on any beneficial interest that Mr Naran may have in the property…as a discretionary beneficiary of the trust which owns that property… [A] beneficiary under a discretionary trust only has the right to have the trust property administered and does not himself have a caveatable interest in the land: R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd.
[14] As Mr Naran does not have a caveatable interest he could not, in his capacity as such a discretionary beneficiary, create or grant a caveatable interest in the trust property. …
[15] During the course of argument it became apparent that [Ms Sim’s] claim is now based on the proposition that, as a trustee, Mr Naran granted [her] an interest in the land... As noted the interest is said to be some form of charge or securities for the moneys that [Ms Sim] had advanced Mr Naran.
[16] Essentially [Ms Sim] claims that she has an equitable charge over the property which provides her an interest in it. But such an interest could only be granted by the owner of the property, the trustees. Such an interest could not be granted by Mr Naran in his personal or beneficial capacity…
19 Neil Campbell Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at [10.009].
20 Naran v Sim HC Auckland CIV-2010-404-1015, 7 May 2010.
Issues
[37]The issues to be addressed are as follows:
(a)Is the Property held in trust? Are the McDonalds the trustees? If the Property is not held in trust and the McDonalds are not trustees, and therefore the Property is held by the McDonalds in their personal capacities, does Pacific Crest have a reasonably arguable caveatable interest in the Property?
(b)If the Property is held in trust and the McDonalds are trustees, does Pacific Crest have a reasonably arguable caveatable interest in the Property?
(c)If Pacific Crest has a reasonably arguable caveatable interest in the Property, should the Court nevertheless exercise its residual discretion to remove the caveat?
Is the Property held in trust? Are the McDonalds the Trustees of the Trust?
[38] Having reviewed the Trust documentation supplied by the McDonalds, Mr Pietras submits that there is a reasonable argument that the McDonalds were not properly appointed as trustees of the Trust at the time they signed the Loan Agreement and accordingly the result is that they signed the Loan Agreement as guarantors in their personal capacity. Recall that by Deed of Appointment of New Trustee and Discharge of Retiring Trustee, dated 19 December 2012, Mr Tau’au is said to have retired as trustee, Mrs McDonald to have continued and Mr McDonald to have been appointed. Mr Pietras argues that:
(a)The purported revocation of cl 26.1 of the Trust Deed by the Deed dated 19 December 2012 is ineffective. The power to revoke cl 26.1(b) relied on in the Deed dated 19 December 2012 is the exercise of a power under cl 12.1 of the Trust Deed, which allows the
trustees to vary the Trust Deed. However, cl 12.2(d) specifically restricts the trustees from varying cl 26.
(b)Accordingly, the Deed dated 19 December 2012 is ineffective to appoint Mr McDonald as a new trustee as his appointment was still prohibited by cl 26 of the Trust Deed.
[39] During the hearing, Mrs McDonald advised that she had prepared the two deeds signed on 19 December 2012 herself and without legal advice. She stated that her intention was that the revocation of cl 26.1(b) of the Trust Deed, set in cl 1 of the Deed, was by implication to override cl 12.2(d) to allow Mr McDonald to become a trustee.
[40] Mr Pietras submits that if the appointment of Mr McDonald as a trustee was invalid, then the transfer of the Property on 19 December 2012 to Mr and Mrs McDonald was effectively a transfer to them in their personal capacity as they were not validly appointed as trustees of the Trust at the time of the transfer. Consequently, when Mr and Mrs McDonald signed the Loan Agreement as guarantors, they did so in their personal capacity as registered proprietors of the Property. Accordingly, the agreement to mortgage contained in the guarantee creates a caveatable interest in the Property in favour of Pacific Crest.
[41] I consider there is a counter argument to Mr Pietras’ argument to the effect that, while the language in cl 1 of the deed purporting to vary the Trust Deed executed on 19 December 2012 is not specific, it impliedly overrode cl 12.2(d) of the Trust Deed and was effective to nevertheless vary cl 26 to allow Mr McDonald to be validly appointed as trustee. Consequently, the transfer of the Property to the McDonalds on 19 December 2012 was to them as trustees and the Property was validly held in the Trust at the time the Loan Agreement was signed.
[42] It is not necessary for me to definitively decide this point. It is sufficient to record that it is reasonably arguable.
If the Property is held in trust and McDonalds are trustees, does Pacific Crest have a reasonably arguable caveatable interest in the Property?
[43] Mr Pietras submits that if the Property is held in the Trust and McDonalds are trustees, then it is arguable that when signing the Loan Agreement containing the agreement to mortgage, Mr and Mrs McDonald created a caveatable interest over the Property acting as trustees. As support for this argument, Mr Pietras points to the following clauses in the Trust Deed, giving the trustees power to give a guarantee and create a security interest in the Property:
(a)Clause 8.1 – the clause confers wide powers on the trustees in the following terms:
to achieve the objects of the Trust the Trustees shall have in the administration, management and investment of the Trust Fund all the rights, powers and privileges of a natural person.
And further on in the clause:
Accordingly, … in dealing with the Trust Fund or acting as trustees of the Trust Fund, the Trustees may do any act or thing or procure the doing of any act or thing or enter into any obligation whatever, including, without limitation exercising unrestricted powers to borrow and raise money, giving securities and guarantees …
(b)Clause 15.1 which relevantly provides:
The Trustees may … (c) charge any property so paid, transferred, applied, appropriated, re-settled or distributed with payment of such sum upon such security and such terms as the Trustees may decide.
(c)Clause 17.1 which relevantly provides:
The Trustees may … (b) for the benefit of any Beneficiary give any guarantee, either alone or jointly with any other person and give security in support of or in place of any such guarantee over any property of the Trust Fund …
(d)Clause 18.1 which provides:
Any power or discretion vested in the Trustees may be exercised in favour of a Trustee who is also a Beneficiary by the other Trustee or Trustees.
[44] Mr Pietras submits that these powers give the trustees the right to give the guarantee and agreement to mortgage contained in the Loan Agreement and, if they were validly appointed as trustees of the Trust, they did so by signing the Loan Agreement. Accordingly, the mortgage creates a caveatable interest in the Property in favour of Pacific Crest.
[45] Mrs McDonald’s submission in response is that they never intended to sign the Loan Agreement and guarantee as trustees and only in their personal capacity. Therefore, the provisions relating to the agreement to mortgage should not apply to the Property. Mrs McDonald submits further that the McDonalds allowed the Property to be listed in the assets in the loan application because she made a mistake. She says she tried to rectify this mistake in conversation with the Broker on 4 September 2020.
As noted above, the evidence of the Broker conflicts with this.21
[46]Dealing now with the remaining two submissions by the McDonalds:
(a)The submission that the Loan Agreement was cancelled due to defects in the vehicles:
In my view, Pacific Crest has a reasonably arguable position that any issues regarding the condition of the vehicles and the McDonalds’ right to reject them is a matter between the McDonalds and the Vendor, and the McDonalds had no ability to cancel the Loan Agreement even if they were entitled to validly reject the vehicles. In addition, the McDonalds continued to make payments under the Loan Agreement until January 2021 which is inconsistent with their assertion that they cancelled the Loan Agreement on 22 October 2020.
(b)The submission that the assignment of the Loan Agreement to Pacific Crest was invalid:
In my view, Pacific Crest has a reasonably arguable position that the Loan Agreement was validly assigned by Partners Finance to Pacific Crest in accordance with the
21 See [26] above.
express right of assignment set out in cl 28 of the Loan Agreement. No substantive argument has been advanced by the McDonalds as to why this assignment is invalid.
Decision
[47] I find that Pacific Crest has a reasonably arguable case that it has a caveatable interest in the Property for the following reasons:
(a)Pacific Crest has a reasonably arguable case to dispute that the Property was validly held in the Trust by the McDonalds at the time of signing the Loan Agreement. Pacific Crest argues that at the time of signing the Loan Agreement and guarantee the McDonalds had not been properly appointed as trustees of the Trust and that the transfer of the Property to Mr and Mrs McDonald on 19 December 2012 was a transfer to them in their personal capacities. Therefore it is reasonably arguable that the Property was held in their personal capacities at the time of signing the Loan Agreement and guarantee. The agreement to mortgage contained in the Loan Agreement therefore would create a caveatable interest in the Property.22
(b)If the Property was held on trust by the McDonalds at the time of signing the Loan Agreement, then there is a reasonably arguable case that by including the Property in the statement of assets in the loan application, knowing it was held in trust, and having regard to the powers of Mr and Mrs McDonald as trustees under the Trust Deed, a caveatable interest was created in the Property by the trustees entering into the agreement to mortgage contained in the Loan Agreement.
(c)Nothing in the McDonalds’ submissions overturns the reasons stated in paragraphs (a) and (b) above.
22 Botany Land Development, above n 9.
Should this Court nonetheless exercise its reiducal discretion to remove the caveat?
[48] The question central to the exercise of this discretion is whether there is any practical advantage in maintaining the caveat. As the Court of Appeal said in Pacific Homes:23
… [Where] there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest … 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 interest 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.
[49] In Stewart v Kaipara Consultants Ltd,24 the Court of Appeal again emphasised that the residual discretion to remove a caveat, notwithstanding an arguable case for the claimed estate or interest, should be exercised on a cautious basis. The caveat should only be removed where the Court can be “completely satisfied” that the caveator’s interests will not be prejudiced.25
[50] In his submissions, Mr Pietras has made the following relevant points to the exercise of the Court’s discretion:
(a)Pacific Crest’s security position seems to be uncertain. It appears from the evidence that the McDonalds have asserted that vehicles financed by the loan were in fact owned not by McDonald Trading but by another trust, and therefore security given over those vehicles by McDonald Trading to Pacific Crest may not be effective.
(b)In Pacific Crest’s submission, they relied upon the Property as being a part of security in advancing the loan. Until the outcome of the
23 Pacific Homes Ltd, above n 12, at 656. See also Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [23].
24 Stewart, above n 23.
25 Stewart, above n 23.
District Court proceedings26 the removal of the caveat could prejudice Pacific Crest’s position.
[51] As noted above, an order will be made for removal only where the Court is completely satisfied that a legitimate interest of the caveator will not thereby be prejudiced. Here, the removal of the caveat may prejudice Pacific Crest’s security position. Therefore, I decline to exercise the Court’s residual discretion to remove the caveat.
Costs
[52] Pacific Crest seeks an order awarding indemnity costs against the McDonalds pursuant to cls 20 and 22 of the Loan Agreement:
You must pay us our costs
20 If we demand it you must immediately pay us any amounts, to the extent not already claimed elsewhere under this … agreement, spent by us preparing, executing, registering, renewing or discharging this … agreement or a financing statement or in protecting our interests or rights in the Goods or under this … agreement or to remedy any failure by you to meet any of your obligations under this … agreement or as a result of your actions or inactions in breach of this … agreement or to recover the Secured Money (including in each case, our legal expenses charged on a solicitor and own client basis).
…
You will indemnify us
22 You will indemnify us against any loss or expense incurred at any time by us as a direct or indirect result of our enforcement of any of our rights or remedies in this … agreement, or as a direct or indirect result of any breach of any of your obligations under this … agreement.
[53] Rule 14.6(4)(e) of the High Court Rules 2016 (the Rules) provides that the court may order a party to pay indemnity costs if the party claiming costs is entitled to indemnity costs under a contract or deed. The provisions of cls 20 and 22 entitle Pacific Crest to indemnity costs under r 14.6(4)(e) of the Rules, “indemnity costs” being defined in r 14.6(l)(b) as:
the costs payable are actual costs, disbursements, and witnesses’ expenses reasonably incurred by a party.
26 CIV-2021-004-1009.
[54] If the parties are unable to agree costs, then a memorandum of not more than three pages may be filed by the applicant within 10 working days, and by the respondents within 10 working days after that.
……………………………..
Associate Judge Taylor
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