Payne v Root-Reid HC Rotorua CIV-2011-463-806

[2011] NZHC 2079

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2011-463-806

UNDER  The Land Transfer Act 1952

BETWEEN  JOHN ANTHONY PAYNE AND SUSAN PAYNE

Applicants

ANDALEXANDER MAURICE KENNETH ROOT-REID AND LOREN CHRISTINE ROOT-REID

Respondents

Hearing:         14 December 2011 (Heard at Tauranga)

Appearances: Mr J H Olphert for Applicants

Mr C M Bidois for Respondents

Judgment:      15 December 2011 at 5:00 PM

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

15.12.11 at 5p.m., pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Olphert & Associates Ltd, Rotorua –  [email protected]

East Brewster Limited, Rotorua

PAYNE V ROOT-REID HC ROT CIV-2011-463-806 15 December 2011

[1]      On 8 December 2011 the applicants filed an application for an order:

1.        THAT caveat number 8896444.1 lodged by them against Certificate

of Title SA 841/280 (“the property”) not lapse.

[2]      The grounds upon which the claim was made were set out as follows:

1.The  Applicants  claim  a  Constructive  Trust  by  way  of  equitable interest  in  the  land  (the  property)  held  by  the  Applicants  as Caveators   pursuant to a continuing debt obligation owed by the Respondents (the Registered Proprietors) to the Applicants (as Caveators) as a result of the Applicants’ prior sale of the land to the Respondents.

2.        The Applicants therefore have an equitable interest in the property.

[3]      The  return  date  in  the  originating  application  that  was  inserted  by  the Registrar was 14 December 2011 which is today’s date.  The proceeding was served on the respondents, Mr Bidois’s clients, yesterday.   When the matter was called before me this morning by way of telephone conference I made enquiries of counsel concerning setting this matter down for a fixture.  The position that I was told by the parties was that there was some urgency about the matter.   The first fixture that could  be  allocated  was  March  of  next  year.    Mr  Olphert  suggested  that  the proceeding be dealt with by way of defended hearing in March 2012.   He further proposed that there should be an order sustaining the caveat until further order of the Court.

[4]      Mr Bidois opposed the interim order suggestion.  He advised that he had no instructions to consent to such an arrangement no doubt because of pressure of time, Mr Olphert was not in a position to refer me to any authority which would justify the making of an interim order.  In those circumstances I told counsel that I would deal with the matter today at 2.15 p.m.  I then heard helpful submissions from Mr Olphert in support of the application.

[5]      The background to the present application was that on 21 October 2011 solicitors acting for the applicants lodged a caveat against the title to the land in question  and the caveat was expressed in the following terms in its operative part:

Estate or Interest claimed

Constructive trust by way of equitable interest in the Land held by the Caveators pursuant to a continuing debt obligation owed by the Registered Proprietors Alexander Maurice Kenneth Root-Reed and Loren Christine Loren Root-Reed to the Caveators as a result of the Caveator’s prior sale of the Land to the Registered Proprietors.

[6]      The grounds upon which the respondents oppose the making of the order are as follows:

1.The debt obligation relied on by the Applicants does not give rise to an equitable interest in the land.

2         The constructive trust relied on by the Applicants does not exist.

3.The Applicants have failed to establish a reasonably arguable case that they have a caveatable interest in the land.

[7]      What seemed to be clear from the form of the caveat was that the applicants rely upon a debt obligation to support their entitlement to a constructive trust over the land which gives rise to their entitlement, they submit through their counsel, to lodge a caveat.

[8]      The only evidence before the Court is that of the applicants.  The background to the caveat was that the parties had entered into a type of joint venture to develop and operate a hospitality complex in Rotorua.   The agreement envisaged that the parties would contribute cash and services to the joint venture work.

[9]      The land on which the complex was established was purchased by a trust which the applicants had settled.  The purchase price paid was $1,550,000.  On or about 20 September 2010, the applicants depose, they agreed to sell part of the titles comprising the property to the respondents.   The price was $850,000.   Part of the purchase price was to be satisfied by the applicants taking back a debt from the purchasers of $100,000.  The purchase of the properties related to addresses known as 409 and 415 Old Taupo Road.  The key part of the applicants affidavit reads as follows:

We had always understood that security for our Vendor finance would be some form of Charge or Caveat over the properties sold by us to Alex and Loren.   We had understood that it was intended that this was to occur,

though as was noted, Ms Gordon was acting for both us as the Lenders and the Root-Reids as the Borrowers.

[10]     Significantly, in my view, the applicants do not depose to the basis upon which their understanding rested and I will revert to that topic subsequently.

[11]     The two lots of land were duly transferred to the respondents.   The joint venture arrangement did not work out and the parties fell into disagreement.   The money that the applicants as vendors advanced to the respondents has not been repaid.  The applicants did not ever acquire a legal mortgage over the land to secure the debt.

[12]     The theoretical basis upon which the applicants might possibly be able to establish a caveatable interest in the land is on the grounds that they are equitable mortgagees.  As Hinde opines at paragraph 10.009:

Two  commonly  used  kinds  of  equitable  mortgage  are  agreements  to mortgage and unregistered memoranda of mortgage.   An agreement to mortgage is essentially a contract to grant a mortgage and the mortgagee can obtain a registerable mortgage by enforcing the contract.

[13]     While the caveat in this case does not identify such a basis as being the precise foundation for the applicants’ claim for a caveat, I consider that such a view is open on the basis of the evidence which they have filed.

[14]     Mr Bidois who made clear submissions to the Court, submitted to me that essentially the only claim that the applicants have in this case is an impersonam claim against the respondents for a debt.  He submitted that this is not a basis upon which the Court can find the existence of a caveatable interest in the land.

[15]     It is for the respondents to demonstrate that there is a reasonably arguable case to be made for the interest that the caveator claims: Sims v Lowe[1].  Both counsel reminded me that an order for removal of caveat is not to be made unless it is patently clear that the caveat cannot be maintained either because there is no valid ground  for  lodging  it  or  that  no  such  ground  may  now  exist.     The  same

considerations broadly speaking apply to an application to sustain a caveat.

[1] Sims v Lowe [1998] 1 NZLR 656, 660.

[16]     The  parties  in  this  case  documented  some  aspects  of  their  arrangement relating to the sale of the land.  On 27 September 2010 they entered into a deed of acknowledgement of debt in terms of which the applicants as lenders and the respondents as debtors recorded an advance by the former to the latter of $100,000. The deed was a comprehensive document and it was executed by both parties.  As Mr Bidois pointed out no mention was made in the deed about the respondents’ providing security for the debt.  The position is that at the time when the advance was agreed to by the parties they did not then and there agree to the provision of security for the debt.  It is in that context that one has to consider paragraph 12 of the affidavit which Mr and Mrs Payne have provided.

[17]     Affidavits in Court proceedings are required to be restricted to matters that are admissible in evidence: Rule 9.76 (d)(i).

[18]     It is noteworthy that the applicants in this case do not record the primary facts which might lead the Court to come to a conclusion that the parties had agreed that there would be some form of charge or caveat.  What is set out is their conclusion on that subject in that they state what their subjective understanding of the matter was. The grounds for their coming to that view are not stated.

[19]     Under s 7  of the Evidence Act 2006,  evidence is admissible if it has a tendency to prove or disprove anything that is of consequence to the determination of the proceeding.  The statement of the applicants’ understanding is vague.  It could be nothing more than an expression of a hope or an aspiration that a mortgage would in due course be granted.  The evidence does not have the tendency to prove that the parties actually entered into an agreement to that effect.  In my view that evidence is inadmissible.    In  any case,  there  might  be  a  number  of  bases  upon  which  the applicants formed their understanding the security would be given.   These would extend from a hope that the other party would behave responsibly in the matter and cooperatively or it might be that they say that there was an explicit agreement that a mortgage was to be granted.   There is such an imprecision in what the applicants have said that in my view it is not reasonably arguable that in this case the parties agreed to an enforceable binding agreement to the giving of a security over the property.  That being so, it appears to me that the applicants do not have any basis

upon which they could claim that they have an equitable mortgage or charge over the property.  I agree with Mr Bidois that their rights which arose in the context of a sale of land, are nonetheless no more than impersonam rights to claim in debt against the other party.

[20]     For those reasons it is my view that the application must be dismissed and I order accordingly.  Both counsel are agreed that the appropriate basis for any order for costs is scale 2B.   I consider that the respondents as the successful party are

entitled costs on that basis as well as disbursements to be fixed by the Registrar.

J.P. Doogue

Associate Judge