Pearlfisher Trustee Limited v Mega Capital Group Limited
[2023] NZHC 994
•1 May 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2044
[2023] NZHC 994
BETWEEN PEARLFISHER TRUSTEE LIMITED
Plaintiff
AND
MEGA CAPITAL GROUP LIMITED
Defendant
Hearing: 9 March 2023 Counsel:
Timothy Fitzgerald for the Plaintiff Umar Kuddus for the Defendant
Judgment:
1 May 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application to sustain a caveat]
This judgment was delivered by me on 1 May 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Bell Gully, Auckland, for the Plaintiff Inder Lynch, Auckland, for the Defendant
PEARLFISHER TRUSTEE LIMITED v MEGA CAPITAL GROUP LIMITED [2023] NZHC 994 [1 May 2023]
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [2]
Pearlfisher’s application for order that caveat not lapse [4]
Affidavit of Tony Abraham dated 14 October 2022 [6]
Mega Capital’s opposition [16]
Affidavit of Ajaypal Singh dated 3 November 2022 [17]
Reply affidavit of Tony Abraham dated 16 November 2022 [25]
Legal principles [34]
Approach to Analysis [40]
Does Pearlfisher have a caveatable interest in the Property? [42]
Fees are not owing according to the terms of the
contractual document [45]
Separate agreement with Pearlfisher that the fees were
not payable if the loan was not drawn down [49]
Abuse of process [52]
No consideration [53]
Caveat defective [56]
No agreement to mortgage to support a caveatable interest [62]
Should the Court exercise its residual discretion to remove the Caveat or allow it to lapse? [66]
Result [68]
Orders [69]
––––––––––-
Introduction
[1] Pearlfisher Trustee Limited (Pearlfisher) has applied for an order sustaining caveat number 12523689.1 (the caveat) lodged by it against a property owned by Mega Capital Group Limited (Mega Capital) at 221 Jesmond Road, Drury (the Property).
Background
[2] Pearlfisher is a non-bank lender and agreed to provide Mega Capital with finance for a large residential property development involving around 190 properties and with projected revenue of over $95 million. In relation to this finance agreement, Pearlfisher claims that Mega Capital owes it four fees and costs. Pearlfisher lodged the caveat to protect that interest. Mega Capital applied to the Registrar-General of Land for the caveat to lapse and so Pearlfisher brought these proceedings for an order that it not lapse.
[3] Given the timeframe under the Land Transfer Act 2017 (the Act), Gault J on 21 October 2022 made an order by consent that the caveat not lapse until further order of this Court. This proceeding determines that order.
Pearlfisher’s application for order that caveat not lapse
[4]Pearlfisher seeks orders that:1
(a) caveat number 12523689.1 (the Caveat) lodged by Pearlfisher against the title of the property at 221 Jesmond Road, Drury, as identified in the certificate of title NA103D/730 (the Property), not lapse; and
(b) that the respondent pays the costs of this application.
[5]The grounds on which the orders are sought are:2
1 Originating application to sustain caveat dated 18 October 2022 at [1].
2 At [2].
(a) Pearlfisher has lodged a caveat against the Property pursuant to s 138 of the Land Transfer Act 2017;
(b) Pearlfisher has received 10 working days notice of the lapse of the Caveat from the Registrar-General of Land under s 143(2) of the Land Transfer Act 2017;
(c) Pearlfisher has an equitable interest in the Property arising from an agreement to mortgage the land to secure the payment of debts owing to Pearlfisher pursuant to the following documents:
(i) the First Indicative Offer dated 9 July 2022;
(ii) the First Formal Offer dated 15 July 2022;
(iii) the Revised Indicative Offer dated 19 July 2022;
(iv) the Revised Formal Offer dated 21 July 2022; and
(v) the Property Finance Facility Agreement dated 28 July 2022 (the Financing Documents).
(d) Pearlfisher has an arguable case that the estate or interest claimed by it in the caveat is valid, subsisting and enforceable;
(e) The Financing Documents authorise Pearlfisher to lodge a caveat over the Property; and
(f) The grounds set out in the affidavit of Tony Thomas Abraham affirmed 14 October 2022 and filed in support of this application.
Affidavit of Tony Abraham dated 14 October 2022
[6] Mr Abraham, Pearlfisher’s director, has made an affidavit in support of Pearlfisher’s application that the caveat not lapse.3 He deposes that the caveat was lodged pursuant to an agreement to mortgage contained in a Property Finance Facility Agreement (the Facility Agreement) between Pearlfisher and Mega Capital dated 28 July 2022.
[7] Mr Abraham says Pearlfisher agreed to advance Mega Capital a $10 million loan and, after they committed to terms, Mega Capital advised Pearlfisher that it no longer wished to draw down those funds. Pearlfisher maintains that certain fees are still payable under the loan documentation, which Mega Capital disputes. He confirms that Pearlfisher served Mega Capital with a statutory demand for $627,699.26, which
3 Affidavit of Tony Thomas Abraham in support of application to sustain caveat dated 14 October 2022.
he says represents the outstanding fees, and which Mega Capital has applied to set aside in separate proceedings.4 He further confirms that Pearlfisher registered a caveat against Mega Capital’s property because the fees they are owed are a caveatable interest pursuant to the loan documentation.
[8] Mr Abraham details that Pearlfisher’s fees are set out in their indicative offer, the formal offer, and eventually the detailed loan terms. He deposes that these fees typically include:
(a)an up-front fee (called a work fee) to compensate Pearlfisher for its time in assessing and providing indicative terms which may include engaging professional advisers such as lawyers. This is typically payable immediately when the indicative offer is countersigned;
(b)an arrangement fee, which is payable at some intermediate stage (e.g. when the indicative offer is countersigned); and
(c)an establishment fee, which is payable when Pearlfisher confirms its commitment to the loan (e.g. when the formal offer is made or countersigned, depending on the transaction). This is usually the largest of the three fees.
[9] Mr Abraham deposes that while the obligation arises to pay the arrangement and establishment fee before drawdown, Pearlfisher often agrees it can be paid upon drawdown if that occurs within a set time. He notes that it is common practice for arrangement and establishment fees to be payable regardless of whether a loan is drawn down. This is because:
(a)Pearlfisher is unwilling to undertake the work involved in organising a binding formal offer unless it is ensured the right to charge its arrangement fee.
4 Mega Capital Group Limited v Pearlfisher Capital Limited CIV-2022-404-1537. These proceedings have now been determined with the result that Mega Capital’s application to set aside the statutory demand issued by Pearlfisher was dismissed: Mega Capital Group Ltd v Pearlfisher Capital Ltd [2023] NZHC 749 (5 April 2023).
(b)Pearlfisher is unwilling to risk being economically committed to the loan, which is the effect of making a formal offer, unless it is assured of its establishment fee. If Pearlfisher issues a formal offer, then its investors have allocated capital to the transaction so there is an associated opportunity cost if that transaction does not proceed and the loan is not drawn down. Pearlfisher's investors also undertake their own due diligence prior to committing to a loan which can include engaging external advisers and trustees.
(c)If the fees were only payable on drawdown, then borrowers would be at liberty to deal with many different financiers, even to the point of countersigning multiple formal offers, and then choose which facilities to drawdown and which to abandon. Pearlfisher is unwilling to commit itself to funding on that basis. It is not willing to provide funding commitments that are agreed commercially, as an underwriter or backup offer, while the borrower seeks to find more attractive terms.
(d)Pearlfisher prides itself on being able to move quickly to offer finance when that is required. There is a real benefit to that from the borrowers' perspective, and an increase in risk from Pearlfisher's perspective. Pearlfisher is prepared to proceed on that basis, but that is in part because it is assured of the arrangement and establishment fees.
[10] Mr Abraham deposes that his first contact with Mega Capital occurred on 1 June 2022, when Mr Falgun Patel contacted him seeking $13 million, a request which he rejected given the loan-to-value ratio and Pearlfisher’s other property investment portfolio. Mr Patel again contacted him on 8 July 2022 with a request for only $8 million, which was more aligned with Pearlfisher’s interests.
[11] Moving fast, on 9 July 2022, Pearlfisher emailed Mr Patel a draft indicative offer. Mr Patel replied on 11 July 2022 asking what Mega Capital’s liability would be if they did not proceed with settlement, to which Mr Abraham confirmed “the obligations are the arrangement fee and the establishment fee (subject to us issuing a formal offer in the latter case)”.
[12] On 12 July 2022, Mr Singh, Mega Capital’s director, countersigned the indicative offer, but updated the fees by removing the arrangement and establishment fee and increasing the work fee to $20,000. On a Zoom call Mr Abraham explained that both fees were necessary, and Mega Capital indicated it accepted this. Mr Abraham then received a countersigned indicative offer from Mr Bhalla, Mega Capital’s financial advisor, and Mega Capital paid the $20,000 work fee required by the first indicative offer. Subsequently, Pearlfisher issued its formal letter of offer triggering Mega Capital’s liability of the establishment fee.
[13] Mega Capital sought an increased loan to $10 million which Mr Abraham considered and eventually agreed to. On 18 July 2022, he texted Mr Singh to confirm that the original establishment and arrangement fees would still be payable if Pearlfisher begun again with an amended offer. On 19 July 2022, Pearlfisher issued, and Mega Capital countersigned, a revised indicative offer with the same fee structure as the first offer and additional fees to recognise the increased loan quantum and risk. Mr Abraham accepts that two aspects of the Facility Agreement were incorrectly recorded from the revised indicative offer, being that the arrangement fee was meant to account for the $20,000 already paid and the establishment fee was meant to be
$130,000 not $150,000. This was corrected and on 22 July 2022 Mega Capital returned sign copies of the loan and security documents, including the Facility Agreement.
[14] Mr Abraham deposes that on 28 July 2022, Mr Singh then contacted him to say that Mega Capital would not be proceeding with the loan.
[15] Mr Abraham notes that the Facility Agreement recorded all the fees and granted Pearlfisher a right to a mortgage to the extent that the security documents included an interest in land and a right to lodge a caveat, including prior to demanding execution and delivery of the mortgage, to protect their interest under the Agreement. The security documents defined in the Facility Agreement include the Security Deed dated 28 July 2022, which defines secured property to include all the debtors present and after-acquired freehold and leasehold land. On this basis, Mr Abraham instructed Pearlfisher’s lawyers to lodge the caveat.
Mega Capital’s opposition
[16]Mega Capital opposes the application on the grounds that:5
3. The Respondent opposes the making of the Order on the ground that the Applicant does not have a reasonably arguable case to demonstrate that they hold an interest in the caveated properties which is sufficient to support the caveat:
a. The Applicant and Respondent entered into an Agreement where the Applicant would provide the Respondent with a loan facility to finance its development.
b. The first indicative offer dated 9 July 2022, first formal offer dated 15 July 2022, revised indicative offer dated 19 July 2022 and revised formal offer dated 21 July 2022 noted fees that would be payable by the Respondent:
i. An up-front fee – payable immediately when the indicative offer is countersigned;
ii. A financial arrangement fee – upon signing of the indicative offer; and
iii.Establishment fee – payable upon the issue of the formal offer.
c. The Applicant agreed with the Respondent that the establishment fee would only be payable upon drawdown of the loan.
d. Accordingly, the agreement was varied and the fees was only payable upon the loan being drawn down.
e. The signed Facility Agreement recorded all fees but failed to record the variation with respect to the change of when the establishment fee was payable.
f. The loan was never drawn down as the Respondent cancelled the agreement with the Applicant.
g. Furthermore, the Applicant has proceedings in the High Court under the Statutory Demand regime for the recovery of the establishment fees.
i. The Statutory Demand regime provides for greater security to the Applicant as it indicates that the Respondent has no defence to the liquidated sum under the Statutory Demand;
ii. Multiple proceedings concerning the same subject matter is an abuse of process.
5 Notice of opposition to originating application to sustain caveat dated 4 November 2022 at [1]–[3].
h. The interest claimed in the caveat does not correctly identify the base document on which the interest was created.
i. Accordingly, it is clear that there are no valid grounds for the Applicant lodging a caveat.
j. The Applicant would not be prejudiced by the removal of the caveat and there is no practical advantage to maintaining the caveat given the statutory demand proceedings already in the High Court.
Affidavit of Ajaypal Singh dated 3 November 2022
[17] Mr Singh, Mega Capital’s director, has made an affidavit in support of Mega Capital’s opposition.6 He deposes that no funds were ever advanced under the Facility Agreement and that all fees that were to be paid were never established.
[18] Mr Singh notes the identical proceedings under the statutory demand regime and believes this to be an abuse of process and unfair given Pearlfisher are attempting to litigate the same issue by alternate means.
[19] Mr Singh denies that there is a caveatable interest as Pearlfisher is not entitled to the fees it claims as the loan was never drawn down nor was it withdrawn by the lender. Pearlfisher agreed with Mega Capital that the establishment fee would only become payable upon drawdown of the loan, which never happened, or withdrawal of the offer, which also never happened.
[20] Mr Singh refutes allegations that Mega Capital signed an agreement to mortgage on 28 July 2022 as they had cancelled any and all arrangements with Pearlfisher by that date.
[21] Mr Singh deposes that on around 10 July 2022 on a Zoom call with Mr Abraham, Mega Capital asked what their risk would be if they did not go ahead, and he replied that it was just the $20,000.
[22] He acknowledges signing the revised indicative offer, but that Mega Capital searched for alterative finance as they required more money. On 27 July 2022, they
6 Affidavit of Ajaypal Singh dated 3 November 2022.
signed documents for alterative finance for the entire $13 million they needed to settle the property and subsequently settled the property.
[23] Again, Mr Singh reiterates that his understanding was that the fees would only be capitalised upon drawdown. He acknowledges signing the Facility Agreement on 22 July 2022, but says it was cancelled by then before Pearlfisher signed, when he advised Pearlfisher they did not require their facility on 28 July 2022.
[24] In conclusion, he does not believe that Mega Capital have defaulted on any obligations as they do not owe any fees to Pearlfisher. He requests the Court let the caveat lapse as it is based upon an incorrect base document, which does not exist.
Reply affidavit of Tony Abraham dated 16 November 2022
[25]Mr Abraham has made an affidavit in reply to Mr Singh’s.7
[26] Regarding abuse of process, Mr Abraham notes that it was Mega Capital’s action in applying for the caveat to lapse that necessitated this application.
[27] Regarding the agreement to mortgage, Mr Abraham says that the document referred to in the caveat is the Facility Agreement dated 28 July 2022 and attaches the final copy. This is the final version that was agreed to and signed by Mega on 22 July 2022 and then returned signed to Pearlfisher’s lawyers to date and release. This final step was not completed until the 28 July 2022, but acceptance already occurred when the signed version was returned. The Facility Agreement contains an agreement to mortgage at cl 16.1.
[28] Regarding the establishment fee, Mr Abraham notes that the revised indicative offer, revised formal offer and Facility Agreement all provide:
"A non-refundable Establishment Fee of $400,000 (GST exempt) was payable upon issue of the Formal Offer dated 15 July 2022 ("Initial Establishment Fee").
…
7 Affidavit in reply of Tony Thomas Abraham dated 16 November 2022.
The Initial Establishment Fee and the Additional Establishment Fee shall be paid on the earlier of: (a) the Withdrawal of Offer Date and (b) drawdown of the Facility and are to be capitalised to the Loan on the initial drawdown and accrue interest at the interest rate, or, if the loan is not drawn down by the Withdrawal of Offer Date, to be payable to the Arranger on written demand.
[29]The Facility Agreement defines the “Withdrawal of Offer Date” as:
(a)the date on which the Facility Agent or a Lender determines that the information on which the Lenders have relied in making available the Facility is found to be or becomes incorrect in a material respect, as determined by the Facility Agent or a Lender (as the case may be) at its sole discretion; or
(b) 31 July 2022.
[30] Mr Abraham, therefore, determines that as the loan was not drawn down by 31 July 2022, the establishment fee was payable pursuant to the Facility Agreement. Regardless, Pearlfisher made written demand for payment on 8 August 2022.
[31] Mr Abraham disputes that he said on a Zoom call that if the deal did not proceed only the $20,000 would be lost. On that call he explained that the establishment fee and the arrangement fee needed to remain as they were. Mega Capital accepted this, and later returned a signed copy of the first indicative offer with these fees included. This is clearly inconsistent with only the $20,000 work fee being payable. If Mega Capital’s proposed reduction of the fees to $20,000 was accepted, it would be expected that this would have been reflected in the indicative offer signed later that day.
[32] Mr Abraham notes that Mr Singh only covers the establishment fee when the caveat is also securing payment of the arrangement and additional arrangement fee pursuant to the letters of offer.
[33] Finally, Mr Abraham says that Mega Capital could not have unliterally cancelled the Facility Agreement given they signed and returned the Agreement. Regardless, the arrangement fees are already owing as a consequence of the letters of offer.
Legal principles
[34]Section 138 of the Land Transfer Act 2017 provides, relevantly:
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—
(a)claims an estate or interest in the land, whether capable of registration or not; or
(b)has a beneficial estate or interest in land under an express, implied, resulting or constructive trust[.]
…
[35]Schedule 2 of the Land Transfer Regulations 2018 provides:
Caveat against dealings document s 138 of the Act
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 section 138(1)(d)(ii) of the Act, the matters that establish that there is a risk that the estate of interest may be lost through fraud.
Details of how the estate or interest claimed is derived from the registered owner.
[36] The principles governing the determination of applications to sustain caveats are well-established.8 The onus is on the caveator to demonstrate an interest in the land that suffices to support the caveat, and the caveator must demonstrate a reasonably arguable case to support the claimed interest.9 This means the caveator need not definitively establish his or her right to the interest.
[37] The process by which applications to sustain a caveat are determined is ill- suited to resolving disputed factual questions. An order for removal will only be made if it is clear the caveat cannot be maintained — either because there was no valid ground for its lodging in the first place, or because the ground on which it was lodged has now ceased to exist.
8 See generally Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. And, for a general statement of the principles, see Wallace v Studio New Zealand Ltd [2021] NZCA 392 at [39]–[41].
9 Botany Land Development Ltd v Auckland Council [2014] NZCA 61 at [24]–[25].
[38] Although the onus of proof lies with the caveator, any conflict between affidavits will generally be resolved in the caveator’s favour.10 This is not to say that the Court is bound to accept uncritically statements in an affidavit that lack precision, are equivocal, inconsistent with the documentary evidence or other statements of the same deponent, or inherently improbable.11
[39] While the Court retains a residual discretion to remove a caveat or allow it to lapse even if the caveator has a legitimate and caveatable interest, that discretion is to be exercised cautiously. The Court must be completely satisfied removal would not prejudice the caveator’s legitimate interests.12
Approach to analysis
[40]The issues to be determined in this judgment are:
(a)Does Pearlfisher have a caveatable interest in the Property?
(b)If so, should the Court exercise its residual discretion to remove the caveat or allow it to lapse?
[41]I deal with each of these in turn.
Does Pearlfisher have a caveatable interest in the Property?
[42] The approach taken in this judgment is to deal with each ground of opposition to the application which has been raised by Mega Capital to determine whether any of the grounds is a sustainable ground to oppose the application.
[43] Mega Capital’s opposition to the application to sustain the caveat rests on six arguments:
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; and Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
12 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
(a)The fees which the caveat was lodged to protect are not owing according to the terms of the contractual documents. Mega Capital says that the fees were not payable until either drawdown of the loan or withdrawal of the Facility Agreement, neither of which took place. Mega Capital says it cancelled the loan agreement with Pearlfisher, the effect of which was that the loan agreement was cancelled and was invalid on the day of cancellation.
(b)Although the contractual documentation did provide for fees to be payable, there was a separate agreement by Pearlfisher that such fees would only be payable when the loan was drawn down.
(c)The proceeding as a whole is an abuse of process because Pearlfisher also has other proceedings in the High Court in respect of the statutory demand that it issued in respect of the fees.
(d)Mega Capital did not receive any consideration from Pearlfisher for any alleged encumbrance over the Property as the loan was never drawn down.
(e)The caveat registered is defective as it does not identify the base document pursuant to which the caveat has been registered.
(f)A right to a mortgage or agreement to mortgage would be a sufficient estate or interest in the land to support a caveat, but as the agreement to mortgage was cancelled, Pearlfisher has no caveatable interest in the Property.
[44]Mr Fitzgerald made submissions to rebut each of these arguments in turn.
Fees are not owing according to the terms of the contractual document
[45] As to the first argument that the fees were not payable as the loan was not drawn down and the Facility was not withdrawn, Mr Fitzgerald submits that indicative offer, revised formal offer, and the Facility Agreement all provide that the
establishment fee and the additional establishment fee are payable on the earlier of the “Withdrawal of Offer Date”, drawdown of the Facility, or if the loan is not drawn down by the Withdrawal of Offer Date, are payable to Pearlfisher on written demand. Mr Abraham has deposed that in the Facility Agreement, the “Withdrawal of Offer Date” was defined as:
(a)…
(b) 31 July 2022.
and accordingly, the loan was not drawn down by 31 July 2022 so the fees became payable.
[46] In any event, Mr Fitzgerald submits that Pearlfisher made written demand on 8 August 2022, and accordingly the fees were clearly payable in terms of the loan documentation.
[47] Mr Fitzgerald also points out that in the statutory demand proceedings,13 none of these arguments have been advanced by Mega Capital and Mega Capital accepted that the fees were payable under the terms of the loan contracts.
[48] My view is that the first argument raised in opposition by Mega Capital is not sustainable. It is clear from the terms of the various offers provided by Pearlfisher to Mega Capital, which were signed and accepted by Mega Capital, and the terms of the Facility Agreement which was signed and accepted by Mega Capital, that the fees were payable notwithstanding the loan was not drawn down. The attempted unilateral cancellation of the loan documentation by Mega Capital was ineffective and the binding loan documentation remained on foot.
Separate agreement with Pearlfisher that the fees were not payable if the loan was not drawn down
[49] As to the second argument raised in opposition by Mega Capital, the contention is that Pearlfisher had agreed that only a work fee of $20,000 would be payable if the
13 Mega Capital Group Limited v Pearlfisher Capital Limited, above n 4.
loan is not drawn down. Mr Fitzgerald submits that this contention is contrary to the contemporaneous evidence as follows:
(a)While there is a conflict of evidence for what occurred during the Zoom call on 12 July 2022, the fact is that Mr Bhalla emailed a signed acceptance of the indicative offer on the afternoon of 12 July 2022 which included the fees as sought by Pearlfisher, with no alteration. This is inconsistent with Mr Singh’s account of what occurred on the Zoom call;
(b)Mega Capital attempted to change the fees during negotiations and Pearlfisher refused. The fact the fees were payable regardless of whether the loan was drawn down was specifically discussed and agreed during the negotiations.
[50] Mr Fitzgerald also points to the fact that Mega Capital has in the statutory demand proceedings disavowed any suggestion that the agreement to pay the fees was varied from the loan documents.
[51] My view in relation to the second argument raised by Mega Capital in opposition is that it is not sustainable, given the inconsistency with the contemporaneous correspondence, which occurred at the time that Pearlfisher allegedly agreed a variation as to how the fees were payable from that set out in the formal offers and Facility Agreement.
Abuse of process
[52] As to the third argument raised in opposition by Mega Capital, that the application by Pearlfisher to sustain the caveat is an abuse of process, Mr Fitzgerald submits there is no arguable abuse of process for the following reasons:
(a)The current proceeding is a response to Mega Capital’s application to lapse the caveat and therefore the proceeding was initiated by Mega Capital, not by Pearlfisher.
(b)The separate proceeding in the High Court for the statutory demand arises from Mega Capital’s application to set aside the statutory demand, not from any application made by Pearlfisher.
(c)The matters arising in each proceeding are separate as even if Pearlfisher is successful in opposing Mega Capital’s application to set aside the statutory demand (as it has been) the caveat will still be required to protect Pearlfisher’s interest in the Property.
[53] My view in relation to this ground of opposition is that it is not sustainable as the current proceedings were initiated by Mega Capital seeking to lapse the caveat lodged by Pearlfisher, and the application to set aside the statutory demand was initiated by Mega Capital. Therefore, it cannot be reasonably argued that there is an abuse of process by Pearlfisher.
No consideration
[54] As to the fourth ground of opposition raised by Mega Capital, that there is no consideration as the loan was not drawn down, Mr Fitzgerald submits that under the loan documentation, Pearlfisher had committed to advancing the funds and that commitment is sufficient consideration to constitute the loan documentation as binding contracts. As has been explained in Mr Abraham’s affidavit, the establishment fee is in consideration of Pearlfisher committing to advance the funds (and its investors similarly committing to do so) and once that commitment is given by issuing the final offer, consideration for the establishment fee has been provided.
[55] In my view, the ground of opposition raised by Mega Capital that there is no consideration because the loan was not drawn down is not sustainable and can be dealt with relatively briefly. On general principles of contract law, a commitment by Pearlfisher to advance the funds is sufficient consideration to render the loan documentation binding.
Caveat defective
[56] The fifth ground of opposition raised by Mega Capital is that the caveat is defective as it does not sufficiently identify the interest protected.
[57] As to certainty of the caveatable interest described in the caveat, as noted at [35], Schedule 2 of the Land Transfer Regulations 2018 provides that a caveat must contain “a description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) …”, and “details of how the estate or interest claimed is derived from the registered owner”. Mr Fitzgerald submits that a liberal approach should be taken when dealing with technical challenges to caveats. He relies on the Court of Appeal’s decision in Zhong v Wang.14 In that case the Court of Appeal held that “what is important is the registered proprietor and the Court understand the nature of the interest and the basis of that claim”.15
[58]Mr Fitzgerald also refers to the statement of general principle laid out in the
Zhong decision:16
The purpose of the caveat procedure is to enable those with proper claims to proprietary interests to protect themselves against loss by forbidding dealing with the land pending resolution of substantive claims. The underlying purpose of the caveat regime could be undermined if too strict an approach were taken to the detail required to describe the interest claimed, and its derivation from the registered proprietor.
[59] Mr Fitzgerald further relies on Torbay View Trustee Ltd v Glenvar Everuni Ltd as confirming the Court’s liberal approach in dealing with technical challenges to caveats.17
[60] Applying these principles to the present case, Mr Fitzgerald submits that Mega Capital could not be confused regarding the interest referred to in the caveat. He submits that the reference to:
14 Zhong v Wang [2006] 7 NZCPR 488 (CA).
15 At [53].
16 At [58].
17 Torbay View Trustee Ltd v Glenvar Everuni Ltd [2015] NZHC 1236 at [36].
“agreement to mortgage dated on or around 28 July 2022 between the registered owner, Mega Capital Group Ltd, and the caveator, Pearlfisher Trustee Ltd”
is clearly a reference to the Facility Agreement, and the Facility Agreement recorded an agreement to mortgage, as did the pre-existing contracts, including the counter- signed first indicative offer and the counter-signed revised indicative offer. Mr Fitzgerald submits that the fact that Mega Capital communicated on 28 July 2022 that it no longer wished to draw down the loan does not affect the fact that the fees were owing and protected by a caveatable interest, in circumstances where the contract was already complete. Mega Capital had accepted the contract by signing and returning it, and authorising that to be released to Pearlfisher, and asserting its reliance on the contract several times after 28 July 2022.
[61] In my view, the argument that the interest protected by the caveat is not sufficiently identified in the caveat is not sustainable. I accept Mr Fitzgerald’s submissions on this point, that the loan documentation with Mega Capital was completed and binding and the terms of those contracts contained the agreement to mortgage. In my view, there could be no doubt that the caveat referred to the agreement to mortgage created by the loan documentation and, adopting the liberal approach to technical challenges to caveats in the Zhong decision, this is sufficient identification of the estate or interest claimed by Pearlfisher.
No agreement to mortgage to support a caveatable interest
[62] The sixth and final ground advanced by Mega Capital in opposition is that even if the loan contract documentation is binding and the fees protected by the caveat are payable, Pearlfisher does not have a caveatable interest in the Property. Mr Kuddus submits that while it is acknowledged that a mortgage or agreement to mortgage would be a sufficient interest to support a caveat, prior to a proper agreement to mortgage coming into existence the loan agreement was cancelled. He also submits that in any event the loan or debt does not, of itself, give the creditor the right to lodge a caveat over the debtor’s property. He relies on the decision in Liang v Kuek.18 In that case, the plaintiff loaned money to the defendant and claimed that the defendant signed a
18 Liang v Kuek HC Auckland CIV-2005-404-1930, 22 June 2005.
mortgage agreement to prevent the plaintiff from bringing proceedings to recover the money. The alleged mortgage agreement was unsigned and was ultimately found by the Court to be, at best, a promise of future action. Mr Kuddus submits that in this case although the mortgage agreement was signed, prior to any consideration passing from Pearlfisher to Mega Capital, the loan agreement was cancelled by Mega Capital.
[63] With respect to this ground of opposition, Mr Fitzgerald submits that the agreement to mortgage or an equitable mortgage of the type provided for in the Pearlfisher loan documentation confers a caveatable interest and refers to Somme Ltd v Central House Movers Ltd where Kós J held:19
[i]t is axiomatic that an agreement to grant a mortgage can itself confer a proprietary interest in the subject matter. The conventional view is that if the agreement to mortgage is capable of being the subject of a decree of specific performance, it is capable of taking effect as an equitable mortgage.
[64] Mr Fitzgerald submits, therefore, that a caveatable interest will exist where the mortgagee can obtain a registerable mortgage by enforcement of the contract. He submits this is the case here.
[65] I am of the view that this argument is not sustainable. I have already dealt with the argument as to no consideration being moved from Pearlfisher to Mega Capital, and the fact that the loan documentation was complete and attempted unilateral cancellation by Mega Capital was ineffective (at [48] and [55]). Accordingly, the agreement to mortgage given by Mega Capital in favour of Pearlfisher is enforceable and sustains a caveatable interest.
Should the Court exercise its residual discretion to remove the caveat or allow it to lapse?
[66] As noted at [39], the Court must be completely satisfied that removal of the caveat would not prejudice the caveator’s legitimate interest. In this case, I am of the view that removal of the caveat would prejudice Pearlfisher’s interest as, while in the statutory demand proceedings Pearlfisher has been successful in resisting Mega Capital’s application to set aside the statutory demand, the caveat protects
19 Somme Ltd v Central House Movers Ltd [2012] NZAR 295 (HC) at [64]. Footnotes omitted.
Pearlfishers’s security under the agreement to mortgage. Removal of the caveat would remove Pearlfishers’s protection, and this is clearly prejudicial to its position.
[67]Accordingly, the Court should not exercise its discretion to remove the caveat.
Result
[68] As a result of the conclusions I have reached at paragraphs [48], [51], [53], [55], [61] and [65]–[67], I am of the view that the application that the caveat not lapse should be granted.
Orders
[69]I make the following orders:
(a)The caveat lodged by Pearlfisher against the Property shall not lapse.
(b)Counsel are directed to endeavour to agree costs. If costs are not agreed within 20 working days of the date of this judgment, then counsel for Pearlfisher shall file a memorandum as to costs (not exceeding five pages) within five working days from the expiry of the 20 working day period, and counsel for Mega Capital shall file a memorandum in reply (not exceeding five pages) within five working days of receipt of counsel for Pearlfisher’s memorandum. Costs will then be determined on the papers.
…………………………….. Associate Judge Taylor
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