Public Trust v Gargan
[2013] NZHC 1058
•10 May 2013
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2013-470-8 [2013] NZHC 1058
IN THE MATTER OF an application for directions under the
Property Law Act 2007
BETWEEN PUBLIC TRUST Applicant
ANDIAN WALTER GARGAN AND ELIZABETH SUSANNE COLLINS- GARGAN
First Respondent
ANDELIZABETH MARY LAMBERT Second Respondent
Hearing: 22 April 2013
Appearances: F Collins for Applicant
No appearance for First Respondents
E Lambert Second Respondent in person
Judgment: 10 May 2013
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
10 May 2013 at 5 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Gibson Sheat, Wellington – [email protected]
Ms E Lambert - [email protected]
Copy:
Mr and Mrs Gargan, Tauranga
PUBLIC TRUST V GARGAN AND ANOR HC TAU CIV-2013-470-8 [10 May 2013]
Background
[1] Public Trust applies for directions under the Property Law Act 2007 (“the Act”) as to the payment of the net surplus proceeds of sale held by them following a mortgagee sale of property at Wintrebre Lane, RD 1, Tauriko, Tauranga. It is necessary to provide the factual background to this proceeding in order to make directions.
[2] The property at Wintrebre Lane had belonged to Mr and Mrs Gargan, the first respondents. This property was security for a loan owed by the Gargans to Public Trust. The Gargans became liable to repay that loan on 3 October 2011. They did not pay and subsequently the Public Trust issued notices, personally served on the Gargans on 12 December 2011, pursuant to s 119 of the Act making demand for the amount in default. Defaults were to be remedied by 3 February 2012. The defaults were not remedied. The Public Trust became entitled to exercise its power of sale over the property and subsequently entered into an agreement for sale and purchase on 9 May 2012, with settlement to occur 25 May 2012.
[3] However, without consent of Public Trust, on 23 April 2012, the Gargans sold the property to Ms Elizabeth Lambert, the second respondent, for $1. Included in the agreement was a term stating “the vendor and the purchaser agree that the vendor may purchase the fee simple back at any time for the sum of $1.00 ... any caveat on the title will be removed at that stage. Vendor retains the title, no conveyance.”
[4] On 25 April 2012, the Gargans entered into a deed of lease with Ms Lambert for 99 years and agreed to pay rent annually. On 30 April 2012, Ms Lambert then registered a caveat, claiming her interest was possession pursuant to the before mentioned sale and purchase agreement. The Public Trust applied to remove the caveat which was unopposed due to Ms Lambert being adjudicated bankrupt on 28
May 2012. The caveat was removed 25 June 2012. On 15 July 2012, the Gargans then purported to buy back the property from Ms Lambert for $1.
[5] Neither the sale to Ms Lambert nor the purported buy back by the Gargans was done with consent of the Public Trust. The Public Trust proceeded with sale to
the third party purchaser. Settlement occurred on 20 July 2012. The amount of
$142,676.91 remains after satisfaction of the Public Trust’s mortgage. This is the amount the Public Trust seeks directions of the Court in relation to. The Gargans have failed to provide bank account details and refuse to accept the surplus. The Gargans have not filed any documents in opposition. Ms Lambert has filed a notice of opposition and affidavit in support, alleging the following:
a) Public Trust is seeking directions as to payment of funds that they have acquired by way of failure of their solicitors to cancel a contract of sale before on-selling in a mortgagee sale of property;
b)even if a valid cancellation of the previous sale had occurred, transfer of the title from Ms Lambert’s name to a new registered proprietor was unlawful as the registered proprietor (Ms Lambert) was not issued with a Property Law Act notice by Public Trust before said transfer;
c) even though Ms Lambert was an undischarged bankrupt at the time of transfer of title, the Official Assignee had not taken title in her stead and therefore the notice should have been served on Ms Lambert;
d) a costs order should not be made depleting the fund that is in dispute. [6] The Public Trust phrases the relevant issues as:
a) Was the Public Trust required to cancel the buy back arrangement entered into with Ms Lambert?
b)Was the Public Trust required to issue fresh notices under the Act before it had an exercisable power of sale?
[7] I agree that these two questions are at the heart of this matter and if both answered in the negative then there can be no question that the surplus from the mortgagee sale should properly go to Mr and Mrs Gargan. The question then becomes what to direct in relation to the surplus.
[8] I note at this point that Ms Lambert has previously attempted to use this method to avoid a sale by a mortgagee, in all cases unsuccessfully. Associate Judge Faire has set these previous decisions out in a footnote in his Honour’s recent judgment, Pepper New Zealand (Custodians) Limited v Busch,1 dealing with Ms Lambert. I reproduce that footnote.2
Discussion
[9] For this Court to give directions as to payment of the surplus of the mortgagee sale, it is necsesary to consider whether anything that Ms Lambert and the Gargans have done prevents that sale from being valid.
[10] The following passage from Land Law in New Zealand is of assistance:3
15.075 Leases of mortgaged land
Mortgaged land may be leased by the mortgagor, but it is provided by s 119 of the Land Transfer Act 1952 that no lease of mortgaged land is binding on the mortgagee except so far as the mortgagee has consented to it. If the mortgagee does consent to a lease, his or her rights and remedies under the mortgage are not in any way prejudiced or affected, except that the mortgagee’s powers under the mortgage can then be exercised only without prejudice to the lease to which he or she has consented. If the mortgagee’s consent to a lease is not obtained, the tenant runs the risk that the mortgagee may exercise the power of sale and seek to transfer to the purchaser a title clear of the lease.
Consent requires a positive affirmative act by the mortgagee, but it need not take any particular form. Thus consent may be oral or arise from conduct. None the less, if the mortgagee does wish to consent to the lease, the best practice is for the mortgagee’s consent to be endorsed on the lease before the lease is registered. Mere acquiescence does not amount to consent.
(emphasis added).
1 Pepper New Zealand (Custodians) Limited v Busch [2013] NZHC 187.
2 FM Custodians Ltd v Stewart Street Properties Ltd (in rec) HC Auckland CIV-2011-404-7171, 2
December 2011; Rabobank New Zealand Ltd v Busch [2012] NZHC 1547; Waterhouse v Westpac
New Zealand Ltd [2012] NZHC1578 ; Plateau Farms Ltd (in rec and liq) v Lambert [2012] NZHC
109; Plateau Farms Ltd (in rec and in liq) v Lambert [2012] NZHC 1478. See also Palmerston CityCouncil v Birch [2012] NZHC 2979; Watson v Williams [2012] NZHC 3199.
3 N R Campbell “Land as Security: Mortgages and Other Charges” in Hinde McMorland and Sim
Land Law in New Zealand (online ed, LexisNexis) at 15.075 (footnotes omitted).
[11] Associate Judge Faire’s decision in Pepper New Zealand is also of assistance:4
[27] The defendant has paid off the mortgage to the plaintiff by a payment of the consideration received on the sale and purchase transaction of $1.15. That must, however, be clarified because, in the first defendant’s written submissions it acknowledged that:
(a) The first defendant sold the property without the agreement of the mortgagee;
(b)She does not claim that she gave the mortgagee notice of the sale; and
(c) The first defendant does not claim that there has been any accord and satisfaction of the mortgage debt. Indeed, she acknowledges that there is a shortfall owing to the mortgagee.
[28] A registered mortgagee’s interest is protected by the principle of indefeasibility conferred by the Land Transfer Act 1952. Registration of the plaintiff’s mortgage conferred upon it an indefeasible title by virtue of s 62. A registered mortgagee’s title is paramount. That includes a mortgagee’s right to exercise its power of sale: Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd.5 It follows that the registered first mortgage and the interests it conferred take priority over any interest that the first and second defendants assert. The plaintiff’s powers upon a default of the mortgage and loan repayments, under cl 8 of the mortgage terms and the right to possession under s 106 of the Land Transfer Act 1952, take priority over any interest held by the first and second defendants.
[12] The approach taken by Associate Judge Faire is equally applicable in the present case. The Public Trust’s mortgage was indefeasible pursuant to s 62 Land Transfer Act 1952. Their title was paramount and took priority over the interests asserted by Ms Lambert which occured later in time. Public Trust did not consent to the sale to Ms Lambert or the lease. The lease is therefore not binding on Public Trust.6 The essence of this is that the submission of Mr Collins for Public Trust that there was no requirement in law that the Public Trust cancel the purchase contract between Ms Lambert and the Gargans is correct. This is because the purchase
contract did not have Public Trust’s consent and therefore could not prevent it from
exercising its power of sale.
4 Pepper New Zealand, above n 1.
5 Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd
[1984] 2 NZLR 704 (HC).
6 Land Transfer Act 1952, s 119.
[13] In answer to whether the Public Trust was required to issue fresh notices under the Property Law Act before it had an exercisable power of sale, Mr Collins for Public Trust submits that when the current owners purchased the property at mortgagee sale, they acquired the property free and discharged from any estate pursuant to s 105 Land Transfer Act. Section 105 provides:
Upon the registration of any transfer executed by a mortgagee for the purpose of [exercising a power of sale over any land], the estate or interest of the mortgagor therein expressed to be transferred shall pass to and vest in the purchaser, freed and discharged from all liability on account of the mortgage, or of any estate or interest except an estate or interest created by any instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.
(emphasis added).
[14] The interests asserted on behalf of Ms Lambert and the Gargans do not have priority over the mortgage. As already mentioned, Public Trust did not consent to the actions taken.
[15] Mr Collins also relies on s 119 of the Property Law Act 2007 which specifies when a mortgagee may exercise a power of sale. A notice must have been served “on the person who at the date of service of the notice, is the current mortgagor”. As traversed in the background to this proceeding, Public Trust served the Gargans with notices under the Act on 12 December 2011, and those notices expired on 3 February
2012. The Gargans did not enter into transactions with Ms Lambert until April. The
Public Trust therefore met the temporal requirements of s 119.
Entitlement to surplus
[16] The Public Trust did not have to cancel the buy back arrangement which the Gargans entered into with Ms Lambert before it proceeded with its mortgagee sale. It also did not have to issue fresh notices under the Property Law Act before it had an exercisiable power of sale. The sale to the successful purchaser, settled on 20
July 2012, was valid and gave that purchaser indefeasibility of title. Mr and Mrs Gargan are the only people entitled to the surplus proceeds of the mortgagee sale.
[17] As mortgagee holding surplus proceeds of sale which the mortgagor is rightfully entitled, Public Trust holds those proceeds of sale on trust for the Gargans. This trust arises pursuant to s 185(1)(f) Property Law Act 2007.7 Section 186
Property Law Act, which allows for the payment of surplus proceeds to the Crown where the mortgagor cannot be found, cannot apply because Mr and Mrs Gargan’s whereabouts are known.
[18] There is another possible statutory enactment that could apply and that is s 77 of the Trustee Act 1956. That section is similar to s 186 Property Law Act. Under s
77, trustees who hold money belonging to a trust may pay that money to the Crown and by doing so obtain a discharge from any claims. In order to do this, a trustee must file an affidavit describing “the instrument” creating the trust and giving particulars of the persons beneficially entitled to the trust fund. When the money is paid to the Crown, a copy of the affidavit must be served on the Secretary to the Treasury. The question arises whether s 77 can apply in the factual situation here.
The interpretation of s 77
[19] The first question is whether the applicant holds the money as a trustee. That question can be answered in the affirmative. The applicant is first mortgagee is subject to a statutory direction in s 185 PLA to hold the proceeds of sale for the benefit of the succeeding mortgagee. The effect of legislation of a similar kind in England has been held to give rise to "statutory trust".8 as part of which “[t]he duty of the trustee is to ascertain the parties entitled to the trust fund, the shares of the fund which they are respectably entitled and to distribute the fund accordingly”9
[20] However, the use in the section of the term “the instrument” in s 77 needs to be considered. The use of such a term is suggestive of a deed of trust. The question then becomes whether the type of trust that s 77 is concerned with is one arising only from the execution of the deed of trust. Because the trust here arises pursuant to the
operation of the statute, there may be difficulty in construing the trust that arises as
7 N R Cambell “Land as Security: Mortgages and Other Charges” in Hinde McMorland and Sim Land
Law in New Zealand (online ed, LexisNexis) at 15.144.
8 In Re-Thomson's Mortgage Trusts Thomson v Bruty [1920] 1 Ch.508, the decision was followed in the New Zealand case of In Re Dalton deceased [1953] NZLR 167 at 170.
9 Ibid p 514.
having come into existence as a result of an “instrument”. The issue arises whether the application can succeed having regard to that matter.
[21] In order to resolve this issue, the starting point is to look at the literal meaning of the words which are used in the section.
[22] The Oxford English Dictionary defines “instrument” as:10
A formal legal document whereby a right is created or confirmed, or a fact recorded; a formal writing of any kind, as an agreement, deed, charter, or record, drawn up and executed in technical form, so as to be of legal validity.
[23] The term has been adopted as referring to statutory enactments in its use as part of the expression “statutory instrument”, although I accept that usage has generally been restricted to subordinate legislation.
[24] However, the Court is not restricted to a literal interpretation of the legislation. Regard must be had to s 5(1) of the Interpretation Act 1999, which reads, “the meaning of an enactment must be ascertained from its text and in the light of its purpose.”
[25] In their text on statutory interpretation, Burrows and Carter state:11
Very often the most natural grammatical meaning of the text of the provision in question gives effect to the purpose of the legislation. Where these two “interdependent” factors, grammatical meaning and purpose, are in harmony or are “co-extensive”, there is little difficulty. However, if a purely grammatical construction does not give effect to the evident purpose of the provision, the court should search for a construction that does give effect to that purpose.
A search for the grammatical meaning still constitutes the starting point. But if the grammatical meaning of a provision does not give effect to the purpose of the legislation, the grammatical meaning cannot prevail. It must give way to the construction which will promote the purpose or object of the Act.
Likewise, Sir Robin Cooke (as he then was) spoke of “the general principle of statutory interpretation that strict grammatical meaning must yield to sufficiently obvious purpose”.
10 “Instrument, n.” (March 2013). OED Online Oxford University Press
< J F Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at
208.
Similarly, if the wording of a provision is ambiguous or unclear it should obviously be interpreted to further the legislative purpose. But s 5(1) also requires wording that alone seems clear to be checked against purpose. It “achieves a beautiful balance between literal meaning and wider object. Text is enlarged by purpose, and purpose is constrained by text.”
[26] Turning to the purpose of the provision, it would seem that the policy reason (or purpose) for enacting s 77 is that it is convenient for persons who are holding funds or other property in regard to which they do not claim to have any beneficial interest and which they do not want to retain to be able to quit themselves of that property. If they are able to bring themselves within the terms of the section, then they will later be able to set up a statutory receipt of the money by the Crown which is the equivalent of a discharge from any claims in respect to the money. The convenience of such a provision is manifest. While it is not of direct relevance to the decision in this case, the enactment of s 77 reflects a complimentary policy that property which is unclaimed should be applied for the benefit of the wider community of which the Crown is the representative.
[27] Section 77 is typically used where the person entitled to the trust property cannot be found. Laws of New Zealand comments:12
It seems that a trustee is justified in paying a trust fund to the Crown where he or she has a genuine doubt as to the whereabouts of the person entitled to it.
[28] I note that there is no express restriction limiting the operation of the section to the circumstances described, though.
[29] Although Mr and Mrs Gargan can be found, this is also a situation where the trustee would be justified in paying the trust fund to the Crown. The legislation does not cover the situation where an entitled person refuses to receive payment. It is anticipated that if a person refuses payment it is because they consider they are not entitled and recourse is then had to the courts to determine authoritatively who is entitled. It is not anticipated that a person found to be entitled by a court would still
refuse payment.
12 Laws of New Zealand Trusts (online ed) at [263].
[30] No doubt when the section was drawn, the legislature did not specifically have in mind cases where a person who is entitled to money might refuse to accept that even though the money is tended to them. The perversity of such an outcome would make its occurrence unlikely and so no doubt the need to cater for it would not have occurred to the drafters of the legislation.
[31] For the purposes of this section, whether a person was constituted a trustee in respect of the money by means of an express deed of trust or as a result of the provisions of the statute would be wholly immaterial.
[32] The provisions of s 5 of the Interpretation Act, referred to above, require the meaning of an enactment to be ascertained from its text and in the light of its purpose. In my view, construed against the background of the purpose of the statute, the term “instrument” would not seem to exclude a statutory provision such as s 185 of the PLA.
[33] When construing the terms of s 77 it is also necessary to consider the use of the term in the light of the procedural mechanism created by the section. The reason why the provision requires that an affidavit be sworn is apparently to discourage any tendency for the section to become the means of defeating the rights of the true owners of property. That is why the solemnity of an affidavit is required to ensure that there is at least some basis upon which to be assured that the section is being used for correct purposes. However, the form of procedure adopted is neutral on the question of whether the holder of the fund, does so under a trust created by statute, on the one hand, or pursuant to a trust deed. The important thing is that it emerges from the averment that a person is holding property in respect of which he/she disclaims any beneficial interest and has an apparently proper reason for availing him/herself of the protections contained in s 77.
[34] In my view a ruling that the trust of this kind which is created by statute does not qualify as having been created by “an instrument” would be unnecessarily narrow and would tend to defeat the effect of the section.
[35] Recourse to s 77 Trustee Act is appropriate because it would address the situation, as here, where there is otherwise nothing to be done if a mortgagor can be found but refuses to take money they are rightfully entitled to. Further, payment to the Crown via s 77 will not prevent the Gargan’s from claiming the money per s 78
Trustee Act. If they do not claim the money, then the money can be transferred to the Crown bank account after six years (s 78(3)).
[36] For those reasons I would grant the application for directions which the applicant seeks.
[37] The directions the Court makes are as follows:
The Public Trust is to deal with the unclaimed surplus in accordance with s77 Trustee Act 1956.
Costs
[38] The parties should confer concerning the matter of costs and disbursements on the application, and if they are unable to agree they are to file memoranda not exceeding four pages in length for each party not later than 21 days from the date of
this judgment.
J.P. Doogue
Associate Judge
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