QNZ Limited v Keemati Limited
[2021] NZHC 3269
•1 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2341
[2021] NZHC 3269
BETWEEN QNZ LIMITED
Applicant
AND
KEEMATI LIMITED
Respondent
Hearing: 13 August 2021 Appearances:
SR Holden and RJ Franke for the Applicant D Purusram for the Respondent
Judgment:
1 December 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 1 December 2021 at 4.30pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Chapman Tripp, Auckland Victorian Lawyers, Auckland
QNZ LTD v KEEMATI LTD [2021] NZHC 3269 [1 December 2021]
Introduction
[1] QNZ Ltd has applied for two caveats in favour of Keemati Ltd on properties owned by QNZ to lapse.
[2] The caveats were lodged on 31 July 2019 and sustained on 27 February 2020.1 Associate Judge Paulsen made the orders to sustain the caveats subject to the following condition:
[45] This order is conditional upon Keemati commencing within 21 days of the date of this judgment proceedings in a court of competent jurisdiction to uphold the interest claimed by its caveats. The proceeding is to be pursued with due diligence and I reserve leave for QNZ to apply further if it is not.
[3] Proceedings had been commenced by Keemati against QNZ and other defendants in May 2019 prior to the caveats originally being lodged and prior to the application to sustain the caveats being heard and determined.2 The issue for determination is whether those proceedings are being pursued with due diligence and, if not, whether the caveats ought to lapse.
Background
[4] On 27 February 2020, Associate Judge Paulsen made orders sustaining caveats over the following properties owned by QNZ:
(a) Caveat 11512276.1, against QNZ’s property at 3 Skanda Crescent, Flat Bush (Lot 31); and (b)
Caveat 11512264.1, against QNZ’s property at 33 Rashni Road, Flat Bush (Lot 22).
[5]
The
Judge held that Keemati had made out a reasonably arguable claim to an
equitable interest in the properties on the basis of a contract between QNZ and Keemati, pursuant to which Keemati was in the position of a purchaser of land potentially entitled to specific performance.3
1 Keemati Ltd v QNZ Ltd [2020] NZHC 299.
2 CIV-2019-404-967.
3 Above n 1, at [42]–[43].
[6] The factual background to the relationship between the parties is set out in Associate Judge Paulsen’s decision.4
[7] In summary, Keemati is relying on an alleged settlement agreement reached at a meeting between Mr Angurala of Keemati and Mr Qiu of QNZ. The minutes of the meeting record that Lot 31 together with the house built on it was to be transferred to Keemati at no cost and Lot 22 together with the house built on that section was to be transferred to Keemati at a cost of $1 million.
[8] The minutes are not a complete record of what was agreed at the 3 September meeting. Associate Judge Paulsen records that it was also agreed that Keemati was to give up a 40% share in another company, MR Civil Ltd, and Mr Angulara was to resign as a director. There is a dispute as to the terms on which the shares would be transferred. Mr Angulara says that the properties were to be transferred in consideration for Keemati’s shares and upon titles becoming available. Mr Qiu says that QNZ was to pay nothing for the shares as they were always on loan to Keemati.5
[9] As mentioned above, substantive proceedings had already been commenced in May 2019, prior to the application to lapse the caveats brought by QNZ in late 2019. Since the orders made to sustain the caveats by Associate Judge Paulsen, those proceedings have not progressed smoothly.
[10] Before setting out a timeline of the substantive proceedings, I consider the relevant legal principles.
Legal principles relevant to lapse of caveat for failure to proceed with due diligence
[11] There appear to be relatively few cases where, having sustained caveats, the courts have been prepared to lapse those caveats for not prosecuting the substantive proceeding with due diligence.
4 At [3]–[14].
5 At [10].
[12] The Court of Appeal considered whether to lapse a caveat on the grounds of the purchaser’s delay in pursuing proceedings in Varney v Anderson.6 The Court of Appeal overturned the High Court decision to remove the caveat as it considered that the purchaser had an arguable case for beneficial ownership, his delays had not been great and were explained to some extent and there was no claim or evidence of specific prejudice for the vendors.
[13] In reaching this conclusion the Court of Appeal accepted that delay is a relevant factor to be weighed in the exercise of the Court’s wide discretion under s 143 of the Land Transfer Act 1952 (now s 142 of the Land Transfer Act 2017), holding that it is an established practice that in the case of a caveat by a party claiming to be a purchaser, the Court has always insisted on diligent prosecution of specific performance proceedings as the price for preserving a caveat.7
[14] The Court of Appeal further held that the possibility of obtaining an order for specific performance is not an invariable and automatic ground for preserving a caveat, no matter what the delay. In the Court’s view, although that may add a risk that any order for specific performance will be ineffective, it is a risk that a delaying caveator takes.8
[15] The Court of Appeal in Varney made it clear that a registered proprietor invoking delay by a caveator in support of an application to lapse a caveat will have a stronger case if they can show specific prejudice.9
[16] Furthermore, when considering whether the claim has been prosecuted with due diligence and whether there has been specific prejudice, all the circumstances of the case must be taken into account10 decrying rigid rules.11
6 Varney v Anderson [1988] 1 NZLR 478 (CA).
7 At 479.
8 At 481.
9 At 480.
10 At 480.
11 At 481.
Due diligence
[17] There is no bright line test for what constitutes a failure to pursue a claim with due diligence. Each case turns on its own facts. Counsel for QNZ directed me to other contexts where due diligence has been described as:
(a)a relatively strong term requiring a party to act “properly and appropriately” with regard to the way disputes of the type at issue ought to be disposed of;12
(b)all diligence called for in the circumstances.13
Specific prejudice
[18] Again, each case will turn on its facts but it will be a question whether the specific prejudice to the owner of the property outweighs the prejudice to the caveator in the caveat continuing to be sustained.
Examples of cases where caveats have been lapsed
[19] The applicant relies on Turner v Andrews14 and Willigers v Churchill Fishing International Ltd15 as examples of cases where caveats originally sustained have been lapsed as a result of failure to prosecute the substantive claim with due diligence.
[20] In Turner v Anderson Panckhurst J made an order lapsing a caveat following failure to progress a claim over a 12 month period.
[21] In that case the original orders sustaining the caveat were made by consent and on terms. The caveator was required to issue proceedings within 14 days of 18 September 1995, with an application for a fixture to be filed by 30 October 1995 and unpaid rental arrears to be cleared. 16 A month later, on 19 October 1995, the property
12 Cheng v Trustees of the Monckton Charitable Trust HC Hamilton AP 17-95, 21 December 1995 at 6.
13 Ansley v Prospectus Nominees Unlimited [2004] 2 NZLR 590 at [49].
14 Turner v Andrews HC Greymouth M22-95, 4 November 1996.
15 Willigers v Churchill Fishing International Ltd [2021] NZHC 565.
16 Turner v Andrews, above n 14 at 3.
owner filed an application seeking a discharge of the caveat including on the grounds that proceedings had not been issued and rental arrears remained unpaid.17
[22] The caveator filed its opposition on 22 December 1995 submitting that proceedings had been issued on 29 October 1995, only one month after the agreed date, and that rental arrears had been addressed.18
[23] In February 1996 the fixture for the application did not proceed but on condition that the plaintiff pay rental of $130 per week directly to the Housing Corporation. The judgment does not go into further details about why the fixture did not proceed.19
[24] On 7 August 1996, the defendant filed a further lengthy affidavit in support of the application for discharge of the caveat. It disclosed that the District Court proceedings had not yet been set down for hearing and that there were serious arrears in relation to a Housing Corporation mortgage. The application was allocated a further fixture on 9 October 1996 prior to which the plaintiff/caveator did not file an affidavit in response.20
[25] After hearing from the parties on 9 October 1996, Panckhurst J, while accepting that the caveator had an arguable claim, determined that the caveator’s conduct over the past 12 months had been such that he should no longer enjoy the protection afforded by the caveat.21
[26] In the more recent decision, Willigers v Churchill Fishing International Ltd, Associate Judge Paulsen made an order lapsing the caveat because Mr Willigers’ failures to pursue his proceeding with due diligence were of such significance and resulted in such prejudice to Churchill Fishing.22
17 At 4.
18 At 4.
19 At 4.
20 At 4-5.
21 At 7-11.
22 Willigers v Churchill Fishing International Ltd, above n 15 at [26].
[27] In that case the caveator had failed to file notices of opposition to applications to strike out the proceedings and to lapse the caveats or to attend the hearing of the applications.23 Furthermore he had not made any application for legal aid or instructed new counsel following the withdrawal of original counsel. This was despite Associate Judge Paulsen issuing a minute prior to the hearing of the applications recording that if he took no steps then the proceeding could be struck out at the hearing with costs and that it was in his interests to immediately seek legal advice.24
Has the claim been prosecuted with due diligence in this case?
Timeline of Proceedings
[28] Keemati’s application for orders that the two caveats not lapse was granted on 27 February 2020.
[29] As noted above, the order was conditional upon Keemati commencing proceedings within 21 days of the date of judgment to uphold the interest claimed by the caveats and to pursue the proceedings with due diligence.
[30] Associate Judge Paulsen was aware that there were related proceedings25 but not whether claims were made in those proceedings in respect of the interests claimed under the caveats. His Honour’s decision was therefore dependent upon proceedings to uphold those interests being brought.
[31] Prior to the release of Associate Judge Paulsen’s decision sustaining the caveats, counsel for QNZ and the other defendants in the substantive proceeding (“referred to for present purposes as “QNZ”) had written to newly instructed counsel for Keemati in those proceedings requiring Keemati to file and serve a more explicit statement of claim. The email enquired as to whether QNZ needed to file a notice for particulars or whether Keemati was intending to file a revised statement of claim.
23 At [3], [14] and [19].
24 At [18].
25 Keemati Ltd v QNZ Ltd, above n 1, at [13] and [25].
[32] On 19 March 2020, following the caveat decision, within the 21 days allowed for in the condition, counsel for Keemati filed a memorandum in the substantive proceeding recording that the proceedings required by Associate Judge Paulsen had already been brought but that Keemati intended to file an amended statement of claim and seeking an extension to do so by 25 March 2020.
[33] QNZ did not agree to the extension and so a second amended statement of claim was filed on the same day, 19 March 2020. In correspondence between the parties, counsel for Keemati said that because the claim was rushed, it was likely that the claim would have to be further amended.
[34] There was further correspondence between the parties about further amendments to the claim and the filing of statements of defence. The proceedings were listed in the Duty Judge List on 28 May 2020 prior to which the parties agreed that any amended claim could be filed by 19 June 2020 along with further dates for the hearing of a freezing order and injunction application and the filing of any application for security for costs. Orders were made on that basis.
[35] The third amended statement of claim was filed on 19 June 2020 as required by the timetable orders.
[36] The application for freezing orders was resolved by consent with the parties agreeing to a timetable for the filing of the statement of defence, Keemati’s reply and a date for a first case management conference.
[37]No application for security for costs was made by the required time.
[38] On 3 August 2020, prior to the filing of the statement of defence, QNZ filed a notice for further particulars of Keemati’s claim.
[39] There was then correspondence between the parties advising that the solicitors for Keemati were unlikely to continue acting, with confirmation on 17 August 2020 that they were no longer acting. During this correspondence, Keemati agreed to an extension for the filing of the statement of defence.
[40] On 31 August 2020 new lawyers for Keemati advised that they were now acting and would be filing another version of the statement of claim.
[41] On 1 September 2020 QNZ’s lawyers wrote to newly instructed counsel, serving QNZ’s statement of defence, an application for further particulars and an application for security for costs.
[42] On 10 September 2020 the new lawyers became the solicitors on the record and Keemati filed an application to further amend the timetable, asking for another six weeks to file an amended statement of claim.
[43] On 21 September 2020 the parties agreed a timetable for the three interlocutory applications that required determination with a timetable directed by consent.
[44] On 23 September 2020 the Court allocated a hearing date of 12 October 2020 for the three interlocutory applications.
[45] Keemati then advised the Court that its new lawyers were no longer acting and made an application to adjourn the hearing of the interlocutories. Keemati’s application was granted, with the fixture adjourned to a hearing on 17 November 2020. At that hearing Mr Angurala sought and was granted leave to represent the company himself.
[46] On 9 October 2020 Keemati’s previous lawyers asserted a lien over an earlier costs judgment in this proceeding.
[47] There was then correspondence between the parties in respect of inspections of the caveated properties by Auckland Council which Mr Angurala had organised.
[48]On 12 October 2020 QNZ’s lawyers issued a trespass notice to Mr Angurala.
[49] On 23 October 2020 Mr Angurala filed an amended statement of claim which QNZ submits still failed to respond to most of the requests for particulars.
[50]Correspondence continued between the parties.
[51] On 17 November 2020 Moore J heard QNZ’s security for costs application.26 Mr Angurala represented Keemati at that hearing and indicated that he wanted to represent Keemati in the proceeding as a whole. Moore J required Mr Angurala to file an application if he wished to do so. In the Minute setting out timetable directions, the courts’ reluctance to permit companies to be represented by persons other than those who are legally qualified is explained although it is noted that the courts maintain a discretion to permit non-lawyers to appear on behalf of a company in rare, if not exceptional, circumstances. 27 Moore J required Mr Angurala to file his application to represent the plaintiff by 24 November 2020. The Minute confirms that counsel for QNZ agreed that it was sensible to settle the future representation of Keemati at the earliest opportunity.
[52] On 19 November 2020 Mr Angurala wrote to QNZ’s lawyers seeking a further extension to the timetable because of a medical procedure. QNZ did not agree to that extension so Mr Angurala filed a memorandum seeking a one week extension which was granted.
[53] On 22 December 2020, Moore J delivered his decision on the security for costs application, granting QNZ’s application and ordering Keemati to pay security of
$129,984 in three tranches. The timing of the first tranche was subject to the filing of further memoranda as to the form of security. The second tranche is due on completion of discovery and inspection and the third, two months in advance of trial.
[54] On 8 March 2021 Mr Angurala’s application to represent the company was heard before Associate Judge Lester.
[55] On 17 March 2021 Mr Angurala’s application to represent Keemati was declined.28
26 Keemati Ltd v MR Civil Ltd [2020] NZHC 3496.
27 Keemati Ltd v MR Civil Ltd HC Auckland CIV-2019-404-000967, 17 November 2020 (Minute of Moore J) at [5]–[6].
28 Keemati v MR Civil Ltd [2021] NZHC 538.
[56] On 19 March 2021 QNZ’s lawyers wrote to Mr Angurala to ask whether Keemati would now be withdrawing its claim, as during the hearing of the application to represent Keemati, Mr Angurala had told the Court that Keemati would not be able to continue its claim if the Court did not permit Mr Angurala to represent Keemati.
[57] After follow-up, Mr Angurala advised on 30 March 2021 that he was in the process of taking advice and would be able to reply by the following weekend. After correspondence through the early part of April 2021, QNZ filed a memorandum on 14 April 2021 seeking timetable orders, including orders for Keemati to appoint counsel and take steps in its substantive claim.
[58] Mr Angurala filed a memorandum on 16 April 2021 explaining delays in selling one of his properties and asking if he could update the Court on 7 May 2021 on funds availability.
[59] Moore J issued a judgment on 28 April 2021 making orders including on the security for costs application, regarding the appointment of counsel and QNZ’s applications for further particulars and for timetable orders. 29
[60] The parties had not been able to agree on either the form of the security for costs or the timing of payment of the first tranche. Orders were therefore made that the first tranche of security of $27,404 was to be paid to the Court in cash by 5pm on Friday, 21 May 2021. Moore J further ordered that Keemati must appoint counsel by 5pm on Friday, 28 May 2021.30 A case management conference was directed once counsel had been appointed to set a date for the hearing of QNZ’s application for further particulars, to make timetable orders and to set a trial date.
[61] This application to lapse the caveats lodged by Keemati over QNZ’s properties was filed by QNZ on 5 May 2021.
[62] The first tranche of security for costs was paid by Keemati on 21 May 2021 and counsel were appointed.
29 Keemati v MR Civil Limited [2021] NZHC 917 at [17(a)].
30 At [17(b)].
[63] A case management conference in the substantive proceedings was held on 16 June 2021 prior to which the parties filed memoranda.
[64] Keemati recorded that, in its view, it was very important that the matter be set down for a trial and proposed a likely hearing duration of 10 days.
[65] QNZ’s memorandum however opposed the allocation of a trial date until QNZ’s application for particulars had been determined.
[66] A further complication was that Keemati considered discovery should be completed before the application for particulars was heard whereas QNZ considered that the application for further particulars should be determined first.
[67] Woolford J’s Minute following the conference on 16 June 2021 records that after hearing from counsel his Honour’s view was that the trial needed to be set down as a matter of some urgency and that discovery need not await the Court’s determination on QNZ’s application for further particulars.31 It is noted that QNZ acknowledged that many of the required particulars had been provided with only a few remaining outstanding and that in fact a hearing of the application may not be necessary following discovery. Furthermore, Woolford J commented that it is not uncommon that allegations are pleaded in general terms accompanied by a statement that particulars will be given following discovery by the other party.32
[68] Woolford J concluded the Minute by making directions including for completion of discovery, the hearing of QNZ’s application for further particulars, the hearing of any application arising out of discovery (to be heard together with the particulars application), a close of pleadings date and the allocation of a 10 day substantive fixture.33
31 Keemati Ltd v MR Civil Ltd HC Auckland CIV-2019-404-000967, 16 June 2021 (Minute of Woolford J) at [7].
32 At [6].
33 At [9].
Conclusion on due diligence
[69] Counsel for QNZ helpfully presented a critical path analysis to demonstrate that the periods of delay could largely be attributed to Keemati.
[70] Furthermore, counsel for QNZ submits that where a caveator has specifically been directed to pursue proceedings with due diligence, with leave reserved to lapse the caveats, then any delay must be sufficient to justify the caveats being lapsed.
[71] As the authorities referred to above make clear, however, all of the circumstances have to be considered, with the courts decrying rigid rules.
[72] Here, there have been delays, particularly with Keemati changing lawyers a number of times before returning to its original counsel, but it is not as straight forward as set out in the critical path analysis as the above timeline shows. Furthermore, and importantly, a fixture has now been allocated and the first tranche of security for costs paid. QNZ opposed the allocation of a trial and its refusal to agree to extensions in some cases has meant that there have been more amendments to the pleadings or time taken to progress matters than perhaps would otherwise have been necessary.
[73] Having considered the above timeline, the delays in my view are not sufficient to justify the lapsing of the caveats. They are not of the magnitude of the delays leading to lapse in the previous cases as the proceedings are still progressing forward and Keemati has remained engaged throughout.
Specific prejudice to QNZ
[74] Because of the view I have come to in relation to due diligence it would only be appropriate to lapse the caveats if there is clearly significant prejudice to QNZ if the caveats continue and that has either arisen or changed since the issues were considered by Associate Judge Paulsen.34
34 Keemati Ltd v QNZ Ltd, above n 1.
[75] QNZ relies on the penalty interest accruing under a sale and purchase agreement entered into with a third party. Keemati, however, challenges whether the sale and purchase agreement relied on by QNZ remains afoot. This is not a matter I can determine in the context of these proceedings without full evidence.
[76] Furthermore, and as submitted by Keemati, the agreement for sale and purchase was entered into after the alleged agreement with Keemati and so Keemati says it was at QNZ’s own risk.
[77] QNZ further relies on higher financing costs than otherwise because its properties are caveated. In response, Keemati points to the fact that the evidence filed on this issue is from 2019 and so there must be a question as to whether it is current.
[78] In my view there is not such clear evidence of specific prejudice to QNZ that the caveats ought to lapse at this stage given the view I have reached on due diligence.
Evidence of text messages allegedly made on a without prejudice basis
[79] A final evidential point needs to be recorded. Because of the conclusions reached, the text messages sought to be introduced by Mr Angurala do not need to be relied on. I do not therefore need to determine QNZ’s challenge to their admissibility on the grounds that they were sent on a without prejudice basis.
Result
[80] The application for the caveats to lapse for failure to bring proceedings with due diligence is dismissed. Now that a date has been allocated for the hearing of the substantive proceeding, Keemati will be required to justify any further delay to the Court with the fixture providing discipline. The order made by Associate Judge Paulsen will remain, however, reserving leave to QNZ to apply for the caveats to lapse if there is any further failure to prosecute with due diligence in future.
Costs
[81] QNZ has not succeeded in its application but it is likely that it is partly as a result of this application that the proceeding now has a trial date allocated. My preliminary view is that costs ought to lie where they fall. I ask the parties to confer and attempt to agree. If agreement cannot be reached, the parties may file memoranda of no more than five pages excluding attachments, on behalf of the applicant within 14 days and the respondent within 21 days.
Associate Judge Sussock
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