Rarere v Phildagap Limited HC Wellington CIV- 2011-485-679
[2011] NZHC 1810
•9 June 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV- 2011-485-679
UNDER the Land Transfer Act 1952
BETWEEN RUKA STEVEN RARERE & ORS Applicants
ANDPHILDAGAP LIMITED Respondent
Hearing: 3 June 2011
Counsel: P S J Withnall for the Applicants
Mr E Cox and Mr W Hamilton for the Respondent
Judgment: 9 June 2011
JUDGMENT OF MALLON J
Contents
Introduction ....................................................................................................................................... [1] Background........................................................................................................................................ [3] Claimed caveatable interest.............................................................................................................[11] Did Phildagap obtain an indefeasible title?................................................................................... [19] Exceptions to indefeasibility: nature of easement? ...................................................................... [28] Exception to indefeasbility: fraud? ................................................................................................ [32] Other relevant factors? ................................................................................................................... [36] Result ................................................................................................................................................ [38]
RARERE v PHILDAGAP LIMITED HC WN CIV- 2011-485-679 9 June 2011
Introduction
[1] The applicants are the owners of apartments in a 9 level building at 6 Halleys Street. The building has a lift providing access to the apartments on each level. The equipment which operates the lift is located on the adjoining property at 4 Halleys Street. The applicants claim that they have an interest in the part of the land at 4
Halleys Street on which the lift equipment is located. They lodged a caveat in respect of that claimed interest.
[2] The respondent (“Phildagap”) has a registered mortgage over 4 and 6 Halleys Street. Phildagap wishes to sell the land under the mortgagee‟s power of sale and applied for the lapsing of the applicants‟ caveat. Before me is an application for an order that the caveat not lapse.1 The issue is whether the applicants have a reasonably arguable case that they have an interest in the land at 4 Halleys Street and if they do whether Phildagap‟s interest is subject to that.
Background
[3] A company (“Daytona”) owns 4 and 6 Halleys Lane. Like 6 Halleys Lane, the building at 4 Halleys Lane has a number of levels. The building at 6 Halleys Lane shares a common wall with the building at 4 Halley‟s Lane. Daytona developed 6 Halleys Lane into the apartments. In developing the apartments, for reasons which are not known to the applicants, the equipment which operates the lift at 6 Halleys Lane was sited on 4 Halleys Lane.
[4] The equipment is in a small enclosed room in the basement and underneath a flight of stairs. The room is about 3 metres long and 1.3 metres wide. It is over 2 metres high at the entrance to the room but lower at the other end. Inside the room is a tank which holds a pump and oil. The oil is pumped from the tank into a pipe
which goes through a hole in the common wall between 4 and 6 Halleys Lane.
1 Section 145A of the Land Transfer Act 1952.
[5] Brandons Solicitors Nominee Company (1991) Limited (“Brandons”) registered a mortgage over 4 and 6 Halleys Lane on 18 June 1998. On 26 June 1998 an application to deposit a unit plan (providing for four units) in respect of 6 Halleys Lane was made under the Unit Titles Act 1972. The titles to those four units were issued on 26 June 1998. On 21 September 1998 a mortgage to Flax Agencies Limited (“Flax”) was registered over 4 and 6 Halleys Lane. On 14 April 2009 the Brandons and Flax mortgages over 4 and 6 Halleys Lane were discharged and replaced with further registered mortgages from Brandons and Flax. On 23 August
1999 titles to a further four units at 6 Halleys Lane were issued.
[6] In July 2000 Daytona began a conversion of the building at 4 Halleys Lane into apartments. The conversion did not continue and 4 Halleys Lane has since become derelict. The person behind Daytona is currently in prison. The owners of the apartments at 6 Halleys Lane had a number of difficulties with Daytona. For example, from about 2007 Daytona defaulted in payment of its Body Corporate levies. Daytona also refused access to one of the apartments to enable leaks to the roof of the building to be investigated and fixed. Daytona demanded rental from the apartment owners for the lift tank room and at one time prevented access to the lift tank room.
[7] On 24 September 2010 the applicants registered a caveat over 4 Halleys
Lane. The estate or interest claimed on the caveat was as follows:
An estate or interest by way of easement or quasi-easement and/or equitable right of occupation and/or storage arising from the deposit of Deposited Plan
85760 by the registered proprietor as the then registered proprietor in respect of the contiguous land known as 6 Halleys Land, Wellington contained and described then in Certificates of Title WN52D/660 and WN356/49 and the
housing in a locked room on the ground level of that part of the subject land at 4 Halleys Lane, Wellington of plant and equipment necessary for the
normal operation of the lift serving the multi-level building on the land at 6
Halleys Lane, such lift and the normal operation of such lift being reasonably necessary for the enjoyment by the Caveator of their interest in
the land as the registered proprietors of Units A, B, C, D, E, F and G Deposited Plan 85760 and as tenants in common in proportion to the
Caveator‟s unit entitlement of the common property shown in Deposited
Plan 85760.
Alternatively, an estate or interest by way of trust arising from the circumstances set forth immediately above by which the registered proprietor as trustee holds the locked room on the ground level of that part of the subject land and the access to it on trust for the Caveator as beneficiary to enable the reasonable enjoyment by the Caveator of their interest in land as the registered proprietor of Units A, B, C, D, E, F and G Deposited Plan
85760 and as a tenant in common in proportion to the Caveator‟s unit
entitlement of the common property shown in Deposited Plan 85760.
[8] The caveat annexed a plan showing a hatched area on 4 Halleys Lane identifying the area over which the interest was claimed.
[9] On 16 November 2010 Brandons issued a Property Law Act notice in respect of a default by Daytona under the mortgage. The default was for $2,800,839.54 as at
31 October 2010. It required that default to be remedied by 16 December 2010, failing which the total amount secured by the mortgage (a sum of $6,128,339.06) would become payable.
[10] On 15 February 2011 Brandons and Flax transferred their mortgages to Phildagap. On 22 February 2011 Phildagap notified the applicants of an intention to proceed to mortgagee sale. Phildagap‟s application for the caveat to lapse was made on 30 March 2011. The application for an order that the caveat not lapse was made on 14 April 2011. On 10 May 2011 an interim order that the caveat not lapse was made by the Court. That interim order applies until further order of the Court.
Claimed caveatable interest
[11] The parties are agreed that the applicants must establish a reasonably arguable case that they have a caveatable interest in the property. The applicants claim that it is reasonably arguable that they have an equitable or quasi equitable easement by implied grant.
[12] The applicants say that their interest arose because, at a time when the owner of the dominant tenement (6 Halleys Lane) and the servient tenement (4 Halleys Lane) were the same, the owner created a use of 4 Halleys Lane which is necessary for the enjoyment of 6 Halleys Lane. They say that, when the plan for the unit titles on the dominant tenement was deposited/or when the unit titles were sold to them,
the implied grant was created because the dominant tenement rights over the servient tenement are continuous and apparent in nature and reasonably necessary for the enjoyment of the dominant tenement.
[13] This kind of easement is referred to as an easement under the rule Wheeldon v Burrows.2 In that case a workshop on one piece of land had windows facing adjoining land. Both pieces of land were owned by the one owner. The owner sold the adjoining land. He subsequently sold the workshop to another purchaser. When the owner of the adjoining land built something which restricted the light through the windows of the workshop, the purchaser of the workshop (the dominant tenement) claimed that he had an easement, by way of implied grant, over the adjoining land (the servient tenement) for light.
[14] The Court accepted that “you may imply a grant of such continuous and apparent easements as are necessary to the reasonable enjoyment of the property conveyed, and which have in fact been enjoyed during the unity of ownership.”3
However “with the exception...of easements of necessity, you cannot imply a similar reservation in favour of the grantor of land.”4
[15] In other words, where the owner of both pieces of land has enjoyed a use of the servient land which is reasonably necessary for the enjoyment of the dominant tenement, an easement by implied grant arises when the owner sells the dominant tenement (but retains the servient land or sells it simultaneously). The rule is stricter when the owner is selling not the dominant tenement, but the servient land (and is
retaining the dominant tenement).5 In Wheeldon v Burrows the claim was rejected
because the servient land had been sold first, and light through those particular windows of the workshop had not been expressly reserved in that sale and was not
necessary for the use and enjoyment of the workshop.6
2 Wheeldon v Burrows (1879) 12 ChD 31.
3 At 58 and 59. (And at first instance at 44.)
4 At 59.
5 As explained in G W Hinde & Ors Hinde McMorland & Sim Land Law in New Zealand (online loose leaf ed, Lexis Nexus at [16.036], this is because of the rule of interpretation that a grant is construed in favour of the grantee and the doctrine of non-derogation by the grantor.
6 At 49. (And at first instance at 45.)
[16] Phildagap contended that the kind of easement claimed is unusual. That may be so, but the easement is of a kind that is recognised in the common law. Wheeldon v Burrows was applied in Australia in Wilcox v Richardson7 and discussed in the New Zealand case of Mikitasov v Collins.8 To come within the principle, when the dominant tenement is alienated the use of the servient land “must be continuous and
apparent, or reasonably necessary to the reasonable enjoyment of the property granted.”9 Continuous and apparent means an easement which is “accompanied by some obvious and permanent mark on the land itself, or at least by some mark which will be disclosed by a careful inspection of the premises.”10
[17] Phildagap also contended that a functioning lift was not reasonably necessary for enjoyment of 6 Halleys Lane (as there were steps by which access to the apartments could be obtained). I consider that the applicants have a reasonably arguable case that they have an equitable or quasi-equitable easement of the kind claimed. The lift tank was placed on 4 Halleys Lane at a time when, had the land not been in common ownership, an easement would have been needed over 4 Halleys Lane to do so. Such an easement is arguably continuous and apparent and reasonably necessary for the enjoyment of 6 Halleys Lane. On alienation of 6
Halleys Lane, by the creation of unit titles and their sale, it is reasonably arguable that an easement over 4 Halleys Lane (which was still owned by Daytona), in respect of the area on which the lift tank was located, was created in favour of the unit holders by implied grant.
[18] Phildagap also contended that the limits of this kind of interest are uncertain. It asked whether an easement of this kind could survive forever. For present purposes, it is sufficient for the applicants to establish an arguable case that they have an equitable (or quasi equitable) easement of the kind alleged. Such an interest can be protected by a caveat. That is because a caveat against dealings is able to be
lodged against any dealings in any land or estate or interest under the Land Transfer
7 Wilcox v Richardson (1977) 43 NSWLR 4 (SCNSW).
8 Mikitasov v Collins (2008) 9 NZCPR 735 (CA). In this case the claimed easement was not considered to be reasonably necessary for the use of the dominant tenement.
9 Hinde McMorland & Sim at [16.036] which comments that it is uncertain whether these requirements are alternative, cumulative or synonymous. Tom Bennion and Others New Zealand Land Law (2nd ed, Brookers, Wellington, 2009) at [10.5.03] refers to “continuous and apparent, and not merely temporary.”
10 Hinde McMorland & Sim at [16.015].
Act upon any person claiming to be entitled to or to be beneficially interested in any land, estate or interest by “virtue of any unregistered agreement or other instrument or transmission, or of any trust express or implied, or otherwise.”11 The extent to which the land will remain subject to the equitable interest depends on the indefeasibility provisions which I now turn to.
Did Phildagap obtain an indefeasible title?
[19] Section 62 of the Land Transfer Act provides that “the registered proprietor of...any estate or interest in land...shall, except in the case of fraud, hold the same subject to such...interests as may be notified on the folium of the register...but absolutely free from all other...interests whatsoever.” This is subject to some exceptions, one of which is “the omission or misdescription of any right of way or other easement created in or existing upon any land.”12
[20] Therefore, unless there was fraud or an exception applies, a mortgagee takes their interest in land free from any interest which is not notified on the register. As the applicants notified their interest, via the caveat, after the mortgages to Brandons and Flax, but before the transfer of the mortgages to Phildagap, the issue here is whether the relevant time under s 62 is the time the Brandons and Flax mortgages were issued or the time that the transfer to Phildagap was registered.
[21] Phildagap says that the relevant time is the time that the Brandons and Flax mortgages were registered. For this submission they rely on s 97 of the Land Transfer Act which provides:
97 Transfer of lease or mortgage
(1) A registered mortgage or lease may be transferred by memorandum of transfer as aforesaid.
11 Section 137(1) of the Land Transfer Act.
12 Section 62(b) of the Land Transfer Act.
(2) Upon registration of any such memorandum of transfer the estate or interest of the transferor as set forth in the instrument, with all rights, powers, and privileges thereto belonging or appertaining, shall pass to the transferee.
(3) The transferee shall thereupon become subject to and liable for all and every the same requirements and liabilities to which he would have been subject and liable if named in the instrument originally as mortgagee or lessee of the land, estate, or interest; and by virtue of every such transfer as is hereinbefore mentioned the right to sue upon any memorandum of mortgage or other instrument, and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding that the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof:
Provided that nothing in this section shall prevent a Court of competent jurisdiction from giving effect to any trusts affecting the said debt, sum of money, annuity, or damages in case the transferee holds the same as a trustee for any other person.
[22] Phildagap submits that the effect of s 97(2) is that on registration it obtained the same interest with the same rights as that which Brandons and Flax had. It submits that the interests of Brandons and Flax were not subject to an unregistered equitable easement.13 It says that this is a “right” which has passed to Phildagap upon registration of the mortgage transfer. It submits that if its interest is subject to the easement then the interest under the prior mortgage is able to be “frittered away.”
[23] The applicants submit that this is not the effect of s 97(2). They submit that this would mean that s 97 conferred indefeasibility of title when it is not one of the sections of the Land Transfer Act which is traditionally cited as conferring indefeasibility of title.
[24] I am not persuaded that Phildagap‟s contention is necessarily the correct interpretation of the effect of s 97. It may be that s 97(2) is intended to declare only the time at which an interest (with its associated rights, powers, privileges and
liabilities) passes.14 The “rights, powers and privileges” may refer to the rights,
13 The applicants do not know whether Brandons were asked to consent to an easement at any stage but suggest that, had they been, they would have consented to it. Whether this would assist the applicants, and if so how, was raised but not fully developed.
14 Section 41 of the Land Transfer Act already provides that no instrument passes any estate or interest in land until the registration of the instrument.
powers and privileges under the mortgage (eg the power of sale) rather than a right to the same indefeasibility position as that which the transferor enjoyed. That is, the legal interest to be conveyed pursuant to the transfer passes to the transferee “upon registration” and upon that date the transferee can exercise the legal rights, powers or privileges under the mortgage instrument. Up until that time of registration the transferee under the mortgage has an equitable interest only. That view is consistent with the general principle under the Land Transfer Act that it is registration that confers indefeasibility and that indefeasibility is conferred against interests which are not noted on the register.
[25] Section 97(3) then goes on to provide that upon registration the mortgagee is subject to the same liabilities as the original mortgagee and has the right to sue on the original mortgage to recover money owed under it. It does not specifically provide that the mortgagee takes the same interest in the land that the original mortgagee had (ie that it is not subject to interests notified after the registration of the original mortgage but before the registration of the transfer).
[26] Neither party referred to any authority as to the effect of s 97. The cases relied on by Phildagap related to caveats lodged after registration of a mortgage.15
They were not cases concerned with caveats lodged before the transfer of a mortgage. The parties also did not address whether s 141 of the Land Transfer Act has any bearing on the correct interpretation of s 97. Under s 141, the Registrar is forbidden to make any entry on the register having the effect of charging or
transferring or otherwise affecting the estate or interest protected by the caveat.16
This does not apply to an entry to give effect to dealings with secondary interests, such as the transfer of a mortgage, if the caveat affects the fee simple.17 It is presumably because of this section that Phildagap was able to register the transfer of the mortgage despite the caveat against dealings having already been lodged. The
applicants submitted that their interest as against the fee simple was not necessarily
15 Lombard Finance and Investments Ltd v Albert Street Ltd HC Auckland CIV-2004-404-2120, 14
October 2004; and FM Custodians Ltd v Pinot Rouge New Zealand Ltd HC Dunedin
CIV-2010-418-28, 9 August 2010.
16 Section 141(1) of the Land Transfer Act.
17 Section 141(5) of the Land Transfer Act.
inconsistent with Phildagap‟s interest under the mortgage but neither party addressed
this point in any detail.
[27] Phildagap raised its interpretation under s 97 as a reason why it must succeed at a substantive hearing and therefore why, although the applicants may have an arguable caveatable interest, I should exercise my discretion to refuse to make the order that the caveat not lapse. There is a residual discretion retained by the Court to order the removal of the caveat even where an arguable caveatable interest is made out, but this should be done “only where the Court can be „completely‟ satisfied‟ that
the caveator‟s legitimate interests will not be prejudiced.”18 On the basis of the
argument I have heard, I am not persuaded that Phildagap must succeed (because of the operation of s 97) such that it would be appropriate to allow the caveat to lapse.
Exceptions to indefeasibility: nature of easement?
[28] The applicants submitted that, even if Phildagap‟s submission on s 97 was correct, that would not prevent a Court from recognising and granting the easement. I do not agree with this submission to the extent that it is contended that the interest of a bona fide registered proprietor (or mortgagee) without notice of the equitable easement, would then become subject to that easement because of a later Court decision which determined that the equitable easement by implied grant existed.
[29] The applicants‟ submissions referred to the exception for omitted easements provided by s 62(b). However, s 62(b) applies to omitted legal easements,19 but not omitted equitable easements created after the servient land was brought under the Land Transfer Act.20
[30] An easement by implied grant “may be construed as a contract to create an
easement, which takes effect as an equitable interest.”21 As such it is enforceable against the parties to the original transaction (ie as between Daytona and the owners
18 Hinde McMorland & Sim at [10.020] citing Stewart v Kaipara Consultants Ltd [2000] 3 NZLR
55 (CA) at [23] which in turn cites Pacific Homes Ltd (In Receivership) v Consolidated
Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
19 Mills v Borck [1986] 1 NZLR 302 (HC).
20 Sutton v O’Kane [1973] 2 NZLR 304 (CA).
of the apartments) “and could perhaps be converted into a registered easement by means of specific performance of the contract.”22 But if it is not a registered easement, then “it would cease to be enforceable against a third party taking a registered interest without fraud.”23
[31] That is because an equitable interest in land will not bind a subsequent registered proprietor. It is only when a legal easement has been created that the right “permanently binds the land over which it is exercisable and permanently subsists for the advantage of the land for the benefit of which, or the person for whose benefit it was created.”24 Until the equitable easement becomes a legal easement the caveat procedure is the manner by which some measure of protection is obtained for equitable interests.25
Exception to indefeasibility: fraud?
[32] The applicants also contend that there is an arguable case that there was fraud such that Phildagap is not protected by ss 62 and 182 of the Land Transfer Act. As I understand it, the applicants contend that whether or not Phildagap obtained the same interest as Brandons and Flax pursuant to s 97, if there was fraud they remain subject to unregistered interests of which they had notice.
[33] The applicants say that the possibility of fraud exists because of the unusual nature of the transaction. They refer to Phildagap having taken a transfer of a substantial mortgage, which was seriously in default, in respect of a derelict building. They refer to Phildagap not being a known lender (eg as compared with one of the established trading banks) and that the beneficial owner of Phildagap is not known. They refer to notice they gave to Brandons‟ solicitors of their interest before the assignment of the mortgage was entered into and that Phildagap decided to proceed despite having notice of the caveat. They say that they do not know the
terms of the assignment of the mortgage. They say that they have not had discovery
22 Hinde McMorland & Sim at [16.036].
23 Hinde McMorland & Sim at [16.036].
24 Hinde McMorland & Sim at [16.001].
and that it lay in Phildagap‟s hands to dispel the spectre of fraud through evidence in
support of its opposition.
[34] Phildagap says that the matters relied on by the applicants do not raise any foundation for a claim of fraud. It says that it was therefore unnecessary to file any evidence on that topic. It further says that had it filed evidence it might then be said that there were disputed facts which could not be resolved on this application.
[35] In my view the applicants do not need to show an arguable claim of fraud on an application of this kind. It is for the applicants to establish an arguable caveatable interest. They have done so. Phildagap says that, despite the arguable caveatable interest, the Court should allow the caveat to lapse because any such interest cannot defeat the indefeasible title it has. Indefeasibility is subject to the exception of fraud. The applicants have raised the possibility that they will contend that there was fraud, but that depends on information to be obtained on discovery. At this stage of the matter I cannot be „completely satisfied‟ that Phildagap has an indefeasible title that
will defeat the applicants‟ (arguable) interest.26
Other relevant factors?
[36] Phildagap refers to the significant delay in the applicants lodging a caveat to protect their interest. However it does not claim any prejudice to its position arising out of such delay. I therefore do not regard the delay as a reason for allowing the caveat to lapse despite the arguable interest it protects.
[37] Phildagap contends that the terms of the alleged easement are unclear. However I agree with the applicants that, having established an arguable interest, the precise terms of the interest would be something to be sorted out if the applicants are
successful in their substantive claim.
26 In Lombard Finance and Investments Ltd v Albert Street Ltd at [22] and [38] the Court considered that the kinds of questions which are raised here were enough to establish that fraud was arguable. The matter might be approached in this way. Whichever way it is approached, I consider the important point is that questions have been raised, they are not necessarily spurious, and to determine them it is necessary to have completed and tested evidence. This makes this an issue not appropriately determined on an application of this kind.
Result
[38] The applicants have succeeded in establishing that they have a reasonably arguable case that they have a caveatable interest in 4 Halleys Lane in respect of that area of land on which the lift equipment is located. Phildagap has not satisfied me that its interest in 4 Halleys Lane is not subject to the applicants‟ claimed interest such that the applicants would not be prejudiced if the caveat is allowed lapse. The applicants are therefore entitled to the protection of the caveat pending a proceeding in which the competing claims will be substantively resolved.
[39] I order that the caveat not lapse. The order is conditional on the applicants proceeding with a substantive claim in respect of the claimed interest. The proceeding is to be listed in the next Chambers List for timetable orders to be made in respect of a substantive claim.
Mallon J
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