Shi v Pacific Construction Group Ltd
[2023] NZHC 1729
•5 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-1309
[2023] NZHC 1729
UNDER Rules 7.19(4), 7.23(1), 7.53 and 7.54 of the High Court Rules 2016 IN THE MATTER
of an interlocutory application without notice for injunction and interim relief under urgency
BETWEEN
YANG SHI
Applicant
AND
PACIFIC CONSTRUCTION GROUP LTD
Respondent
Hearing: 29 June 2023 (by telephone) Counsel:
S M Dalgleish for Applicant M S P Pang for Respondent
Judgment:
5 July 2023
REASONS JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 5 July 2023 3.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Affordable Law Ltd (Auckland) for Applicant Integritas Law (Auckland) for Respondent
YANG SHI v PACIFIC CONSTRUCTION GROUP LTD [2023] NZHC 1729 [5 July 2023]
Introduction
[1] In this judgment I set out my reasons for the results judgment I delivered on 29 June 2023 granting the interlocutory application by Yang Shi (the applicant) for an injunction and interim relief by way of an order directing the Registrar-General of Land to forthwith remove caveat number 12756148.2 lodged by Pacific Construction Group Ltd (the respondent) from Record of Title 1107432, North Auckland Land Registration District in respect of the applicant’s property at 545A Beach Road, Murrays Bay, Auckland (the house property).
Background
[2] The respondent undertook the construction of a residential dwelling on the applicant’s property at 545A Beach Road pursuant to a construction contract dated 22 September 2020. The applicant also owns the neighbouring property at 545 Beach Road which is bare land (the bare land property). On 6 June 2023, the respondent’s solicitors wrote to the applicant and his solicitors, advising that seven invoices due on various dates between 15 April 2021 and 13 February 2023 relating to the construction of the house and totalling $129,929.05 were outstanding and immediately due, and a further invoice for $135,347.22 was due for payment on 8 June 2023. The respondent’s solicitors advised that if the outstanding amount, including legal fees, totalling $266,656.27 was not paid within five working days from the date of their letter, the respondent would lodge a caveat over the Beach Road property.
[3] The applicant failed to make payment of the sum claimed, and on 13 June 2023 the respondent lodged caveats on the titles of both 545A and 545 Beach Road.1
[4] The applicant disputes the respondent’s claim under the construction contract, and disputes that he signed a construction contract requiring him to grant the respondent a registerable mortgage on the title of the house property.
[5] By Agreement for Sale and Purchase dated 10 March 2023 (the sale agreement) the applicant agreed to sell the property to Yu Du (the purchaser) for the sum of
1 545A Beach Road (Caveat 12756148.2); 545 Beach Road (Caveat 12756148.1).
$1,960,000. The settlement of the sale was scheduled to proceed on 15 June 2023, but did not proceed following the respondent lodging the caveat on 13 June 2023. The applicant says that the subsequent delay in settlement of the sale has resulted in the purchaser of the house property claiming damages pursuant to the terms of the sale agreement, of approximately $800 per day, as well as interest on the second mortgage at a penalty rate of 20 per cent per annum.
[6] The applicant has produced a copy of the title of the house property which records a first mortgage to the ANZ Bank New Zealand Ltd (ANZ bank) and a second mortgage to Yu Li and Heyuan Chen (the second mortgagee). The applicant has also exhibited correspondence from the ANZ bank advising that the amount due to repay the bank’s loan as at 15 June 2023 was $726,644.40, and correspondence from the solicitors for the second mortgagee advising that the principal sum secured by the second mortgage is $1,502,500. On settlement of the sale agreement the second mortgagee will require payment of $1,122,218 and a balance of $387,500 to be secured under the second mortgagee’s existing mortgage over the applicant’s bare land property.
Submissions
The applicant
[7] Mr Dalgleish for the applicant says that the two registered mortgages secure borrowings which in aggregate well exceed the net proceeds of the sale to be received on settlement of the house property, so that irrespective of the merit or otherwise of the respondent’s claim which it has sought to secure by means of the caveat, the priority interests of the two secured creditors have the effect of rendering the caveat lodged on the title of 545A Beach Road nugatory as a means of securing the sum claimed by the respondent.
[8] The applicant says however that the amount claimed by the respondent is nevertheless protected by its caveat on the title of the bare land property, which is estimated to have a current market value of around $700,000.
[9] Mr Dalgleish says that prior to the settlement date of 15 June 2023 the applicant’s solicitors sent the respondent’s solicitors a draft copy of the settlement statement for the house property which clearly shows that repayment of the secured debts would absorb the whole of the net proceeds of sale of the house property, and also require the applicant to grant a first mortgage over the bare land property for the amount of the second mortgage that would not be repaid from the house property sale proceeds. Mr Dalgleish explains that although the purchaser’s deposit (less the real estate agent’s commission) was paid to the applicant, it was appropriately applied by the applicant, and the remaining balance of approximately $30,000 was paid to and held by the applicant’s solicitors as money secured by the mortgage securities.
[10] Responding to Mr Pang’s submission that the applicant is not in a position to settle the sale of the house property because of an outstanding certificate of acceptance from Auckland Council in respect of a retaining wall on the house property, Mr Dalgleish says that the absence of the certificate does not prevent the applicant from settling the sale to the purchaser, as it would amount to a breach of warranty.
[11] Mr Dalgleish submits that the respondent is an unsecured creditor of the applicant, and has been an unsecured creditor for over 12 months, and has only very recently lodged the two caveats. He says the bare land property was previously considered to have a market value of between $800,000 to $900,000, but the recent reductions in the property market have reduced its current market to around $700,000.
[12] Mr Dalgleish submits that having regard to the interests of the secured creditors which will absorb the entire net proceeds of sale, and having regard to the financial impact on the applicant of the settlement of the sale being delayed, the balance of convenience is firmly in favour of the applicant and the granting of interim relief. Mr Dalgleish says that the fact that the respondent’s claim is expected to be wholly protected by the caveat lodged on the title of the bare land property, is a further factor favouring the granting of the interim relief sought by the applicant. He says that it is the applicant’s intention to sell the bare land property and apply the net proceeds of sale to discharging the amount secured to the second mortgagee of the house property and the amount payable to the respondent under the construction contract.
The respondent
[13] Having been served with the proceedings and the applicant’s without notice interlocutory application for interim relief on a Pickwick basis,2 Mr Pang for the respondent filed a memorandum of submissions and made oral submissions at the telephone conference held on 29 June 2023.
[14] Mr Pang says that the applicant has failed to address the issue of whether the respondent has a caveatable interest in the house property, and has focussed his submissions on the issue of balance of convenience.
[15] As I noted in the results judgment, in his submissions Mr Pang said that provided the respondent’s interests were protected, it did not intend to delay settlement of the property. Mr Pang said however that while the net proceeds of sale of the house property may not cover the total amount owed to the secured creditors, the applicant has dissipated part of the net proceeds from the sale by applying part of the purchaser’s deposit, two days after the respondent notified the applicant of its claim in its letter of 6 June 2023. The respondent says that as a result the net proceeds from the sale of the house property have already been reduced by the sum of $62,702. Mr Pang notes that the applicant’s solicitors draft statement in respect of the sale of the house property, records the receipt of $149,420 from real estate agent Barfoot & Thompson on 6 June 2023. The statement also records the repayment of a loan to “Joe Qiang” of
$36,986.38 and the sum of $30,000 paid to a bank account nominated by the applicant. Both payments being made on 8 June 2023.
[16] Mr Pang says that those payments reduced the available net proceeds from sale by approximately $67,000, and that the applicant has failed to provide evidence to explain and justify the payments. Mr Pang says that while the respondent accepts that it will still have a caveat on the title of the bare land property, the value of that property is unknown, and it is also not known how much will be secured by the existing mortgage over the bare land property held by Yu Li and Heyuan Chen. Mr Pang says that as the market value of the bare land property is uncertain, the non-availability of
2 Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 1 WLR 1213 (Ch).
the two amounts already disbursed by the applicant may be material to whether or not the respondent’s debt could be satisfied from the proceeds of sale of that property.
[17] Mr Pang says that in any event the sale of the house property cannot proceed at present because the Auckland Council has declined an application by the applicant for a Certificate of Acceptance regarding a retaining wall. Mr Pang says that the respondent has not had an opportunity to examine the full terms of the applicant’s sale agreement regarding the house property, and he submits that the applicant has failed to provide disclosure of this document and other materials to show that all of the net proceeds from the sale of the house property will be applied to meeting the secured debts. Mr Pang submits that the balance of convenience in these circumstances favours the maintenance of the status quo.
[18] The respondent further submits if the Court is to exercise its residual discretion and order the removal of the respondent’s caveat on the title of the house property, the Court should nevertheless make an order directing the applicant to retain the sum of
$62,702.11 in his solicitor’s trust account pending agreement between the parties as to the disbursement of that sum or further order of the Court.
Law
[19]Section 142 of the Land Transfer Act 2017 (the Act) provides:
The court may, on application by a person who has an estate or interest affected by a caveat against dealings, order that the caveat is removed.
[20] Applications for an order for the removal of a caveat were formerly provided for by s 143 of the Land Transfer Act 1952 in which the Court had power to make an order for the removal of a caveat, either ex parte or otherwise as it considered just. Similarly, the wording of s 142 of the Act confers a wide discretion on the Court to order the removal of a caveat.3
[21] In Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd the Court of Appeal referring to s 143 of the Land Transfer Act 1952, noted that in Sims v Lowe
3 Varney v Anderson [1988] 1 NZLR 478 (CA) at 479.
the Court had said that the summary procedure for the removal of a caveat was wholly unsuitable for the determination of disputed questions of fact, and an order for the removal of a caveat would not be made under s 143 unless it was patently clear that it could not be maintained either because there was no valid ground for lodging it or that such valid ground that previously existed, had ceased to exist.4 The Court of Appeal then said:5
We note that in Catchpole v Burke [1974] 1 NZLR 620, 623 Wild CJ, delivering principal judgment of this Court, also appeared to view s 143 as conferring a wide discretion, as indeed a literal reading of the section would suggest.
We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation that was then before the Court and were not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. In such circumstances the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of recovery of money secured over the land or specific performance of an agreement or if the caveator’s can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.
Discussion
[22] On the basis of the applicant’s evidence and the documents he has annexed to his affidavit as exhibits, it is quite clear that the entire net proceeds of sale of the house property will be applied to repayment of the secured creditors, namely the ANZ Bank as first mortgagee and Yu Li and Heyuan Chen as the second mortgagee. The relevant amounts are confirmed in the settlement statements issued by the ANZ Bank, and by the second mortgagees’ solicitors. While there is some disagreement between the parties regarding the applicant’s application or dissipation of approximately $63,000 of the sum received by the applicant as the purchaser’s deposit, irrespective of how those funds were applied, the availability of that sum would not make any material
4 Pacific Homes Ltd(In Receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656, citing Sims v Lowe [1988] 1 NZLR 656 (CA),at 659660.
5 At 656.
difference to the issue of whether all of the net proceeds from the house property sale will be required to be applied to repaying the secured creditors with registered mortgages. For this reason also, I consider that it is not necessary for me to make an order regarding this sum of approximately $63,000 as sought by the respondent.
[23] In these circumstances it is not necessary to determine the issue of whether or not the respondent has a caveatable interest in the applicant’s house property as the respondent can have no reasonable expectation of obtaining a benefit from the continuance of the caveat. On the other hand the applicant will suffer significant financial loss if he is unable to proceed with the settlement of the sale without delay.
[24] As I said in my results judgment delivered on 29 June 2023, I am satisfied that the applicant has shown that even if the respondent succeeds in its claim under the construction contract, the caveatable interest in the house property that it is seeking to protect would not secure any funds, as the whole of the net proceeds from the sale of the house property will be applied to satisfying the interests of the two secured creditors. I am also satisfied that the balance of convenience clearly favours the granting of the interim relief sought by the applicant to enable the sale of the house property to proceed without further delay.
[25] In relation to the balance of convenience, it is relevant to note that the respondent has also lodged a caveat on the title of the applicant’s bare land property and that having regard to the amount claimed by the respondent under the construction contract of approximately $265,000, and to the sum to be secured under the mortgage held by Yu Li and Heyuan Chen of $387,500 in respect of the bare land property, and which total $652,500, a future sale of that property for around its currently estimated market value of $700,000, would provide sufficient funds to satisfy the secured creditors and the respondent’s claimed amount.
[26] For these reasons I granted the applicant’s interlocutory application, and made the order directing the Registrar-General of Land to forthwith remove caveat 12756148.2 from Record of Title 1107432, North Auckland Land Registration District in respect of the property at 545A Beach Road, Murrays Bay, Auckland.
[27]I also made an order reserving the issue of costs.
[28] If the parties are unable to agree as to costs, I direct the applicant to file and serve a costs memorandum within 10 working days of the date of delivery of this judgment, and I direct the respondent to file and serve its costs memorandum within 7 working days following receipt of service of the applicant’s costs memorandum. The memoranda of the parties are not to exceed three pages in length other than the intituling page and any annexures. Upon the filing of the parties’ memoranda in accordance with this direction, I shall determine the costs on the papers.
Paul Davison J
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