Topa Partners Ltd v JWL International Group Ltd
[2020] NZHC 182
•17 February 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000629
[2020] NZHC 182
UNDER Section 143 of the Land Transfer Act 2017 IN THE MATTER
of Caveat Number 11570638.1
BETWEEN
TOPA PARTNERS LIMITED
Applicant
AND
JWL INTERNATIONAL GROUP LIMITED
Respondent
Hearing: 3 February 2020 Appearances:
P A Cowey and D L Bell for Applicant
S M Bevin and M L Rhodes for Respondent
Judgment:
17 February 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 17 February 2020 at 12 noon pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors:
Parry Field Lawyers, Christchurch for Applicant Cavell Leitch, Christchurch for Respondent
TOPA PARTNERS LTD v JWL INTERNATIONAL GROUP LTD [2020] NZHC 182 [17 February 2020]
Introduction
[1] The applicant, Topa Partners Ltd (Topa) seeks an order under s 143 Land Transfer Act 2017 that caveat no. 11570638.1 lodged over the title to JWL International Group Ltd’s (JWL) property at 213 Salisbury Street, Christchurch (Salisbury Street) not lapse.
[2] Topa asserts it has a reasonably arguable case to a caveatable interest in Salisbury Street because under a building contract between it and JWL of 17 September 2017 (the building contract):
(a)JWL agreed to grant Topa a registrable mortgage over Salisbury Street to secure payment of any amount owing to it under the building contract; and
(b)Topa retained ownership of goods supplied until they had been paid for and such goods have been incorporated into JWL’s building at Salisbury Street but not paid for.
[3]JWL opposes Topa’s application.
[4]The issues to be determined are:
(a)whether Topa has a reasonably arguable interest in Salisbury Street to sustain its caveat on either basis in [2] above;
(b)if Topa has a reasonably arguable interest in Salisbury Street, whether the Court should exercise its discretion to remove the caveat; and
(c)if Topa’s caveat is sustained, should this be subject to conditions, including that Topa provide an undertaking as to damages.
Facts
[5] JWL is constructing a motel, hotel and restaurant at Salisbury Street. In September 2017, Topa provided JWL with two quotes to carry out electrical works at
Salisbury Street. The first quote was to wire and fit off motel units (stage one). The second quote was to wire and fit off hotel units and the restaurant (stage two). With the quotes, Topa provided a building contract which was accepted by JWL on 17 September 2017. The most relevant terms of the building contract are set out below.
[6] The contract price was $222,709.45 plus GST made up as to $87,315.96 plus GST for stage one and $135,393.50 plus GST for stage two. JWL agreed to pay Topa “the Contract Price in accordance with the payment terms as set out in this Agreement.” The payment terms are in clause 3 and include:
3.4 Payment claims
We are entitled to serve payment claims on you under this Agreement. Payments claims shall be submitted in respect of the Construction Works carried out every calendar month, for the Construction Works carried out for the preceding calendar month or by % progress payment claim. Our payment claims served shall be in accordance with the Construction Contracts Act 2002 and shall:
(a) be in writing;
(b) identify the construction contract to which the progress payment relates;
(c) identify the construction works and the relevant period to which the progress payment relates;
(d) indicate a claimed amount on the basis of:
(i)the extent and value of the construction works that have been carried out during the period to which the progress payment relates;
(ii)the extent and value of all construction works done which is claimed in respect of approved variations to the construction works;
(iii)the extent and value of materials delivered to the site that are intended to be incorporated into the construction works but have not yet been so incorporated.
(e) indicate the manner in which the claimed amount was calculated;
(f) indicate the due date for payment, which shall be 7 working days
after the date of service of the payment claim;
(g) state that it is made under the Construction Contracts Act 2002;
(h) where served on a “residential occupier” under the Construction Contracts Act 2002, be accompanied by the information set out in Schedule 1, Form 1 of the Construction Contracts Regulations 2003.
3.5 Payment schedules
You may respond to a payment claim by providing a payment schedule to us within 7 working days of receiving a payment claim from us. Your payment schedule shall:
(a) be in writing;
(b) identify the payment claim to which it relates;
(c) indicate a scheduled amount;
(d) indicate the manner in which the scheduled amount was calculated;
(e) indicate the reason or reasons for the difference between the scheduled amount and the claimed amount and, where you are withholding payment on any basis, the reason for withholding payment.
3.6 Liability for paying claimed amount
You must pay the claimed amount on the due date for the progress payment to which our payment claim relates if you do not provide a payment schedule to us within the timeframe stipulated in clause 3.4(f) of this Agreement.
3.7 Payment of scheduled amounts
Every scheduled amount under clause 3.5(c) of this Agreement as shown in a payment schedule, together with the amount of GST payable, shall be paid by you to us within 5 working days of the date of the payment schedule.
[7] Clause 5 deals with the consequences of JWL’s default in making payments specified under the contract and provides:
5.1 Consequences of default
If any payment claims or payment schedule (whichever applicable) remains unpaid (“the unpaid monies”) after the due date for payment specified under this Agreement:
(a) we shall be entitled to charge penalty interest on that amount at 20% per annum calculated daily on the unpaid monies from the due date until payment in full is made (including after as well as before any Court judgment); and
(b) we shall be entitled to charge an administration fee of $250.00 plus GST for the recovery of the unpaid monies; and
(c) you agree to indemnify us for and pay, on demand, all costs incurred by us (including legal costs on a solicitor-client basis and debt collection costs) in the recovery or attempted recovery of unpaid moneys and/or the enforcement of the terms and conditions contained within this Agreement or the Security Interest contained in this Agreement;
(d) …
[8] Under clause 9, Topa retained ownership of goods supplied to JWL until they had been paid for. Clause 9 included:
9.1 Ownership of all Goods supplied to you under this Agreement (including the circumstance that Services are also supplied concurrently with this Agreement) by us will not pass on Delivery, but will remain with us until we have received full payment in clear funds of all moneys you owe us (whether relating to those Goods, the supply of Services, or any other property supplied). We hold a Security Interest in all Goods supplied to you and the proceeds of any resale of the Goods for payment of those moneys.
…
9.4 Where you are in default, you agree to TOPA PARTNERS LIMITED entering your premises or any other place where the Goods are located, or where TOPA PARTNERS LIMITED reasonably believes that the Goods are located, and taking possession of and selling the Goods even if TOPA PARTNERS LIMITED does not have priority over other persons having a Security Interest in the Goods. Sections 108, 109 and 120(1) of the Personal Property Securities Act 1999 (“PPSA”) do not apply to the extent that they are inconsistent with this clause.
[9] Under clause 10, JWL agreed to grant Topa a registerable mortgage over Salisbury Street on the following terms:
10.1You grant us a registerable mortgage over the Property to secure any amount owing under this Agreement. Such mortgage is to be in a form of an all obligations mortgage produced by the Auckland District Law Society and approved by the Registrar General of Land. We do not require you to sign a registerable Memorandum of Mortgage unless you fail to pay any amount due under this Agreement by the Due Date. Our solicitor will prepare the necessary documents at your cost.
10.2For the purposes of giving and executing such a mortgage pursuant to this clause, you hereby irrevocably appoint us to be your attorney. You acknowledge and agree that appointing us to be your attorney is made for valuable consideration and is irrevocable.
10.3We may register a caveat against the title of the Property pursuant to the agreement to mortgage contained in this clause if you fail to pay any amount due under this Agreement by the Due Date. You will meet the costs of registration and withdrawal of such caveat. For the avoidance of doubt, our right to register a mortgage or lodge a caveat to secure all monies due under this Agreement will survive termination of this Agreement.
[10] Topa commenced work during September 2017 and rendered invoices to JWL in October 2017 and July 2018 that were paid.
[11] From around February/March 2019 JWL became concerned with aspects of Topa’s work and about amounts invoiced for work it considered was not completed.
[12] On 30 July 2019, Topa issued an invoice to JWL for $13,337.15. JWL disputed the invoice and asked that it be withdrawn. When it was not withdrawn, JWL issued a payment schedule disputing the invoice and the invoice was not paid. Topa continued to perform work.
[13] On 21 August 2019, Topa issued a further invoice no. 619317 for $23,590.54. This invoice (like those issued before) did not meet the requirements of clause 3.4 of the building contract. The cost of the works for which Topa had claimed payment under the invoice of 30 July 2019 were included in the invoice of 21 August 2019.
[14] JWL again advised Topa of its concerns with the work. Invoice no. 619317 was disputed. Attempts were made to resolve the dispute. Topa issued a credit of
$132.25 against invoice no. 619317 and rendered a further invoice no. 619352 for
$441.53 in respect of additional work.
[15] On 3 October 2019, JWL purported to cancel the building contract for Topa’s breach.
[16] On 4 October 2019, Topa’s solicitors, Parry Field, wrote to JWL. Parry Field gave notice that Topa was cancelling the building contract based on JWL’s wrongful repudiation. Parry Field also stated Topa would look to JWL for payment of its unpaid invoices “and for full compensation for all losses suffered as a consequence of your [JWL’s] wrongful repudiation of the Contract.” Demand was made for payment of
Topa’s invoices of 21 August 2019 and 18 September 2019 together with interest, contractual fees and legal costs totalling $28,083.15. The letter stated Topa was entitled to “register” [sic] a caveat against Salisbury Street if JWL failed to pay any money due under the building contact. Topa also reserved its rights in respect of work carried out but not invoiced.
[17] JWL’s solicitors, Cavell Leitch, responded on 8 October 2019 rejecting Topa’s cancellation of the building contract. It was asserted Topa’s invoices were invalid and that there was no sum owing by JWL. Cavell Leitch also advised if a caveat was lodged against Salisbury Street an application would be made for it to lapse and damages would be sought from Topa.
[18] Also on 8 October 2019, JWL received notice that Topa had lodged a caveat on the title to Salisbury Street. In correspondence between the solicitors, JWL requested that the caveat be removed but Topa refused.
[19]On 25 October 2019, Cavell Leitch proposed to Parry Field that JWL pay
$30,000 into a solicitor’s trust account pending resolution of the parties’ dispute and Topa withdraw the caveat. When no response was received to the letter, JWL applied to Land Information New Zealand to lapse the caveat.
[20] On 25 October 2019, Topa issued JWL with a payment claim under the Construction Contracts Act. This was effectively Topa’s invoices of 21 August 2019 and 18 September 2019 reissued as a combined payment claim. This payment claim met the requirements in clause 3.4 of the building contract. JWL responded on 4 November 2019 with a payment schedule. The scheduled amount was nil because JWL had assessed the cost to remedy Topa’s defective and/or incomplete work exceeded the amount claimed by Topa.
[21]On 12 November 2019, Topa made this application that its caveat not lapse.
[22]On 22 November 2019, Parry Field responded to the proposal that JWL deposit
$30,000 in trust pending resolution of the parties’ dispute in return for the withdrawal
of the caveat. The offer was rejected on the basis that it was not an appropriate substitute for Topa’s contractual right to lodge a caveat. Parry Field wrote:
Our letter of 4 October 2019 referred to an outstanding balance of $28,083.15 including interest and legal costs in respect of the unpaid invoices relating to the motel works. Our client incurred significant additional legal costs since that letter in attempting to recover the unpaid amounts, and interest on the unpaid amount is continuing to accrue. If this matter is referred to a dispute resolution process – whether adjudication or in another form – our client will incur substantially higher additional legal costs in preparation for and participation in the dispute resolution process, together with the cost of expert witnesses and its share of the adjudicator or arbitrator’s fees. Our client will also be looking to pursue a claim for damages for your client’s wrongful repudiation of the agreement.
[23] I have made no attempt to describe the substance of the various matters in dispute between the parties. Correctly, in the context of an application of this kind, counsel did not suggest that I could resolve either those matters or the issue whether the building contract was validly cancelled and, if so, by whom.
The caveat and legal principles
[24] Topa claims in terms of s 138(1)(a) Land Transfer Act 2017 that it has an estate or an interest in Salisbury Street which is enough to support its caveat on the following basis:
By virtue of an equitable charge and agreement to mortgage in a Building Agreement dated 17 September 2017 and given by the registered proprietor, JWL International Group Limited, in favour of the caveator Topa Partners Limited.
[25] The relevant principles in relation to applications of this type were summarised by Somers J in Sims v Lowe.1 He said:2
It is clear that this summary procedure for the removal of a caveat against dealings is wholly unsuitable for the determination of disputed questions of fact. From this it follows, and has been consistently held, that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there is no valid ground for lodging it or that such valid ground as then existed no longer does so … The patent clarity referred to will not exist where the caveator has a reasonably arguable case in support of the interest claimed.
1 Sims v Lowe [1988] 1 NZLR 656 (CA) at 659 – 660.
2 At 659 – 660.
[26] In Philpott v Noble Investments Ltd, the Court of Appeal noted the following principles:3
The applicable legal principles which governed the application to sustain the caveats, and which now govern this appeal, are as follows:
(a) The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b) It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(c) The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and
(d) When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.
[27] These applications are not ordinarily appropriate to finally determine the rights of the parties or resolve competing interpretations of contractual terms if the factual matrix is disputed or there is not full legal argument.4
Basis for the caveat
Agreement to mortgage
[28] An agreement to grant a mortgage of land as security for performance of an existing or future obligation that is capable of being the subject of a decree of specific performance takes effect as an equitable mortgage and gives rise to an equitable interest which will support a caveat.5 However, a security agreement where a debtor agrees to grant a mortgage only if requested to do so by its creditor, or, subject to a
3 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26].
4 Bethell v Rickard [2013] NZCA 68 at [29].
5 Neil Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at 25. Somme Ltd v Central House Movers Limited [2012] NZAR 295 at [64].
condition that a requirement be first met, may not suffice to confer a caveatable interest.6
[29] Topa relies upon Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd.7 There, Pacific Homes applied for the removal of a caveat lodged by Consolidated Joineries against parcels of land belonging to Pacific Homes. Consolidated Joineries was owed a sum for kitchen joinery supplied to Pacific Homes. It claimed a caveatable interest in the land in reliance on conditions of sale that provided:8
The Company [Consolidated Joineries Ltd] shall be entitled to reasonable security from the purchaser [Pacific Homes Ltd] in respect of any amounts which become overdue to the Company and the Purchaser hereby grants a registrable mortgage over any land owned by the purchaser into which products of the Company have been incorporated in breach of these conditions and where products are incorporated into land not owned by the purchaser over any land which is owned by the purchaser and/or debenture and/or chattel mortgage to the Company on terms identical to those for the time being standard to the Auckland District Law Society, in respect of all amounts overdue for a period of more than 14 days …
[30] It was argued for receivers of Pacific Homes that the conditions purported to be a present grant of a registrable mortgage over either land already owned by Pacific Homes into which products of Consolidated Joineries had then being incorporated or land not owned by Pacific Homes into which such products had already been incorporated. As the conditions could apply only to the products supplied after Pacific Homes had agreed to be bound by them neither of the situations mentioned in the conditions could at that time have already occurred pursuant to the conditions in question. It followed there was no security given, despite appearances.
[31] The Court of Appeal considered it was entirely unlikely that the parties would have intended to do business based on a document which referred to the grant of a mortgage but could never be effective to confer any such security. A construction that gave commercial sense to the conditions was to be preferred.
6 However, for a discussion of the point see Somme Ltd v Central House Movers Limited, above n 5, at [64] – [79].
7 Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).
8 At 654.
[32] The Court of Appeal found that the conditions were enough to confer on Consolidated Joineries an equitable interest capable of supporting a caveat because:9
… Supplies are contemplated to be afterwards made by Consolidated Joineries Ltd. Where “in breach of these conditions” the joinery becomes a fixture on Pacific Home’s land there is to be a mortgage of that land. Where joinery becomes a fixture on land not owned by Pacific Homes then there is to be a mortgage over “any land” owned by Pacific Homes. … The futurity of the provision can be seen from its context, especially the next sentence which contains a mechanism for the creation, execution and registration of a security, obviously one in registrable form, and from the expression “where products are incorporated”. Another indicator is the reference to granting a registrable mortgage itself. The conditions were obviously not in a form capable of registration under the Land Transfer Act 1952. It cannot have been thought by the draftsperson that they would themselves suffice as a registrable security. When the conditions speak of the granting of a mortgage over land owned by the purchaser, Pacific Homes, it amounts to an agreement to grant a mortgage in registrable form if the contemplated circumstances arise at a later time.
Such an agreement to mortgage land is sufficient to give rise to an equitable interest which will support a caveat. Accordingly on a proper construction of the conditions there is a reasonable basis for Consolidated Joineries Ltd’s claimed interest …
[33] Topa’s principal argument is that by clause 10.1 of the building contract JWL agreed to grant Topa a registrable mortgage of Salisbury Street to secure payment of any amounts owing under the building contract. It submits that clause 10.1 is worded similarly to the conditions in Pacific Homes and is a “present-tense” grant of a mortgage.
[34] JWL’s contrary argument is for Topa to rely on the agreement to mortgage JWL must have failed to pay an amount under the building contract by the due date for payment. As Topa’s invoices were not issued as payment claims under clause 3.4 of the building contract, when Topa lodged its caveat there were no amounts due by JWL to Topa. Therefore, JWL was not required to grant Topa a registrable mortgage and Topa had no interest in Salisbury Street capable of supporting its caveat.
[35] JWL’s approach is based on the third sentence of clause 10.1 that, as noted above, provides that Topa did not require JWL to sign a registrable Memorandum of Mortgage unless it failed to pay any amount due. It is this sentence that JWL says
9 At 657.
creates the condition upon JWL’s obligation to grant Topa a registrable mortgage. JWL also relies upon clause 10.3 (conferring on Topa the right to lodge a caveat if JWL failed to pay any amount due) which, it submits, is consistent with its interpretation. I do not accept these submissions.
[36] Nowhere is it stated in clause 10.1 (or elsewhere in the building contract) that JWL’s agreement to grant Topa a registrable mortgage is subject to a condition that JWL has first failed to pay any amount due.
[37] The scheme of clause 10.1 is plain. The first sentence is an immediate grant by JWL to Topa of a registerable mortgage of Salisbury Street. It is forward looking and secures amounts that will be owed to Topa for work to be performed. The second sentence describes the form of the registrable mortgage. It will be an all obligations mortgage in the Auckland District Law Society form as approved by the Register General of Land. The third and fourth sentences are the mechanism for the creation, execution, and registration of the security.10 The third sentence provides that JWL will only be required to sign a Memorandum of Mortgage in registrable form if it defaults in the payment of money due under the building contract. Related to this, should JWL not sign a registrable Memorandum of Mortgage when required to do so Topa has the power under clause 10.2 to do so as its attorney. Understood in this way, the third sentence does impose any condition upon the first sentence. The first and third sentences deal with entirely different matters.
[38] The different wordings of the first and third sentences confirm this is the case. The first sentence states the registrable mortgage granted by JWL is to secure any amount which is “owing” under the building contract. That ordinarily includes amounts which have not fallen due for payment. The third sentence concerns amounts that are “due” and unpaid. It will be observed that only the third sentence is concerned with a circumstance where JWL is in default.
[39] Also, the first sentence uses the words “registerable mortgage” whereas the third sentence refers to “registerable Memorandum of Mortgage”. The terms of the building contract were not in a form capable of registration and the third sentence was
10 Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd, above n 7, at 657.
clearly intended to describe the circumstance in which a document in registrable form would be required and completed. That circumstance was where JWL was in default.
[40] JWL’s interpretation of clause 10.1 lacks commercial realism. As in Pacific Homes,11 it is unlikely that the parties would have intended to do business on the basis that JWL advances. Topa was to have security for amounts payable by JWL under the building contract. JWL’s construction of clause 10.1 would deprive Topa of its security if JWL disputed its payment claims until those disputes had been adjudicated. The potential for Topa to be prejudiced by delay in the resolution of such disputes is obvious. It would be incongruent if Topa, when most vulnerable and in need of its security, was prevented from relying upon it.
[41] JWL’s reliance upon clause 10.3 does not advance its argument. That clause does not purport to render conditional JWL’s grant to Topa of a registerable mortgage over Salisbury Street. It is permissive in form and appears to relate to the third sentence of clause 10.1 in that it contemplates Topa may lodge a caveat should JWL default in payment. It does not purport to deprive Topa of its right to lodge a caveat in other circumstances. In so far as the building contract confers on Topa an equitable interest in Salisbury Street capable of being protected by caveat, clause 10.3 was otiose.
[42] I consider upon its correct construction clause 10.1 conferred upon Topa an immediate equitable interest in Salisbury Street able to support its caveat. On this application, however, I am not required to finally decide the matter. It is enough I am satisfied that there is at least a reasonable basis for Topa’s claimed caveatable interest. I am so satisfied.
Reservation of title clause
[43] Topa also sought to rely on clause 9 of the building contract. Under clause 9, Topa reserved ownership of goods supplied but unpaid for by JWL. Due to my finding above, it is strictly unnecessary for me to consider the matter but for completeness I reject Topa’s claimed equitable interest in Salisbury Street on this basis.
11 At 657.
[44] Topa did not rely upon this ground when it lodged the caveat. Caveats must describe the interest claimed with enough certainty and explain how the caveator has derived the interest from the registerable proprietor.12 Where a caveator claims an estate or interest on one basis but, on a challenge to the caveat, is found to have a different estate or interest, the caveat will generally be held to be defective.13
[45] As a further matter, Topa did not rely upon this ground in its notice of application. It was raised for the first time in its written submissions for the hearing. By then JWL had filed its opposition and its evidence. It would be wrong that JWL should have to answer a case that was not pleaded.
[46] Finally, I am not satisfied that it is even arguable that the reservation of title clause created an equitable interest in Salisbury Street. The author of Campbell on Caveats notes the following:14
Suppliers of goods frequently include clauses in their contracts that provide that the supplier is to retain title to the goods until they have been paid for in full. When building materials, joinery and hardware are supplied for installation in a building that is in the course of construction a problem arises for the supplier. As soon as the goods are incorporated into the structure of the building they become fixtures and therefore part of the land, and the suppliers title to them is extinguished. However, often the reservation of title clause also gives the unpaid supplier the right to enter the land to remove the goods, even once they have become fixtures. There is authority, not conclusively adopted in New Zealand, that this gives the supplier an equitable interest in the land or in the fixtures. The preferable view is that the supplier has merely a contractual right to enter to remove the fixtures, but no equitable interest. On that view the supplier’s right of entry and removal will not support a caveat.
[47] Authority that a reservation of title clause may give an unpaid supplier an equitable interest in land or in fixtures is the judgment of Robertson J in Trustbank Central Ltd v Southdown Properties Ltd.15 That decision was appealed. Although the point at issue was not considered the Court of Appeal stated it was not to be taken as agreeing with Robertson J’s finding.16
12 Land Transfer Act 2017, s 138(3).
13 Campbell, above n 5, at 48. Francis v Taradale West End Ltd (1998) 3 NZ ConvC 192,762.
14 Campbell, above n 5, at 26.
15 Trustbank Central Ltd v Southdown Properties Ltd [1991] 1 NZ ConvC 190,851 at 190,863 per Robertson J.
16 Whenuapai Joinery (1988) Ltd v Trust Bank Central Ltd [1994] 1 NZLR 406 at 411.
[48] The clause in issue in Trustbank Central differed materially from clause 9 of the building contract. It authorised the unpaid vendor to recover possession of goods even in circumstances where they had become affixed to any building. Topa was granted no such right. The decision is distinguishable on that basis.
[49] There is also contrary authority in a decision of Master Gambrill in Carter Holt Harvey Merchandising Group Ltd v Southern Cross Building Society.17 In that case trading account conditions gave the unpaid supplier the right to enter on or into any premises and sever and remove goods. Master Gambrill considered this clause was akin to a licence to enter but did not create any interest in land.
[50] Neither Trustbank Central nor Carter Holt Harvey Merchandising Group is binding upon me, but I prefer the reasoning in the latter case. The issue is analysed in an article by David Cooper,18 who compellingly rejects the approach in Trustbank Central. In my view, Topa’s reservation of title clause provided no more than where JWL was in default Topa had a contractual right to enter its premises or any other place where its goods were located and take possession of them. That was how Topa could exercise its ownership rights over its goods. It did not by its terms nor can it have been intended to create any property right in land or in fixtures to which the goods had become affixed and had lost their identity as such.
Exercise of the discretion
[51] The existence of a discretion of the Court to remove a caveat notwithstanding the right to the claimed interest was confirmed in Pacific Homes. The Court considered such discretion existed but could only be exercised cautiously. It will only be exercised where the Court is completely satisfied that the legitimate interests of the caveator will not be prejudiced.19 The Court said:20
We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation in which was then before the court and were not putting their minds to a situation which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a
17 Carter Holt Harvey Merchandising Group Ltd v Southern Cross Building Society (1991) 1 NZ ConvC 190,870.
18 David Cooper “Retaining Title to Fixtures” (1991) 6 Auckland U L Rev 477 at 500.
19 Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [23].
20 Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd, above n 7, at 656.
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 the 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 the recovery of money secured over the land or specific performance of an agreement or if the caveator’s interests 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.
[52] I was referred to Rasier Developments Ltd v Trefoil Properties Ltd,21 where the Court of Appeal referred to Pacific Homes and said:22
Despite the Court’s observations on the breadth of the discretion, Blanchard J was careful to make it clear that a discretion to remove would be exercised cautiously, giving some examples (we do not think intended to be exhaustive) of the circumstances in which that might occur. The thrust of the Court’s decision in Pacific Homes Ltd was to emphasise that the existence of an arguable case could be overridden by discretionary considerations in unusual cases justifying that course. In each case it is necessary for a court exercising originating jurisdiction to consider carefully whether the balance of convenience factors truly outweigh the caveator’s prima facie entitlement to protection of its claimed interest pending trial.
[53] JWL offered $30,000 to be placed into a trust account as security for Topa’s claim so that the caveat could be withdrawn. That offer was rejected by Topa but JWL is still prepared to make the payment.
[54] JWL submits that as the $30,000 exceeds the amount owing to Topa in the exercise of its discretion the Court should order the removal of the caveat. Topa does not accept that $30,000 is more than it is owed. It argues that in addition to its unpaid invoices there is accruing penalty interest and legal and other costs of recovery. However, reading clause 3 (particularly 3.6 and 3.7) alongside clause 5 of the building contract, there is a strong argument that JWL cannot be presently liable to pay penalty interest or such costs in circumstances where it responded to Topa’s payment claim with a payment schedule with a scheduled amount of Nil.
[55] However, Topa has also expressed an intention to recover damages for JWL’s alleged repudiation of the building contract. Parry Field raised the matter when
21 Rasier Developments Ltd v Trefoil Properties Ltd [2018] NZCA 73.
22 At [48].
writing to JWL on 4 October 2018. When rejecting JWL’s proposal on 22 November 2019, Parry Field wrote to Cavell Leitch stating, “Our client will also be looking to pursue a claim for damages for your client’s wrongful repudiation of the agreement.” That claim could relate to both stage one and stage two. Should Topa successfully advance claims for its unpaid invoices and compensation for JWL’s repudiation of the building contract it might recover more than the $30,000 that JWL has offered to pay to a stakeholder. I am also satisfied that it is arguable that such compensation that Topa might obtain for JWL’s repudiation of the building contract would be secured by Topa’s mortgage.
[56] Mr Rhodes referred me to Gr8 Constructions Pty Ltd v O’Donnell, where Refshauge J in the Supreme Court at Canberra cited Young J in Kingstone Constructions Pty Ltd v Crispel Pty Ltd saying:23
…a caveat should not be used for…a “blackmailing device” described by his Honour as where, “… a caveat can be legitimately lodged in respect of a relatively small claim and force the registered proprietor to pay out such a claim even though it is bitterly contested.”
[57] Mr Rhodes argued Topa was using the caveat as leverage to force JWL to pay the sum claimed which was bitterly contested. He noted JWL’s offer to pay $30,000 to a stakeholder was reiterated at the 5 December 2019 call-over but Topa demanded security of $70,000. In one sense, of course, Mr Rhodes is correct that the caveat is leverage to extract payment from JWL but there is nothing surprising about that. The reason Topa required security was as leverage for payment in the event of default by JWL. I do not consider that it can be seriously contended that the amounts in issue here are so small that Topa can be said to have no legitimate interest justifying it lodging the caveat. It is also not correct that at the 5 December 2019 call-over Topa “demanded” security of $70,000. Topa’s counsel submitted that Topa’s claim was likely to exceed $70,000. This was to support Topa’s position that JWL’s offer was an inadequate substitute for Topa’s contractual right to lodge a caveat.
23 Gr8 Constructions Pty Ltd v O’Donnell [2011] ACTSC 92 at [28] citing Kingstone Constructions Pty Ltd v Crispel Pty Ltd [1991] 5 BPR 11,987 at 11,991.
[58] I am not completely satisfied Topa’s legitimate interests will be protected by JWL’s proposal to pay $30,000 to a stakeholder. This is not a proper case for the removal of the caveat in the exercise of the Court’s discretion.
Conditions of maintaining the caveat
[59] JWL argues that if the caveat is maintained Topa should give an undertaking as to damages to protect it should it subsequently be found that Topa was wrong to lodge or maintain the caveat. This was raised in JWL’s notice of opposition, at the 5 December 2019 call-over and in JWL’s written and oral submissions.
[60] On an application of this kind, the Court decides whether to sustain a caveat on a summary basis. It will not generally finally resolve issues in dispute and may not even have a clear idea of the merits. For the registered owner, the caveat may cause it substantial loss for which it has no recourse against the caveator where the caveat was lodged with reasonable cause.24 In those circumstances it may be appropriate that the Court impose as a condition of sustaining a caveat that the caveator provide a suitable undertaking to pay such damages as the Court considers fit to award.
[61] The Court’s jurisdiction to impose such a condition was confirmed in Raiser Developments Ltd v Trefoil Properties Ltd where after a discussion of the authorities the Court said:
The reasoning underlying the prevailing High Court judgments can be captured in two propositions. The first is that the discretion is necessary to ensure adequate protection is given to registered proprietors in a proper case and which goes beyond the compensation criteria in s 146. … The second was Barker J’s reliance, in BP Oil, on r 263 of the High Court Rules, a provision which provided a general power for the Court to require conditions on an interlocutory application. At p 218 of BP Oil, Barker J observed that it was the invariable practice of the Court to impose conditions of a mechanical kind, such as requiring the issue of specific performance and the fixing of timetables, so logically, any other reasonable conditions ought properly to be imposed.
[62] It has been suggested that the Court should assume that the registered owner is likely to suffer loss if a caveat is sustained, rather than place an onus on it to put
24 Land Transfer Act 2017, s 148.
forward evidence of loss.25 I expect that if a registered owner seeks an undertaking as to damages it will provide evidence of loss. Here there is evidence of loss. JWL’s director, Jun Zhi, deposes that the presence of Topa’s caveat has caused JWL loss through an inability to obtain development finance on the best terms. Difficulties obtaining finance will delay a commercial development and consistent with this Mr Zhi says he has had to sell his house to pay sub-contractors. Mr Zhi’s evidence in these respects was not challenged and Mr Cowey presented no submissions against the imposition of a condition that Topa provide an undertaking as to damages.
[63] I find that the Court should require Topa to give an undertaking as to damages as a condition of sustaining its caveat for five reasons. First, there is evidence that the making of an order sustaining the caveat will likely cause JWL to suffer loss. It is developing Salisbury Street and, consistent with the evidence of Mr Zhi, it is reasonable to assume that the presence of the caveat has and may impede its access to finance and the terms upon which it is available and/or delay the development. Second, given Topa’s stated intention to pursue claims other than the recovery of its unpaid invoices the resolution of this dispute could take considerable time. Third, I accept that JWL has at least an arguable case that it is not indebted to Topa in any sum. Fourth, if it is found there is less than $30,000 owed to Topa there is an argument (I put it no higher than that) that Topa should bear any loss. Finally, I note the absence of objection to the imposition of such a condition.
[64] I was not presented with a proposed wording of an undertaking. The form of an undertaking should not presume Topa’s liability to pay damages in any given case. It is appropriate that the undertaking reserves for later argument whether, and in what circumstances, Topa ought to have a liability for damages.
[65] In addition, I consider it appropriate that as a condition of sustaining the caveat Topa be required to issue proceedings to determine its rights against JWL in respect of the caveat.
25 Campbell, above n 5, at 73.
Result
[66] There shall be an order that pending further order of the Court caveat no. 11570638.1 lodged against Record of Title CB30A/839 shall not lapse.
[67]The order in paragraph [66] is conditional upon:
(a)Topa providing to the Court within 14 days of the release of this judgment a written undertaking that it will abide by any order that the Court may make in respect of damages:
(i)that may be sustained by JWL through the making of the order that its caveat not lapse until further order of the Court; and
(ii)that the Court decides that Topa ought to pay.
(b)Topa commencing within 21 days of the date of this judgment proceedings in a Court of competent jurisdiction against JWL to uphold the interest claimed by its caveat. These proceedings are to be pursued with due diligence and I reserve leave for JWL to apply further if they are not.
[68] In relation to costs, if counsel cannot agree on costs memoranda may be filed by Topa within 14 days and JWL shall have 7 days to respond. I will then determine costs on the papers. Submissions are to be no longer than 5 pages.
O G Paulsen
Associate Judge
5
4
0