YUQI TIAN TRUST LIMITED AND RAWENE DEVELOPMENT LIMITED PARTNERSHIP

[2024] NZHC 3434

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-2197

[2024] NZHC 3434

UNDER

the Land Transfer Act 2017

IN THE MATTER OF

an application to sustain a caveat

BETWEEN

YUQI TIAN TRUST LIMITED

Applicant

AND

RAWENE DEVELOPMENT LIMITED PARTNERSHIP

Respondent

Hearing:

15 November 2024

Counsel:

V A Whitfield for the Applicant

S M Bhanabai for the Respondent

Judgment:

18 November 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 18 November 2024 at 3 pm.

Pursuant to Rule 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors/Counsel:

Gurnell Harrison Stanley Law Ltd, Hamilton Victoria Whitfield, Cambridge

Dyer Whitechurch Lawyers, Auckland

YUQI TIAN TRUST LTD v RAWENE DEVELOPMENT LTD PARTNERSHIP [2024] NZHC 3434

[18 November 2024]

Introduction

[1]    The respondent, Rawene Development Limited Partnership (Rawene), is the developer of the “Chelsea Bay Apartments” at 19 Rawene Road, Birkenhead, Auckland. There are 59 principal units in the development, excluding carparks. Rawene has sold the majority of the apartments, and at present remains the registered owner of seven apartments.

[2]    The applicant, Yuqi Tian Trust Ltd (Yuqi), loaned Rawene $250,000. Rawene agreed to mortgage the development, including the titles for the apartments, to secure repayment of the loan (the agreement to mortgage). Yuqi has registered a caveat against the titles for the seven apartments that remain owned by Rawene.

[3]    Rawene says that it has repaid the loan. Yuqi disputes that and served a statutory demand on Rawene for the debt. Rawene successfully obtained an order setting that demand aside.1 The background to the dispute is set out in that judgment.

[4]    Rawene accepts that Yuqi has an arguable caveatable interest in the seven apartments. However, Rawene commenced the lapsing procedure under the Land Transfer Act 2017 on the basis that the Court should exercise its residual discretion to remove the caveat from six of the seven titles, on the ground that a caveat over one of the apartments will adequately protect Yuqi’s interests. Yuqi has applied to sustain the caveat against all seven titles.

[5]    The sole issue before the Court is whether it should exercise its residual discretion to remove a caveat notwithstanding that an arguable caveatable interest exists.

Legal principles

[6]    The Court has a residual discretion to remove a caveat or to allow a caveat to lapse if the Court is completely satisfied that the legitimate interests of the caveator will not be prejudiced.2

1      Rawene Development Limited Partnership v Yuqi Tian Trust Limited [2024] NZHC 3325.

2      Pacific Homes (in receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.

[7]    The onus is on the party challenging the caveat. The discretion is to be exercised on a cautious basis.3

Rawene’s argument

[8]    The evidence suggests that Rawene has equity in the seven apartments of approximately $3.6 million. The seven apartments were valued by a registered valuer in 2023. In the valuer’s opinion, the collective market value of the seven apartments at that time was approximately $7.6 million.

[9]    The apartments are subject to a first mortgage to Rawene’s financier, Pallas Capital Limited (Pallas). The mortgage is registered in the name of First Mortgage Custodians Limited. Counsel for Rawene, Mr Gilchrist, advised the Court that the registered mortgage secures the advance from Pallas. Yuqi did not take issue with that.

[10]   The balance due from Rawene to Pallas on 26 September 2024 was approximately $4 million. Rawene has a contractual obligation to pay the full net sale proceeds from the sale of each apartment to Pallas before Pallas is obliged to release its first mortgage over an apartment. Rawene has undertaken that it will not seek to change that contractual obligation.

[11]   Rawene argues that the caveat is hindering its sales process by discouraging potential purchasers, and the caveat provides Yuqi with undue commercial leverage if Rawene is obliged to seek Yuqi’s consent to a release of the caveat from a title each time it sells an apartment.

[12]   Rawene seeks an order permitting the caveat to lapse against six titles, so that the caveat is registered over unit 409 only, which was valued in 2023 at $1,190,000. Rawene says that this will provide more than adequate protection for Yuqi for the alleged outstanding balance of the loan. Rawene submits that the underlying debt obligation is disputed, and the Court should take that into account in exercising the residual discretion.

3      Stewart v Kaipara Consultants Ltd [2003] 3 NZLR 55 (CA) at 60.

Analysis

[13]   The agreement to mortgage and the caveat are intended to ensure that Yuqi receives payment from the proceeds of sale of the apartments next in line behind the registered first mortgagee.

[14]   Counsel for Yuqi, Mr Meier, submitted that the caveat should be registered against all titles because there is a risk that Rawene will default in repaying Pallas, resulting in a mortgagee sale. The mortgagee could elect to sell unit 409 before any other unit, and if so, then all of the net sale proceeds from unit 409 would be paid to Pallas. If the caveat was only registered against unit 409, it would be worthless. I accept that submission.

[15]   I questioned whether Yuqi’s position could be adequately protected in the scenario advanced by Mr Meier if I granted leave to Yuqi to lodge a second caveat against the other apartments if a mortgage sale of unit 409 was threatened. Mr Meier submitted that another creditor of Rawene might register an interest before Yuqi was able to lodge its second caveat, and there was the potential for Yuqi to lose its priority. I accept that submission.

[16]   Therefore, if the caveat lapses except for  registration  against  the  title to unit 409, Yuqi will be in a worse position than it currently is, with a risk of losing its existing priority. Although the risk of that happening may be remote, it cannot be discounted entirely. This is not an appropriate case for the Court to permit the caveat to lapse against six of the titles. The caveat should be sustained against all seven titles.

[17]   The substantive dispute between Yuqi and Rawene remains to be resolved. Yuqi will need to issue a substantive proceeding, either in this Court or the District Court. It is appropriate to set a timetable for that step to be taken.

[18]   As Rawene continues to pay down its debt to Pallas, Rawene may find itself in a position where it is able to provide a fund as security for its obligations to Yuqi, if any still exist. Similarly, Rawene may wish to review its position once it has repaid Pallas in full. Rawene should have the opportunity to bring an application to remove the caveat as circumstances change.

[19]   It will be appropriate for Rawene to apply for removal of the caveat on an urgent basis if Yuqi unreasonably refuses to release the caveat when there is a sale of an apartment and Rawene is obliged to pay the net proceeds of sale to Pallas.

[20]   Yuqi has been successful in this proceeding, and my preliminary view is that Yuqi should receive an award of costs on a 2B basis. I will direct the filing of written submissions if counsel are unable to agree on costs.

Orders

[21]   The originating application that the caveat not lapse is granted. Caveat 12977199.1 is sustained against Records of Title Identifiers 882489, 882490, 882493, 882510, 882517, 882519 and 882522.

[22]   The applicant shall file a substantive proceeding to establish its caveatable interest by 20 December 2024 and pursue that proceeding with diligence. Leave is granted to the respondent to bring this matter back before the Court if the applicant does not comply with this condition.

[23]   Leave is granted to the respondent to file an application under s 142 of the Land Transfer Act 2017 if there is a change in the circumstances prevailing as at the date of this judgment.

[24]If the parties are unable to agree on costs, then:

(a)the applicant may file and serve submissions on costs, of no more than

three pages, by 2 December 2024;

(b)the respondent may file and serve written submissions on costs of no more than three pages by 9 December 2024;

(c)I will then determine costs on the papers.

Associate Judge Brittain