Zambuto v Kensington Park Holdings Ltd HC Auckland CIV 2010-404-2869

[2010] NZHC 2113

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-2869

UNDER  the Land Transfer Act 1952

IN THE MATTER OF     an application under section 145A that Caveat Notice 7950360.1 registered against Titles 418030 and 416032 not lapse

BETWEEN  MARIO ENRICO ZAMBUTO AND MARK ALEXANDER PELDMANIS Plaintiffs

ANDKENSINGTON PARK HOLDINGS LIMITED

Defendant

Hearing:         23 November 2010

Appearances: Mr P Sills for plaintiffs

Ms N Penman-Chambers for defendant

Judgment:      26 November 2010 at 10 am

JUDGMENT OF LANG J

[on application for order that caveat not lapse]

This judgment was delivered by me on 26 November 2010 at 10 am, pursuant to Rule

11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel: Sargent Law, Auckland Hesketh Henry, Auckland Mr P Sills, Auckland

ZAMBUTO AND ANOR V KENSINGTON PARK HOLDINGS LTD HC AK CIV-2010-404-2869  26

November 2010

[1]      The plaintiffs are the owners of land situated at 51 Ngahere Views, Orewa. In February 2008 they entered into an arrangement with Kensington Park Properties Limited (“KPPL”), the then owner of a ten hectare parcel of land adjoining the plaintiffs' land (“Kensington Park”).  Under the arrangement, KPPL agreed to buy the plaintiffs’ property in February 2009.   It also agreed that, if it was unable to complete the purchase, it would not to construct houses above a specified height on part of Kensington Park.  It would also provide the plaintiffs with a right of way over Kensington Park.  In September 2008, the plaintiffs registered a caveat against the titles to Kensington Park to protect their interests under the arrangement.

[2]      KPPL subsequently went into receivership, and the receivers ultimately sold Kensington Park to the defendant, Kensington Park Holdings Limited (“KPHL”). KPHL does not accept that it is bound by the arrangement between the plaintiffs and KPPL regarding the right of way and height restriction.  KPHL also contends that the plaintiffs have no caveatable interest in respect of Kensington Park.   It therefore wants  the  plaintiffs’  caveat  removed  so  that  it  can  deal  with  its  land.    Not surprisingly, the plaintiffs maintain that they continue to have a caveatable interest in Kensington Park.   For that reason, they ask the Court to make an order that their caveat shall not lapse.

Relevant principles

[3]      The principles to be applied in applications such as this are well established through decisions of the Court of Appeal in cases such as Sims v Lowe [1988]

1 NZLR 656 (CA) and Pacific Homes Limited (In Receivership) v Consolidated

Joineries Limited [1996] 2 NZLR 652 (CA).

[4]      I propose to apply the following principles in reaching my decision:

a)        The onus is on the plaintiffs to demonstrate that they hold an interest in KPHL’s land that is sufficient to support the caveat;

b)The plaintiffs must put forward a reasonably arguable case to support the interest that they claim;

c)       An order for the removal of the caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively, that such ground as then existed has now ceased to exist; and

d)The present proceeding is wholly unsuitable for the determination of disputed questions of fact.

[5]      In order to understand the issues that the proceeding raises, it is necessary to set out the factual background in greater detail.

Factual background

[6]      KPPL intended  to  develop  Kensington  Park  into  a substantial  residential property development.   It wanted to include Ngahere Views as part of the development, but could not, at that stage, raise sufficient finance to purchase it.

[7]      The plaintiffs were formerly employees of KPPL and knew its director, Mr Patrick Fontein.  The arrangement that they entered into with KPPL contained the following essential components:

(i)     The plaintiffs would raise the necessary finance to purchase Ngahere

Views for the sum of $600,000;

(ii)     KPPL would meet the financing costs by nominally leasing Ngahere

Views from the plaintiffs; and

(iii)    KPPL   would   purchase   Ngahere   Views   from   the   plaintiffs   on

19 February 2009 for the sum of $700,000.

[8]      This arrangement was recorded in the following documents:

a)        The deed between the plaintiffs and KPPL dated February 2008;

b)        A sale and purchase agreement between the plaintiffs (as vendors) and

KPPL (as purchaser) for the sale and purchase of Ngahere Views.

c)       A lease agreement with KPPL, whereby KPPL agreed to pay rental to the plaintiffs for the lease of Ngahere Views pending completion of the sale.

[9]      The parties recorded their agreement regarding the height restriction and right of way in the deed as follows:

2.7KPP agrees it will not build or permit to be built any structure above an RL 26m on that park of Kensington Park shown shaded on drawing RC 36 revA attached as schedule 1.

2.8Should KPP default on its settlement obligations [to purchase Ngahere Views  on  19  February  2009]  then  KPP  will  at  MZ’s  [Mario Zambuto’s] and MP’s [Mark Peldmanis’] request grant or procure to be  granted  over  Kensington  Park  ROW  and  services  easement  in favour of the Property [ Ngahere Views] and will not object or procure any third party to object to any proposed development of the Property.

[10]     Ngahere Views was to be subdivided into sections.   The proposed right of way  was  necessary  to  provide  access  to  some  of  those  sections.    The  height restriction in respect of parts of Kensington Park was designed to preserve the views enjoyed by sections at the rear of Ngahere Views.  The arrangement preserved and enhanced the value of Ngahere Views, because it made the property attractive to a wider range of alternative purchasers in the event that KPPL could not complete the purchase as agreed on 19 February 2009.

[11]     The plaintiffs say that the granting of these interests was a crucial component of the arrangement, and that they would not have proceeded to purchase Ngahere Views without it.

[12]     KPPL subsequently encountered financial difficulties, and on 18 September

2009, its financier and mortgagee, the Bank of New Zealand (“BNZ”), placed it in receivership.  The bank appointed KordaMentha as receivers.

[13]     The receivers initiated a process for selling Kensington Park by instructing

Colliers International to put the property up for tender.  As part of the tender process,

Colliers prepared an information memorandum and set up an on-line due diligence room.     Included  in  the  documents  in  the  due  diligence  room  was  a  list  of “Neighbours Agreements”.  This included a summary of the height restriction and right of way to be provided to the plaintiffs.  The receivers also made a copy of the deed available to prospective purchasers who visited the due diligence room.

[14]     Tenders for Kensington Park closed on 26 February 2009, but none of the tenders were successful.

[15]     Earlier, on 19 February 2009, KPPL had failed to complete the purchase of Ngahere Views as required under the sale and purchase agreement.  This crystallised the plaintiffs’ right under clause 2.8 of the Deed to request KPPL to provide them with the benefit of the right of way and height restriction.  The plaintiffs therefore held discussions with the receivers’ solicitors about formalising these matters so that the appropriate documents could be lodged for registration.

[16]     This process had not been completed by 12 June 2009, when the receivers entered into an agreement to sell Kensington Park to KPHL for $20 million.  At the time that KPHL entered into the agreement, it had seen a copy of the deed between KPPL and the plaintiff.    It was also aware that the receivers  were involved in negotiations with the plaintiffs regarding the proposed easements.  KPHL’s director, Mr John Sax, had been involved in some of those discussions.

[17]     Ultimately, however, the receivers did not transfer the property to KPHL. Instead, the BNZ exercised its power of sale as mortgagee to transfer Kensington Park to KPHL.

The arguments

[18]     KPHL advances numerous arguments in support of its contention that the plaintiffs have no caveatable interest in the Kensington Park land.  Several of these have real merit.  The first is a submission that, when the plaintiffs lodged their caveat in September 2008, they did not have a contractual right to request KPPL to provide them with the right of way and the height restriction.

[19]     This  is  a  problem  for  the  plaintiffs,  because  the  caveator  must  have  a caveatable interest in the property at the point at which it registers its caveat: Kilmartin v Monk (2005) 5 NZ ConvC 194,122 at [13].  It is not sufficient that the caveator might obtain such an interest in the property at some future date.  I do not accept that the plaintiffs had a contingent right to lodge a caveat, as their counsel submits.  They had no right to lodge a caveat at all until such time as the right to request the benefit of the right of way and height restriction accrued.  That did not occur until 19 February 2009.  As a result, the plaintiffs had no right to register a caveat in September 2008.

[20]     The second argument relates to the effect of the clause in the deed that gave the plaintiffs the right to request KPPL to provide a height restriction over some sections in Kensington Park.  The clause was in the following terms:

KPPL agrees it will not build or permit to be built any structure above an RL

26m on that part of Kensington Park shown on drawing RC 36 revA attached as schedule 1.

This clause undoubtedly created a contractual obligation on the part of KPPL not to build any structure, or permit any structure to be built, above the height specified in the clause.    It  is certainly arguable, however,  that the clause did  not create an obligation that ran with the land.  It may not, therefore, be capable of supporting a caveat.

[21]     KPHL also contends that the agreement between the plaintiffs and KPPL regarding the right of way was insufficiently detailed and certain to amount to a binding agreement. It did not specify where the right of way was to be situated or who was to meet the costs of implementing the arrangement and maintaining the right of way once it was in place.   The plaintiffs respond to this argument by submitting that, as grantee of the easement relating to the right of way, they have the powers and duties implied into all easements under Regulation 10(a) of the Land Transfer Regulations 2002.

[22]     The problem with this submission is that those powers and duties are implied into easements by s 90D(2) of the Act, which provides as follows:

(2)     Subject to subsection (3), when an easement of a class specified in the regulations is registered, the grantee must be regarded as having the implied rights  and  powers  (as  specified  for  that  class  of  instrument  by  the regulations).

[23]     Section 90D(5) provides that the rights and powers that apply by virtue of s

90D become binding upon the grantor and grantor upon registration.   I therefore accept the submission for KPHL that the plaintiffs cannot rely upon the implied powers and duties under s 90D because the easement granting the right of way to the plaintiffs was never registered.

[24]     All of these arguments are subsidiary, however, to the plaintiffs' principal submission.  This flows from the fact that KPHL acquired Kensington Park when the BNZ exercised its power of sale under the mortgage that it held over Kensington Park.  KPHL became the registered proprietor of Kensington Park upon registration of a transfer executed by the BNZ as mortgagee of that property.  This brought into play s 105 of the Land Transfer Act 1952 (“the Act”).   KPHL contends that the effect of s 105 in the present case is to extinguish any rights or interests that the plaintiffs may have acquired in Kensington Park as from the date upon which the transfer to KPHL was registered.

The effect of s105 of the Land Transfer Act 1952

[25]     Section 105 of the Land Transfer Act 1952 (“the Act”) applies to every acquisition of an interest in land resulting from the exercise of the power of sale contained in a mortgage.  It provides:

105   Transfer by mortgagee

Upon  the  registration  of  any  transfer  executed  by  a  mortgagee  for  the purpose of [exercising a power of sale over any land], the estate or interest of the mortgagor therein expressed to be transferred shall pass to and vest in the purchaser,  freed  and  discharged  from  all  liability  on  account  of  the mortgage, or of any estate or interest except an estate or interest created by any instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.

[26]   Section 105 provides the purchaser of land acquired from a mortgagee exercising its power of sale under a mortgage with clear title.   It extinguishes any unregistered interests in that land.  There are only two situations in which the section

will not apply, and they are described in the closing words of the section.  The first is where the unregistered interest has priority over the mortgage under which the power of sale was exercised.  The second is where the mortgagee has consented to be bound by the unregistered interest.

[27]     The mortgage to the BNZ was registered in February 2006.  It was therefore registered long before the creation of any equitable interest in the land that the plaintiffs may have acquired under the arrangement with KPPL in February 2008. Prima facie, therefore, s 105 operates to provide KPHL with title to the Kensington Park free of any equitable interest that the plaintiffs might have acquired under the arrangement with KPPL.

[28]     There are numerous cases in which the courts have held that the exercise of the power of sale by a mortgagee will defeat unregistered equitable interests, including the interest of a party who has entered into a prior agreement to purchase the property: See National Mutual Finance (1988) Ltd v Berryman HC Wellington M 451/91, 2 October 1991; Jenssen v Charles Ashton Ltd CA 246/90, 13 December

1990 and Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZ ConvC 192,571 (HC).

[29]     As counsel for KPHL observed in her written submissions, the extent to which s 105 operates to extinguish unregistered interests is also demonstrated by Son and Kim v Ko (2006) 5 NZ ConC 194,354 (HC).   That case concerned a motel complex that was subject to an unregistered lease to the defendant.  The lease still had nearly 20 years to run when a mortgagee exercised its power of sale and sold the complex  to the plaintiffs.   Baragwanath J  held that s 105 defeated the lessee’s interests, even though the agreement for sale and purchase expressly provided that the property was sold “subject to existing tenancies”.  He said:

[31]      There is superimposed on the contractual matrix of the transaction the statutory requirement of the Land Transfer Act 1952, which requires consent:   that is affirmative acceptance orally or in writing that the lease should bind the purchaser.

[30]     The plaintiffs contend that s 105 has no application in the present case.  They point out that when a property is subject to a caveat, a mortgagee seeking to exercise

its power of sale must make a decision as to how to remove the caveat so that it can provide clear title to the purchaser.   In the case of a caveat lodged to protect an unregistered mortgage, the mortgagee may rely upon s 141(3) of the Act.  Section

141 relevantly provides as follows:

141    Effect of caveat against dealings

(1)     Subject to the succeeding provisions of this section, so long as a caveat [under section 137] remains in force, the Registrar shall not make any entry  on  the  register  having  the  effect  of  charging  or  transferring  or otherwise affecting the estate or interest protected by the caveat.

(2)     Subsection (1) of this section shall not prevent the Registrar from making any entry necessary to complete the registration of an instrument that has been accepted for registration before the receipt of the caveat.

(3)     Except in the case of a caveat lodged by the Registrar in exercise of the powers by this Act given to him in that behalf, subsection (1) of this section shall not prevent the Registrar from making any entry necessary to effect the registration of a transfer of any estate or interest in land where—

(a)     The transfer is expressed to be made in pursuance of either—

(i)A power of sale conferred on the transferor by virtue of a registered mortgage of that estate or interest; or

(ii)     The power conferred on the Registrar of the High Court by [section 196 of the Property Law Act 2007] in respect of a registered mortgage of that estate or interest—

(in  either  case  hereafter  in  this  subsection  referred  to  as  the empowering mortgage); and

(b)     The caveat was lodged after the registration of the empowering mortgage; and

(c)     The estate or interest claimed by the caveator arises under an unregistered mortgage or an agreement to mortgage, dated later than the date of registration of the empowering mortgage and relating to the same estate or interest to which the empowering mortgage relates; and

(d)     Repealed.

(4)     In any case to which subsection (3) of this section applies, the caveat shall, upon the registration of the transfer, be deemed to have lapsed and the estate or interest of the mortgagor therein expressed to be transferred shall pass to and vest in the purchaser freed and discharged of the estate or interest claimed by the caveator; and the Registrar may make on the register any entry necessary to show that the caveat has lapsed.

…

[31]     Ordinarily, the existence of a caveat will prevent the Registrar of Land from registering any dealing against the title without the consent of the caveator: s 141(1). Section 141(3) provides an exception to this prohibition in cases where a mortgagee has exercised its power of sale under a mortgage to sell an interest in land to a third party.   In that situation, s 141(3) permits the Registrar to register the mortgagee’s transfer notwithstanding the existence of a caveat affecting the interest that is the subject of the transfer.

[32]     The Registrar can only do that, however, where three conditions have been satisfied.   First, the caveat must have been lodged after the date upon which the mortgage pursuant to which the mortgagee has exercised the power of sale was registered.    Secondly,  the  interest  claimed  by the  caveator  must  arise  under  an unregistered mortgage or an agreement to mortgage.   Thirdly, the unregistered mortgage or agreement to mortgage must be dated later than the date upon which the mortgage under which the mortgagee has exercised the power of sale was registered (“the empowering mortgage”).

[33]     It follows, the plaintiffs correctly submit, that the Registrar has no power to register the mortgagee’s transfer where the caveat protects an unregistered interest that does not satisfy these criteria.  In such a case the mortgagee has two options if it is to provide the purchaser with clear title.  First, the mortgagee may apply to the Court under s 143 of the Act for an order that the caveat be removed.  At that point the mortgagee will be entitled to rely upon s 105 unless the unregistered interest falls within one of the two exceptions described in the closing words of the section. Alternatively, the mortgagee can avoid the cost and delay involved in court proceedings by obtaining the caveator’s consent to the transfer.

[34]     Section  147  and  (in  any  case  where  the  dealing  is  to  be  registered electronically)  s  147A  permit  a  dealing  to  be  registered  where  the  caveator withdraws its caveat or where it consents to the registration of the dealing.   They provide:

147    Caveat may be withdrawn

Any caveat may be withdrawn by the caveator or by his attorney or agent under a written authority, and either as to the whole or any part of the land

affected, or the consent of the caveator may be given for the registration of any particular dealing expressed to be made subject to the rights of the caveator:

Provided that where a registrable instrument purporting to give effect to the estate or interest of the caveator is presented to the Registrar for registration immediately following a withdrawal of a caveat previously lodged to protect that estate or interest, the authority of any agent executing the withdrawal on behalf of the caveator need not be in writing.

147A   Electronic registration with caveator's consent subject to rights of caveator

If an electronic instrument is registered with the consent of the caveator, the dealing must be regarded as having been made subject to the rights of the caveator for the purposes of section 147.

[35]     Importantly, the plaintiffs say, s 147 requires the dealing to be expressly stated to be subject to the rights of the caveator.  Where s 147A applies, the dealing must be regarded as being subject to the rights of the caveator.

[36]     In the present case the BNZ did not apply to the Court for an order under s

143.  Instead, because the transfer was to be registered electronically, it sought and obtained the consent of the plaintiffs to the transfer under s 147A.   The form of consent  that  the  plaintiffs  provided  expressly  stated  that  they  consented  to  the transfer “subject to their rights”.  The transfer also recorded that the caveators had consented to the transfer being registered “subject to their rights”.

[37]     The plaintiffs contend that KPHL therefore became the owner of Kensington Park subject to the plaintiffs' existing rights.  For that reason it is now too late for KPHL to rely upon the protection that s 105 would have provided if the BNZ had sought the removal of the caveat prior to the transfer being lodged for registration. They say that KPHL must now be regarded as having stepped into the shoes of KPPL.  As a result, the caveat must remain in place unless KPHL can demonstrate that the plaintiffs did not arguably acquire an equitable interest in Kensington Park under the arrangement with KPPL.

[38]     Several factors suggest, however, that this reasoning may not be correct. First, the words used in s 105 make it plain that, upon the registration of a transfer executed by a mortgagee, the estate or interest of the mortgagor shall pass to and vest

in the purchaser “freed and discharged from…any estate or interest”.     The only exceptions are those specified in the closing words of the section.  They are an estate or interest that takes priority over the empowering mortgage, and an estate or interest which “by reason of the consent of the mortgagee is binding upon him”.     The section does not make an exception for interests that have been preserved by a caveator’s consent given under s 147 or 147A of the Act.

[39]     The plaintiffs submit that, if a purchaser is entitled to invoke s 105 after the transfer executed by the mortgagee has been registered with the caveator’s consent, the protection that s 147 and 147A purports to provide to the caveator will be illusory.  The caveator will have provided its consent to the registration in the belief that its rights are protected, only to learn subsequently that its rights were extinguished by the very dealing to which it consented.

[40]     If the submission is correct, however, it would produce a surprising result.  It would mean that the purchaser’s title remains subject to the caveator’s underlying interest notwithstanding the fact that the mortgagee would have been entitled to rely upon s 105 to pass title to the purchaser clear of that interest.  The purchaser would therefore be in a less advantageous position than was the mortgagee from when the purchaser took title.  This would effectively place a caveator who has consented to a dealing in a significantly better position than it would have been in if it had refused its consent.   If the caveator had refused to consent to the transfer, the mortgagee could have relied upon s 105 to obtain an order removing the caveat.    Unless the caveator could show that its interest came within one of the two exceptions in s 105, it would be powerless to resist the mortgagee’s application.  It is difficult to see why a caveator should be placed in a more advantageous position as regards the purchaser of the property than it would have been in relation to the mortgagee.

[41]     It  also  needs  to  be  remembered  that  s  105  will  not  always  operate  to extinguish the caveator’s interest in the land.   It remains open to the caveator to establish that its interest falls within one of the two exceptions described in s 105. For this reason I do not accept that the protection that ss 147 and 147A provide to a caveator is rendered illusory by the operation of s 105.

[42]     I consider that the word “rights” in s 147 and s 147A refers to the continuing right of the caveator to establish that the interest protected by the caveat remains in existence notwithstanding the dealing to which the caveator has given its consent.  It needs to be remembered that, unlike ss 141 and 105, ss 147 and 147A are provisions that have general application. Consents may be provided by caveators in a wide variety of situations, many of which have nothing to do with the exercise of the power of sale by a mortgagee.   The dealing in respect of which consent is sought may be by the registered proprietor, or by another party holding an interest in the property.   The caveator is likely to consent to the dealing provided it does not prejudicially affect the interest protected by the caveat.  Once the dealing has been registered, the caveator retains the right to establish that the interest protected by the caveat has priority over the interest created by the registration of the dealing to which it has consented.

[43]     I view ss 147 and 147A as providing a mechanism that enables dealings to be registered without jeopardising the ability of a caveator to establish the validity and priority of the interest protected by the caveat.  They do not, however, create rights where none would otherwise exist.

[44]     Counsel for the plaintiffs also argues that, if s 105 operates to extinguish the interest protected by a caveat after the transfer has been registered, the utility of s

141 is substantially undermined.  As already noted at [31] and [32], s 141(3) permits the Registrar to register a transfer executed pursuant to a power of sale under a mortgage, notwithstanding the existence of a caveat, provided the interest protected by the caveat meets specified criteria.  If those criteria are not met, the Registrar will have  no  power  to  register  the  transfer  without  the  mortgagee’s  consent.    The plaintiffs say that this protection is largely lost if a purchaser is entitled to rely upon s 105 after the transfer has been registered.

[45]     I consider that this submission is misconceived.   The BNZ did not ask the Registrar to exercise the power under s 141(3) to register the transfer to KPHL. Instead, it obtained the plaintiffs’ consent to the transfer under s 147A.   For that reason s 141(3) never came into play in the present case, and it has no relevance.

[46]     Next, the plaintiffs rely upon Laing v Lanron Shelf Company No 56 Ltd [1994] 1 NZLR 562 (HC). In that case the plaintiff had registered a caveat to protect an equitable interest that he had allegedly acquired under an agreement requiring the property to be transferred to him. He contended that his equitable interest took priority over a mortgage that had been registered after the date upon which he registered his caveat. The plaintiff’s claim failed on the facts, but Gallen J went on to consider what the position would have been if the plaintiff had been able to establish that he had an equitable interest in the property. He held that the mortgage was subsequent in priority to the plaintiff’s equitable interest because it was registered later in time, and was expressed to be “subject and without prejudice to the rights of the caveator protected by the said caveat”.

[47]     There are two problems with this argument. First, Laing v Lanron did not relate to s 105 and the exercise of the power of sale by a mortgagee.  Secondly, it concerned an equitable interest that arose, and was the subject of a registered caveat, prior to the date upon which the mortgage was executed and registered.   In the present case the equitable interest arose two years after the mortgage to the BNZ was registered.   As a result, it does not provide any assistance in the context of the present case.

[48]     Finally, the plaintiffs point out that, as the authorities show, the mortgagee is invariably the party that seeks an order removing the caveat under s 143.  It takes that step prior to the point at which the transfer is presented for registration.  The plaintiffs say that this confirms that it is not open to the purchaser to rely upon s 105 in seeking the removal of a caveat after the transfer has been registered.

[49]     I accept that the mortgagee will usually be the party who seeks to rely upon s

105, and that it will normally do so prior to the point at which the transfer is registered.  This reflects the fact, however, that the mortgagee has an obligation to provide the purchaser with clear title.  Very few purchasers would be interested in taking title to a property that has a caveat registered against it.   There is nothing, however, to prevent a purchaser from doing so.  In such a case, the purchaser must be entitled to take such steps as are open to it to have the caveat removed.   This

includes, in my view, the ability to rely upon s 105 as having provided it with clear title.

[50]     For these reasons, I have concluded that in the circumstances of the present case the effect of s 105 is to extinguish any equitable interest that the plaintiffs may have acquired in Kensington Park through the arrangement that it entered into with KPPL.  I do not accept that KPHL is prevented from relying upon s 105 because of the fact that the plaintiffs consented to the registration of the transfer under s 147A of the Act.

[51]     The plaintiffs do not stop there.  They also contend that KPHL has lost the protection that s 105 would otherwise provide, because it arguably acted fraudulently when it acquired Kensington Park from the BNZ.  Alternatively, they submit that the BNZ consented to be bound by the interests that their caveat protects.

Is there an arguable case for fraud on the part of KPHL?

[52]     The plaintiffs allege that, in “capriciously denying the plaintiffs' interests”, KPHL acted fraudulently in terms of the Act.   As a result, the indefeasibility of KPHL’s status as registered proprietor is vulnerable under s 62 of the Act.  KPHL accepts that fraud on the part of a registered proprietor provides an exception to the fundamental principle under s 62 of the Act that registration confers indefeasible title upon the registered proprietor.

[53]     It is now well established that fraud in this context requires actual dishonesty on the part of, or brought home to, the registered proprietor whose title is impeached: Assets Co Ltd v Mere Roihi: [1905] AC 176 at 210 (PC). That may occur “if the designed object of a transfer be to cheat a man of a known existing right”: Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101 at 106 (PC).

[54]     There is no dispute in the present case that KPHL was fully aware of the arrangement between the plaintiffs and KPPL when it acquired the land from the BNZ.  There is also no dispute, either, that KPHL does not accept that it is bound to honour any interest created in favour of the plaintiffs by the arrangement between

them and KPPL.   The plaintiffs' allegation needs, however, to be viewed in the context of what actually happened during the period leading up to the point at which KPHL acquired the property from the BNZ.

[55]     The deed did not establish exactly where the right of way was to be located. It was therefore necessary for that issue to be resolved before any easement could be registered.   Following the appointment of the receivers, the plaintiffs entered into negotiations with the receivers to resolve that and other issues.  KPHL also became directly involved in those negotiations.

[56]     On 8 June 2009 KPHL’s solicitors advised the receivers that KPHL would consent to the registration of a draft easement that the receivers had provided to it.  It would only do so, however, if the deed contained a provision giving KPHL the right to  move  the  right  of  way from  the  location  prescribed  by  the  draft  document. KPHL’s consent was also conditional upon there being no change to any of the material terms of the agreement without its prior express agreement.

[57]     The plaintiffs did not, however, agree to the form of the document that the receivers had prepared.   One of the sticking points was the proposed right to re- locate the right of way. The negotiations between the parties then broke down, and a meeting attended by all parties on 28 August 2009 failed to resolve the impasse. From that point on, KPHL maintains that it and the BNZ expressly refused to be bound by, or to give effect to, the arrangement between the plaintiffs and KPPL.

[58]     On 16 September 2009, the receivers’ solicitors advised the plaintiffs that, if they did not consent to the transfer of the property to KPHL, the receivers would apply to the Court for an order removing the plaintiffs' caveat.  The receivers refused a subsequent request by the plaintiffs seeking confirmation that they and KPHL accepted the validity of, and would be bound by, the interests protected by the caveat.  Notwithstanding this refusal, the plaintiffs elected to consent to the property being transferred to KPHL.

[59]     KPHL has always acknowledged the existence of the plaintiffs' claims, but I

have seen nothing in the evidence to suggest that it (or the BNZ) has ever expressly

recognised that they are legally enforceable against it.   The fact that KPHL was prepared to enter into negotiations with the plaintiffs does not alter that fact.   I cannot detect any element of dishonesty in its behaviour.   Rather, the evidence suggests that it dealt openly with the plaintiffs until such time as the negotiations broke down.  In the absence of some form of dishonesty or sharp conduct on the part of KPHL, I do not consider that the plaintiffs can establish an arguable case of fraud on its part.

Is it arguable that the BNZ consented to be bound by the plaintiffs' interests in

Kensington Park?

[60]     In this context the authorities establish that a mortgagee will only be held to have consented to be bound if it has undertaken “a positive affirmative act such as written or oral acceptance or even an implied acceptance by conduct”: NZ Fisheries Ltd v Napier City Council CA173/88, 24 November 1989 at 8.  Passive conduct or mere acquiescence will not suffice.

[61]     The plaintiffs advance two arguments under this head.   First, they contend that  the  BNZ consented  to  be  bound  by the  plaintiffs'  arrangement  with  KPPL because it adopted the agreement for sale and purchase between KPPL and KPHL. It then completed the sale of Kensington Park to KPHL in terms of that agreement. As a result, the bank is bound by the terms of the agreement, clause 18.1 of which provides:

Property subject to easements, encumbrances and covenants:   The Purchaser acknowledges and agrees that it shall take title to the Property subject to or with the benefit of any easements, building line restrictions, encumbrances, rights or obligations that are either notified in writing to the Purchaser  prior  to  the  Agreement  Date  or  are  registered  against  the certificates of title/identifiers to the Property as at the Agreement Date or are otherwise consented to by the Purchaser in writing.

The plaintiffs submit that clause 18.1 requires the bank to recognise the validity of their rights under the arrangement with KPPL.

[62]     The problem with this argument is that there is no evidence whatsoever about the circumstances in which the BNZ came to complete the sale of the property to

KPHL.  It is quite possible that the bank did not wish to undertake the obligations of the vendor under the agreement for sale and purchase.  It may have been prepared to execute the transfer in favour of KPHL in return for the price that KPHL was required to pay for the property under the contract.  In the absence of any evidence on this point, I am not prepared to say that it is arguable that the bank adopted the agreement for sale and purchase.

[63]     Secondly, the plaintiffs contend that the bank consented to be bound by their interests in Kensington Park when it obtained their consent to the transfer to KPHL. I do not accept that submission, however, because (as I have already held) the right that s 147A protected was the right to have the validity of its interest determined. The BNZ cannot be taken to have consented to be bound by the plaintiffs' unregistered interests merely because it obtained the caveator’s consent to the registration of the transfer.

Result

[64]     None of the arguments that the plaintiffs have advanced can succeed.  I find that they have not established an arguable case for the retention of their caveat.

[65]     The application is accordingly dismissed.

Order

[66]     I make an order under s 143(2) of the Land Transfer Act 1952 that caveat

7950360 be removed.

Costs

[67]    The defendant is entitled to costs on a category 2B basis together with disbursements as fixed by the Registrar.

Lang J