PEPPER NEW ZEALAND (CUSTODIANS) LTD V SCHMIDT HC AK CIV 2011-404-5497

PEPPER NEW ZEALAND (CUSTODIANS) LTD V SCHMIDT HC AK CIV 2011-404-5497 15 November 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2011-404-5497BETWEEN PEPPER NEW ZEALAND(CUSTODIANS) LTDApplicantAND TAYLOR JADE SCHMIDTRespondentCIV 2011-404-6325AND BETWEEN TAYLOR JADE SCHMIDT ANDANTHONY MIKHAL SCHMIDTApplicantsAND EBADA PROPERTY INVESTMENTSLTDFirst RespondentAND BRIAN PATRICK GARRITYSecond RespondentAND PEPPER NEW ZEALAND(CUSTODIANS) LTDThird RespondentCIV 2011-404-2737AND BETWEEN PEPPER NEW ZEALAND(CUSTODIANS) LTDPlaintiffAND EBADA PROPERTY INVESTMENTSLTDFirst DefendantAND BRIAN GARRITYSecond DefendantHearing: 1 November 2011Counsel: Mr A M Schmidt and Mrs T J Schmidt, in personI Razak for Ebada Property Investments Ltd and Mr GarrityT J Anderson and W J Hamilton for Pepper New Zealand (Custodians)LtdJudgment: 15 November 2011JUDGMENT OF HEATH JThis judgment was delivered by me on 15 November 2011 at 11.00am pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarWhat are these proceedings about?[1] These three proceedings relate to two parcels of land, situated at 1493 and 1495 Kaiaua Road, Mangatangi, near Pokeno (the Kaiaua Road properties). Mr and Mrs Schmidt assert that they (or trusts associated with their interests) are the beneficial owners of the land. They say their interests have been unlawfully prejudiced as a result of a fraudulent conveyance of the properties, in January 2006, from Schmidt Trustee Ltd to Ebada Property Investments Ltd (Ebada).[2] The applications with which I am presently dealing1 arise from Mr and Mrs Schmidt's attempts to prevent a mortgagee from realising its security over the Kaiaua Road properties.Background facts[3] On 31 October 2011, Schmidt Trustee Ltd became the registered proprietor of the Kaiaua Road properties. Each was transferred to Ebada in January 2006. Ebada borrowed money from TEA Custodians (Pacific) Ltd (TEA) to assist in the acquisition of the properties and TEA took a mortgage over the Kaiaua Road properties. Schmidt Trustee Ltd was struck off the register of companies in January 2009. No application to restore it to the register has been made.1 See paras [14]–[16] (inclusive) below.[4] The Schmidts allege that Schmidt Trustee Ltd transferred the two properties as a result of a fraud committed by Ebada, through its director Mr Garrity. They allege that Ebada holds the properties as ―a corporate trustee of trusts with which they are associated.2[5] On 17 February 2010, Mr Schmidt lodged a caveat against each property to protect his claimed interest. Those caveats lapsed.3 On 23 November 2010, caveats were lodged by Mrs Schmidt. Those caveat express, as the ground on which MrsSchmidt's claim is made:Caveator is a trustee for a beneficiary trust which has beneficial interest in the land by virtue of an unregistered agreement. The registered proprietor Ebada Property Investments Ltd holds the property in trust for The Nature Estate Trust & Tech Estate Trust. Caveator is a Beneficiary and a Trustee of both trusts.[6] Although registered on 23 November 2010, the caveats were signed by Mrs Schmidt on 15 January 2010. Those caveats were also subjected to challenge, at the suit of Ebada and Mr Garrity. They were sustained.4The mortgage[7] TEA entered into its loan agreement with Ebada on or about 20 December 2005. It agreed to advance the sum of $175,000. TEA's mortgage was registered in January 2006, at the same time as the transfer of the Kaiaua Road properties intoEbada's name.[8] On 15 February 2006, an amended loan agreement was entered into between TEA and Ebada, providing for a further advance of $101,500. Those advances were tacked on to the mortgage. There was an increase in the priority sum, as a result of the variation.[9] Ebada fell into default. TEA issued notices5 requiring Ebada to remedy them. Service of the notices was effected on 22 November 2010. The defaults were not2 See paras [5], [23] and [24] below.3 The lapsing of the caveat was registered against each title on 30 March 2010.4 Schmidt v Garrity and Ebada Property Investments Ltd HC Auckland CIV 2010-404-8319, 22December 2010 (Priestley J).remedied by due date. As a result, all moneys secured under the mortgage became payable and TEA acquired both the right to enter into possession of the properties and to sell the land.[10] On 14 April 2011, TEA issued summary judgment proceedings in which an order for vacant possession was sought.6 Ebada and Mr Garrity were the defendants to that proceeding. Mr and Mrs Schmidt were not joined.[11] By memorandum to the Court dated 20 June 2011, counsel for Ebada and Mr Garrity, Mr Razak, advised that the vacant possession application was not opposed. His memorandum concluded by stating that Ebada and Mr Garrity requested that, ―if the Plaintiffs' application for vacant possession is granted, the orders ought to bedirected against the current occupants of the property; being ―Mr Schmidt and any other occupants.7[12] On 30 June 2011, after hearing from counsel for TEA, Ebada and Mr Garrity, Associate Judge Christiansen made the following orders:8(a) ... the defendants give vacant possession of the land at 1493 and 1495 Kaiaua Road, Mangatani as described in Certificates of Title NA716/316 and NA4C/51 (North Auckland Registry) to the plaintiff within fourteen (14) days after service of the order (which shall include service in accordance with any substituted service order made in this proceeding) or any other method of service allowed by the rules;(b) the defendants pay the plaintiff's costs of this proceeding on a 1Abasis together with disbursements as fixed by the Registrar (see schedule attached).[13] Although TEA received the benefit of the order for possession on 30 June 2011, the mortgage had been transferred earlier to GE Custodians, on 22 June 2011. On 8 August 2011, GE Custodians transferred the mortgage to Pepper New Zealand (Custodians) Ltd (Pepper). In the course of a case management conference held on 12 and 13 October 2011, Woodhouse J made an order substituting Pepper in the5 Property Law Act 2007, ss 119 and 122.6 Ibid, s 137(1)(c).7 The memorandum also provided three other names by which Mr Schmidt is allegedly known.8 TEA Custodians (Pacific) Ltd v Ebada Property Investments Ltd and Garrity HC Auckland CIV2011-404-2737, 30 June 2011 (Associate Judge Christiansen). The possession order was made unders 137(1)(c) of the Property Law Act 2007.vacant possession proceeding. As a result, Pepper now has the benefit of the vacant possession order.The applications[14] Pepper seeks an order removing Mrs Schmidt's caveats from the titles to each property. That order is sought to enable Pepper to realise its security and to obtain payment of the undisputed debt owed to it.9[15] Mr and Mrs Schmidt seek an interim injunction to restrain Pepper from exercising powers of sale under its mortgage. That order is sought to protect Mr andMrs Schmidt's position, pending determination of a proceeding in which they seek to establish that Ebada holds the Kaiaua Road properties on trust for their interests.10[16] Mr and Mrs Schmidt apply to set aside the order for vacant possession. Although they were not parties to the original proceeding, they seek rescission of the order as part of their efforts to prevent Pepper from realising the land to pay its debt.11The fraud claim against Ebada and Mr Garrity(a) Legal principles[17] Ebada and Pepper12 have registered interests in the Kaiaua Road properties, as proprietor and mortgagee respectively. Under the indefeasibility principle,13 their interests are paramount, unless fraud is established. In order for Mrs Schmidt to justify the continued registration of her caveat and for herself and her husband to be granted an interim injunction to prevent the registered mortgagee from entering into possession or selling the mortgaged land, a foundation for a finding of fraud must be9 The application to remove the caveats is brought under CIV 2011-404-5497.10 The interim injunction application is brought in CIV 2011-404-6325.11 The application to set aside the vacant possession order is brought under CIV 2011-404-2737.Reliance is placed on rr 7.49 and 7.51 of the High Court Rules.12 Although Pepper was not registered as mortgagee until 8 August 2011, it was entitled to call for themortgage to be transferred to it or to request TEA to execute a discharge in the event of payment. Forconvenience, I refer to Pepper as the registered mortgagee throughout.13 Land Transfer Act 1952, ss 62, 63(1)(c) and 182; see also Frazer v Walker [1967] NZLR 1069 (PC).established. The test I apply is whether Mr and Mrs Schmidt can point to allegations of primary fact which, if proved and not challenged by evidence from other parties, could result in an inference of fraud being drawn. That is the most favourable approach to Mr and Mrs Schmidt.[18] To establish fraud, Mr and Mrs Schmidt must demonstrate actual dishonesty on the part of Ebada and Mr Garrity, or, perhaps, proof that Ebada (through Mr Garrity) had cause to suspect a competing claim but deliberately refrained from making further inquiries that an honest purchaser would make.14[19] A registered mortgagee's interests are also protected by the indefeasibilityprovisions of the Land Transfer Act, as the registered proprietor of an ―interest in land.15 The act of registration vests a legal interest in the mortgagee.16 A registered mortgagee will only be fixed with knowledge of fraud if it were actually complicit in it or has knowledge imputed to it, by virtue of an agent's acts.17(b) Allegations of fact[20] My summary of the bases for the allegations of fraud are taken primarily from the joint affidavit sworn by Mr and Mrs Schmidt in support of their application for an interim injunction. That affidavit was sworn on 22 August 2011. I use that affidavit as it is the most recent expression of their evidence and puts their case at its highest. Much of what they say is disputed. Their allegations remain to be proved, if the proceeding goes to trial.[21] Mr and Mrs Schmidt depose that the Kaiaua Road properties were in the―registered ownership of several of their family trusts from 31 October 2001 until 5January 2006.18 While the land was, in fact, registered in the name of Schmidt14 Assets Co Ltd v Mere Roihi [1905] AC 176 (PC) at 210.15 Land Transfer Act 1952, s 62. Section 2 defines ―estate or interest as including a mortgage onland.16 Ibid, s 41.17 Nathan v Dollars & Sense Ltd [2008] NZSC 20, [2008] 2 NZLR 557 at para [32].18 As a matter of law, that statement is incorrect. Section 128(1) of the Land Transfer Act 1952provides that ―no entry shall be made in the register of any notice of trusts, and no such entry, if made,shall have any effect. In Wolfson v Registrar-General of New South Wales (1934) 51 CLR 300(HCA) at 308, Rich and Evatt JJ said that the ―declared policy of the [Torrens] system is to keep trustsTrustee Ltd, Mr and Mrs Schmidt seem to contend that trusts with which they are associated (which are not legal entities in their own right) can be regarded as beneficial owners of the two properties. In turn, they assert that, as beneficiaries of those trusts, they too are beneficial owners of the properties.[22] Schmidt Trustee Ltd initially purchased the properties, holding them in trustfor ―The Schmidt Trusts. In their affidavit, Mr and Mrs Schmidt define ―The Schmidt Trusts as:4. ... a Partnership of two ‗Mirror Trust Deeds' joined, with [SchmidtTrustee Ltd] as the Corporate Trustee. This whole Trust arrangement was formed by Ross Holmes Lawyers in Albany Auckland. The two partnership Trusts (by Deed) were the TJ Schmidt Trust, and the AM Schmidt Trust.[23] The nature of the so-called ―Partnership of two ‗Mirror Trust Deeds' was explained further:5. The holding of ‗The Properties' by ‗The Schmidt Trusts' continueduntil approximately 2003 to 2004, when the properties were transferred into The Excel Estate Trust (―EET). This was another ‗Schmidt Family' Trust.6. EET was made up of four ‗Mirror Trusts' which were The Schmidt Estate Trust (―TSET), the Excel Tech Trust (―TETT), the Tech Estate Trust (―TTET), and The Nature Estate Trust (―TNET). ...EET Trust was formed at the Law firm of Taylor Grant Tesiram by partner Lewis Grant between 6 October 2002 and 18 November 2002.7. EET was made up of the four above mentioned ‗Mirror Trusts' joined by a ‗Deed of Declaration' which became known as ‗TheExcel Estate Trust' (―EET). There have been several CorporateTrustees for EET, one of which was [Schmidt Trustee Ltd]. EET, on an ongoing basis, had a sole Corporate Trustee. Initially [Schmidt Trustee Ltd] was the Corporate Trustee for EET. Between 8November 2005 and 5 January 2006 Ebada became the 'Corporate Trustee' of EET. Ebada was a duly incorporated Company set up by Mr Garrity. Mr Garrity was the sole director and Shareholder of Ebada from the initial incorporation on 8 November 2005 through to the present day. (my emphasis)[24] Mr and Mrs Schmidt's fundamental allegation is that, sometime between 8 November 2005 and 5 January 2006, Ebada became the ―corporate trustee of theExcel Estate Trust, which was, by then, the beneficial owner of the land.off the register ....[25] Mr Garrity became involved with Mr and Mrs Schmidt's trusts in about 2004. Mr and Mrs Schmidt say that he acted as both a lawyer and a trustee. In particular, they say that he undertook negotiations on behalf of Schmidt Trustee Ltd and the Excel Estate Trust between 2005 and 2008, with regard to other land (at Bell Road, also near Pokeno) in which the Schmidts allege that interests associated with them retain beneficial ownership. The negotiations related to a claim by Transit New Zealand, under the Public Works Act 1981.[26] Mr Garrity is alleged to have established Ebada for the purpose of taking title to the Kaiaua Road and Bell Road properties, in order to ―strengthen the Trust set up. The underlying assertion is that Mr Garrity did so for his own private purposes. Therefore, it is alleged that he acted dishonestly towards Schmidt Trustee Ltd and the beneficiaries of the trusts for whom Ebada held the land at both Kaiaua Road and Bell Road.[27] Mr and Mrs Schmidt summarise their position:12. Importantly EET was the specific entity holding the true ownership(‗Equity') of ‗Kaiaua Road' and ‗Bell Road'. Taylor Schmidt,Anthony Schmidt, and Paige Mindel were the Trustee/s of the‗Mirror Beneficiary Trusts'. The Trustees of these ‗MirrorBeneficiary Trusts' instruct the ‗Corporate Trustee' of EET by virtue of the ‗Deed of Declaration'. Mr Garrity's role at this time was as a Lawyer and Trustee of the ‗Schmidt Family Trusts' such as EETboth by agreement and through Ebada. Ebada would adhere to the instruction of the Trustees of the ‗Beneficiary Mirror Trusts'. Annexed hereto and marked ―F is a true copy (unsigned version) of the ‗Deed of Declaration' between EET and Ebada PropertyInvestments Limited. ...[28] There is no signed document to evidence the ―Deed of Declaration, annexed as exhibit F to the affidavit. Nevertheless, for the purpose of the present exercise, I assume the document was executed.[29] Those parts of the alleged ―Deed of Declaration that Mr and Mrs Schmidtallege were breached by Mr Garrity and Ebada are set out below:1919 The term ―Beneficiary/s that appears in paras 1 and 2 of the ―Deed of Declaration is notspecifically defined, though the following names appear in the Deed as beneficiaries of particulartrusts: Mrs Schmidt and Ms Paige Mindel as beneficiaries for The Nature Estate Trust, Mrs Schmidtand Ms Mindel as beneficiaries for The Tech Estate Trust; Mr Schmidt and Ms Mindel asOperative part1. The Trustee/s declares that it will hold the Property upon trust for the Beneficiary/s or their nominee/s.2. The Trustee/s shall;(a) upon request by the Beneficiary/s, transfer any property to the Beneficiary/s or their nominee/s;(b) act on any instructions given by the Beneficiary/s relating to the exercise of all other rights and privileges vested in the Trustee/s as holder of any property and the performance of all duties imposed on the Trustee/s as holder of the property/s;...[30] Mr Garrity is said to have instructed lawyers to act for both Schmidt Trustee Ltd (a Mr Taia) and Ebada (a Mr Hansen) on the sale and purchase of the properties. At the time of the transfer, on 5 January 2006, the Kaiaua Road properties had a registered valuation of $235,000. A mortgage in favour of the National Bank was registered against the title; $147,236.63 was owing on that mortgage.[31] No agreement for sale and purchase between Schmidt Trustee Ltd and Ebada has been put into evidence. Mr and Mrs Schmidt refer to a ―Transfer Sale Agreement signed on 20 November 2005. While it is not exhibited by them, thereis an agreement for sale and purchase for the Kaiaua Road properties betweenSchmidt Trustee Ltd and ―Brian Garrity or nominee dated 8 December 2005. Theconsideration for that was $290,000, $130,000 of which was subject to a forgiveness of debt. The possession date was to be 16 December 2005.[32] Consistent with the agreement produced by Mr Garrity, a settlement statement issued by the solicitors for Schmidt Trustee Ltd records a purchase price of$290,000 ―less $130,000 in consideration of the deed of repayment entered into between the parties. Including outgoings, the amount required to settle on 20 December 2005 was $160,524.17.beneficiaries for The Schmidt Estate Trust and Ms Mindel and Mr Schmidt as beneficiaries for The Estate Tech Trust.[33] After repayment of the National Bank mortgage and those outgoings, a sumof $11,317.03 was transferred into Mr Garrity's personal bank account. Mr and MrsSchmidt allege that the transfer of $11,317.03 to Mr Garrity's personal bank account was unauthorised. They also contend that the Kaiaua Road properties were acquired by Ebada below market value. Further, Mr and Mrs Schmidt assert that additional moneys borrowed by Ebada from TEA20 were drawn down and used by Mr Garrity without authorisation from the beneficial owners of the Kaiaua Road properties.[34] A loan contract between TEA and Ebada, was apparently signed on 20 December 2005, but was not put in evidence. The maximum principal amount to be advanced under the loan contract was $175,000. A guarantee and indemnity agreement, signed between TEA and Mr Garrity, was in evidence. That refers to the loan contract. Mr Garrity is shown as a guarantor. ―Wizard Mortgage Corporationis recorded as the ―mortgage servicer. That term was defined in the agreement as any person whom TEA might appoint to manage the mortgage loan and mortgage for it.[35] Mr Garrity's motive for behaving contrary to the Schmidts' interests is said tohave arisen from financial commitments that he had to his former wife. Mr and Mrs Schmidt depose that Mr Garrity and his wife separated and divorced sometime in 2007.TEA's alleged complicity in the fraud[36] Mr and Mrs Schmidt allege that TEA was complicit in any fraud carried out by Ebada. To fix TEA with knowledge of the fraud, Mr and Mrs Schmidt rely on actions of the mortgage servicer, Wizard Mortgage Corporation, also known as Wizard Home Loans. They refer to an article that appeared in the on-line version ofThe New Zealand Herald on 17 January 2009, about three years after the mortgage in favour of TEA was registered.21 The article refers to an investigation of two20 See para [8] above.21 Maria Slade ―SFO investigating millions of dollars in Wizard Home Loans The New ZealandHerald (New Zealand, 17 January 2009) <www.nzherald.co.nz>.branches of Wizard Home Loans with which TEA, GE Custodians and Pepper are alleged to have been connected.[37] The Schmidts submit that Wizard Mortgage Corporation was an agent for TEA. They also allege that the total advance of $276,500 on the security of theKaiaua Road properties was contrary to TEA's lending policies.22[38] The article reported that:(a) The Serious Fraud Office was investigating two branches of the home loan company Wizard, for alleged mortgage fraud. Investigations followed complaints from the parent company, GE Money.(b) Former ―owner-operators of the branches gave forged loandocumentation to both GE Money and a trading bank. GE Money and the trading bank, as financiers of the Wizard loans, were alleged to be the victims.(c) Branches of Wizard, including the two in question, had previouslybeen closed because of ―breaches of policy. An anonymous formeremployee had told the reporter that ―some Wizard branches had a‗cowboy culture' with ‗rampant over-declaration' of customers'incomes enabling them to qualify for loans. A spokesman for the company said that the alleged fraud was unrelated to the decision to close the branches.[39] There is no evidence of the outcome of the Serious Fraud Office'sinvestigation. Nor is there any cogent evidence linking the alleged fraudulent activities to the particular mortgage entered into between Ebada and TEA. The only link appears to be that Mr Hansen (a solicitor who had been instructed by Mr Garrity to act on behalf of Ebada) practised in Henderson and one of the branches under investigation was in that location.22 Mr and Mrs Schmidt acknowledge that the initial advance of $175,000 met the 66% ―Equity rulebut the second advance of $101,500 (taking the loan to $276,000) meant that the 80% maximumcriteria that TEA practised was breached.[40] There is no evidence that any person within TEA had any concerns about the ability of Ebada to grant a mortgage over the land. There is evidence that money was in fact advanced from TEA to Ebada. Based on the Schmidts' own view that the registered valuation of the properties was $290,000) there was enough equity in the Kaiaua Road properties to justify the TEA loan.Pepper's application to remove caveats(a) Legal principles[41] Section 143 of the Land Transfer Act 1952 provides the Court's jurisdictionto make an order removing a caveat. Section 143(1) and (2) provides:143 Procedure for removal of caveat(1) Any such applicant or registered proprietor, or any other person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the High Court for an order that the caveat be removed.(2) The Court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the Court seems meet.[42] Under the section 143 procedure, ―the onus is on a caveator to justify the clog that it seeks to put on the registered proprietor's ability to deal with its property.23The same principle applies with equal force to a mortgagee that is seeking to realise a registered security.[43] As previously stated,24 the interest of a mortgagee in land registered under the Act is protected by the indefeasibility principle. It may only be challenged in casesinvolving fraud. The term ―fraud has been defined as requiring proof of actualdishonesty or, perhaps, a deliberate decision to refrain from making further inquirieswhere one's suspicions had been aroused.2523 Raiser Developments Ltd v Trefoil Properties Ltd [2008] NZCA 73, (2008) 9 NZCPR 161 at para[34], citing Sims v Lowe [1988] 1 NZLR 656 (CA) at 660 (Somers and Gallen JJ).24 See para [17]–[19] above.25 Assets Company Ltd v Mere Roihi [1905] AC 176 (PC) at 210.[44] Section 182 of the Land Transfer Act provides that, except in the case of fraud, a person dealing with the registered proprietor need not inquire into the circumstances of ownership and is not affected by knowledge of any trust or unregistered interest. Section 183 forecloses the possibility of any action being taken against a bona fide mortgagee for valuable consideration on the ground that its―mortgagor may have been registered as proprietor through fraud or error.26[45] Mrs Schmidt's caveats are grounded in her interests as ―a trustee for abeneficiary trust which has beneficial interest in the land by virtue of an unregisteredagreement.27 It is unclear to me from what source that unregistered agreement springs. However, for present purposes I assume some basis does exist for the claim.[46] Retention of the registered caveat can only be justified if there were some reasonably arguable basis for alleging that an interest of the type asserted by Ms Schmidt could be proved or (more generously) if some other interest that ought to be protected can be discerned from the evidence filed by two people who are not legally represented.[47] For the purpose of the present applications, I assume (without deciding) that an inference could be drawn (in the absence of evidence to the contrary) from which an inference of fraud could be drawn against Ebada and/or Mr Garrity. But, even on that assumption, I am not satisfied there is any evidence to link TEA to such fraudulent conduct, in the sense required either to establish actual knowledge on the part of TEA of any fraud committed by Ebada or Mr Garrity. Nor is there plausible evidence that someone at Wizard responsible for administering the TEA loan had knowledge, in a form that could be imputed to TEA and its successors in title to the mortgage, by reason of a principal and agent relationship.28[48] The claim is too speculative to suggest that the caveats should remain while discovery is undertaken. It is always open for Mr and Mrs Schmidt raise money to pay the mortgage debt to protect their asserted interests in the properties.26 Land Transfer Act 1952, s 183(1).27 See para [5] above.28 Nathan v Dollars & Sense Ltd [2008] NZSC 20, [2008] 2 NZLR 557 at para [32].[49] Mrs Schmidt has not discharged the onus on them to maintain the clog that she seeks to put on the registered mortgagee's ability to realise its security. Thecaveats lodged by Mrs Schmidt must be removed.The interim injunction application[50] To grant an interim injunction to restrain Pepper from exercising powers to realise its security, the Court must be satisfied that grounds to interfere with that right exist. That question is analysed by reference to a broad three stage framework.29 The first step is to consider whether there is a serious question to be tried. The second involves an assessment of where the balance of convenience lies. Finally, the Court stands back to see where the overall justice of the case lies.[51] In Klissers Farmhouse Bakers Ltd v Harvest Bakeries Ltd,30 Cooke P, for the Court of Appeal, explained the position in these words:Whether there is a serious question to be tried and the balance of convenience are two broad questions providing an accepted framework for approaching these applications. ... the balance of convenience can have a very wide ambit. In any event the two heads are not exhaustive. Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question. At this final stage, if he has found the balance of convenience overwhelmingly or very clearly one way – as the Chief Justice did here – it will usually be right to be guided accordingly. But if the other rival considerations are still fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate. We use the word ―usually deliberately and do not attempt any more precise formula: an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.[52] For the reasons given for removing the caveat, I am not satisfied that Mr and Mrs Schmidt have a seriously arguable case to interfere with the rights of a mortgagee who has acquired an indefeasible estate or interest in the land.[53] The balance of convenience and the overall interests of justice also favour Pepper. The time it would take to resolve the substantive proceeding, along with the29 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142(Cooke P).30 Ibid.already substantial delay in this application being brought, militates against grant of an interim injunction on the basis that damages are an inadequate remedy. As I have held that no grounds exist to fix TEA (as Pepper's predecessor in title) with knowledge of any fraud that may have been committed by Ebada or Mr Garrity, there is no reason to delay Pepper's ability to realise its security.[54] In submissions, counsel for Pepper indicated it would undertake that any surplus from sale of the land, after repayment of the principal, interest and costs owing to it, will be paid into Court to abide the decision on the substantive claims brought by Mr and Mrs Schmidt.[55] I propose to dismiss the application, subject to Pepper filing in Court a formal undertaking within 10 working days of delivery of this judgment, stating that it will pay any surplus from sale of the properties into Court. The order dismissing the application shall lie in Court until the undertaking is filed and served.[56] On that basis, the application for interim injunction fails.Application to set aside vacant possession order[57] The vacant possession order was made on notice to both Ebada and Mr Garrity. No notice of opposition was filed. In a memorandum dated 20 June 2011, counsel for Ebada and Mr Garrity indicated that they did not oppose the order being made.31[58] Leaving aside any question of standing for a non-party to apply to rescind such an order,32 there is no basis on the merits to interfere with it. In the absence of a seriously arguable case that Mr and Mrs Schmidt are entitled to possession, Pepper must be entitled to retain the benefit of the order in favour of TEA that now works in its favour as assignee of the mortgage.3331 See para [11] above.32 Rule 7.49 of the High Court Rules stipulates that a ―party affected by an interlocutory order mayapply to vary or rescind the order. Rule 7.49(2)(b) further states that a party may not make such anapplication where summary judgment was given.33 See para [13] above.[59] Mr and Mrs Schmidt relied on s 121 of the Property Law Act 2007 to found a claim that the application ought to have been served on Mrs Schmidt, as a caveator. But, s 121(2) does not prevent exercise of a mortgagee's rights, in those circumstances. Section 121 provides:121 Copy of notice under section 119 must be served on former mortgagor, covenantor, subsequent mortgagee, and caveator(1) A copy of the notice served under section 119 must, as soon as possible, be served (whether by the mortgagee or receiver) on the following persons if either the mortgagee or receiver has actual notice of the name and address of the person:(a) any former mortgagor:(b) any covenantor:(c) any mortgagee under a subsequent mortgage, and any holder of any other subsequent encumbrance, over the mortgaged land if—(i) the subsequent mortgage or other subsequent encumbrance is registered; or(ii) the subsequent mortgage or other subsequent encumbrance is unregistered, but either the mortgagee or receiver has actual notice of it; and(d) any person who has lodged a caveat under section 137 of the Land Transfer Act 1952, or a notice under section 42 of the Property (Relationships) Act 1976 having the effect of a caveat, against the title to the mortgaged land or any part of it.(2) A failure to comply with this section does not prevent—(a) any amounts secured by the mortgage from becoming payable; or(b) the exercise of the mortgagee's power to enter into possession of the mortgaged land; or(c) the exercise of the receiver's power to manage the mortgaged land or demand and recover income from it; or(d) the exercise of the mortgagee's or receiver's power to sell the mortgaged land.(3) However, if there is a failure to comply with this section, the mortgagee is liable in damages for any loss arising from that failure.It is clear from s 121(2) that s 121(1) does not prevent exercise of a mortgagee'srights in those circumstances. Section 121(3) preserves a remedy in damages. TEA was entitled to the vacant possession order as mortgagee and any failure to comply with s 121 is not sufficient grounds to set aside the order.[60] In addition, Mr and Mrs Schmidt contend that there is a residential tenancy on the property that ought to be protected. To the extent that any such residential tenancy may exist, that is something that the mortgagee would need to deal with in the course of exercising its mortgage. Issues under the Residential Tenancies Act 1986 fall to be determined by the Tenancy Tribunal.[61] There is no basis to interfere with the order for possession made on 30 June 2011.Result[62] For the reasons given:(a) Pepper's application to remove the caveat registered by Mrs Schmidtagainst both titles to the Kaiaua Road property is granted.(b) Mr and Mrs Schmidt's application for an interim injunction to restrain Pepper from taking steps to enforce its security is dismissed. The order shall lie in Court unsealed pending an undertaking from Pepper being filed and served, in terms of para [54] above, within 10 working days of delivery of this judgment. If the undertaking were not filed within that time, the Registrar shall refer the proceeding to me to determine what steps to take. If the undertaking were filed in time, the order dismissing the application may be sealed.(c) Mr and Mrs Schmidt's application to set aside the order for possession made on 30 June 2011 is dismissed.[63] It is likely that the sealed order removing Mrs Schmidt's caveat will need tobe expressed more particularly, in a form satisfactory to the District Land Registrar. Counsel for Pepper is invited to submit a draft order for my approval, before sealing is undertaken by the Registrar of this Court.[64] As Mr and Mrs Schmidt have been unsuccessful on all three applications, costs must follow the event. One set of costs are awarded in favour of Pepper, to be paid by Mr and Mrs Schmidt (jointly and severally), on a 2B basis, together with reasonable disbursements incurred on each application with which I have dealt. Both costs and disbursements are to be fixed by the Registrar. In relation to Pepper'srepresentation, I do not certify for second counsel._________________________________P R Heath JDelivered at 11.00am on 15 November 2011Solicitors:Smith & Partners, PO Box 104065, Lincoln North, WaitakereGibson Sheat, PO Box 2966, WellingtonCopy to:Mr and Mrs Schmidt, PO Box 480, Drury