ALLAN V AIW HOLDINGS & INVESTMENTS LTD HC AK CIV 2007-404-6272

ALLAN V AIW HOLDINGS & INVESTMENTS LTD HC AK CIV 2007-404-6272 11 March 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-6272IN THE MATTER OF Section 143 of the Land Transfer Act BETWEEN ALICE-MARGARET ALLAN Applicant AND AIW HOLDINGS & INVESTMENTS LIMITED Respondent Hearing: 25 February 2008 Appearances: Mr D Grove for Applicant Mr D Hickson for Respondent Judgment: 11 March 2008 at 12 noonJUDGMENT OF ASSOCIATE JUDGE DOOGUEThis judgment was delivered by me on11.03.08 at 12 noon, pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar DateCounsel:D W Grove, Chancery Street Chambers, P O Box 130, Auckland Mr D B Hickson, Castle Brown Solicitors, P O Box 9670, Newmarket, AucklandBackground[1] The applicant has brought proceedings by way of an originating application seeking an order under s 143 of the Land Transfer Act 1952 that a caveat, which in July 2007 was lodged on the title to a property that she owns, be removed. [2] The grounds stated in the application are: a) That the applicant is the owner of the property located at 1/83 Koraha Street, Remuera; b) That the basis of the caveat is stated to be an agreement for sale and purchase signed in September 2006 between the applicant as proprietor and the respondent as purchaser; c) That the agreement for sale and purchase was signed on 18 January 2006; d) That it was specifically agreed between the 'applicant and John Morton' that the shareholding of the respondent should be held 70% as to the applicant and 30% as to John Morton and that both parties would be directors of the company; e) That the respondent through its now sole director, Mr Morton, repudiated the agreement for sale and purchase and the repudiation has been accepted by the applicant; f) The Court will not direct specific performance of the contract. [3] The respondent has filed a notice of opposition. It opposes the application on the grounds: a) It has a claim to an interest in the property; b) There is an arguable case that the caveat should not be removed;c) It is not patently clear that the caveat should be removed; d) The applicant and respondent entered into a written agreement for sale and purchase of the property in 2006 under which the respondent is the purchaser; e) The caveat is not defective. [4] While the immediate parties to the proceedings are Ms Allan and her company, the various arrangements between the parties actually reflect dealings between Ms Allan and Mr Morton. Mr Morton is not a party to the proceedings and was not a party to the agreement for sale and purchase pursuant to which the respondent claimed an entitlement to caveat the title, but his part nonetheless needs to be mentioned. [5] The applicant purchased the subject property in 1998. In 2005 she entered into a personal relationship with Mr Morton. As appears from the grounds in the Notice of Interlocutory Application, on 18 January 2006 she entered into an agreement with the respondent company, AIW Holdings & Investments Limited. I was informed that 'AIW' was short for 'Alice in Wonderland'. When the company was formed the shareholdings were 70% of the shares owned by Ms Allan and 30% by Mr Morton. [6] The agreement for sale and purchase was in the form of the seventh edition template agreement approved by the Real Estate Institute of New Zealand and the Auckland District Law Society. The purchase price for the property was $300,000. The deposit was stated to be 5% of the purchase price. The balance of the purchase price was to be paid in 'cash on vacant possession'. The possession date was fixed at 90 days after the date of the agreement. The agreement was entered into 18 January 2006. [7] The agreement for sale and purchase was never carried to completion. The property remains in the ownership of the applicant, Ms Allan.[8] The caveat that the company (through the agency of Mr Morton) lodged states that it is founded on the following:As purchaser of the said property under an agreement for sale and purchase signed in September 2006 between the registered proprietor ALICE- MARGARET ALLAN as vendor and the Caveator as purchaser.[9] There was a falling out between the applicant and Mr Morton, in circumstances which it is not necessary to examine in this judgment but which centred on events that occurred on 22 November 2006. The following month, Mr Morton, who apparently had the Companies Office 'key' to the company, was able to unilaterally change the shareholdings in the respondent company so that the Companies Register showed him to be the sole shareholder and director. [10] On 17 August 2007 the respondent served a document described as a 'settlement notice' on the applicant. In summary, that notice stated that the applicant was required in terms of the agreement for sale and purchase to settle 90 days after the date of the agreement. It went on to say that the purchaser was in all material respects ready, able and willing to proceed to settlement in accordance with the agreement but that the vendor had failed to settle in accordance with the agreement. By paragraph five of the notice the vendor was required to settle within 12 working days from the date of service of the settlement notice, time being of the essence. The applicant did not respond to the notice. No steps have apparently ever been taken to cancel the agreement. [11] From the affidavits that have been filed it is plain that at one stage Ms Allan and Mr Morton had come to an agreement to renovate the property at Koraha Street. It appears that the parties contemplated that Mr Morton would contribute to the renovation of the property and that in return he would receive a share in the property. The company that was incorporated, was apparently the vehicle for carrying out the venture concerning the Koraha Street property. There is no dispute that an agreement along these lines was at some stage entered into.[12] The agreement between Ms Allan and Mr Morton is, as I have said, not directly in issue in this proceeding. It is however background material which must be considered when considering the consequences that followed from the arrangements that were later entered into between Ms Allan and the company for the sale and purchase of her house. [13] On its face the agreement for sale and purchase is a conventional agreement which would lead to a settlement by way of exchange of transfer documents against clear funds or cash. It is reasonably certain though that is not what the parties had in mind at all and that what ultimately would happen was something along the following lines. The parties intended that the company would hold the house as legal proprietor while it was being renovated. Once the renovation was completed, the property would be sold. There would then be a division of the proceeds of sale. The 70%/30% shareholdings in the company were to be in effect the proportions of the purchase price that the parties would receive, presumably by means of a distribution of the capital of the company. [14] Even though the underlying assumptions of the parties as to what was going to happen were never carried out, Mr Morton and, at his behest the respondent company, are apparently insistent that the legal obligations contained in the January 2006 agreement ought to be carried out. However, the company has taken no steps to enforce the agreement beyond serving the settlement notice to which I have made reference. No Court proceedings have been issued. [15] Mr Morton has given an affidavit. In it he explains the delay in issuing Court proceedings to enforce the agreement, by saying that because in 2006 the applicant was moving to Wellington, she sought to defer making a decision about whether she was going to proceed with the renovation of the house. He said that he agreed to this request and indeed to a second request for a further postponement before the applicant was required to make a decision. [16] After the rupture occurred between the parties in October 2006 there were a number of communications, not all of which are relevant to the case now before the Court. I need to mention one such communication, though, because it was central tothe submissions that Mr Grove made on behalf of the applicant. This was an email which Mr Morton sent to the applicant. It reads in part:Am wondering what you intend to do about your tenants and/or your house. I feel a bit aggrieved 'cos even if you were to only charge them somewhere closer to market rent then presumably you could send the extra money my way. Convoluted logic or what? I am a bit pissed off because the "for a few weeks" loans turned into a few months and now looks like how long???? Otherwise (in the absence of any other plan) it would be a good time to fix up your house and sell it. I'm happy to spend a few weeks fixing the place up so that you get a good price.. NOW is a good time. Plus the summer is coming up which would be a good time to sell. Please don't ignore this subject and give me a straight answer as to what you plan to do. If nothing else then please put the rent up and give me the extra dollars. If you have some free time U'd be happy to work with you to fix the place up and you could stay at my place for a few weeks whilst we do the project. I think it would only take two or three weeeks of full time effort. Otherwise, then I think you should put the place on the market as it is with Lydia & Co as tenants and risk losing them[17] An additional part of the relevant background is that at some point Mr Morton lent money to Ms Allan. Those loans, though, all seem to have been repaid. However, Mr Morton has established to the degree of certainty required for caveat proceedings that he advanced further money totalling $13,000 to the applicant. He has also stated on oath that the payments were made pursuant to an earlier agreement that he entered into with Ms Allan in which he agreed personally to buy the house property from Ms Allan. He has further deposed that as part of the contractual arrangements leading up to the parties entering into the agreement for sale and purchase which is the subject of this proceeding, that he and Ms Allan agreed that the $13,000 could be treated as the deposit under the agreement for sale and purchase. To meet the point that those payments only totalled $13,000 whereas the deposit called for under the agreement is $15,000, he asserts that Ms Allan agreed that he would be credited $2,000 to compensate him for interest that she did not pay but was required to pay on the advances that were made to her at an earlier date. [18] It is relevant to the background of this proceeding to note that there has been an increase in the value of the property since the date of the agreement, apparently not due to renovation or improvement but simply to increase in the market price that would now be payable for this property. It is apparently agreed by the parties that the purchase price of $300,000 under the agreement was the market value of theproperty at the time of the agreement in 2006. Ms Allan says that the property is now worth approximately $450,000. She does not give the basis from which she comes to that belief, but in any case Mr Morton himself accepts that the value of the property is 'likely to be around $380,000'.Principles[19] I respectfully adopt the relevant parts of the statement of principle in the judgmnt of Associate Judge Faire in Cantab Management Ltd v Greagh Investments Ltd HC Ham, M95-02, 20 November 2002 which sets out the principles applicable to applications of this kind at [2]: . c) The onus under s 143 of the Land Transfer Act 1952 lies on the caveator to show that he has a reasonably arguable case for the interest he claims. Castlehill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104-106 f) What the caveator must establish is an arguable case for claiming an interest of the kind in s 137 of the Land Transfer Act 1952 g) Even if the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously. Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd[1996] 2 NZLR 652 at 656 h) Delay is a relevant factor to be weighed in the exercise of the Court's wide discretion under s 143. Delay is more important where there is specific prejudice. What is required is a consideration of all the circumstances. Varney v Anderson [1988] 1 NZLR 478, 480;i) The summary procedure for removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. Accordingly it has been said:. . . 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 was no valid ground for lodging it or that such valid ground as then existed no longer does so. Sims v Lowe [1988] 1 NZLR 656 at pp 659-660.Does the respondent have an reasonably arguable case for the interest claimed?Agreement to discharge the contract?[20] Mr Grove submitted that the parties had impliedly agreed that the contract for sale of the land would no longer have effect. When I asked him if he was contending that there was a further agreement that had been entered into to discharge the earlier agreement, he said that there had been and that it was to be inferred from the delay that had occurred and also because the existence of such an agreement could be inferred from the terms of the email dated 24 November 2006 which I have set out at paragraph [16]. [21] The applicable principles are, I believe, correctly stated in Burrows, Finn & Todd Law of Contract in New Zealand (3ed 2007) at 520:In the leading case, Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blmenthal, this possibility was recognised by the House of Lords. In delivering the principal speech Lord Brandon identified two ways in which implicit abandonment might be shown. 16The first way is by showing that the conduct of each party, as evinced to the other party and acted on by him, leads necessarily to the inference of an implied agreement between them to abandon the contract. The second method is by showing that the conduct of B, as evinced towards A, has been such as to lead A reasonably to believe that B has abandoned the contract even though it has not in fact been B's intention to do so, and that A has significantly altered his position in relying on that belief.[22] Following the passage quoted by the authors, Lord Brandon went on to add ([1983] 1 All ER 34 at 47):The first method involves actual abandonment by both A and B. The second method involves the creation by B of a situation in which he is estopped from asserting , as against A, that he, B, has not abandoned the contract (seePearl Mill Case Officer Ltd v Ivy Tannery Case Officer Ltd [1919] 1 K.B. 78.[23] Earlier in his speech, his Lordship stated at [47] that the question of whether a contract has been abandoned or not is one of fact. [24] I now return to the facts of the present case. [25] As to the email quoted at paragraph [16], I think that Mr Hickson was on good ground when he said that the email did not support Mr Grove's submissions. The simple fact was that the house property still belonged to Ms Allan and therefore the references to 'your house' which are contained in the email simply reflected the current legal reality. At most, the email suggests to me that Mr Morton was canvassing options concerning the renovation of the house. Obviously, at the point when he sent the email, neither he nor the company had any right to unilaterally start renovating the property. They needed the consent of the applicant to do so. The email may be seen as Mr Morton giving encouragement to Ms Allan to get on with what they had already agreed to do. It is explicable as a discussion between two shareholders in the company that was intended to ultimately own the house if the agreement was to proceed. But, in my judgment, it does not go any further than that. It does not evidence an agreement to discharge the contract.Repudiation[26] Mr Grove also submitted that the actions of Mr Morton in unilaterally altering the shareholding of the respondent company so that he became the sole shareholding director amounted to 'repudiation' of the contract. Again, I am not able to accept that the applicant can demonstrate on that ground alone that the caveator does not have an enforceable agreement to acquire the property. The maintenance of the shareholding in the company at any particular ratio is not a matter that is provided for in the agreement for sale and purchase. Therefore, the actions of Mr Morton in altering the shareholder ratio cannot be contravention of theagreement for sale and purchase. It may, however, be of relevance to the background or 'umbrella' agreement of which the agreement for sale and purchase of the property was a sub-part. That aspect of the matter will have significance in that part of my judgment where I consider the likelihood that a Court would order specific performance of the agreement. [27] The facts that the applicant has advanced under these headings do not defeat the respondent's contention that a binding agreement for sale and purchase remains in existence.Likelihood that respondent will obtain specific performance[28] The question whether it is reasonably arguable that the respondent has a legal interest in the land, depends upon the respondent demonstrating that he has a properly arguable basis for claiming that it will be able to enforce the agreement for sale and purchase. The applicant's position is that he does not. The contention is that the respondent is unlikely to obtain specific performance of the contract. At the forefront of the applicant's arguments is the submission that the delays on the part of the respondent in seeking to enforce its interest have been excessive and that feature of the case will ultimately justify the Court in declining, in its discretion, to order specific performance. [29] In this case there have been delays in taking steps to issue proceedings. There was no analysis in the submissions made to me about what is the relevant period of 'delay' in the context of an application to remove a caveat. In my view, the point at which measuring delay ought to start is the point of time at which the company/Mr Morton appreciated that the vendor was plainly minded not to proceed with the agreement for sale and purchase. That date seems to be shortly after 17 August 2007, when the company did not receive any response to the settlement notice that it served. The respondent has still not taken any steps to enforce the agreement some six months later. No explanation has been offered. [30] Another factor, often considered in conjunction with issues of delay, is whether any prejudice would flow to the other party if an order for removal of acaveat were declined. Despite Mr Grove's submission that there is evidence of prejudice, I am unable to discern any allegation of prejudice in the affidavit that has been filed. [31] The delay without accompanying prejudice does not seem to me to be sufficient reason to order the removal of the plaintiff's caveat. [32] Next, it needs to be noted that the agreement for sale and purchase is in substance part of a wider agreement that goes beyond simply transferring the house to the company. The wider agreement deals with matters such as the work to be done to renovate the house and the distribution of the profits from doing so. In order for that wider agreement to be carried through to completion, there would need to be co-operation between the parties, given the breakdown of their personal relationship following the events of October 1996, that may pose some difficulties. It is unlikely that the parties will be able to work together. [33] Then there is the issue of Mr Morton apparently unilaterally altering the company's records as to the shareholdings in the company. Mr Grove submitted that this meant that he would not be able to come to the Court with 'clean hands'. Certainly his conduct seems to have been high-handed and unjustified. On the other hand, it would appear that a change to the register of the company does not effect an appropriation of Ms Allan's shares. It is merely a matter of the public record of what the shareholding is being out of step with the reality of the parties' shareholdings.Decision[34] In my view, the facts before me do not lead to the conclusion that the respondent is not able to assert that he has a reasonably arguable case. I do not consider that the evidence at this stage of the proceedings shows that the parties impliedly agreed to abandon the contract. Nor does it suggest that the respondent has repudiated the contract, so enabling the applicant to cancel. The delays on the part of the applicant are not great.[35] There is some conduct that may disentitle him to specific performance. As well, the Court may have difficulty ordering specific performance of the agreement when the personal relationship between the parties has broken down. Nonetheless, I would not be prepared to rule that the respondent does not have a reasonably arguable case for the interest claimed in the land. [36] My intention is to hold the application over for a period of weeks in order to give the company an opportunity to issue proceedings against Ms Allan. With that in mind, the proceeding is to be listed in my chambers list for 17 April at 2.15 pm.If by then reasonable progress has been made with commencing proceedings, I will then formally dismiss the application and deal with the matter of costs. _____________ J.P. Doogue Associate Judge