ALLIED PRIME FINANCE LIMITED V STOCK STREET DEVELOPMENTS LIMITED HC WN CIV-2006-485-2613

ALLIED PRIME FINANCE LIMITED V STOCK STREET DEVELOPMENTS LIMITED HC WN CIV-2006- 485-2613 7 March 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-2613IN THE MATTER OF Section 143 of the Land Transfer Act 1952 and Rule 570 of the High Court Rules BETWEEN ALLIED PRIME FINANCE LIMITED Applicant AND STOCK STREET DEVELOPMENTS LIMITED Respondent Hearing: 5 March 2007 Appearances: J.J. Troup for Applicant J. McGuire for Respondent Judgment: 7 March 2007 In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 3.30pm on the 7th day of March 2007.JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL Introduction[1] The applicant Allied Prime Finance Limited ("Allied Prime") applies first under s143 Land Transfer Act 1952 for the removal of caveats 6929926.1 and 6929926.3 and secondly under r570 High Court Rules for the cancellation of charging order no. 6996438.1 in each case registered over two properties at Livingstone Street, Brooklyn, owned by H & P Developments Limited (in liquidation) ("H & P").[2] The application is opposed by the respondent Stock Street Developments Limited ("Stock Street"), the company which registered the caveats and charging order in question.Background Facts[3] Allied Prime is the registered mortgagee of the properties at 13 and 15 Livingstone Street, Brooklyn, Wellington described as Certificates of Title WN419/173 and WN420/137 ("the properties"). H & P, a company now in liquidation, is the registered proprietor of the properties. [4] In 2005 Stock Street purchased other sections (in Stock Street, Brooklyn in the general neighbourhood) from H & P. On the basis of a provision in the purchase agreement for those other sections, Stock Street has registered the caveats in question over the properties. The charging order has since been registered. [5] The Allied Prime mortgage was registered on 14 June 2005. Subsequently, the caveats were registered on 30 June 2006 and the charging order on 18 August 2006. [6] According to its counsel, the Allied Prime mortgage now secures some $243,723.35. H & P defaulted on payments due under its loan agreement with Allied Prime, an agreement supported by the registered mortgage. Allied Prime then decided to exercise its power of sale under the mortgage. It obtained a valuation for the properties from an independent registered valuer Telfer Young, which in its report dated 8 August 2006 valued the two sections together under forced sale conditions at $50,000. [7] In June 2006 the properties were advertised for sale by tender. On 28 August 2006 Allied Prime accepted a tender for their sale at a total price of $77,000 including GST. [8] In the meantime, as I have noted, on 30 June 2006 Stock Street had registered its caveats, and on 18 August 2006 the charging order.[9] The caveats in question state that Stock Street claims a caveatable interest in the properties on the following grounds:of a breach of Agreement for Sale and Purchase of Real Estate dated on or about 26 May 2005 whereby H & P Developments Limited agreed to complete infrastructure works by and under Special Condition 15.0 (which have not been completed) as a condition of the contract the failure of which invokes Special Condition 20 (transfer of land owned by the Vendor H & P Developments Ltd)(at the Vendor's discretion) to the value of $810,000 less the market value of the land purchased by the Caveator/Purchaser pursuant to the Agreement) thereby creating a constructive and/or resulting trust over the land in favour and for the benefit of the caveator as beneficiary thereto and/or creating an equitable lien over the land also in the caveator's favour and for its benefit (and also the contractual rights under the Agreement).[10] Special Condition 20 of the Agreement for Sale and Purchase of the Stock Street properties between Stock Street and H & P ("the Stock Street Sale Agreement") referred to in the caveats provides:20.1 The parties acknowledge that the purchaser will be applying to Wellington City Council for Resource Consent to further subdivide the land herein sold into eight separate titles. In the event the purchasers are unable to obtain such consent or consent to only subdivide the land into less than eight separate titles then the parties agree that the vendor will pay compensation payment by the Vendor to the Purchaser in cash or by transfer of further land (at Vendor's discretion) of a value which, when added to the market value of the separate titles for which consent is obtained, makes up a total of not less than $180,000.00 20.2 It is acknowledged that the $810,000 figure relates to a specific valuation and land configuration. If the purchasers vary their resource consent significantly, then clause 20.1 will be voided. 20.3 Clause 20.1 will expire 18 months from settlement date.[11] This Special Condition 20 is a complex, and in my view, a somewhat confused provision. Essentially, as I understand the position, Stock Street's claim is that on the basis of clause 20 of the Stock Street Sale Agreement, it has become entitled to either compensation from H & P or a transfer to it of land owned by H & P. This is because H & P failed to comply with its other obligations under the Stock Street Sale Agreement to carry out roading development and utilities work, which meant that Stock Street was unable to obtain its subdivision consent in terms of clause 20.1 of that Agreement (noted at paragraph [10] above), and therefore it was entitled to either compensation or transfer of further land from H & P. Its right tochoose recompense by the transfer to Stock Street of H & P's other land, it is contended, gave it the right to caveat the properties which are owned by H & P. [12] Stock Street's claim to a caveatable interest as best as I can tell is based on the broad proposition that it has equitable interests in the properties: a) Under a constructive trust and/or b) Under a resulting trust and/or c) Under an equitable lien. [13] So far as the charging order is concerned, on 17 August 2006 Stock Street obtained summary judgment in this Court against H & P for the sum of $210,931.25. The summary judgment decision was made on the basis that H & P had breached an obligation under the Stock Street Sale Agreement to complete the development works contemplated by the parties "as soon as possible". [14] Based upon that judgment, Stock Street obtained the charging order against land owned by H & P, including the properties. As I have noted, the charging order was registered against the title to the properties on 18 August 2006.Counsel's Arguments and My Decision[15] The general approach to applications under s143 and s145 Land Transfer Act 1952 was settled in Sims v Lowe [1988] 1 NZLR 656 where Somers J at page 660 said:The caveator seeks to clog or fetter the proprietary interest of another. As a matter of principle, it seems right that he must justify the continued existence of his caveat. He will do that if he can show he has a reasonably arguable case for the interest he claims.[16] The applicants have the burden of establishing a "reasonably arguable case" that they have a caveatable interest in the properties in question, and that the caveats should be sustained – Hinde McMorland & Sim "Land Law of New Zealand" Vol.1.Para 10.020. An order for removal of a caveat is not to be made unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it, or that no such ground may exist now – Re Graham (1912) 14 GLR 806; New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41 (CA). [17] In Hinde McMorland & Sim "Land Law in New Zealand" Vol.1 Para 10.020(a), the authors state:It is clear that on an application under sections 143, 145 or 145A the Court ought not finally to determine the rights of the parties unless both parties consent or unless the facts are not in dispute and the law has been fully argued.[18] Somers J in the Court of Appeal in New Zealand Limousin Cattle Breeders Society Inc v Robertson at page 43 said:The proceedings upon such an application (under s.145) are quite unsuitable to determine the rights of the parties.[19] It has been argued that the test to be applied under s.145 provides the Court with a residual discretion whether to allow the caveat to lapse or not. The initial onus rests on the caveator to establish a reasonably arguable case, but a balance of convenience test has been held to be appropriate – see Pacific Homes Limited (in receivership) v Consolidated Joinery Limited [1996] 2 NZLR 652 (CA). In Pacific Homes Limited Blanchard J in delivering the judgment of the Court of Appeal said at page 656:The Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced.[20] Thus, there is a reasonable argument from Pacific Homes Limited that even if a caveator satisfies the Court that she/he has an arguable case, the Court retains a discretion to make an order removing the caveat. [21] So far as the application to cancel the charging order is concerned, r570 High Court Rules states:570. Application for relief by persons prejudicially affected – (1) Any person alleging that he is prejudicially affected by any charging order may at any time apply to the Court for relief in accordance with this rule.(2) On any application under subclause (1) the Court may –(a) Vary or rescind the order; or(b) Cancel the registration or modify the effective registration of any order affecting land.Application to Remove Caveats[22] I turn now to consider the application by the applicant to remove the two caveats. [23] Here the caveats were lodged by Stock Street pursuant to s137(1)(a) Land Transfer Act 1952. In order to sustain the caveats, as I have noted, the onus is on Stock Street as caveator to show a reasonably arguable case that it has a caveatable interest in the properties and that the caveats should remain – Sims v Lowe. [24] As I have noted above, Stock Street claims it has an equitable interest in the properties either under a constructive trust and/or a resulting trust and/or an equitable lien. I now turn to consider these aspects.Constructive Trust[25] It has been said that there is no clear and all-embracing definition of a constructive trust, but nevertheless, a constructive trust generally arises where one party (the trustee) retains benefits in breach of its equitable obligations to the other party. It implies a fiduciary duty on the part of the trustee – Butler & Others "Equity and Trusts in New Zealand", Brookers, Wellington 2003, paras 12.1.1, 12.1.3 and 12.2.1. [26] I am satisfied that this is not the situation which arises in the present case. Stock Street claims that its rights arise under clause 20 of the Stock Street SaleAgreement. It is clear, in my view, that this clause gives Stock Street only contractual rights and no clear interest in any property. This Special Condition 20 makes no reference to the properties, and I am satisfied does not give rise to any equitable obligation on the part of H & P to hold the properties for the benefit of Stock Street. [27] It is important to note that Special Condition 20.1 of the Stock Street Sale Agreement provides that in the event of default under that agreement by H & P, then either compensation is to be paid to Stock Street, or (at the vendor H & P's discretion) a transfer of further land owned by H & P might be made. This transfer of any further land is noted to be strictly at the discretion of the vendors H & P. [28] As to this, it is useful also to note the comments of Associate Judge Christiansen in his decision on Stock Street's summary judgment application against H & P dated 17 August 2006 (noted at paragraph [13] above) which formed the basis of the charging order. His comments at paragraphs [10], [11] and [12] of that judgment are significant here:[10] Also, Clause 20.3 could on one reading suggest that a claim for compensation is in any event premature for the 18-month period referred to in that sub-clause does not expire until 30 December 2006. Until that time and by Clause 20.1, the vendor has a discretion to pay compensation or to transfer land in lieu. [11] Another complication arises because Clause 20.1 provides relief only if the plaintiff is unable to obtain consent for a subdivision of less than eight lots. The evidence discloses consent was sought for a five-lot subdivision only. [12] In summary, not only is a claim for $465,000 unsustainable, it is also arguably premature to make any claim for compensation based on Clause 20.[29] The Stock Street caveats here were registered on 30 June 2006, which was some six months prior to expiry of the 18 month period referred to in clause 20.3 of the Stock Street Sale Agreement – i.e. 30 December 2006. As Associate Judge Christiansen notes, H & P in any event continued to have the option up to 30 December 2006 to pay compensation in cash rather than by transfer of land for any default on its part pursuant to clause 20.1 of the Stock Street Sale Agreement. In myview, these aspects do not assist Stock Street here in its claim on 30 June 2006 that at that point it had a caveatable interest over the properties. [30] Further, and in any event, in my view, Stock Street's argument here at best is that in Special Condition 20.1 of the Stock Street Sale Agreement H & P has provided to it a possible benefit in the nature of a right of first refusal for any land which H & P as vendor might wish to offer as potential compensation to Stock Street. But certainly there is no commitment to provide any property such that it is in the nature of an option to take any defined land. It is always up to H & P to determine what, if any, land it might choose to offer. [31] That said, the line of authority which provides that a bare right of first refusal or pre-emption does not generally create an equitable interest in any property and will not support a caveat, in my view, at least by analogy would have some application here. See Beneficial Finance Corp v Multiplex Constructions Pty Ltd(1995) 36 NSWLR 510, Esders v New Zealand Guardian Trust Co [1996] 1 NZLR 723, and Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762. [32] Further, I take the clear view that there is certainly no "institutional constructive trust" established by Stock Street in the present case. If there was any possibility of a constructive trust being found to apply in the circumstances of this case (and in my view, there is virtually no chance of this), at best, in any event, it would have been only a remedial constructive trust and one therefore not capable of supporting a caveat – Fortex Group Limited (in receivership and liquidation) v McIntosh [1998] 3 NZLR 171 (CA) and Metalplas Engineering Pty Ltd v Ellis (HC AK, 21 August 2002, M293-IM02, Master Lang).Resulting Trust[33] A resulting trust arises where one party, a beneficiary, contributes all or part of the purchase price for a property that is legally vested in another party, the trustee. The trustee is regarded as holding the property, or that part of the property to which the first party contributed on trust for the beneficiary – Butler & Others "Equity and Trusts in New Zealand", Brookers, Wellington, 2003, paragraph 11.2.[34] There can be no argument in the present case to the proposition that Stock Street has made no contribution to the purchase price of the properties, and no resulting trust can arise here. I dismiss this claim by Stock Street.Equitable Lien[35] An equitable lien is a charge on a property to secure the payment of a debt out of that property - Butler & Others "Equity and Trusts in New Zealand", Brookers, Wellington, 2003, paragraph 27.1. [36] In the case before me, the agreement contained in the Stock Street Sale Agreement between Stock Street and H & P makes no reference to the properties. They are not identified, nor are they appropriated to the performance of the contract. And, as I have already noted, any "debt" that might be established as due from H & P to Stock Street as claimant could, in any event, be satisfied by H & P at any time up to 30 December 2006 deciding to pay the debt in cash rather than by provision of any of its properties. [37] That said, in my view there can be no question of any equitable lien over the properties arising here. [38] I conclude, therefore, that Stock Street has no caveatable interest in the properties, there being no constructive trust, resulting trust or equitable lien established here. [39] If I am wrong as to any of these aspects, and it was able to be established that Stock Street did have an equitable interest in the properties capable of supporting a caveat, in my view this does not end matters, however. Allied Prime's earlier registered mortgage in any event must be seen as taking priority under the principles of indefeasibility set out in the Land Transfer Act 1952, and as I see it, the exercise of the Court's discretion here would clearly justify an order being made for the removal of the caveats.[40] Expanding on these aspects, upon registration of its mortgage, Allied Prime had an indefeasible interest in the properties not subject to any prior equitable interests. Section 62 Land Transfer Act 1952 clearly provides that except in the case of fraud, the registered proprietor of an interest in land, which includes a registered mortgage, holds the interest subject only to prior registered interests, but free of all other encumbrances. [41] And, the fraud exception to indefeasibility in my view clearly does not arise here. As to this, Stock Street contends that Allied Prime knew of its alleged prior equitable interest in the properties. It bases this upon the contention that the solicitor for H & P acted both in respect of the sale of the Stock Street sections to Stock Street and the mortgage of the properties to Allied Prime. [42] As I see it, however, there is, no evidence before the Court of any prior knowledge on Allied Prime's behalf of the Stock Street sale agreement between H & P and Stock Street. [43] And, even if Allied Prime did have notice of the Stock Street Sale Agreement, there is no doubt first that the provisions of this agreement are confusing and equivocal and secondly, in any event, mere notice of a prior equitable interest is not fraud and does not defeat Allied Prime's prior registered interest as mortgagee in the land – see s182 Land Transfer Act 1952 and Wicks v Bennett (1921) 30 CLR 80. [44] As to the claim in personam exception to indefeasibility advanced by Stock Street here, in my view that does not assist. Stock Street does not have a claim against Allied Prime based upon contract – there is no privity of contract between them. Further, Stock Street does not, as I see it, have any claim in equity against Allied Prime, as there is no fiduciary relationship between them. And, in any event, even if Stock Street did have a claim in personam, such a claim would not provide the basis for the caveatable interest in the properties claimed here. Allied Prime's indefeasible interest in the properties as mortgagee is not defeated by any personal claim.[45] This is enough, in my view, to dispose of the application by Allied Prime before the Court. [46] For the reasons outlined above, I am satisfied that Stock Street here has been unable to show that it has a reasonably arguable case to the caveatable interest it claims in the properties. [47] If I may be wrong as to this aspect, there is in my view an additional reason why the Stock Street caveats should be ordered to lapse here. This relates to the residual discretion which the Court has to allow caveats to lapse, even if a Court was to accept that the caveator has a reasonably arguable case for the interest claimed. [48] To exercise this residual discretion and make an order for removal of a caveat, the Court is required to be completely satisfied that the legitimate interests of the caveator would not thereby be prejudiced – Pacific Homes Limited (in receivership) v Consolidated Joinery Limited [1996] 2 NZLR 652, and the discretion is always to be exercised on a cautious basis – Stewart v Kaipara Consultants Limited [2000] 3 NZLR 55(CA). [49] In the present case, if I had accepted that Stock Street's caveats should be sustained (which I have not done), in any event, I would order removal of the caveats in the circumstances prevailing here. [50] This is because Allied Prime as mortgagee in the exercise of its power of sale rights under the mortgage entered into an agreement at tender with a buyer of the properties and the existence of the caveats prevent settlement of this sale agreement. [51] The evidence before the Court is that this tender sale agreement is at a figure above the forced sale valuation figure for the properties given by an independent registered valuer. [52] In my view, if the caveats are removed, there is no real prejudice to Stock Street here. Even if Stock Street did have a caveatable interest in the properties by virtue of a constructive trust or otherwise, its interest would be defeated by AlliedPrime's interest as mortgagee which has priority. The amount that Allied Prime will recover under the mortgagee sale of the properties of $77,000.00, falls far short of the amount owing to it, of more than $240,000.00. [53] Stock Street before me made no complaints about the conduct of this mortgagee sale or the actions of Allied Prime in concluding the sale by tender. [54] It is well established that a Court will not order specific performance of a contract where to do so would force a party to breach a prior contract – Manchester Ship Canal Company v Manchester Racecourse Company (1901) 2 Ch 37 andHarris v Appis Holdings Limited [2002] 3 NZLR 511 (CA). By analogy here, allowing the Stock Street caveats to remain upon the titles to the properties would mean that Allied Prime was in breach of the settlement obligations under its tender sale contract. [55] If Stock Street has a valid complaint here, then it is with respect to a breach by H & P of the Stock Street Sale Agreement and its remedies lie under that agreement. [56] For these reasons I am satisfied that this is a case where even if Stock Street had established a reasonably arguable case to its caveats (which I have already rejected), the Court's residual discretion should be exercised in favour of Allied Prime to remove the caveats from the titles to the properties.Conclusion[57] The application by Allied Prime for the removal of the caveat succeeds. An order is now made that caveat 6929926.1 and 6929926.3 are to be removed from Certificates of Title WN420/137 and WN419/173. [58] So far as the charging order is concerned, as this ranks in priority after the Allied Prime mortgage under which more than $77,000.00 is outstanding from the mortgagor, it is appropriate in terms of r570 High Court Rules for an order to be made requiring the registration of this order to be cancelled.[59] An order is now made that charging order no. 6996438.1 registered against Certificates of Title WN419/173 and WN420/137 is cancelled. [60] As to costs, Allied Prime has been successful in this application. It seeks costs in excess of scale for what it says is the unreasonable position taken by Stock Street and its legal advisers in this matter. [61] As to that aspect, I reserve costs. [62] I direct that counsel for Allied Prime is to file and serve a memorandum as to costs within 21 days of the date of this judgment. Counsel for Stock Street is then to have a further 14 days from that date to file and serve his memorandum in response. [63] I will then decide the issue of costs based upon the material then filed. ________________________________Associate Judge D.I. GendallSolicitors:Kensington Swan, Wellington for Applicant Jeremy McGuire, Wellington for Respondent