EPSOM WOODS LIMITED v WAITAKERE FARMS LIMITED [2020] NZCA 226

EPSOM WOODS LIMITED v WAITAKERE FARMS LIMITED [2020] NZCA 226 [10 June 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA327/2019[2020] NZCA 226BETWEEN EPSOM WOODS LIMITEDAppellantAND WAITAKERE FARMS LIMITEDRespondentHearing: 5 March 2020Court: Courtney, Ellis and Brewer JJCounsel: D Hayes for AppellantAAH Low for RespondentJudgment: 10 June 2020 at 10 amJUDGMENT OF THE COURTA The appeal is dismissed.B Costs are awarded to the respondent for a standard appeal on a band A basisplus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Brewer J)Introduction[1] Waitakere Farms Ltd (WFL) is the registered proprietor of a 51 ha forestry lotat 131–149 Anzac Valley Road, Waitakere (the land). WFL became the registeredproprietor on 14 March 2017 having purchased it from a mortgagee exercising itspower of sale.[2] The mortgagee from which WFL purchased the land was Nags Head HorseHotel Ltd (Nags Head). Its mortgage was registered on 27 August 2010.The registered proprietor of the land changed subsequently on two occasions but NagsHead's mortgage remained registered as the first mortgage.[3] Epsom Woods Ltd (EWL) sued WFL claiming ownership of trees on the land.It relied on an unregistered agreement to lease the land entered into in 2009 betweenthe then registered proprietor (a Mr Vesey) and "North Kaipara Nominees Ltd astrustee of the Anzac Valley Forestry Trust". EWL took an assignment of the agreementfor $1 on 29 October 2018.[4] WFL applied for summary judgment against EWL. Associate Judge Bellgranted WFL summary judgment on 17 June 2019.1[5] EWL now appeals this decision.2The appeal[6] In its statement of claim, EWL pleaded that a Mr Buttling (who originallyagreed to purchase the land from Nags Head as mortgagee but who nominated WFLas purchaser) was informed on or about 16 February 2017 in writing that the AnzacValley Forestry Trust and/or its trustees had claimed rights to the trees.[7] The statement of claim went on to plead:14. [WFL] is estopped from denying [EWL's] ownership of the trees.15. [WFL] holds the trees on the land in trust for [EWL].[8] The notice of appeal states the ground of the appeal as:The Land Transfer Act 1952 sections 105 and 182 have no application in anin personam claim for a declaration as to ownership of the trees on the land.(para 28 of decision)1 Epsom Woods Ltd v Waitakere Farms Ltd [2019] NZHC 1374.2 EWL's proceeding against WFL included a prayer for a declaration that the land is subject to aresidential tenancy. Associate Judge Bell granted WFL summary judgment on that cause of actionalso. EWL appeals only the decision granting WFL summary judgment on the cause of actionclaiming ownership of trees and so we will say nothing further about the residential tenancy claim.[9] Paragraph [28] of the Associate Judge's decision reads:[28] In that context, mere knowledge of unregistered interests in the landcan have no bearing on the ability of a purchaser to take a clean title from amortgagee exercising a power of sale. Knowledge that there may beunregistered interests does not make it fraudulent for the purchaser to taketitle. To the contrary, he is taking title on the basis that, whatever the interestsin the land before, they will be cleared off on his taking title. Knowing thatdoes not make him fraudulent. It does not matter if he gained that knowledgebefore entering into the agreement or after entering into the agreement andbefore taking title or after having obtained title.[10] We will come to EWL's argument in relation to paragraph [28] shortly. But,first, we point out that Associate Judge Bell's decision was based on the simpleapplication of s 105 of the Land Transfer Act 1952 (the Act). This provides:105 Transfer by mortgageeUpon the registration of any transfer executed by a mortgagee for the purposeof exercising a power of sale over any land, the estate or interest ofthe mortgagor therein expressed to be transferred shall pass to and vest inthe purchaser, freed and discharged from all liability on account of themortgage, or of any estate or interest except an estate or interest created byany instrument which has priority over the mortgage or which by reason ofthe consent of the mortgagee is binding on him.[11] The agreement to lease was never registered against the title and there was nosuggestion that Nags Head had ever consented to be bound by it. Therefore, and tritely,WFL took title to the land "freed and discharged from all liability" on account of theagreement to lease.[12] Associate Judge Bell accepted that fraud may be an exception to s 105. Hereferred to Halliday v Bank of New Zealand in this regard.3 But he was careful to pointout that "fraud" means actual dishonesty and that constructive fraud arising from merenotice is not enough. His paragraph [28] quoted above at [9] elaborates on this point.It is the point challenged on appeal.[13] At the hearing we asked Mr Hayes for EWL to identify the errors of fact or lawwhich he relies on to have the Associate Judge's decision set aside. Mr Hayes candidlyaccepted that Associate Judge Bell did not make a factual error and neither did he3 Halliday v Bank of New Zealand [2012] NZHC 3099, [2013] 1 NZLR 279 at [60].make an error on the law as it stands currently. Mr Hayes's submission to us was thata claim in personam should be able to be brought, notwithstanding s 105, if a purchaserhad knowledge of an unregistered claim or interest in the land. If, with suchknowledge, a person purchases land from a mortgagee and then denies theunregistered claim or interest then that should amount to actual dishonesty and permitan in personam claim to be brought.Discussion[14] We cannot accept Mr Hayes's submission.[15] Associate Judge Bell's finding on the claim of equitable estoppel cannot becriticised:[37] Epsom Woods Ltd has pleaded the first cause of action againstWaitakere Farms Ltd as a claim of equitable estoppel. The estoppel pleadingis not adequate to establish a claim binding Waitakere Farms Ltd. There isnothing in the way of any representation or conduct on the part of WaitakereFarms Ltd that would suggest that Epsom Woods Ltd had been lulled intosome sense of assurance that it has an interest in the land. There is nothingelse that would make estoppel by representation reasonably arguable. At bestthe claim is that Waitakere Farms Ltd took title subject to an interest, wherethe purchaser was advised of the interest after having entered into theagreement for sale and purchase. For reasons I have explained, beinginformed of that interest does not stand in the way of Waitakere Farms Ltdtaking a clear title.[16] The law is clear that mere notice of an unregistered interest is not enough tofound an in personam claim. The starting point is s 62 of the Act:62 Estate of registered proprietor paramountNotwithstanding the existence in any other person of any estate or interest,whether derived by grant from the Crown or otherwise, which but for this Actmight be held to be paramount or to have priority but subject to the provisionsof Part 1 of the Land Transfer Amendment Act 1963, the registered proprietorof land or of any estate or interest in land under the provisions of this Act shall,except in case of fraud, hold the same subject to such encumbrances, liens,estates, or interests as may be notified on the folium of the register constitutedby the grant or certificate of title of the land, but absolutely free from all otherencumbrances, liens, estates, or, interests whatsoever,—(a) except the estate or interest of a proprietor claiming the same landunder a prior certificate of title or under a prior grant registered underthe provisions of this Act; and(b) except so far as regards the omission or misdescription of any right ofway or other easement created in or existing upon any land; and(c) except so far as regards any portion of land that may be erroneouslyincluded in the grant, certificate of title, lease, or other instrumentevidencing the title of the registered proprietor by wrong descriptionof parcels or of boundaries.[17] Justice Tipping observed of s 62:4[136] That section was rightly described by the Privy Council in Frazer vWalker as the key section for understanding the scheme of the Act. Section 62says that except in the case of fraud the registered proprietor holds his interestin the land subject only to such encumbrances and other estates or interests asare notified on the register and absolutely free from all other encumbrances,estates or interests. It is the fact of becoming the registered proprietor withoutfraud that gives the estate of the registered proprietor paramountcy. Whetherthe registered proprietor has given value for the estate or interest for which heor she is registered can therefore have no relevance to the paramountcy of thatestate.[18] In Nathan v Dollars & Sense Finance Ltd, this Court observed that anin personam claim must have three elements: 5(a) It must not be inconsistent with the objects of the Torrens system.(b) It must involve unconscionable conduct on the part of the currentregistered proprietor.(c) It must be a recognised cause of action.[19] The Court said:6Further, in personam claims based merely on notice (particularly constructivenotice) of any trust or unregistered interest would offend s 182 of the LTA (seepara [25]). There must be something more before an in personam claim wouldlie. The "something more" is in each case the second element set out at para[139](b): unconscionable conduct.[20] In this case, there is no pleaded allegation of unconscionable conduct and noevidential basis for such a claim. All that is pleaded, and the evidence supports, is that4 Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433.5 Nathan v Dollars & Sense Finance Ltd [2007] NZCA 177, [2007] 2 NZLR 747 at [137].6 At [139].the person who nominated WFL as purchaser had notice of the claimed agreement tolease.[21] There was never any relationship between WFL and those who claimed thebenefit from time to time of the agreement to lease.[22] Relevantly, Tipping J in Regal Castings v Lightbody said:7[147] Regal seeks to invoke what is often called the in personam exceptionto indefeasibility. It is a moot point whether this is a true exception as opposedto being simply a situation which the indefeasibility principle does not reach.It is not necessary to dwell on that issue. The cardinal feature of theindefeasibility principle is that, absent fraud, it entitles the registeredproprietor and those dealing with the registered proprietor to rely on theregister. Sections 62 and 63 allow the registered proprietor to denyunregistered interests and resist claims for possession. Sections 182 and 183allow purchasers and others dealing with the registered proprietor to rely onthe register for the purpose of gaining assurance as to what the registeredproprietor can convey. On this basis those dealing with the registeredproprietor do not have to go behind the register to ascertain the state of theregistered proprietor's title.[148] An in personam claim against a registered proprietor looks to the stateof the registered proprietor's conscience and denies him the right to rely onthe fact he has an indefeasible title if he has so conducted himself that it wouldbe unconscionable for him to rely on the register. Such a claim is concernedwith the personal obligations of the registered proprietor rather than with thesanctity of their title. A successful in personam claim indirectly affects theregistered proprietor's title, such as when a decree of specific performance ismade; but the claim is not a claim to the land as such. It is a claim that theregistered proprietor perform the contract of sale.[149] The in personam jurisdiction must not, however, be allowed toimpinge on the fundamental purpose of the Torrens system. In terms of s 62,that purpose is to make the registered proprietor's estate (or title, as it isusually put) paramount against interests which are not notified on the register.It is, in my view, immaterial whether such an interest could have beenregistered. Hence, if Regal had an unregistrable interest in the land which wasnot susceptible to in personam relief, that interest would not prevail againstthe paramountcy provisions of s 62.Decision[23] It follows that WFL was entitled to summary judgment. EWL had brought acase which simply could not succeed on the facts and on the law in application to thosefacts.7 Regal Castings Ltd v Lightbody, above n 4 (footnotes omitted).[24] The appeal is dismissed.[25] WFL submits there is a basis for an uplift from scale costs. We understand thereason for the submission but in the circumstances have decided a standard award isbest. We award costs to WFL for a standard appeal. on a band A basis plus usualdisbursements.Solicitors:Hunwick Law Ltd, HamiltonAlexandra Low and Associates, Auckland