KOOKMIN BANK V CHARIOT WHEEL LTD HC AK CIV-2011-404-2186

KOOKMIN BANK V CHARIOT WHEEL LTD HC AK CIV-2011-404-2186 20 April 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-2186BETWEEN KOOKMIN BANKPlaintiffAND CHARIOT WHEEL LIMITEDDefendantHearing: 20 April 2011Appearances: Mr N Moffatt for plaintiffMr P O'Neil for defendantJudgment: 20 April 2011 at 3:00 PMJUDGMENT OF LANG J[on application for removal of caveat]This judgment was delivered by me on 20 April 2011 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] The Kookmin Bank holds a registered mortgage over a property adjacent to the Lake View Golf Club near Rotorua. The property over which the bank holds its mortgage is known as the Wynn's Block.[2] The proprietor of the property is in default with its obligations to the bank. As a result, the bank has exercised its power of sale under the mortgage to sell the property to the Rotorua District Council. It is unable to complete that sale because of a caveat registered against the title to the property by the defendant, Chariot Wheel Limited. That caveat purports to protect the interest of Chariot Wheel Limited under an agreement to purchase the property from the bank dated 21 October 2010.[3] The bank has now applied for an order under s 143 of the Land Transfer Act 1952 removing the caveat so that the sale to the Council can proceed. Although it has not filed any formal documents in opposition to the application, Chariot Wheel Limited contends that its caveat should remain in place.[4] The issue in dispute is whether the bank validly terminated an agreement for sale and purchase that it entered with Chariot Wheel Limited on 21 October 2010. If it did, the caveat must be removed. If it is arguable that the bank did not validly cancel the agreement, the caveat should ordinarily remain in place because it protects a prior equitable interest to the agreement that the bank subsequently entered into to sell the property to the Council.Relevant principles[5] The principles to be applied in applications such as this are well established through the decisions of the Court of Appeal in cases such as Sims v Lowe1 andPacific Homes Limited v Consolidated Joineries Limited.2 I propose to apply the following principles in reaching my decision:1 [1998] 1 NZLR 6562 [1996] 2 NZLR 652(a) The onus is on the caveator to demonstrate that it holds an interest in the land sufficient to support the caveat.(b) The caveator must put forward a reasonably arguable case to support the interest it claims.(c) An order for the removal of the caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively, that such ground as then existed has now ceased to exist.(d) The present proceedings are wholly unsuitable for the determination of disputed questions of fact.Factual background[6] In order to understand the issue that the present application raises, it is necessary to briefly outline the relevant factual background. That begins at the point at which the bank exercised its power of sale under the mortgage to sell the property to Chariot Wheel Limited.[7] The bank chose to exercise its power of sale by way at a public auction held on 21 October 2010. At the auction the highest bidder was a person called Herbert Armitage. He agreed to purchase the property for $810,000, and to pay a deposit of $81,000. The memorandum of contract prepared at the conclusion of the auctionrecorded the purchaser as "Herbert Bruce Armitage Chariot Wheel Limited".[8] The contract required the purchaser to pay the balance of the purchase price no later than 25 November 2010. This did not occur, so the bank issued a settlement notice on 30 November 2010 requiring the purchaser to complete the purchase of the property no later than 17 December 2010.[9] On 16 December 2010 the purchaser's solicitor, Mr Ray, telephoned thebank's solicitor. The file note that the bank's solicitor prepared following thattelephone discussion records that Mr Ray said that he thought there were caveats onthe title to the property. He also told the bank's solicitor that he had been assuredthat the money was genuine, but that the transaction had "all gone pear shaped". MrRay sought an extension of time for his client to complete the purchase until 17 January 2011.[10] Unknown to the bank or its solicitors, a caveat had been registered against the title to the property on 14 December 2010. The caveat was registered by a Mr JohnBourke. The caveat purported to protect Mr Bourke's interest under an agreement to mortgage between himself as mortgagee and the registered proprietor of the Wynn'sblock as mortgagor.[11] The purchaser did not complete the contract by 17 December 2010. Threedays later, on 20 December 2010, the bank's solicitor received a telephone call from Mr Bourke. He sought a further extension until 17 January 2011. He said that he had received legal advice to the effect that a single caveat could allow him to tie the bank up for one to two years. On the same date, the bank gave notice to thepurchaser's solicitor that it had cancelled the agreement because of the purchaser'sfailure to complete the purchase by 17 December 2010. Thereafter nothing further was heard from either the purchaser or Mr Bourke.[12] On 17 January 2011 the bank entered into a new agreement to sell the property to the Council. Settlement of that agreement was due to be completed no later than 17 April 2011. On 12 April 2011 I heard an application by the bank for anorder removing Mr Bourke's caveat. Although Mr Bourke had filed documents in opposition to that application, he did not appear at the hearing. In an oral judgment delivered on the same date I granted the application on the basis that Mr Bourke had failed to establish the existence of any agreement to mortgage between himself and the registered proprietor of the property.3[13] Two days later, on 14 April 2011, Mr Bourke lodged a further caveat against the title to the property. This sought to protect his interest as purchaser under the agreement for sale and purchase between the bank and Chariot Wheel Limited. The bank then promptly filed the present proceeding seeking an order removing the3 Kookmin Bank v Bourke & Anor HC Tauranga CIV-2011-470-146, 12 April 2011caveat. The application has been brought on for hearing as a matter of urgency, because the Council has told the bank that it will terminate its agreement to purchase the property unless settlement occurs tomorrow.[14] Although Mr Bourke has not filed any documents in opposition I permitted his counsel to advance argument in opposition to the application.The argument for Mr Bourke[15] Mr Bourke's argument is based on a narrow technical point. He contends that the property remained subject to his first caveat until I ordered that it be removed on 12 April 2011. As a result, he contends that the bank was never in a position tocomplete the sale of the property to Chariot Wheel Limited. For that reason it hadno ability to terminate the agreement with Chariot Wheel Limited. As aconsequence, the bank's letter of cancellation dated 20 December 2010 is of noeffect, and the contract dated 21 October 2010 remains in existence.Decision[16] The evidence makes it clear that the purchaser under the memorandum of contract dated 21 October 2010 was never in a position to complete the purchase.The purchaser's solicitor made that fact known to the bank. There was never anysuggestion that the purchaser might be in a position to complete the purchase of theproperty in accordance with either the memorandum of contract or the settlementnotice that the bank issued on 30 November 2011.[17] Had there been any suggestion that the purchaser might be in a position tocomplete the purchase, the bank would have had no difficulty in obtaining, as amatter of urgency if need be, an order removing the caveat. That order wouldinevitably have been made for the reasons set out in my earlier judgment. For thatreason I reject the submission that the bank was never in a position to complete thesale of the property. I therefore take the view that the bank became entitled to cancelthe contract when the purchaser failed to complete the purchase on 17 December2010.[18] In case I am wrong on that point, I consider that this is one of those very rare instances in which, even if Chariot Wheel Limited does retain a caveatable interest, nevertheless the Court should exercise its discretion to remove the caveat.[19] The bank did not cancel the contract until after 17 January 2011. That was three days after the date by which Mr Bourke and his solicitor told the bank the purchaser would be in a position to complete the purchase of the property.Thereafter they took no steps to complete the purchase prior to the point at which thebank entered into the new contract with the Council in January 2011. Even now, MrBourke is not in a position to complete the purchase immediately. His counsel toldme during the hearing that he would require five days to put steps in place to achievethat outcome.[20] I consider that Mr Bourke had ample opportunity to complete the purchase of the property prior to the point at which the bank terminated the agreement. Indeed, there was nothing to stop him continuing to negotiate with the bank up until the pointat which it entered into the agreement to sell the property to the Council. I wouldtherefore exercise my discretion in favour of the bank.Result[21] I make an order under s 143 of the Land Transfer Act 1952 removing Caveat X874345.1 from the title to the Wynn's Block.Costs[22] In the judgment that I delivered on 12 April 2011 I set a timetable for the filing of submissions in relation to costs in the other proceeding. The memoranda to be filed in relation to the costs payable in that proceeding should also deal with the issue of costs in the present proceeding.Lang JSolicitors:Bell Gully, WellingtonTony Harvey, GreertonMr P O'Neil, Lee Salmon Long, Auckland