LEPIONKA & COMPANY INVESTMENTS LIMITED v NALDAPAT LIMITED [2019] NZHC 1646

LEPIONKA & COMPANY INVESTMENTS LIMITED v NALDAPAT LIMITED [2019] NZHC 1646 [15 July2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-616[2019] NZHC 1646BETWEEN LEPIONKA & COMPANYINVESTMENTS LIMITEDApplicantAND NALDAPAT LIMITEDFirst RespondentLW354 LIMITEDSecond RespondentHearing: 27 June 2019 at 10:00amAppearances: M D O'Brien QC with M G Colson for the ApplicantNo appearance for the First RespondentK P Sullivan for the Second RespondentJudgment: 15 July 2019JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 15 July 2019 at 4:00pmpursuant to Rule 11.5 of the High Court Rules.Deputy RegistrarSolicitors:Bell Gully (Jennifer H Stevens/S J Leslie), Wellington, for the ApplicantWCM Legal, Wellington (Michael G Bale), for the Second RespondentCopy for:Mark O'Brien QC and Mike Colson, Wellington, for the ApplicantKevin P Sullivan, Wellington, for the Second Respondent[1] Lepionka & Company Investments Ltd ("the Lepionka mortgagee") applies toset aside two caveats lodged against the title to a 24 hectare property in KahuranakiRoad, Havelock North, Hawkes Bay beside the Tukituki River described in identifier716653. One caveat was lodged by Naldapat Ltd and the other by LW354 Ltd.Naldapat Ltd withdrew its caveat before the hearing. Accordingly, I was required toconsider only the caveat by LW354 Ltd. The interest claimed under its caveat is:The abovenamed caveator claims an interest in the land contained in the abovecertificate of title 716653 as beneficial and/or equitable owner of the freeholdestate and the fee simple, pursuant to a cestui que trust agreement as per thedeed of appointment and retirement of trustee dated 13 November 2018 assuccessor pursuant to a deed of appointment of trustee dated 20 July 2017between the registered owner GLW Group Limited and Naldapat Limited.[2] GLW Group Ltd is the registered proprietor of the property. The man behindthe company is Mr Garth Paterson. The company undertook a subdivisiondevelopment of the property but ran into financial difficulties and did not complete it.Mr Paterson is now a current bankrupt. (He was also bankrupted in Australia but isnow discharged.) People associated with Mr Paterson are his former wife,Ms Elizabeth O'Neil, and his current partner, Ms Nadia Dapas. Ms O'Neil lives inAustralia. She is now the sole director and shareholder of GLW Group Ltd, now inliquidation. She is also the sole director and shareholder of LW 354 Ltd. Ms Dapasis the director and shareholder of Naldapat Ltd.[3] The Lepionka mortgagee holds a registered first mortgage over the property.It has standing to apply for removal of the caveat under s 142 of the Land Transfer Act2017, as it has an estate or interest affected by the caveat. It says that the caveatprevents it from completing sales of the property in the exercise of its powers asmortgagee.[4] At the end of the hearing, I said that LW354 Ltd's caveat should be removed.I now give my reasons. In summary, LW354 Ltd claims that GLW Group Ltd ownsthe property as a trustee under a trust established in 2009. It resigned as trustee in July2018 and LW354 Ltd has become a new trustee (after a short spell when Naldapat Ltdwas trustee). While GLW Group Ltd still holds legal title, LW354 Ltd has a beneficialinterest as the new trustee. LW354 Ltd wants to continue claims against the Lepionkamortgagee which GLW Group Ltd had made while it was trustee. LW354 Ltd'sinterest does not, however, prevail over the Lepionka mortgagee's, whose right to sellthe property under its mortgage has been upheld under a decision of Fitzgerald J ofDecember 2017. Her decision did not resolve all issues. GLW Group Ltd appealedagainst that decision, but her judgment can now safely be regarded as final. GLWGroup Ltd went into liquidation. The liquidator and the Lepionka mortgagee made asettlement under which GLW Group Ltd discontinued its claim in this court andabandoned its appeal. LW354 Ltd has no reasonable prospect of reviving thatproceeding. The Lepionka mortgagee remains free to complete its sales as mortgageenot restrained by the caveat. Moreover, as a matter of discretion, the caveat should beremoved because it was lodged in breach of a court order and an undertaking to thecourt.General principles on caveat applications[5] In Holt v Anchorage Management Ltd, McMullin J stated the purpose of acaveat against dealings under the Land Transfer Act 1952:1Once lodged, a caveat is notice to all who search the title to the land againstwhich it is registered and to the registered proprietor of the land (to whomnotice of its receipt is given pursuant to s 142) that the caveator claims theestate or interest the subject of the caveat. It is both a warning to the personsmentioned that the caveator asserts rights against the land and a protection ofthose rights. (Section 143(1) uses the phrase "protected by the caveat"). Oncethe caveat is lodged the Registrar is prohibited from making any entry on theregister which has the effect of charging or transferring or otherwise affectingthe estate or interest protected by the caveat (s 141).[6] Although Holt was heard under the Land Transfer Act 1952, McMullin J'sstatement equally applies to caveats under the Land Transfer Act 2017. The 2017 Act,which repealed the 1952 Act, applies here as it came into force in November 2018.LW354 Ltd lodged its caveat in January 2019. The Lepionka mortgagee began itsapplication in March 2019. The jurisdiction of associate judges to decide caveatapplications has been continued under the new Act.21 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 10–11.2 Land Transfer Act 2017, s 250 and Schedule 2, amending s 20(1)(e) of the Senior Courts Act 2016to refer to the 2017 Act.[7] In caveat applications under ss 142 and 143 of the Land Transfer Act 2017, thecaveator generally has the onus of showing a reasonably arguable case for the interestclaimed. The interest must come within s 138(1):138 Caveats against dealings with land(1) A person may lodge a caveat against dealings with an estate or interestin land (a caveat against dealings) on the basis that the person—(a) claims an estate or interest in the land, whether capable of registrationor not; or(b) has a beneficial estate or interest in the land under an express, implied,resulting, or constructive trust; or(c) is transferring the estate or interest in the land to another person to beheld on trust; or(d) is the registered owner of the estate or interest in the land and—(i) has an interest that is distinct from that of registered owner;or(ii) establishes to the satisfaction of the Registrar that at the timethe caveat is lodged there is a risk that the estate or interestmay be lost through fraud.[8] A personal or contractual right is not enough. The caveator must show anentitlement to a beneficial interest in the land under the caveat.3 Something more thana potential or future interest is required. An interest in the proceeds of sale of aproperty is not an interest in the property and cannot be protected by a caveat.4[9] A caveat must contain the "prescribed information", which includes:5A description of the nature of the estate or interest claimed by the caveator(which must be stated with sufficient certainty) Details of how the estate or interest claimed is derived from the registeredowner[10] Caveat applications are summary and are therefore not suitable for decidingdisputed questions of fact. On the other hand, the court is not required to accept3 Guardian Trust & Executors New Zealand Ltd v Paul (No.2) [1938] NZLR 1020 (CA) at 1025;Philpott v NZI Bank Ltd (1989) 1 NZConvC 190 at 246.4 Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 (CA).5 Land Transfer Act 2017, s 138(3) and Land Transfer Regulations 2018, Schedule 2.uncritically as raising a dispute of fact which calls for further investigation everystatement in an affidavit, however equivocal, lacking in precision, inconsistent withundisputed contemporary documents or other statements by the same deponent orinherently improbable it may be. To establish a reasonably arguable case, there mustbe evidence tending to prove the facts relied on. Assertion, whether in pleadings oraffidavits, is not enough. The evidence need not be as extensive as that given in ahearing on the substantive merits. It may be circumstantial. But if there is no evidenceto prove the facts contended for, the caveator will not have made out a reasonablyarguable case for those facts. As a qualification to the reasonably arguable standard,where there are allegations of fraud or other reprehensible conduct, it is necessary toshow a prima facie case.6[11] For a caveat to be removed, it must be patently clear that the caveat cannotstand either because there was no ground for lodging it at the outset or because anysuch ground no longer exists. The court has a residual discretion not to uphold a caveatbut that is exercised cautiously, as when the caveat could serve no useful purpose oralternative safeguards are available. In Pacific Homes Ltd (In Receivership) vConsolidated Joineries Ltd, the Court of Appeal said:7We are of the view that in the dictum in Sims v Low, Somers and Gallen JJwere concerned with the situation which was then before the Court and werenot putting their minds to a situation in which there is no practical advantagein maintaining a caveat lodged by someone who could properly claim acaveatable interest. In such circumstances, the Court retains a discretion tomake an order removing a caveat though it will be exercised cautiously. Anorder will be made for removal only where the Court is completely satisfiedthat the legitimate interests of the caveator will not thereby be prejudiced. If,on the facts of a case, it can be seen that the caveator can have no reasonableexpectation of obtaining benefit from continuance of the caveat in the form ofthe recovery of money secured over the land while specific performance of anagreement or if the caveator's interest can be reasonably accommodated insome other way, such as by substituting a fund of money under the control ofthe Court then it may be appropriate for the caveat to be removednotwithstanding that the right to a claimed interest is undoubted.[12] On the exercise of a power of sale by a mortgagee, the court may order theremoval of a caveat, even though the caveator has a reasonably arguable case for the6 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].7 Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at656; cited in Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [22].interest claimed in the caveat.8 The caveat is removed, not because there is not aninterest in land under s 138, but because the mortgagee takes priority over that interestand the interest claimed under the caveat will be extinguished under s 103 of the LandTransfer Act on the transfer of title:103 Transfer of mortgaged land by mortgagee sale(1) The estate or interest of a mortgagor in land vests in the purchaser ofthe land on registration of a transfer instrument executed by a mortgagee forthe purpose of exercising a power of sale under a mortgage.(2) The estate or interest transferred vests in the purchaser freed of anddischarged from—(a) liability under the mortgage; and(b) any other mortgage or interest that does not have priority overthe mortgage or that is not binding on the mortgagee.[13] The Land Transfer Act 2017 introduced a shortcut for the removal of somecaveats when a mortgagee transfers title under a power of sale. Under s 141, when amortgagee transfers title under a power of sale in a registered mortgage and there is acaveat against the same interest to which the mortgage relates, on registration of thetransfer the caveat lapses without the need for a court order or the consent of thecaveator and the purchaser takes title free of the interest claimed in the mortgage. Butthat applies only to caveats protecting unregistered mortgages or agreements tomortgage dated later than the registration of the registered mortgage.9 The Lepionkamortgagee cannot, however, use that shortcut because the interest claimed by LW354Ltd does not arise under a mortgage or agreement to mortgage.Background[14] The Lepionka mortgagee says that any rights claimed by LW354 Ltd cannotprevail over its powers as mortgagee to sell the property and give a title cleared of allsubordinate interests. The Paterson interests have strongly contested that claim. It isnecessary to go into the background.8 Jenssen v Jenssen CA 246/90, 13 December 1990.9 Land Transfer Act 2017, s 141(1)(c).[15] GLW Group Ltd bought the Kahuranaki Road property in 2009 in part withfunds borrowed from Westpac Bank which took a registered first mortgage over theproperty. GLW Group began developing the property to subdivide it into lifestyleblocks for sale. There is a complex history about the development and sales ofproposed lots, but for this case it is not necessary to go into the details. They aredescribed in other judgments. I deal only with matters required as background for thiscase. Mr Andrew Coltart, who was given an option to purchase a lot, is peripheral butwill be referred to.[16] In January 2014, GLW Group Ltd made separate agreements to sell proposedlots in the subdivision to Lepionka & Company Ltd and to the trustees of theSJ Lepionka Family Trust. These are the "Lepionka purchasers". Mr Stefan Lepionkais behind them. The Lepionka purchasers paid deposits. AFI Management Pty Ltdlent funds to GLW Group Ltd, which gave an unregistered second mortgage over theproperty (and other securities). The loan was required because GLW Group Ltd hadcash-flow problems. Its financial position deteriorated. It used the funds from AFI topay its monthly interest to Westpac. By early 2015, Westpac had issued default noticesto GLW Group Ltd under its mortgage.[17] Mr Lepionka began discussions with Westpac with a view to acquiring itsmortgage. The Lepionka mortgagee was incorporated in March 2015. In early April2015 it took an assignment from Westpac of the GLW Group Ltd debt and firstmortgage. As mortgagee, it adopted the Lepionka purchase contracts under s 179 ofthe Property Law Act 2007 and entered into a "completion agreement" with theLepionka purchasers, under which it committed to complete the development of theproperty and to pay substantial compensation to the Lepionka purchasers (if that didnot occur by reason of GLW Group Ltd redeeming the mortgage). In response, GLWGroup Ltd said that it wanted to redeem the first mortgage. There were other offers tobuy the property, including by Mr Coltart. The Lepionka mortgagee did not acceptany of these offers, primarily because it said that it had already exercised its power ofsale by adopting the Lepionka purchase contracts.[18] As mortgagee in possession, the Lepionka mortgagee has continued thedevelopment of the property. It has sold two of the lots and has been paid on thosesales. It says that titles for other lots in the subdivision will issue soon, once the currentcaveat is off the title. It has charged very substantial legal costs against the firstmortgage.[19] GLW Group Ltd and AFI Management Pty Ltd took issue with the action takenby the Lepionka mortgagee in taking the assignment of the mortgage from Westpac,refusing redemption offers, in carrying out the subdivision as mortgagee in possessionand in selling the property. The exercise of its powers was reviewed in an importanthearing before Fitzgerald J – AFI Management Pty Ltd v Lepionka & CompanyInvestments, the "December 2017" decision.10 They sued in separate proceedings,which Fitzgerald J heard together. In her December 2017 decision, she held:11(a) A mortgagee's adoption of an existing sale and purchase agreementunder s 179 of the Property Law Act 2007 is the exercise of amortgagee's power of sale.(b) The Lepionka mortgagee's adoption of the Lepionka purchasecontracts was effective on 7 April 2015.(c) The Lepionka mortgagee did not wrongfully refuse to permit GLWGroup Ltd to redeem the first mortgage in April 2015.(d) The Lepionka mortgagee breached its equitable duties as mortgagee inexercising its power of sale for an improper purpose. It did not,however, breach its duty by failing to accept an offer by Mr Colthart of1 May 2015 or an offer by Tukituki Land Ltd made in November 2015.(e) The Lepionka mortgagee was not required to account to AFI on thebasis that it was in "wilful default".(f) The Lepionka mortgagee had not taken reasonable precautions toobtain the best price reasonably obtainable at the time of sale, but10 AFI Management Pty Ltd v Lepionka & Company Investments [2017] NZHC 3116.11 At [494].Fitzgerald J could not decide whether there had been a breach of theduty under s 176 of the Property Law Act 2007. That would turn on anassessment of the final price achieved by the Lepionka mortgagee fromthe sale of the property, compared to the best price reasonablyobtainable for the property in April 2015.(g) The best price readily obtainable in April 2015 was $4.3 million.(h) It would be inequitable to set aside the Lepionka purchase contracts.GLW Group Ltd's only remedy was in damages. Any such damageswould be considered in the taking of accounts by the Lepionkamortgagee. There would be a final assessment of damages after thesubdivision was completed.(i) There would be a general account taken by the Lepionka mortgagee inrelation to the costs charged and claimed against the first mortgage,including legal costs.(j) The AFI Management Pty mortgage secured not only funds advanceddirectly to GLW Group Ltd but also advances to other Paterson entities.Fitzgerald J recorded that the amount advanced under the loanagreement was AU$4,109,280.12[20] Her decision was interim as more steps were required. Titles would have toissue. Sale and purchase agreements would have to be completed. There would be ataking of accounts, and that would not be straightforward. A taking of accounts by amortgagee in possession is exacting.13 In this case it would also be contentious.GLW Group Ltd did not accept that the Lepionka mortgagee should have run up allthe costs it had incurred in completing the subdivision. It was suspicious that it hadpreferred the interests of the Lepionka purchasers. The Lepionka mortgagee had alsocharged very high legal fees against the mortgage. A hearing on the taking of accountswould require significant hearing time and would be costly.12 St [489].13 See for example Couzens v Francis [1948] NZLR 567.[21] For this case Fitzgerald J's refusal to set aside the Lepionka purchase contractsis important. It meant that they could be completed as effective exercises of amortgagee's power of sale. On transfer to the purchasers, s 103 of the Land TransferAct would operate and all subordinate and unregistered interests in the property wouldbe extinguished. The owners of those extinguished interests would instead have aclaim to be paid from the proceeds of sale under s 185 of the Property Law Act 2007.And that would turn on the outcome of a contentious taking of accounts. But the pointto note here is that, so long as her decision stands, no lower-ranking registered interestand no unregistered interest will survive the transfer of title and no caveat relying onsuch an interest should block the transfer of title.[22] The Lepionka mortgagee has also had to deal with caveats which have slowedit. This is the seventh. The others are:(a) Two caveats lodged in February and May 2013 respectively byMr Coltart to protect his interests as purchaser under an agreement ofAugust 2012 with GLW Group Ltd. In 2015 Associate Judge Smithordered their removal,14 but the Court of Appeal upheld the caveats.15There are no ongoing matters with Mr Coltart requiring resolution.16He is independent of the people behind GLW Group Ltd.(b) In March 2016 Horseshoe Bend Hawkes Bay Ltd, of which Ms O'Neilis a shareholder and Ms Dapas director, lodged a caveat claiming thatit was the company which was to own a "common property" lot underthe subdivision. Associate Judge Sargisson ordered the removal of thecaveat.17 She held that Horseshoe Bend Hawkes Bay Ltd did not havea caveatable interest and that the Lepionka mortgagee's rights tookpriority.(c) On 23 September 2016, GLW Group Ltd lodged a caveat claiming anequitable lien as unpaid vendor. It later withdrew the caveat.14 Lepionka & Company Investments Ltd v Coltart [2015] NZHC 2849.15 Coltart v Lepionka & Company Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36.16 There was a settlement under a deed of March 2016.17 Lepionka & Company Investments Ltd v Horseshoe Bend Hawkes Bay Ltd [2016] NZHC 2318(d) On 31 January 2018 Mr Paterson lodged a caveat claiming under a"cestui que trust" agreement. In July 2018 Fitzgerald J ordered itsremoval.18(e) In November 2018 Naldapat Ltd lodged its caveat claiming an interestas purchaser under an agreement with GLW Group Ltd as vendor. Asnoted above, Naldapat Ltd withdrew the caveat before the hearing.Apart from the Coltart caveats, all the caveats were lodged by Mr Paterson and hisassociates after the Lepionka mortgagee purported to exercise its rights as mortgagee.Events since December 2017[23] If matters had stayed as they were at the time of Fitzgerald J's decision, anorder could be made for the removal of any caveat relying on an unregistered interest.But matters have moved on. The inquiry here is whether those changes mean that herdecision no longer stands.[24] GLW Group Ltd appealed against her decision.[25] AFI Management Pty Ltd served a statutory demand on GLW Group Ltd forAU$4.1 million as unpaid principal (leaving out interest). GLW Group Ltd applied toset aside the statutory demand. In a decision of 19 June 2018 Fitzgerald J declined toset aside the statutory demand.19 She found that GLW Group Ltd was insolvent. Shedid not make an immediate order for liquidation but gave GLW Group Ltd fiveworking days in which to pay the amount in the statutory demand. It did not pay.[26] In CIV-2015-404-2168, one of the proceedings Fitzgerald J had decided inDecember 2017, GLW Group Ltd applied for a stay of judgment pending appeal. Atthe same time in CIV-2018-404-690 the Lepionka mortgagee applied to removeMr Paterson's caveat.20 In her decision of 6 July 2018 on both matters, Fitzgerald Jdeclined the stay in the light of undertakings offered by the Lepionka mortgagee and18 GLW Group Ltd v Lepionka & Company Investments Ltd [2018] NZHC 1658.19 GLW Group Ltd v AFI Management Pty Ltd [2018] NZHC 1460.20 In [16](d) above.the Lepionka purchasers.21 Under these undertakings, the mortgagee and thepurchasers undertook to unwind any sale and to retransfer the lots if the Court ofAppeal allowed GLW Group Ltd's appeal and set aside the Lepionka sale and purchaseagreements. They would hold the lots in the names of the Lepionka purchasers andwould not encumber the lots except as provided in the sale and purchase agreements;they would not build on the lots and would return the lots to GWL Group Ltd if theCourt of Appeal so ordered. Any sale proceeds would also be repaid.[27] In the same decision, Fitzgerald J ordered the removal of the caveatMr Paterson had lodged on 31 January 2018 claiming under a trust agreement. Sherejected the caveat for a number of reasons, including that there was no evidence tosupport the alleged caveatable interest22 and that the Lepionka purchase contracts didnot establish any trust.23 Mr Paterson failed to persuade Fitzgerald J that he had anarguable interest in the land as a beneficiary under any trust or as trustee: "His claimto hold contractual rights on trust for his family is hollow, unsupported by evidence".24It was clarified in the hearing that GLW Group Ltd did not claim a caveatable interestin the land.25[28] The respondents to the caveat application were not only Mr Paterson but alsoGLW Group Ltd (second respondent), Ms O'Neill (fourth respondent) and Ms Dapas.The Lepionka mortgagee sought orders restraining them from lodging further caveats.Fitzgerald J was satisfied that Mr Paterson should be restrained from lodging anycaveats without leave of the court.26 GLW Group Ltd consented to the same order.27[29] She did not, however, make similar orders against Ms O'Neil and Ms Dapas,because they offered undertakings to the court. The undertaking by Ms O'Neill isimportant because she is the director of LW354 Ltd:The fourth respondent undertakes not to lodge, attempt to lodge or cause acaveat to be lodged against the land in any capacity, including in her capacity21 GLW Group Ltd v Lepionka [2018] NZHC 1658.22 At [45].23 At [46].24 At [68].25 At [16].26 At [66]-[73].27 At [16] and [64].as director, trustee or otherwise lawful caveatable interest of the secondrespondent without first obtaining leave of the court save for:(a) any caveat to protect the interest of the second respondent asbeneficiary of an institutional constructive trust created by theapplicant when it sold lots 2 and 6 and received net proceedsof approximately $3.5 million (being a subsequent exerciseof the power of sale of the applicant, the initial exercise beingwhen it purportedly adopted the Lepionka purchase contractspursuant to section 179 of the Property Law Act 2007 on 7April 2015); and(b) where an entity or trust controlled by the fourth respondenttakes an assignment of, or pays out in whole or in part, thesecond mortgage described in the application.After referring to the undertakings, Fitzgerald J said:28 Nevertheless, each of Ms O'Neil and Ms Dapas will no doubt:(a) seek appropriate legal advice before taking steps to lodge a caveat,including in relation to a caveat in respect of the purported "carve out"for payment in whole or in part of AFI's second mortgage over theLand, including in circumstances where AFI already has a caveat overthe Land; and(b) take a responsible approach generally to any future purportedcaveatable interest, given the issues that have arisen in relation tocaveats in the HBHB and these proceedings.[30] Fitzgerald J's decision does not give rise to an issue estoppel as to absence ofa caveatable interest in the land. In that I am following Joseph Lynch Land Co Ltd vLynch.29 The reservation of leave to apply to lodge a caveat shows that this was not afinal decision on that issue.[31] Sometime in 2018, AFI Management Pty Ltd assigned the debt owed by GLWGroup Ltd and the related securities to K R Mortgage Company Ltd, another Lepionkacompany. The assignment has not been put in evidence nor the amount paid to AFIManagement Pty Ltd for the assignment, but it is not disputed that the assignment wasmade.28 At [74].29 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA).[32] On 27 July 2018, Ms O'Neil as sole shareholder of GLW Group Ltd passed aresolution putting the company into liquidation under s 241(2)(a) of the CompaniesAct 1993. She appointed Mr Damien Grant as liquidator.[33] Mr Grant's second report, dated 15 May 2019, records that 12 unsecuredcreditors had made claims totalling $222,549.79. GLW Group Ltd had entered into alegal settlement with the Lepionka interests under which GLW Group Ltd was to bepaid $100,000. With that settlement, GLW Group Ltd discontinued its claim againstthe Lepionka mortgagee in CIV-2015-404-2168 and abandoned its appeal.[34] The day before the notice of abandonment of the appeal was filed, Mr Patersonfiled in the Court of Appeal a memorandum which the Court treated as an applicationto be added as an appellant. While he had been a party in the case before Fitzgerald J(CIV-2015-404-2168), he had not appealed against her decision. Later, LW354 Ltdfiled a memorandum asking to be added to the appeal. The Court of Appeal dismissedthe applications of Mr Paterson and LW354 Ltd to be added as appellants.30 I willcome back to that decision.31[35] The Lepionka mortgagee says that with the discontinuance of CIV-2015-404-2168 in this court and the abandonment of the appeal, Fitzgerald J's decision in AFIManagement Pty Ltd v Lepionka is no longer under appeal and is now final. The lotsin GLW Group Ltd's subdivision can now be sold. Two sales (lots 2 and 6) havealready been completed with the proceeds applied in debt reduction. The Lepionkapurchases have still to be completed. Lots 10 and 11 have still to sell. It accepts thatit will have to account under s 185 of the Property Law Act 2007, but says that therewill be nothing left for unsecured creditors or GLW Group Ltd. It says that the amountowing under the first mortgage is $8.5 million with interest, which accrues at 10.5 percent per annum or $75,000 a month. The debt to AFI Management Pty Ltd, now K RMortgage Company Ltd, is over $9 million once interest is taken into account. Theproceeds of sale, including anticipated proceeds of sale of the unsold lots (10 and11),will not be enough to clear all the debts to the Lepionka interests.30 GLW Group Ltd v Lepionka & Company Investments Ltd [2019] NZCA 24.31 At [72] below.[36] The Lepionka mortgagee has not given chapter and verse on the amounts itclaims. Given the challenges to the subdivision costs and the legal costs it has chargedto its mortgage, it has not shown beyond argument that its claims are correct.Similarly, while it has proved the principal owing under the AFI loan,32 it has notproved how much is owing for interest. All the same, it seems very likely that therewill be nothing left for the Paterson interests.[37] The Lepionka mortgagee also points out that it has achieved a settlement by itspayment to the liquidator of GLW Group Ltd and by taking the assignment of the AFIManagement Pty Ltd debt and associated securities. While there will be nothing leftfor Mr Paterson and his associated interests, there is enough finality to allow the salesto proceed.[38] The Paterson interests do not accept this. They want to carry on CIV-2015-404-2168 and the appeal. In their eyes, Fitzgerald J's judgment can be attacked,including on these grounds:(a) Westpac and the Lepionka mortgagee did not comply with s 118 of theProperty Law Act 2007 (which provides a moratorium) but themortgagee accepted interest on the principal amount after expiry of theterm of the loan.(b) The Lepionka mortgagee wrongly did not accept offers to redeem.(c) Given the Lepionka mortgagee's breach of equitable duty, the Lepionkapurchases should be set aside. That gives them a claim to an interest inthe property.(d) The market value of the property was higher than she found.They also maintain that a proper taking of accounts will show that the Lepionka claimsare overstated. I have not set out in full every argument that the Paterson interestswish to raise. Mr Sullivan set out extensive matters, some traversed in the December32 Fitzgerald J found the amount proved in her statutory demand decision.2017 decision and some new. Without intending any disrespect to Mr Sullivan, it isnot necessary to go into them all, because however they are formulated, the Patersoninterests must show an arguable case that they can be continued. My reasons forsaying that they cannot apply to all the potential arguments.[39] Aside from lodging the caveat, the Paterson interests have not taken any formalsteps to further their claims in CIV-2015-404-2168 and the appeal.The trust alleged by the Paterson interests[40] Notwithstanding the liquidation of GLW Group Ltd, the abandonment of theappeal and the discontinuance of CIV-2015-404-2168, the Paterson interests say thatthey can continue. They say that GLW Group Ltd was a corporate trustee but that itresigned its trusteeship before it was put into liquidation. Naldapat Ltd replaced it astrustee, but Naldapat in turn resigned and was replaced by LW354 Ltd as trustee. Therights in the proceeding against the Lepionka mortgagee, including the right of appeal,are trust assets that GLW Group Ltd no longer held, once it resigned as trustee.Mr Grant, as liquidator of GLW Group Ltd, therefore had no authority to enter into thesettlement agreement with the Lepionka mortgagee, to agree to discontinue theproceeding and to abandon the appeal to the Court of Appeal. Because the settlementcan be set aside, so can the discontinuance and the abandonment of the appeal and theappeal against Fitzgerald J's decision can be reinstated.[41] The trusteeship claim arises this way. In early 2009, Mr Paterson agreed tobuy the Kahuranaki Road property. On 14 September 2009, he signed a deed ofnomination and trust, appointing GLW Group Ltd as nominee to take title. Therelevant operative words are:The nominator nominates the nominee as the party that is to take title tothe property in trust for the nominator.(Emphasis added)[42] Mr Paterson ("GP") and GLW Group Ltd ("GLW") signed a deed on30 September 2009 called "Declaration of trustees re trust agreements/arrangementsin New Zealand". As background to that document, Mr Paterson had already arrangedfor the shares in GLW Group Ltd to be settled on Mr V Franklin to hold on trust forMr Paterson's sons, Luke and William. The deed includes the following:GLW hereby confirms in this declaration, that the property transferred to itat settlement on 19 September 2009, (following the nomination pursuant tothe Sale and Purchase agreement dated 18 March 2009) is held by GLW asbare trustee for the boys, with GP (meaning Mr Paterson) named on the14 September 2009 trust deed in lieu of the boys, the boys not being of legalage to administer their own affairs.GP hereby confirms that this declaration that the property declared to be heldon trust for him by GLW as bare trustee, is only held that way due to the legalowners (the boys) not being of legal age to administer their own affairs. Assuch, GP is the holder of the property in trust for his sons. The ownership andall the rights and entitlements of the property is for the sole benefit of LUKEand WILLIAM PATERSON.(Emphasis added)Under these documents GLW Group Ltd owned the Kahuranaki Road property on trustfor Mr Paterson, who in turn held his beneficial interest on trust for his sons.[43] Ms O'Neil has included in her affidavit a copy of a deed of appointment andretirement of trustee dated 20 July 2018 under which GLW Group Ltd retired as trusteeand Naldapat Ltd accepted appointment as trustee. LW354 Ltd was incorporated on13 November 2018. On the same day it was appointed new trustee in place of NaldapatLtd under a deed in similar terms to the deed under which Naldapat Ltd was appointed.Ms O'Neil also explains that GLW Group Ltd takes its name from Mr Paterson andhis sons: Garth, Luke and William.[44] The Lepionka mortgagee is understandably suspicious of the claim that LW354Ltd is now the trustee of a trust for the Kahuranaki Road property first established inSeptember 2009. It points out that Mr Paterson's conduct was inconsistent with theexistence of a trust. Moreover, if a trust existed, he did not tell others about it. First,Fitzgerald J was critical of Mr Paterson's reliability and credibility.3333 AFI Management Pty Ltd v Lepionka & Co Investments Ltd [2017] NZHC 3116 at [18]-[19], [60],[67] and [138].[45] Second, the existence of the trust is inconsistent with Mr Paterson's dealingswith Westpac.34 In the mortgage registered on 9 October 2009, amongst other thingsGLW Group Ltd as mortgagor undertook:3. You undertake to the secured parties as follows, except to the extentthat the secured parties consent or is expressly permitted in a bank document:(a) TitleOnly you own the mortgaged property or will do so on completion of anypurchase financed under the mortgage. You must make sure that no otherparty has any:• interest in; or• rights over or to use;the Mortgaged property except• as set out in the mortgage or noted on the land transfer register;and• those which their secured parties consent to in writing. (j) No dealingsYou must obtain the secured parties' with consent to • the creation or continuation of any right or interest in or over themortgaged or any right to use any of the Mortgaged Property. As director of GLW Group Ltd Mr Paterson signed certificates to Westpac whenfurther accommodation was arranged. A certificate of 15 December 2012 included:The company is entering into the documents solely for its own benefit and notas trustee or nominee arranged by any third party.Another certificate made on 10 January 2014 contains the same declaration. There isno evidence that Westpac was made aware of the trust.34 In the hearing Mr O'Brien QC submitted that these dealings gave rise to an estoppel binding GLWGroup Ltd and LW354 Ltd. After discussion, he did not pursue the matter. It was not developedto the extent that I could hold in the context of a caveat application that all the grounds for equitableestoppel had been established.[46] Third, in the caveat case,35 while there were claims of trusteeship to justify acaveat, GLW Group Ltd did not state that it was holding the land under a trust. In fact,it disclaimed any caveatable interest.[47] Fourth, the first that the Lepionka interests knew anything about the allegedtrust was Mr Paterson's affidavit of 20 December 2018 filed in the Court of Appeal insupport of his application to be added as a party to the appeal. Copies of the deed ofnomination of 14 September 2009 and the declaration of 30 September 2009 wereattached as exhibits.[48] Notwithstanding these difficulties, Ms O'Neil has provided two documentsthat support the existence of the trust on which GLW Group Ltd held the land. Thefirst is an email of 1 October 2009 by a witness to the 30 September 2009 declaration,where the witness refers to having signed the document ("yesterday's NZ farm secrettrust deed"). The second is a deed dated 7 April 2012 which amends a deed for a trustMr Paterson established in Australia in May 2000, the Garth Paterson Family Trust.The April 2012 deed refers to the trust established on 30 September 2009.[49] Given those matters, it is arguable for LW354 Ltd that in September 2009 GLWGroup Ltd declared in writing that it held the Kahuranaki Road property on trust andthe trust has continued ever since. In a proceeding where I have to decide whetherLW354 Ltd has an arguable case, I cannot reject out of hand the claim that GLW GroupLtd held the property on trust until 20 July 2018 and the trusteeship passed from it toNaldapat Ltd and in turn to LW354 Ltd.The caveatable interest[50] Here again is the interest that LW354 Ltd claims in its caveat:The abovenamed caveator claims an interest in the land contained in the abovecertificate of title 716653 as beneficial and/or equitable owner of the freeholdestate and the fee simple, pursuant to a cestui que trust agreement as per thedeed of appointment and retirement of trustee dated 13 November 2018 assuccessor pursuant to a deed of appointment of trustee dated 20 July 2017between the registered owner GLW Group Limited and Naldapat Limited.35 GLW Group Ltd v Lepionka [2018] NZHC 1658.With that, LW354 Ltd is claiming a beneficial interest in the Kahuranaki Roadproperty arising from the transfer of the trusteeship to it. GLW Group Ltd remainedthe registered proprietor. Legal ownership could be changed only on registering adealing under the Land Transfer Act. But as the new trustee LW354 Ltd could call forthe legal title to be transferred to it. If necessary, it could apply to the court for avesting order.36 The deeds under which Naldapat Ltd and LW354 Ltd became trusteeshad vesting clauses, but until there was a transfer under the Land Transfer Act theywere effective to transfer only an equitable interest in the land. LW354 Ltd's right tocall for the legal title is an interest under s 138 of the Land Transfer Act and iscaveatable. The caveat has a mistaken reference to a deed "dated 20 July 2017". Thatis an obvious misnomer and does not invalidate the caveat.[51] LW354 Ltd's caveat does not claim any greater interest in the land than that.The submissions for LW354 Ltd made constructive trust claims and the Lepionkamortgagee rejoined that the caveat was invalid for not stating clearly that an interestunder a constructive trust was claimed. The constructive trust arguments are besidethe point in establishing the interest claimed under the caveat.[52] As the replacement trustee, LW354 Ltd can have no greater rights in the landthan GLW Group Ltd. Its interest is subject to the interests of the secured creditors,the Lepionka mortgagee and KP Mortgage Company Ltd. If the Lepionka mortgageeis correct, the interest of GLW Group Ltd as mortgagor will be extinguished on thetransfer to the Lepionka purchasers in the exercise of the powers under the mortgage.LW354 Ltd's interest in the land as successor trustee will be likewise extinguished.Can LW354 Ltd continue the proceeding by GLW Group Ltd against theLepionka mortgagee?[53] LW354 Ltd wishes to continue GLW Group Ltd's claim against the Lepionkamortgagee in CIV-2015-404-2168. Ms O'Neil puts it this way:135. All LW354 Ltd wishes to do is to exhaust its legal remedies, in aproper and timely manner, and as set out in the draft undertakings sought fromthe Lepionka parties, such that there is a remedy available if LW354 Ltd hassome success.36 Trustee Act 1952, ss 52 and 57 and Land Transfer Act 2017, s 89.136. I fully acknowledge that the Lepionka parties wish to proceed withthe allocation of titles and to finally, after years of deliberate by them, settlethe sale and purchase agreements. But to allow them to do so without anyobligation to account, without any responsibility for equitable fraud which hasbeen acknowledged, and without any chance of any surplus funds beinggenerated, would be a grave travesty of justice.[54] For LW354 Ltd to continue GLW Group Ltd's claim against the Lepionkamortgagee, it will need to overcome these obstacles: the settlement between GLWGroup Ltd and the Lepionka mortgagee, the discontinuance in this court and theabandonment of the appeal to the Court of Appeal.The settlement between GLW Group Ltd and the Lepionka mortgagee[55] As to the settlement which Mr Grant made with the Lepionka interests, LW354Ltd says that as GLW Group Ltd was no longer trustee, it could not surrender ordischarge the rights claimed in CIV-2015-404-2168 and the appeal. It claims thatLW354 Ltd, as the successor trustee, is not bound by the settlement. Ms O'Neil saysthat Mr Grant was aware of the trust. She has attached copies of emails betweenMr Paterson and Mr Grant in May 2018 where Mr Grant suggested that it would beprudent to replace GLW Group Ltd as trustee before liquidation. Mr Grant has notgiven an affidavit. His second liquidator's report is silent on the question of anytrusteeship. It is arguable for LW354 Ltd that after going into liquidation GLW GroupLtd could not deal with trust assets that had passed to the replacement trustees – atleast, not without the assistance of the court.[56] I record two potential objections which do not hold up and then say why theLepionka mortgagee can nevertheless take the benefit of the settlement.[57] First, it might be thought that as liquidator of the insolvent GLW Group Ltd,Mr Grant could act in the interests of trust creditors to realise a trust asset, the rightsclaimed in CIV-2015-404-2168 and the appeal. But that is true only up to a point.There is no suggestion that any of GLW Group Ltd's creditors are not trust creditors.That is, the company incurred all its liabilities as trustee and there are no generalcreditors. A trustee has a right of indemnity against trust assets for liabilities incurredas trustee.37 The indemnity allows for reimbursement, exoneration, retention andrealisation. It is secured by an equitable lien, a proprietary interest which arises byoperation of law and takes priority over the claims of beneficiaries. If a corporatetrustee goes into liquidation, the right of indemnity vests in the liquidator. If the trustproperty vests in a new trustee, the lien survives and the new trustee takes subject tothe lien of the old trustee. But there is a catch. The former trustee cannot retain assetsfor the indemnity against the new trustee. The equitable lien can be exercised only bycourt order. In LSF Trustee Ltd v Footsteps Trustee Co Ltd (in liq) I said:38The trustee may retain the trust fund until he has been indemnified for presentliabilities and contingent or future liabilities, and a trustee may realise trustassets to meet his expenses and liabilities. That position changes when thetrustee is replaced. The equitable lien allows the former trustee recourse totrust assets owned by the new trustee, but only with the court's assistance.There is no evidence that Mr Grant sought the court's assistance before settling withthe Lepionka interests. It is arguable for the Paterson interests that he could not dealwith trust assets after GLW Group Ltd retired as trustee. The problem might be curedby the court giving retrospective approval, as in Trim Perfect Australia Pty Ltd vAllbrook Constructions Pty Ltd, but I cannot deal with that here.39 That requires aseparate proceeding involving all the parties to the agreement and the Patersoninterests.[58] Second, Mr Colson submitted that the cause of action had not vested in the newtrustees and Mr Grant as liquidator could still deal with it as an asset of the company.To put his submission into context, as a conveyancing shortcut in most cases a deedappointing a new trustee vests trust assets in the new trustee without the need forexpress words of conveyance.40 In practice many deeds appointing new trustees haveexpress terms vesting all trust assets in the new trustee. Mr Colson argues that in thiscase only some trust assets vested.37 For the following principles, see Lemery Holdings Ltd Pty Ltd v Reliance Financial Services PtyLtd [2008] NSWSC 1344, (2008) 74 NSWLR 550; LSF Trustee Ltd v Footsteps Trustee Co Ltd(in liq) [2017] NZHC 2619, [2017] NZAR 1676 at [14]-[16].38 At [16].39 Trim Perfect Australia Pty Ltd v Allbrook Constructions Pty Ltd [2006] NSWSC 153.40 Trustee Act 1956, s 47(1)(b). For present purposes it is not necessary to dwell on the limitationsand exceptions.[59] The deed of appointment and retirement of trustee between GLW Group Ltdand Naldapat Ltd includes these provisions:1.3 Discharge of retiring trusteeOn and from the date of this deed the Retiring Trustee is discharged fromfurther performance of its obligations and duties as trustee of the Trust.1.4 Assignment of Trust's debts(a) The Retiring Trustee must give notice in writing to each person orentity owing monies to the Retiring Trustee, as trustee of the Trustproperty, and do all things as may be necessary for the assignment tothe New Trustee of any real property mortgage debts or chose ofaction of the Trust for the real property.(b) For the avoidance of doubt, the mortgage debts referred to above arespecifically limited to:(i) First mortgage debt to Westpac Bank (now Lepionka andCompany Investments Ltd);(ii) second mortgage debt to AFI Management Pty Ltd, overlimited parts of the property described in the attached plan asLots 3, 4, 5, 8 and 11. Also, a limited part, (to the value of$630,000) of Lot 2. The liability of the second mortgage debtassumed by the New Trustee under this debt is limited to thecombined value of lots 3, 4, 5, 8 and 11, as per the contractsfrom January 2014 between the retiring trustee and Lepionkaand Company Ltd; and Stefan Lepionka and Nigel HughesATF of the S J Lepionka Family Trust; less the value of theassigned mortgage; plus $630,000 from Lot 2.The details particularised in (i) and (ii) above are hereinafter called theMortgage Debts.1.5 IndemnityThe new trustee indemnifies the retiring trustee to the limit of the net assets ofthe trust against loss arising from the mortgaged debts which the retiringtrustee has incurred while acting as trustee and which are unpaid as at the dateof this deed, and undertakes and agrees that the new trustee will pay anddischarge the mortgage debts out of the assets of the trust.2.4 Title to the real property of the trustThe execution and, where required by law, the registration of this deed willwithout any conveyance vest the real property of the trust in the new trustee.The new trustee and the retiring trustee must do all things necessary to transferthe legal title to the real estate in the trust to the new trustee, including allnecessary notifications, registrations, and other procedures and formalities.2.5 Funds due from the sale of the property not properly subject to trustThe proceeds of sale of any lots not listed in paragraph 1.5(b) above (includesmonies above the $630,000 from lot 2), are property of the trust and from thedate of this executed deed, vest with the new trustee.The deed of appointment and retirement of trustee between Naldapat Ltd and LW354Ltd of 13 November 2018 is generally in the same terms except that cl 2.5 reads:The proceeds of sale of any of the property is the property of the trust, andfrom the date of the executed deed, vests with the new trustee. The proceedsof sale of any chattels on the property also vests with the new trustee.However, those proceeds only vest with the new trustee for the purpose ofdistribution of the said proceeds to the owner of the chattels.[60] Mr Colson argued that cl 2.4 applied to the real estate, that is the GLW GroupLtd's interest in the Kahuranaki Road property. There is a misnomer in cl 2.5. Clause1.5(b) should properly be read as cl 1.4(b). Clause 2.5 applies only to any surplusavailable after mortgagees have been paid. He argued that other trust assets, notreferred to in cl 1.4(b), remained vested in GLW Group Ltd.[61] I do not accept that interpretation. It is inconsistent with cl 1.3, under whichthe retiring trustee is discharged from further performance. It is hard to see how thetrustee could perform duties after discharge. Under cl 1.4(a), the parties intended totransfer "any real property mortgage debts or chose of action of the trust for the realproperty" to the new trustee. GLW Group Ltd's claim against the Lepionka mortgageein CIV-2015-404-2168 and in the appeal are a chose in action under cl 1.4(a). Theclause can be read as assigning the chose in action to the new trustee. Admittedly theclause does not contain express words of conveyance. It is, instead, promissory: "Theretiring trustee must give notice in writing and do all things as may be necessaryfor the assignment " The new trustee can enforce that, and equity regards as donewhat ought to be done. Accordingly, it is arguable for LW354 Ltd that the chose inaction in GLW Group Ltd's claims in CIV-2015-404-2168 and appeal rights vested inNaldapat Ltd under the deed of 20 July 2018 and were no longer an asset of GLWGroup Ltd.[62] Now for the point that protects the Lepionka mortgagee. Even though thecauses of action arguably had vested in Naldapat Ltd before GLW Group Ltd wentinto liquidation, and later in LW354 Ltd, that does not mean that the Paterson interestsremain free to continue against the Lepionka mortgagee. This aspect is governed byPart 2 subpart 5 of the Property Law Act 2007 – assignment of things in action.[63] These definitions in s 48 can be noted:assignment means an instrument effecting or relating to an assignmentdebt includes an obligation to—(a) pay money:(b) deliver or transfer property:(c) do or not do any other thingdebt owing includes an obligation that is due to be performeddebtor means a person (including a trustee) who is under an obligation to paya debtpayment of a debt includes the performance of an obligation that is not anobligation to pay moneything in action—(a) means a right to receive payment of a debt; and(b) includes part of a thing in action.These extended definitions of "debt" and "payment" apply to GLW Group Ltd'songoing claims in CIV-2015-404-2168 and the appeal. The Lepionka mortgagee isthe debtor, which is said to be under obligations to transfer property (to return theKahuranaki Road property if the appeal succeeds) and to pay money (the taking ofaccounts under s 185 of the Property Law Act, including paying any damages forbreach of any duty as mortgagee). Those obligations are debts.[64] Under the settlement between GLW Group Ltd and the Lepionka purchaser,there was a payment of $100,000 in full and final settlement of the claim made byGLW Group Ltd. While the agreement is not in evidence, there is no dispute that ithad that effect. It can be seen in the payment to the liquidator, the discontinuance ofCIV-2015-404-2168 and the abandonment of the appeal. The settlement dischargedthe debt.[65] The Lepionka mortgagee can assert that discharge against the Patersoninterests because it did not actually know that the claim had been assigned to a newtrustee. Section 51(2) of the Property Law Act 2007 says:Payment of all or part of a debt to the assignor by a debtor who does not haveactual notice of the assignment discharges the debtor to the extent of payment.There is no evidence that the Lepionka mortgagee actually knew of the assignment.The Lepionka mortgagee is clear in its evidence that it first knew of any trusteeshipby GLW Group Ltd and that LW354 Ltd had replaced it as a trustee when it receivedMr Paterson's affidavit of 20 December 2018. By then, it had already settled with theliquidator of GLW Group Ltd because a discontinuance had been filed in the HighCourt and the appeal to the Court of Appeal had been abandoned. In the face of thatclear evidence, LW354 Ltd's response is speculative. Ms O'Neil says:41LW354 Ltd stands in the position that GLW Group Ltd used to, and this wasknown by the liquidator when he entered into a settlement with Lepionka, sothat will surely have been disclosed to Mr Lepionka and his lawyers. Theytook the risk that LW354 Ltd and Garth would continue to pursue the litigationand continue to demand provision of the accountant by LCIL as ordered bythe High Court.While cl 1.4 of each deed of retirement requires the retiring trustee to give notice ofthe assignment to the debtor (the Lepionka mortgagee), it was in the interests of thenew trustee, as assignee, to ensure that notice was given. For the interest asserted inthe caveat to be arguable, LW354 Ltd needs some evidence that notice was given tothe Lepionka mortgagee. Ms O'Neil as director of GLW Group Ltd would knowwhether the company as retiring trustee gave notice to the Lepionka mortgagee undercl 1.4. Mr Paterson and Ms Dapas could also have told her whether they gave notice.In the absence of any evidence from any of them that actual notice was given, I cannotaccept her speculation that Mr Grant might have given notice.[66] Even if the Property Law Act 2007 did not apply, an incoming trustee shouldstill have given notice to the debtor. The learned authors of the Law of Trusts say:42But effective as the assignment may be as between the former trustees andthose who replace them, the new trustees will be under a duty to perfect their41 Affidavit of 10 June 2019 at [18].42 H A J Ford and W A Lee Law of Trusts (3rd ed, Thomson Reuters, Sydney) at [8400].title by notifying the relevant obligors or by registration as may be requiredby the character of each particular item of the trust property. Otherwise theobligors will continue to consider themselves bound to the former trustees,and if they pay them they will be discharged.43[67] Accordingly, the claim in CIV-2015-404-2168 was discharged under thesettlement between GLW Group Ltd (in liq) and the Lepionka mortgagee,notwithstanding the assignment under the deed of 20 July 2018.The discontinuance of CIV-2015-404-2168 and the abandonment of the appeal[68] Even if LW354 Ltd could get over the problem that the claim against theLepionka mortgagee has already been discharged, it has to set aside the discontinuancein this court and the abandonment of the appeal.[69] LW354 Ltd no doubt wishes to be substituted by GLW Group Ltd as plaintiffin CIV-2015-404-2168. It could only do that if it could have the discontinuance setaside. Under r 15.22 of the High Court Rules, a discontinuance may be set aside if thecourt is satisfied that the discontinuance is an abuse of the process of the court.Mr Sullivan did not explain exactly how LW354 Ltd would put its case, but I assumethat it would run something along the lines that the settlement between GLW GroupLtd (in liq) and the Lepionka mortgagee was invalid, the court should set aside thesettlement or declare that it was invalid and LW354 Ltd should be substituted asplaintiff to continue the claim in place of GLW Group Ltd. The abuse of process layin the discontinuance by someone who had no authority to do so. It was in thebeneficiaries' interests to allow CIV-2015-404-2168 to continue.[70] McGechan comments that situations where a discontinuance amount to anabuse of process will surely be rare.44 The argument is a difficult one, given the ageof the proceeding, the need for finality, the Lepionka mortgagee's good faith inentering into the settlement, believing that it was dealing with someone entitled tosettle, the delays by the Paterson interests in prosecuting matters since Fitzgerald J'sdecision of December 2017 and the apparent insolvency of the Paterson interests –43 Citing Re Lord Southampton's Estate (1880) 16 Ch D 178; Re Patrick [1891] 1 Ch 82.44 Andrew Beck (ed) McGechan on Procedure (online loose-leaf edition, Thomson Reuters) at[HR.15.22.01].Mr Paterson is bankrupt, LW354 Ltd appears to be no more than a shell company, andthere is a history of non-payment of costs by the Paterson interests.[71] Even if LW354 Ltd could be substituted as a plaintiff in CIV-2015-404-2168on the discontinuance being set aside, it would need an extension of time under r 29Aof the Court of Appeal (Civil) Rules 2005 to bring an appeal out of time. It would alsoneed to get around the notice of abandonment filed in December 2018.[72] As to persuading the Court of Appeal, LW354 Ltd will have to deal with theproblem that there has already been an appeal which has been abandoned. InHumphries v Carr, Glazebrook and Ellen France JJ said:45It is clear that, whether or not abandonment leads to dismissal, if the applicantwishes to have his or her notice of abandonment set aside must meet a highthreshold. The case for the Court's exercise of its discretion must be, as putin Sexton at [31], at least, "compelling" or, as in Cramp comprise "anexceptional case". In assessing whether the threshold is met, it must be tellingin the case of a notice of abandonment that the appellant has made a choicenot to continue whereas in the case of a deemed abandonment the appellantmay not have exercised any choice in the matter but rather let matters slide orsimply overlooked a time limit.LW534 Ltd might put its case on the basis that it was not the original appellant andtherefore had not made any choice but has been substituted as a plaintiff in the HighCourt. It would still have to deal with the fact that the Court of Appeal had alreadyaddressed matters in its decision of 28 February 2019 when it held that Mr Patersonand LW354 Ltd could not be added to an appeal which had already been abandoned.46Mr Paterson and LW354 Ltd put before the court the matters which LW354 Ltd nowraises to show why it ought to be allowed to continue the claim formerly run by GLWGroup Ltd. The Court of Appeal did not accept that it had jurisdiction to add partiesafter the abandonment of an appeal but said that even if the jurisdiction existed itwould not exercise its discretion in favour of Mr Paterson and LW354 Ltd.47 It wouldbe extremely difficult for LW354 Ltd to persuade the Court of Appeal to have a secondlook when it has already decided that it would not allow LW354 Ltd to continue the45 Humphries v Carr [2009] NZCA 608 at [17].46 GLW Group Ltd v Lepionka & Company Investments Ltd [2019] NZCA 24.47 At [7]-[10].appeal. The court is unlikely to welcome fresh invitations to re-examine a matter onwhich it has already given a decision.[73] I have little reason to believe that LW354 Ltd would have any prospects ofsuccess in installing itself as a plaintiff in CIV-2015-404-2168 by having thediscontinuance and the abandonment of the appeal set aside. The prospects are notenough to be considered reasonably arguable.[74] The prospects on appeal do not look promising. The Paterson interests wantthe sales to the Lepionka interests to be set aside. They want findings that Lepionkamortgagee ought to have allowed the mortgage to be redeemed. On a favourablefinding on that issue, the Lepionka mortgagee would not be able to claim interest thathad accrued since. Fitzgerald J found in her December 2017 decision that the Patersoninterests had not proved that they had funds in hand to redeem the mortgages. ThePaterson interests have not so far adduced any evidence to show that that finding wasincorrect. In the absence of any evidence to show that the mortgages could have beenredeemed, it is hard to see that the Court of Appeal would on appeal interfere with thejudgment of Fitzgerald J. The appeal is a long shot, even if all the procedural hurdlescan be overcome. Besides the weakness of the appeal is likely to weigh in proceduraldecisions on setting aside the discontinuance and extending the time to appeal.[75] To sum up, while LW354 Ltd may arguably have an interest in the property,that interest is no greater than its former trustee's, GLW Group Ltd.That interest stands to be extinguished under s 103 of the Land Transfer Act 2017when the Lepionka mortgagee transfers its sales as mortgagee. Fitzgerald J upheld itspowers in her December 2017 decision. Her decision is final, because the proceedingwas settled and the appeal was abandoned. The Lepionka mortgagee is not bound byany absence of title by GLW Group Ltd because it did not have actual knowledge ofany assignment of the cause of action to a new trustee. Besides, the prospects ofLW354 Ltd reinstating the proceeding and the appeal are so remote that they do notneed to be taken seriously. The caveat can accordingly serve no useful purpose andshould be removed.Breaches of the court order and undertaking[76] The above is enough to warrant the removal of the caveat. It is not necessaryto have regard to any other matters going to a residual discretion. But, in case thematter turned on the exercise of a discretion, I would in any event not uphold thecaveat. That is because it has been lodged in breach of a court order and ofMs O'Neil's undertaking to the court.[77] In her caveat decision of 6 July 2018, Fitzgerald J ordered GLW Group Ltd notto lodge a caveat without leave of the court.48 That order also binds LW354 Ltd assuccessor trustee. It is bound as a privy.49 LW354 Ltd breached the order when itlodged the caveat without first seeking leave of the court.[78] Ms O'Neil breached her own undertaking to the court of 17 May 2018, whichFitzgerald J accepted as a substitute for an order barring her from lodging a caveatwithout leave of the court. The undertaking is subject to exceptions, but they do notapply. The caveat was lodged to protect the interest of LW354 Ltd as trustee in placeof GLW Group Ltd and Naldapat Ltd. The first exception to the undertaking dealswith the proceeds of sale of lots 2 and 6. Those have already been applied to reducethe indebtedness of GLW Group Ltd to the Lepionka mortgagee. The caveat does notpurport to come within that exception. The second exception applies if Ms O'Neilltakes an assignment of the second mortgage (the AFI mortgage). That did not happen.[79] The position here may be compared with caveats lodged in breach of acontractual no-caveat clause. In Mortre Holdings Ltd v ANCL Investments Ltd, theCourt of Appeal held that a no-caveat clause does not prevent a caveatable interestfrom arising and a court therefore retains a discretion to uphold the caveat.50 However,the no-caveat clause is relevant to the court's discretion whether to sustain it. Even ifa caveator shows a seriously arguable case for an interest in the land, the court maydecline to sustain the caveat because of the no-caveat clause. That is because a court48 GLW Group Ltd v Lepionka &Company Investments Ltd [2018] NZHC 1658.49 Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 268.50 Mortre Holdings Ltd v ANCL Investments Ltd [2016] NZCA 494.will not lightly condone a breach of contract, particularly when the term has an obviouscommercial purpose.51[80] A typical no-caveat clause imposes a clear restraint against lodging a caveatwithout exceptions. Usually a caveator has no prospect of persuading the registeredproprietor to agree to the caveat being lodged. The registered proprietor can becounted on to insist on his contractual rights. The would-be caveator must look forother remedies if he believes that he is entitled to interim protection – for example, aninterim injunction barring dealings in the land. On the other hand, Fitzgerald Jrestrained GLW Group Ltd from lodging a caveat without first obtaining leave of thecourt. That left room for a caveat to be lodged if GLW Group Ltd could show a goodreason for it. If LW354 Ltd considered that it had a proper basis for lodging a caveat,it ought to have applied for leave first. It was improper to lodge the caveat and try tojustify it afterwards. It caused the mischief which the order was designed to prevent– a delay in settlement and the need for a full hearing to decide the merits of the caveat.LW354 Ltd has clearly breached Fitzgerald J's order.[81] Ms O'Neil gave her undertaking as a substitute for the court making an orderagainst her. She was barred from lodging a caveat in her capacity as a director withoutfirst obtaining leave of the court. Again, she had the opportunity to seek leave of thecourt but did not do so. The same approach should apply to her as if the court hadmade an order. Given the flexibility provided by the opportunity to seek leave of thecourt, the breach of the order and the breach of the undertaking are even more seriousand provide all the more reason for removing the caveat.[82] Mr Sullivan sought to justify the lodging of the caveat by referring to theundertakings that the Lepionka interests had given, recorded in Fitzgerald J'sjudgment of 6 July 2018. Those undertakings were given in response to GLW GroupLtd's application for a stay in CIV-2015-404-2168. Fitzgerald J made the orderbarring caveats and accepted the undertakings by Ms O'Neil and Ms Dapas in CIV-2018-404-690, the Lepionka mortgagee's application to remove the caveat. One setof undertakings was not a quid pro quo for the other. The undertaking given by51 Mortre Holdings Ltd v ANCL Investments Ltd [2016] NZCA 494 at [21]-[26].Ms O'Neil is enforceable against her, even if the Lepionka interests cannot be calledupon under their undertakings, because they settled the appeal by GLW Group Ltd.[83] Mr Sullivan also sought leave retrospectively to allow the caveat. As I haveset out, the caveat should not remain because the interest claimed under it will beextinguished. But the caveat should not be allowed retrospectively. Leave is requiredfirst to check a caveat is appropriate, given the disruption that a caveat can cause. Thecaveator should not cause the damage first, then try to justify it afterwards.[84] Fitzgerald J's purpose in making the orders barring caveats and accepting theundertakings was to protect the Lepionka interests from vexatious caveats lodged atthe behest of Mr Paterson.52 LW354 Ltd's caveat has had the effect which FitzgeraldJ wanted to guard against – it has delayed the implementation of the sale, led to morelitigation and caused unnecessary expense.[85] In some cases where a caveat is to be removed because a mortgagee is toexercise a power of sale, the removal is deferred until title is transferred under thepower of sale. That is because the caveat may otherwise be sustainable. I have notdone that here because the breaches of the order and the undertaking mean that thecaveat should not have been lodged at all. I am satisfied that LW354 Ltd's caveat wasvexatious and an abuse of the caveat process. Mr Paterson was clearly behind lodgingthe caveat. He and his associates should understand that the litigation cannot be re-opened and that the Lepionka mortgagee can complete the sales of the lots in theKahuranaki Road property. This attempt to block the transfers of title has beenpointless.Outcome[86] Initially, the Lepionka mortgagee sought an order for costs against NaldapatLtd. Naldapat Ltd withdrew its caveat after Lepionka's lawyers said that they wouldnot pursue it for costs if it withdrew the caveat. That was a unilateral contract whichNaldapat Ltd performed. There is no order for costs against Naldapat Ltd.52 GLW Group Ltd v Lepionka & Copmpany investments Ltd [2018] NZHC 1658 at [62]-[71].[87] LW354 Ltd's caveat is to be removed.[88] The Lepionka mortgagee seeks indemnity costs against LW354 Ltd. I leavethe parties to confer as to costs. If they cannot agree on costs, memoranda may befiled and I will give a decision on the papers.[89] The Lepionka mortgagee seeks an order for non-party costs against Ms O'Neil.It should make a separate application for non-party costs, which should be served onMs O'Neil. Out of caution, I assume that any application for non-party costs againstMs O'Neil is a civil proceeding under Part 2 of the Trans-Tasman Proceedings Act2010 and the 30 working day response period under s 17 will apply.[90] Leave is reserved to apply for further directions if required.[91] After I had drafted my reasons for this decision, I received a memorandumfrom the Lepionka mortgagee, which raised three matters: a new caveat and notice ofclaim lodged after the hearing on 27 June 2019, a response to an allegation againstMr Joe Duncan and a clarification on costs in respect of Naldapat Ltd. I have notchanged my reasons. The new caveat and notice of claim may lead to further steps,which are beyond the scope of this proceeding. I therefore should not comment onthem. LW354 Ltd argued that the Lepionka mortgagee was tainted by an associationwith Mr Duncan. The memorandum urged that I should not draw any adverseinference against Mr Duncan. For the reason given in paragraph [38] above, I did notgo into that in detail and I see no need to reconsider that. As to costs, counselsubmitted that the Lepionka mortgagee had told the caveators that it would not seekcosts if both caveators withdrew their caveats. Notwithstanding that, the Lepionkamortgagee did not ask me to vary my costs order, but it reserved its right to apply forcosts against Ms Dapas..Associate Judge R M Bell