LEPIONKA & COMPANY INVESTMENTS LTD v HORSESHOE BEND HAWKES BAY LTD _x000b_[2016] NZHC 2318

LEPIONKA & COMPANY INVESTMENTS LTD v HORSESHOE BEND HAWKES BAY LTD [2016] NZHC 2318 [30 September 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2016-404-001410[2016] NZHC 2318BETWEEN LEPIONKA & COMPANYINVESTMENTS LIMITEDApplicantAND HORSESHOE BEND HAWKES BAYLIMITEDRespondentHearing: 8 September 2016Appearances: M Colson for ApplicantJudgment: 30 September 2016JUDGMENT OF ASSOCIATE JUDGE SARGISSONThis judgment was delivered by me on 30 September 2016 at 12.00 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Bell Gully, AucklandWalsh and Associates, HamiltonRankin Ellison, Australia[1] Lepionka & Company Investments Limited (Lepionka) holds a registered first mortgage over a large property located near Havelock North, which is describedin certificate of title 559971 (Hawke's Bay Registry). As mortgagee exercising powers of sale, it has applied for an order under s 143 Land Transfer Act 1952 to remove the caveat lodged by the respondent, Horseshoe Bend Hawkes Bay Limited, against that title. The caveat was registered on 3 March 2016 under number 10352727.1.[2] On 7 September 2016 I ordered that Horseshoe's notice of opposition bestruck out because of its persistent failure to comply with directions. It has thereforelost its right to oppose Lepionka's application, and the application has proceeded onan undefended basis.[3] For reasons I will turn to presently, I am satisfied that the application should be granted and that there should be an order that the caveat be removed.[4] I begin by making brief mention of the background.BackgroundOverview[5] The registered proprietor of the property is GLW Group Limited. The property comprises approximately 24 hectares, and it is located in the Tuki Tuki Valley near Havelock North. It is the subject of a scheme of subdivision based on a concept that was initiated by GLW some six or seven years ago.[6] The concept is for a small number of individually owned residential lots with all owners having communal rights to access a large remaining lot (identified on the scheme plan of subdivision as Lot 7) and the Tukituki River.[7] Initially there were to be four residential lots. This subsequently grew to seven such lots. These are Lots 1-6 and Lot 8, and they surround the common land to be comprised in Lot 7. Lot 7 is intended as a large area of common land to benefit the owners of the residential lots, to be managed by a company to be incorporatedfor that purpose. The concept also incorporates two small additional lots located within Lot 7. One is for a fishing hut, and one for a communal implement shed (Lots 9 and 10).[8] GLW obtained funding for the subdivision from Westpac, and on 9 October2009 it entered into a loan agreement with Westpac. Westpac's advance was securedby a first mortgage over the entire property to be subdivided.GLW's sales of residential lots and GLW's default[9] GLW sold Lot 1 on 30 September 2010 to EHNP Nominee Limited. Settlement of the purchase occurred on 14 October 2011, immediately upon titleissuing for Lot 1. Westpac's mortgage remained registered over the balance of theparent lot, which is now comprised in CT 559971. It is referred to throughout this judgment as the property.[10] In January 2014 GLW unconditionally sold a further four of the proposed residential lots, with settlement to be effected upon the issue of new titles for these lots. The sales are the subject of two sales contracts:1(a) The first relates to proposed lots 3, 5 and 8. The purchaser is Lepionka and Company Limited; and(b) The second relates to proposed lot 4. The purchasers are Stefan Lepionka and Nigel Warren Hughes as trustees of the SJ Lepionka Family Trust.[11] Before the new titles for the sold lots could issue, GLW fell into default under the Westpac mortgage. On 29 January 2015 Westpac served GLW with a default notice under s 119 of the Property Law Act 2007. The notice expired unremedied on6 March 2015, and triggered Westpac's power of sale under the mortgage.1 The relevant sales contracts are dated "2014", but the evidence for Lepionka is that the sales occurred in January 2014.[12] On 31 March 2015 Westpac assigned the mortgage and its rights as mortgagee under it to Lepionka, and Lepionka became mortgagee in possession of the property. On 1 April 2015, exercising its rights as mortgagee in possession, Lepionka adopted the two sales contracts pursuant to s 179.[13] As a result of these developments GLW lost all rights to act on the sales contracts as vendor. Those rights vested in Lepionka pursuant to s 179. Section 179 relevantly provides that if during the time in which the mortgagee is entitled to exercise the power of sale of the mortgaged property, the property is subject to an agreement for sale and purchase entered into by the current mortgagor, the mortgagee may elect to adopt the agreement for sale and purchase – in which case the mortgagee "has all therights and powers in relation to the purchaser that the current mortgagor would have had as vendor of the property; and may do all things necessary to effect the transfer orassignment of the property". That power is stated expressly to include the power to execute a transfer for registration under s 105 Land Transfer Act.2Sales by Lepionka as mortgagee in possession[14] On 26 March 2016 Lepionka, acting as mortgagee in possession, sold the two remaining residential lots (Lots 2 and 6) by mortgagee sale to Tuki Tuki Limited.3On 28 April 2016 Lepionka sold Lot 9 (a small parcel intended for a fishing lodge) to EHNP by mortgagee sale.Ownership of Lot 7[15] Under the relevant sales contracts there are varying ways of ensuring that the large area of common land surrounding the residential lots (Lot 7) will be held and owned by the individual residential lot owners. Lepionka and all of the purchasers of the residential lots say they intend to regularise the position in due course to achieve a uniform outcome. What is clear on the uncontested evidence before the2 Under s 179 the adoption of an agreement "does not affect any liability in respect of the agreement of the current mortgagor, or any former mortgagor, who entered into or is otherwisebound by the agreement."3 An earlier sale of Lot 2 to a Mr Coltart has come to an end. The terms upon which that has occurred are not before the Court, but there is nothing before the Court to suggest they have abearing on Horseshoe's caveat and the present application.Court however (as counsel for Lepionka submits) is that under all of the agreements, the common intention between vendor and purchasers is that those owning the individual lots will control the common land comprised in Lot 7.Horseshoe's caveat[16] Lepionka now wishes to complete the subdivision and settle the sales contracts for Lots 2-6 and 8, and to transfer title for these new lots to the purchasers.However Horseshoe's caveat is a bar to that occurring.[17] Horseshoe was incorporated earlier this year on 1 March 2016, and two days later lodged its caveat. It has connections to GLW through Horseshoe's founder andshareholder, and its director. Ms Elizabeth O'Neill incorporated Horseshoe, and is its sole shareholder. She became a director of GLW in May 2015. She is also the former wife of Mr Garth Paterson. He is the person behind the subdivision and the founding director of GLW. He resigned his directorship in GLW in September 2015 following his adjudication as a bankrupt in Australia. His current partner, a Ms Nadia Dapas, is the sole director of Horseshoe. For present purposes however what is pertinent is the interest in the property that Horseshoe claims in the caveat as an incident of its incorporation. That interest is described as being an interest:Pursuant to two Agreements for Sale and Purchase by the registered proprietor GLW Group Limited (as vendor) and EHNP Nominee Limited (as purchaser) dated 30 September 2010, and GLW Group Limited (as vendor) and Stefan Jozef John Lepionka and Nigel Warren Hughes (jointly) as trustees of the SJ Lepionka Family Trust (as purchaser) dated 14 May 2014, which agreements provide for the subdivision of the land with the creation of residential Lots within and surrounded by a balance Lot in a farmpark style development and which agreements further provide for the balance Lot to be settled in and owned by a company to be formed (the Caveator).[Emphasis added].Issue[18] Lepionka says Horseshoe has no caveatable interest in the property, and that it is entitled to an order for the removal of the caveat; and that such should occur immediately and without conditions. Whether that is correct is the broad issue that I must determine.[19] The matter is of some urgency. Lepionka says that the purchasers are anxious to take title to their new lots and have filed affidavits supporting the application for removal. It says the costs that it has incurred because of the caveat and the delay it has caused in settling the sales are significant and are continuing to escalate.AssessmentApplicable legal principles[20] The legal principles that are applicable to applications of the present kind require brief mention.[21] It is well established that the Court's jurisdiction in relation to applicationsunder ss 143, 145 and 145A of the Land Transfer Act is subject to the same principles. Those principles were succinctly summarised by Master Faire (as he then was) in Ball v Fawcett:41. Section 145 of the Land Transfer Act 1952 gives no guidance as to the circumstances in which the Court may make an order that a caveat not lapse.52. Extensions of caveat will be refused only where it is plain:"that the caveator has no prospect of supporting the interest claimed."63. The onus is on the caveator to show he has an arguable case in claiming an interest in land.74. The summary procedure for removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. Accordingly it has been said:4 Ball v Fawcett [1997] 1 NZLR 743 at 746.5 Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104, at 106.6 Castle Hill Run, above n 2, at 106.7 Castle Hill Run, above n 2, at 106.". . . that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so."8The same principles apply in relation to an application under s 145.95. Once the onus is satisfied the balance of convenience will in the normal course and in the absence of any special consideration be in favour of leaving the caveat in existence until the proceedings to enforce the interest claimed are tried.10[22] When the caveator has discharged the burden upon it to show that it has a reasonably arguable case to support the interest in the land claimed in its caveat, the Court retains a discretion to remove the caveat. It exercises that discretion on acautious basis, and before it does so, it must be satisfied that the caveator'slegitimate interest would not be prejudiced by removal.11[23] Section 143 affords the Court a discretion to make an order that the caveat be removed, or otherwise to make "such order in the premises, either ex parte or otherwise, as to the court seems meet". This provides jurisdiction to impose conditions upon the maintenance of a caveat. Various cases have confirmed that this includes the ability to impose conditions upon the maintenance or removal of caveats.12[24] The Court may order the removal of the caveat where a mortgagee has sold the interests the caveat protects. In such a case the caveator's interest is subject to the mortgagee's power of sale and in that sense the estate or interest protected by thecaveat no longer exists.13 The exceptions (set out in s 105 Land Transfer Act) are interests created by an instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.14 The caveat might also8 Sims v Lowe [1988] 1 NZLR 656 at pp 659-660.9 Holt v Anchorage Management Ltd [1987] 1 NZLR 108.10 Castle Hill Run, above n 2, at 106.11 Stewart v Kaipara Consultants Limited [2000] 3 NZLR 55 (CA) at [23]; Philpott & Ors v Noble Investments Limited [2015] NZCA 342 at [26].12 See for example Philpott v Noble Investments Ltd, above n 8, Viaduct Waterfront Investment Ltd v Patel [2012] NZHC 2316.13 See MacDiarmid v Burton (1980) 1 NZCPR 238l; Jenssen & Anor v Jenssen & Ors CA 246/90, 13 December 1990.14 Section 105 Land Transfer Act states:105 Transfer by mortgageeUpon the registration of any transfer executed by a mortgagee for the purpose of exercising a power of sale over any land, the estate or interest of the mortgagor therein expressed to betransferred shall pass to and vest in the purchaser, freed and discharged from all liability onserve a legitimate purpose pending presentation of the mortgagee's transfer, byprotecting an interest in the event that for any reason the mortgage's transfer is not proceeded with.[25] So the position is a simple one. Horseshoe has the onus of showing there is an arguable basis for the interest claimed is arguable. Additionally, any interest Horseshoe may have (if indeed it has an interest) is trumped by Lepionka's primafacie entitlement pursuant to s 179 to pass clear title to its purchasers. Unless therefore there is an interest or consent that falls within the exception in s 105 (and there is no evidence of such), the caveat should be removed. If it is plain that Horseshoe lacks the interest claimed, it should be removed unconditionally.[26] Given that Horseshoe's notice of opposition has been struck out, Lepionka isentitled to a finding that Horseshoe has not discharged the onus. Lepionka is however entitled to a ruling that goes further and deals with the substantive reasonswhy Horseshoe's caveat cannot stand.Does Horseshoe have an arguable caveatable interest?[27] The interest that Horseshoe claims is described in the caveat as:(a) An interest that relates to the "balance lot" surrounded by the residential lots. The "balance lot" can only be proposed Lot 7, thecommon lot.(b) An interest that depends for its existence on whether:(i) At least one of the sale contracts described in the caveatprovides for Lot 7 "to be settled in and owned by a companyto be formed by the vendor"; and(ii) Horseshoe is that company.account of the mortgage, or of any estate or interest except an estate or interest created by any instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.[28] In the first of the sale contracts described in the caveat (being an agreement between GLW and EHNP dated 30 September 2010), there is no suggestion thatLot 7 is to be "settled in and owned by" a company to be formed by the vendor. Theonly relevant reference in the contract to a company to be formed is in clause 10.Clause 10 relevantly states that "there will be incorporated by the vendor a companywhich shall be responsible for tree planting and pruning on Lot 7" plus a list of other such activities and matters "that may be of communal benefit to the owners of thelots on the attached plan". The provisions of that clause indicate that the purpose ofthat company is to act as a manager of Lot 7, and not as its owner.[29] Additionally, though clause 10 provides for the owner of the residential lotsto have a share in the company, it indicates that Lots 4 and 7 are to be held "in the same title". Under this agreement therefore, it is the owner of Lot 4 that is the ownerof Lot 7.15 Horseshoe is not the owner or the purchaser of Lot 4.[30] Further, Horseshoe cannot possibly be the company that is contemplated by clause 10, as it is not a company incorporated by the "vendor". It was incorporated by Ms O'Neill, and well after the vendor's rights under the agreement (including the right to incorporate the management company) vested in Lepionka.[31] Turning then to the second of the sale contracts that the caveat describes, it is an agreement entered into by GLW and Mr Lepionka and Mr Hughes (as trustees) in May 2014. The evidence before the Court of an agreement between these partiesdated "2014" is of an agreement that they entered into in January of that year, notMay. I do not think anything turns on the point. Lepionka accepts there is an agreement that was entered into between these parties in 2014. On the evidence as it stands, it can only be assumed it is one and the same agreement that the caveat refers to.[32] This sale agreement does provide for Lot 7 "to be settled in and owned by acompany to be formed by the vendor". Materially, clause 11 of the agreement states:15 Clause 10 states (inter alia) that: "The registered proprietor of Lots 1, 2, 3 (4 and 7 held in the same title) from time to time shall own 1 share in the company and may appoint 1 director"[Emphasis added].The purchaser acknowledges that the vendor will, prior to settlement,incorporate a company in accordance with the provisions of this clause 11,and the purpose of the company shall be to own and manage Lots 7, 9and 10 [Emphasis added].[33] As in the case of the first agreement, however, Horseshoe cannot possibly be the company contemplated by clause 11. As I have already noted, Horseshoe wasincorporated by Ms O'Neill and not the "vendor". All of the rights of the vendorunder this sales contract have been held by Lepionka since 1 April 2015. Horseshoe therefore has no possible claim to any ownership rights under the sales contract over Lot 7.[34] Additionally, the purpose of the owner company under clause 11 is simply to manage Lot 7 for the owners of the residential lots. This is the import of clauses 11(b) and (f):(a) Clause (b) provides that on or prior to the date that is four years after the date of this agreement:Lots 7, 9 and 10 will be exclusively managed by the company on behalf ofthe owner (b) Clause 11(f) provides who the owners of the managing company shall be:The registered proprietors of Lot 1 and proposed Lots 2, 3, 5, 6 and 8 onthe land from time to time shall own 1 share in the company and may appoint one director for each lot owned Conclusion[35] There is no room for the slightest inference that the sales contracts referredto in Horseshoe's caveat afford Horseshoe the interest in Lot 7 that its caveat claims. Horseshoe derives no ownership interest in Lot 7 from those contracts.[36] The essential position is that Lepionka as mortgagee in possession has sales that it wishes to settle and it is entitled to pass a title unencumbered by the caveat under s 179 Property Law Act 2007 and s 105 Land Transfer Act 1952. Further, it is entitled to the immediate and unconditional removal of the caveat, as no legitimate interest is held by Horseshoe that might warrant protection pending presentation ofLepionka's transfers to it purchasers.Result[37] Pursuant to s 143 Land Transfer Act 1952, I make an order that caveat number 10352727.1 be removed.[38] Costs are reserved. If Lepionka is seeking an order for costs against Horseshoe, it is to file and serve a memorandum together with a brief supporting affidavit within 10 working days. Horseshoe will have a right to respond, and it may through counsel file and serve a memorandum and any affidavit in response within a further 10 working days._____________________Associate Judge Sargisson