MASEFIELD MALL LIMITED V GASSON STREET PROPERTIES LIMITED HC CHCH CIV-2012-409-001616

MASEFIELD MALL LIMITED V GASSON STREET PROPERTIES LIMITED HC CHCH CIV-2012-409- 001616 [13 September 2012]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2012-409-001616[2012] NZHC 2383BETWEEN MASEFIELD MALL LIMITEDApplicantAND GASSON STREET PROPERTIESLIMITEDRespondentAND THE NEW ZEALAND GUARDIANTRUST COMPANY LIMITEDInterested PartyHearing: 13 September 2012(Heard at Christchurch)Appearances: S Savill for ApplicantH C Matthews for RespondentE J H Morrison for Interested PartyJudgment: 13 September 2012ORAL JUDGMENT OF ASSOCIATE JUDGE OSBORNE[as to removal of caveat][1] It is something of a rarity that this mortgagee sale litigation involves no significant disputed fact. Instead, it substantially turns on whether the applicant("Masefield") lost the right to sell its mortgaged property.[2] This issue arises in the context of Masefield's application for an order that a caveat placed by the respondent ("Gasson Street") be removed.[3] Masefield's application is supported by its mortgagee, the New Zealand Guardian Trust Company Limited ("Guardian Trust").The facts[4] Masefield is the registered proprietor of a property in Masefield Drive, Rolleston.[5] In 2007, Masefield mortgaged the property to Guardian Trust.[6] On 22 February 2012, Guardian Trust, pursuant to its power of sale as mortgagee, entered into an agreement for the sale and purchase of the property withGasson Street Properties Limited ("Gasson") for $1,175,000 plus GST if any ("theGasson agreement").[7] The Gasson agreement contained a clause (cl 21) giving Guardian Trust a right of cancellation in relation to specified "intervening events". I will return to the specific provisions of cl 21 in more detail.[8] Under the Gasson agreement the settlement date was three months from the contract becoming unconditional. The contract became unconditional either on 17 or 18 May 2012, and consequently the parties were due to settle the Gasson contract on 17 or 18 August 2012.[9] About the same time that Gasson Street confirmed the Gasson agreement, pursuant to its rights under the Gasson agreement it nominated Horncastle Homes Limited ("Horncastle") to complete the purchase. The evidence of Richard ScottPeebles for Gasson Street is that Horncastle agreed to pay Gasson Street $400,000 plus GST for its nomination.[10] On 1 June 2012, Masefield entered into an unconditional agreement for saleand purchase of the property to Dragonwood Holdings Limited ("Dragonwood") for$1,500,000 plus GST. On the same day (1 June 2012) Dragonwood registered a caveat against the title.[11] On 15 June 2012, Dragonwood's solicitors wrote to Guardian Trust'ssolicitors. In the letter they confirmed their client's position and undertook that theywere holding sufficient cleared funds in their trust account to complete settlement of the Dragonwood contract. They noted that they had previously given an undertaking that they held the deposit in their trust account, which still applied.[12] On 19 June 2012, Guardian Trust's solicitors wrote to Gasson Street'ssolicitors (a letter sent by both fax and email). They stated:We refer to the sale and purchase agreement dated 22 February 2012 between The New Zealand Guardian Trust Limited as mortgagee and GassonStreet Properties Limited as purchaser (the "Agreement").As a result of an intervening event or events as defined in clause 21 The New Zealand Guardian Trust Company Limited hereby cancels the Agreement with Gasson Street Properties Limited. Please confirm your trust account details so we can refund the deposit.[13] That same day (19 June 2012) Gasson Street lodged a caveat against the title pursuant to the Guardian Trust contract.[14] Gasson Street's caveat claims an interest pursuant to its agreement for sale and purchase dated 22 February 2012 (ie pursuant to the Gasson agreement).[15] Gasson Street's solicitors immediately followed up the lodging of the caveatwith a letter to Guardian Trust's solicitors explaining that Gasson Street did not accept that there had been an intervening event as defined by cl 21 of the Gasson agreement.[16] In subsequent correspondence, the parties continued to dispute the legal position. Gasson Street would not accept a return of the deposit it had paid and Guardian Trust, through its solicitors, dealt with the situation by forwarding a bank cheque for the refunded deposit.The knowledge, cooperation and motivation of Guardian Trust[17] The notice of opposition filed by Gasson Street did not identify as a ground of opposition any aspect of cooperation which may have taken place between Guardian Trust and Masefield in relation to the Dragonwood agreement.[18] In his evidence in opposition, Mr Peebles made a number of statements as to his belief. He stated that he believed it likely that Guardian Trust knew about the proposed sale by Masefield to Dragonwood and that Guardian Trust may have cooperated with Masefield and/or Dragonwood to promote the Dragonwood contract. He gives no explanation for his belief or the source of the belief.[19] In response, Keith Vincent Harris (a manager at Suncorp Mortgage Company NZ Limited, which provides mortgage administration services to Guardian Trust) deposed that Guardian Trust had no knowledge of the Dragonwood agreement until1 June 2012 when they were advised of it. He noted that Guardian Trust'sobligations as mortgagee are to obtain the highest amount possible in relation to a recovery.[20] Simon Lydall Savill, a director of Masefield, similarly deposed that Masefield did not act with Guardian Trust in relation to the Dragonwood contract.[21] In short, there is nothing in the admissible evidence to raise an arguable possibility of cooperation of the sort which Mr Peebles stated he believed was likely.[22] Mr Peebles also stated a further belief in his affidavit, namely that Dragonwood may be an entity which is owned or ultimately controlled by some or all of the same directors as are involved in Masefield. He also believed that the attempt to sell between Masefield and Dragonwood was, in effect, an attempt by those associated with Masefield to redeem the property at a price greater than the Gasson agreement but significantly less than owing to Guardian Trust under the mortgage security.[23] Again, Mr Peebles does not refer at all to the source of his beliefs or why theinformation might be credible. Mr Savill's reply records that he is the sole directorof Masefield and that Dragonwood is neither owned nor controlled by him.[24] The belief stated by Mr Peebles in the circumstances is not a sufficient basis to lead to any arguable proposition of evidence.[25] I further note that neither of Mr Peebles' stated beliefs was taken further ineither the notice of opposition or in argument. They do not, on any view, take Gasson Street's case any further.Removal of caveats – the principles[26] Counsel were in agreement as to the principles applicable on an application to remove a caveat.[27] Court of Appeal decisions in Sims v Lowe1 and in Pacific Homes Ltd v Consolidated Joineries Ltd2 established the following principles:(a) The onus is on the caveator to demonstrate that it holds an interest in the land sufficient to support a caveat;(b) The caveator must put forward a reasonably arguable case to support the interest claimed;(c) An order for the removal of the caveat will be made only 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.3Contractual interpretation[28] As this case involves the construction of a contract, I refer also to the modern approach to interpretation. Observations of Lord Hoffman in Investors Compensation Scheme Ltd v West Brunswick Building Society,4 as adopted by the New Zealand Court of Appeal in Boat Park Ltd v Hutchinson,5 are applicable:1 Sims v Lowe [1988] 1 NZLR 656 (CA).2 Pacific Homes Ltd v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).3 Principles as summarised in Kookmin Bank v Chariot Wheel Limited HC Auckland CIV-2011-404-002186, 20 April 2011, Lang J at [5].4 Investors Compensation Scheme Ltd v West Brunswick Building Society [1998] 1 WLR 896 at912 – 913.5 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81 - 82.(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.(2) The background was famously referred to by Lord Wilberforce asthe "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.[29] Of this approach, John Burrows in Law of Contract in New Zealand states:6It heralds a move from a literal approach to a more commonsense purposive approach to the interpretation of contracts. The question is what the contract would convey to a reasonable person.Applicant's alternative ground[30] Masefield brought its application (in terms of its originating application) upon the basis that the entry into the Dragonwood contract was an "intervening event" which had led Guardian Trust to cancel the Gasson agreement pursuant to cl 21.5 of that agreement.[31] In the course of his submissions, Mr Morrison for Guardian Trust submittedthat Guardian Trust's cancellation of the Guardian Trust agreement could also bejustified pursuant to cl 21.1 (as supplemented by cl 21.4) of the Guardian Trust agreement. It is sufficient to set out the relevant parts of cl 21.1:21.1 Should, as at or prior to the date of this agreement or at any time up until settlement has been effected, there be any caveat... which would prevent registration of a transfer by power of sale in favour of the Purchaser or the Vendor has been unable to obtain necessary consents which would enable registration of a transfer by power in favour of the Purchaser and the Vendor is unable, or believes that it will be unable, by the settlement date to remove or obtain a release or satisfaction of the same or obtain required consents, then the Vendor may in its discretion:6 John Burrows "Contents of the contract" in John Burrows, Jeremy Finn and Stephen Todd (eds)Law of Contract in New Zealand (LexisNexis, Wellington, 2012) 185 at [6.2.2(c)].(a) by notice in writing to the Purchaser cancel the contract evidenced by this agreement upon repaying to the Purchaser the deposit (without interest or costs) which shall be accepted in full satisfaction of all claims hereunder or otherwise howsoever and neither party shall have any right or claim against the other; or(b) ...[32] In the course of submissions and discussion with the Bench, Mr Morrison accepted that this was not his best point. In the context of a caveat proceeding where Gasson Street must point to a reasonably arguable answer to Guardian Trust'spurported justification, this alternative argument plainly cannot succeed.[33] The caveator's answer is simple:(a) To succeed with a cancellation based on the lodging of the caveat, pursuant to cl 21.1, Guardian Trust would have to point to evidence of its inability, or its belief that it would be unable by the settlement date to remove the caveat.(b) Guardian Trust adduced no evidence directly on these points in its supporting affidavits directly.(c) When the absence of such evidence was expressly noted in the affidavit filed for Gasson Street, Guardian Trust and Masefield filed reply evidence on other issues, but not on these issues of ability or belief.(d) Gasson Street accordingly has a reasonably arguable answer to the alternative submission developed in relation to cl 21.1.Cancellation under cl 21.5 for an intervening event[34] The case of Masefield and of Guardian Trust turns on the correct interpretation of the Gasson agreement which that company entered into with Gasson Street.[35] In particular, this judgment turns on the rights of parties pursuant to cl 21.5 of the Guardian Trust agreement which reads:21.5 The Vendor may cancel the contract and this agreement at any time upon notice in writing to the Purchaser but without serving a settlement notice if:(a) It is for any reason other than its own default unable to complete the sale of the Property; or(b) the Property has before settlement been sold by any other party or if an injunction or other order is issued or granted affecting completion of the sale whether upon terms or otherwise.[36] Guardian Trust, in cancelling the contract, relies on cl 21.5(b) in particular.[37] There is common ground between the parties on some aspects of the correct interpretation of cl 21.5:(a) Guardian Trust as vendor retained a discretion in relation to cancellation – in other words, it was not obliged to cancel the Guardian Trust agreement if any of the qualifying events in 21.5 (a) or (b) occurred;(b) The property in question is the Rolleston property which is the subject of the Gasson agreement;(c) "Before settlement" means before the settlement of the Gasson agreement (which was due on 17 or 18 August 2012 and it is accepted had not occurred at the time of cancellation – namely 19 June 2012);(d) "Any other party" might include in particular cases a registered proprietor, a different mortgagee, or another chargeholder with rights of sale;(e) "Sold" requires a sale by someone with authority to sell the property;(f) "Sold" covers at least the situation of an unconditional sale by such aperson.The issue in this case[38] Gasson Street asserts that (at least arguably) what Masefield did on 1 June 2012 did not amount to a sale of the property in terms of cl 21.5. It says that this is so because Masefield no longer had the right to sell the property because it had, on 18 May 2012, lost its right of redemption.[39] Gasson Street invokes the provisions of s 97(1) Property Law Act 2007 as to the redemption of mortgages, which states:97 Equity of redemption(1) The current mortgagor or any other person entitled to redeem mortgaged property may redeem it in accordance with this subpart at any time before it has been sold, under a power of sale, by the mortgagee or a receiver.7...[40] It is common ground between the parties, and I so find, that the provisions of s 97(1) constitute a minimum (statutory) right of redemption and that it is open to the mortgagor and the mortgagee to agree on extended rights of redemption. It must follow that similarly a mortgagor may waive his statutory entitlement under s 97(1) to treat the mortgaged property as no longer subject to the equity of redemption[41] Masefield and Guardian Trust assert that the plain meaning of cl 21.5, so far as Masefield as mortgagor was within the group of persons who might sell the property, was to preserve Masefield's right as mortgagor to redeem right up to thetime of settlement referred to in cl 21.5.[42] The issue is not as to the construction of s 97(1) Property Law Act 2007 which, as I have said, defines a minimum right of equity of redemption. Rather, the issue is as to whether the objective intention of Guardian Trust and Gasson Street as7 Replacing s 81(1) Property Law Act 1952.expressed through their Gasson agreement was to (in part) provide an extended time (that is, up until settlement of the Gasson agreement) for the possibility that another party (including Masefield as registered proprietor) might produce a better sale or a sale in terms more acceptable to Guardian Trust for the benefit of Guardian Trust.[43] Mr Matthews, for Gasson Street, submits that the contract is to be properly interpreted as containing the parties' agreement that with effect from the satisfactionof conditions (18 May 2012), Masefield could no longer exercise an equity of redemption and had therefore lost its ability to sell the property within the meaning of sale in the clause.The context[44] Guardian Trust as mortgagor had obvious interests which would have been known and understood by both parties to the contract. As mortgagee in its own interest, it had an interest to maximise recovery for itself. As mortgagee with legal duties to others, it had an interest to protect itself from arguments that it had not obtained a suitable price on the market.[45] The Gasson agreement was not initially unconditional. It became unconditional part-way between its date of execution and the time at which in the normal course it would have been settled. When the parties in cl 21.5 specified the settlement as the event up to which Guardian Trust had its right of cancellation, they must be taken to have fully appreciated that such date would be some time after the Gasson agreement became unconditional and therefore after Guardian Trust had exercised its power of sale.Discussion[46] Viewing this contract in its commercial context, I find that the agreement, and in particular cl 21.5, contains implicitly an agreement whereby Masefield's rightof redemption was preserved. Guardian Trust had Gasson Street's agreement thatright up to settlement of the Gasson agreement, Guardian Trust would be entitled to take the benefit of sale effected by other parties. Masefield was one such party.[47] Mr Matthews submitted that the Court should favour an interpretation against the sale by Masefield given that the parties did not include an express extension ofMasefield's right to redeem. Placing myself in the position of the reasonable person, I find nothing remarkable in the absence of an express extension of the equity of redemption. The comprehensive nature of the clause 21.5 would be understood by the reasonable person entering this contract to mean that the registered proprietor did have until settlement of the Gasson agreement to produce to Guardian Trust a better sale contract.[48] I am reinforced in this conclusion by the observations of this Court in relation to precisely the same contractual provision in another mortgagee sale case, namelyPickersgill v Southland Building and Investment Society.8 The relevant clause (numbered 19 in that case) had been found by the District Court Judge, at first instance on a summary judgment application, to preserve the mortgagor's statutoryright to redeem the mortgaged property and to do so at any time before settlement. Fraser J, although allowing the appeal and setting aside judgment, upheld the District Court finding in relation to cl 19.[49] It is a matter of construing the intention of these contracting parties (Guardian Trust and Gasson Street) in this particular contract.[50] Very different forms of "intervening event" clauses, which often contain no similar clause with regard to sales by other parties, have been considered by this Court on other occasions. What appear to be relatively standard form clauses used by Westpac Banking Corporation have been considered in two decisions.9[51] Guardian Trust has chosen to adopt in its sale and purchase form precisely the same wording as deliberated upon in Pickersgill in this Court in 1993. Guardian Trust contends for the construction of the clause that found favour with this Court at that time.8 Pickersgill v Southland Building and Investment Society (1994) 2 NZ ConvC 191, 799 (HC).9 Davison v Westpac Banking Corporation HC Auckland CP 490/98, 5 November 1998 (cl 16appearing in the judgment at 13); and Bhana v Westpac Banking Corporation (2003) 4 NZConvC 193, 794 (HC) (cl 14.1 appearing in the judgment at [26]). See also a form used by TEACustodians (Equitable) Ltd in Ko v Tea Custodians (Equitable) Ltd (2006) 7 NZCPR 108 (HC)(form appearing in the judgment at [25]).[52] The subsequent decision of Randerson J in Davison v Westpac Banking Corporation would place the crucial point for determination in this case in precisely the same context as I view it, namely the correct interpretation of the contract. His Honour, in Davison, said as one of four principles he enunciated:10Where, as a matter of construction, the contract of sale expressly or impliedly preserves the right of redemption, the right will be retained in accordance with the contractual term. Pickersgill ... is an example of that type of case.(His Honour then went on to distinguish Pickersgill because of the very different intervening events clause contained in the Westpac contract.)[53] Cases such as the present are not cases primarily focussed on the meaning of the statute. Many of the cases decided which consider the equity or right of redemption were focussed upon rights as between mortgagor and mortgagee and had an immediate focus on s 81 of the Property Law Act 1952.[54] Often the focus was upon enforcing the provisions of s 81 in favour of a mortgagee endeavouring to settle a sale it had entered into in compliance with its mortgagee powers.[55] The immediate focus between the present parties is on what Guardian Trust and Gasson Street are taken to have objectively intended when entering the Gasson agreement and reserving to Guardian Trust a right of cancellation.[56] Guardian Trust as mortgagor obtained the right to opt in favour of better contracts. Gasson Street as purchaser took its risk that it might not receive the benefit of the Gasson agreement, though unconditional, through a unilateral cancellation by Guardian Trust prior to settlement.[57] The preservation to Masefield of a right of redemption and the creation of a benefit to Guardian Trust accords with my own construction of the contract. It also happens that it is the construction given to the contract by this Court in relation to precisely the same contractual wording some 19 years ago. Mr Matthews took me to10 Davison v Westpac Banking Corporation HC Auckland CP490/98, 5 November 1998 at 13.those subsequent cases which have distinguished (I interpolate for very good reason on the facts) the Pickersgill decision. He particularly referred to the judgment of Venning J in Bhana v Westpac Banking Corporation11 in which at least part of the reasoning of Fraser J in Pickersgill is queried.12 Nonetheless, Pickersgill remains good authority for the construction issue which arises in this case. Its application in a construction setting is reinforced by Randerson J's statements of principle inDavison.13 Commercial parties may well have conducted their affairs upon the basis that this Court has provided earlier a settled construction of a clause which is evidently in repeated use in mortgage practice. This is in my judgment a further reason for the conclusion I have reached.Outcome[58] The issue has been whether or not Masefield's right of redemption wasextended or, put another way, whether the termination of its right was waived by Guardian Trust. I find that it was by cl 21.5 of the Gasson agreement.[59] I find that the Gasson contract was validly cancelled on 19 June 2012 before settlement and that Gasson Street as caveator is unable to establish a reasonably arguable case to support the interest it claims.Orders[60] I order:(a) The caveat against dealings over the property on the corner of Masefield Drive, McCauley Street and Dryden Avenue, Rolleston, Christchurch (being the land described in Certificate of Title unique identifiers CT 248985, 254120 and 535314 (Canterbury Registry) and11 Bhana v Westpac Banking Corporation, above n 9.12 Pickersgill v Southland Building and Investment Society, above n 8, at [20] – the particularreasoning questioned being Fraser J's equation of the time of sale and phrase "actually sold" ins 81Property Law Act 1952, with the time of the exercise of the power of sale in s 92(6) of theAct.13 Above n 9.further described as Lot 103, DP 361253, Lot 104, DP 361253 and Lot 2, DP 436363, being instrument no. 9101384.1 be removed.(b) The removal is to occur as soon as practicable but in any event within five working days.(c) The respondent is to pay the costs of the application on a 2B basis together with disbursements to be fixed by the Registrar save that the costs of the applicant (as distinct from the interested party) in preparation shall be set at 50 percent of the 2B scale. There is a certificate for the reasonable costs of travel and any accommodation of counsel for the interested party.Solicitors:R A Fraser & Co, PO Box 163, Christchurch (S Savill)White Fox & Jones, PO Box 1353, Christchurch (H C Matthews)Kirkland Morrison, PO Box 1290, Auckland 1140 (E H J Morrison)