VEGAR-FITZGERALD V AORANGI FORESTS LTD CA44/2014 [2014] NZCA 200

VEGAR-FITZGERALD V AORANGI FORESTS LTD CA44/2014 [2014] NZCA 200 [23 May 2014]IN THE COURT OF APPEAL OF NEW ZEALANDCA44/2014[2014] NZCA 200BETWEEN PATRICIA VEGAR-FITZGERALDAppellantAND AORANGI FORESTS LTDRespondentHearing: 6 March 2014Court: O'Regan P, Harrison and Wild JJCounsel: K Fulton for AppellantJ A McMillan and B J Murphy for RespondentJudgment: 23 May 2014 at 10.15 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is ordered to pay the respondent costs for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] Vegar Properties Ltd (VPL) owns a 15.7 hectare block of land at Matakana, north of Auckland. The property was used for the commercial production of grapes for winemaking. VPL mortgaged the property separately to the Bank of New Zealand (the BNZ) and Aorangi Forests Limited (AFL) to secure financial advances. The company fell into financial difficulties. It agreed to sell the land to one of itsdirectors, Patricia Vegar-Fitzgerald, for a sum well below the amounts owing to each mortgagee.[2] VPL claims that both mortgagees consented to the sale to Ms Vegar-Fitzgerald, which each mortgagee denies. In the exercise of its power of sale, AFL has since agreed to sell the land to a third party.[3] Ms Vegar-Fitzgerald has lodged a caveat against the title to the property. On AFL's application, Ellis J ordered its removal. 1 Ms Vegar-Fitzgerald appeals against that judgment. At issue on appeal is whether it is reasonably arguable that the BNZ and AFL consented to the sale. The answer to that question is essentially fact dependent.Background[4] In March 2009 AFL agreed to advance a related company, Orakei Securities Limited (OSL), the sum of $1.5 million. OSL in turn agreed to advance these funds to companies in the Vintage group which were associated with the Vegar family. In exchange, Vintage signed a general security deed and VPL gave a guarantee and indemnity. That agreement provided that it was also to constitute an agreement to mortgage VPL's land which OSL was entitled to register in the event of a default by Vintage. Shortly after the agreements were signed, OSL assigned all its rights to AFL. Notice of the assignment was not given to VPL until March 2011.[5] OSL and AFL were beneficially owned by a retired American couple, Burvle and Carolie Swindle. Along with two New Zealanders, John Sax and Arthur Young, the Swindles were directors of both companies. In effect OSL was acting as the conduit for the Swindle's investments in New Zealand. Its director is Kingsley Turner of Auckland.[6] In May 2009, VPL commissioned a registered valuation which placed the value of the property at $3.4 million. In June 2009 BNZ granted VPL a loan facility for $2 million, secured by a first mortgage over the property. However, in late 20101 Aorangi Forests Ltd v Vegar-Fitzgerald [2013] NZHC 3370.VPL encountered difficulties meeting its financial obligations to the BNZ. The parties discussed proposals advanced by Paul Vegar, VPL's managing director, for sale of the property. In January 2011 the BNZ obtained a registered valuation of the property at $550,000 on a normal sale and $350,000 on a mortgagee sale.[7] In early February 2011, as a result of VPL's defaults under its mortgage, BNZ issued a notice to the company in accordance with ss 119 and 128 of the Property Law Act 2007 demanding rectification of the default on or before 18 March 2011. VPL failed to comply. At that time the company owed the bank $2 million together with outstanding interest.[8] In April 2011 Mr Vegar on VPL's behalf requested the BNZ's consent to the sale of the land to Ms Vegar-Fitzgerald for the sum of $500,000. A series of communications followed between representatives of those two parties. VPL and Ms Vegar-Fitzgerald assert and BNZ denies that it consented to the sale.[9] On 11 May 2011 VPL and Ms Vegar-Fitzgerald signed an agreement for sale and purchase of the land for $500,000. Settlement was originally agreed for 22 July 2011 but was later amended to 22 May. Mr Vegar asserts that in a telephone discussion with Mr Turner the latter consented to the sale on AFL's behalf. Mr Turner denies that allegation.[10] On 9 June 2011 Ms Vegar-Fitzgerald lodged a caveat against the title to the property, claiming an equitable interest as purchaser under the agreement. Two days later the BNZ assigned its interest as first mortgagee to AFL. In December 2012 in exercise of its powers of sale AFL agreed to sell the property to Greenhill Farms Ltd for $1.659 million.[11] Against that background it is necessary to outline the relevant principles before addressing the question of whether it is reasonably arguable that both BNZ and AFL consented to the sale.Legal principles[12] The relevant procedural principles are as follows:(1) Any mortgagee can apply to the High Court for an order removing a caveat. The Court has a wide discretion to "make such order in the premises as to the court seems meet". 2(2) Once an application is filed, the caveator has the onus of proving that it has an arguable case entitling the caveator to the protection of the caveat.3 Mr Fulton suggested that Ms Vegar-Fitzgerald was under an evidential onus to show each mortgagee arguably consented to the sale to her, with AFL then required to "completely satisfy" the Court that VPL had not arguably consented and thus no risk of prejudice arises. This submission is contrary to authority and we reject it. In support, Mr Fulton referred to Pacific Homes. 4 However, Mr Fulton has wrongly relied on the test for exercising the residual discretion to remove a caveat even where the right to the claimed interest is undoubted, which as we will explain is not the case here.(3) In the normal course, a summary procedure such as an application to remove a caveat which is decided on affidavit evidence without cross-examination is unsuitable for resolving factual differences. 5However, that general precept is subject to the important qualification that the Court is not bound to accept at face value and without question statements of fact which lack precision, are inconsistent with contemporary documents or other statements, or are inherently improbable.62 Land Transfer Act 1952, s 143.3 Sims v Lowe [1988] 1 NZLR 656 (CA) at 660, Boat Harbour Holdings Ltd v Steve Mowat Building and Construction Ltd [2012] NZCA 305 at [26].4 Pacific Homes Ltd v Consolidated Joineries Ltd (1996) 2 NZLR 652, also cited by Ellis J at first instance in Aorangi, above n 1, at [39].5 Boat Harbour, above n 3, at [26].6 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341E–F.[13] In substantial agreement with Mr McMillan's submission, we summarise the relevant substantive principles as follows:(1) In the ordinary course a party who enters into an agreement to purchase land acquires an equitable interest in the property which is entitled to the protection of a caveat. 7(2) However, where the owner of property has encumbered its estate by mortgage, its rights are subject to the mortgagee's prior rights. 8(3) In that situation the mortgagee's title is paramount including its right to exercise its power of sale. 9(4) If a mortgagee has not consented to a sale by the owner, the purchaser's equitable interest is extinguished by a sale by the mortgagee in exercise of its powers and the caveat cannot be sustained. 10(5) Consent in this context does not mean mere acquiescence or standing by, as was the argument apparently advanced by Ms Vegar-Fitzgerald's counsel in the High Court.11 Instead consent requires proof of a clear and unequivocal, that is, positive and demonstrative act or acts. 12[14] Mr McMillan accepts that Ms Vegar-Fitzgerald acquired an equitable interest in the land when she entered into the agreement for sale and purchase with VPL. However, we agree with him that the issue for determination in the High Court was not whether Ms Vegar-Fitzgerald had a caveatable interest in the property at the time7 Land Transfer Act, s 137(1)(a); Laws of New Zealand Land Law (online ed) at [37].8 Laws of New Zealand Land Law (online ed) at [72]–[73]. See also Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZConvC 192,571 (HC).9 Laws of New Zealand Land Law (online ed) at [72]–[73]. See also Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd [1984] 2 NZLR 704 (HC) at 712–713.10 Land Transfer Act, s 105.11 Above n 1, at [46].12 Cashmere Capital Ltd v Carroll [2009] NZSC 123, [2010] 1 NZLR 577 at [75]–[79]; Bell v Alfred Franks & Bartlett Co Ltd [1980] 1 WLR 340 (CA) at 347A–D.of the sale. That is because VPL's interest as vendor was always subject to those of its two mortgagees – while it may have been free to sell, its power was subject as always to obtaining the mortgagees' consent. Without that consent, Ms Vegar-Fitzgerald's interests could never be perfected. And, significantly, in the absence of such consent, her interests would be extinguished if either mortgagee sold the property in exercise of its powers of sale.[15] We add our acceptance of Mr Fulton's submission that Ellis J appeared to adopt an unsustainably strict test when reciting that Ms Vegar-Fitzgerald was required to completely satisfy the High Court that both mortgagees consented to the sale to her. 13 As we have noted, a lower threshold applies on an application to remove a caveat. The test is whether Ms Vegar-Fitzgerald has established it was reasonably arguable that both mortgagees gave consent.Consent(a) BNZ[16] The relevant events are well documented. On appeal Mr Fulton, who did not appear in the High Court, relied primarily on an email sent by the BNZ on 27 April 2011. This is a significant change in Ms Vegar-Fitzgerald's position. In the High Court her counsel relied on letters written by BNZ's solicitor on 18 and 24 May 2011. Ellis J rejected this submission.14 Mr Fulton does not challenge her conclusion.[17] BNZ's 27 April 2011 email advised that it would agree to forebear from taking further action before 22 July 2011 (which was then still the proposed settlement date), provided that two conditions had to be fulfilled "not later than close of business on 4 May 2011, time being of the essence": (1) the 10 per cent deposit payable by Ms Vegar-Fitzgerald under the proposed agreement was applied in permanent reduction of VPL's indebtedness to BNZ; and (2) a settlement statement in terms acceptable to BNZ was received.13 At [41].14 At [46]–[49].[18] A deposit was not paid in reduction of VPL's indebtedness by 4 May 2011 or at all and, as Mr McMillan emphasised, Ms Vegar-Fitzgerald specifically instructed her real estate agent "not to present [the cheque] until certain legalities have been sorted out". In fact, the agreement for sale and purchase was not signed until 11 May 2011. After a variation, the agreement was to settle a month earlier, on 22 May 2011.[19] Mr Fulton accepts that VPL failed to comply with the BNZ's strict conditions. Nevertheless, he submitted that the bank arguably gave consent for the following reasons:(1) BNZ did not at any time enter into possession following its recognition that a consensual sale by VPL was better than a receivership or mortgagee's sale. It supported VPL's adoption of a process by which it stood to be the primary beneficiary, given the inevitable shortfall. However, this factor has no bearing whatsoever upon the question of whether the bank gave consent to the sale.(2) The BNZ had obtained a valuation of the property at a price consistent with the amount agreed between VPL and Ms Vegar-Fitzgerald. Again, this factor has no bearing upon the question of whether the bank arguably consented to the transaction. It simply shows a similarity between a valuer's assessment of the property's value and the price which Ms Vegar-Fitzgerald agreed to pay.(3) VPL did not sign the agreement until BNZ had reverted with its approval to the transaction. However, a decision by VPL and Ms Vegar-Fitzgerald to sign a contract to which the bank was not a party has no bearing upon whether that party itself might have consented to the transaction. The contract is simply a record of the acts and intentions of the contracting parties.(4) The BNZ instructed its solicitor to give undertakings to discharge its mortgage. Mr Fulton was referring to an offer made by Justin Toebes,the bank's solicitor, on 24 May 2011 to discharge its mortgage if VPL deposited $493,774.72 into the bank's account by bank cheque or electronic transfer that day. However, even assuming for the purposes of argument that the bank's conditional offer arguably amounted to a consent, VPL failed to satisfy the critical condition.[20] On appeal Mr Fulton raised a new argument which was not pleaded or advanced in the High Court. He submitted that the BNZ's conduct subsequent to 11 May 2011, when the agreement was signed, amounted to a waiver of its earlier conditions upon which consent was given. Leaving aside the question of whether it is now open to Ms Vegar-Fitzgerald to run this argument, it cannot possibly succeed in any case.[21] Mr Fulton relied on the letters sent by Mr Toebes on 18 and 24 May 2011 (referred to at [16] above) which were the primary focus of Ms Vegar-Fitzgerald's arguments in the High Court. On analysis those two letters are no more than an undertaking to provide a release of mortgage on settlement of the agreement for sale and purchase which, as noted, was now agreed as 22 May 2011. The bank's offer was supplemented, as we have also noted, by Mr Toebes' undertaking on 24 May to discharge the bank's mortgage if $493,774.72 was paid that day.[22] The BNZ's offer was clearly predicated on an assumption that settlement would occur on the due date, 22 May 2011, or by no later than 24 May. As we have noted, these conditions were not satisfied. Ms Vegar-Fitzgerald has no factual basis upon which to assert that on 18 or 24 May the bank had acted in any way inconsistently with its requirement that VPL satisfy its conditions by nominated dates, time being of the essence. 15[23] In summary, Ms Vegar-Fitzgerald has failed to meet the threshold of arguability that the BNZ clearly and unequivocally, and by a positive and demonstrative act, consented to VPL's agreement to sell her the property.15 New Zealand Railways Corporation v Fletcher Development and Construction Ltd (1990) 1 NZConvC 190,464 (CA) at 190,467.(b) AFL[24] Clause 2.4 of the relevant deed of guarantee and indemnity provided VPL's undertaking to AFL that it would not: transfer, mortgage or encumber the title to the Property without the prior written consent of [AFL].[25] Ms Vegar-Fitzgerald has never suggested that AFL gave its prior written consent to the agreement. Ellis J treated the absence of written consent as dispositive.16 However, even if that was incorrect, the Judge was not satisfied that there was any credible evidence to establish that AFL through Mr Turner (see at [5] above) consented to the sale.[26] In an affidavit sworn in the High Court Mr Vegar referred to his discussions with Mr Turner in April and May 2011. He simply said without details that on 24 May 2011 he had a discussion with Mr Turner who confirmed that "they agreed to the sale and would remove [OSL's] caveat". We note immediately that OSL was not the mortgagee and Mr Turner was not a director of the mortgagee, AFL. Mr Vegar allegedly sent an email to Mr Turner at 9.36 am that day, expressing his appreciation for "your consent to release the caveat and allow the sale to go through for [VPL]".[27] Mr Turner denied Mr Vegar's allegation that he consented orally to the transaction on 24 May 2011 or that he ever received the email which was allegedly sent following it. He says that if he had received such an email he would have immediately responded to correct Mr Vegar's apparent misunderstanding. What is of particular significance in this context is that later on 24 May Mr Turner sent VPL's solicitors, Alexander Dorrington, an email which he copied to Mr Vegar. In it Mr Turner confirmed, first, that OSL had no capacity to release securities without specific authorisation from AFL and, second, that such authorisation would not be forthcoming "for at least a couple of days".[28] Significantly, also, Mr Vegar sent an email to Mr Turner on 27 May to the effect that he had "stalled [BNZ] as long as possible" and informed BNZ that AFL's consent "was coming". Later that day Mr Turner sent Mr Vegar an email advising16 Above n 1, at [50].that it would probably be a couple more days before he received any instructions. Mr Turner confirms he had no authority to bind AFL.[29] Applying the higher and incorrect threshold, Ellis J was not satisfied that AFL consented to the transaction. We repeat that the question is whether it is arguable that the mortgagee consented. The Judge also accepted from the communications that "there may have been a modicum of dissembling on Mr Turner's part." 17 We can see no basis for this observation.[30] Leaving aside any issues of credibility arising from a factual dispute between Messrs Vegar and Turner, Ms Vegar-Fitzgerald faces an insurmountable legal obstacle. She must show it as arguable that Mr Turner was acting as AFL's agent and with its authority to consent when he communicated with Mr Vegar on or after 24 May 2011. Alternatively, she must show it is arguable that AFL had held out to Mr Vegar that Mr Turner was authorised to act in the manner alleged.[31] There is no evidence of actual authority. Mr Fulton's only answer was to assert that this area of dispute is arguable and requires further evidence. However, a broad assertion of this nature carries no weight in the absence of some credible factual foundation.[32] Alternatively, Mr Fulton submits that it would be reasonable for Mr Vegar to assume that Mr Turner, on OSL's behalf, could give binding consent to the transaction because OSL held the caveat as AFL's agent. However, Mr Vegar has never deposed that he held the assumption attributed to him by Mr Fulton. Moreover, the holding out or representation of Mr Turner's authority could only emanate from AFL. Mr Vegar has not provided any evidential foundation whatsoever to support this proposition.[33] We add that Mr Vegar also faces major credibility problems. Mr Vegar's affidavit on this critical issue is brief and unspecific about the contents of his discussion with Mr Turner on 24 May 2011. He was specifically aware later that day that Mr Turner did not have authority to bind AFL and that any authority from that17 Above n 1, at [55].company would not be available for at least a couple of days. His email sent to Mr Turner on 27 May confirms an expectation that consent was prospective – "was coming" – but was not in existence.[34] In summary, we are satisfied that it is not arguable for Ms Vegar-Fitzgerald that AFL clearly and unequivocally and by a positive and demonstrative act, consented to VPL's agreement to sell her the property especially in circumstances where Mr Vegar, to whom Mr Turner allegedly communicated AFL's oral consent, knew or must have known of the contractual requirement that AFL's consent be in writing.(c) Unconscionable conduct[35] Mr Fulton seeks to raise another new argument on appeal. He asserts that AFL's conduct was unconscionable and arguably displaced its rights, constituting a deferral of its priority. As Mr McMillan pointed out, Mr Fulton has failed to identify the conduct which might possibly support such an argument, which in any event is only sustainable in rare cases. The foundation for Mr Fulton's argument was that the BNZ consented to the sale and that AFL's rights had merged with it. But if it is not arguable, as we have found, that the BNZ consented, this argument must fail also.Result[36] The appeal is dismissed.[37] Ms Vegar-Fitzgerald is ordered to pay costs to AFL for a standard appeal on a band A basis and usual disbursements.Solicitors:Alexander Dorrington, Auckland for AppellantChapman Tripp, Auckland for Respondent