MAWHINNEY V NAGS HEAD HORSE HOTEL LIMITED CA28/2013 [2013] NZCA 401

DRAFTMAWHINNEY V NAGS HEAD HORSE HOTEL LIMITED CA28/2013 [2013] NZCA 401 [27 August 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA28/2013[2013] NZCA 401BETWEEN PETER WILLIAM MAWHINNEYAppellantAND NAGS HEAD HORSE HOTEL LIMITEDRespondentHearing: 21 May 2013Court: Arnold, Harrison and Rodney Hansen JJCounsel: Appellant in personL A O'Gorman and D T Broadmore for RespondentJudgment: 27 August 2013 at 3.30 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is to pay the respondent costs on a standard band A basis together with usual and reasonable disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] Nags Head Horse Hotel Ltd (Nags Head) and Peter Mawhinney each owns a mortgage secured against the title to a 50 hectare rural property in Anzac Valley Road, Waitakere, near Auckland. A dispute has arisen over which of the two charges has priority.[2] Following a defended hearing in the High Court at Auckland, Associate Judge Christiansen determined the dispute by entering summary judgmentin Nags Head's favour.1 He ordered Mr Mawhinney and companies with which he is associated to take certain steps for the purpose of confirming Nags Head's priority.Mr Mawhinney, who represented himself, raised many grounds of opposition in the High Court. He now appeals against the judgment, raising the same principal ground and a number of different grounds.[3] Separately, Mr Mawhinney submits that the Associate Judge should havedisqualified Nags Head's solicitors, Buddle Findlay, from acting. We shall addressthat submission after determining the merits of Mr Mawhinney's appeal.Background[4] Richard Vesey was the registered proprietor of the Waitakere property in his capacity as trustee of the Doug Vesey Trust. The property was subject to two registered mortgages in favour of Otium Trustee Ltd (OTL). In early August 2010 OTL transferred the mortgages to Sixty-Six Auckland Ltd (Sixty-Six).[5] Mr Mawhinney had for some years had a financial interest in the property. His brother, Anthony Mawhinney, was the director of Sixty-Six. That entity and Mr Mawhinney were the trustees of the Sixty-Six Auckland Trust. Anthony Mawhinney was the director of OTL. That entity and Mr Mawhinney were the trustees of Otium Trust. Mr Mawhinney was the ultimate beneficiary.[6] On 24 August 2010 Nags Head agreed to lend Mr Vesey $420,000 for a termof three years. Nags Head's principal shareholder and Mr Mawhinney were then in a close personal relationship. The parties signed a formal loan agreement and agreed to secure the loan by a first ranking mortgage over the property.[7] On the same day Nags Head, Mr Vesey and Sixty-Six executed a deed ofpriority, confirming their agreement to grant Nags Head's mortgage priority overSixty-Six's two mortgages as the first ranking security against the property to a1 Nags Head Horse Hotel Ltd v Forest Trustee Ltd [2012] NZHC 3271.maximum of $840,000 plus interest and costs. Anthony Mawhinney executed the loan agreement and the deed as Mr Vesey's attorney and a director of Sixty-Six. The mortgage but not the deed of priority was then registered against the title to the property.[8] Mr Mawhinney was involved in prolonged litigation with various local authorities over applications for consent to develop the property. In a proceeding before the Environment Court heard in late 2010 he swore an affidavit correctly reciting the ownership and the security interests relating to the property as recognised by the deed of priority. In an affidavit sworn in this proceeding on 25 May 2012 Mr Mawhinney confirmed that he negotiated Nags Head's loan toMr Vesey and his knowledge of the terms of the loan document. Anthony Mawhinney confirmed this in an affidavit sworn on the same day.[9] Three notable events occurred in 2011.(a) On 16 February, Sixty-Six transferred its two mortgages back to OTL. Anthony Mawhinney executed the transfer in his capacity as director of both companies.(b) On 6 September, purportedly exercising its power of sale as mortgagee, OTL transferred the property from Mr Vesey (as trustee of the Doug Vesey trust) to Mr Vesey (in his personal capacity) –Mr Mawhinney's principal argument in the High Court2 and on appeal is that that transaction had the effect of discharging and extinguishingNags Head's mortgage.(c) On 21 October, Mr Vesey transferred the property to Forest Trustee Ltd (FTL). Anthony Mawhinney was FTL's sole director. That entityand Mr Mawhinney were the trustees of the Forest Trust.Nags Head was not asked and did not consent to any of these transactions.2 At [67].[10] Various transactions followed in 2012. On 20 January FTL purported to sell the property to End Of The Line Ltd (EOTL) for $4.51 million. The purchase price was to be funded by a term loan back by Sixty-Six for all except $10 of the price. However, the Registrar declined to accept the memorandum of transfer because it was apparently invalid.[11] By this time Nags Head had learned of the mortgage and ownership transfers in 2011 and 2012. On 29 March 2012 the company commenced this proceeding by applying on notice to the High Court for summary judgment against FTL and OTL. Among other things, it sought a direction that both companies consent to registration of the deed of priority.[12] OTL apparently adopted FTL's transfer to EOTL; Anthony Mawhinneyexecuted an amended memorandum of transfer to record that it had occurred inexercise of OTL's powers of sale. On 30 May 2012 Mr Mawhinney purported to represent FTL and OTL at a conference in the High Court relating to the proceeding. The next day, on 31 May 2012, OTL transferred its mortgage to Zebra Crossings Trading Ltd (Zebra) and Mr Mawhinney. It was not in dispute, as Associate Judge Christiansen noted, that Zebra and Mr Mawhinney knew of the deed of priority when entering into the transaction.3 Registration occurred on 30 August 2012.Parties[13] Nags Head originally issued its proceeding in the High Court against FTL and OTL as registered proprietor and registered mortgagee respectively. On 11 September 2012, the High Court granted Mr Mawhinney's application to add his name as a defendant on the grounds that he was now registered as owner of OTL'smortgage; that FTL and OTL were acting as trustees; and that he personally had an equitable interest in the property as trustee of what was called the Waitakere Forest Land Trust, which itself is said to have an equitable interest in the land. Zebra was also joined. Before Associate Judge Christiansen, Mr Mawhinney acknowledged that he was the current beneficial owner of the property.3 At [99].[14] At some stage the High Court granted leave to the solicitors acting for FTL, OTL and Zebra to withdraw. As a result, those companies were unrepresented at the defended hearing of Nags Head's application. Mr Mawhinney represented himself.High Court[15] Associate Judge Christiansen's judgment is lengthy, primarily because he was required to address a number of defences unsuccessfully raised by Mr Mawhinney. For these purposes we largely adopt Ms O'Gorman's summary of Mr Mawhinney's defences and the Judge's grounds for rejecting them as follows:(a) There was no legal or factual foundation for a plea of non est factum based on Mr Mawhinney's assertion that Anthony Mawhinney did nothave knowledge of the priority obligations because he did not assimilate the contents of the priority documents and was unaware ofOTL's obligations.4(b) OTL's transfer of the property on 6 September 2011 from Mr Vesey toMr Vesey in different capacities was ineffective. There was no evidence that Nags Head actually or impliedly consented. The rule inOtter v Vaux5 applied.6(c) The deed of priority was effectual regardless of registration, and Nags Head was entitled to rely on its contractual or equitable rights.7(d) Nags Head did not unreasonably delay exercising its right to require execution of the necessary documents to register and give effect to the agreed order of priority.84 At [72].5 Otter v Lord Vaux (1856) 43 ER 1381 (Ch). In Otter v Lord Vaux the rule was stated by Lord Cranworth LC at 1383 as "the general principle that a mortgagor cannot set up against his incumbrancer any other incumbrance created by himself".6 At [81]–[82].7 At [84].8 At [85]–[86].(e) Nags Head did not waive its rights under the deed of priority. The company did not make a clear, unambiguous and unequivocal representation to that effect. Nor did it consent to the transfer from Mr Vesey to Mr Vesey.9(f) FTL could be compelled to execute documents to enable registration of Nags Head priority interest. The fact that the property had since been transferred to EOTL is irrelevant because the latter was not the beneficial purchaser of the property.10 Under the agreement for sale and purchase by which it acquired its interest EOTL agreed to transfer the property back to FTL or its nominee.11 The overall plan was that ownership of the property would ultimately revert to entities associated with and controlled by Mr Mawhinney and Anthony Mawhinney.[16] The Associate Judge concluded:[104] There was no reason to register the priority documentation until it was clear Anthony and Peter Mawhinney were endeavouring to engineer aprocess to effect the discharge of Nags Head's mortgagee rights entirely.Invariably this was done by Anthony Mawhinney utilising a power of attorney or acting in his role as a director. All of this for the purpose ofensuring it seems Peter Mawhinney's position as the beneficial owner of theproperty.[17] Associate Judge Christiansen was satisfied that Nags Head had proved there was no arguable defence to its claim and was entitled to summary judgment.Appeal[18] On behalf of himself and the three companies – FTL, OTL and Zebra –Mr Mawhinney collectively filed a notice of appeal against the judgment. He later gave notice that the companies abandoned their appeals. On 24 March 2013 he filed an amended notice of appeal in his name only.9 At [87]–[90].10 At [93].11 At [94](a).[19] In this context it is significant that Associate Judge Christiansen granted summary judgment by (a) declaring that the Nags Head mortgage had priority overOTL's mortgage (transferred to Zebra and Mr Mawhinney on 31 May 2012); (b) ordering OTL, FTL, Zebra and Mr Mawhinney to sign and consent to the deed of priority; and (c) in the event of default, appointing the Registrar to sign and consent to registration.[20] As a result of abandoning their appeals, OTL, FTL and Zebra, in its capacity as Mr Mawhinney's co-mortgagee, are bound to execute the deed of priority. Mr Mawhinney's appeal is accordingly limited to the order made against him. Theobstacles he faces will shortly become apparent.Decision[21] The relevant legal principles were succinctly summarised by Fisher J inAmalgamated Roofing Ltd v Chris Larsen Ltd:12Ordinarily the priority of mortgages over land registered under the Land Transfer Act is determined according to the dates of registration (s 37). That priority normally prevails, notwithstanding any contrary equitable interests or contractual arrangements not noted on the register (s 52). In other words,the legal title to each mortgagee's estate or interest is determined byreference to the register. One of the essential features of that estate or interest, namely priority in relation to other mortgages, is equally determined by reference to the register so far as legal title is concerned.Of course, the fact that as a matter of legal title priorities between mortgages are determined by reference to the Land Transfer Register does not preclude any two mortgagees from contractually binding themselves to some different arrangement inter se. In those circumstances the characteristics of eachmortgagee's legal title would still be determined by reference to the register but contractual rights and equitable interests would be determined by reference to the unregistered deed or contract. Clearly, any contractual power of that nature must be available to first and second mortgagees without reference to either the registered proprietor or the second mortgagee.[22] Two interrelated statutory provisions are decisive. First, s 105 of the Land Transfer Act 1952 (the LTA) confirms that when a mortgagee transfers property to a third party, the transfer discharges the property from liability on account of a mortgage or of any estate or interest except one created by an instrument which haspriority over the mortgage which by reason of the mortgagee's consent is binding on12 Amalgamated Roofing Ltd v Chris Larsen Ltd [1990] 1 NZLR 185 (HC) at 193.it. As Ms O'Gorman submits, that category includes not only prior registered mortgages and those with registered priority under s 103 but also subsequent registered interests with priority under an unregistered deed of which the selling mortgagee has notice.13[23] Second, s 183 of the Property Law Act 2007 (the PLA) provides that on sale of a mortgaged property by a mortgagee the property is discharged from liability on account of any subsequent mortgage but, critically, the property remains subject to any mortgage that has priority over the mortgagee's mortgage or is binding on themortgagee.[24] Together these statutory provisions answer Mr Mawhinney's primaryargument that OTL's transfer of the property from Mr Vesey to Mr Vesey on 6 September 2011 discharged Nags Head's mortgage.[25] The decisive evidence is available from the documents and Mr Mawhinney'sown admissions: at all relevant times he and Anthony Mawhinney knew of Nags Head's loan and mortgage and of the deed of priority. Each subsequenttransaction, starting with Sixty-Six's transfer of the mortgages to OTL on16 February 2011 and including OTL's transfer of ownership from Mr Vesey to Mr Vesey on 6 September 2011, was effected with that knowledge. The complexity seemingly introduced by each transaction does not disguise or alter the essential fact that the three parties interested in the 24 August 2010 transaction agreed to bind themselves on terms which varied those then reflected by the register.[26] We add that as a result of the unequivocal nature of the primary documents and Mr Mawhinney's admissions, which confirm the state of knowledge of the principal participants in the transactions, Nags Head's application was suitable fordetermination by summary judgment. Viva voce evidence given at trial could not have materially affected the conclusions to be drawn from the settled evidence or provided Mr Mawhinney with an arguable defence. For example any dispute over13 Bank of New Zealand v Development Finance Corporation of New Zealand [1988] 1 NZLR 495 (CA) at 503.the facts surrounding EOTL's acquisition of the property is irrelevant to the primaryissue for determination.[27] Contrary to Mr Mawhinney's submission, the three 2011 transactions wereineffective to defeat Nags Head's priority. In particular:(a) Anthony Mawhinney executed the deed of priority as Mr Vesey'sattorney and Sixty-Six's director. He executed the transfer of the mortgages from Sixty-Six to OTL as the latter's sole director.Accordingly, OTL acquired its interest with knowledge of and was directly bound by the deed of priority.(b) Acting in purported exercise of its power of sale under the transferred mortgages, OTL sold the property on 6 September 2011 from Mr Vesey to Mr Vesey. The mortgagee's transfer from the registeredproprietor to himself, in circumstances where both parties had knowledge of the terms of the deed and its liability under it was ineffective to defeat Nags Head's interest. By virtue of s 183 of the PLA, Mr Vesey took title subject to Nags Head's mortgage.(c) Mr Vesey's transfer of the property to FTL fell into the same category because Anthony Mawhinney was FTL's sole director.[28] The 2012 transactions were of no greater effect. In particular:(a) Anthony Mawhinney in exercising EOTL's power of attorneyexecuted the documents for it on the purported sale by FTL on 20 January 2012.(b) Anthony Mawhinney acting as EOTL's attorney amended the transfer instrument sometime prior to 4 May 2012 to record that the transfer was an exercise of OTL's power of sale. But EOTL through Mr Mawhinney had knowledge of the deed or priority. Again, likeMr Vesey, by virtue of s 183 of the PLA, EOTL took title subject to Nags Head's mortgage.(c) OTL's transfer of the mortgage to Zebra and Mr Mawhinney on 31 May 2012 was subject to Mr Mawhinney's express knowledge ofthe deed of priority. He admitted that he was personally on notice of the terms of the deed and related transactions.[29] As the Associate Judge found, the unsuccessful purpose of each transaction entered into after 24 August 2010 was to defeat Nags Head's interest. Separately andtogether, they did no more than transfer ownership interests within related entities which were all bound by their knowledge of Nags Head's first ranking security. Alltransfers foundered on that rock, despite Mr Mawhinney's misplaced confidence thatOTL's sale to Mr Vesey extinguished Nags Head's mortgage. Thus Mr Mawhinney'sappeal cannot possibly succeed unless he is able to impugn the validity of Nags Head's mortgage and deed of priority.[30] With that conclusion in mind, we shall now address each of Mr Mawhinney'sparticular grounds of appeal. First, Mr Mawhinney submits that the Associate Judge erred by omitting to take into account that the term loan agreement expressly provided for the transfer of the property to FTL; and that it had no obligation to consent to registration of the priority instrument for the purposes of s 103(6) of the LTA or perform any act in relation to them because Mr Vesey alone assumed obligations which he has not performed.[31] Apart from the fact that FTL does not challenge the order made against it, Mr Mawhinney's argument misconstrues cl 25 of the term loan agreement which provides as follows:25. We acknowledge that the Anzac Valley Property is to be transferred by you to Forest Trustee Limited and agree that we consent to such transfer on the condition that Forest Trustee Limited undertakes and covenants to be bound by the same terms as those contained in this agreement and to accept an assignment of the mortgage to be registered over the Anzac Valley Property in accordance with this agreement provided that, in such circumstances:25.1 you must provide a guarantee of the obligations of Forest Trustee Limited to us, on terms satisfactory to us in our sole discretion; and25.2 Forest Trustee Limited must agree to be bound by the deed of priority in the form annexed to this agreement as annexure B and to execute any further deed of priority that we deem necessary in order to secure such obligations.[32] This provision is no more than Nags Head's acknowledgement that Mr Vesey intended to transfer the property to FTL and its agreement to consent. But that agreement was expressly subject to the conditions that FTL not Mr Vesey undertook (a) to be bound by the same terms as those contained in the loan agreement and (b) to accept an assignment of the mortgage in accordance with the agreement. Additionally Mr Vesey was required to provide a guarantee of FTL's obligations toNags Head. Nags Head's consent was never given because Mr Vesey did not satisfy the relevant conditions.[33] Second, Mr Mawhinney submits that the Associate Judge erred by applying the principle in Otter v Lord Vaux to FTL's transfer of the property on6 September 2011 from Mr Vesey in a trustee capacity to himself in a personal capacity because the transaction was between two different legal entities and two different mortgagees. The two different entities were not the same mortgagor in substance, the statutory provisions as to indefeasibility thus applied and the mortgages were all discharged by the transfer.[34] This argument is also misconceived. The question is whether FTL and Mr Vesey had notice of Nags Head's prior interest. The answer is undeniably in theaffirmative. As we have observed, Mr Vesey was bound by Nags Head first ranking mortgage. The principle in Otter v Lord Vaux is irrelevant.[35] Third, Mr Mawhinney submits that the Associate Judge failed to take into account evidence that the transfer of the property to EOTL was lodged prior to registration of the caveat; the sale and purchase agreement to EOTL was adopted by OTL; and the Registrar General of Land contravened s 37 of the LTA by registering Nags Head's caveat first. As a consequence, the Associate Judge erred by failing totake into account that, once the transfer that EOTL was registered, Nags Head'smortgage would be discharged by the operation of s 105 of the LTA. Again this argument is misconceived given that all parties to the relevant transactions were on notice of Nags Head's prior charge and EOTL's interest as owner is accordingly subject to Nags Head's mortgage.[36] Fourth, Mr Mawhinney submits the Associate Judge erred by applying principles of equity to the future disposal of the property by EOTL as if the arrangement to transfer the property back to FTL or its nominee was fixed and immutable notwithstanding that it had yet to occur. Again this argument is misconceived because it fails to appreciate that the relevant parties had notice of Nags Head's interests.[37] Fifth, Mr Mawhinney submits that the Associate Judge erred when determining issues of fact and credibility which could only be decided on cross-examination at trial. Particulars are said to be whether the sole purpose of the transfer from Mr Vesey to Mr Vesey was to effect a discharge of a caveat; whether Mr Mawhinney has acknowledged that he is the current beneficial owner of the property; and whether the purpose of the various entities associated with Anthony Mawhinney was to protect Mr Mawhinney's position as the beneficialowner of the property. As we have earlier observed, these facts are irrelevant to the decisive issue of notice.[38] Sixth, Mr Mawhinney submits that the Associate Judge erred by failing to take into account evidence that showed Nags Head had agreed to FTL's mortgageesale from Mr Vesey to Mr Vesey. As noted, the Associate Judge found there was no evidence from which he could infer that Nags Head arguably consented to the sale (at [15(e)] above). Mr Mawhinney has not shown that the Associate Judge erred.[39] Seventh, Mr Mawhinney submits that the Associate Judge misdirected himself on the evidence when he concluded14 that the purpose of the transfers of the property and mortgages was to protect Mr Mawhinney's position as the beneficialowner of the property. That conclusion had no bearing upon the result.14 At [104].[40] Eighth, Mr Mawhinney submits that the Associate Judge erred by failing to follow the decision in Westpac New Zealand Ltd v Clark15 to the effect that "all obligations" mortgages drafted in New Zealand are unlikely to incorporate the terms of separate loan agreements. In this case, he says, Nags Head's mortgage securednothing.[41] However, the decision in Westpac is not authority for Mr Mawhinney'sproposition. The Supreme Court simply confirmed that where a loan agreement had not been executed by the mortgagor and thus the covenant to pay was not within the scope of the registered documents, performance of the covenant was not securedagainst the mortgagor's land. Here it is undeniable that Mr Vesey as mortgagor did sign the loan agreement.[42] All of Mr Mawhinney's grounds of appeal on the merits fail.[43] We would add that the effect of the abandonment of Zebra's appeal was notargued before us. It might well be an absolute answer to Mr Mawhinney's appealthat his co-mortgagee, Zebra, is bound by the summary judgment to consent to registration of the deed of priority. If consent by one co-mortgagee binds the other, as appears to be the case, Mr Mawhinney's separate appeal to this Court is ofacademic effect. However, we do not need to decide this question to determine the appeal.Disqualification[44] Mr Mawhinney challenges the judgment, not on the merits, but on the ground that the Associate Judge erred by failing to restrain Buddle Findlay from representing Nags Head. On appeal he repeated an argument made at some length before the Associate Judge. In essence he alleged that a staff solicitor employed byBuddle Findlay previously acted for him; that she was his "friend, confidant, legal adviser and potential business associate"; that he disclosed to her highly confidentialinformation and had discussed with her his personal relationship with Nags Head's15 Westpac New Zealand Ltd v Clark [2009] NZSC 73, [2010] 1 NZLR 82.director; and that as a result Buddle Findlay when representing Nags Head could have used the information against him.[45] The Associate Judge dismissed Mr Mawhinney's objection in these terms:[31] Mr Mawhinney appears to accept that he provided a waiver in relation to any potential issues of conflict of interest, although he asserted in submissions before me for the first time that this waiver concerns tax adviceonly. Regardless, Ms Low's evidence is that her advice to Nags Head wasconfined to tax issues. The proceeding filed in March 2012 was initiated, Nags Head says, upon the discovery of efforts of interests by Mr Mawhinney to secure a transfer of the property and in the process to remove Nags Head's mortgage. None of Mr Mawhinney's allegations concern the concise matters in issue upon Nags Head's proceeding. Tax issues have no correlation to Nags Head's proceeding.[32] Mr Mawhinney's concerns appear to be based on supposition andnothing else.[46] We endorse the Associate Judge's conclusion. We are satisfied thatBuddle Findlay did not act or take any steps on behalf of Mr Mawhinney in the transactions giving rise to this litigation. He was separately represented by Lowndes Jordan. Mr Mawhinney has not identified any respect in which Buddle Findlay might have used adversely to him in this proceeding confidential information which was derived from his previous instructions on a limited taxation issue. All the relevant evidence necessary to make out Nags Head's application for summary judgment is available from contractual and security instruments, companies office records, correspondence and admissions made by Mr Mawhinney and Anthony Mawhinney. This ground of challenge to the judgment must fail.Conclusion[47] Mr Mawhinney's appeal is dismissed.[48] Mr Mawhinney is to pay costs to Nags Head on a standard band A basis together with usual and reasonable disbursements.Solicitors:Buddle Findlay, Auckland for Respondent