PRESCOTT PENROSE LTD V RENOVATIONS UNLIMITED CO 2005 LTD HC AK CIV-2012-404-1476

PRESCOTT PENROSE LTD V RENOVATIONS UNLIMITED CO 2005 LTD HC AK CIV-2012-404-1476 [29 November 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-1476[2012] NZHC 3203UNDER the Land Transfer Act 1952IN THE MATTER OF an application under Section 145A thatCaveat No 891380 not lapseBETWEEN PRESCOTT PENROSE LTDPlaintiffAND RENOVATIONS UNLIMITED CO 2005LTDDefendantHearing: 14 August 2012Counsel: B Eagleson for PlaintiffD Smyth for DefendantJudgment: 29 November 2012RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON(Application to sustain caveat)This judgment was delivered by me on 29 November 2012 at 4.30 pm pursuant toRule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate ..........................Solicitors:Holland Beckett, TaurangaGanda & Associates, Greenlane[1] The applicant, Prescott Penrose Limited, applies for an order that caveat number 8913580 not lapse. The caveat was lodged on 17 November 2011 over the land at 1 Prescott Street, Penrose and claims an interest said to arise by virtue of an unregistered mortgage given by the registered owner.[2] The respondent, Renovations Unlimited Co 2005 Limited, is the registered owner of the 1 Prescott Street. Not surprisingly it wants the caveat removed. At its instigation, Prescott was notified by the Registrar-General of Land of Renovations'request that the caveat lapse pursuant to s 145A of the Land Transfer Act 1952 on 7 March 2012.1 Prescott filed its application on 19 March 2012.[3] Renovations opposes Prescott's application. Renovations acknowledges thatit gave Prescott a mortgage over the property and that Prescott was entitled to register the mortgage. But it says that the mortgage was for a finite term of one year and that it held a mortgage discharge instrument in escrow which it was entitled to register and an authority and instruction form authorising Renovations' solicitors toregister the mortgage discharge instrument.[4] The broad issue for determination is whether Prescott has put forward areasonably arguable case for an interest in Renovation's land that is sufficient tosupport the caveat. The parties' dispute is essentially about the validity of thedischarge instrument and its registration. Prescott essentially submits that Renovations forged the discharge instrument and authority and instruction form and/or used them fraudulently.[5] It is not in dispute that Prescott should retain its rights under the mortgage if the discharge instrument was forged or used without authority.1 Relevantly, s 145A states:(1) The registered proprietor of any estate or interest in the land protected by a caveat against dealings (other than a caveat lodged by the Registrar) may apply to the Registrar for the caveat to lapse....(3) The caveat lapses with the close of the prescribed period after the date on which the notice under subsection (2) is given unless—(a) the caveator has earlier given to the Registrar notice that an application for an order to the contrary has been made to the High Court; and(b) an order to that effect has been made and served on the Registrar within the prescribed period after the date on which the notice under paragraph (a) is given to the registrar.][6] There is an interim consent order in place made on 29 March 2012 requiring that the caveat be maintained on an interim basis pending further order.Background[7] In 2009 Mr Michael Ball sought to raise money to launch his home construction business, Loksa (NZ) Limited. He needed approximately $600,000 to build a demonstration home and he incorporated Prescott to act as an investment vehicle for Loksa. Mr Ball arranged for six different investors to provide $100,000 each to Prescott with the intent that Prescott would loan the $600,000 to Loksa forone year. However he still needed to satisfy Prescott's investors that it had security for the $600,000 loan. To assist with that objective a mutual business acquaintance named Mr Kenneth Thompson introduced him to Mr Suresh Sharma.[8] Though not a director of Renovations at the time, Mr Sharma was acting as an advisor to Mr Wesley Taylor, the company's elderly director, and taking a closeinterest in its business affairs.[9] On Mr Sharma's advice Renovations agreed to provide security over Prescott's $600,000 advance to Loksa in return for a fee. The security took the form of a mortgage over 1 Prescott Street. In return for granting the mortgage to Prescott, Renovations was to receive a fee of $180,000 which was to be paid by Loksa. Mr Ball provided a guarantee to Renovations to ensure that Loksa would pay the fee and also repay Prescott.[10] On 21 December 2009 Messrs Sharma, Thompson and Ball met at the officeof Mr Sharma's solicitor, Mr Paresh Ganda of Ganda & Associates. A number ofdocuments appear to have come out of the meeting. First, the parties agreed to the security arrangement outlined above in a heads of agreement written up by Mr Ganda. Mr Ball signed the heads of agreement as director of Prescott and Loksa and as guarantor. Mr Taylor, who has taken no active part in this proceeding, signed the heads of agreement as Renovations' director though it is unclear whether he signedat the meeting or was absent from the meeting and signed at a later stage. Mr Ganda and Mr Thompson witnessed the signing of the heads of agreement. Ganda &Associates subsequently registered Prescott's mortgage on 22 December 2009.There is no dispute about this document.[11] The second document is an agreement whereby Prescott agreed to lend $600,000 to Renovations and Renovations agreed to repay that advance at the expiry of one year. Though this document appears to be inconsistent with the arrangement under the heads of agreement, neither side places any significance on this document. It appears to have no bearing on the positions that each has taken. I proceed on that basis.[12] Two other documents are said by Renovations to have come out of the 21 December 2009 meeting. The first is the mortgage discharge instrument. There is a material dispute about the authenticity of this document. Nonetheless, on its face it is both an acknowledgment that the subject debt has been paid and a discharge of the mortgage. It states:The Mortgagee acknowledges receipt from the mortgagor of all of the principal sum, interest and other monies payable, or all the monies secured by, the above numbered mortgage(s) in full satisfaction of the obligations of the Mortgagor under the above numbered mortgage(s) and discharges and releases from the mortgages the land in the certificate of title.[13] The second document is an authority and instruction form. The parties'dispute extends to this document. Prescott alleges that the authority and instruction form relates to the mortgage under the heads of agreement. Renovations alleges that the authority and instruction form concerns the mortgage discharge instrument. As produced in evidence, the form relevantly states:(g) As required by s164A of the Land Transfer Act 1952, I irrevocably authorise and instruct you to register the instruments above as an e- dealing;(h) I understand that by signing this for [Prescott] it is legally bound by the electronic instruments certified and registered on its behalf pursuant to this authority and instruction as if such instruments had been signed by me personally on behalf of [Prescott];[14] One year later, on 21 December 2010, Prescott's loan to Loksa fell due.When Loksa failed to repay the loan, Prescott began to look to Renovations' security.Renovations meanwhile had only received approximately $35,000 of the $180,000fee it was due from Loksa. On 7 January 2011, Renovations wrote to Loksa proposing a month to month extension of its security up until 21 June 2011 and new payment terms.[15] On 20 July 2011, though Loksa had not repaid any of the loan to Prescott,Ganda & Associates discharged Prescott's mortgage. On 13 July 2011, one week before the discharge occurred, Ganda & Associates wrote to Prescott onRenovations' behalf informing that because Renovations had not received payment,the discharge of mortgage would be filed.[16] On 31 July 2011, Renovations made demand on Mr Ball as guarantor under the Heads of Agreement for repayment of the $600,000 plus interest and costs. On 6 September 2011, Mr Ball was declared bankrupt. Subsequently, Mr Mark Harveytook over as Prescott's sole director. He is one of the individuals who advanced a $100,000 loan for the Loksa venture.[17] On 17 November 2011 Prescott lodged a caveat against the Prescott Street property claiming an interest by virtue of the newly "unregistered" mortgage.[18] In May 2012, Loska was placed into liquidation by a party that is not involved in these proceedings.Parties' positions[19] The grounds on which Prescott essentially seeks to sustain its caveat are these:a) Renovations and Loksa did not repay the $600,000 loan to Prescott when it became due and the loan remains outstanding. Prescott is entitled to retain the mortgage over 1 Prescott Street until the $600,000 loan is repaid in full.b) Ganda & Associates registered the mortgage discharge without Prescott'sknowledge. There are disputes of fact as whether the mortgage discharge instrument is valid and whether it was validly utilised. Even if validly given, there are no written contractual terms governing the use of the discharge.c) Prescott will suffer loss if its caveat securing the now unregistered mortgage is discharged.[20] Renovations' opposition relies essentially on these grounds:a) Prescott, Loksa and Renovations agreed that the mortgage could bedischarged at any time after one year. Renovations' security was only everintended to exist for the same period as Prescott's $600,000 loan to Loksa,from 21 December 2009 and 21 December 2010.b) Mr Ball executed and delivered to Renovations a registrable discharge of the mortgage. He also executed an authority and instruction form authorisingRenovations' solicitors to register a discharge of the mortgage.c) Renovations was entitled to register the mortgage discharge instrument at any time after 21 December 2010 because that is when the parties agreed the security would come to an end.Relevant principles[21] The principles to be applied in applications such as this one are well accepted. The same principles apply to applications under s 145A as to applications made pursuant to ss 143 and 145.2[22] In Sims v Lowe, the Court of Appeal settled the general approach:3The caveator seeks to clog or fetter the proprietary interest of another. As a matter of principle it seems right that he must justify the continued existence of his caveat. He will do that if he can show he has a reasonably arguable case for the interest he claims.[23] In seeking to sustain the caveat, the caveator bears the burden of establishinga "reasonably arguable case" that it has a caveatable interest in the registeredproprietor's land.4 An order removing the caveat will not usually be made unless it is2 Amos v Star Catchers Ltd [2012] NZHC 1140 at [8].3 [1988] 1 NZLR 656 at 660.4 Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 at 106 (CA).patently clear that the caveat cannot be maintained, either because there was no valid ground for lodging it, or no such ground now exists.5 The court retains a discretion to make an order removing the caveat, even if the caveator establishes an arguable case for the interest in the land claimed, as summarised by Master Faire in Allen v Hogan Developments Limited at [12]:6[g] Even if the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously: Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 at 656 (CA)....[j] The last matter is part of an overall discretion which the Court exercises once the caveator has established an arguable case for the interest claimed as to whether the balance of convenience is for or against leaving the caveat in place. McMahon v McMahon [1977] NZFLR 145 at 149.[24] Particularly applicable to this case is the principle that "the summary procedure under s 145A is unsuitable for the determination of disputed questions of fact". 7Issues[25] The mortgage discharge instrument and the authority and instruction form play a crucial role in the assessment of whether Prescott has a reasonably arguable case for sustaining the caveat. There are material disputes over the authenticity and use of these documents out of which the issues that arise for determination flow:(a) Is it plain that the authenticity of the discharge instrument and authority and instruction form is beyond challenge or is it reasonably arguable that the signed versions lodged by Renovations for registration were forged?5 Sims v Lowe at 659-660.6 (2001) 4 NZ ConvC 193,420.7 Kim v Pan HC Auckland CIV-2009-404-995, 20 May 2009 at [15] per Asher J. Also Sims v Lowe[1988] 1 NZLR 656 at 659-660.(b) If the discharge instrument and authority and instruction form are authentic, is it reasonably arguable that they were used fraudulently or without authority?[26] I am satisfied that these issues turn on material disputes of fact and that it would not be safe to make determinative findings on them by summary procedure under s 145A. My reasons follow.DiscussionIssue 1: Is it plain that the authenticity of the discharge instrument and authority and instruction form is beyond challenge or is it reasonably arguable that the signed versions provided by Prescott in evidence were forged?[27] For three reasons, I have decided that it is reasonably arguable that the signed discharge instrument and authority and instruction form lodged by Renovations for registration may not be authentic.[28] The first reason is that it is not incontrovertible on the evidence that the discharge instrument and the authority and instruction form were among the documents signed by Mr Ball at the meeting on 21 December 2009 as Renovations claims.[29] Mr Harvey has produced a signed discharge instrument and a signed authority and instruction form relating to the discharge in his affidavit evidence onPrescott's behalf, both are dated 21 December 2009. It appears that Mr Harveyobtained the documents from Land Information New Zealand on 29 September 2011.8 Each document bears what appears to be Mr Ball's signature, however he claims never to have signed them and he clearly does not accept their authenticity.The inference from Mr Ball's affidavit is that his signatures on the documents havebeen forged, although he and Mr Harvey stop short of saying that expressly.8 The origin is not clear from his affidavit evidence but the discharge instrument appears to be attached to a View Instrument Details document from Land Information New Zealand. PresumablyMr Harvey inherited a number of the documents in his affidavit evidence when he became Prescott'ssole director on 23 January 2012.[30] The contrary argument, that Mr Ball signed and gave these documents toRenovations at the meeting on 21 December 2009, is pivotal to Renovations' casebut is not adequately supported by evidence. Neither Mr Sharma nor Mr Ganda has produced a signed version of the discharge instrument (or any of the other documents that came from the 21 December 2009 meeting). Mr Ganda produced versions of the documents that are unsigned and undated which is unusual because he could reasonably be expected to have retained signed versions on his file. Further, there is no evidence that offers a sufficient explanation as to why Mr Ball would adopt the somewhat unusual course of signing a mortgage discharge instrument and an authority and instruction form for the discharge that on their face authorise discharge on the very same day that the mortgage was agreed to. Renovations needed to provide some definitive evidence that the documents were in fact signed on 21 December 2009 but it failed to do so.[31] Secondly, the dispute about the authenticity of these documents is underscored by the differing accounts that each side offers about the meeting on 21 December 2009 and prior communications. This is what Mr Ball deposes about the meeting:16. I note about the meeting that:(a) It was never discussed that the Security provided to PPL by the mortgage would be discharged after one year – as you can see that is not recorded in the agreements signed;(b) A mortgage and an Authority and Instruction form were signed by me to register the mortgage and this was explained by Mr Ganda however I am sure that I definitely did not sign a discharge of mortgage and I certainly did not discuss arrangements whereby the mortgage would be discharged after one year....25. I am not only completely taken back but shocked by the discharge ofPPL's mortgage registered over the Security and more particularly theallegation that I signed the discharge of mortgage document so that Renovations could discharge the mortgage at the expiry of one year.26. I do not recall signing the discharge of mortgage document and doubt that I did so as is alleged.27. There was never an agreement written or orally agreed between the parties Renovations and PPL that the security would expire and be discharged after one year and I would not have signed such a document.[32] Mr Ball's solicitor, Mr Ross Templeton, deposes the following about prior communication in support of Mr Ball's position:2. I have had the opportunity to read through the draft of the affidavit of Michael Ball and I confirm the following.(a) At no time during the transaction between Prescott Penrose Limited (PPL), Loksa and Renovations Unlimited Co 2005 Limited (Renovations) was there ever a discussion about Renovations holding a discharge of mortgage document in escrow.(b) A discharge of mortgage was never discussed with me by anyone and was certainly to the best part of my knowledge not a part of the transaction.[33] On the other hand, Messrs Ganda, Sharma and Thompson all depose that they recall Mr Ball signing the mortgage discharge instrument on 21 December 2009. Mr Ganda deposes:6. Mr Sharma told me that Renovations had agreed to grant a Mortgage to Prescott Penrose for a period of time. He asked me to prepare documents for Renovations which was a Mortgage, a Discharge of Mortgage and an Authority and Instruction Form to register the Discharge of Mortgage. The Discharge of Mortgage and Authority and Instruction Form to register the Discharge of Mortgage were to be held in escrow by Renovations pending Loksa's compliance with the Heads of Agreement.7. ... At Mr Ball's request, I sent a copy of the Heads of Agreement,Mortgage, Discharge of Mortgage and Authority and Instruction form to Mr Templeton who was located in Christchurch. A true copy of my facsimile to Mr Templeton is annexed and marked "B".8. After explaining what each document was Mr Ball signed the Heads of Agreement, the Discharge of Mortgage and Authority and Instruction Form. I watched him personally sign each of the documents and I then witnessed his signature.[34] Mr Sharma deposes:I was present at Mr. Ganda's office when he told Mr. Ball what each of thedocuments he had prepared were. I waited whilst Mr. Ball read through the documents that Mr. Ganda had produced. Mr. Ball then signed the Heads of Agreement, the Discharge of Mortgage and Authority and Instruction Form. Mr. Ganda, Mr. Thompson and I watched Mr. Ball personally sign each ofthe documents and then Mr. Ganda witnessed Mr. Ball's signature on thedocuments.[35] Mr Thompson deposes:6. While Mr. Ganda's secretary typed up the Heads of Agreement that Mr.Ball had written, Mr. Ball and Mr. Sharma explained to Mr. Ganda that Renovations Unlimited Co 2005 Ltd (Renovations) had agreed to provide security for a period of one year to Prescott Penrose Ltd (Prescott Penrose) in return for a fee. Mr. Sharma then asked Mr. Ganda to prepare three documents for Renovations which were a Mortgage, a Discharge of Mortgage and an Authority and Instruction Form with which to register the Discharge of Mortgage....8. I heard Mr. Ganda tell Mr. Ball what each of the documents were. After reading through the documents that Mr. Ganda had produced, Mr. Ball then signed the Heads of Agreement, the Discharge of Mortgage and Authority and Instruction Form. Mr. Ganda, Mr. Sharma, and I watched Mr. Ball personally sign each of the documents and then Mr. Gandawitnessed Mr. Ball's signature on the documents.[36] Thirdly, there are also different accounts about the documents that Mr Ganda sent to Mr Ball and Mr Templeton following the 21 December 2009 meeting which serve only to intensify the factual dispute and to show that it cannot be resolved in the context of the present application. Prescott and Renovations agree that Mr Ganda sent a list of the documents from the 21 December 2009 meeting in a letter. However the letters that each party relies upon in the affidavit evidence are materially different.[37] Mr Ganda produced a copy of a facsimile that he claims to have sent to Mr Templeton. The letter is addressed to Mr Templeton and dated 21 December 2009. Relevantly, it states:As requested by Michael Ball attached is:-1. Heads of Agreement;2. Mortgage;3. Discharge of Mortgage; and4. A & I Form.[38] The letter that Prescott relies upon is materially different. Mr Harvey produced a copy of the letter that is addressed to Mr Ball, not Mr Templeton. The letter is dated 22 December 2009, not 21 December 2009. And relevantly, it states:We enclose:-1. Your copy of the Heads of Agreement;2. A copy of Certificate of Title NA2053/93 confirming registration of your Mortgage 83819462;3. A copy of the View Instrument Details for the Mortgage; and4. A note of our costs.[39] Quite clearly, only one of the letters mentions the mortgage discharge instrument. Mr Ball deposes that the letter of 22 December itemises the documents sent to his lawyer:(c) I was told that the original copies of all documents would be sent to my solicitor and my accountant (who collects and opens all mail for Loksa). Categorically there was no copy of any pre-release with the documents. A copy of a cover letter dated 22nd December... itemises the documents sent to me and shows no pre-release document.[40] Mr Templeton deposes that:(c) Further I note that a discharge of mortgage document was never sent to me when the heads of agreement and other documents recordingthe transaction were sent to me after Michael Ball's meeting withSuren Sharma and Paresh Ganda on 21 December 2009.[41] Mr Ganda has not provided any explanation for the inconsistency between the letter that he has produced and the letter that Mr Harvey has produced.[42] Taking all of this affidavit evidence into account, it is not clear that the mortgage discharge instrument and authority and instruction form are authentic. There is a material dispute as to whether Mr Ball signed the documents. The result is that credibility of witnesses will be a relevant factor and the issue is not suitable for a summary proceeding under s 145A.[43] I am not in a position to determine whether this is a case of a securityprovider that forged a discharge when faced with a borrower's default, or a case of acompany that provided a security for a fixed term with rights to withdraw the security at the end of the term despite the borrower's default. Conceivably, there may be another explanation that neither Mr Ball nor Renovations has made known. Though it would be purely speculative to suggest there could be somethingsuspicious in the parties' arrangement, Mr Ball's apparent eagerness to demonstrateto Prescott's lenders that there was security for repayment could be suggestive of a more complex arrangement with Renovations. These are questions that cannot be determined summarily that were more appropriately examined in the trial process.[44] Certainly, the court would be assisted by further evidence from Mr Ball and Mr Sharma, and indeed Mr Taylor, about their roles in this security arrangement. It is odd that Mr Taylor has given no evidence about Renovations' position when he is its director and that none of the affidavits filed are stated as being on behalf of or authorised by Renovations. The fact that Mr Sharma seems to have assumed the roleof Renovations' director and to have an interest more significant simply that of MrTaylor's advisor is not sufficient reason to take his word on Renovations' position.Neither Mr Sharma nor Mr Taylor has explained Mr Sharma's role and there is someuncertainty in that regard.9 Further, I accept the submission for Prescott that there is some reason to be cautious of Mr Sharma's credibility before his evidence is tested. In an earlier proceeding that did not involve Prescott, the court granted a freezingorder against Mr Sharma's property, including the 1 Prescott St property.10 In delivering the decision, Asher J made several observations calling Mr Sharma'scredibility as a witness into question.11 While Asher J's findings in that earlierproceeding cannot be transplanted into this proceeding, they do highlight that the credibility of witnesses is a relevant factor here. The point is equally opposite in the case of Mr Ball.[45] I do not overlook that Mr Thompson and Mr Ganda have also providedevidence in support of Renovations' position. They were at the 21 December 2009meeting and provided evidence that Mr Ball signed the discharge instrument and related authority and instruction form. In the circumstances however, it would be imprudent to rely on their evidence as definitive and I cannot dismiss the possibility that their memories of what occurred on the day are imperfect.9 Mr Taylor has not provided any affidavit evidence even though his signature is on both the Heads of Agreement and the Second Agreement.10 Watt & Ors v Sharma & Ors HC Auckland CIV-2009-404-2975, 17 August 2010 (per Asher J). The court decided that through various mortgages (at least one of which the Court found to be a sham) MrSharma's No. 2 Sharma Trust was the beneficial owner of the 1 Prescott St property. The freezing order was subsequently removed over a year later in Watt & Ors v Sharma & Ors HC Auckland CIV-2009-404-2975, 14 December 2011(per Asher J).11 At [21] - [23] he found that in giving evidence, "Mr Sharma misled the Court" and "activelydisguise[d] his actions" from the court and Asher J was "critical of Mr Sharma for failing to discloseinformation".[46] In that light, it is not safe to make a ruling on which party has a correct recollection of the facts in the context of a summary proceeding. As the Court of Appeal stated in Sims v Low, a "summary procedure for the removal of a caveatagainst dealings is wholly unsuitable for the determination of disputed questions offact".12Issue 2: If the discharge instrument and authority and instruction form are authentic, is it reasonably arguable that they were used fraudulently or without authority?[47] Given the findings on the first issue, it is not necessary to discuss this second issue at length. It is sufficient to note that even if the mortgage discharge instrument and authority and instruction form are authentic, there remains a dispute as to whether they were validly used. No evidence other than disputed assertion has been provided detailing the circumstances in which the discharge instrument should be used. The absence of any helpful record of contractual terms about its use highlights the difficulty of deciding this application in the context of a summary proceeding such as this.Result[48] When all of the evidential issues are taken into account, I am satisfied that:(a) It would be unwise to make definitive findings of fact in the context of this summary proceeding. This is a dispute that would benefit from further discovery and the context that a hearing provides.(b) In light of the crucial factual dispute about the discharge of the mortgage, I am satisfied that Prescott has a case for the interest it claims under caveat number 8913580 by virtue of its mortgage of 1 Prescott Street. There are real questions as to the validity or invalidity of the mortgage discharge instrument and authority and instruction form and in those circumstances the caveat should remain.12 [1988] 1 NZLR 656 at 659-660.[49] I make orders as follows:a) Caveat number 8913580 is not to lapse. The order made on 29 March 2012 sustaining the caveat continues.b) Renovations is reserved leave to apply on two days' notice by way ofmemorandum for an order to vary or rescind the above order, in the event that:i) Prescott's does not file and serve its proceeding to seek substantive relief within 14 days of the date of this judgment or prosecute such proceeding with diligence.ii) If other circumstances arise which justify the release of the caveat.Costs[50] As costs follow the event under the statutory costs regime Prescott is entitled to its costs in the normal way. Accordingly, I make an order for costs on a category 2B basis together with disbursements to be fixed by the Registrar.___________________________Associate Judge Sargisson