SOUTH CANTERBURY FINANCE LIMITED (IN RECEIVERSHIP) V YORK TRUSTEES LIMITED HC AK CIV-2011-404-3433

SOUTH CANTERBURY FINANCE LIMITED (IN RECEIVERSHIP) V YORK TRUSTEES LIMITED HC AK CIV-2011-404-3433 7 October 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-3433UNDER Section 145A of the Land Transfer Act1952IN THE MATTER OF an application to sustain Caveat 6856753.1BETWEEN SOUTH CANTERBURY FINANCELIMITED (IN RECEIVERSHIP)ApplicantAND YORK TRUSTEES LIMITEDRespondentHearing: 5 October 2011Counsel: T J P Bowler for the ApplicantD J G Cox for the RespondentJudgment: 7 October 2011 at 10:00 AMJUDGMENT OF POTTER Jon application to sustain a caveatIn accordance with r 11.5 High Court RulesI direct the Registrar to endorse this judgmentwith a delivery time of 10 a.m. on 7 October 2011.Solicitors: Grover Darlow, Auckland – trentb@grovedarlow.co.nzRennie Cox, Auckland – jcox@renniecox.co.nz[1] South Canterbury Finance Limited (in rec) ("SCF") has applied to sustaincaveat 6856753.1 registered against the land in Certificate of Title NA100D/481 (North Auckland Registry).[2] York Trustees Limited ("YTL") opposes the application. It contends:(a) That SFC no longer has a caveatable interest in Certificate of Title NA100D/481 pursuant to the loan agreement dated 27 April 2006("the 2006 Loan Agreement");(b) The 2006 loan agreement was fully repaid and discharged in late 2008 pursuant to a term loan agreement between SCF and YTL dated 20 October 2008;(c) The term loan agreement dated 20 October 2008 was materially modified by SCF after it was signed by the respondent and is void and unenforceable.Factual background[3] On 9 May 2006 Waikato Finance Limited1 lodged a caveat against Certificate of Title NA100D/481. The estate and interest on which the caveat was founded was stated in the caveat to be:LOAN AGREEMENT schedule containing agreement to mortgage dated 27 April 2006 with YORK TRUSTEES LIMITED the registered proprietor as mortgagor and Waikato Finance Limited as mortgagee.Unit G and Accessory Unit 8-9 Deposited Plan 166206.[4] The District Land Registrar gave notice to SCF on 25 May 2011 of an application by YTL to lapse the caveat. That led to SCF seeking an order from this court that the caveat be sustained.1 Waikato Finance Ltd was amalgamated with South Canterbury Finance Ltd on 1 October 2008 along with other subsidiaries of SFCLegal principles[5] There is no dispute about the legal principles that govern an application to sustain a caveat. The Court of Appeal stated in Sims v Lowe that an order for removal of a caveat will not be made unless: 2... it is patently clear that caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so.[6] The onus of proof lies on the caveator who must show an arguable case or that there is a serious question to be tried, that entitles the caveator to the protection of the caveat: Sims v Lowe; National Bank of NZ Ltd v Gun City Wellington Ltd.3[7] Where the application is to sustain the caveat pending a proper exploration ofthe parties' rights at a substantive trial the hearing is not an occasion for resolvingconflicts of evidence. Fisher J said in Macrae v Rapana:4Except where patently lacking in credibility on its face, the evidence advanced by and on behalf of the plaintiff should be accepted as correct for present purposes.[8] Once the caveator has shown an arguable case for the caveatable interest the caveat must remain until the merits of the whole matter have been explored and resolved in the substantive proceedings.Issues[9] The principal issue is whether SCF has a reasonably arguable case that it has a caveatable interest.[10] Mr Cox, counsel for YTL, submitted that this will depend on whether it is reasonably arguable that:2 Sims v Lowe [1988] 1 NZLR 656 (CA), 659-660.3 National Bank of NZ Ltd v Gun City Wellington Ltd HC Christchurch, M36/94, 22 April 1994.4 Macrae v Rapana HC Auckland M633/94, 17 June 1994 at 3.(a) The unregistered mortgage contained in the 2006 loan agreement has not been discharged as the result of a subsequent refinancing: and(b) The 2006 loan agreement is not void and unenforceable as a consequence of material alterations allegedly made by SCF to a subsequent loan agreement which refinanced the 2006 loan agreement, after the subsequent loan agreement was executed by YTL.The 2006 loan agreement[11] On 27 April 2006 the parties entered into the 2006 loan agreement which provided the grounds for the interest claimed in the caveat registered on 9 May 2006. The 2006 loan agreement in cl 3.5(a) called for a registerable all obligations mortgage to be entered into over the land described as 30 York Street Parnell which is the land comprised and described in Certificate of Title NA100D/481.[12] Clauses 3.1 and 3.2 of the 2006 loan agreement provide:3.1 Security Interest in Collateral: By execution of this Agreement, the Borrower grants the Lender a security interest in the Collateral shown in Part 2, on the terms of this Agreement.3.2 All obligations security interest: The security interest in the collateral created by this Agreement shall secure repayment to the Lender of all payment obligations and all liabilities (whether actual or contingent) of the Borrower to the Lender from time to time, including those specified in Part 1, regardless of whether the obligations or liabilities were incurred before or after the date of this Agreement, and will be a continuing security and shall remain in full force and effect until a final release of that security interest is executed by the Lender.(emphasis added)[13] The collateral mortgage relevantly provides:5(c) Running security Until the mortgagee executes a final discharge of this mortgage in writing, it will be a running and continuing security for payment of the secured money and compliance with its terms despite:(i) payment of any sums to the mortgagee from time to time; or(ii) any account between the party giving this mortgage and the mortgagee being in credit at any time; or(iii) any settlement of account or other circumstance whatsoever.[14] Under clause 2(a) of the mortgage "the secured moneys" means:(i) all moneys which are now or at any time in the future owing to the security holder.Subsequent loan agreement[15] A subsequent loan agreement was entered into between the parties on 8 December 2008. Under "Key financial details" the document states "Disbursements: To restructure contract # 70222999" (which it is accepted is a reference to the 2006 loan agreement).[16] The validity and enforceability of this subsequent agreement is significantly in dispute. To summarise briefly, YTL alleges that, without its authority or knowledge, critical provisions were altered in the loan agreement dated 8 December 2008 after an agreement dated 20 October 2008 was entered into between the parties and executed by Mr Trent Cary, the chief executive officer of YTL both on behalf of YTL and as a guarantor of the obligations of YTL under the loan agreement. MrCary's evidence concerning this is set out in affidavits filed in this proceeding. SCF denies the allegations. It says the October 2008 agreement did not proceed and that the alterations made in the 8 December 2008 loan agreement were made with YTL'sand Mr Cary's knowledge and approval.[17] This significant factual dispute underlies serious allegations by YTL and Mr Cary against SCF. Resolution must await a substantive hearing where full evidence is adduced and witnesses are cross-examined. Clearly there is a significant conflict in the evidence. For the purposes only of this proceeding I must assume the evidence of SCF to be correct.55 Macrae v Rapana HC Auckland M633/94, 17 June 1994.Discussion[18] SCF relies on cl 3.2 of the 1976 loan agreement as creating a continuing security for advances made both before and after the date of the agreement. Mr Bowler referred to the authority of ASB Bank Ltd v South Canterbury Finance Ltd6and in particular the following statement by the Court of Appeal:7[40] Both ASB and SCF have entered into contractual arrangements with their mortgagor as to what the mortgaged land secures. In the case of ASB,its mortgage document provides that it is security for all of the mortgagor'sindebtedness and obligations owed to the bank including future advances. The mortgage provides that ASB is only obliged to release the mortgage on payment in full of the indebtedness and performance of all obligations.[41] SCF's mortgage is not in evidence before us. However, we assumethat since the mortgage was provided as security for a guarantee, the document would be in similar form, providing that SCF is only obliged to release the security over the land on performance of all obligations for which the mortgage is security.[19] SCF further relies on the provisions of cl 5(c) of the collateral mortgage andthe provisions of cl 2(a) which define "the secured moneys" to include all moneys atany time in the future owing to SCF.[20] YTL does not deny that it received the loan advances and that moneys remain outstanding to SCF. The amount outstanding is calculated by SCF as at 4 October 2011 to be approximately $330,000. In the statement of affairs of Mr Cary dated 30 August 2011 filed under the Insolvency Act 2006, a liability to SCF of $250,000 is listed.[21] In the course of discussion during the hearing Mr Cox accepted there is no evidence that SCF acknowledges that advances made under the 2006 loan agreement have been fully repaid, thereby entitling YTL to a discharge of the loan agreement and collateral securities (as had been submitted by YTL). Nor could he point to any provision in the December 2008 loan agreement and securities that merged or substituted those securities with or for the 2006 loan agreement. The rather cryptic6 ASB Bank Ltd v South Canterbury Finance Ltd [2011] NZCA 368.7 At [40]-[41].reference under Key financial details and "Disbursements" referred to above,8appears to be the only provision that bears on this issue.[22] Thus the factual situation in this case can be distinguished from that in Goss v Chilcott9 as Mr Bowler, counsel for SCF, submitted. In that case the Privy Council held that the effect of the alteration to a subsequent instrument was to discharge theappellants' liability under it. But that was because the Court found it was plainlyintended that upon the execution of the subsequent mortgage the prior oral agreement between the parties should merge in and be wholly superseded by the mortgage. Consequently there could be no question of any oral agreement having survived the discharge of the appellants from liability.[23] In this case, the 2006 loan agreement and the collateral mortgage were duly executed by the parties. The 2006 loan agreement formed the basis for the caveat lodged by SCF in May 2006. The subsequent loan agreement in 2008 was entered into following defaults by YTL under the 2006 loan agreement. There is no term or provision in the 2008 loan agreement that it supersedes the 2006 loan agreement or that the 2006 loan agreement was merged in it. Defaults under the December 2008 loan agreement were treated by SCF as increasing the amount owing under the 2006 loan agreement.10 The 2006 loan agreement and collateral mortgage have never been discharged.[24] Accordingly, as Mr Cox accepted in the course of the hearing, it must be at least arguable that the 2006 loan agreement remains in force as a continuing securityto support SCF's caveatable interest. SCF is not required to discharge the security provided by the 2006 loan agreement and the collateral mortgage, until the indebtedness (which includes future advances) has been paid in full and all obligations performed.[25] Therefore whatever the ultimate outcome might be in relation to the 2008 loan agreement after full evidence and argument at a substantive trial, it is arguable that the 2006 loan agreement provides continuing security for advances made both8 At [15].9 Goss v Chilcott [1996] 3 NZLR 385.10 Affidavit of Howard David Morrison sworn 1 July 2011 at para 18.before and after 27 April 2006. On the facts of this case it is far from patently clear that no valid grounds exist for maintaining the caveat.Result[26] SCF's application dated 10 June 2011 to sustain caveat 6856753.1 is granted.Costs[27] SCF is entitled to costs on a 2B basis together with disbursements.