WELLESLEY CLUB INCORPORATED V WELLESLEY PROPERTY HOLDINGS LIMITED HC WN CIV-2006-485-2688

WELLESLEY CLUB INCORPORATED V WELLESLEY PROPERTY HOLDINGS LIMITED HC WN CIV- 2006-485-2688 15 March 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-2688UNDER The Land Transfer Act 1952 IN THE MATTER OF an application pursuant to Section 145A of the Land Transfer Act to prevent a caveat lapsing BETWEEN WELLESLEY CLUB INCORPORATED Applicant AND WELLESLEY PROPERTY HOLDINGS LIMITED Respondent Hearing: 19 February 2007 Appearances: D.A. Laurenson for Applicant J.J. Troup for Respondent Judgment: 15 March 2007 at 4.30 pm In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 4.30pm on the 15th day of March 2007.JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL Introduction[1] This is an application by Wellesley Club Incorporated ("Wellesley Club") pursuant to s145A Land Transfer Act 1952 for an order that caveat 6797614.1 not lapse. [2] The caveat claims an interest over a property at McGinnity Street, Wellington, being Certificate of Title 319/192 Wellington Registry ("the property") owned by the respondent "Wellesley Property". The interest claimed in the caveat is specified in the following way:The caveator claims an estate or interest in the land described in the Schedule hereto as vendor/shareholder by virtue of the terms and conditions of firstly an Agreement for Sale and Purchase dated the 9 th of July 1997, and secondly, an Agreement to Acquire Shares in The Wellesley Limited dated the 8 th day of August 2000, between The Wellesley Limited (as purchaser/registered proprietor respectively) and the Wellesley Club Incorporated (as vendor/shareholder respectively) certain rights and benefits granting continued occupation of the premises were reserved to The Wellesley Club Incorporated as more particularly detailed in the two agreements.[3] The application is opposed by Wellesley Property.Background Facts[4] The caveat in question is lodged against the title to the property that had been Wellesley Club's premises as a Gentlemen's Club since 1927. The Wellesley Club experienced financial difficulties in the late 1990's, and as a result it was required to sell the property. [5] An agreement for sale and purchase of the property dated 9 July 1997 ("the Sale Agreement") was entered into. The sale which was at the price of $1,652,000.00 was effectively to Wellesley Property as the named purchaser's nominee. [6] Under the Sale Agreement the Wellesley Club was also given: a) An option to purchase shares in Wellesley Property exercisable before 9 October 2000. b) Rights to use areas and facilities within the property. [7] It is acknowledged that the Wellesley Club properly exercised the option to purchase the shares. Protracted negotiations, however, did take place over the share percentage to be transferred to the Club and it was not eventually until 2005 that the Wellesley Club became registered as a shareholder in Wellesley Property.[8] So far as the Sale Agreement was concerned, evidence provided to this Court on behalf of Wellesley Club indicated that a critical requirement for the members of the Club in approving the sale of the property was that the Sale Agreement and arrangements generally would secure the Club's continued occupation in the club premises where it had been since 1927. In particular, it is said that it was critical the Club would retain the exclusive use of the Members Lounge on Level 2 of the property. [9] As a consequence, clause 20 of the Sale Agreement was drafted to provide:20. CONTINUATION OF THE CLUB IN THE PREMISES(1) Areas to be utilised by the Club(i) It is intended that the Club will utilise the areas exclusively or in common with members of the public as more particularly shown and described in the plans contained in the First Schedule. (ii) Notwithstanding any clause to the contrary the parties acknowledge that the Purchaser has not had sufficient time to finalise its plans as to how best to utilise the premises on a commercial basis and provide continued facilities to the Club. The designation of areas contained in the First Schedule may be subject to change as the Purchasers may reasonably require. Changes will be discussed with the Club to minimise any disruption. It is further acknowledged that the exclusive areas to be available to the Club will be firmly established prior to the option date being the 9 th day of October 2000.[10] So far as the share acquisition option was concerned, clause 22 of the Sale Agreement provided for this in the following way:21. OPTION(1) In consideration of the payment of $1.00 (one dollar) receipt of which is hereby acknowledged by the Purchaser grants to the Club (exercisable at any time up until the 9 th October 2000) to acquire shares in the Purchaser company on the following terms:[11] As I have noted above, the Wellesley Club exercised this option and on 8 August 2000 a Heads of Agreement to Acquire Shares in Wellesley Property ("The Share Purchase Agreement") was entered into.[12] Under this Share Purchase Agreement Wellesley Club introduced $1,000,000.00 in capital into the company to acquire its shares, a shareholding which was ultimately fixed at 25.93% of the total share capital. The Wellesley Club was to have the right to appoint not less than two directors to the Board of the company. The Share Purchase Agreement went on to provide:3.4 Continuation of the ClubThe best utilisation of the premises requires flexibility. The parties agree that the standard and type of facilities available for Members will not diminish and will be available in perpetuity while the Club remains a shareholder in the Company. Unless the Company and the Club otherwise agree to the contrary the Club shall also remain in the premises in perpetuity. 3.16 ChattelsThe Chattels owned by the Club as at the date of this agreement shall remain the property of the Club. While the Club remains in the premises all the existing chattels of the Club shall remain in the premises without charge to the Company, provided that the Company shall be responsible for full replacement insurance for the chattels and also incur the costs of maintaining the same. 3.21 Ordinary Club Member approval requiredThe Committee shall present this Heads of Agreement and further information/documentation to the Members for their consideration. This Agreement is subject to and conditional upon approval of the Members. There shall be two meetings, the first to inform the Members of this proposal and the second to formally take the vote at the meeting.[13] The Wellesley Club obtained the unanimous approval of its ordinary members to the Agreement. The consideration of $1,000,000.00 provided for the acquisition of the shares was paid and the Wellesley Club acquired its 25.93% shareholding in Wellesley Property. [14] Since the Sale Agreement, as I understand the position, Wellesley Property acknowledges that the Wellesley Club has continued to use facilities and areas within the property and particularly the lounge on Level 2, as its Club and its members have had access to those facilities throughout.[15] Differences have now arisen, however, between the Wellesley Club and officers and directors of Wellesley Property. These differences include a complaint by the Wellesley Club over a lease of the property to an independent company owned by one of Wellesley Property's directors (Mr Coffey) which is now to undertake full management of the property. As a result, on 21 March 2006 the present caveat was registered against the title to the property. [16] The caveat was challenged by Wellesley Property as registered proprietor, and hence the present s145A application to sustain the caveat was brought.Counsel's Arguments and My Decision[17] The present application seeking an order that the plaintiffs' caveat not lapse is made under s145A Land Transfer Act 1952. Although the jurisdiction not to lapse caveats triggered by s145A is relatively new, the Courts have applied the same principles to applications under that section as are applied under applications made pursuant to s143 and s145. [18] The principles upon which the jurisdiction to remove or extend a caveat are to be exercised, although not set out in s145, s145A or s143 Land Transfer Act 1952, have been developed by the Courts over the years and are now reasonably well settled – Holt v Anchorage Management Limited [1987] 1NZLR 108 and see Hinde McMorland & Sim "Land Law in New Zealand" vol. 1 at para 10.020. [19] The general approach to these applications to remove or extend caveats was settled in Sims v Lowe [1988] 1 NZLR 656 where Somers J at page 660 said:The 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.[20] The applicant has the burden of establishing a "reasonably arguable case" that it has a caveatable interest in the property in question, and that the caveat should be sustained – Hinde McMorland & Sim "Land Law of New Zealand" Vol.1. Para 10.020. An order for removal of a caveat is not to be made unless it is patently clearthat the caveat cannot be maintained either because there was no valid ground for lodging it, or that no such ground may exist now – Re Graham (1912) 14 GLR 806;New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41 (CA). [21] In Hinde McMorland & Sim "Land Law in New Zealand" Vol.1 Para 10.020(a), the authors state:It is clear that on an application under sections 143, 145 or 145A the Court ought not finally to determine the rights of the parties unless both parties consent or unless the facts are not in dispute and the law has been fully argued.[22] Somers J in the Court of Appeal in New Zealand Limousin Cattle Breeders Society Inc v Robertson at page 43 said:The proceedings upon such an application (under s.145) are quite unsuitable to determine the rights of the parties.[23] It has been argued that the test to be applied under s.145 provides the Court with a residual discretion whether to allow a caveat to lapse or not. The initial onus rests on the caveator to establish a reasonably arguable case, but a balance of convenience test has been held to be appropriate – see Pacific Homes Limited (in receivership) v Consolidated Joinery Limited [1996] 2 NZLR 652 (CA). In Pacific Homes Limited Blanchard J in delivering the judgment of the Court of Appeal said at page 656:The Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced.[24] Thus, there is a reasonable argument that even if a caveator satisfies the Court that she/he has an arguable case, the Court retains a discretion to make an order removing the caveat – see Hinde McMorland & Sim "Land Law in New Zealand" volume 1, para 10.020(b). [25] Two preliminary matters arise. The first is a complaint by Wellesley Property that the caveat itself does not properly set out "the nature of the land orestate or interest claimed by the caveator which must be stated with sufficient certainty" – s137(2)(b) Land Transfer Act 1952. This complaint suggests that the interest claimed by Wellesley Club in the caveat has not been described accurately and fully, and in this regard counsel for Wellesley Property referred me to NZ Mortgage Guarantee Company Ltd v Pye [1979] 2NZLR 188. [26] This argument, however, overlooks the recent Court of Appeal decision inZhong v Wang (CA282/05, 5 September 2006) which states at paragraph 58:58. The purpose of the caveat procedure is to enable those with proper claims to proprietary interests to protect themselves against loss by forbidding dealing with the land pending resolution of substantive claims. The underlying purpose of the caveat regime could be undermined if too strict an approach were taken to the detail required to describe the interest claimed and its derivation from the registered proprietor.[27] As I see it, the more strict position taken in the NZ Mortgage Guarantee Company Ltd case has clearly been softened by the approach outlined above set out by the Court of Appeal in Zhong v Wang. [28] That said, I am satisfied in the present case that the interest in the property claimed here by Wellesley Club in its caveat is linked to Wellesley Property, the Agreements and the property itself and is sufficiently described in terms of s137(2)(b) Land Transfer Act 1952. [29] I reject this misdescription argument advanced on behalf of Wellesley Property. [30] The second preliminary matter which relates to the Share Purchase Agreement is a point noted by counsel for Wellesley Property that shareholding in a company which owns a property does not in itself amount to a caveatable interest in that property – Waiteitei Angora Farm v Cann (HC AK, 17 April 1989, M333/89, Master Anne Gambrill). Clearly this is because the property of a company is not the property of its members, and a shareholder has no proprietary interest either legal or equitable in the assets of the company in which the shares are held.[31] There can be no argument that this is the correct position, but this point is of little moment here. The interest claimed by Wellesley Club in its caveat is not specifically linked to its shareholding in Wellesley Property, the registered proprietor of the property. The interest claimed noted at paragraph [2] above is related to the rights and benefits which it says were granted to the Club in the Sale Agreement and the Share Purchase Agreement. [32] I go on now to consider the first substantive issue here which is whether Wellesley Club has a caveatable interest in the property in terms of s137 Land Transfer Act 1952. [33] Section 137(1)(a) provides:(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person – (a) Claims to be entitled to or to be beneficially interested in the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; [34] In the present case the plaintiff's principal argument is that it has a reasonably arguable case to a caveatable interest in the property based upon the equitable doctrine of equitable estoppel. [35] As to this, there is an unresolved issue in this country as to whether any equitable interest in land will support a caveat (the broad view) or whether the equitable interest must be registerable in order to support a caveat (the narrow view). [36] Authority exists to support the broad view in Hinde McMorland & Sim "Land Law in New Zealand", para 10.006 and Waitakiri Links Limited v Windsor Golf Club Inc (CA132/95, 9 November 1998). Indeed, at para 10.006 Hinde McMorland & Sim state:It is submitted that the broad view is to be preferred.[37] And at paragraph 2.145 of Butterworths Land Law in New Zealand the broad view was expressed by Hodgson J in Composite Buyers Limited v Soong (1995) 38 NSWLR 286 as follows:[A]ny equitable interest in land is sufficient to support a caveat, even if the caveator does not have a registrable instrument, and even if the caveator may not be entitled to an instrument which will lead to a recording in the register. In my opinion, what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way giving satisfaction of the interest claimed by the caveator out of the land itself, for example by ordering the sale of the land and payment out of the proceeds of an amount in respect of which the caveator has a charge. (emphasis added)[38] It follows, therefore, in my view, that for the purposes of determining whether there is a reasonably arguable case to the caveatable interest claimed, an equitable interest in land which gives relief against the land itself will support the caveat. [39] And, as Hinde McMorland & Sim, "Land Law in New Zealand", at para 4.020 notes:4.20 Other equitable interests: summaryAs already noted, equitable interests arise out of certain contracts. There are, however, many other ways in which equitable interests in land may come into being, for example, under trusts (whether express, resulting or constructive) and under other heads of the equitable jurisdiction, such as those relating to covenants, estoppel, and the mortgagor's equity of redemption. Equity 'calls into existence and protects equitable rights and interests in propertywhere their recognition has been found to be required in order to give effect to its doctrines' and it has been remarked that 'equitable interests may therefore arise impliedly in response to the dictates of equitable doctrine[40] The doctrine of equitable estoppel gives rise to an equity that may be satisfied in whatever way may seem to be appropriate to the Court. Hinde McMorland & Sim, "Land Law in New Zealand" at para 18.007 states:18.07 Requirements to raise an equitable estoppelThe modern doctrine of equitable estoppel in New Zealand has been created through a rationalisation and unification of three formerly recognisedseparate types of estoppel: estoppel by representation (or common law estoppel), promissory estoppel, and proprietary estoppel (sometimes also known as estoppel by acquiescence). This unification has been achieved by a recognition of unconscionability as the common factor in these three forms of estoppel and basing equitable estoppel on that principle. Equitable estoppel has much wider application than merely to licences, but a licensee is one person who may claim the benefit of it. The doctrine defines a fact situation beyond the licence itself giving rise to an equity which may be satisfied in whatever way appears appropriate to the Court. [41] It is clear that a party alleging equitable estoppel must show that: a) A belief or expectation has been created or encouraged through some action, representation, or omission to act by the party against whom the estoppel is alleged; b) The belief or expectation has been relied on by the party alleging the estoppel; c) Detriment will be suffered if the belief or expectation is departed from; and d) It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation. (Butler 'Equity and Trusts in New Zealand' 2003, para 16.2; Hinde McMorland & Sim 'Land Law in New Zealand', para 18.007) [42] When an equitable estoppel is established, a remedy available to the Court is to order the grant of an estate or interest in the land: Hinde McMorland & Sim "Land Law in New Zealand', para 18.008. In this way, a licence can be converted into an estate or interest in land, such as a lease. In Andrews v Colonial Mutual Life Assurance Society Ltd [1982] 2 NZLR 556 the relief ordered was the grant of a lease. [43] In the present case Wellesley Property has accepted that the Sale Agreement created legally binding arrangements between Wellesley Club and Wellesley Property. Its contention, however, is that the Wellesley Club's rights under the Sale Agreement do not amount to a lease, and at best, create a mere licence. Minimumrequirements for a lease are that a lessee is granted exclusive possession of the property and the lease is for a definite period. Wellesley Property contends that neither exists here. [44] It is clear that a lease creates an interest in land, and so a caveatable interest, whereas a licence generally does not – Hinde McMorland & Sim "Land Law in New Zealand' paras 10.009(s) and 10.010(b). [45] In the present case, the Wellesley Club states that it relies not only on the two written agreements (the Sale Agreement and the Share Purchase Agreement), but also on assurances and representations which it says were made on behalf of Wellesley Property to support its claim to the caveatable interest. [46] In considering this claim to a caveatable interest in relation to the doctrine of equitable estoppel, the Club maintains that the full requirements of equitable estoppel are satisfied here in the following way: a) An expectation existed throughout that the Club would have significant perpetual occupancy and other rights in the property (and particularly the lounge area on the first floor) and this has been created and encouraged through not only the two Agreements, but as I have noted, also through actions by, and representations made on behalf of, Wellesley Property. b) That expectation was relied upon by Wellesley Club in selling the property to and in acquiring shares in Wellesley Property. c) Detriment will be suffered by the Wellesley Club if that expectation is departed from – if the Club's caveat is not maintained, then following any future sale of the property to a third party, that party could evict the Club from the property. d) It would be unconscionable for Wellesley Property to depart from that expectation, as it may now seek to do.[47] It is undisputed that the Wellesley Club has operated from the property since it erected the building in 1927. The building is a heritage building and it has been the home of the Wellesley Club since that time. It is not contested that it was only because of financial difficulties that the Club was required to sell the property in 1997. [48] Under those circumstances I accept that it was a critical requirement of the Club members in approving the sale that the Sale Agreement and accompanying arrangements would secure the Club's occupation in the property, and in particular the Club would retain the exclusive use of the Members Lounge on Level 2. Paragraphs 20(1)(i) and (ii) of the Sale Agreement (noted at paragraph [9] above) and paragraph 3.4 of the Share Purchase Agreement (noted at paragraph [12] above) generally said as much. And, as I understand the position, it is not disputed that these matters were well known throughout to Wellesley Property and its officers. [49] I accept the argument put forward on behalf of the Wellesley Club that the Sale Agreement and the Share Purchase Agreement together provide the Club with significant rights in respect of the property, and there is a strong argument that these are consistent with a significant part of the property continuing exclusively as the Club's premises either in perpetuity or for some considerable time into the future. [50] Arguably, certain aspects emerge from the material before the Court. These include: a) Unless there was agreement to the contrary, the Sale Agreement and the Share Purchase Agreement together provided that the Wellesley Club was to remain on the premises in perpetuity. b) Wellesley Property could not terminate the Club's right to remain in the premises. c) The standard and type of facilities available to Club members was not to diminish and was to be available in perpetuity while the Club remained a shareholder of Wellesley Property.d) All Club chattels were to remain on the premises without charge, and Wellesley Property was to be responsible for insuring and maintaining them. [51] Given these matters, I am satisfied there is a reasonable argument on the part of Wellesley Club that in satisfying the reasonable expectations of the Club and the understandings of Wellesley Property here, equity would grant relief against the property itself. What may well at first glance appear only to be a licence held by the Club to occupy premises on the property might well transpire ultimately to be a lease to the Club in respect of the Members Lounge at the very least, or alternatively, a land covenant or the like preserving the Club's rights under the Sale Agreement and the Share Purchase Agreement. [52] For these reasons I am satisfied that the Wellesley Club has satisfied the burden upon it of establishing a reasonably arguable case to the equitable interest it claims in the property, for the protection of which the continued existence of the caveat is justified. [53] There is one final issue which needs to be considered in this matter. This relates to the residual discretion the Court has to allow a caveat to lapse, even if the Court accepts, as I do here, that the applicant, in this case the Wellesley Club, has a reasonably arguable case for the interest claimed. [54] To exercise this residual discretion and make an order for removal of a caveat, the Court is required to be completely satisfied that the legitimate interests of the caveator will not thereby by prejudiced – Pacific Homes (in receivership) v Consolidated Joinery Limited [1996] 2 NZLR 652. The discretion, however, is always to be exercised on a cautious basis – Stewart v Kaipara Consultants Limited[2003] NZLR 55 (CA) and Pacific Homes. [55] It has often been said, too, that the onus must lie on the party challenging the caveat, in this case Wellesley Property, to show why the residual discretion should be exercised to remove the caveat. This is because the residual discretion is exercisable only where the Court is "completely satisfied" that removal would notprejudice the caveator's interests, so in the absence of evidence on that point, the caveat should be sustained – see Hinde McMorland & Sim 'Land Law in New Zealand' para 10.020(c). [56] In looking to aspects of prejudice, counsel for Wellesley Property contended that the Club's interests here are entirely protected by its contractual rights under the Sale Agreement and its shareholding in the company, which is slightly over 25%. It is suggested that the Club does not require any additional protection. [57] Conversely, counsel for Wellesley Property argued that the other Wellesley Property shareholders would suffer prejudice if the caveat is to remain in place, in that she suggests there is a risk that a real present effect of the caveat is to dissuade prospective purchasers of shares in the company in some way. Wellesley Property's position is that its other shareholders have the right to sell their shares, and it would be inequitable that this right might be interfered with or otherwise prejudiced by the presence of the caveat, particularly when the Wellesley Club's interests are otherwise adequately protected. [58] Counsel for the Wellesley Club before me rejected these contentions put forward on behalf of Wellesley Property. I take a similar view. As I see it, there is little in these arguments advanced on behalf of Wellesley Property with respect to the exercise of the Court's discretion. [59] I fail to see how the continued presence of the caveat, particularly until any substantive dispute between the Wellesley Club and Wellesley Property is resolved can have the effect of dissuading prospective purchasers of the shares in the company. I do not see that Wellesley Property would suffer undue prejudice if the caveat is to remain in place. [60] This is particularly the case bearing in mind also the acknowledgements made on behalf of Wellesley Property throughout, that the Club had rights in perpetuity to occupy the premises.[61] It is also useful to note the comments at paragraph 23 of the affidavit of Mr Wayne Sydney Coffey dated 7 December 2006 filed on behalf of Wellesley Property where he deposes:22. As is clear from clause 20(1) of the Sale and Purchase Agreement, it was intended that areas within the property would continue to be used by the Club. However, no agreement was made at that time as to what areas would be used exclusively by the Club, and no agreement has been made subsequently between the Club and WPHL giving the Club exclusive use of any area within the Property. It was always intended that the Club's use of the property would be flexible.[62] In my view, those comments and the general background to this matter reinforce my view that a portion of the property and probably at least the Members Lounge was always to remain exclusively for the use of the Wellesley Club, and that if any prejudice is to be caused in this matter, it would be by ordering removal of the caveat, which would impact unreasonably upon the Wellesley Club rather than Wellesley Property. [63] For these reasons, I am satisfied that this is not an appropriate case for the Court to exercise its residual discretion and to make an order for the removal of the caveat.Decision[64] The application by the Wellesley Club therefore succeeds. An order is to be made that the caveat is not to lapse. [65] It is clear the Court in exercising its jurisdiction under s145A Land Transfer Act 1952 has power to make orders on conditions – BP Oil New Zealand Limited v Van Beers Motors Limited [1992] 1 NZLR 211, 218, Hinde McMorland & Sim "Land Law in New Zealand' 10.020(g). [66] An order is now made that caveat 6797614.1 lodged against Certificate of Title 319/192 Wellington Registry shall not lapse until further order of this Court.[67] The order made above that the caveat shall not lapse is conditional upon Wellesley Club by 15 April 2007 commencing proceedings seeking specific performance to enforce the obligations on the part of Wellesley Property in the Sale Agreement and the Share Purchase Agreement with respect to a formal lease, covenant or the like over the premises in favour of Wellesley Club, and that proceeding subsequently being pursued with all reasonable diligence. [68] If this condition is not satisfied, the way is open to Wellesley Property to apply to this Court on notice for a discharge of this order. [69] As to costs, the applicant Wellesley Club has been successful in its application and, in my view, is entitled to an order for costs in the normal way. Costs are therefore awarded against Wellesley Property with respect to this application calculated on a 2B basis, together with disbursements if any as approved by the Registrar. 'Associate Judge D.I. Gendall'Solicitors:Luke Cunningham & Clere, Wellington for Applicant Kensington Swan, Wellington for Respondent