WESTPAC NEW ZEALAND LIMITED V SET KIEN LAW HC AK CIV 2012-404-001682

WESTPAC NEW ZEALAND LIMITED AND ASB BANK LIMITED V SET KIEN LAW & ORS HC AK CIV 2012-404-001682, 001685, 001785, 001528 AND 001530 [3 May 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2012-404-001682[2012] NZHC 890UNDER section 143 of the Land Transfer Act 1952IN THE MATTER OF an application to remove caveat no.8785829.1BETWEEN WESTPAC NEW ZEALAND LIMITEDApplicantAND SET KIEN LAWRespondentHearing: 16 April 2012(Heard in Chambers)Appearances: N Maday for the Applicants in CIV 2012-404-001682, 001685 and001785NFD Moffat for the Applicants in CIV 2012-404-001528 and 001530E K Lau presented a power of attorney and was granted leave toappearJudgment: 3 May 2012JUDGMENT OFASSOCIATE JUDGE CHRISTIANSENThis judgment was delivered by me on03.05.12 at 4:30pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors/Counsel:N Maday, Minter Ellison Rudd Watts, Auckland – Nicholas.maday@minterellison.co.nzN Moffat, Bell Gully, Auckland – nick.moffat@bellgully.comCIV 2012-404-001685AND UNDER section 143 of the Land Transfer Act 1952IN THE MATTER OF an application to remove caveat no. 8927506.1 not lapseBETWEEN WESTPAC NEW ZEALAND LIMITED ApplicantAND JIANJUN LIN RespondentCIV 2012-404-001785AND UNDER section 143 of the Land Transfer Act 1952IN THE MATTER OF an application to remove caveat no. 8710952.1BETWEEN ASB BANK LIMITED ApplicantAND JIANJUN LIN RespondentCIV 2012-404-001528AND UNDER section 143 of the Land Transfer Act 1952IN THE MATTER OF notice of opposition to application tosustain caveat 8821944.1BETWEEN WUXIANG QIUApplicantAND ASB BANK LIMITEDRespondentCIV 2012-404-001530AND UNDER section 143 of the Land Transfer Act 1952IN THE MATTER OF notice of opposition to application thatcaveats 8820088.1, 8927519.1 and8927399.1 not lapseBETWEEN JIANJUN LINApplicantAND ASB BANK LIMITEDRespondentBackground[1] These matters (hereinafter to be referred to as CIV 1682, CIV 1685, CIV 1785, CIV 1528 and CIV 1530) were called in the chambers list before me on 16 April 2012. Mr Lau requested permission to represent the respondents. He presented a power of attorney and had provided these previously in appearances on similar matters. Mr Lau indicated he has family connections with respondents (in opposition to applications to remove caveats), and applicants (upon applications to sustain caveats).[2] In these cases he says the respondent in CIV 1682 is his Aunty, and the respondent in matters CIV 1685 and 1785 and applicant in CIV 1530 is his Aunt'sbrother in-law.[3] Mr Lau speaks good English. Apparently the respondents do not.[4] The Court advised in the circumstances that there would be no objection to Mr Lau assisting the respondents in these matters.[5] These matters are similar to each other and are also similar to other matters listed for call or hearing in this Court.[6] In each case the opposing party will be referred to as 'the Bank'.CIV 1682[7] It concerns a property at Blampied Road, Otara. The registered owner is Po- Chen Lee who borrowed from the Bank to purchase the property and who gave the Bank a first mortgage security over it on 18 November 2005.[8] On 10 June 2011 the respondent lodged a caveat over the title to the propertyclaiming an interest pursuant to a "purchaser and lessee agreement" dated 26 April2011 between the registered proprietor and the respondent.[9] In September Po-Chen Lee's financial facilities with the Bank were indefault, demand was made, and eventually on 5 December 2011 a Property Law Act 2007 notice (PLA) was served.[10] In February 2012 the property was marketed by the Bank for sale and on 13 March 2012 the property was sold by way of auction with settlement scheduled for13 April 2012. Settlement of the sale is being prevented by the respondent's caveat.[11] The respondent refuses to remove it. The Bank's view is that the caveat waslodged in an attempt to frustrate its power of sale under its mortgage.[12] A notice of opposition was filed in the name of the respondent. Mr Lau acknowledges he prepared it. He informed the Court that he has, in this case and others, assisted in the process of the lodging of the caveats.[13] There has not, in this one of the three matters of applications to remove caveats, been filed a copy of that agreement by which it is said the respondent has acquired a caveatable interest in the subject property. Nor was one provided in evidence by the respondent in CIV 1785. One such was provided in CIV 1685 and copies of such agreements have also been exhibited upon applications to sustain caveats where the interest claimed by the caveator is very much the same as claimed in these cases. There are some minor variations of fact in each case but in essence the claim of a caveatable interest is based upon an agreement between the registered proprietor as vendor and the caveator as the purchaser of that property over which the Bank holds a first mortgage security interest.[14] Typically the agreements require the payment of a deposit of about 20 – 25 per cent and require settlement to be effected about six to nine months later. The agreement notes that possession is given usually within days of the agreement being made.[15] The agreement records the parties' contract was achieved by private sale.Typically the agreement also contains the following clause:Both parties agree the deposit can be converted to five years prepaid rent for the property if the settlement do not proceed on [settlement date].[16] Mr Lau advised me that he is a former real estate agent. I gather he has assisted the parties who have entered into these agreements even though some of them have included the names of lawyers acting for the parties. Some evidence shows those lawyers may not have been aware of their nomination to act for parties to these agreements.[17] In the course of his discussions with me Mr Lau advised that home properties have been purchased by Chinese nationals wishing to live in New Zealand. Sometime later the home purchaser finds he/she is in a position whereby they are unable to continue to meet mortgage responsibilities. Mr Lau has then assisted them with the structure of these deals which provide for a five year tenancy arrangement if the sale and purchase does not proceed. What it usually means however is that these people with family connections to Mr Lau end up with the expectation of long term occupation of a property which they have not paid for (apart from the deposit) because the purchase was not settled.[18] I believe I understood Mr Lau to advise that the registered proprietors of these properties have in each case returned to China. Mr Lau says that they have done so in order to collect funds in order to return to New Zealand to repay any debt owing on their properties.[19] One wonders whether in those circumstances, there was any incentive for property owners to return at all if their property had been tenanted for five years. Also they would have to be aware that the Bank would want to hold them accountable for their loan facility deficit.[20] The position of the respondents is that they have in law the means to prevent the Bank exercising its rights to sell the security property. Hence, the claim of a caveatable interest.CIV 1685[21] This case concerns a property located at Kereru Rise, Papakura, Auckland. It was owned by Mr Hsi-Hau Lee (Mr Lee) and was provided as security for financial facilities provided to the company Viewpoint Developments Limited.[22] The Bank's loan fell into default and demand was made under the guaranteeMr Lee had given to it. A Property Law Act notice was served on 19 October 2011.[23] On 28 November 2011, subsequent to the expiry of the Property Law Actnotice, Mr Lee's solicitors wrote to the Bank and advised of the existence of anagreement for the sale of the property to the respondent Ms Lin for the sum of $85,000, which was less than the amount owing to the Bank under the financial facilities.[24] The solicitors requested the Bank to discharge its mortgage so that a settlement of the purported sale and purchase agreement could occur on 29 November 2011. The purported agreement contained a clause which stated that:Both parties agree a paid deposit of $21,000 can be converted to five years prepaid rent (lease) if the vendor cannot provide clear title on settlement date.[25] It was the Bank's standard practice to obtain a registered valuation of amortgaged property before considering a request to consent to an agreement enteredinto by the mortgagor for its sale. Thereupon the Bank contacted Mr Lee's solicitorsand advised that it would not consent to the agreement for sale and purchase and would require a registered valuation before it would consent. Subsequently no registered valuation was provided and on 5 December 2011 the Bank wrote to MrLee's solicitors informing them that the purported sale and purchase agreementwhich would not be consented to.[26] That property sold at auction on 28 February 2012 for the sum of $155,000 unconditionally. The Bank expects there will be a shortfall still owing to it following settlement of the sale of that property which was due to settle on 15 March 2012. Before then on 12 March 2012 the Bank by its solicitors wrote and requested therespondent to withdraw the caveat. Ms Lin's response was that she would withdrawthe caveat only if the Bank paid her $20,000 plus interest to recover the deposit she had paid to Mr Lee.CIV 1785[27] This application concerns a property at Nearco Street, Manurewa, Auckland. The registered proprietor was Mr Tai Ting (Mr Ting). The Bank lent funds to Mr Ting and obtained a first mortgage security over the property.[28] On 18 March 2011 the respondent Ms Lin [the same respondent as in CIV 1685] registered a caveat over the property claiming an interest pursuant to a"purchaser and lessee agreement" dated 18 February 2011. No evidence has beenprovided to the Bank or to the Court, of an agreement for sale of purchase/lease by which Ms Lin claims a caveatable interest.[29] In June 2011 Mr Ting was in default to the Bank and on 15 July 2011 the Bank issued a Property Law Act notice. The notice expired unremedied, the property was marketed by the Bank in February 2012 and on 29 February 2012 it was sold at mortgagee auction for the sum of $170,500. Settlement of the sale wasto occur on 21 March 2012 but the respondent's caveat prevents this. The Bankestimates there will be a shortfall when it has received the settlement sale proceeds.CIV 1528[30] The security property in question provides a first registered mortgage to the Bank for security of the obligations of Rui Yu Lin (Ms Lin) and Qian Guan Chen (Mr Chen).[31] In this case the security property securing the obligations of Ms Lin and Mr Chen was situated at Ihaka Place, Papatoetoe, Auckland.[32] The loan facility fell into default, demand was made and Property Law Act notices were served. The Property Law Act notices expired on 1 February 2012.The property was marketed and sold at a mortgagee auction on 28 March 2012 for $352,000 including GST. Settlement is due to occur on 30 April 2012.[33] The caveat refers to the applicant's interest in an agreement dated 18 May2012 between Mr Chen and Ms Lin and the caveator. The caveator was noted as being Liansen Mao. The application has been filed by someone else whose connection to the property appears quite unclear. It is clear Mr Chen and Ms Lin did not obtain the consent of the Bank before entering into a sale and purchase agreement with the caveator.[34] On 11 July 2011 a solicitor for the mortgagors contacted the Bank to advise the mortgagors had entered into an agreement for the sale of the property, and requested that the mortgage be discharged. A copy of that agreement provided at that time to the Bank showed a sale price of $295,000 but a settlement net payment of $115,500. The difference was to be retained by the purchaser in respect of the deposit payable but also in the sum of $149,500 for repairs allegedly required to be taken into account.[35] On 13 July 2011 the Bank informed the mortgagor's solicitor it would require$295,805.34 to be repaid before it would discharge the mortgage. Later, the Bank advised it would require a registered valuation and independent builder's reportbefore considering the mortgage discharge request.[36] The mortgagors have refused to provide access to the property to allow thenecessary inspections for the builder's report.[37] A complaint was made to the Banking Ombudsman by Mr Chen and Ms Lin in relation to claims that the Bank agreed to accept a lesser sum than finally demanded for release of its mortgage. The Banking Ombudsman has responded noting that upon an initial assessment the Ombudsman considered the complaint should be withdrawn.[38] In submissions Mr Lau argued:(a) If the caveat lapsed the applicant would seek to lodge a new caveat toprotect 'a new five years pre-paid lease'.(b) The Bank is in breach of s 9 of the Fair Trading Act although he does not explain why.(c) That as a matter of public interest the applicant ought to be able to relodge a caveat to protect his interest as a tenant for otherwise he would be evicted by the new purchaser.CIV 1530[39] This matter concerns an application by Ms Lin (the same Ms Lin as referred to in CIV 1528) to sustain the caveats of caveator Liansen Mao over properties including those registered to she and Mr Chen. This application concerns three caveats lodged over four properties at Keri Vista Rise and Kirikiri Drive (owned by a Ms Rui Yu Lin), Pitt Avenue (owned by Mr Qian Guan Chen) and Papakura Clevedon Road (owned by Qian Kun International Limited).[40] Adding somewhat to the complexity of names of parties and connections or relationships between them is the fact that the caveat registered over the Keri Vista Rise and Kirikiri Drive properties names Liansen Mao as the caveator who is not the applicant in this matter.[41] The Bank's hold first registered mortgages over the properties to secure theborrowings of Ms Lin and Mr Chen and their company. Ms Lin and Mr Chen signed deeds of guarantee and indemnity also in respect of a loan by the Bank to theircompany Jack's Ventures Limited. Also, and as is clear from CIV 1528 the Bankholds an all obligations mortgage over the property of Ms Lin and Mr Chen at Ihaka Place, Papatoetoe. But, the applicant in this matter has no caveat over Ms Lin'sproperty.[42] The relationship between the applicant Jianjun Lin and Ms Lin, if any, is unclear. The Court assumes Jianjun Lin is the same person who lodged the caveats in the CIV 1685 and CIV 1785 matters.[43] The finance facilities fell into default, demand was made and PLA notices were served. Eventually the properties were sold by mortgagee sale. On 28 March 2012 Kirikiri Drive was sold for $128,000 including GST, with settlement due to occur on 30 April 2012. On 4 April 2012 Keri Vista Rise was sold for $131,000 including GST and Pitt Avenue was sold for $145,000 including GST. Settlement on those properties is due to occur on 4 May 2012.[44] Each of the caveats describes the caveator's interest as purchaser and lesseepursuant to agreements between the mortgagor and the caveator. The affidavit of Mr Lau provides extracts of sale and purchase agreements for the properties which the Bank has said it had not previously seen. The relevant sale and purchase agreements are in a similar format to those previously reviewed in this judgment. Mr Lau appears to have prepared them at the request of the applicant who agreed to purchase all four of the security properties. Later Mr Chen advised Mr Lau that because of a dispute with the Bank he would not be able to settle the sales. It appears Mr Lau has assisted Mr Chen and Ms Lin with their dispute by referring the matter to the Banking Ombudsman.[45] Prior to the properties being auctioned on 28 March 2012 the Bank obtained registered valuations. Those valuations put a value on the properties substantiallyhigher than the prices offered by the agreements attached to Mr Lau's affidavit. Inparticular the properties at Pitt Avenue and Papakura Clevedon Road were valued atleast twice the amount offered by the agreements disclosed by Mr Lau's affidavit.[46] This application too refers to a complaint to the Banking Ombudsman but it seems that complaint concerns the Ihaka Place property over which none of the caveats referred to in this application have any relationship.Overview of applications to sustain caveats[47] In the matters of the two applications to sustain caveats Mr Lau'ssubmissions refer to complaints being made to the Banking Ombudsman. The files of CIV 1528 and CIV 1530 concern the properties owned by Ms Rui Yu Lin and Mr Qian Quan Chen over which first registered mortgages were given to secure the financial obligations of Ms Lin and Mr Chen and their business interests. It seems that the complaint to the Banking Ombudsman concerned the bank's unpreparednessto discharge the mortgage over Ihaka Place at a time when an offer was presented by the owners for its on sale. As earlier noted the Banking Ombudsman has recommended upon an interim assessment that the complaint be withdrawn.[48] This Court concludes there is nothing in the matter of the complaint or in the interim assessment made that requires any further delay for consideration.[49] The nearest an applicant came to obtaining the agreement of a Bank to consent to the sale of a property by a mortgagor concerned Ihaka Place. Initially the Bank advised that the sum of $165,000 was required to discharge the mortgage overthat property. However and on the same day the Bank advised the mortgagor'ssolicitor that a figure of $295,000 instead was required. It was in response to this that the mortgagor produced an agreement for the sale of the property in the sum of $295,000 albeit that provision was made for deductions from that sale price on account of a deposit already paid and for repairs required to be undertaken as a condition of the transfer.[50] The complaint to the Banking Ombudsman concerned the perceived unwarranted change of mind by the Bank, first in requiring more to be repaid to satisfy the mortgage, and secondly by refusing to accept a sale agreement even though there were to be deductions made from sale proceeds due.[51] The fact is that the Bank never agreed to release its mortgage short of requiring payment in full, as the terms of its security arrangements allowed. Nor can the Bank be held to account for not doing so.Considerations[52] It is clear from the terms of the mortgage secured over the land in each case that the registered proprietor/mortgagor must, among other things:(a) Obtain the Bank's consent to sell or dispose of the property;(b) Obtain the Bank's written consent to lease the property;(c) Do everything in his/her power to remove any caveat lodged by any party other than the Bank.[53] In each case, except one, it is clear that the registered proprietor at no time sought consent from the Bank to enter into any sale and purchase agreement or lease and the Bank has not consented to any such agreement or lease; that the registered proprietor, nor the caveator, has not brought the alleged sale and purchase agreementto the Bank's attention. Also, in the case of all applications, except one, to remove acaveat, the Bank has not been provided with a copy of the alleged agreement for sale and purchase prior to on sale of the security properties at mortgagee sale.[54] The evidence discloses that in each case the Bank has proceeded properly in the exercise of its rights as a mortgagee to obtain the right to sell the property by mortgagee sale; that the property was appropriately marketed by a reputable real estate agency; and was in due course lawfully sold.[55] Earlier I have referred to the fact that in two of the three caveat withdrawal matters before me no evidence has been provided of an agreement for sale and purchase by which it is said the respondent acquired a caveatable interest. However, and in the context of dealing with these matters, as I have in the course of a chambers list, I consider it appropriate to assume for present purposes that such agreements exist in the matters presently before the Court.[56] It is clear that if there is no valid ground for lodging a caveat or that the interest which initially justified the lodging of same no longer exists then:(a) Such a caveat should be removed. 1(b) Under s 143 of the Land Transfer Act 1952 the onus lies on the caveator to show why he/she has a reasonably arguable case for the interest he claims. 2(c) What the caveator must establish is an arguable case for claiming an interest of the kind referred to in s 137 of the Land Transfer Act 1952; and(d) Even if a caveator establishes an arguable case for the interest in their land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously. 3[57] Section 119 of the Land Transfer Act 1952 provides:119 Lease not binding on mortgagee without consentNo lease of mortgaged or encumbered land shall be binding upon the mortgagee except so far as the mortgagee has consented thereto.[58] In these cases it is clear the Bank has not consented to any form of lease. A registered mortgagee's title is paramount and that includes the mortgagee's right toexercise its power of sale.[59] It is clear in this case that the interest claimed in the caveat has no priority and is entitled to no protection in respect of the registration of any transfer executedby a mortgagee for the purpose of the exercise of the mortgagee's power of sale overthe land. 4[60] It is the Bank's view that the steps taken by the caveators to purchase/lease the properties in question were managed in order to frustrate the Bank's ability to recover the value of its security in those.1 Sims v Lowe [1989] 1 NZLR 656 at 659.2 Castlehill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 at 106.3 Pacific Homes Ltd (In Rec) v Consolidated Joinery Ltd [1996] 2 NZLR 652 at 656.4 Zunhui Chen v ANZ National Bank Ltd [2012] NZHC 549 at [16].[61] The caveators, with Mr Lau's assistance it seems, have devised a process bywhich they believe the registered proprietor retained a right to deal with the propertynotwithstanding the Bank's mortgagee interest in it.[62] Mr Lau refers to s 105 of the Land Transfer Act 1952, and to the terms of the auction sale and purchase agreements by which the properties were or are to be sold at auction.[63] Section 105 states:105 Transfer by mortgagee – Upon the registration of any transfer executed by a mortgagee for the purpose of exercising a power of sale over any land, the estate or interest of the mortgagor therein express to be transferred shall pass to and vest in the purchase, freed, and discharged from all liability on account of the mortgage, or of any estate or interest except an estate or interest created by any instrument which has priority over the mortgage or which by reason of the consent of the mortgagee is binding on him.(Emphasis mine)[64] With respect to the mortgagee auction sale and purchase agreement Mr Lau refers to clause 18 which states:18 EXISTING TENANCIES OR OCCUPATIONS:This property is sold subject to existing tenancies or occupations (if any) including holding over by mortgagor and the vendor is not required to give vacant possession.Conclusions[65] In each case the Bank claims and has provided evidence to prove there could be no dealing with its security property without its consent and that at no time did it consent to the sale or lease of properties to the parties Mr Lau represents.[66] Claims that a mortgagor retains a right to enter into dealings with anotherwhich may affect a mortgagee's right of access to the property to give effect to itssecurity, are fundamentally flawed and misconceived.[67] Section 105 does not apply because the mortgagor had no ability to deal with the property except with the consent of the Bank. Without such no authority for dealing existed. It is sometimes the case that the mortgagor has obtained a contract for the sale of the property to a third party but the sale will not be binding unless the mortgagee agrees.[68] Also in this case there appears to be a careful design by interests connected to Mr Lau to obtain control of a property for an extended period by a process intended to frustrate the right of a mortgagee bank to access its security to effect repayment of its loans.[69] So it is with respect to the argument advanced on behalf of the caveators that the property may not only be sold subject to a tenancy but there is evidence in a number of cases that prospective purchasers of the property were warned at the auction of the rights of occupants of the property. The evidence is that Mr Lau and others erected signs near the entrance of the properties warning them of the existence of the tenancy.[70] These claims are unsustainable. Fundamentally rights of tenancy can only be conferred by a mortgagor who had rights to grant such tenancy. In fact in this case the owner of the property had expressly deferred any such authority to the terms ofthe Bank's security arrangements which prevented such dealing without its priorpermission being given.[71] Mr Lau misinterprets the effect of the clause in the mortgagee sale and purchase agreement providing for a property being sold subject to existing tenancies including holding over by the mortgagor. It does not say that the Bank consents to any tenancy transferred with the property. Rather the clause is about the vendor not giving any warranty on the sale that the property is not subject to any lease. Regardless in the outcome any concerns a tenant may have in connection with the property transferred by sale, lie with the purchaser and not with the vendor mortgagee bank.[72] It follows that there is no interest in terms claimed to exist.Orders[73] There will be orders granting the removal of those caveats in terms soughtupon the Banks' applications and in refusing to sustain caveats in those applications opposed by the Banks. Further, neither the caveators nor on their behalf any other person including Mr Lau is permitted to lodge any further caveat claiming a caveatable interest over any of the properties concerned in these five applications.[74] The costs of the Banks shall be paid on a 2B basis. The court will certify fora quarter of a day's hearing time in respect of each matter.[75] Leave is reserved to the Banks to apply for any further orders required in respect of the disposal of the caveat issues within.Associate Judge ChristiansenAddendumIn these applications considerable licence has been extended to Mr Lau and the interests that he represents. He appears to be related to a number of those persons and appears to have given them advice concerning these applications and others before this Court. Mr Lau says he has no interest in the properties concerned and he is not being paid for his services. He appears earnest in his representation of those he represents.In all five matters reviewed by this judgment Mr Lau's interested parties have failedand costs have been awarded against them. But, the Court has no details about who they are or where they live. These are matters which ought to be reviewed in any other matter or proceeding where Mr Lau is involved.