Ipsofactoj.com: International Cases [2000] Part 6 Case 4 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Stewart

- vs -

Kaipara Consultants Ltd

GAULT J

BLANCHARD J

TIPPING J

20 JUNE 2000


Judgment

Blanchard J

BACKGROUND

  1. This is an appeal against a decision of Master Kennedy-Grant in the High Court at Auckland on 24 May 2000 in which he made an interim order that the appellant’s caveat should not lapse (and, against the possibility that lapse had already occurred, granted her leave to lodge a second caveat) but further ordered that if the respondent, Kaipara Consultants Ltd, filed an undertaking, inter alia, to hold in its solicitors’ trust account the sum of $60,000 from the sale of the subject properties the interim order should be cancelled "without need for any further application".

  2. Counsel for Ms Stewart argues on this appeal that the Master should have sustained her caveat until determination of her claims against Kaipara Consultants Ltd and should not have substituted for her interest in the land the stipulated fund of money.

  3. The two properties affected by the caveat are in Commercial Rd, Helensville. They have on them what the appellant’s valuer has called "an older, historical cottage", relocated on to the properties by Ms Stewart and her then partner Mr. D H Brady. In partnership with Ms Fletcher, the controlling shareholder of the respondent, Ms Stewart and Mr. Brady had originally entered into an agreement with the respondent on 7 April 1995. Litigation followed. But a settlement agreement was reached by the present parties and Mr. Brady in April 1996 and a consent order was made in the High Court in the following terms:

    That the Plaintiff [sic] and the Defendant having agreed to the terms set forth in the schedule hereto it is ordered that all further proceedings in this action be stayed except for the purpose of carrying such terms into effect.

  4. The schedule to this Tomlin order contained a memorandum of terms of settlement of the proceeding (CP485/95) whereby, in summary of the presently relevant provisions, the partnership was dissolved and Kaipara Consultants Ltd agreed to subdivide its land to create two separate titles and to convey those titles to Ms Stewart and Mr. Brady as tenants in common in equal shares in return for a consideration of $80,000. They were to have access to the building for the purpose of doing renovation or conservation work. The price was not to be payable until 10 months after deposit of the plan of subdivision with interest running at 12.5 percent per annum from 4 months after deposit of that plan. Leave was reserved to apply to the Court "for directions on the full implementation of the settlement".

  5. The separate titles issued in 1998 and Ms Stewart and Mr. Brady lodged a caveat against them. But they defaulted in paying the price in terms of the settlement agreement. Mr. Brady was adjudged bankrupt. On 20 October 1999 his Official Assignee, in reliance on s 76 of the Insolvency Act 1967, gave notice purporting to terminate the original agreement of 7 April 1995.

  6. In December 1999 Kaipara Consulting Ltd entered into an agreement to sell the properties "together with all improvements thereon" to an entity described in the agreement as "Maritime Trust" for $90,000. The trust has nominated a company called Helenswool Ltd to be the purchaser. Helenswool has in turn entered into a development agreement with Woolworths (New Zealand) Ltd to construct a supermarket and car park on a large site which includes the subject properties. There is apparently a further agreement with a real estate agency to renovate the relocated building for use as an office. Helenswool has also contracted to on-sell the developed site upon completion of the development agreement with Woolworths.

  7. The caveat is impeding settlement between the respondent and Helenswool. The respondent therefore lodged a "dummy mortgage" in favour of Ms Fletcher. Ms Stewart responded by making application under s 145 of the Land Transfer Act 1952 to the High Court for an order that her caveat should not lapse and giving notice accordingly within the 14 days allowed by that section.

    JUDGMENT OF THE MASTER

  8. Master Kennedy-Grant was obliged first to give an interpretation of s 76 of the Insolvency Act. He held that its application is limited to a situation where the bankrupt is "the sole contracting party of the one part". The consequence of this interpretation, which has not been the subject of an appeal by Kaipara Consulting Ltd, is that the Official Assignee’s notice did not have the effect of depriving Ms Stewart of a caveatable interest in the properties.

  9. The Master next considered and rejected an argument from Mr. Weir, for Ms Stewart, that the existence of the Tomlin order in CP485/95 precluded him from making any order other than one sustaining the caveat. The Master said that this did not fetter the Court’s normal exercise of powers on a caveat application.

  10. In coming to a decision about the order which he should make in the exercise of that discretion the Master took into account that it was financial security, not the ownership of the properties, which was important to Ms Stewart and that she admittedly does not have the financial ability to settle the purchase, being able to do so only if she can obtain a buyer or buyers for the two sections. Realistically, said the Master, she cannot do that until after her right to specific performance of the sale and purchase agreement has been confirmed.

  11. He noted that the respondent will receive a net sum of approximately $60,000 from the sale to Helenswool and that it is prepared to have that sum held in a solicitors’ trust account at interest for a period sufficient to allow Ms Stewart to institute proceedings to recover damages for breach of contract (or, if it is thought appropriate, to reactivate CP485/95). Kaipara Consultants Ltd anticipates a net recovery of about $83,400 from the property transaction of which the sale of the sections to Helenswool forms part. The Master said that its immediate cash reserves will then be approximately $140,000.

  12. In order to settle the purchase Ms Stewart would have to pay the respondent at least $80,000, but if the respondent’s claim for interest is correct the sum payable by her could be as high as $102,892.08.

  13. The Master observed that there is conflicting valuation evidence. The valuer engaged by Ms Stewart has valued the properties at between $128,000 and $153,000, the former figure being based on capitalisation of existing rentals and the latter on estimated replacement cost. On the other hand, the valuer engaged by the respondent has valued the properties at only $80,000. The Master summarised the position as follows:

    The damages suffered by Ms Stewart cannot, therefore exceed $73,000 ($153,000 — $80,000) and may be as little as $25,107.92 ($128,000 — $102,892.08), on her own valuer’s figures. If Kaipara Consultants Ltd’s valuer’s assessment is correct, Ms Stewart will suffer no damages.

  14. The Master concluded that this was "one of those exceptional cases" in which, although the Court finds that there is a caveatable interest, it is possible and appropriate for the Court to protect the applicant’s interest by orders other than sustaining the caveat.

  15. He then made the order referred to at the commencement of this judgment which contemplates the filing of an undertaking by the respondent that it will hold in its solicitors’ trust account the sum of $60,000 from the net proceeds of the sale of the properties "until midnight on 30 June 2000 or midnight of the 30th day after the date on which the undertakings referred to in this order are filed whichever is the later date". He said that there should also be personal undertakings by the directors of the respondent that they would individually and collectively ensure that it honoured its undertaking. The $60,000 was to be invested at interest. In the event that Ms Stewart failed within the stipulated period to institute or reactivate proceedings the respondent and its directors were to be released from their undertakings and the funds paid out on their direction, but in the event that she did institute a new proceeding or reactivate CP485/95, the period during which the $60,000 would be retained would be extended until the determination of the proceeding or further order of the Court.

  16. The Master’s order was stayed until midnight on 29 May to enable an appeal and has been further stayed by order of this Court until delivery of this judgment.

    DID THE MASTER EXCEED HIS POWERS?

  17. Mr. Weir submitted first that the Master should not in the face of the Tomlin order in CP485/95 have made an order which will, if the undertakings are duly given, discharge the appellant’s caveat. He argued that the Master had exceeded his powers and that the appropriate procedure would have been for the respondent to seek directions in CP485/95 pursuant to the leave reserved in the schedule to the Tomlin order. Only when by that means, or possibly by the commencement of a new proceeding, the stay imposed had been lifted could there be consideration given to ordering removal of the caveat. Mr. Weir referred to Cristel v Cristel [1952] 2 All ER 527. That case concerned a party to a matrimonial settlement who asked the Court to change the type of accommodation which he was obliged to provide for his wife. The Court said that "liberty to apply" (the equivalent of leave reserved) meant that when a Tomlin order was drawn up its working out might involve matters on which it might be necessary to obtain the decision of the Court, but that they did not confer any right to ask the Court to vary the order.

  18. An immediate answer to this argument is that the Master was not being asked to vary the order, which said nothing about any caveat, although the probability that Ms Stewart would lodge one may have been in the contemplation of the parties when entering into the settlement agreement. The order simply forbid re-activation of CP485/95 ("further proceedings in this action") without another order of the Court. The respondent is not doing that, nor is it seeking to vary the settlement agreement. The settlement took the form of a fresh agreement to sell the properties to the appellant and Mr. Brady. There has since been a new development, namely a default by the purchasers. A vendor would ordinarily then be entitled to take steps to cancel the contract and thereafter, for the purpose of clearing title, to utilise the "dummy mortgage" procedure and bring into play s 145. The making of an order under that section in such changed circumstances would be in no way inconsistent with the Tomlin order.

  19. In the caveat proceeding the High Court needed to take into consideration the prior litigation and the Tomlin order relating to the settlement, as the Master clearly did, but the Court was concerned not with an attempt to vary the agreed resolution of the earlier litigation, as in Cristel, but with an entirely new situation brought about by the default by Ms Stewart and the attempt by Mr. Brady’s Official Assignee to terminate his contractual involvement. In such circumstances there could be no good reason for requiring the vendor to seek removal of the stay under the Tomlin order or for fettering of the usual discretion of the Court under s 145. Indeed, exactly the same questions as were before the Master would obviously arise eventually, however the matter were to be dealt with procedurally, and presumably either s 143 or s 145 of the Land Transfer Act would have to be invoked, to the same practical effect. It is pointless to proscribe the jurisdiction under s 145 as suggested by the appellant.

  20. The Master therefore did not exceed his powers merely because he proceeded to exercise the jurisdiction conferred under s 145.

    THE EXERCISE OF DISCRETION

  21. The better question, which was the subject of Mr. Weir’s next submission, is whether the Master erred in the manner in which he exercised that discretion. It can be observed at once that the Master was obviously fully conscious of the earlier proceeding, including the Tomlin order, and he gave it such attention as it deserved. But, once Mr. Weir’s procedural argument is rejected, the former proceeding could be of only very limited relevance some four years afterwards and in a completely changed factual situation.

  22. The power to order removal of a caveat despite the existence of an interest in the land by the caveator was stated in the following terms by this Court in Pacific Homes Ltd (In Rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652, 656:

    In such circumstances 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. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator's interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.

  23. The real issue on this appeal is whether the Master exercised his discretion upon a properly cautious basis, namely whether he could be completely satisfied that Ms Stewart’s legitimate interests would not be prejudiced.

  24. The properties have no value to her other than their economic value. She maintains no sentimental attachment to them as might have been the case if, for example, they had been her family home. Nor will their sale affect the value of another asset which she is retaining, as would be so, for instance, if they were adjacent to other land in her ownership for which she anticipated a common usage, as Woolworths presumably does for the development site in the present case. (Indeed this effect upon that third party, and upon other parties to the inter-woven transactions, is a strong factor in favour of removal of the caveat if that can be done without harming Ms Stewart.)

  25. Her objective is to retain the properties in the short term only for the purpose of reselling them at a profit. Through her counsel she claims that she will be able to take advantage of a "market of demand", namely their attractiveness for use as part of the proposed supermarket development. On the face of it, however, if she is deprived of that profit, her loss can be adequately compensated by an award of damages. Confronted with the evidence of a valuer instructed by his own client that on the basis most favourable to her the properties have a value, including improvements, of no more than $153,000, Mr. Weir suggested that a higher price might possibly be obtainable by his client if her caveat remained; she might negotiate successfully with the developer of the proposed supermarket, taking advantage of the particular position of the land and the immediate needs of the developer.

  26. But it is to be remembered that this suggestion is made on behalf of someone whose interest in the land must be taken to continue but who admits that she is in default and unable to settle, and in the absence of any evidence that any buyer is actually willing to offer a premium. Such an argument might possibly still have commanded respect if supported by an affidavit from a valuer explaining exactly how the properties are crucial to a proposed development and indicating a real likelihood that a buyer would think it worthwhile to pay a premium. All that Mr. Weir could point to in the material actually placed before the Master, however, was a brief comment by the appellant’s valuer that in a strong market properties of this nature will sell for in excess of their replacement cost reflecting a developer’s profit margin. There is nothing to support counsel’s assertion that this is likely to occur in the current situation in Helensville. Although the valuer’s report was dated some two months before the hearing in front of the Master, significantly no further valuation information was proferred to him on behalf of the appellant.

  27. The grant of a specific remedy to a person claiming an interest in land lies in the discretion of the Court. It is a discretion to be exercised in accordance with settled principles. But where the particular piece of land does not have attributes giving it a personal value to the claimant, unable easily to be measured and substituted in economic terms, then the Court in balancing the interest of the defendant and other affected parties (especially those who have entered into independent commitments which will be affected by the delay in establishing the claim) will properly lean in favour of freeing the title from the claim if a fund can be created which suffices to protect the claimant’s legitimate interest. This interest is to be measured by the valuation evidence rather than mere speculation about possible advantages to be gained by leaving a caveat in place.

  28. The appellant asks the Court to sustain her caveat until a hearing of her claim against the respondent. If she were now both willing and able to settle her purchase, as evidenced, for example, by an indication of an available source of funding, the position might well be quite different, but she is not. She is asking the Court to postpone any resolution of the impasse on the title despite her long-standing default for which the vendor is not to blame. If the matter were to go to an immediate hearing she could not expect to obtain specific performance unless she demonstrated an ability to pay the price. In such a circumstance it is not an error of principle for the Master to decline to preserve the caveat and to substitute a fund of money as security for any damages.

    A SUFFICIENT FUND

  29. In his final submission Mr. Weir asked the Court to conclude that the Master erred in setting the fund at $60,000 rather than the $73,000 which he considered, on the basis of the materials supplied by the parties, to be the greatest sum of damages which Ms Stewart might possibly, in the end, be awarded (together with interest earned on the fund in the meantime). Although a different view could perhaps have been taken upon the cautious approach indicated in Pacific Homes, we are not prepared to say that the conclusion reached by the Master was plainly wrong or was based on an inadequate appreciation of the factors which he needed to take into account. He was entitled on the basis of the valuation and other evidence to form the view that $60,000 was enough to protect the appellant.

    RESULT

  30. The Master’s decision is confirmed and the appeal is dismissed with costs of $3,500 together with the respondent’s reasonable disbursements, including travel and any accommodation expenses, to be fixed by the Registrar in the absence of agreement between the parties.


Cases

Cristel v Cristel [1952] 2 All ER 527; Pacific Homes Ltd (In Rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652,

Legislations

Land Transfer Act 1952: s.143, s.145

Representations

R A A Weir for Appellant (instructed by Neumegen & Co, Auckland)
P G Revell for Respondent (instructed by Corban Revell, Henderson)


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