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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV
2006-404-5010
UNDER Section 143 of the Land Transfer Act 1952
IN THE
MATTER OF Caveat no 6883565.1
BETWEEN HANOVER FINANCE LIMITED
Applicant
AND WOLFE DEVELOPMENTS LIMITED
Respondent
Hearing: 22 September 2006
Appearances: Ms L O'Gorman for Applicant
Mr Hollyman for Respondent
Judgment: 17 October 2006 at 4 p.m.
JUDGMENT OF ASSOCIATE JUDGE J P
DOOGUE
This judgment was delivered by me on
17.10. 2006 at 4 p.m, pursuant to
Rule 540(4) of the High Court Rules.
Registrar/Deputy Registrar
Date...............
Solicitors:
Ms L O'Gorman, Buddle Findlay, Solicitors, PO Box 1433, Auckland
Ms S Grant, Barrister, PO Box 4338, Shortland Street,
Auckland (E-mail:
sgrant@shortlandchambers.co.nz )
HANOVER FINANCE LIMITED V WOLFE DEVELOPMENTS LIMITED HC AK CIV 2006-404-5010
17
October 2006
Background
[1] In 2002 Mr Krukziener's company, Wolfe Developments Limited ("Wolfe"),
became indebted to Elders
Finance Limited in the sum of over $4,000,000. Elders
Finance Ltd subsequently changed its name to Hanover Finance Ltd. From this
point forward I will refer to it as Hanover Finance. At that stage Mr Krukziener had
a proposal for the development of a property
at 13 and 15 Albert Street, Auckland
which was to be known as the Wolfe Development. His company was the purchaser
under, but had
not at that point settled, an agreement for sale and purchase of number
13 Albert Street. Wolfe already owned number 15.
[2]
It is necessary to say something about the relationship between various other
companies in the Hanover group because that is relevant
to the issues that fall for
determination in this case. There are (or were) two main Hanover companies. The
first is Hanover Group
Holdings. It owns 100% of the shares in Hanover Finance
Ltd ("Hanover Finance"). This latter company's involvement was in financing
various transactions. The second main Hanover company was Hanover Property
Group Holdings Ltd. It was a property owning/investing
company. It owned 100%
of the shares in a company called Axis Wolfe Developments Ltd ("AWDL") whose
part I shall explain shortly.
AWDL was a property owning/investing entity.
[3] A joint venture arrangement called the "Project Management Agreement"
("the
Joint venture") was entered into on 22 November 2002 whereby Wolfe and
other Krukziener interests would enter into an agreement with
other companies of
the Hanover group which would involve the following main provisions. Mr
Krukziener's company, Wolfe would nominate
the Hanover-owned company,
AWDL, to acquire two properties under agreements in regard to which the
Krukziener interests had a power
of nomination. AWDL would be the vehicle for
developing 13 and 15 Albert St. AWDL would borrow from Hanover Finance. This
borrowing
was separate and distinct from money that Krukziener interests had
previously borrowed from Hanover Finance.
[4] The main objective
of the Joint venture was that the Krukziener and Hanover
interests would cooperate in completing the development of the Albert Street
properties and, it was hoped, make a profit on doing so. The Joint venture would
harness the Krukziener interests' expertise in
developing property. It would take
advantage of Hanover's ability to obtain finance for the Joint venture.
[5] The parties hoped
that financing for the purchase of the land and the
development of the two properties would be forthcoming from trading banks, or,
alternatively, Elders would provide the finance itself. Once the Albert Street
properties had been developed, they would be sold. There would be a split of the
profit 70% to Mr Krukziener
or his company Wolfe and 30% to Elders. The
Krukziener interests' share of the profit would be applied in reduction of debt owing
to Hanover Finance. AWDL would also have to repay the money that it borrowed
from Hanover Finance.
[6] AWDL settled the purchase
of 15 Albert Street on 6 November 2002. On 20
January 2005, AWDL entered into a loan agreement to borrow $1,406,250 from
Hanover
Finance. These funds were required for the purchase of 13 Albert St. The
amount was payable on demand, but pending demand, was to
be for a term of six
months from the date of the loan. On 21 January 2005 AWDL was registered on the
title to 13 Albert Street. A
caveat was lodged on the title to protect registration of
Hanover Finance's mortgage. The parties to this loan agreement were AWDL
as
borrower, Axis Property Group Holdings Ltd as guarantor and the plaintiff as lender.
[7] Mr Krukziener in his affidavit said
that Mr Finnigan, the CEO of the Hanover
entities gave him an oral undertaking that the loan could not "go into default" until
six
months after the completion of the Albert Street development or termination of
the Joint venture agreement.
[8] Ms O'Gorman
told me that this was an instance, (she said a further instance)
of Mr Krukziener and his counsel getting confused between the two
loan
agreements, namely, the 2002 loan from Hanover Finance to the Krukziener
interests, and the 2005 loan from Hanover Finance to
AWDL. For the purposes of
this judgment I will accept that Mr Krukziener is correct when he says that such an
undertaking was in
fact given.
[9] In the event, the Wolfe Development at Albert Street did not proceed. The
reason for that, I was told, was that
there would have been delays of some years
before legal constraints that stood in the way of developing the property could be
overcome.
Accordingly it was decided to sell 13 and 15 Albert Street. A buyer
emerged in the form of New Zealand Maritime Parks Limited ("Maritime").
Maritime agreed to buy the properties for $5.5 million plus GST. Maritime at its
election could pay cash on the purchase of 13
and 15 Albert Street or it could pay
partly in cash and partly by transferring to AWDL a property which it owned at 23
Ngapipi Road,
Orakei. The amount that would be credited against the purchase price
in Maritime's favour if the Ngapipi Road property was transferred
to AWDL would
be $1,500,000. In the end that is how the transaction went ahead and as a result
AWDL acquired the title to the Ngapipi
Road property.
[10] There was considerable dispute between the parties as to what if any
agreement the parties arrived at concerning
disposal of the Ngapipi property. Mr
Krukziener's account of matters was that it was understood that AWDL might elect
to develop
the Ngapipi Road site broadly in accordance with the joint venture
agreement that initially came into existence for the acquisition
and development of
the Albert Street properties.
[11] The sale to Maritime of 13 and 15 Albert Street did not apparently discharge
all of Wolfe indebtedness to Hanover Finance. On the discharge of the mortgage
over Albert Street, AWDL on taking title to Ngapipi
Rd, granted a substituted
mortgage in favour of Hanover Finance over the latter property. This mortgage was
created 6 October 2005.
The Hanover interests refer to this as the replacement
mortgage. It was granted pursuant to an agreement dated 29 September 2005
between AWDL, Hanover Property Group Ltd and Hanover Finance. In the section
headed "Background" the parties recorded:
A. Elders
has provided financial accommodation to the Borrower pursuant to a
Loan Agreement dated 21 January 2005, as varied by a letter
dated 1 July
2005 ("Loan Agreement").
B. One of the securities supporting the Borrower's obligations under the Loan
Agreement is a second registered mortgage over the proportion at 13 and 15
Albert Street, Auckland being all the land comprised and described in
certificates of title 65130 and 54737 (North Auckland Registry) ("existing
Mortgage"). The Existing Mortgage is to
be discharged and substituted with
a first registered memorandum of mortgage ("Substituted Mortgage") over
the property
at 22 Ngapipi Road, Orakei, Auckland ("Property") being all the
land comprised and described in Certificate of Title 833/285
(North Auckland
Registry).
[12] In an email a copy of which they sent to Daniel Henderson of Wolfe, the
solicitors acting
for the AWDL, Chapman Tripp, also confirmed that they would be
providing a solicitors' certificate to Hanover Finance in respect
of the replacement
mortgage. The replacement mortgage was to ensure that the loan by Hanover
Finance to AWDL would still be appropriately
secured following the sale of 13 and
15 Albert Street until such time as the Ngapipi Road property could also be sold. I
accept that
the evidence therefore establishes that Wolfe was aware that a substitute
mortgage would be granted over the Ngapipi Rd property
if the purchaser elected to
provide it as part payment for 13 and 15 Albert Street (over which Hanover Finance
already had security).
[13] Hanover Finance became anxious to have its debt repaid. On 5 December
2005 AWDL entered an agreement for sale and purchase
with a company called
Amazon Holdings Limited ("Amazon") for $1,155,556 plus GST, or $1,300,000
inclusive of GST.
[14] AWDL apparently
accepted that there could be no sale unless Mr Krukziener
consented to that occurring. Mr Krukziener was apparently of the view that
a price
of $1,300,000 inclusive of GST which AWDL had arranged with Amazon was too
low.
[15] On 26 June 2006, Wolfe lodged a
caveat against the title to the Ngapipi Rd
property.
[16] With AWDL's hands being tied, Hanover Finance as the registered
mortgagee
initiated steps to force a sale in exercise of its mortgagee's power of sale.
On 7 July 2006 the extended term for the 2005 Loan
from Hanover Finance to
AWDL expired. Hanover Finance then gave a notice under s 92 of the Property Law
Act 1952. It arranged for
the property to be put out to tender.
[17] Prior to selling the mortgaged property, Hanover Finance obtained a
valuation from
the valuation firm Seagar & Partners ("Seagars"). Seagars provided
price estimates for the property. As noted in the report,
one approach was to
estimate the value on a willing buyer/willing seller basis. Another was to estimate
the value of the property
when sold as a mortgagee sale. In their report, Seagars
estimated the following prices:
a) Current market
value as is: $1,070,000;
b) Forced Sale: $963,000;
c) Assuming 3 Unit Development Site: $1,170,000;
d) 3 Unit Forced Sale: $1,050,000.
I interpolate that it appears that the above valuation includes any GST on
sale.
[18] The evidence also establishes that the Krukziener interests obtained their own
valuation report from Axiom Rolle
dated 21 September 2005. This valuation put the
value of the Ngapipi Rd property at $1.49m on the basis that three lots were
available.
The reference to the three titles came about because, provided appropriate
access could be provided, it might be possible to subdivide
the property into three
titles.
[19] Hanover Finance sought the advice of the Real Estate Agency Barfoot &
Thompson Limited
("Barfoot & Thompson") regarding the best method of sale.
Barfoot & Thompson recommended a sale by tender followed by a programme
of
advertising of the property over a three week period. In due course, Barfoot &
Thompson in the final marketing report recorded
there were 23 enquiries and 10
requests for the tender documents. The main issues affecting the value of the site
were:
· lack of morning sun;
· the fact that the property is located on a busy road used by heavy
trucks;
· the close proximity of the railway line; and
· the possibility of the eastern highway being built.
[20] The
tender process resulted in three tenders being submitted for the property.
The highest unconditional tender was submitted by Amazon
Property Group Limited
at $1,000,000 plus GST, or $1,125,000. This was, of course, the same purchaser
which had previously made an
offer at $1,300,000 including GST.
[21] Amazon's tender at $1,125,000 was accepted, but with the special condition
(clause 21)
that the vendor did not waive the Purchaser's obligations under the
Agreement for Sale and Purchase Agreement dated 5 December 2005
between the
Purchaser and AWDL.
[22] Hanover Finance has now applied for an order discharging that caveat
pursuant to section
143 of the Land Transfer Act 1952. That application was
opposed. The matter came before me on 22 September 2006.
The parties to the original joint venture agreement
[23] The defendant says that it has a caveatable interest in the Ngapipi
property. It
says, first, that it had an interest in any property that AWDL might acquire under the
Joint venture. It also says,
I understand, that it has an interest in any property that
AWDL might acquire in substitution for property which AWDL acquired, as
contemplated by the Joint venture.
[24] Answering the question whether the Joint venture gave rise to an interest on
Wolfe's
part to an interest in the Ngapipi land involves consideration of two separate
issues. The first is to ascertain whether the parties'
agreement so provides. This
requires consideration in its business context of the terms of the contract. The
second issue involves
determining whether in the overall circumstances of the case,
there is a basis for concluding that Hanover/AWDL owes equitable duties
to the
defendant which are of such a nature that they require the imposition of a trust in
respect of the defendant's interest in
the land so as to protect the defendant. I deal
with the issues in that order.
Statutory provision and authorities governing removal
of caveats
[25] Section 137(1) of the Land Transfer Act 1952 confers the right to lodge a
caveat against dealings in any land
or estate or interest under the Act upon any
person:
a) Claiming to be entitled to or to be beneficially interested in
any land,
estate, or interest ... by virtue of any unregistered agreement or other interest
or transmission,
or of any trust expressed or implied, or otherwise;
The applicable principles for an application under s.143 of the Land
Transfer
[26]
Act are set out in Boulton & Mortimer v Senior & Ors (HC BLE) CIV19/04, Ellen
France J, 10 February 2004. These are
set out at 3 of the judgment as follows:
"Applicable Principles
[4] Section 137 of the
Land Transfer Act 1952 provides that,
"(1) Any person may lodge with the Registrar a caveat
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; or
(b) is transferring the any land or estate or interest to any
other person to be held in trust."
[ 5 ] Section 143 of the Land Transfer Act sets out the procedure for
removal of a caveat. The applicable principles to an application under s 143
are summarised by Master Faire in
Allen v Hogan Developments Limited
( 2 0 0 1 ) 4 NZ ConvC 193,420 at para [12] as follows:
"[a] Section 143 of the Land Transfer Act 1952 gives no guide as to
the circumstances in which the Court may make an order that a
caveat be removed. Catchpole v Burke [1974] 1 NZLR 620 at p 623
[b] If it is clear that there was no valid ground for lodging a caveat,
or that the
interest which in the first place justified the lodging of the
caveat no longer exists, such a caveat should be
removed. Sims v
Lowe [1988] 1 NZLR 656 (CA) at p 659
[c] The onus under s 143 of the Land Transfer Act 1952 lies on the
caveator to
show that he has a reasonably arguable case for the
interest he claims. Castle Hill Run Ltd v NZI Finance Ltd
[1985] 2
NZLR 104 at pp 104-106
[e] For the purpose of this application, the caveator therefore must
show that
it is entitled to, or to be beneficially interested in, the
estate referred to in the caveat by virtue of an unregistered
agreement
or an instrument or transmission or of any trust expressed or implied.
Section 137, Land Transfer
Act 1952
[f] What the caveator must establish is an arguable case for claiming
an interest of the kind
in s 137 of the Land Transfer Act 1952
[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) 3 NZ ConvC
(digest)
192,459 at p 192,461; [1996] 2 NZLR 652 at p 656;
[i] The summary procedure for removal of a caveat against
d ealin g is wholly unsuitable for
the determination of disputed
q uestio ns of fact. Accordingly it has been said:
... that an
order for the removal of such a caveat will not
be made under s 143 unless it is patently clear that the caveat
ca nnot be maintained either because there was no valid ground
for lodging it or that such valid ground
as then existed no longer
does so. Sims v Lowe [1988] 1 NZLR 656 at pp 659-660..." (See
als o Glanville v Medial Holdings Ltd, High Court Auckland, M 46-
IM03, 25 February
2003, Heath J; and Pratt v Hodge, High Court
Ha milton , M 216/02, 20 May 2003, Master Faire; and Hinde
McM orland & Sim "Land Law in New Zealand" 10.020.)"
[27] Mr Hollyman's submission concerning the principles was as follows:
1. " The principles that apply in applications to remove caveats are well
settled.
(a)
A caveat should not be removed unless it is patently clear that
the caveat cannot be maintained, either because
there was no
valid ground for lodging it; or, if a valid ground existed, it no
longer exists.
(b) No patent clarity exists in a case where the caveator has a
reasonably arguable case:
Sims v Lowe [1988] 1 NZLR 656,659.
(c) The summary procedure for the removal of a caveat against
dealings is not suitable
for determining disputed questions of
fact. If a reasonably arguable case is established, justice
requires the caveat be maintained: Orams Marine (Auckland)
Ltd v Ports of Auckland Ltd (1994) TCLR
88, 92.
(d) The Court should not remove a caveat unless it is completely
satisfied that the
legitimate interests of the caveator will not
thereby be prejudiced: Pacific Homes Ltd v Consolidated Joineries
Limited [1996] 2 NZLR 652.
2. It is for the respondent to show that it has a caveatable interest."
[28] I accept that Mr Hollyman's submissions
are correct. I intend to have regard
to them in addition to the principles already mentioned in this judgment.
Mr Krukziener's
account of matters
[29] Mr Krukziener said that Hanover agreed with him orally prior to entering into
the agreement with Maritime
that the Ngapipi Road property was "joint venture
property". Mr Krukziener said that Wolfe wanted to develop Ngapipi Road and
carried
out a feasibility study which he believed would show a profit share in excess
of $2,000,000 for the defendant, if the scheme it proposed
should be adopted.
However Mr Krukziener said that the officer of Hanover with whom he had been
dealing, Mr Kerry Finnigan, left
the employment of Hanover. He said that without
his consent the plaintiff and AWDL then entered into an amended loan agreement.
The
effect of this was that a mortgage of Ngapipi was substituted for that over the
Albert Street properties which were to be sold. He
also says that AWDL was not
entitled to grant any security interest over the Albert Street properties without the
agreement of AWDL
and that the same restriction should be extrapolated to the
Ngapipi Road property. He said he was of the view that the mortgage of
Ngapipi
Road was a breach of the defendant's "contractual and equitable rights". I
understand that this argument arises
from the fact that the Joint venture required
AWDL to safeguard the defendant's interests as well as its own, to act in good faith
and to comply with the requirement not to grant a security interest without consent
that I have just referred to.
[30] Mr Krukziener
also objects to the Ngapipi mortgage because it was granted
to a "related party". He said as well that because of the relationship
between the
shareholders in the Hanover Group companies the plaintiff had notice of "Wolfe's
equitable interest" (in the Ngapipi
Road property) and acted expressly to defeat it.
He also said that the agreement eventually entered into to sell Ngapipi Road to
Amazon breached the provisions of s 103A of the Property Law Act because no
proper and adequate attempts were made by Hanover to
realise the best value for the
Ngapipi Road property. Mr Krukziener said that Hanover had contracted to sell the
Ngapipi Road property
for approximately $150,000 less than the same purchaser had
been prepared to pay for it in December 2005. The tender price was also
$800,000
below what he, Mr Krukziener, believed was its true undeveloped value without
access onto Paratai Drive and $1,800,000
below what it was worth with such access.
Why Wolfe says it can prevent Hanover Finance exercising the power of
sale over Ngapipi
Rd
[31] The case for the respondent, in overview, was as follows. The respondent
says that AWDL owes it fiduciary obligations.
Those fiduciary obligations arise out
of the fact that AWDL and Wolfe were parties to a Joint venture agreement and
AWDL was the
agent of, inter alios, Wolfe, as a member of the joint venture which
AWDL acted on behalf of. As well as being an agent and a joint
venturer, AWDL is
the property owning company which is the legal proprietor of property acquired
pursuant to the joint venture arrangement.
I am prepared to accept for present
circumstances that any one of those sources of obligation could be relied upon as
giving rise
to a reasonably arguable issue that AWDL owed fiduciary obligations to
Wolfe when carrying out the business of the joint venture
and, specifically, when
dealing with property which it acquired as agents/custodian for the joint venture
parties.
[32] If
that is correct, then the AWL owed a duty to act in good faith. It was
entitled to make a profit out of its trust; it owed a duty
not to place itself in a position
where its duty and interest conflicted; it was not to act for its own benefit or the
benefit of
a third person without the informed consent of the principal: Bristol and
Best Building Society v Mothew [1998] Ch1. Nor is it entitled to make a profit out of
its fiduciary
position.
[33] For present purposes I accept that its reasonably arguable that AWL is not
entitled to seek advantages for
Hanover Finance in circumstances which involve a
breach of its obligation of loyalty to Wolfe.
[34] But even if AWDL is subject
to fiduciary obligations that it owes to Wolfe,
that is not sufficient. It has to show that it is reasonably arguable that there
are
present factors which disable Hanover Finance from exercising its power of sale.
[35] I understand that Wolfe believes it
can demonstrate that AWDL is complicit
with Hanover Finance in an improper arrangement the end objective of which is to
force through
a sale of the Ngapipi Rd. As part of this argument, I understand
Wolfe to say that the mortgage sale is a sham; that Hanover Finance
is exercising
the power for some collateral and improper purpose supposedly forcing through a
sale on favourable terms to a party
which has close connections with those who own
and manage the Hanover companies generally
[36] As well, the respondent says that
in exercising the power of sale in the
Ngapipi Rd mortgage, Hanover Finance is acting fraudulently because it has actual
knowledge
that to do so will defeat rights accruing to Wolfe from the fiduciary
obligations that AWDL owes to it.
Submissions
Respondent's
submissions
[37] Mr Hollyman submitted as follows:
" 60. In WDL's submission, it is arguable that the demand notice
and
purported exercise of the power of sale were both shams:
(a) The mortgagee and mortgagor are related
parties owned by the
same shareholders [Aff AMK1 ex " M" ];
(b) The mortgagee and mortgagor,
or their parent companies, were
parties to the joint venture agreement;
(c) The mortgagee and
mortgagor had the same roles and
responsibilities in relation to the Albert St development, when
that was the focus of the joint venture;
(d) The mortgagee sale is to a close business associate of Mr
Hotchin, who owns 50% of the mortgagee and mortgagor
parent companies and is a director of
the mortgagee;
(e) The first Amazon agreement remains outstanding and the
second Amazon agreement
expressly refers to its continued
existence.
61. The applicant took its title as mortgagee with actual
notice of
Wolfe's interest. Hanover Finance's position as mortgagee is
therefore subject to Wolfe's prior
equitable interest. The protection
of s 182 of the Land Transfer Act 1952 does not apply in cases of
fraud. A purchaser (or mortgagee) is affected by knowledge that an
equitable interest is being defeated by the transaction
or that a trust is
being broken: Locher v Howlett (1894) 13 NZLR 584, 595-596.
62. Fraud is present if the designed object of a transfer is to cheat a man
of a known existing
right: Waimiha Sawmilling Co v Waione Timber Co
Ltd [1926] AC 101, Lord Buckmaster p106."
Applicant's reply
[38] Ms O'Gorman resisted these submissions. She said that there was no basis
for
any allegation that the arrangements over the Ngapipi property were a sham. She
said that the mortgage creates and was intended to
create the legal rights and
obligations that it has the appearance of creating, mainly security for the repayment
of a loan provided
to AWDL for the purposes of purchasing 13 and 15 Albert Street
and funding the project. She made the following subsidiary points:
a) The mortgagee and the mortgagor are separate entities with different
shareholders. The respondent and
Mr Krukziener were aware of these
relationships from the outset of the Wolfe development.
b) The mortgagee
is not a party to the Project Management Agreement.
c) The mortgagee and mortgagor had completely different roles, as
reflected in the relevant contractual documentation. Hanover Finance,
a finance company, provided finance.
AWDL is a company in the
property group.
d) The sale is to a company called Amazon Property Group Limited.
The fact that Mr Hotchin may be friends with the director of Amazon
Property Group Limited does not make
AWDL and Amazon Property
Group Limited related companies, nor does it change the fact that the
sale was
at the best price reasonably obtainable at the time.
e) The respondent has blocked settlement of the December 2005
Agreement with Amazon.
Court's Determination
Is the exercise of power of sale a sham?
[39] The test for whether
a given arrangement is a sham was stated in the
following passage from the judgment of Richardson J in NZI Bank Ltd v Euro-
National
Corporation Ltd [1992] 3 NZLR 528, 539:
At common law there is no half-way house between sham and
characterisation of the transaction according to the
true nature of the legal
arrangements actually entered into and carried out. A document may be
brushed aside if and
to the extent that it is a sham in two situations. The first
is where the document does not reflect the true agreement between
the
parties in which case the cloak is removed and recognition is given to their
common intentions. The second is where
the document was bona fide in
inception but the parties have departed from their initial agreement while
leaving the
original documentation to stand unaltered. Once it is established
that a transaction is not a sham its legal effect will be
respected.
[40] I do not accept that Mr Hollyman is correct when he invites me to ignore the
form of the transactions between
the parties and take a broad view that the Hanover
property and finance companies were, because of their relationship, acting in
concert
with one another in a way that involved dressing up transactions in a fictitious way
in order to cloth their actions with
the cloak of legitimacy.
[41] It is undeniable that the property and financing arms of what may be broadly
called the Hanover
group had common shareholdings and that their officers and
employees had overlapping roles. The latter group of people probably discussed
the
impasse that had arisen at Ngapipi Rd. They may have agreed that the best way
forward was to invoke Hanover Finance's power of
sale. But that does not entail a
conclusion that the contractual basis for the power of sale was a sham; or that steps
taken in exercise
of that power were not bona fide in the sense that they were
properly authorised.
[42] The allegation that the granting of the
mortgage was a sham is central to
Wolfe's intentions in this case. If that falls away, so does this part of the
respondent's
case. That is enough to dispose of the submission that Hanover
Finance's indefeasible rights as mortgagee must defer to the respondents
entitlements as cestui que trust under some type of constructive trust arrangement.
Priority between equitable interest and mortgagee
[43] I come next to the submission that the rights of Hanover Finance, as
mortgagee, should be postponed/defeated because they
are being exercised in order
to defeat the rights of AWDL and with knowledge that the effect of exercising the
power of sale will
be to defeat those rights.
[44] Mr Hollyman for the respondent submitted that the plaintiff, as mortgagee
took its title as mortgagee
with actual notice of the defendant's interest.
Hanover Finance's position as mortgagee is therefore subject to WDL's
prior equitable interest.
[45] This raises for consider the issue of indefeasibility of the mortgagee's interest
in the land.
I accept Ms O'Gorman's submission that a mortgagee's interest in the
property and its power of sale are, with one exception, indefeasible.
That exception
is fraud. After referring to s 182 of the Land Transfer Act 1952, Ms O'Gorman said:
The essential issue is
whether the conduct of HFL can be considered
fraudulent. Fraud under the Land Transfer Act must involve some type of
actual dishonesty and must be brought home to the registered proprietor or
his or her agent. In this case the relevant registered
proprietor is HFL as
registered proprietor of its mortgage.
The Privy Council discussed the relevant test for fraud
in Waimiha
Sawmilling Co Ltd (in liq) v Waione Timber Co Ltd [1923] NZLR 1137;
[1926] AC 101 (PC). The Privy Council stated (at pp 106 to 107):
"If the designed object of a transfer be to cheat a man of a known existing
right, that is fraudulent, and so also fraud may be established by a deliberate
and dishonest trick causing an interest
not to be registered and thus
fraudulently keeping the register clear... The act must be dishonest and
dishonesty must
not be assumed solely by reason of knowledge of an
unregistered interest." (emphasis added)
[46] Ms O'Gorman next submitted:
In this case, there is no basis for any allegation of fraud and dishonesty on
the part of either the mortgagor or
the mortgagee. As set out in detail in part
2 above, the funds were drawn down under the loan and were invested in 13
and 15 Albert St, which was then swapped in part for the Ngapipi Rd
property. There is no suggestion that the loan is a
sham or that the funds
were not actually advanced. Wolfe Developments was aware that funds
borrowed by Axis Wolfe to
finance the business and investments were to be
secured by mortgages over the assets of that company. The mortgagee is
simply seeking to exercise its indefeasible power of sale in order to part
repay the debt that has accrued.
[47]
My conclusion is that it is not open to the respondent to claim that, based on
the evidence before the Court and all proper inferences
that can be drawn from the
facts, it is reasonably arguable that fraud has occurred here. Hanover Finance
entered into mortgage arrangements
with AWDL. Those arrangements were
explicable on the grounds that Hanover Finance, which was unquestionably
AWDL's
creditor, took a replacement mortgage over Ngapipi Rd. As well, there is
no dispute that the mortgage had fallen due. The
only circumstance that Mr
Hollyman was able to point to was that the principal of the Hanover group is a friend
or acquaintance of
the principal of the company that won the tender for the property.
Mr Krukziener claims that the sale is at a substantial undervalue.
But value is a
matter of individual judgment. The tender price is not radically out of line with the
estimate given by a registered
valuer. Also, the sale process was an open one:
anyone in the market could have tendered for the property. As well, one
would
assume that Hanover Finance would be motivated by the normal mortgagee's self-
interest and would wish to maximise the amount
obtained on sale in order to reduce
the secured debt as far as possible. Given all of these circumstances, it would be
wrong for
the Court to conclude that it is reasonably arguable that Hanover
Finance's attempted exercise of the power of sale is tainted by
fraud.
Result
[48] The respondent had failed to demonstrate that it is reasonably arguable that
it's asserted beneficial interest
in the land arising from an implied trust interest can
overcome the mortgagee's entitlement to exercise the power of sale contained
in the
mortgage.
[49] The applicant's application for removal of caveat is granted. Counsel should
confer on, and attempt to
agree, the matter of costs. If they are not able to, they
should file memoranda for my attention.
________________________
J P
Doogue
Associate Judge
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URL: http://www.nzlii.org/nz/cases/NZHC/2006/1241.html