Christine Marama Cowan v John Arthur Cowan

• Jurisdiction: New Zealand
• Judge: William Young J
• Judgment Date: 12 April 2022
• Neutral Citation: [2022] NZSC 43
• Docket Number: SC 130/2021
• Court: Supreme Court

Between

Christine Marama Cowan

First Appellant

Te Rahui John Cowan

Second Appellant

and

John Arthur Cowan

First Respondent

Kurt Thomas Gibbons and 170 Queens Drive Limited

Second Respondents

[2022] NZSC 43

William Young, Glazebrook, O'Regan, Ellen France and Williams JJ

SC 130/2021

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI O AOTEAROA

Civil Procedure, Property — appeal against a Court of Appeal decision which imposed the requirement for an undertaking for damages as a condition of the authorisation to lodge a second caveat — adequacy of the undertaking to protect the respondent's exposure to loss — Land Transfer Act 2017

Counsel:

J Mason for Appellants

R C Laurenson and C D Batt for First Respondent

D M Salmon QC and M R C Wolff for Second Respondents

The appeal was dismissed.

• A The appeal is dismissed.

• B Costs are reserved.

JUDGMENT OF THE COURT

REASONS

(Given by William Young J)

Table of Contents

	Para No.
Introduction	[1]
A brief outline of the dispute	[5]
The legal principles	[14]
The statutory provisions	[14]
The general principles which apply to the application of ss 142 and 143	[22]
Undertakings as to damages	[23]
Impecunious caveators	[24]
The factual background in more detail	[26]
Tikanga	[37]
The losses that the lodging of the second caveat may cause	[39]
The primarily relevant decisions of the Courts below	[43]
Preliminary comments	[43]
The first Court of Appeal judgment	[44]
The judgment of Associate Judge Lester	[49]
The second Court of Appeal judgment	[54]
The progress of the substantive litigation	[58]
The resolution of the appeal	[61]

Introduction

1 Under the land transfer system, registered title to an interest in land is indefeasible. Indefeasibility means that, subject to limited exceptions, a registered owner takes title free from any unregistered interests. 1 Such unregistered interests can, however, be protected by caveats. Section 138 of the Land Transfer Act 2017 (the Act) provides that a person who claims to have an interest in land may lodge a caveat. Such a caveat, while extant, prevents the registration or recording on the register of any instrument or matter adversely affecting the claimed interest. 2

2 There are statutory mechanisms for the removal and lapse of caveats (ss 142 and 143 of the Act). Where a caveat has been removed or has lapsed, a second caveat protecting the same interest may not be lodged without the permission of the High Court (s 146).

3 If the caveator's claim to an interest is disputed, the existence or otherwise of the interest is usually determined in separate substantive proceedings brought by the

caveator. In this situation, the effect of the caveat (if neither removed nor lapsed) is to maintain the status quo pending substantive determination of the dispute in the separate proceedings

4 Preserving the status quo can be disadvantageous to a registered owner. Some protection is provided by s 148 of the Act, which imposes liability to pay compensation for lodging a caveat without reasonable cause. 3 This protection, however, is limited. For this reason, a registered owner may argue that maintenance of the status quo by caveat should be made conditional on the caveator undertaking to pay damages for any losses caused by the caveat.

A brief outline of the dispute

5 This case primarily involves a dispute between the first respondent, John Cowan, and two of his children, Christine and Te Rahui Cowan. They are the appellants. For ease of discussion, we will refer to John, Christine, Te Rahui and other family members by their first names. The case is about a house in Lyall Bay, Wellington (the Lyall Bay property), which, for many years, has been the Cowan family home.

6 John is the widower of Marama Cowan. They married on 20 September 1969 and had three children, Christine, Te Rahui and their younger brother Elvis. John is Pakeha and Marama was Maori. In 1974, with loan assistance from the Maori and Island Affairs Department, they acquired the Lyall Bay property. It was a joint family home and, on Marama's death on 19 March 2019, registered title passed to John by survivorship. The other major asset John and Marama came to own was a property in Carterton (the Carterton property), 4 which was also held jointly and so, with Marama's death, it too passed by survivorship to John. At some point after Marama's death, John instructed a solicitor to vest title to both the Lyall Bay and Carterton properties in his sole name.

7 On 19 August 2020, John entered into an agreement to sell the Lyall Bay property for $1.1 million. The purchaser was Kurt Gibbons and/or his nominee.

Mr Gibbons has nominated 170 Queens Drive Ltd (the developer). They are the second respondents. The developer plans to construct 30 townhouses on the Lyall Bay property and five neighbouring sections which it has also acquired. All 30 townhouses have been pre-sold and work is currently underway on the project, although not on the Lyall Bay property.

8 John informed Christine of the sale around the time it happened. Christine says that she passed that information on to Te Rahui. Not long afterward, probably in September 2020, Christine met the developer's contractors. This was closely followed by an interaction Te Rahui had with Mr Gibbons on the street outside the Lyall Bay property. On 16 November 2020, Christine and Te Rahui lodged a caveat against the titles to the Lyall Bay and Carterton properties, claiming an interest in the properties “[b]y virtue of an implied trust”. The caveat against the title to the Carterton property has lapsed and the property has since been sold by John. There is thus no occasion to discuss the basis on which an interest in it was claimed.

9 An application having been made under s 143 of the Act for the lapse of the caveat, Christine and Te Rahui applied to the High Court for an order that the caveat against the Lyall Bay property not lapse. This was on 15 January 2021. That application was set down for a hearing on 16 February 2021. Although Christine and Te Rahui obtained an interim order that the caveat not lapse pending determination of their substantive application, they did not give notice of this order to the Registrar-General of Land (the Registrar). Under the s 143 procedure, which we discuss in more detail later, this failure to give notice meant that the caveat had lapsed prior to the commencement of the hearing on 16 February 2021. Not realising that the caveat had already lapsed, Associate Judge Johnston released a judgment on 19 February 2021, dismissing the application for an order that the caveat not lapse. 5

10 Christine and Te Rahui appealed to the Court of Appeal. By the time the appeal was heard (on 24 February 2021), it was appreciated that the caveat had lapsed. By then, there was considerable time pressure as settlement under the sale and purchase agreement for the Lyall Bay property was to take place the next day.

Counsel for Christine and Te Rahui sought the permission of the Court under s 146 of the Act to lodge a second caveat. The Court of Appeal granted permission to do so (the first Court of Appeal judgment). 6 Importantly, however, this was subject to (inter alia) Christine and Te Rahui filing an undertaking as to damages. 7

11 Christine and Te Rahui lodged a second caveat and filed an undertaking as to damages. Soon afterwards, John applied to the High Court under s 142 of the Act for an order that the caveat be removed. This application was heard on 21 May 2021 by Associate Judge Lester. He was of the view that an undertaking as to damages should be “accompanied … by evidence that the undertaking is of value”. 8 The Associate Judge held that what had been provided was an undertaking in form but not substance. 9 He concluded that the caveat should be removed but directed that the net proceeds of sale be held on interest bearing deposit in a solicitor's trust account, not to be disbursed without a court order or written agreement from the parties. 10

12 An appeal to the Court of Appeal against this judgment was dismissed (the second Court of Appeal judgment). 11

13 This dispute touches on important issues as to the principles that apply to undertakings as to damages. The present appeal, however, is from the second Court of Appeal judgment. 12 It was confirmed to us at the hearing of the appeal that Christine and Te Rahui did not wish to apply for leave to appeal out of time against the first Court of Appeal judgment. This means that we must deal with the appeal on the basis that the first Court of Appeal judgment is correct and that the undertaking as to damages was properly required.

The legal principles

The statutory provisions

14 As explained, a caveat can be lodged against the registered title to an interest in land by any person claiming an interest in that land. Lodging a caveat is a straight-forward process.

15 Section 142 of the Act provides:

142 Removal of caveat against dealings

The court may, on application by a person who has an estate or interest affected by a caveat against dealings, order that the caveat is removed.

16 Under s 143, the registered proprietor of the interest affected by a caveat or someone who wishes to register an instrument that affects the interest protected by the caveat may apply to the Registrar for the lapse of the caveat. The effect of such an application is that the caveat lapses unless:

The orders specified in s 143(4) are orders either that the caveat not lapse or adjourning the application by the caveator.

• (a) the caveator, within 10 working days after being notified of the application, gives notice to the Registrar that an application has been made to the High Court for an order that the caveat not lapse; and

• (b) within 20...