Halliday v Bank of New Zealand

JurisdictionNew Zealand
CourtHigh Court
JudgeMallon J
Judgment Date21 November 2012
Neutral Citation[2012] NZHC 3099
Docket NumberCIV 2012-441-489
Date21 November 2012

[2012] NZHC 3099

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV 2012-441-489

CIV 2012-441-185

BETWEEN

Under The Declaratory Judgments Act

M M Halliday, H R Halliday, R H Thomsen and P D Holt as Trustees of The M M and H R Halliday Family Trust
Applicants
and
Bank of New Zealand
Respondent
BETWEEN
Bank of New Zealand
Applicant
and
M M Halliday, H R Halliday, R H Thomsen and P D Holt as Trustees of the M M and H R Halliday Family Trust
Respondents
Counsel:

J Toebes for the Applicant

D J O'Connor for the Respondent

Application for declaration that forestry could not be sold in mortgagee sale as it was a chattel and not a fixture on the land — application by bank to remove a caveat when farm sold to mortgagor — purchase price excluded forestry — agreement for sale and purchase provided for vendor and purchaser to enter into forestry right agreement — company vendor put into voluntary liquidation and all assets transferred to applicants — bank had been informed applicants would be retaining ownership of forestry but didn't become first mortgagee until a couple of years later — forestry right agreement drafted but never signed but applicants registered caveat on title claiming an estate or interest pursuant to it — whether forestry was a chattel — who owned forestry — whether there was a reasonably arguable case for interest claimed.

The issues were: whether the forestry was a chattel and not a fixture attached to the land; who owned the forestry; and whether the Hs had a reasonably arguable case for the interest claimed.

Held: Although the parties could regulate the issue as between themselves, that did not mean that the parties' contract could regulate the issue as against third parties who obtained interests in the land and who did not have notice of the contractual position. That would be contrary to the principle of indefeasibility of title. Under the 2 Land Transfer Act 1952 (“LTA”) there was nothing to prevent the parties from agreeing to exclude from the sale interests in respect of the land, or to confer rights over the land. That conferred an equitable interest until it was converted to a legal interest registered on the title or it was severed and removed from the land. The equitable interest would confer a right to lodge a caveat but, in the absence of a caveat, it would be defeated by the registration, without fraud, of a transfer or other adverse instrument.

Section 2 LTA (interpretation) defined “land” as including “all trees and timber thereon or thereunder lying or being, unless specially excepted.” An interest in that part of the land that was a forestry would be granted by the owner of the land to another person and registered on the title as a profit a prendre. The trees were only chattels once they had been severed and removed.

The contractual arrangements between RCL and the Ts, that the Hs would continue to own the trees, did not convert the trees into chattels. Similarly, any knowledge the Bank had of the contractual arrangements did not alter the nature of the trees. They remained part of the land.

The parties did, however, intend by their contractual arrangements to exclude the trees from the sale to the Ts. The effect of the contractual arrangements was to confer on RCL an equitable interest in the land in respect of the trees, which was to be given effect by a forestry right agreement entered into on settlement. The forestry was not a chattel and would only become a chattel if and when harvested pursuant to the forestry right agreement.

There was no doubt that by contract (the agreement for sale and purchase) the parties agreed RCL owned the trees, and that the parties would enter into the forestry right agreement. Their subsequent conduct was consistent with that intention. The evidence was that the forestry right agreement was drafted and amended but never signed and that the parties had not agreed on “some very minor detail”. On the basis of this evidence it was reasonably arguable that RCL had an equitable interest in the trees. The fact that the forestry right agreement had not been signed did not provide any basis to remove the caveat as the evidence showed that it had been drafted and agreed apart from some minor detail.

On the evidence it was also reasonably arguable that all the assets of RCL, including the interest in the trees, were distributed to the Hs — that was the liquidator's unchallenged evidence.

BNZ's interest as mortgagee was indefeasible subject to fraud — s62 LTA (estate of registered proprietor paramount). It was arguable on the facts that BNZ had knowledge of the Hs' interest in the trees but its actions did not appear to have been done with an intention to defeat that interest or to take advantage in some way of its unregistered status.

The Hs' claim that BNZ was estopped from asserting that the trees were not chattels was relevant. It was arguable that there was a common understanding between BNZ, the Ts and the Hs, that the Hs owned the trees. The Hs acted in reliance on that common understanding to their detriment when they incurred the ongoing costs in managing the trees after the farm was sold. It was arguable that it was now unconscionable for BNZ to exercise the power of sale without recognising the arguable common understanding. It was arguable that an estoppel (or constructive trust) claim was a caveatable interest because a potential remedy available on such a claim was to order the grant of the interest in the land.

Even if an in personam claim was not intended to be within the first exception to s105 LTA (transfer by mortgagee), the Court, in its equitable jurisdiction, might grant relief for that claim in respect of the land prior to the registration of any transfer by BNZ to a purchaser in the exercise its power of sale. The consent exception in s105 LTA was not made out because positive conduct on the part of BNZ would have been needed to satisfy that it had consented to the Hs interest.

Applications declined. Hs to pursue an in personam claim, otherwise leave reserved to BNZ to apply further.

JUDGMENT OF Mallon J

Table of contents

Introduction

[1]

The evidence

[3]

The farm

[3]

The sale of the farm

[7]

RCL (In liquidation)

[15]

The forestry after the sale

[17]

Bank becomes mortgagee

[19]

Bank becomes first mortgagee

[26]

Subsequent events

[30]

The proposed mortgagee sale

[34]

Is the forestry a “chattel”

[35]

Who owns the trees

[43]

Should the caveat be removed

[45]

Is there an enforceable agreement

[45]

Agreement was with RCL

[48]

The registration of the first and second mortgages on transfer

[49]

The registration of the Bank's mortgages

[51]

Supervening fraud/in personam claim

[55]

The mortgagee's power of sale - interest with priority

[59]

The mortagee's power of sale - consent

[63]

Result

[65]

Introduction
1

This proceeding concerns ownership of a forestry on a Hawke's Bay farm which is to be sold by mortgagee sale. The Bank of New Zealand (“the Bank”) seeks to sell the farm, including the forestry, pursuant to its power of sale under a first registered mortgage over the farm property. The MM & HR Halliday Family Trust (“the Hallidays”) says that it owns the forestry pursuant to an agreement entered into with the mortgagor (“the Thomsens”) when the farm was sold to the Thomsens by interests associated with the Hallidays. The Hallidays estimate that the current value of the standing forestry is around $140,000 and that its final harvest value is about $500,000 to $600,000.

2

Before me for determination are:

  • (a) an application by the Hallidays for a declaration that the forestry is a chattel, not a fixture to the land;

  • (b) an application by the Hallidays for a declaration that the forestry on the property is owned by the Hallidays, and not the Bank; and

  • (c) an application by the Bank to remove a caveat lodged by the Hallidays.

The evidence
The farm
3

The farm was owned by the Halliday interests between 1928 and 2005. The farm was in the name of Raumati Land Company Limited (“RCL”). The shareholders of RCL were: the MM & HR Halliday Family Trust (the trustees being Michael Halliday, Helen Halliday, Roger Thomsen, Philip Holt), Estate P E Halliday, 1 Estate G W Halliday, 2 Mary Wesley, Helen Halliday and Michael Halliday. Michael Halliday and his wife, Helen, lived on the property.

4

The farm is a 460.9 hectare property. The farm had sheep and beef stock on the property. Six forestry blocks (of pinus radiata) were also planted on 43 hectares of the farm. The largest of these forestry blocks was the “Middle Hill” block which was 12.9 hectares. The other five blocks varied in size between 1.7 hectares and 5.3 hectares. Michael Halliday was passionate about the forestry, and won awards and held appointments as a result of his forestry work.

5

The Hallidays were customers of the Bank at its Napier branch. The Hallidays had been customers since 1995. From 2003 Michael Connor became their account manager. He was aware of the forestry blocks and Michael Halliday's passion for the forestry.

6

In early 1994 three parties (who had family connections with the Hallidays) entered into an agreement with Michael Halliday in respect of the forestry. It was agreed that these parties would pay for establishing and managing the Middle Hill woodlot, with Michael and Helen Halliday to receive 40 per cent of the net proceeds of harvest and the remaining 60 per cent would be split equally between the three other parties. There was no written agreement recording this arrangement but the evidence is that the parties “had a very clear understanding of the obligations of each party”. In accordance with this arrangement, the three parties made various payments for the forestry from 1994 onwards.

The sale of the...

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