Halliday v Bank of New Zealand

• Jurisdiction: New Zealand
• Judge: Mallon J
• Judgment Date: 21 November 2012
• Neutral Citation: [2012] NZHC 3099
• Docket Number: CIV 2012-441-489
• Court: High Court
• Date: 21 November 2012

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

[2012] NZHC 3099

CIV 2012-441-489

CIV 2012-441-185

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

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.

Counsel:

J Toebes for the Applicant

D J O'Connor for the Respondent

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 farm

7 The Hallidays wished to sell the farm. On 18 March 2005 Morice Associates Ltd (“MAL”) provided a valuation report for RCL on the property. The market valuation was $4,490,000 (including chattels and the forestry) made up as follows:

Improvements	$ 620,000
Land value	$ 3,625,000
Market value (excluding chattels & forest)	$ 4,245,000
Plus chattels	$ 15,000
Plus forestry	$ 230,000
	$ 4,490,000

8 Michael Halliday provided the valuation report to the intended purchasers, the Thomsens. RCL (In Liquidation) entered into an agreement for sale and purchase with the Thomsens dated 31 August 2005, with that date also being the possession date. Based on the MAL valuation, the purchase price was $4.2 million plus GST. That the purchase price excluded the forestry is confirmed by the special conditions of sale, which included an agreed apportionment of the purchase price as follows:

(a) dwellings and curtilage	$ 420,000
(b) land, including winter feed	$ 3,450,000
(c) non residential improvements	$ 290,000
(d) plant and equipment	$ 25,000
(e) residual chattels	$ 15,000

9 The special conditions of sale included the following clause:

19. Trees

• 19.1.1 The parties agree that trees growing within the forestry blocks identified on the map appended to Appendix 3 are not included in the sale.

• 19.1.2 On settlement the Vendor and the purchaser will enter into a forestry right in respect of these trees on the terms [sic] out in Appendix 3.

10 As referred to in clause 19.1.1, a map was attached to the agreement for sale and purchase which identified the forestry blocks. As referred to in clause 19.1.2, Appendix 3 to the agreement for sale and purchase set out terms for the forestry right. Appendix 3 provided that the Grantor granted to the Grantee “a sole and exclusive forestry right in gross for the Term to maintain and harvest the Crop” on the terms and conditions set out. The commencement date was 18 July 2005. There was provision to set out details of the crop, expiry date and payment terms. This was left blank in respect of each lot. The terms and conditions of the forestry right included the following:

• 12.2 The Grantor will ensure that any agreement for the disposal of any interest in the Land or the Retained Area includes notice of the terms of this forestry right.

• 12.3 The Grantor will not grant any licences, rights or other interests relating to the Land or the Retained Area during the Term if the Grantee's rights under this forestry right might be adversely affected as a result.

• …

• 14.1 The property in all trees growing on the Woodlots at the date of this right is and will be vested in the Grantee despite of any rule of law or in equity to the contrary.

11 The purchase price of the agreement for sale and purchase of the farm was to be financed by the Thomsens partly by vendor finance and partly by other finance. At this time the Thomsens were not customers of the Bank, but they were friends with Mr Connor. It was arranged that Mr MacDonald, who also worked in the Napier branch of the Bank, would look to provide Bank financing for the balance of the purchase price. In the event, the purchase by the Thomsens was financed by vendor finance in the sum of $2.84 million secured by a first mortgage over the property and an advance from the Thomsens' parents of $1.9 million secured by a second mortgage. Working capital, by way of a current account facility of $100,000, was funded by the Bank. This Bank facility was secured, by a security agreement, over the livestock.

12 At the time of the purchase, Mr MacDonald inspected the property with Mr Thomsen. According to a letter from the Bank's solicitors in connection with this litigation, during that inspection “Mr Thomsen stated that Hallidays would be retaining ownership of the forestry, with their interest to be protected by way of a forestry right.” Mr MacDonald provided a brief affidavit for these proceedings. The affidavit did not refer to this inspection. Mr MacDonald was required to attend the hearing for cross-examination. He was asked about this inspection. He agreed that he had inspected the property and that Mr Thomsen had mentioned that some of the trees were not part of the sale and would continue to be owned by the vendor. He did not ask Mr Thomsen to explain what part of the forestry was being retained by the Hallidays. Mr MacDonald said that he was not interested in the detail of this, because it became clear that the Bank was at this stage providing only working capital funding secured over the livestock.

13 Mr Connor, the Hallidays' Bank representative, also seems to have understood that the...