Lepionka & Company Investments Ltd v Andrew William Clyde Coltart
| Jurisdiction | New Zealand |
| Judge | SMITH |
| Judgment Date | 17 November 2015 |
| Neutral Citation | [2015] NZHC 2849 |
| Docket Number | CIV-2015-441-36 |
| Court | High Court |
| Date | 17 November 2015 |
Under the Land Transfer Act 1952
[2015] NZHC 2849
CIV-2015-441-36
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
Application under s143 Land Transfer Act 1952 (“LTA”) for removal of caveat — the original owner of land had entered into an agreement giving the respondent an option to purchase a lot when a subdivision was completed — the owner also entered into agreements for sale in respect of other lots — the purchasers of these lots were associated entities — when the owner defaulted on its mortgage payments, the associated entities incorporated the applicant company to acquire the mortgage — the applicant informed the respondent that it was cancelling his agreement with the original owner and demanded that he remove caveats he had placed on the title — relationship between s178(2) Property Law Act 2007 (PLA) (mortgagee may cancel a contract for the sale) and s105 Land Transfer Act 1952 (sale by a mortgagee to a third party extinguishes all prior interests to which the mortgagee has not consented) — whether the respondent had a caveatable interest in the land — whether the applicant mortgagee adopted the respondent's agreement, or consent to be bound by the respondent's interest under the agreement — whether the respondent's interest was extinguished by a valid cancellation of the agreement by the mortgagee — whether the interests claimed by the respondent were entitled to priority over the mortgage because of bad faith on the part of the mortgagee in the exercise of its powers under the mortgage — whether the applicant mortgagee had breached s176 PLA (duty of mortgagee exercising power of sale) by failing to take reasonable care to obtain the best price reasonably obtainable for the land — whether the applicant exercised its mortgagee powers fraudulently or in bad faith by rejecting the respondent's offer to buy the land — whether the applicant was seeking an equitable remedy and if yes whether it should be refused because it had not “come to equity with clean hands”.
E Cox and D Wallace for the Applicant
L Taylor QC and D Chan for the Respondent
The applicant (the Lepionka mortgagee) applies for the removal of two caveats registered by Mr Coltart on the title to a 24 hectare block of land not far from Havelock North, Hawke's Bay (the land).
The owner of the land is a company called GLW Group Ltd (GLW). GLW had borrowed approximately $2.6 million from Westpac Bank (the bank), and that borrowing was secured by a first registered mortgage over the land (the mortgage). GLW defaulted on its obligations under the mortgage, and in January 2015 the bank issued a notice under s 119 of the Property Law Act 2007 (the PLA) requiring the defaults to be remedied.
After the notice expired unremedied on 6 March 2015, the Lepionka mortgagee paid $2,681,345.43 to acquire the mortgage from the bank. It now wishes to proceed with the subdivision and sale of individual lots on the land, exercising the powers of sale contained in the mortgage.
Mr Coltart opposes the application. He has been living in a homestead on the land since December 2010, pursuant to an agreement or agreements with GLW under which he would assist GLW with works necessary to complete a subdivision of the land. Disputes arose between GLW and Mr Coltart in the course of the subdivision work, but they were eventually settled by a written agreement under which Mr Coltart was given an option to purchase lot 2 on the land (the homestead lot), and a right to roam over the “common land” area of the intended subdivision. Mr Coltart registered a caveat to protect his interest under the option to purchase, in February 2013. He registered a second caveat, to protect the “right to roam” interest and various easements in favour of the homestead lot, in May 2013.
Mr Coltart says that he has spent considerable sums of money on the land, including $150,000 towards the purchase of the homestead lot and $1,573,000 on renovation work on the old homestead. He stands to lose that investment if the Lepionka mortgagee proceeds to sell the homestead lot (or the land as a whole) to other parties: the effect of s 105 of the Land Transfer Act 1952 (the LTA) is that a sale by a mortgagee to a third party has the effect of extinguishing all prior interests in the land to which the mortgagee has not consented.
GLW's original plan was to develop the land by creating a rural subdivision, with residential sites, common land, fishing huts, and river access. Originally there were to be four lots. GLW arranged finance from the bank, and the bank registered the mortgage on 9 October 2009.
At some point in 2009, Mr Coltart agreed with the director of GLW, Mr Paterson, to help Mr Paterson project manage the development. They agreed that Mr Coltart would buy one of the lots (the homestead lot), on which there was an old homestead, for $800,000. It is not clear whether this agreement was oral or in writing (if there was a written agreement, it was not produced in evidence). Mr Coltart paid $150,000 towards the purchase price.
Mr Coltart took possession of the homestead lot in October 2009 and moved in in December 2010. He and his wife have lived there since that time.
The nature of the disputes which arose between Mr Coltart and GLW in the course of the subdivision work is not material here. The disputes were settled by an agreement made on 21 August 2012 (the Coltart agreement). The Coltart agreement gave Mr Coltart an option to purchase the homestead lot, and the right to roam over the common land and use of a fishing hut and caretaker's shed. He paid $25,000 for the option. The Coltart agreement also permitted GLW to create a further two lots in the subdivision (proposed lots 5 and 6).
Mr Coltart lodged the first of his caveats on 15 February 2013 (caveat 9314741.1 (Caveat 1)). On 22 May 2013 he lodged caveat 9406217.1 (Caveat 2). The easements in favour of the homestead lot which are referred to in Caveat 2 will, among other things, provide Mr Coltart with access through the completed subdivision.
GLW obtained resource consent for an amended subdivision plan which included the proposed additional lots 5 and 6, but the plan also added a new lot (lot 8) and a fishing hut associated with lot 4. Mr Coltart says that he did not agree to the creation of the new lot 8 and the provision for the lot 4 fishing hut. Both are on the common land, and he says they will interfere with his “right to roam”.
By two separate agreements entered into with GLW in January 2014, entities associated with Mr Stefan Lepionka agreed to purchase four of the lots into which the land would be subdivided. Lepionka & Company Limited (LCL) agreed to purchase intended lots 3, 5 and 8, and Mr Lepionka and another person, as trustees of a family trust, agreed to purchase the intended lot 4 and fishing hut. For convenience, I will refer in this judgment to the purchasers named in these two agreements for sale as “the Lepionka purchasers”.
Deposits totalling $463,000 were paid to GLW. Neither agreement was for the homestead lot, which is lot 2 in the proposed subdivision.
GLW ran into financial difficulty, and it defaulted on its loans. On 29 January 2015, the bank served GLW with a default notice under s 119 of the PLA. Mr Coltart was also served with a copy of the notice, as were the Lepionka purchasers (they had registered their own caveats to protect their interests as purchasers). The notice expired without remedy on 6 March 2015.
The Lepionka purchasers were then faced with a significant problem. If the bank elected to sell the land as an un-subdivided block to some third party, or to proceed with the proposed subdivision but sell lots 3, 4, 5 and 8 to other parties, the effect of the mortgagee sale or sales would be to extinguish the interests of the Lepionka purchasers under their agreements to buy those lots. In that eventuality they would lose their deposits, just as Mr Coltart would lose the money he had spent for his interests in the land if the land (or the homestead lot) were sold to another party or parties.
To create a solution to the problem, Mr Lepionka decided to incorporate the Lepionka mortgagee as a vehicle to acquire the mortgage. The Lepionka mortgagee was incorporated on 25 March 2015, and on 31 March 2015 it paid the bank out and took an assignment of the mortgage. The Lepionka mortgagee is now the proprietor of the first registered mortgage over the land.
On 1 April 2015, the Lepionka mortgagee formally adopted the agreements for sale and purchase which GLW had made with the Lepionka purchasers. Mr Lepionka states that his intention was that the Lepionka mortgagee would complete the subdivision as mortgagee, then settle the sales to the Lepionka purchasers. The Lepionka purchasers would thus preserve their interests in lots 3, 4, 5 and 8, and would become the registered proprietors of those lots when the subdivision was completed, new titles were issued, and they completed settlement under their agreements.
By separate agreement also made on 1 April 2015, the Lepionka mortgagee agreed with the Lepionka purchasers to pay compensation to them in the event that the mortgage was redeemed or assigned, or the subdivision was not completed within six months: the $463,000 deposit would be repaid to the Lepionka purchasers (with interest), and the Lepionka purchasers would receive a further $750,000 by way of compensation for the non-completion of their agreements. (The $750,000 would be refunded to the holder of the mortgage if the subdivision was completed and the lots transferred to the Lepionka purchasers in accordance with their agreements, within 12 months.)
On 9 April 2015 the Lepionka mortgagee gave...
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