Navilluso Holdings Ltd v Davidson Hc Nap
| Jurisdiction | New Zealand |
| Judge | Osborne |
| Judgment Date | 23 October 2012 |
| Neutral Citation | [2012] NZHC 2766 |
| Docket Number | CIV-2012-441-000550 |
| Court | High Court |
| Date | 23 October 2012 |
[2012] NZHC 2766
CIV-2012-441-000550
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
Application that caveat not lapse — respondents were trustees of a trust that owned caveated property — associated company operated its business from the property — subsidiary of applicant entered into agreement with associated company to lease the property — under agreement, trustees agreed to register encumbrance against certificate of title but didn't, despite efforts of applicant — dispute procedures invoked — whether reasonably arguable case for interest claimed in caveat.
M E J Macfarlane for Applicant
M B Lawson for Respondents
JUDGMENT OF ASSOCIATE JUDGE Osborne
[as to caveat lapsing]
The applicant seeks an order that a caveat not lapse.
In its caveat, lodged on 11 February 2011, the applicant claimed an estate or interest:
Pursuant to an agreement signed by the Registered Proprietor … dated on or about 10 January 2011, the Registered Proprietor irrevocably and unconditionally covenanted to register an encumbrance in favour of the Caveator being Navilluso Holdings Limited over the Registered Proprietor's land contained in certificate of title 323998.
The key issue between the parties has been whether a contract between them gave rise to a registrable interest. The issue is legal, not factual. There is no
The respondents (“the trustees”) are trustees of a trust associated with the Kinnear family.
The trustees own a property in Hastings whose title has been caveated by the applicant, Navilluso.
The Kinnear interests control a company, Fernwood NZ Ltd, which operates its business on the property, making wooden bins and other products.
Navilluso controls another company, Tumu Timbers Ltd. Tumu, from premises in Hastings, manufactures bins particularly for the pip fruit industry.
The agreement referred to in the caveat is a written agreement dated 10 January 2011 which was entered into by:
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• Tumu;
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• Fernwood;
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• The trustees; and
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• Richard and Stuart Kinnear (members of the Kinnear family), as covenantors.
Under the agreement, Tumu was the “Customer” ; Fernwood the “Supplier” ; and the trustees described as the “Trust”.
Clause 10 of the agreement provides:
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10.1 Lease of capacity: In consideration of the Trust procuring the Supplier to enter into this Agreement in order to provide the Customer with additional capacity for the operation of the Customer's business the Customer agrees to pay to the Trust a rental payment of $10,000.00 plus GST per month for the Initial Term. The first such payment will be made on the Commencement Date and all subsequent payments will be made on the monthly anniversary of the Commencement Date. For the avoidance of doubt it is acknowledged that the maximum amount payable by the Customer under this provision is $460,000.00 being $10,000.00 per month for the 46 months of the Initial term.
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10.2 Trust covenants: The Trust irrevocably and unconditionally covenants to register against the certificate of title to the Site an encumbrance pursuant to which the registered proprietor of the Site from time to time agrees, in favour of Navilluso Holdings Limited and its Associated Persons, that the registered proprietor shall not permit any of the following activities to be conducted on or from the Site without the prior written approval of Navilluso Holdings Limited:
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(a) nailing for the assembly of pallets or Bins; and
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(b) the supply of components to other manufacturers who have a place of business within the boundaries of the Hawkes Bay.
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The parties acknowledge that the encumbrance is intended to bind the registered proprietor of the Site from time to time in perpetuity.
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10.3 Supplier and Covenantor covenants: In consideration of the Customer agreeing to enter into this Agreement for their benefit (which is acknowledged) the Supplier and Covenantors jointly and severally covenant that they shall not at any time during the term of this Agreement and for a period of two years after expiry of this Agreement be directly or indirectly involved in the assembly of pallets or Bins or the supply of components or pallets or Bins to other manufacturers who have a place of business within the boundaries of the province of Hawkes Bay unless agreed in writing by Navilluso Holdings Limited. This restriction shall apply to any Associated Person of either of the Covenantors.
From the day after execution of the contract (11 January 2011) Navilluso's solicitors sought to obtain the trustees' execution of an encumbrance instrument. The draft instrument was expressly stated to be pursuant to s 101 Land Transfer Act 1952 and adopted the form (2009/6232EF) approved by the Registrar-General of Land. The form which Navilluso wanted executed is that attached to this judgment as Appendix A.
In the meantime, issues also arose over manufacturing rights under the agreement.
In May 2012 Tumu and Navilluso invoked dispute procedures under the agreement. They referred the trustees' failure to register an encumbrance in favour of Navilluso to dispute resolution, leading ultimately to the appointment of an arbitrator.
At the time of this hearing it appears that the trustees may take some issue in relation to the arbitration process but the evidence before the Court indicates that the dispute over the non-registration of the encumbrance is now to be considered as the subject matter of an arbitral process.
The principles which I adopt in relation to Navilluso's application are these:
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(a) The burden of establishing that Navilluso has a reasonably arguable case for the interest claimed is upon Navilluso as caveator;
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(b) Navilluso must show an entitlement to, or beneficial interest 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: s 137 Land Transfer Act 1952;
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(c) The summary procedure involved in an application of this nature is wholly unsuitable for the determination of disputed questions of fact — an order for removal of the caveat will not be made unless it is clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so;
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(d) When the applicant's burden has been discharged, there remains a discretion as to whether to remove the caveat, which will be exercised cautiously;
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(e) The Court has jurisdiction to impose conditions when making orders.
As these principles indicate, the caveat lapsing jurisdiction is not fertile territory for a respondent's attack on the current state of the law, based on arguments of principle or otherwise as to what the law should instead be. The caveator lodges its caveat in the light of the current state of law and is then entitled, assuming its basic facts are made out, to have its caveated interest recognised as at least arguable. The appropriate jurisdiction in which a respondent should argue for alteration or improvement of the existing legal principles is at a substantive hearing when the Court is equipped to deal with the level of sophistication, including analysis of any policy issues, that is required for a reformulation of legal principles.
As used in land law, a restrictive covenant in gross describes the situation where there is a restrictive covenant in respect of which there is no dominant tenement. 1
After years of debate and uncertainty, the New Zealand Court of Appeal in ANZCO Foods Waitara Ltd v AFFCO New Zealand Ltd overruled authority from the 19th century to the contrary 2 and held that covenants in gross cannot run with the land. 3
A 1970 article by Professor Brookfield 4 is often credited as an important milestone in creating an academically-supported means of protecting restrictive covenants in gross.
Methods subsequently used to protect restrictive covenants in gross were the subject of criticism upon the basis that they were artifices. 5
It is now established by Court of Appeal decisions that a memorandum of encumbrance is an effective conveyancing technique which may be deployed in lieu of a restrictive covenant in gross. 6
A covenant, registered as a memorandum of encumbrance under s 203 Property Law Act 2007, takes effect as a mortgage, with the covenant becoming enforceable in accordance with the remedies under the Act, and successors in title when they take subject to the mortgage, becoming liable for performance of the covenant and the mortgagee having all the remedies under the Act for non- performance. 7
Certain encumbrances securing rentcharges — largely in the categories recommended by the English Law Commission in 1975 8 — were expressly preserved in subsequent legislation in the United Kingdom and are similarly preserved in New Zealand through the definition of “mortgage” in the Property Law Act 2007. 9
What is referred to in the cases as a “third category rentcharge” 10 may include both negative covenants and positive covenants. The adoption of the English Law Commission's commentary in relation to the third category of rentcharges by Hammond and Chambers JJ in Jackson Mews Management Ltd v Menere indicates clearly that a covenant to not carry on a trade is within the category of rent charges which may be protected by an encumbrance. Their Honours said: 11
[28] The Law Commission found third category rentcharges sufficiently beneficial that it exempted them from its proposed...
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Navilluso Holdings Limited v Davidson HC Nap
...HIGH COURT OF NEW ZEALAND NAPIER REGISTRY CIV-2012-441-000550 [2012] NZHC 2766 Hearing: BETWEEN NAVILLUSO HOLDINGS LIMITED Applicant AND ANTHONY JOHN DAVIDSON JOHN LAURENCE ARMSTRONG STUART GORDON KINNEAR AS TRUSTEES OF THE CAROLINE TRUST NO 2 Respondents 21 September 2012 (Heard at Napier)......