Sm v Asb Bank Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeRanderson J
Judgment Date21 Mar 2012
Neutral Citation[2012] NZCA 103
Docket NumberCA690/2011

[2012] NZCA 103

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Arnold, Randerson and Stevens JJ

CA690/2011

BETWEEN
SM
Appellant
and
ASB Bank Limited
Respondent
Counsel:

P Twist for Appellant

M V Robinson and E C Gellert for Respondent

Appeal from a High Court decision removing the appellant's notice of claim over a property on condition she was allowed to reside in property until an occupation order given by Family Court was set aside or Family Court proceedings settled — cross — appeal that removal order should have been made without conditions — property owned by appellant's ex — de facto partner — respondent conducted mortgagee sale — whether a registered mortgagee over a residential property had priority over an interim occupation order made by the Family Court — whether respondent sold property with intention of defeating appellant's interest under the Property (Relationships) Act 1976 — reconciling provisions of Property (Relationships) Act and the Land Transfer Act 1952.

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION PLEASE SEE WWW.JUSTICE.GOVT.NZ/FAMILY/LEGISLATION/RESTRICTIONS.

The issues were: whether the disposition of the property by ASB had been made in order to defeat SM's rights under the PRA and should be set aside under s43 PRA or s44 PRA; and, whether the notice should have been removed without conditions.

Held: Section 46 PRA emphasised that priority was to be given to mortgages and other forms of security affecting the subject property if registered before an order was registered under the PRA or if the rights of the mortgagee or security holder arose under an instrument executed before the date of the order under the PRA. This was subject to s42 PRA (notice of interest), s43 PRA (dispositions may be restrained) and s44 PRA (dispositions may be set aside). The effect of s46 PRA was to give presumptive priority to ASB as mortgagee, since its mortgage was registered well before the occupation order.

The proviso at the end of s46 PRA (provided that, notwithstanding anything in any enactment, no money payable under any such mortgage shall be called up or become due by reason of the making of any such order, not being an order directing the sale of any property) did not assist SM because the proviso simply meant that the making of an order under the PRA was not a ground for calling up a mortgage unless the order directed the sale of the relevant property.

SM had been entitled to register her notice of claim to an interest in the subject property by virtue of the occupation order. Upon registration, the notice was deemed to be a registrable interest for the purposes of the LTA. By s42(3) PRA, a notice of claim under the section was deemed to have the effect of a caveat lodged under s137 LTA (caveat against dealing) and a mortgagee wishing to exercise its power of sale had to apply to the court for an order for removal of the notice of claim under s143 LTA (procedure for removal of caveat).

There could be no doubt that if DB, or persons acting on his behalf, disposed of the property after the restraining order was made, the disposition would be void under s43(2). While ASB was aware of the restraining order, it was not a party to the proceedings in the FC and was not subject to it. Unless ASB had acted in collusion with DB, sale of the property under its powers as mortgagee was not the disposition restrained by the order and was not rendered void by s43(2) PRA.

The expression “any disposition” at the beginning of s43(2) PRA meant a disposition of the type referred to in s43(1) PRA. In this case that meant a disposition by DM to defeat the rights of SM under the PRA. That interpretation was supported by the use of the expression “the disposition” in the second line of s43(2) PRA which even more clearly referred back to the disposition which was the subject of the order under s43(1) PRA. ASB's mortgage had been obtained in good faith and it had relied on its mortgagee's power of sale. There was no suggestion of collusion between ASB and DM.

For the purposes of s44 PRA, a disposition had to be made with the intention or purpose of defeating the claim of a person under the PRA. It was not sufficient that a disposition had the effect of defeating a claim. Given DM's non-payment, ASB had been required to make a commercial decision about the most cost-effective and advantageous way to recover outstanding amounts. ASB adopted its usual practice of realising the security and then seeking to recover any shortfall from DM. ASB had not sold the property in order to defeat SM's occupancy order or defeat any other claim she might have to the property under the PRA.

Neither s43 PRA nor s44 PRA applied to the sale of the property. It followed by virtue of s46 PRA, ASB was entitled to exercise its power of sale. The notice of claim ought to have been removed from the title without conditions. SM had been aware of the mortgage sale and had not co-operated in the sale process nor sought an injunction. ASB had observed reasonable commercial practice, had not operated oppressively and had exercised its legitimate rights. Given that ASB's mortgage had priority over SM's occupancy order, there no was basis for limiting ASB's rights to recover all money properly payable to it.

SM's appeal dismissed. ASB's cross-appeal allowed. Notice of claim of interest was formally removed.

JUDGMENT OF THE COURT

A The appeal is dismissed.

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

Para No

Introduction [1]

The facts in more detail [7]

The statutory framework [17]

The approach to applications to remove a notice of claim [35]

First issue: should the notice of claim have been removed? [36]

The approach in the High Court [36]

Discussion [40]

Section 43 [41]

Section 44 [50]

Conclusions on first issue [57]

Second issue: the condition permitting SM to occupy the property [59]

Third issue: the condition requiring payment into court of the net proceeds of the sale of the property and limiting recovery of interest and costs [67]

Result [72]

Introduction
1

The essential question in this appeal is whether a registered mortgage held by the respondent bank (ASB) over a residential property has priority over an interim occupation order subsequently made by the Family Court in favour of the appellant SM.

2

The mortgage was granted in 2006. Title to the property was registered in the sole name of SM's de facto partner to whom we shall refer as DB. The couple parted in January 2009, at which time SM registered a notice of claim of interest under s 42 of the Property (Relationships) Act 1976 (the PRA) to protect her interests in the property. ASB later exercised its power of sale under the mortgage and sold the property unconditionally. It then sought an order from the High Court removing SM's notice of claim so that the property could be transferred to the purchasers.

3

ASB's application was opposed by SM but Whata J decided on 30 September 2011 that her notice of claim was to be removed. 1 The Judge imposed two conditions on the removal of the notice:

  • (a) SM was allowed to occupy the property until the Family Court order granting her right of occupation was set aside or the Family Court proceedings issued by her were resolved.

  • (b) The proceeds of sale, net of the original loan and any unpaid interest as at 22 January 2009, were to be paid into Court pending the resolution of the Family Court proceedings. 2

4

SM appeals against the making of the removal order, contending that the occupation order in her favour has priority under the PRA over ASB's mortgage. ASB cross-appeals on the ground that the removal order should have been made without conditions. ASB submits that its mortgage has priority over SM's occupation order and any other claims she may have under the PRA to an interest in the property. As such, ASB submits that, the property having been sold pursuant to the power of sale, it is entitled to immediate possession of the property and that it is entitled to recover the principal as well as all outstanding interest and costs due to it under the mortgage up to the date of settlement of the sale of the property.

5

On 13 October 2011, Whata J granted SM a stay of execution of his earlier judgment. 3 The present position is that SM remains in possession of the property and the sale has not been settled. We were informed by ASB's counsel that the total

amount due under the mortgage now exceeds the sale price so that no net surplus is expected to be available.
6

The issues to be determined are whether the High Court Judge erred in:

  • (a) Concluding that the notice of claim be removed.

  • (b) Imposing a condition permitting SM to remain in occupation of the property until the occupation order was set aside or the Family Court proceedings were resolved.

  • (c) Imposing a condition requiring payment into Court of the net proceeds of the sale of the property which had the effect of limiting ASB's right to deduct interest after 22 January 2009 and any other expenses recoverable under the mortgage.

The facts in more detail
7

In 1995, SM commenced a de facto relationship with DB. In May 2006, DB purchased the subject property for $1.575 million. To assist the purchase, he borrowed $1.184 million from ASB. Title to the property was taken in DB's sole name and a mortgage securing the borrowing from ASB was registered against the title.

8

In January 2009, the parties separated. SM registered a notice of claim of interest against the title to the property under s 42 of the PRA on 22 January 2009. Soon afterwards, SM filed proceedings in the Family Court against DB. The relationship property includes the subject property as well as other extensive assets which are said to exceed some $4 million.

9

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