Intop Homes Limited v Lot 77 Limited [2023] NZHC 2418 (31 August 2023)

Last Updated: 7 September 2023

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-640 [2023] NZHC 2418

BETWEEN	INTOP HOMES LIMITED Plaintiff
AND	LOT 77 LIMITED Defendant

Hearing:	25 July 2023
Appearances:	E MacPherson for the Plaintiff J P Wood for the Defendant
Judgment:	31 August 2023

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

Application that caveat not lapse

This judgment was delivered by me on 31 August 2023 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

............................... Registrar/Deputy Registrar

Solicitors:

INTOP HOMES LIMITED v LOT 77 LIMITED [2023] NZHC 2418 [31 August 2023]

TABLE OF CONTENTS

Paragraph

Introduction [1]

Background [2]

Intop’s application for order that caveat not lapse [5]

Affidavit of Geng Wu, dated 6 April 2023 [7]

Lot 77’s opposition [18]

Affidavit of David Duggan, dated 2 May 2023 [19]

Reply affidavit of Gen Wu, dated 9 May 2023 [26]

Legal principles [32]

Analysis [38]

Does Intop have a caveatable interest in the property? [40]

Determination of the issues [41]

Issuing of invoices [42]

Conclusion in respect of issuing invoices [52]

Disputed debts [54]

Conclusion in respect of disputed debts [58]

A caveatable security interest [60]

Conclusion in respect of caveatable interest [66]

Cancellation of the contracts [69]

Conclusion in respect of cancellation [76]

Discretion to remove the caveat [77]

Result [79]

Orders [80]

Introduction

• [1] Intop Homes Ltd (Intop) has applied for an order sustaining caveat number 12677045.1 (the caveat) lodged by them against two units owed by Lot 77 Ltd (Lot 77) with the records of title 1006681 (unit 2) and 1006683 (unit 4) (together, Lot 77’s land).

Background

• [2] Intop is a commercial and residential construction company that agreed to construct units for Lot 77 in accordance with standard Master Builders Association contracts. Intop says that, in accordance with their contractual rights, they issued invoices and upon their non-payment they were entitled to demand a registerable memorandum of mortgage capable of sustaining a caveat, which they lodged on 14 March 2023. Lot 77 disputes that a caveatable interest exists claiming the correct contractual process was not followed and the contract has now been cancelled. They applied to lapse the caveat on 27 March 2023.

• [3] Initially, the caveat and this application applied to a further two units with records of title 1006680 (unit 1) and 1006682 (unit 3). After agreement between the parties to remove the caveat on those two units, this application now proceeds only to sustain the caveat against units 2 and 4.

• [4] Given the timeframe under the Land Transfer Act 2017 (the Act), Gault J on 18 April 2023 made an order that the caveat not lapse until further order of this Court.¹ This proceeding determines Intop’s application to sustain the caveat.

1. Intop Homes Ltd v Lot 77 Ltd HC Auckland CIV-2023-404-640, 18 April 2023 (Minute of Gault J).

Intop’s application for order that caveat not lapse

• [5] Intop seeks an order that the caveat 12677045.1 affecting dealing ID 12697627 and records of title 1006681 and 1006683 not lapse.²

• [6] The grounds on which the order is sought are:³

(a) Intop has a contractual right to lodge a caveat pursuant to clauses 123 and 124 of two Master Builders Association contracts dated 10 June 2021 (the Contracts) entered into with David Rennie Duggan (David) / Lot 77 Limited (Lot 77) respectively for the Land.

(b) On 17 February 2023 Intop issued:

(i) Two invoices for units 3, 4 and 15 on the Land under the Contracts; and

(ii) One invoice in respect of Units 1 and 2 on the Land under the Contracts.

(Invoices)

(c) Lot 77 failed to pay the invoices on the due date totalling $73,027.38.

(d) Pursuant to clause 123, where Lot 77/David fails to pay on the due date for payment, then on demand Lot 77/David must straight away provide Intop with an executed and registrable memorandum of mortgage over the Land as described in the Contracts.

(e) Pursuant to clause 124, Intop is entitled to register a caveat against the title to the Land in circumstances where Lot 77/David is entitled to demand a registrable memorandum of mortgage.

(f) Intop is entitled to demand a registerable memorandum of mortgage.

(g) On 14 March 2023 Intop lodged the Caveat against the Land.

(h) On 27 March 2023 Land and Information New Zealand notified Intop that Lot 77 had applied to lapse the Caveat.

(i) Pursuant to its rights under the Contracts, Intop is entitled to sustain the Caveat.

² Originating application that caveat not lapse dated 6 April 2023 at [1].

³ At [2].

Affidavit of Geng Wu dated 6 April 2023

• [7] Mr Geng (Henry) Wu (Mr Wu), director of Intop, has made an affidavit in support of Intop’s application that the caveat not lapse.⁴ He deposes that Intop is owed

$73,027.38 for building work completed for Lot 77.

• [8] Mr Wu deposes that Intop was engaged to build units on Lot 77’s land and executed two standard Master Builders Association contracts to that effect on 10 June 2021. He says construction commenced around May 2021 and Intop invoiced Lot 77 monthly for works. He says that construction was affected by COVID and that the expected completion date was extended without issue to February 2023.

• [9] Having achieved practical completion of the units in mid-February, Mr Wu says Intop was entitled to issue final invoices under cl 108 of the contracts, which they issued in three invoices on 17 February 2023 with payment due by 24 February 2023.

• [10] On 24 February 2023, Mr Wu deposes he received a letter, dated 23 February, from Lot 77’s then lawyers advising that Lot 77 refused to pay and suggesting an 80 per cent reduction as Intop was charging for work which had not been completed or was completed late. The letter maintained that Intop was not able to issue final invoices absent issuance of code compliance certificates (CCC), a view of the contractual provisions which Mr Wu disputes. Mr Wu says his lawyer then emailed in response stating that Lot 77 could not take possession unless the invoices were fully paid. He notes that a CCC for one unit, unit 15, was issued on 24 February 2023.

• [11] On 25 February 2023, Intop’s project manager went to meet with Lot 77’s director, Mr David Duggan (Mr Duggan), who admitted he had possession of all units’ keys and refused to return them. Mr Wu says that Mr Duggan then emailed with a list of concerns and alleged breaches of contract, which he did not regard as genuine.

• [12] Mr Wu says a search of title shows that unit 15 was sold and title changed, without Intop’s knowledge or consent, as soon as the CCC was issued and before Intop was paid or had even sent its letter on 24 February 2023.

⁴ Affidavit in support of originating application that caveat not lapse dated 6 April 2023.

• [13] Given occupation had occurred, Mr Wu says Intop issued a notice to vacate in accordance with cl 109 to which Lot 77 responded with a dispute notice under cl 130 and mediation begun.

• [14] Given unit 15’s sale and Intop’s concern other units would be sold without their consent, Mr Wu says Intop lodged the caveat on four units’ titles on 27 February 2023. He claims they were entitled to demand a memorandum of mortgage and lodge a caveat as they had not been paid. Land Information New Zealand (LINZ) confirmed on 14 March 2023 that the caveat had been issued.

• [15] Mr Wu deposes that on 6 March 2023 Intop exercised its right to cancel the contracts within the contractual two working day window, given Lot 77 had not paid.

• [16] Mr Wu then lays out subsequent correspondence attempting to resolve the dispute between the parties and engage in mediation.

• [17] Mr Wu received notice that Lot 77 had applied to lapse the caveat on 27 March 2023, which Intop lodged this application to prevent. He says while mediation is ongoing to resolve their disputes, Intop is entitled to rely on the contract to lodge a caveat to protect its interests and recover payment of the invoices.

Lot 77’s opposition

• [18] Lot 77 opposes the application on the following grounds:⁵

I. No caveatable interest

4. The caveat has been lodged pursuant to two building contracts between Intop Homes and David Duggan each on a Master Builders standard form Residential Building Contract RBC1 — 2018 (New Build) for building two units (the "Unit 1 and 2 Contract) and three units (the "Unit 3, 4 and 15 Contract") (together "the Contracts");

5. The true construction of the security interest in the Contracts is contingent, in that:

1. There must be debt due to Intop Homes under the contract;

⁵ Notice of opposition dated 2 May 2023.

2. Notice must given by Intop Homes to Mr Duggan that he is in breach of an obligation to pay that debt on the due date in writing and providing him with 5 working days to remedy the default;

100. Following the elapse of 5 working days Intop may demand that Mr Duggan provides a registerable memorandum of mortgage;

4. When Intop Homes has a right to call for a registerable memorandum of mortgage it becomes entitled to register a caveat.

6. Under the Contracts:

1. Claims for payment could be issued by way of an invoice at certain fixed stages only. The final stage being after a code compliance certificate was issued for the building works under the Contracts.

2. An invoice was to be paid within 5 working days after the invoice was issued;

100. Mr Duggan could dispute payment within 5 working days of the service of an invoice.

7. On 17 February 2023 Intop Homes issued Mr Duggan 3 invoices that purported to be final payments being:

8. Time for payment of the invoices, had they been valid which is denied, was 24 February 2023;

9. At the time the invoices were issued a code compliance certificate had not been issued for the building works under the Contracts;

10. On 23 February 2023 Mr Duggan wrote to Intop Homes and disputed the invoices;

11. On 27 February 2023 Intop Homes lodged a caveat over Unit 2 and Unit 4.

12. On 6 March 2023 Intop Homes cancelled the Contracts.

13. Intop Homes had and has no caveatable interest in Unit 2 or Unit 4 as:

1. There was no debt due under the Contracts as the pre-conditions for issuing a final invoice had not been met;

2. If the preconditions to issue a final invoice under the Contracts had been met, there was no debt due under the Contracts as Mr Duggan had disputed the invoices;

100. If the preconditions to issue a final invoice under the Contracts had been met and after 24 February 2023 Mr Duggan was in default of an

obligation to pay, the contingent security interest of Intop Homes did not arise as it failed to provide notice under cl 125 of the Contracts and had no right to call for a registerable memorandum of mortgage or to lodge a caveat;

4. Once the Contracts were cancelled, Intop Homes no longer has a contingent contractual right to security;

Affidavit of David Duggan dated 2 May 2023

• [19] Mr Duggan, director of Lot 77, has made an affidavit in support of Lot 77’s opposition.⁶ He accepts that an interim arrangement has been made which means Intop has released the caveat over units 1 and 3 and therefore this application only relates to units 2 and 4.

• [20] Mr Duggan deposes he has paid the sum of $87,023, being the total disputed invoice amounts regarding units 1, 2, 3, 4 and 15 alongside Intop’s estimated legal costs, also disputed, into a trust fund in good faith. He says he has done so in the hope that Lot 77 can proceed with all units’ sales, which the caveat over units 2 and 4 is inhibiting. He claims that Intop’s application to oppose the caveat lapsing is an abuse of process, in bad faith and an attempt to bypass the contractual dispute mechanism.

• [21] On the contracts, Mr Duggan generally agrees that they were entered into but disputes that work started around May 2021, claiming it was October 2021 instead. He says despite the impacts of COVID being well known by then, Intop agreed to completion by mid-March and no extensions were agreed to. He says that while the contracts generally provided for monthly payments the parties specified a different formula based on the completion of various stages.

• [22] On the disputed final invoices, Mr Duggan agreed they were issued but says the contract did not permit that as there was no agreement they could be issued upon practical completion and the majority of the work had not been fully completed. His understanding was that CCC issuance was required before final payment was due. While Intop could not control when the CCC would be issued, he says it was Intop’s job under the contract to apply for them. He disagrees that his concerns raised with

⁶ Affidavit in support of opposition by David Duggan dated 2 May 2023.

Intop were not genuine, stating that they represent his genuine dissatisfaction with performance below the Registered Master Builder standard.

• [23] On the caveatable interest, Mr Duggan agreed that the caveats were lodged and that Intop eventually cancelled the contract. He disputes that Lot 77 required Intop’s consent to sell unit 15 and says that the requisite notice of default under cl 125 before a caveatable interest arose was not issued. Thus, Mr Duggan says he understands that Intop was not entitled to demand a memorandum of mortgage or caveat.

• [24] Mr Duggan appends additional correspondence about the parties’ negotiation and mediation efforts.

• [25] In concluding, Mr Duggan asserts that he has paid all possibly disputed amounts into the trust account and therefore claims Intop is appropriately secured and is pursuing its application for the collateral purpose of forcing early settlement.

Reply affidavit of Geng Wu dated 9 May 2023

• [26] Mr Wu has made and affidavit in reply to Mr Duggan’s.⁷ In it he primarily explains the mediation agreement reached, which led to this proceeding only concerning units 2 and 4.

• [27] Mr Wu disputes that the funds Mr Duggan has set aside are sufficient to cover the caveat costs or ongoing costs and interest. He disagrees that this application is an abuse of process, in bad faith or bypassed the contractual disputes process.

• [28] Mr Wu agrees that construction actually commenced in October 2021 and reiterates the delays caused by COVID.

• [29] Mr Wu deposes that before all the units were completed Mr Duggan had already begun residing in unit 3 and using unit 1 as a show home, so it was disingenuous to say practical completion was not achieved. He further says that all

⁷ Affidavit of Geng Wu in reply dated 9 May 2023.

proper CCC paperwork was filed and that any slight delays were due to technical issues for which Mr Duggan knew Intop was not responsible.

• [30] Regarding performance below the Master Builder guarantee, Mr Wu says that Mr Duggan did not decide to include the Master Builder guarantee when offered it based on the cost involved.

• [31] In conclusion, Mr Wu again reiterates that the caveat was necessary in light of the rapid sale of unit 15 and was correctly lodged in good faith and in accordance with the contractual requirements. He reaffirms that the amounts paid into the trust by Mr Duggan are insufficient.

Legal principles

• [32] Section 138 of the Land Transfer Act 2017 provides, relevantly:

138 Caveats against dealings with land

(1) A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—

(a) claims an estate or interest in the land, whether capable of registration or not; or

(b) has a beneficial estate or interest in land under an express, implied, resulting or constructive trust[.]

...

• [33] Schedule 2 of the Land Transfer Regulations 2018 provides:

Caveat against dealings document s 138 of the Act

A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) or, for a caveat under section 138(1)(d)(ii) of the Act, the matters that establish that there is a risk that the estate of interest may be lost through fraud.

Details of how the estate or interest claimed is derived from the registered owner.

• [34] The principles governing the determination of applications to sustain caveats are well-established.⁸ The onus is on the caveator to demonstrate an interest in the land that suffices to support the caveat, and the caveator must demonstrate a reasonably arguable case to support the claimed interest.⁹ This means the caveator need not definitively establish their right to the interest.

• [35] The process by which applications to sustain a caveat are determined is ill-suited to resolving disputed factual questions. An order for removal will only be made if it is clear the caveat cannot be maintained — either because there was no valid ground for its lodging in the first place, or because the ground on which it was lodged has now ceased to exist.

• [36] Although the onus of proof lies with the caveator, any conflict between affidavits will generally be resolved in the caveator’s favour.¹⁰ This is not to say that the Court is bound to accept uncritically statements in an affidavit that lack precision, are equivocal, inconsistent with the documentary evidence or other statements of the same deponent, or inherently improbable.¹¹

• [37] While the Court retains a residual discretion to remove a caveat or allow it to lapse even if the caveator has a legitimate and caveatable interest, that discretion is to be exercised cautiously. The Court must be completely satisfied removal would not prejudice the caveator’s legitimate interests.¹²

Analysis

• [38] The issues to be determined in this judgment are:

(a) Does Intop have a caveatable interest in Lot 77’s land?

8. See generally Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. And, for a general statement of the principles, see Wallace v Studio New Zealand Ltd [2021] NZCA 392 at [39]–[41].

⁹ Botany Land Development Ltd v Auckland Council [2014] NZCA 61 at [24]–[25].

¹⁰ Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.

¹¹ Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175, citing Eng Mee Yong v Letchumanan s/o Velayutham [1979] UKPC 13; [1980] AC 331 (PC) at 341; and Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].

¹² Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] NZCA 264; [1996] 2 NZLR 652 (CA) at 656.

(b) If so, should the Court exercise its residual discretion to remove the caveat or allow it to lapse?

• [39] I deal with each of these in turn.

Does Intop have a caveatable interest in the property?

• [40] The issue of whether Intop has a caveatable interest in the property breaks down into a series of issues which Lot 77 raises in asserting that Intop has no caveatable interest:

(a) There was no debt due under the contracts as Intop had not met the pre-conditions required to issue its final invoices;

(b) if Intop was able to issue its final invoices, no debt was due as Lot 77 had disputed the invoices and that dispute had not (and has not since) been resolved;

(c) the contracts provide for only a potential security interest over Lot 77’s land. Intop did not follow the contractual machinery to create the security interest, and therefore, has no caveatable interest in Lot 77’s land;

(d) Intop has cancelled the contracts, and any potential to create a security interest it may have had has not survived cancellation.

Determination of the issues

• [41] In dealing with the issues set out at [40](a) to (d), I have determined, as set out at [66] to [68] of this judgment that in relation to the issue raised at [40](c), Intop did not have a caveatable interest in Lot 77’s land when it lodged the caveat as it did not follow the machinery in the contracts to create such an interest. While it is not necessary for me to determine the issues raised in [40](a) and (b) to dispose of Intop’s application, I have considered these issues and express my views on them. As to the issue raised in [40](d), this issue addresses whether Intop could potentially perfect its

security interest in Lot 77’s land after cancelling the contracts, and accordingly is an issue which requires determination notwithstanding the findings at [66] to [68] of this judgment.

Issuing of invoices

• [42] Mr Macpherson, for Intop, submits that Intop was entitled to issue the invoices on practical completion because:

(a) cl 3 of pt 7 of the contracts states, inter alia, that final payment under the contract will be claimed on the “final” stage;

(b) “final” is not defined in the contracts, but it is reasonably inferred to be practical completion. It is Intop’s position that it was never agreed that final payment would be due on the CCC being issued by the Taupō District Council (the Council);

(c) cl 108 of the contracts provides:

On Practical Completion of the Works and as soon as the Owner has paid to the RMB the Contract Price, the Owner is entitled to immediate possession of the Site and the Works.

This clause is consistent with Intop’s position that payment of the contract price is due on practical completion;

(d) it is otherwise clear from the terms of the contracts that practical completion does not require the issue of the CCC, which is dealt with separately in cl 54 of the contracts.

• [43] Mr Macpherson further submits that in any event Intop had applied for the CCC for each of the units by 7 February 2023 and issued the invoices on or about 17 February 2023. Insofar as Intop was aware, the CCC has been granted for each of the units.
• [44] On this issue Mr Wood, for Lot 77, submits that Intop was not entitled to issue final invoices for two reasons:

(a) on a proper interpretation of the contracts, final invoices could not be issued until the CCC was issued by the territorial authority; and

(b) even if the final invoices could be issued on practical completion of the contracts, practical completion in accordance with the contracts had not occurred at the time the final invoices were issued.

• [45] Mr Wood expanded on this submission by referring to s 14 of the Construction Contracts Act 2002 (CCA) under which the parties to construction contracts are free to set the terms of payment. In this instance the parties had chosen staged payment claims payable on particular milestones being reached during the period of construction. He submits that the parties had these staged payments as set out in cl 3 of pt 7 of the contracts: upon signing the contract; upon foundation; roof up; close-in; upon gib-board; final.

• [46] Mr Wood acknowledges that “final” is not a defined term in the contracts and Intop has invited the Court to read the word “final” as meaning “practical completion”. He submits that this approach must be incorrect as “practical completion” is a defined term (pt 6, cl 1(l)) and this definition triggers certain obligations under the contracts. He submits that if the parties had chosen to line up the final payment with practical completion they would have done so, with reference to the defined term. The fact they did not suggests that some other milestone in the progress of the construction would be used to trigger the right to issue the final invoice.

• [47] Mr Wood submits that it is unlikely that the parties would have expected final invoices to be issued before practical completion, and therefore consideration needs to be given to events that occur after practical completion that could trigger the issue of a final invoice. He submits the correct event is the issue of the CCC by the Council, this being an appropriate trigger for the issue of a final invoice, as the issue of the CCC

means that the Council is reasonably satisfied that the building works comply with the requirements of the building consent.¹³

• [48] Mr Wood makes the following further submission in answer to objections raised by Intop in respect of using the issue of the CCC by the Council as the trigger to issue final invoices:

(a) As to the objection that the contracts could not have intended to use the issue of the CCC as the trigger as Intop could not control when the Council would issue it, Mr Wood submits that while Intop had no control over the Council’s decision, it was in complete control of making the application and taking such further steps as were necessary to ensure the CCC was issued. Intop was in charge of the works and under cl 54, Lot 77 had given its authority for Intop to act as its agent for the purposes of obtaining the CCC.

(b) The Council must, under the Building Act 2004, issue the CCC when it is satisfied the work complies with the consent within 20 working days of the application for a CCC. If the Council for any reason was not satisfied, the obligation would be on Intop to rectify any issues under the implied warranties in the Building Act, and accordingly its obligations and the right to claim the final payment cannot be said to have been discharged until the Council gives its approval through the issue of the CCC.

• [49] Mr Wood then submits that even if the trigger for invoice’s issue is the achievement of practical completion, practical completion had not been achieved in terms of the contracts. He submits that page 4 of the contracts has a checklist of what is required of the builder on practical completion, it must: issue a notice of practical completion (cl 106); provide details of ongoing maintenance requirements; give copies of guarantees and warranties; provide details of any applicable insurance.

¹³ Building Act 2004, s 94.

• [50] Mr Wood submits that Intop did not issue a notice of practical completion and nor has it provided evidence that the other requirements have been met. He submits that the issuing of a notice of practical completion is mandatory under cl 106 and it needs to be countersigned by the owner, who cannot unreasonably withhold its signature. If the owner does not sign the notice or does not provide a reason why it will not be signed, practical completion is deemed to have occurred within five working days after the notice is issue (cl 107), and therefore, practical completion cannot happen before expiry of the five working days period.

• [51] In summary, Mr Wood submits that practical completion is not the trigger entitling Intop to issue the final invoices, as issue of the CCC by the Council was the logical trigger for issuing them. He further submits even if practical completion was the trigger for issue of the final invoices, practical completion had not been achieved in terms of the contracts.

Conclusion in respect of issuing invoices

• [52] As I have noted at [41], it is not necessary for me to decide whether the final invoices were validly issued by Intop to dispose of Intop’s application. However, I express the following views:

(a) I accept Mr Wood’s argument that if the parties had intended practical completion to be the trigger for the issue of the final invoices, then it would be logical that they would have referred to the defined term in the contracts. I also agree with Mr Wood that if practical completion is not the trigger for the issue of final invoices, the logical trigger is the issue of the CCC by the Council, as this is the point at which the Council considers the works are completed in accordance with the building consent.

(b) Even if practical completion is the correct trigger for the issue of the final invoices, I agree with Mr Wood’s submission that practical

completion had not been achieved in accordance with cl 106 of the contracts at the time Intop issued the invoices, as Intop failed to issue the correct notice pursuant to cl 106 of the contract, and either have it signed by Lot 77 or allowed the five working day period to elapse resulting in practical completion being deemed to have occurred.

• [53] Therefore, I am of the view that Intop was not entitled to issue the final invoices when it did so.

Disputed debts

• [54] Mr Macpherson rejects Lot 77’s allegation that there was no debt due under the contracts because Lot 77 had disputed the invoices. Mr Macpherson submits this position is incorrect for the following reasons:

(a) pursuant to cl 29 of the contracts, if Lot 77 wanted to dispute the amounts claimed by Intop, it was required to serve a payment schedule on Intop within five working days of the invoices — and Lot 77 did not serve any payment schedule;

(b) the only response to the invoices from Lot 77 was a letter from Lot 77’s then lawyer, dated 23 February 2023 (the Lot 77 Letter), which only disputed an amount of $5,750 under the invoices. Even if the Lot 77 Letter could be deemed a payment schedule there remains an amount of $67,277.38 payable under the invoices that is not disputed;

(c) the Lot 77 Letter otherwise:

(i) raises a claim for additional costs incurred of $7,150;

(ii) raises a claim for additional costs being incurred, estimated at

$32,250;

(iii) claims a failure to carry out the works to specification to a value of $12,500; and

(iv) alludes to a possible claim for delay which has not been pursued by Lot 77.

Mr Macpherson submits that these claims do not avoid the invoices being due as pursuant to cl 33 of the contracts Lot 77 has no entitlement to set-off.

(d) The invoices total $73,027.38 and the total of Lot 77’s claims is

$57,650, and accordingly on Lot 77’s best case, the set-off if available, leaves an undisputed amount of $15,377.38 which is payable.

(e) Of the $57,650 particularised in the Lot 77 Letter, $20,000 relates to an estimated cost to obtain a Master Builder’s Guarantee for the five units, which was never part of the agreement under the contracts. Accordingly, the undisputed portion of Lot 77’s best case is actually

$35,377.38.

• [55] In the circumstances, Mr Macpherson submits that the full amount of the invoices remains due and owing, giving Intop a caveatable interest pursuant to cls 123 and 124 of the contracts.

• [56] Mr Wood, on the other hand, rejects the proposition that invoices were payment claims under the CCA and Lot 77 was obliged to issue a payment schedule under cl 29 and did not do so. He submits that the invoices were not payment claims and, even if they were, Lot 77’s response to Intop’s invoices nevertheless met the requirements of the payment schedule in substance and in timing — submitting it substantially complied with s 21 of the CCA.

• [57] Mr Wood expands on these submissions:

(a) payment claims under the CCA are subject to formal requirements and in particular must state that it is a claim made under the CCA as required by s 20(2)(f) which is a mandatory requirement, and must also be accompanied by the prescribed statutory information required by

s 20(3) and (4). The invoices did not comply with these requirements and are therefore not payment claims. Accordingly, cl 29 of the contracts is not engaged.

(b) The election by Intop to avoid the CCA regime could not have been intended to leave Lot 77 with no mechanism to dispute invoices that were incorrectly issued, and accordingly recourse should then be had to the dispute resolution mechanisms of the contracts which were then engaged and the dispute must follow the path of cls 130 to 136 of the contracts. Accordingly, until the dispute is resolved, the debt cannot be due and owing.

Conclusion in respect of disputed debts

• [58] As I have noted at [41], it is not necessary to decide whether the invoices were due and owing to dispose of Intop’s application. However, my views in relation to this issue are:

(a) Mr Wood is correct that the invoices were not payment claims for the purposes of the CCA and accordingly cl 29 of the contracts was not engaged.

(b) Mr Wood is correct in his proposition that the dispute of the invoices by the Lot 77 Letter engaged cls 130 to 136 of the contracts. In my view, Mr Wood is also correct that the disputed invoices were not due and payable until the dispute had been resolved.

• [59] Accordingly, in my view the disputed invoices were not due and owing for the purposes of the contracts. In particular, for the purposes of cl 123 of the contracts, Lot 77 was not in a position where it has failed to pay any money payable to Intop.

A caveatable security interest

• [60] Mr Macpherson rejects Lot 77’s proposition that Intop does not have a caveatable interest as it failed to provide notice under cl 125 of the contracts and had

no right to call for a registrable mortgage or to lodge a caveat. He submits Lot 77’s position is inconsistent with the terms of the contracts:

(a) Pursuant to cl 123:

If the Owner fails to pay any money payable to the RMB under this Building Contract on due date for payment, then on demand the Owner will straight away provide the RMB with an executed and registrable memorandum of mortgage over the Land...

(b) It is not disputed that Lot 77 failed to pay the invoices when due.

(c) Clause 124 then provides that:

... the RMB is entitled to register a caveat ... against the title to the Land in circumstances where the RMB is entitled to demand a registrable memorandum of mortgage.

(d) Accordingly, Intop has a caveatable interest which arose on Lot 77’s failure to pay invoices on their due date entitling Intop to demand a registrable memorandum of mortgage. Intop’s caveatable interest is not dependent on giving notice to remedy or calling for a registrable memorandum of mortgage as alleged by Lot 77.

• [61] Mr Macpherson further submits that while Intop accepts that it did not give formal notice under cl 125 of the contracts before registering its caveat, however:

(a) any notice was redundant as Lot 77 had already notified Intop that it would not pay the invoices by means of the Lot 77 Letter in response to the invoices;

(b) on 27 February 2023, Mr Duggan sent an email to Mr Wu which reinforced Lot 77’s refusal to pay the invoices and advising that, in the absence of an agreed resolution, the matter should be determined by mediation, arbitration or litigation. In addition, on 27 February 2023, Lot 77’s lawyers sent an email to Intop’s lawyers stating that Lot 77 had served a notice of dispute pursuant to cl 130 of the contracts, again reinforcing Lot 77’s refusal to pay the invoices. Lot 77 had already

transferred unit 15 and, in response, Intop had to lodge the caveat to protect its position;

(c) Intop’s non-compliance with cl 125 of the contracts does not extinguish Intop’s caveatable interest or the lodgement of a caveat. In any event, if Intop is in breach of cl 125 of the contracts, Lot 77 has not suffered any prejudice or loss from such breach as all that Lot 77 lost was an opportunity to remedy its own breach by paying the invoices, which Lot 77 clearly was not going to do.

• [62] Mr Wood, on the other hand, submits that Intop did not have a caveatable interest in Lot 77’s land and had not followed the machinery in the contracts to allow that interest to be created. Mr Wood submits that the process for creating a security interest is set out in cls 123 to 127 of the contracts and on an objective reading of these clauses together, the contractor does not have a caveatable interest in the land until:

(a) money is payable to the contractor;

(b) the due date for payment must have passed without payment;

(c) the contractor has issued a demand for payment in writing and provided the owner with five working days’ notice to remedy its default;

(d) the five day notice must have elapsed.

• [63] Mr Wood submits that even if the Court is of the view that the invoices were validly issued and the amounts claimed under the invoices were payable, notwithstanding the dispute raised by Lot 77, Intop had not complied with agreed conditions of the contract which allowed it to create a caveatable interest: no notice of default was issued; self-evidently, Lot 77 did not fail to remedy the default notified.

• [64] Mr Wood acknowledges that while Intop did not need to call for a registrable mortgage before it could lodge a caveat, Intop had to be in a position that it had a right to call for a registrable mortgage and that right would only arise on default, notice, and consequent failure to remedy — none of which occurred. Mr Wood also points out

that Mr Wu’s evidence makes it clear that Intop chose to lodge the caveat as a matter of expediency.

• [65] Finally on this issue, Mr Wood submits that to allow the caveat to be sustained in these circumstances would be to provide Intop with a right it had not bargained for or had been agreed to by Lot 77. He submits that by taking this approach, Intop has already forced Lot 77 to pay money, more than the total of the invoices, into its solicitors’ trust account pending resolution of the dispute. That was done to allow Lot 77 to progress the sale of the two units originally subject to the caveat to avoid the consequences of Lot 77 breaching its agreements for sale and purchase. He submits that while the caveat remains in place, Lot 77 cannot progress the sale of the units still subject to the caveat, and Intop are using the caveat as a pressure point and unfairly and improperly relying on such pressure to enforce payment of a disputed debt.

Conclusion in respect of a caveatable security interest

• [66] In my view, Intop does not have a caveatable interest in Lot 77’s land. I consider that Mr Wood’s submissions that failure by Intop to comply with the mechanism set out in cls 123 and 125 of the contracts is fatal to the creation of a caveatable interest. It is clear from cl 125 that the right to demand the registrable memorandum of mortgage over the land and register a caveat only arises when Intop has given notice under cl 125 and the five working days cure period has expired without the default being remedied.

• [67] While Intop lodging the caveat as a matter of expediency after discovering the transfer of the title of unit 15 is understandable, those circumstances do not, in my view, allow Intop to disregard the contractual mechanism by which a security interest in Lot 77’s land sufficient to support a caveat is created. Nor does the fact that it may have been clear to Intop that Lot 77 did not intend to pay the invoices, relieve Intop of the obligation to comply with the terms of cl 125 of the contracts.
• [68] Accordingly, I find that Intop did not have a caveatable interest in Lot 77’s land when it lodged the caveat as it was not in a position to demand a registrable mortgage from Lot 77 or lodge the caveat, and the caveat should lapse.

Cancellation of the contracts

• [69] Mr Macpherson submits that cancellation of the contracts did not affect Intop’s caveatable interest in the present circumstances because:

(a) on a plain reading of cls 123 and 124 of the contracts, Intop is entitled to register a caveat when Lot 77 fails to pay any money payable under the contracts. There is no question that the money payable under the contracts remains payable following cancellation;

(b) Intop’s caveatable interest is otherwise preserved pursuant to cl 129 of the contracts, which provides that termination is without prejudice to any other rights or remedies the terminating party may have arising from the default.

• [70] Mr Macpherson also seeks to distinguish from the present case the position in the two authorities relied upon by Lot 77 in support of its proposition that Intop no longer has a caveatable interest past cancellation of the contracts. These were the decisions in Moeke v South Waikato District Council,¹⁴ and Whitford Village Holdings Ltd v Coumat Ltd.¹⁵ Mr Macpherson submits that both decisions concerned a caveatable interest by an unregistered purchaser under an agreement for sale and purchase of the land. He submits it is clear from Associate Judge Sargisson’s observations in Moeke that the decision is specifically in relation to a pre-registration purchaser’s equitable interest in land and, in the Whitford Village Holdings case, there was no discussion on the issue.

• [71] Mr Macpherson submits that the decisions of Moeke and Whitford Village Holdings concern a caveatable interest for pre-registration purchasers under

¹⁴ Moeke v South Waikato District Council [2019] NZHC 2282, (2019) 20 NZCPR 385.

¹⁵ Whitford Village Holdings Ltd v Coumat Ltd [2015] NZHC 1787.

agreements for sale and purchase of land, and do not automatically extend to other agreements such as the building contracts in the present circumstances. He submits that this is because under the normal ADLS sale and purchase agreement, where a party is faced with cancelling a contract, they can either choose to affirm the contract (despite any breach) or cancel it and seek damages.

• [72] Mr Wood, on the other hand, submits that if the Court accepts a proposition that the contracts only created a contingent security interest in the land (which I have determined is the case at [66] to [68]), Intop is also prevented from retroactively perfecting that interest if it now attempted to go through the default notice process under cl 125 of the contracts.

• [73] Mr Wood submits that while s 43 of the Contract and Commercial Law Act 2017 preserves the law on the effect of cancellation on accrued rights, at common law cancellation avoided the responsibility of both parties’ future performance and did not wholly undo any accrued rights of the parties up to the point of cancellation. However, Mr Wood submits that the Court of Appeal in Garratt v Ikeda confirmed that for a right to be accrued it must, at the time of cancellation, meet two requirements:¹⁶

(i) there must have been no impediment, by unfilled condition or otherwise, to the enforcement of the right at the point of rescission or discharge; and

(ii) enforcement must not have been subject to any reciprocal obligation on the part of the enforcing party.

• [74] Mr Wood submits in this case Intop had not fulfilled the conditions required to create a caveatable interest in the property at the time it lodged the caveats or when it cancelled the contracts, and the cancellation of the contracts extinguished Intop’s contingent interest in Lot 77’s land.

• [75] As to the distinction which Mr Macpherson attempted to draw between the present instance and the situations in Moeke and Whitford Village Holdings decisions, Mr Wood submits that there is no principled basis for any distinction between agreements for sale and purchase and cancellation of any other contract. He points

¹⁶ Garratt v Ikeda [2001] NZCA 316; [2002] 1 NZLR 577 (CA) at [5]–[7].

out that, again if the Court accepts the proposition that Intop only had a contingent interest in the property, it is not necessary to contend that an accrued right which can support a caveat is terminated on cancellation. Lot 77’s point is that there was no accrued right and Intop cannot now rely on the contractual machinery under the cancelled contract to put itself in the position of possessing that right. Put another way, Intop — like the purchasers in Moeke and Whitford Village Holdings — cannot effectively unwind its cancellation and revive its right to perfect its interest under the cancelled contract.

Conclusion in respect of cancellation

• [76] My view in relation to the effect of Intop cancelling the contracts is that, as I have determined at [66] to [68], that Intop only had a contingent interest in Lot 77’s land, this contingent interest did not constitute an accrued right which would survive cancellation. Applying the test in the Garratt decision, there is an unfilled condition which attached to Intop’s right to hold a security interest in Lot 77’s land, in that it had to comply with the procedures under cls 123 and 125 of the contracts to perfect its security interest. As it had not done so, cancellation invalidated Intop’s rights in the contracts to create a security interest post-cancellation.

Discretion to remove the caveat

• [77] Mr Macpherson argues that if the Court determined that Intop had a caveatable interest in the land, funds paid into trust by Lot 77 would not be a sufficient reason for the Court to exercise its discretion to remove the caveat. As I have determined that Intop did not have a caveatable interest in the property, the issue of exercise of the Court’s discretion to remove the caveat notwithstanding the existence of a caveatable interest does not arise.

• [78] Similarly, the submission by Mr Wood as to residual discretion does not arise given my finding that Intop has no caveatable interest.

Result

• [79] As a result of the conclusions I have reached at [66] to [68] and [76], I am of the view that the caveat should be allowed to lapse. In addition, as I have noted at

[52] while not determinative in disposal of the application, my view is that Intop were not entitled to issue final invoices. And further as I have noted at [58], although again not determinative in disposal of the application, my view is that the debts recorded in the invoices were not due and payable.

Orders

• [80] I order that the caveat lodged by Intop against Lot 77’s land shall lapse.

• [81] I direct counsel to endeavour to agree costs. My view is that costs should follow the event, and Lot 77 as the successful party is entitled to costs on a 2B basis plus disbursements. If costs cannot be agreed within 20 working days of the date of this judgment, counsel for Lot 77 shall file a memorandum as to costs (not to exceed 5 pages) within 5 working days of the expiry of the 20 working day period, and counsel for Intop shall file a reply (not to exceed 5 pages ) within 5 working days of receipt of counsel for Lot 77’s memorandum. A decision on costs will then be made on the papers.

................................... Associate Judge Taylor