WESTMINSTER FINANCE LIMITED V MARAC FINANCE LIMITED HC AK CIV 2009-404-3350 [2009] NZHC 1055 (17 August 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                      CIV 2009-404-3350
                                                                      CIV 2009-404-4313

                UNDER                  
      The Land Transfer Act 1952 s 145A

                IN THE MATTER OF              of an application that caveat not lapse


               BETWEEN                       WESTMINSTER FINANCE LIMITED
                                              Applicant

                AND                           MARAC FINANCE LIMITED
                                              Respondent


Hearing:
       17 August 2009

Appearances: R Hucker for the Applicant
             D Vizor for the Respondent

Judgment:       17 August
2009


                               JUDGMENT OF
                       ASSOCIATE JUDGE CHRISTIANSEN




                      
   This judgment was delivered by me on
                             17.08.09 at 4:30pm, pursuant to
                           Rule
11.5 of the High Court Rules.


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




Solicitors/Counsel:
R Hucker, Hucker & Associates, Auckland - Fax: [phone]
D Vizor, Bell Gully, Auckland - Fax: (09 916
8801

WESTMINSTER FINANCE LIMITED V MARAC FINANCE LIMITED HC AK CIV 2009-404-3350 17
August 2009

[1]    We are concerned with an
application by the applicant (Westminster) to
sustain two caveats. The proceedings in respect of those two applications are being
heard together.


[2]    There is no dispute that the interest secured by each of the caveats relates to
an advance of funds by Westminster
to the registered proprietor of the land, Merlot
FX Management Limited (Merlot FX) pursuant to a loan agreement dated 19 May
2008.
The advance was in the sum of $54,000. For present purposes it is not
disputed by the respondent (Marac) that Westminster's loan
agreement supports
Westminster's ability to lodge the caveats.


[3]    The sole ground relied upon in opposition to Westminster's
applications
appears to be that it is more convenient for the caveats to be removed to enable
Marac to obtain the full benefit of
some agreements for sale and purchase that had
been entered into by Merlot FX.


[4]    Marac is owed more than $6.7M in respect
of advances to Merlot FX.
Marac's advances are secured by registered first mortgage over all of Merlot FX's 26
properties. Westminster
has registered its caveats against all 26 certificates of title.
The current applications before this Court concern four properties
only which are the
subject of agreements for sale by Merlot FX. Those agreements were entered into
well before Marac issued its Property
Law Act notices.          Merlot FX wishes to
proceed with those sales which are at an average price of $500,000 each. As first
security
holder Marac will receive all of the net sales proceeds. Although Marac has
issued Property Law Act notices it has not since acted
upon those to effect
mortgagee sales. Its position, supported it says by the undisputed evidence of Ms
Herron, a director of Merlot
FX is that "the sale price under the agreements is better
than would likely be achieved if the agreements were cancelled and the
properties
had to be resold". That evidence is supported by Mr McMillan, Marac's commercial
manager who stated "[i]t is unlikely
that the Properties could be sold in the current
market for prices at the same level, or higher than, the purchase price provided
under
the Agreements".

[5]     Obviously if the four properties sell for around $2M there is a very
considerable shortfall still
due to Marac. Why then does Westminster apply to
sustain its caveat. Their reasons include:


        a)     That the Court can not
be satisfied that in the end result there will be
               no legitimate benefit to Westminster from maintaining its caveat.


        b)     There will likely be some funds available to Westminster.


        c)     The Court cannot be completely satisfied that the legitimate interests
               of Westminster will not be prejudiced if the applications to sustain the
               caveats are refused.


  
     d)     Marac has remedies available to it by adopting the agreement for sale
               and purchase pursuant to s 179 of
the Property Law Act 2007 or in
               exercising its mortgagee power of sale.


The applicant's case


[6]     It is clear
Merlot FX gave an undertaking through its solicitors to repay
Westminster from the proceeds of the sale of one of those four properties
affected by
its applications. If the caveats are lifted Merlot FX will avoid its obligations to
Westminster by being able to sell
the four properties concerned unencumbered by
the interest of Westminster. This means that Marac will obtain the full financial
benefit
of the agreements for sale without taking upon itself the obligations of the
warranties and guarantees contained in the sale agreements.
           Those are the
warranties and guarantees routinely provided by vendors but usually deleted by
mortgagees when properties
are sold by mortgagee sale.


[7]     A caveat ought not be removed if there is a reasonably arguable case of a
claim of an interest
in the affected land. Nevertheless and despite an arguable claim
of an interest in land the Court retains a discretion to remove
the caveat if it
considers a caveator has no reasonable expectation of obtaining any benefit from that
interest.

[8]     In the
present case Marac says there will be no proceeds from the sale of the
four properties which Westminster will receive. Westminster
believes that in the end
result it does stand to realise a benefit from its caveat. Ms Herron has confirmed an
expectation that upon
the sale of [all] of the properties, the sums owed to
Westminster and to Marac will be paid. Therefore, Mr Hucker submits, the Court
cannot be completely satisfied that the legitimate interests of Westminster will not be
prejudiced by a refusal to support the caveats
over the four properties we are here
concerned with.


[9]     Mr Hucker submits there has been no disclosure of other securities
held by
Marac which may provide additional security to that held by their first mortgage. He
says there has been no disclosure whether
the purchasers are related to Merlot FX.
He says there has been no marketing campaign undertaken. Westminster cannot be
certain the
price obtained for the properties is the best available ­ that no valuation
evidence has been provided to support a claim that best
price has been obtained.


[10]    Mr Hucker submits that if Marac does not utilise s 179 of the Property Law
Act to adopt the agreement
for sale and purchase then the properties could revert to
Merlot FX upon Westminster's caveat being removed. Hence, a suggestion
for a
form of order requiring the caveat to be removed upon the mortgagee executing a
transfer under s 105 of the Land Transfer Act
1952. Of course to be able to do this
in a situation where the mortgagee has not itself sold the land to another, the
mortgagee must
adopt any agreement by the vendor pursuant to s 179 of the Property
Law Act.


[11]    Mr Hucker submits that an order requiring
the caveat to lapse upon
registration of a transfer taken from the mortgagee would protect a second or
subsequent security holder
by ensuring the first mortgagee obtained the best possible
price for the property; that the mortgagee duly accounted for GST from
the sale
proceeds; and that as a matter of public policy proper priorities are maintained in the
realisation of the assets.

Considerations


[12]   An order for removal of a caveat will only be made where the Court is
completely satisfied and that the legitimate interests
of the caveator will not thereby
be prejudiced Pacific Homes Limited v Consolidated Joineries Limited  [1996] 2
NZLR 652 at 656.


[13]   This case is really about whether the caveats over the four lots provide a
reasonable expectation of benefit from
those caveats being maintained, or are there
other means by which a caveator's interest can better be served. In essence Mr
Hucker
claims by requiring the mortgagee to assume control of the sale albeit with
the warranties and guarantees assumed thereby, the process
of sale and with it the
lawful and reasonable expectations of second or subsequent security holders, can be
maintained.


[14]  
However, does any practical benefit remain for Westminster in maintaining
its caveats in relation to the four subject properties.
       I think there is not for
notwithstanding Westminster's concerns about the integrity of the process ­ about
which I will mention
more shortly ­ it seems beyond question the sale of the
properties will realise nothing for Westminster and therefore there is no
practical
benefit in sustaining the caveats in relation to those properties.


[15]   Ms Herron's claims of good prices and Marac's
claims of prices being higher
than could be achieved if the properties were sold at mortgagee sale, are undisputed.
Although the
Court ought to be wary of accepting those mere assertions of value,
Westminster has not availed itself of its right of reply to dispute
them. If the value of
the properties being sold was a significant point of Westminster's claims to prevent
those sales then Westminster
ought to have provided some evidence challenging sale
prices. Of course there is nothing to stop that being done in relation to the
sale of
other properties over which Westminster has lodged caveats. It is clear that if the
caveats are not removed then Merlot FX's
sales will come to an end. Common sense
and experience indicates that subsequent sales of those properties by a mortgagee
may yield
a significantly reduced price.

[16]   Mr Hucker complains that Marac has not disclosed any other security it may
hold for its loans
to Merlot FX. It is clear from the terms of the loan that the
mortgage is Marac's only security. Regardless, the existence or otherwise
of other
security should not affect the discretion available to the Court at his time because
Marac is able to resort to the security
provided by its mortgage.


[17]   Mr Hucker's suggestion is that Marac should assume control of the sale
process by utilising its
position as first mortgagee. Marac's reluctance to do so is
understandable for it may assume significant liability in the process.


[18]   Section 179 of the Property Law Act is a new provision and is yet to be
considered by the Court. Mr Vizor submits that it
remains unclear whether, by
adopting an agreement a mortgagee assumes all the duties and obligations that the
mortgagor would have
had as vendor. I can understand that if those duties and
obligations were assumed by the mortgagee the mortgagee could be put at
risk for all
sorts of obligations over which it had no influence in the creation of them. The usual
vendor obligations under an agreement
to sell can be considerable and
understandably attach to a person or body who has control in their making. Instead a
mortgagee does
not or could not know whether a sale of the properties would result
in the breach of those undertakings. It is therefore asking much
of a mortgagee to
assume those obligations in order to adopt a vendor's agreement for sale.


[19]   Mr Hucker makes much of the
fact that a caveat ought not be removed unless
the Court can be completely satisfied that the caveator's legitimate interests will
not
be prejudiced. He says in applying that standard the Court is entitled to take a global
view of the potential for prejudice i.e.
in relation to all properties over which
Westminster has registered its caveat, including the four which are the subject of the
present
application. I do not agree with that proposition. Westminster is owed
$54,000 by Merlot FX. Marac is owed $6.7M. The four properties
have been sold
for around $2M. The plain fact of it is that the sale of these properties will realise
nothing at all to Westminster. Therefore the legitimate
interests of Westminster in
the outcome of the proposed sale of the four properties will not be prejudiced.

[20]     Mr Hucker
raises a number of matters to suggest the process of sale might be
tainted. Those claims overlook the fact that the four properties
were subject to
agreements for sale and purchase entered into long before Marac took steps towards
realisation of its security. A
settlement of the sales will still leave Marac $4.7M
short on its recovery. It is unrealistic to suggest Marac would countenance
say sale
process except for a maximum return.


Result


[21]     Westminster's applications are dismissed.


[22]     Marac shall
be entitled to costs on a category 2B basis together with
disbursements approved. Marac's costs shall be certified for a single claim
for
hearing preparation and for hearing time in connection with both matters.




Associate Judge Christiansen