Featherstone Park Developments Ltd (in rec) v Hu HC Auckland CIV-2011-404-001041 [2011] NZHC 591 (20 June 2011)

Last Updated: 3 July 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2011-404-001041}

BETWEEN FEATHERSTONE PARK DEVELOPMENTS LTD (IN RECEIVERSHIP)

Applicant

AND JAMES HU & ORS Respondents

Hearing: 27 May 2011

Appearances: TJG Allan for Applicant

E Grove for the Respondents

Judgment: 20 June 2011

_{RESERVED JUDGMENT OF ELLIS J}

This judgment was delivered by me on 20 June 2011 at 4.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors: Grove Darlow & Partners, PO Box 2882, Auckland

Foy & Halse, PO Box 26-218, Epsom, Auckland

_{Counsel: E Grove, PO Box 2886, Auckland 1140}

FEATHERSTONE PARK DEVELOPMENTS LTD (IN RECEIVERSHIP) V HU & ORS HC AK CIV-2011-404-

001041 20 June 2011

[1] This is an application for removal of caveats. The caveats are numbered

8643573.1 to 16, lodged against certificates of title 430605, 430606, 430607,

430610, 420270, 420272, 420271, 420276, 420292, 420281, 420285, 420286,

420288, 420291, 420305, 420306, 420309, 420297, 420301 and 420302. The interest under each caveat is claimed to arise:

Pursuant to agreements for sale and purchase dated 10 February 2010 between the registered proprietor, Featherstone Park Developments Limited, as Vendor and the Caveator, [name of Caveator] as Purchaser

[2] It is not disputed that each of the caveators entered into agreements for sale and purchase with Featherstone Park Developments Ltd [FPDL] for the purchase of lots within the subdivision known as the Saint Petersburg Estate in River Road in the north of Hamilton. Each of the purchasers was a member of the ―Lee Group‖, which was named after Mr David Lee who was himself a purchaser, but who also acted as the agent for the other members of the group.

[3] The settlement date under each of the agreements was 19 March 2010 although the agreements contained a clause which provided that if a specified number of the Lee Group settled on that date, other members of the group would be permitted to settle on later (specified) dates. In the event, some members of the Lee Group did settle on 19 March 2010, but not enough of them to trigger later settlement dates for the others. Thus the settlement date remained 19 March 2010 for all the respondents.

[4] By 19 March 2010 Featherstone Park Developments Ltd had gone into receivership.

[5] In September 2010 the receivers’ solicitors issued settlement notices. Prior to that occurring there had been a number of communications between the receivers’ solicitors and representatives of the respondents in which a number of similar reasons were given by them for their difficulty in settling. These included:

(a) Stricter lending policies which led to more time being taken to process finance applications;

(b) The failure of a private financier to fund the transactions;

(c) The impact of the Greek sovereign debt crisis on lending policies; and

(d) Unsuccessful attempts by the purchasers to on-sell the properties.

[6] In October 2010, following the respondents’ failure to comply with the settlement notices, the receivers’ solicitors cancelled the agreements for sale and purchase.

[7] The day after the cancellation was notified the respondents raised an issue about compliance by FPDL with clause 21 of the sale and purchase agreements for the first time. Clause 21 provides:

21. Works

21.1 Prior to the Settlement Date, the Vendor shall complete the works referred to in the Second Schedule attached (―Works‖). The parties authorise Total Properties Strategies NZ Limited (―Project Manager‖) to issue a notice to each of the Vendor and the Purchaser once the Works are completed (―Works Completion Notice‖), but if the Purchaser objects to the Works Completion Notice being issued (such objection to be based on reasonable grounds and to be received by the Vendor within 5 Working Days of the Works Completion Notice being issued, otherwise such objection being of no effect) then the parties agree that AECOM Limited or if AECOM Limited for whatever reason will not act, such other independent party appointed by the Project Manager, acting independently and professionally (―the Engineer‖) shall determine whether or not the Works Completion Notice was validly issued (such determination to be binding for the purposes of settlement of the Property), but without prejudice to either party’s right to dispute such determination following settlement. If the Works Completion Notice is held to be invalidly issued:

(a) the Project Manager shall be entitled to issue a further Works Completion Notice at anytime after the Engineer determines the Works have been completed (―Further Notice‖); and

(b_ the Settlement Date shall be deferred without penalty to either party until the 5th Working Day after the issue of the Further Notice.

_{The Engineer’s costs shall be shared equally between the}

Parties unless otherwise determined by the Engineer.

21.2 In the event the Purchaser wishes to settle prior to the contractual Settlement Date and the Works Completion Notice being issued, the Vendor shall procure its solicitor to hold, subject to clause 21.4, a sum of $5,000.00 from the amount paid on settlement until such time as the Works have been completed (―Retention Money‖). Interest less resident withholding tax shall follow the principal.

_{21.3 The Parties irrevocably and unconditionally instruct the}

Vendor’s solicitor:

(a) to hold the Retention Moneys in an interest bearing trust account jointly in the name of the Parties;

(b) to pay the Retention Moneys (and all accrued interest less RWT) to the Vendor upon:

(i) the Works being completed and each party accepting (or being deemed to have accepted) the Works Completion Notice was validly issued; or

(ii) the Engineer determining that the Works Completion Notice has been validly issued if the Purchaser disputes same in accordance with clause 21.1.

(whichever first occurs)

[8] The ―works‖ were defined in Schedule 2 as:

Plaster bridge

Planting around the weir (note that reviewing the planting plan that has been done for this is in conjunction with Environment Waikato).

[9] The caveats were placed on the titles in December 2010. Unsurprisingly, the receivers wish to market the unsold properties. The caveats impede them in achieving that aim. They therefore seek to have them removed, principally on the grounds that:

(a) The agreements were validly cancelled and the respondents therefore have no caveatable interest in the land; or

(b) the balance of convenience favours removal because:

(i) the caveats are a detraction from the sale of both the subject properties and the other properties in the development that remain unsold;

(ii) the mortgagee (South Canterbury Finance) is an innocent third party whose interests are adversely affected by the caveats.

[10] The respondents’ notice of opposition to the present application relevantly stated that:

The Respondents are respectively the purchasers of 20 individual lots in the

Applicant’s subdivision situated at Hamilton.

The Respondents have each paid a substantial deposit on account of the purchase price of each lot and accordingly have a caveatable interest in the land.

The Applicant has purported to cancel the agreements for the sale and purchase of the 20 lots, but it is not accepted by the Respondents that the Applicant was entitled to cancel because the Applicant had failed to comply with the requirements of Further Term of Sale 21 of each Agreement for Sale

& Purchase and in particular, has not provided the Respondents with a

Works Completion Notice.

...

The Applicant has still not completed the works which are a pre-condition of settlement under Further Term of Sale 21.

[11] In support of the respondents’ position Mr Lee deposed (inter alia) that it was important to the caveators that these ―works‖ were carried out prior to settlement and that they were not. Although there is some dispute as to the extent of the alleged non-completion it is not contested that no works completion certificate was ever sought or issued.

[12] The necessary implication of the respondents’ focus on clause 21, when viewed in light of the terms of the caveats (which refer to the interest in the land arising ―pursuant to‖ the agreements for sale and purchase), is that the caveators did not accept the validity of FPDL’s cancellation of the sale and purchase agreements. That cancellation was therefore to be viewed as a wrongful repudiation of those agreements which the caveators had elected to affirm. The nature of the interest described in the caveat can only be interpreted as meaning that the caveators regarded the agreements as remaining on foot and that they wished to maintain their rights under them. Once FPDL had complied with clause 21, the caveators would settle.

[13] On that analysis the central issue that would arise for determination was whether the respondents’ position in relation to the (in)validity of FPDL’s cancellation was at least arguable. If it was, then it would necessarily also be arguable that they had a caveatable interest in the relevant land arising from (―pursuant to‖) the sale and purchase agreements. And if that was so, then the

caveats would, in the ordinary course, be maintained: Sims v Lowe.[1] It was on that basis that the applicant’s argument before me was prepared and proceeded.

[14] In retrospect, however, it is now clear that the notice of opposition was somewhat ambiguous as to the respondents’ position in this respect. Although it refers to the status of the respondents as ―purchasers‖ of the land and implies that they had an ongoing interest in FPDL’s compliance with clause 21, it also appears to rely on the payment of the deposits as giving rise to the respondents’ caveatable interest in the land.

[15] The respondents’ focus on the recovery of their deposits was made much clearer in the written synopsis prepared on behalf of the respondents in which Mr Grove submitted that:

Each of the respondents has lodged a caveat against the property to which their sale and purchase agreement relates. The respondents say that, if the sale and purchase agreements have validly been cancelled in response to the applicant’s alleged repudiation, they have a valid caveatable interest and that their caveats are necessary in order to protect their ability to recover those deposits.

[16] The assertion that the respondents had cancelled the sale and purchase agreements is, of course the opposite of the implication that is to be drawn from the caveats themselves, which is that the caveators’ interests derive from the continued validity of the agreements. That inconsistency necessarily raises a prior and different question, namely whether the interest in the land claimed by the caveators in fact exists or has been stated with the certainty required by s 137(2) of the Land Transfer Act 1952. Master Faire was confronted with a similar situation in Joy v

Roskam[2] where he said:

[8] Unfortunately counsel had not specifically researched the position that arises where the contract for the sale of land does not proceed. That raises the possibility that the purchaser may become entitled to recover from the vendor the amount of the deposit paid and, perhaps, other sums. In that case the purchaser has an equitable lien on the land for such amounts. Kimberley NZI Finance Ltd v AR Barr Investments Pty Ltd (1990) ANZ ConvR 438 (FC of A). The reason for such a lien was explained by Wynn-Parry J in Combe v Swaythling (1947) Ch 625. The purchaser is regarded as a secured creditor. The purchaser is therefore entitled to take execution based on the security against the land. The lien will support a caveat. Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41, 57

[9] The particular problem in this case, however, is that the caveat is not drawn claiming a lien against the land. Rather it alleges that an interest is claimed as purchaser under the sale and purchase contract. In my view, DW McMorland Sale of Land (2ed, 2000) 202 is correct when he says:

after cancellation of the contract to buy, the purchaser no longer has a caveatable interest based on the contract; any such caveat must be withdrawn and replaced with a caveat based on the lien.

[10] The above proposition is, of course, consistent with s138 of the Land Transfer Act 1952 and reg24 of the Land Transfer Regulations 1966. The caveat must state the nature of the estate or interest claimed by the caveator. If the basis for claiming the caveat has changed then it complies neither with the Statute nor the Regulation and therefore should not be extended. Ball v Fawcett [1997] 1 NZLR 743. The caveat here no longer refers to an interest which still exists.

[17] If the decision in Joy v Roskam were to be followed the position advanced in

Mr Grove’s submissions would necessarily be fatal to the respondents’ opposition.

[18] When this issue was raised at the end of the hearing (although not precisely in the terms I have set out above), Mr Grove advised that he would need to seek further instructions as to whether his submission did in fact reflect his clients’ position. Given the way in which the applicant’s argument had been prepared and presented I was reluctant for the goalposts seemingly to be moved at that point. I therefore indicated to counsel that I would determine the matter on the basis that the caveat did accurately describe the nature of the interest claimed by the respondents.

[19] Upon further (post-hearing) reflection, however, it appeared to me that the position I had reached was unsatisfactory. It would plainly be wrong both in terms of principle and policy to permit the caveats to remain in place if they relate to a non-existent interest in the land or otherwise do not accurately describe the interest claimed. As Vautier J said in NZ Mortgage Guarantee Co Ltd v Pye:[3]

It is clearly correct, in my view, that if by statute a person is given the right to take a step which will prevent someone dealing with his own land as he thinks fit the person seeking to avail himself of this right must comply with the statutory requirements which are precisely laid down. These requirements are, in my view, clearly mandatory as the Australian Courts have held in respect of provisions to just the same effect. Moreover, the inconvenience and injustice which is likely to arise from the upholding of caveats of this kind expressed in loose and general or inaccurate words is very obvious when one considers the scheme of the provisions as a whole. It is not simply a matter, as counsel for the applicants' argument would imply, of acquainting the registered proprietor with the general nature of the claim made against his land. Section 141 of the Act provides that:

"141 Effect of caveat against dealings — So long as a caveat in Form N remains in force the Registrar shall not make any entry on the register having the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat" ...

How is the Registrar to know what the estate or interest protected by the caveat is unless this is fully and accurately described in the only document with which he is presented. Without such definition the registered proprietors of land may be prevented from entering into some transaction involving his land which could be of great advantage to him and which the caveator had no possible right to impede or stultify and which he actually did not intend to assert. This very situation is, of course, illustrated graphically by this particular case. The respondents are by these proceedings being impeded in concluding the re-arrangements of their finance on this unit. The situation here instanced has to be viewed also in the light of present day conditions as to the despatch of the business of the Courts — conditions very different from those pertaining when many of the general statements referred to earlier in this judgment were made with regard to the course to be followed with these applications. If the course of ordering that the caveat do not lapse upon the condition that the applicants commence proceedings with despatch to resolve the question of their right to claim, it could well be 12 months or more before the action can be disposed of in the normal course and the registered proprietors' title would be kept in a state of uncertainty for all this time.

[20] Accordingly on 1 June I issued a minute in which I said:

... For the purposes of determining the present application the Court is entitled to know:

(a) whether the respondents’ position is that they have affirmed the sale and purchase agreements and wish still to have them performed (subject of course to what they say is the required compliance with clause 21); or

(b) whether their position is that they have cancelled the contracts and seek merely the return of their deposits.

Mr Grove is therefore to file a memorandum advising the Court of which is

his clients’ position by 5 pm tomorrow, 2 June 2011.

In the event that it remains as reflected in his submissions and as intimated in Mr Lee’s affidavit (ie (b) above), Mr Grove is also to refer the Court in that memorandum to any judicial authority that suggests that Joy v Roskam

... would not pertain. I do not, however, want or require submissions on that issue.

[21] Mr Grove’s memorandum confirmed that the respondents’ position was as set out in his submissions, namely that they had elected to cancel the contracts following the applicant’s wrongful repudiation of them. Thus the respondents were not claiming an interest in the land ―pursuant to‖ the sale and purchase agreements.

[22] In response to my request for authority that might suggest that Joy v Roskam might not be correct in law Mr Grove referred me to the decision of Associate Judge Abbott in Cosmos Farms Ltd v The Construction Group Ltd.[4] In that case, however, it appears that the caveat specified that the interest claimed arose by virtue of the deposit paid (see [3] and [7] of the judgment) and, indeed, the decision was made on the basis that:[5]

The caveatable interest claimed by the plaintiff is a purchaser’s lien in respect of the deposit paid. There is long established authority that a purchaser who pays a deposit to a vendor has a right to a lien over the land if the contract does not proceed. This is because the purchaser is regarded as a secured creditor, entitled to an equitable lien against the land whilst the deposit remains unpaid: Whitebread & Co Ltd v Watt [1902] 1 Ch 835; Combe v Swaythling [1947] 1 Ch 625, 628; Joy v Roskam HC HAM CIV

2003-419-331, 12 June 2003, Master Faire at para [8].[6]

[23] As the reference here to Joy v Roskam suggests, Cosmos Farms is on all fours with that decision. The only relevant interest that could be caveated by any of the respondents was a purchaser’s lien in respect of the deposits. Regardless of whether the vendor’s call for settlement was valid, the respondents’ own analysis leads inexorably to the conclusion that the interest which they have purported to caveat does not exist.

[24] As the quotation from Pye (above) makes clear, there are sound policy reasons for requiring a caveator to identify the interest that he seeks to protect with a degree of precision and accuracy. While I accept that there may in some cases be room for latitude I do not think that this is such a case. In my view the mistake made in the framing of the caveats here was fundamental and reflects what I consider on the evidence to be the reality of the respondents’ position. That reality is that they were, for financial reasons, unable to settle on or after 19 March 2010. The concerns expressed some 9 months later about FPDL’s compliance with clause 21 were in my view makeweight and opportunistic.

[25] It is not only timing of the raising of the concerns that invites a conclusion of opportunism by the respondents. That conclusion is fortified by an assessment of the legal merits of the respondents’ position on the clause 21 issue. In light of the conclusion I have reached in [23] I do not need to set out this assessment in any detail. Suffice it to say that I consider that the claim (for cancellation by the

respondents) would have little prospect of success, for the reasons that (briefly)

follow.

[26] I do not read clause 21 as making either completion or issuance of a Works Completion Certificate a precondition of settlement. I consider that the ―works‖ concerned were of a minor nature. This is reflected in clause 21.2 which stipulates that in the event that settlement occurs early and before completion of the works

$5000 is to be held back from the settlement price.

[27] As well, I note that there is a non-merger clause in the contract. Even if there is settlement prior to completion, the vendor remains obliged to carry out the works. And while the vendor has undertaken to do the works, there is no provision in the agreement expressly permitting deferral of the settlement date pending completion. Similarly there is no provision excusing the purchasers from paying the purchase price entirely while the works are not carried out. Clause 21 itself contains the means by which the purchasers can address any alleged failure to complete.

[28] Moreover, and as has recently been confirmed by the Supreme Court in Property Ventures Investments Ltd v Regalwood Holdings Ltd,[7] the remedy available to a purchaser in a case involving a breach of the sort alleged here is either:

(a) to raise a set-off by way of abatement of the purchase price on account (here) of the uncompleted works; or

(b) to cancel the contract.

[29] Here, the respondents did neither. Although they now say that they have cancelled the contracts it is plain from the evidence before me that they did not do so at the material time or in accordance with the relevant contractual requirements. Rather, they acted in precisely the way in which they are not permitted – they sat on the fence and did nothing.[8]

[30] As I have said, however, the merits of the respondents’ position under clause

21 are ultimately irrelevant. For the reasons given earlier in this judgment I am of

_{the view that the caveatable interest identified in the respondents’ caveats does not}

exist. The application for removal of each of the caveats identified in paragraph [1]

of this judgment is granted accordingly.

[31] The applicant seeks an award of costs above scale. If that position is maintained and there is no agreement between the parties in that respect, counsel for the applicant and for the respondents are to submit memoranda within five and eight working days of the release of this judgment respectively. Otherwise the applicant’s costs are payable by the respondents on a 2B basis.

Rebecca Ellis J

---

[1] _{Sims v Lowe [1988] 1 NZLR 656 (CA).}
[2] Joy v Roskam HC Hamilton CIV-2003-419-331, 12 June 2003.

[3] NZ Mortgage Guarantee co Ltd v Pye [1979] 2 NZLR 188.
[4] _{Cosmos Farms Ltd v The Construction Group Ltd HC Auckland CIV-2007-404-3249, 22 June 2007.}
[5] Ibid at [11].
[6] Ibid at [11].

[7] Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231; [2010] ANZ ConvR 10-025; (2010) 6 NZ ConvC 194,754 (SC).
[8] Ibid at [72].