Crosby v Levin Mall Limited HC Palmerston North CIV-2011-454-301 [2011] NZHC 836 (2 June 2011)

Last Updated: 11 August 2011

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

_{CIV-2011-454-301}

UNDER the Land Transfer Act 1952

IN THE MATTER OF an application that a caveat not lapse under section 145A Land Transfer Act 1952

BETWEEN SOPHIA CROSBY Applicant

AND LEVIN MALL LIMITED Respondent

Hearing: 2 June 2011

Counsel: J. Moss - Counsel for Applicant

N. Gray - Counsel for Respondent

Judgment: 2 June 2011

_{ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

Solicitors: GCA Lawyers, PO Box 3241, Christchurch

_{Sainsbury Logan & Williams, Solicitors, PO Box 41, Napier}

S CROSBY V LEVIN MALL LIMITED HC PMN CIV-2011-454-301 2 June 2011

Introduction

[1] Before the Court is an application by the applicant, Sophia Crosby, for an order pursuant to s 145A Land Transfer Act 1952 that Caveat 8724905 not lapse. That caveat has been registered against several titles all of which collectively make up a commercial property in Levin known as the Levin Mall.

[2] The respondents oppose this application essentially on the following grounds:

(a) There is no jurisdiction to hear the application as it has been made out of time;

(b) The applicant does not have the requisite caveatable interest in the land; and

(c) If the applicant does have a caveatable interest in the land, under all the circumstances prevailing here the Court should exercise its discretion to remove the caveat as retaining it would give no practical advantage to the applicant.

Background Facts

[3] The Levin Mall was previously owned by a company controlled by Mr Raymond Phillip Durney (Mr Durney) and his family. This company was known as Durney Land Company Limited.

[4] Durney Land Company Limited was placed into liquidation some time ago. It seems the Durney family and Mr Durney in particular wished to make arrangements to protect their interest in the Levin Mall property and had discussions to this end with Mr Sam Kelt (Mr Kelt) and others.

[5] Subsequently, an arrangement was entered into of some kind between Mr

Durney and Mr Kelt and on 4 March 2010 the liquidators of Durney Land Company

Limited (in liq) entered into a contract for the sale of the Levin Mall to Mr Kelt’s company, Kelt Capital Limited (or nominee) at a price of $4,000,000.00. Settlement under this contract with the nominated purchaser under the contract, a new company, Levin Mall Limited, took place in April 2010.

[6] Levin Mall Limited, as I understand the position, was incorporated around 9

April 2010, having 100 shares owned by a Mr David James Nancarrow (Mr Nancarrow) he being also the sole director of the company. Mr Nancarrow was at the time an executive employee of Mr Kelt’s company, Kelt Capital Limited. He worked for that company for two and a half years until September 2010.

[7] The $4,000,000.00 purchase of the Levin Mall by Levin Mall Limited was funded effectively by a 100% first mortgage of $4,000,000.00, with the New Zealand Guardian Trust Company Limited and a second mortgage to Central Mortgage Trust Limited securing about $100,000.00.

[8] Matters proceeded with the Levin Mall under the notional ownership of Levin Mall Limited and then around May 2010 certain events occurred. Mr Durney in his second affidavit on behalf of the applicant sworn 31 May 2011 deals with this and states at paras 20 and 21:

20. It was intended that a new trust was to be formed to own the (Levin) Mall and I even went ahead and formed that trust, called the Te Aute Trust, through my then solicitor Gerald McKay (who Mr Kelt says was dealing with the conveyance of the Mall purchase, see para 29 of his affidavit) on 5

May 2010. A copy of the trust deed is attached and marked “E”.

21. Shortly after the formation of that trust, it became apparent to me that Mr Kelt might double cross me. I wrote to Mr McKay putting him on notice of the events that lead to the purchase of the mall. A copy of that letter dated

18 May 2010 is attached to my previous affidavit as “RD9”.

[9] It appears that nothing further developed regarding these concerns expressed by Mr Durney in this affidavit until sometime in 2011.

[10] In the meantime, on 24 January 2011 Levin Mall Limited as vendor entered into an agreement to sell the Levin Mall property to a third party at a price of

$5,275,000.00 plus GST (if any). This sale agreement as subsequently varied provided for a settlement date of 17 May 2011.

[11] Settlement of this sale could not take place on 17 May 2011, however, because in the meantime the caveat, the subject of the present proceeding, had been registered by the applicant on 28 March 2011.

[12] That caveat, in the name of the applicant Sophia Crosby as caveator, claims an interest specifically described in these terms:

As one of the beneficiaries under a bare trust between the registered proprietor as bare trustee for the Durney Family and the caveator as beneficiary arising between 1

October 2009 and 30 April 2010.

[13] The present application to prevent the lapse of the caveat was filed in this Court on 12 May 2011. The application is supported by two affidavits, each by Mr Durney sworn 11 May 2011 and 31 May 2011.

[14] The application is opposed by the respondent. This opposition is supported by affidavits of Mr Nancarrow dated 27 May 2011, Mr Kelt dated 27 May 2011 and Terence Ian May (Mr May) dated 27 May 2011.

A. IS THE PRESENT APPLICATION OUT OF TIME?

[15] I turn now to consider the first issue before the Court which is a jurisdictional one. The question raised is whether the present application to sustain the caveat was made out of time?

[16] In terms of s 145A(1) Land Transfer Act 1952 a caveator has 14 days in which to apply for an order that a caveat not lapse and to notify the Registrar General accordingly if the caveator has been given notice that an application to lapse the caveat has been made.

[17] In the present case this notice to lapse the caveat was given on 27 April 2011 which means that the application for the purposes of s 145A(3) of the Act and the notice to the Registrar were required to be made by 11 May 2011.

[18] In this case, it is accepted that on 11 May 2011 when, at the last minute he had received instructions from the applicant to bring the present application, Mr Shaun Thomas Cottrell (Mr Cottrell) a Christchurch solicitor hastily undertook certain actions. Mr Cottrell has filed an affidavit in this proceeding dated 31 May

2011. He is a solicitor and officer of this Court and I accept readily the matters he outlines in this affidavit.

[19] Mr Cottrell deposes in his affidavit that on 11 May 2011, concerned that this was the last date for bringing the present application, he telephoned registry staff in the Palmerston North Registry of this Court to enquire whether, given the expiring time limits in this matter, the Court would accept the present application and supporting affidavit for filing by facsimile transmission.

[20] Mr Cottrell deposes that he was told by the Court that they would accept filing on this basis and, on the basis of that representation, he completed and forwarded the necessary documents to the Palmerston North Registry of this Court by facsimile. This included his enclosing a photocopy of a trust account cheque for the Court filing fee and providing his undertaking that his trust account cheque for the fee was being posted with the original documents. These would arrive in Palmerston North the following day, 12 May 2011.

[21] On that basis the applicant contends that the required time limits were complied with and indeed that this application was effectively brought in time on 11

May 2011.

[22] In response, Mr Gray, for the respondent urged upon me arguments to the effect that the time limits were mandatory, that filing of the original application had not occurred by 11 May 2011 and that in any event payment of the filing fee which was an integral part of matters to be completed had not occurred on that date. Mr Gray referred me to New Zealand Land Law Second Edition, Bennion & Ors at para

4.5.04(2) which provides:

If the caveator does nothing within the prescribed periods, the caveat will lapse. It has been held that the Court has no power to extend the time limits prescribed in s 145, and by implication, s 145A.

[23] Whilst I accept first, the strict position regarding jurisdiction here outlined in Bennion, and secondly, that the Court has no jurisdiction to extend the time for bringing an application under s 145A, in the circumstances of the present case I am satisfied that the applicant has brought the application in time and she has complied with the requirements of s 145A.

[24] I reach this conclusion bearing in mind the amended definition of “filing” in

the High Court Rules applying from 1 February 2009 which now reads:

... to file, in relation to any document, means to lodge the document in the form required by these rules in, or to send it by post or electronically in accordance with these rules to, the proper registry of the Court, together with the fee (if any) payable for filing it.

(emphasis added)

[25] In addition I am mindful of the comments of Associate Judge Doogue in

Peace Industries (2007) Limited v Commercial Factors Limited HC, Auckland, 19

May 2008 where he states at para 9:

In my view, in the absence of some statutory enactment or regulation which imposes a requirement for payment of filing fees to take the form only of legal tender, then it is open to the Court Registry, as it is to any service industry in the private or public sector to determine how payment is to be made. If that is so, the actions of the Registry staff member, in accepting the documents for filing together with a personal cheque must be taken to be a representation that payment in that form was sufficient.

[26] With these comments in mind, I accept that Mr Cottrell here was entitled to rely on the clear representation from Registry staff of this Court that submission of the required documents by facsimile including a facsimile of his firm’s trust account cheque in payment of the filing fee (with payment of that fee and the original documents to arrive the following day), was acceptable in all the circumstances and constituted compliance with the Rules.

[27] For these reasons I find that the present application was made in time and I

dismiss the respondent’s opposition to the application on that ground.

B. DOES THE APPLICANT HAVE A CAVEATABLE INTEREST?

[28] I turn now to the second ground of opposition which is to the effect that the applicant does not have the requisite caveatable interest in the land in question to support her caveat.

[29] On this Mr Gray for the respondent essentially advanced two principal arguments:

(a) The applicant, Sophia Crosby, cannot prove she has a reasonably arguable case to support her caveatable interest because there is no evidence here of who she is or her relationship to the Durney Family; and

(b) In any event her interest is purely as a discretionary beneficiary of the Te Aute Trust and this is insufficient to constitute a caveatable interest for the purposes of s 137 Land Transfer Act 1952.

[30] Turning to consider the first of these grounds, the first issue raised is who might be “Sophia Crosby”.

[31] Perhaps of some significance here, the applicant, Sophia Crosby has chosen to file no affidavits of any kind in support of her present application to sustain the caveat. Instead she relies upon the two affidavits of Mr Durney which I have referred to above.

[32] In the first affidavit of Mr Durney sworn 11 May 2011, he deposes at para 1:

I am the husband of the applicant, Sophia Crosby.

[33] Elsewhere in the documentation before the Court there is reference to one “Jan Durney” who is also described as the wife of Mr Durney. That Mrs Durney of course, at any time, is entitled to change her name by Deed Poll or otherwise if she might choose to do so is unquestionable. Although there is no explanation before the Court that the Sophia Crosby, who is the present applicant, is indeed one and the

same person as “Jan Durney”, the clear uncontradicted evidence of Mr Durney before me is that he is the husband of the applicant, Sophia Crosby.

[34] The applicant, Sophia Crosby also in the caveat in question (which presumably bears her signature as caveator or the signature of an authorised agent on her behalf) describes the interest she claims as one of the beneficiaries under a bare trust for the Durney Family .

[35] At this hearing, Mr Gray urged me to accept an argument that there was no evidence before the Court to identify the applicant Sophia Crosby or to define her relationship to “Jan Durney”, the Durney Family or to Mr Durney and therefore she did not have a reasonably arguable case to support her claimed interest in the land.

[36] Although this issue is rather messy to say the least, in the present case, I accept the sworn evidence of Mr Durney at para 1 of his 11 May 2011 affidavit noted above that he is the husband of the applicant Sophia Crosby and that she therefore is his wife. I accept therefore that she is one and the same person as Jan Durney and therefore her identity for present purposes is sufficiently established. It follows therefore that I reject the argument advanced by the respondent that the applicant Sophia Crosby is not sufficiently identified here as a member of the Durney family to properly justify her claimed caveatable interest.

[37] The second aspect to be considered here on whether the applicant has a reasonably arguable case to her claimed caveatable interest, is the suggestion from the respondent that, in any event, she is merely a discretionary beneficiary of the Te Aute Trust which is the trust of the Durney Family for which the claimed interest is held by the respondent, and this is not sufficient for her claim pursuant to s 137 Land Transfer Act 1952.

[38] A copy of the Trust Deed for the Te Aute Trust is before the Court. This Trust, settled on 5 May 2010 by Mr Durney, notes that the sole trustee is Te Aute Trust Limited and the discretionary beneficiaries are to include the settlor Mr Durney “and his wife for the time being” together with children or grandchildren of the family.

[39] As I have noted above at para [8], Mr Durney in his second affidavit at para

20 notes the “intention” that the Te Aute Trust was formed as the new Trust to “own the mall”.

[40] It is on this basis that Mr Gray for the respondent suggests that the applicant’s interest here is purely as a discretionary beneficiary of this Trust which is insufficient to establish a caveatable interest in the Levin Mall property pursuant to s 137 Land Transfer Act 1952.

[41] Whilst there is some strength in this argument, I remind myself that the interest claimed by the applicant in her caveat is “as one of the beneficiaries under a bare trust between the registered proprietor as bare trustee for the Durney Family and the caveator as beneficiary ...”

[42] There is no mention here of the Te Aute Trust, although it may well be that the parties intended ultimately the Te Aute Trust to be the beneficiary to hold the Durney interests.

[43] On balance therefore I find that Mr Gray’s argument for the respondent that the applicant’s interest here is purely as a discretionary beneficiary and therefore not caveatable must fail.

[44] One additional argument not pursued to any great extent by counsel before me needs to be mentioned here.

[45] In one of the affidavits filed on behalf of the respondent in this case, it is suggested that even if the arguments from Mr Durney and the Durney Family are accepted that some form of trust arrangement was in existence, this was simply to the effect that it was the shares in Levin Mall Limited held in the name of Mr Nancarrow which were held in trust for the Durney interests and not the property itself. If this was to be the case, then the Durney interests and presumably the applicant here would have no caveatable interest in the Levin Mall land as their claim would simply be as ultimate beneficiaries to the shares in the company Levin Mall Limited.

[46] As I have noted, this argument was not generally pursued before me however. I mention it in passing simply for the sake of completeness. I accept for present purposes, however, that the Durney interests instead of claiming a beneficial interest in the shares in Levin Mall Limited may well be justified in claiming some interest in the Levin Mall land and thus to maintain what is effectively their caveat here.

[47] For all these reasons I conclude but only by a reasonably fine margin, that the applicant has done sufficient here to establish that she has a caveatable interest in the Levin Mall land to justify the caveat she has registered.

C. SHOULD THE COURT NEVERTHELESS EXERCISE ITS DISCRETION TO REMOVE THE CAVEAT?

[48] The final matter for my consideration is whether, notwithstanding the findings I have noted above, the Court should under all the circumstances here exercise its discretion under s 145A to have the caveat removed.

[49] On this aspect, it is clear from the evidence before the Court that the 24

January 2011 agreement to sell the Levin Mall property to the third party (now Armagh Investments Limited as nominated purchaser) (Armagh Investments) which was due for settlement on 17 May 2011 looms over this whole matter. On that sale agreement (the Armagh Agreement), a Settlement Notice was issued on behalf of Armagh Investments on 18 May 2011 requiring settlement to take place on or before

3 June 2011. That is tomorrow. If settlement does not take place in terms of the Settlement Notice by that time then Armagh Investments has certain rights under its sale agreement to sue for specific performance, to cancel the agreement and to seek damages amongst other remedies.

[50] The existence of the caveat of course prevents the respondent Levin Mall

Limited from completing settlement under the Armagh agreement.

[51] At the outset it is important to note that before me Mr Moss for the applicant confirmed that the applicant accepts entirely that the sale to Armagh Investments is

an arms length sale and the purchase price of $5,275,000.00 is a reasonable market sale price for the property.

[52] Notwithstanding this, the applicant’s position as I understand it, is that there is a practical advantage to the applicant in having the caveat maintained. This is because she and her family can benefit from the ongoing ownership of the Levin Mall, a property which had been owned by Durney interests earlier for some time, and given also the benefits they can receive from the income that it is able to generate. Thus, the applicant says the Durneys wish to have the property retained as opposed to simply having some claim against the equity in the property.

[53] It It is clear from the authorities that there is power to order removal of a caveat despite the fact that a caveator has established a clear caveatable interest in the land in question. This principle has been stated in the following terms in Pacific Homes Limited (in receivership) v Consolidated Joineries Limited [1996] 2 NZLR

652 at 656:

In such circumstances the Court retains the discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of the case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of monies secured over the land or specific performance of an agreement or if the caveator’s interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.

[54] In the judgment of Blanchard J in Stewart v Kaipara Consultants Limited, CA, 20 June 2000, CA106/00 at para [27] it was noted:

The grant of a specific remedy to a person claiming an interest in land lies in the discretion of the Court. It is a discretion to be exercised n accordance with settled principles. But where the particular piece of land does not have attributes giving it a personal value to the claimant, unable easily to be measured and substituted in economic terms, then the Court in balancing the interest of the defendant and other affected parties (especially those who have entered into independent commitments which will be affected by the delay in establishing the claim) will properly lean in favour of freeing the title from the claim if a fund can be created which suffices to protect the claimant’s legitimate interest.

[55] In the present case there is no real suggestion that the Levin Mall property has any real sentimental attachment or significant personal value to the applicant or indeed to the Durney Family. The Mall property is a commercial leased property and is not for example a family home. Although it may have been owned in the past by the Durney Family company, it is difficult to escape the conclusion that it would have been held simply as a commercial investment to obtain rental return. There was no suggestion before me that any family business or related entity in any way occupied any part of the property.

[56] Nor, as was the case in Stewart v Kaipara Consultants Ltd, was the Levin Mall property adjacent to any other land in Durney Family ownership for which some anticipated common usage might be envisaged.

[57] I see nothing of particular significance in the submissions advanced to me to provide any reasons justifying the applicant’s wish specifically to retain the property as opposed to having some claim against its equity.

[58] In addition, in my view, it is significant here that the applicant has confirmed that she accepts the sale price negotiated with Armagh Investments as being a fair market price for the property.

[59] It is also appropriate here to note the comments outlined in New Zealand

Land Law Bennion & Ors at para 4.5.05(5) on issues of delay:

(5) Delay [in the lodging of the caveat] is a relevant factor to be weighed in the exercise of the Court’s wide discretion under ss 145 and 145A. Delay is more important where there is specific prejudice. What is required is a consideration of all the circumstances.

[60] In the present case the caveat was lodged on 28 March 2011. This date needs to be contrasted with the evidence provided by Mr Durney noted at para [8] above that it was in May 2010 it became apparent to him that Mr Kelt “might double cross me”. A letter was apparently sent by Mr Durney’s lawyers at that time to Mr Kelt “putting him on notice of the events that led to the purchase of the mall” and yet perhaps surprisingly no caveat was lodged at that time.

[61] Subsequently, in other evidence before the Court it is clear that in September

2010 Mr Durney said Mr Kelt told him that the Levin Mall had been sold for $1.00 and when Mr Durney challenged this he says Mr Kelt replied “tough luck” – refer Mr Durney’s second affidavit at para 29. Yet again no caveat was lodged at that time either.

[62] It was only some six months later and approximately two months after the Agreement for Sale and Purchase with the third party purchaser had been entered into that the caveat was lodged. And, there is no reasonable explanation for this delay before the Court.

[63] Further, if the caveat is not removed at this time then cancellation of the sale to Armagh Investments is a real possibility and clearly this will provide significant prejudice to the respondent. This would be because not only will the sale, at what is accepted as a fair market value, be lost but also because purchase monies which were to be applied in payment of mortgage debt on the property totalling in excess of

$4,000,000.00 will not be available. Potentially, as I see it, this is also likely to cause significant prejudice to the applicant if her claim here might only ultimately be to an interest in the shares in Levin Mall Limited.

[64] Finally, in my view, in this case damages would provide an adequate remedy for the applicant if indeed she has any remedy against the respondent. On this it may well be that a possible damages claim might be mounted by the applicant and the Durney interests against a wider group than simply the respondent. A possible further target for the Durney Family, noted by Mr Gray before me today, might be Mr Kelt as a person who was alleged to have entered into the trust arrangement.

[65] If Levin Mall Limited, Mr Kelt or any other party have acted in breach of any trust obligation owed to the applicant, as I see it, her best and most appropriate remedy here is in damages. It is not appropriate for the interests here of bona fide third parties, which include the purchaser Armagh Investments and the mortgagees of the Levin Mall, who transacted with the respondent without notice of the applicant’s alleged interest in the property to be placed at risk.

[66] Finally, as I see it there would be no practical advantage to the applicant if her caveat is to remain. At best the interest she has is in the net proceeds of the sale of the property, in addition to any claim she might have for alleged breach of trust.

[67] On this it is unclear at this point what the ultimate net proceeds from the sale will be. Mr Gray for the respondent suggests they are likely to be “very modest”. Mr Moss for the applicant, however, suggests that they could be as high as

$575,000.00.

[68] For these reasons, I conclude that, under the circumstances here, the discretion of the Court should be exercised on balance of convenience grounds in favour of removing the applicant’s caveat. As occurred in cases such as Stewart v Kaipara Consultants Limited, however, once settlement of the sale of the property to Armagh Investments takes place, a fund should be created representing the true net sale proceeds which will be held in this Court and suffice to protect any legitimate interests which the applicant claimant may be ultimately determined to have. At this point the extent of that fund of net sale proceeds however is unknown. The appropriate course therefore is for the parties urgently to communicate with each other in an endeavour to agree what is the reasonable net sale proceeds equity from this sale to be paid into this Court and thus to remain held until matters are resolved or further order of the Court is made. In the event that, as may be likely, the parties are unable to reach agreement on what is truly this net sale proceeds equity figure, then leave is reserved for urgent memoranda to be filed for this Court to determine what that figure might be. This will enable the caveat to be removed, settlement of the sale to Armagh Investments to take place and ultimately for a reasonable fund to be created to protect any possible interest of the applicant.

[69] That said, the following orders are now made in this proceeding, given that the application by the applicant to sustain the caveat has effectively failed:

(a) An order is now made that Caveat 8724905 affecting certificates of title 26C/119, 26C/120, 8C/1236, 8C/1237, 8C/1238, 8C/1239,

8C1240, 8C1241 is to lapse forthwith.

(b) A further order is made that following settlement of the sale of the Levin Mall property to Armagh Investments over which the caveat has been registered, the “net sale proceeds” as defined below are to be paid into this Court and are to be held undisbursed until further order of this Court is made.

(c) As to the “net sale proceeds” referred to above, this is to represent the amount agreed between the applicant and the respondent as the true available net sale proceeds equity from the sale of the Levin Mall property following settlement with Armagh Investments after repayment of outstanding mortgages and proper charges secured against the property together with all reasonable costs and expenses on such sale and on properly preparing the property for sale. In the event that the parties are unable to reach agreement upon this “net sale proceeds” figure, then on 24 hours notice they are to file (sequentially) memoranda in this Court on the issue and in the absence of either party indicating they wish to be heard on the matter this Court will decide what is to represent the “net sale proceeds” figure to be retained.

(d) A further order is made that, once the “net sale proceeds” figure is paid into this Court, then the applicant is with all reasonable speed to take proceedings to establish what claim she may have with respect to those “net sale proceeds”. Leave is reserved to any party to approach the Court further or on 48 hours notice if further directions on that aspect are required.

[70] As to costs, the respondent here has effectively succeeded with respect to the present application. The caveat is now to be removed and removed as a matter of urgency to enable settlement of the sale with Armagh Investments to proceed. As such, in my view, the respondent is entitled to costs on this application. Costs are

therefore awarded in favour of the respondent on a Category 2B basis together with disbursements as fixed by the Registrar.

‘Associate Judge D.I. Gendall’