Waterhouse v Westpac New Zealand Limited [2012] NZHC 1578 (4 July 2012)

Last Updated: 8 September 2012

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2012-488-382 [2012] NZHC 1578

UNDER the Land Transfer Act 1952 Section 145A

IN THE MATTER OF an application that Caveat no.9034264.1 do not lapse

BETWEEN GODFREY WATERHOUSE Applicant

AND WESTPAC NEW ZEALAND LIMITED Respondent

Hearing: 2 July 2012

Appearances: Applicant in person

F M Kirkcaldie for Respondent

Judgment: 4 July 2012

_{JUDGMENT OF ASSOCIATE JUDGE R M BELL}

This judgment was delivered by me on 4 July 2012 at 4:45pm

pursuant to Rule 11.5 of the High Court Rules.

...................................

Registrar/Deputy Registrar

Solicitors:

Simpson Grierson (Ben Upton/Fiona Kirkcaldie), Private Bag 92518 Auckland, for applicant

_Email: [e-mail]

Copy for:

Godfrey Waterhouse, P O Box 532 Paihia 0247

_Email: [e-mail]

WATERHOUSE V WESTPAC NEW ZEALAND LIMITED HC WHA CIV-2012-488-382 [4 July 2012]

[1] This is an application under s 145A of the Land Transfer Act 1952 to sustain a caveat. Mr Waterhouse is the caveator. The application was called on 2 July 2012. Mr Waterhouse did not appear. He had sent a doctor’s note that he was stressed and not fit to take part in the hearing. I held a telephone conference to discuss how to proceed. The parties agreed that I could consider the matter on the papers. I have read Mr Waterhouse’s application and affidavit, as well as Westpac’s documents.

The caveat

[2] The title against which the caveat is registered is NA57C/587. The address for the property is 4 Marina Rise, Opua. The legal description is lot 1 DP104134. The registered proprietors are Ruth Naomi Waterhouse, George Eric Vuletich and Janice Fay Vuletich. Mr Waterhouse is the husband of Ruth Naomi Waterhouse. There is a registered mortgage in favour of Westpac – 5703520.2.

[3] Mr Waterhouse lodged his caveat on 10 April 2012. The interest claimed is “occupier with buy-back option pursuant to s 76 Credit Contracts and Consumer Finance Act 2003”.

Facts

[4] Mr and Mrs Waterhouse bought the property in August 2003 with finance from Westpac, which took a first mortgage over the property. The property was transferred to the present registered proprietors in 2005. They are the trustees of the Waterhouse Family Trust. They entered into a new loan agreement with Westpac and there was a corresponding variation of mortgage. Mr Waterhouse has given Westpac a guarantee of the mortgagors’ obligations. The mortgage in favour of Westpac is the only mortgage and accordingly a first ranking mortgage.

[5] 4 Marina Drive has been the family home for Mr and Mrs Waterhouse since

2003. They still live there.

[6] There were defaults under the mortgage. In November 2011 Westpac served notices under s 119 on the mortgagors and under s 122 of the Property Law Act on Mr Waterhouse. The defaults were not remedied. Westpac became entitled to exercise its power of sale over the property at 4 Marina Drive. Westpac has marketed the property and held an auction. The offers it received from its recent purchasers did not reach the reserve. A bank officer says that Mr and Mrs Waterhouse have not co-operated with the sale process. They have not permitted interested parties to view the inside of the property. The bank has not enforced its right to possession of the property.

[7] Mr Waterhouse has attached to his affidavit a copy of an agreement for sale and purchase dated 28 October 2011 for the property at 4 Marina Drive. The parties to the agreement are said to be the Waterhouse Family Trust and Elizabeth Mary Lambert. Mrs Waterhouse and Alan Cordery have signed as vendors. Ms Lambert has signed as purchaser. The sale is by private treaty. The purchase price was $1.00. The settlement date is 11 November 2011. The property was sold subject to a monthly tenancy to Mr and Mrs Waterhouse with rent payable at $100 a month. While Mrs Waterhouse is a trustee, Alan Cordery is not a trustee of the Waterhouse Family Trust.

[8] Mr Waterhouse has also attached to his affidavit a residential tenancy agreement between Ms Lambert as landlord and himself and his wife as tenants. It is dated 28 October 2011 and uses the Department of Housing and Building form for a residential tenancy agreement.

[9] Ms Lambert also lodged a caveat against the title on 14 November 2011. The interest she claimed in her caveat was “under a sale and purchase agreement the vendor was the Waterhouse Family Trust and the purchaser was Elizabeth Mary Lambert. The trustees are Ruth Naomi Waterhouse, George Eric Vuletich and Janice Fay Vuletich.”

[10] The Westpac Bank made an application to lapse Ms Lambert’s caveat on

21 February 2012. Ms Lambert did not file an application under s 145A. Her caveat lapsed. Ms Lambert has since been adjudicated bankrupt in the High Court at

Hamilton on 28 May 2012. Mr Waterhouse’s caveat followed the lapse of

Ms Lambert’s caveat.

[11] Defaults under Westpac’s mortgage have not been remedied. Mr Waterhouse

has purported to pay off the mortgage by a payment of $1.00.

[12] It is appropriate to record the context for the present application. It is clear that the Waterhouses will not co-operate in allowing Westpac to exercise its power of sale under its mortgage. There is clear evidence of that from the reports of the land agents tasked with marketing the property. It is also shown by the transactions: the agreement for sale and purchase and the tenancy agreement, which lack any commercial reality. One indicator that these transactions have been entered into to frustrate Westpac is the participation of Ms Lambert. She has been associated with other attempts to frustrate creditors from exercising powers of sale: Lambert v

Plateau Farms Ltd (In Rec); Plateau Farms Ltd (In Rec and In Liq) v Lambert.[1]

She was also associated with efforts to frustrate Rabobank in selling the Zion

Wildlife Gardens in Whangarei.[2]

Can Westpac apply to lapse the caveat?

[13] Mr Waterhouse challenges Westpac’s right to apply for the caveat to lapse under s 145A of the Land Transfer Act. He says that Westpac is not the registered proprietor. Section 145A(1) says:

The registered proprietor of any estate or interest in the land protected by a caveat against dealings (other than a caveat lodged by the Registrar) may apply to the Registrar for the caveat to lapse.

[14] Section 35 of the Land Transfer Act provides that:

The person named in any grant, certificate of title, or other instrument so registered as seised of or taking any estate or interest shall be deemed to be the registered proprietor thereof.

[15] Westpac’s registered mortgage is an instrument under s 2 of the Land Transfer Act. A mortgage is an interest in the land, distinct from the estate or interest of the owner in freehold. As Westpac’s mortgage is registered, it is the registered proprietor of an interest in the land. Westpac is entitled to apply for lapse of the caveat under s 145A of the Land Transfer Act.

[16] Mr Waterhouse relies on Westpac New Zealand Ltd v Clark,[3] but the decision of the Supreme Court does not support his submission.

Accord and satisfaction

[17] Mr Waterhouse’s application refers to accord and satisfaction and to Scrutton LJ’s judgment in British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd.[4] I take it that that is a reference to his payment of one dollar. He appears also to rely on the Bills of Exchange Act 1908. Mr Waterhouse has not shown that there is any bona fide dispute as to the debt owing to Westpac secured by its mortgage. In the absence of such a dispute the payment of a lesser

sum is not discharge of a debt for a greater sum. That is set out in Homeguard

Products (NZ) Ltd v Kiwi Packaging Ltd:[5]

It must first be observed that at common law the principle is that acceptance by a creditor of a lesser sum, in full discharge of a liquidated and undisputed debt, does not prevent him, unless the undertaking is made by deed, from later recovering the balance. This is because there is no consideration for the benefit forgone. This principle was first established in Pinnel's Case (1602)

[1572] EngR 290; 5 Co Rep 117a; 77 ER 237, and was reaffirmed long afterwards by the

House of Lords in Foakes v Beer (1884) 9 App Cas 605. On the other hand, any form of possible benefit to the creditor other than mere payment of his undisputed debt will be valid consideration. Payment of part of a debt before the due date for payment of the whole, or agreed acceptance by the creditor of a chattel, or part payment together with a chattel, will suffice to extinguish the debt. This is because the subjective value of a chattel or other non- monetary benefit is always for the creditor to assess. He can assign his own value to it. The law will not inquire into the adequacy of the consideration which he elected to receive in lieu of all the money due.

[18] The amounts owing to Westpac are far more than the payment he tendered. He cannot claim that he has discharged the debt to Westpac.

Does Mr Waterhouse have caveatable interest?

[19] The focus of Westpac’s submission is that as registered first mortgagee its interest takes priority over any interest that Mr Waterhouse might assert. However, before questions of priority are considered, it is appropriate to establish whether the caveat complies with s 137 of the Act and whether Mr Waterhouse has a caveatable interest in the property. One reason for doing so is that Mr Waterhouse has put in evidence a residential tenancy agreement. Under s 58 of the Residential Tenancies Act, a residential tenant has certain protections.

[20] Mr Waterhouse has caveated under s 76 of the Creditor Contracts and

Consumer Finance Act 2003. That section says:

76 Interest of occupier is caveatable interest

(1) The occupier under a buy-back transaction is to be treated as being entitled to, or to be beneficially interested in, the land for the purposes of section 137(1)(a) of the Land Transfer Act 1952.

(2) A term of a buy-back transaction is entirely of no effect if it—

(a) prohibits the occupier from lodging with the Registrar (within the meaning of the Land Transfer Act 1952) a caveat against dealings in the land; or

(b) otherwise restricts the ability of the occupier to lodge with the Registrar a caveat against dealings in the land.

[21] A buy-back transaction is defined in s 8 of the Credit Contracts and

Consumer Finance Act 2003:

8 Meaning of buy-back transaction

(1) In this Act, unless the context otherwise requires, buy-back transaction means a transaction under which—

(a) a person (the occupier) transfers, or agrees to transfer, an estate in land to another person (the transferee); and

(b) the land is the principal place of residence of the occupier at the time that the occupier enters into the transaction; and

(c) the occupier, or a person designated by the occupier, has, after the transfer, a right to occupy the whole or any part of the land; and

(d) 1 or more of the following applies:

(i) the occupier, or a person designated by the occupier, has a right to repurchase the estate in the land in whole or in part:

(ii) there is an understanding between the occupier and the transferee that the occupier, or a person designated by the occupier, has a right to repurchase the estate in the land in whole or in part:

(iii) there is an understanding between the occupier and any buy-back promoter that the occupier, or a person designated by the occupier, has a right to repurchase the estate in the land in whole or in part; and

(e) the occupier is a natural person who enters into the transaction primarily for personal, domestic, household, or investment purposes.

(2) If, by virtue of any contract or contracts (none of which by itself constitutes a buy-back transaction) or any arrangement, there is a transaction that is in substance or effect a buy-back transaction, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a buy-back transaction made at the time when the contract, or the last of those contracts, or the arrangement, was made, as the case may be.

[22] The transactions in evidence are the agreement to sell 4 Marina Drive, Opua, to Ms Lambert and the residential tenancy agreement between Ms Lambert and Mr and Mrs Waterhouse. There is no contractual provision that the Waterhouses have the right to buy the property back. There is no evidence of any understanding that they will have the right to buy the property back. Even if the agreement for sale and purchase and the tenancy agreement are in all other respects valid, taken together they do not amount to a buy-back transaction under the legislation. As Mr Waterhouse has not shown an arguable case that he has the interest that he has claimed under the caveat, the caveat cannot stand.

[23] In some cases the court has held that even though the caveator has not established a case for the interest claimed, the caveator may yet have a caveatable interest. The courts have given leave under s 148 of the Land Transfer Act for a second caveat to be lodged. It may be that if Mr Waterhouse otherwise had a

caveatable interest in the property, although he had not correctly identified it in his caveat, the appropriate course would be to give him leave to file a further caveat under s 148 of the Land Transfer Act. I consider whether he has a caveatable interest, albeit not claimed in his caveat.

The effect of the agreement for sale and purchase to Elizabeth Mary Lambert

[24] The registered proprietors of the land are Mr and Mrs Vuletich and Mrs Waterhouse, but the vendors who signed the agreement are Mrs Waterhouse and Alan Cordery. There is no evidence that Mr Cordery is a trustee; that he has been appointed a delegate or an agent of the trustees; or that he has power to sign documents on their behalf.

[25] In a caveat application, the caveator has to show a reasonably arguable case for the interest claimed. There is no evidence to show that Mr and Mrs Vuletich are parties to the agreement to sell the property at 4 Marina Drive to Ms Lambert, or that they are bound by the agreement. In the absence of any such evidence, Mr Waterhouse does not have a reasonably arguable case that the trustees of the Waterhouse Family Trust agreed to sell the property to Ms Lambert.

[26] As an aside, Westpac raised the point that its mortgage provides that a mortgagor may not sell or otherwise dispose of the property without its consent. Westpac says that it did not consent to the sale to Ms Lambert. That may be the case but, even so, if all the trustees of the Waterhouse Family Trust had in fact entered into a binding agreement with Ms Lambert, there would still be a binding agreement for sale and purchase. Such a sale may be in breach of the mortgage and may expose the vendors to the mortgagee’s powers of enforcement, but the agreement would still operate as an effective agreement to convey the vendors’ interest in the property to the purchaser.

[27] However, because Mr Waterhouse has not shown on an arguable case basis that Ms Lambert had an effective agreement to buy an interest in 4 Marina Drive, Ms Lambert did not become an owner of an interest in the property, even an interest enforceable at equity. As Ms Lambert has not been shown to have arguably acquired

any interest in the property at 4 Marina Drive, she could not, in turn, confer any interest in the property on any other person. In particular, she did not have the power to grant a residential tenancy to Mr and Mrs Waterhouse because she did not have any interest in the property which could allow her to grant a tenancy. Accordingly, Mr Waterhouse does not have an arguable case that he is lawfully occupying the premises under a residential tenancy.

What if Mr Waterhouse had a valid residential tenancy?

[28] If Mr Waterhouse had a reasonably arguable case that he was entitled to live in the premises under a residential tenancy agreement, the question would arise whether that confers a caveatable interest in the property. In Ball v Crawford,[6]

Prichard J held that a tenancy at will and a periodic tenancy would not support a caveat. The basis for his decision was that these tenancies were not registrable interests under the Land Transfer Act 1952. There is now increasing recognition that an interest in land may be caveatable, even if it cannot be perfected by registration.[7]

[29] Accordingly, a residential tenancy might support a caveat, even though it does not give rise to a registrable interest. But the protection given by a caveat is weak. A landlord may give notice terminating a tenancy and the interest protected by the caveat will be brought to an end. Where the tenancy is under the Residential Tenancies Act 1986 the termination provisions of that Act apply. When a mortgagee becomes entitled to possession of premises which have been let under a residential tenancy, the mortgagee’s rights are affected by s 58 of the Residential Tenancies Act

1986:

58 Mortgagee or other person becoming entitled to possession

(1) Where a mortgagee or other person becomes entitled (as against the landlord) to possession of the premises, the following provisions shall apply:

(a) The tenancy shall continue notwithstanding that the mortgagee or other person has become entitled (as against the landlord) to possession of the premises:

(b) For the purposes of sections 15, 21A, and 43 of this Act, the mortgagee or other person shall be deemed to have acquired the landlord's interest in the premises, and the provisions of those sections, with any necessary modifications, shall apply accordingly:

(c) The mortgagee or other person shall have the same rights (if any) as the landlord had under the tenancy agreement or this Act to give notice terminating the tenancy or to apply to the Tribunal for an order terminating the tenancy or for an order for possession of the premises:

(d) Without limiting paragraph (c) of this section, but subject to paragraph (e) of this section, in the case of a fixed-term tenancy, the mortgagee or other person shall have the same right to give notice terminating the tenancy as the landlord would have had if the tenancy had been a periodic tenancy:

(da) in the case of a fixed-term tenancy, the tenant has the same right to give notice terminating the tenancy as the tenant would have had if the tenancy had been a periodic tenancy:

(e) Paragraph (d) of this section shall not apply where the mortgagee or other person is bound by the tenancy or consented in writing to its creation.

(2) Subsection (1) of this section shall apply notwithstanding anything to the contrary in the Property Law Act 2007 or the Land Transfer Act 1952 or any other enactment.

[30] A mortgagee takes possession of the mortgagor’s interest subject to any existing residential tenancy. Section 58(1)(c) allows the mortgagee to give notice terminating the tenancy in the same way that a landlord under the tenancy agreement could. A tenant’s rights under s 58(1) are protected, notwithstanding the indefeasibility provisions of the Land Transfer Act 1952.[8] If I had held that Mr Waterhouse was arguably a residential tenant from a landlord who had an interest in the property at 4 Marina Drive, I would have held that he had a caveatable interest in the property.

[31] That does not mean that I would have upheld the caveat. Even if Mr Waterhouse were a residential tenant, there are grounds for not upholding the caveat:

(a) In the case of a residential tenancy, a tenant can derive no practical benefit from lodging a caveat. Instead, the tenant is protected in his occupation of the premises under the Residential Tenancies Act 1986. The basis for removing a caveat, notwithstanding the existence of a caveatable interest, is found in the Court of Appeal’s decision in

Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd:[9]

We are of the view that in the dictum in Sims v Lowe, Somers and Gallen JJ were concerned with the situation which was then before the court in not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. In such circumstances the Court retains a 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 a case, it can be seen that the caveator can have no reasonable expectation of obtaining a benefit from continuance with the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator’s interest 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.

While the Court of Appeal did not expressly address residential tenancies, the rationale – removal only when the legitimate interests of the caveator will not be prejudiced - applies equally.

(b) It is clear that the Mr Waterhouse’s caveat was lodged not to protect his interests as a residential tenant, but simply to delay or impede Westpac in the exercise of its powers to sell the house under the mortgage. That is apparent from the participation of Ms Lambert in the scheme and the lack of commercial reality in the arrangements

_made.

Westpac’s submission as to priority

[32] Under the Land Transfer Act, as the holder of a registered first mortgage, Westpac has an interest that takes priority over any interest that Mr Waterhouse might assert in the property.[10] Westpac has not consented to Mr Waterhouse taking any interest in the property or to taking priority ahead of it. Westpac proposes that Mr Waterhouse’s caveat be removed upon Westpac registering a transfer of the property on the exercise of the power of sale under the mortgage. That would require an interim order sustaining the caveat until sale. However, as Mr Waterhouse does not have a caveatable interest in the property, I see no basis for making any such interim order.

[33] Westpac also seeks an order barring Mr Waterhouse or any other person from lodging any further caveats arising out the transaction with Ms Lambert or any related contracts or transactions. Section 148 prevents Mr Waterhouse lodging another caveat for the same interest without leave of the court. The order Westpac seeks is in the nature of an injunction. Such orders are not customarily made on applications under s 145A. Westpac has not applied for such an order. Mr Waterhouse has had no opportunity to be heard on such an order. I cannot make any

interim order to bar further caveats.[11] I decline to make any such order.

Disposition

[34] I make these orders:

(a) I dismiss Mr Waterhouse’s application that caveat 9034264.1 not

lapse;

(b) Mr Waterhouse is to pay Westpac’s costs on the application.

[35] Westpac is entitled to costs on the application, as it has succeeded. It is to file and serve a memorandum setting out the costs it seeks. I do not expect it to claim

costs for a hearing, as a brief telephone conference was held instead of a hearing in court. Mr Waterhouse is to file and serve a reply to the costs application within

5 working days of receiving Westpac’s memorandum.

.....................................

R M Bell

Associate Judge

---

[1] Lambert v Plateau Farms Ltd (In Receivership) HC Rotorua CIV 2011-463-528 12 September

2011; Plateau Farms Ltd (In Receivership and In Liquidation) v Lambert [2012] NZHC 109;

_{Plateau Farms Ltd (In Receivership and In Liquidation) v Lambert [2012] NZHC 1478.}

[2] Rabobank NZ Ltd v Lambert [2012] NZHC 908; Rabobank NZ Ltd v Busch [2012] NZHC 1547.
[3] _{Westpac New Zealand Ltd v Clark [2010] 1 NZLR 82 (SC).}

[4] British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 at

_643-644.

[5] Homeguard Products (NZ) Ltd v Kiwi Packaging Ltd [1981] 2 NZLR 322 (HC) at 326.

[6] _{Ball v Crawford (1981) 1 NZCPR 346 at 348.}

[7] Hinde, McMorland and Sim Land Law in New Zealand (looseleaf, LexisNexis) at[10.006].

[8] Residential Tenancies Act 1986, s 58(2); Ziki Investment (Properties) Ltd v Macdonald [2008] 3

NZLR 417 at [41].

[9] Pacific Homes Ltd (In Rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.

[10] Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd

_{[1984] 2 NZLR 104; Chen v ANZ National Bank Ltd [2012] NZHC 549.}

[11] Section 26J(4)(a) Judicature Act 1908.