Mawhinney v Nags Head Horse Hotel Limited [2013] NZHC 1530 (24 June 2013)

Last Updated: 7 August 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-003027 [2013] NZHC 1530

BETWEEN PETER WILLIAM MAWHINNEY Applicant

AND NAGS HEAD HORSE HOTEL LIMITED Respondent

Hearing: 21 June 2013

Appearances: P W Mawhinney the Applicant

L O'Gorman for the Respondent

Judgment: 24 June 2013

_{JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN}

This judgment was delivered by me on

24.06.13 at 4:30pm pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors:

L O’Gorman, D Broadmore, Buddle Findlay, Auckland

P W MAWHINNEY v NAGS HEAD HORSE HOTEL LIMITED [2013] NZHC 1530 [24 June 2013]

The application to sustain caveats

[1] On 30 May 2013 Mr Mawhinney filed an application to sustain three caveats. Those were registered on 25 September 2012, 14 December 2012 and 5 April 2013.

[2] In his application he named the Registrar-General of Land (Registrar- General) as the respondent.

[3] Before the first call of the application on 11 June 2013 the Court received a memorandum and an affidavit filed on behalf of the Registrar-General. Counsel for the Registrar-General advised Mr Mawhinney’s application was wrongly filed against the Registrar-General and that any opposition of his to the lapsing of the caveat should have been brought against the party who applied for the caveats to lapse i.e. Nags Head Horse Hotel Limited (Nags Head). As it was explained the Registrar-General has a purely mechanical role in the matters in dispute pursuant to s

145(A)(1) of the Land Transfer Act 1952 (the Act).

[4] The Registrar-General had written to Mr Mawhinney to advise him accordingly.

[5] A copy of that memorandum was forwarded to Nags Head’s solicitors.

[6] On 10 June 2013 counsel for Nags Head filed a memorandum and a notice of opposition to Mr Mawhinney’s application. Those documents requested that Nags Head be substituted for the Registrar-General.

[7] When this matter was first called before me on 11 June 2013 Mr Mawhinney did not appear. The Court made an order substituting Nags Head for the Registrar- General as the respondent in Mr Mawhinney’s proceeding.

[8] The Court set this matter down for hearing today. Timetable orders were made for the filing of affidavits and submissions.

[9] On 19 June 2013 Mr Mawhinney wrote to the Court and applied for an adjournment of the 21 June 2013 hearing. He advised that he had filed an appeal

against the order of the Court substituting Nags Head as the respondent. He said Nags Head was not the registered proprietor and therefore its applications to lapse the caveats were invalid and a nullity. He said that if he was wrong in that then he would wish to bring additional evidence which he said was substantial in support of rights to sustain the caveats.

[10] I directed the adjournment application be considered when the matter was called on 21 June 2013 and stated that if it was unsuccessful then a hearing upon Mr Mawhinney’s applications would proceed.

[11] On 20 June 2013 Mr Mawhinney filed an amended application. In it he reiterates claims that Nags Head had no standing in his proceeding because it was not a registered proprietor.

[12] He claims Nags Head’s mortgage was unlawful and should have been discharged in circumstances relating to the sale of the property by Forest Trustee Limited (FTL) to another company, End of the Line Limited (EOTL). In that respect Mr Mawhinney asserts the Registrar-General wrongfully permitted Nags Head’s caveat to be registered ahead of a transfer of the sale to EOTL. Mr Mawhinney says that the Registrar-General’s actions in this regard are the subject of an application for judicial review.

[13] On 20 June 2013 Mr Mawhinney also filed an affidavit in support of his amended application. It is 18 pages long and annexes 273 pages of exhibits. He says he has uncovered as much documentation regarding background information as he was able to.

[14] I informed Mr Mawhinney that the Court was not prepared to adjourn his application. I informed him that Nags Head had an indefeasible interest as a registered mortgagee and was the appropriate party to be opposing his applications. I informed Mr Mawhinney that the applications must be disposed of within a short period of time as prescribed by statute and that he bore the responsibility as applicant to prove he had a reasonably arguable case for the caveat to be maintained.

[15] I suggested to Mr Mawhinney that the circumstances referred to in his documents indicated that all three caveats have some relationship to the events which were reviewed by my judgment dated 6 December 2012 upon Nags Head’s claim to have first registered mortgagee priority. [1] He agreed that in part they did but insisted the arguments he was now raising were not directly raised before me in December 2012. Regarding the third caveat registered on 5 April 2013 he claimed

that his right to do so relates to his interpretation of circumstances predating the mortgagee priority issues heard by me in December 2012. He said that because Nags Head’s mortgage is an all obligations mortgage, and because it does not refer to any debts secured by it that it is therefore contrary to s 101 of the Land Transfer Act

1952. Therefore it secured nothing. Therefore nothing had to be offered upon a request for its transfer. Because Nags Head refused to transfer its mortgage in those circumstances, Mr Mawhinney claims that a caveatable interest arose.

Nags Head’s priority mortgagee claim proceedings (Priority interest judgment)

[16] This was decided on 6 December 2012. It concerned Nags Head’s application for determining the question of priority between its mortgage and another which was originally held by Sixty-Six Auckland Limited (Sixty-Six) but which was subsequently transferred to OTM Trustee Limited (OTL) and then to Zebra Crossings Trading Limited (Zebra) and Mr Mawhinney. Sixty-Six, OTL and Zebra are all entities in the control of Mr Mawhinney.

[17] Although the other mortgage was registered before that of Nags Head it was Nags Head’s case that there had been agreement by all parties that its mortgage would take priority.

[18] In its considerations the Court heard a range of reasons why Mr Mawhinney claimed the Nags Head mortgage should not be accepted as having priority.

[19] The Court’s decision was to declare that the Nags Head mortgage had priority. Nags Head’s loan was used by the then existing registered proprietor to

_{repay the existing first mortgagee which had arranged to sell the property by auction}

the following day in exercise of its power of sale. The Court accepted evidence that as security the registered proprietor granted Nags Head a mortgage over the property with a priority amount of $840,000 plus interest. At the same time Nags Head, the registered proprietor and Sixty-Six entered into a deed of priority giving the Nags Head mortgage priority over the prior registered mortgage of OTL which was later transferred to Sixty-Six.

[20] The Court heard a lot of evidence regarding dealings concerning that mortgage of Sixty-Six’s subsequently, but those details are not relevant for present purposes.

[21] Mr Mawhinney has appealed the priority interest judgment.

Mr Mawhinney’s standing to bring this application

[22] An issue has been raised regarding Mr Mawhinney’s standing to bring this application. He was adjudicated bankrupt nearly three years ago.

[23] Mr Mawhinney has been intimately involved in the ownership and attempted development of a 51 hectare block in Waitakere for more than 20 years. It is that land which is the subject of this and the various other proceedings with which Mr Mawhinney has been involved. He wants to subdivide the land. An application for an amendment of a resource consent was filed. Proceedings have now issued claiming that the Auckland Council has not fulfilled its duties with respect to the processing of that resource application. The claim is for $4.5M.

[24] Until a week ago Mr Mawhinney held one share of 100 in FTL. He says he holds that share as a trustee for his family trust. Other judges have queried the insignificance of the interest he claims to represent. Mr Mawhinney says he has now rectified this by transferring another nine shares to his trust which now owns 10 per cent of FTL. I asked Mr Mawhinney what consideration was paid for those shares. He said $9.00 was paid and was calculated on the paper value of the company.

[25] Although Mr Mawhinney presents as a representative of interests barely measurable it is not important for the Court to determine his right to use that position as his authority to bring the present application. The matter is resolvable by reference to other matters in issue and these are capable of determination now.

Discussion

[26] Nags Head wishes to recover the debt of $956,000 plus interest and costs it says is due and for which it says its mortgage provides security. It has begun taking steps to sell the property as mortgagee under its accrued power of sale.

[27] Under the caveat removal process contained in ss 143, 145, 145A of the Act the onus lies on a caveator to show that he has a reasonably arguable case for the interest he claims.

[28] A caveat can only be lodged by a person on whom a right to lodge it has been conferred by statute.

[29] Even when the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing it, although that exercise will be undertaken cautiously.

[30] Contrary to Mr Mawhinney’s submission Nags Head, as the first registered

mortgagee, is a registered proprietor of the subject property and has standing under s

145A of the Act to apply for Mr Mawhinney’s caveats to lapse.

[31] Section 35 of the Act provides:

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

[32] As a registered proprietor, and the party that applied to the Registrar-General for Mr Mawhinney’s caveats to lapse, Nags Head is the proper respondent to Mr Mawhinney’s application to sustain the caveats.

[33] Nags Head has a registered first mortgage. Its title is paramount and includes the mortgagee’s rights to exercise its power of sale. Even if Mr Mawhinney was able to establish the existence of any caveatable interests, those would fail to defeat Nags Head’s indefeasible interest.

[34] When a mortgagee exercises its power of sale s 105 of the Act has the effect of extinguishing any unregistered interests in the land except where those had priority over the mortgage or where the mortgagee has consented to be bound by an unregistered interest.

[35] The interests claimed by Mr Mawhinney relate very much to his descriptions of transactions which have occurred affecting that mortgage which was registered before Nags Head’s was registered but which, by the Court’s judgment of 6

December 2012, was held to have relinquished any claims of priority to Nags Head’s mortgage. In relation to those issues that were the subject of the judgment the Court heard a variety of claims by Mr Mawhinney about why priority should not be conceded to the Nags Head mortgage. Yet by the present application it is requested that three caveats, two of which were filed after the judgment of 6 December 2012, should continue to undermine Nags Head’s mortgagee rights.

[36] In that judgment the Court accepted that not only did Nags Head and its advisors go to a great of trouble to obtain the consent of all interested parties, those parties willingly and knowingly accepted Nags Head’s request for priority.

[37] Now and at this time Mr Mawhinney submits that notwithstanding that view of the Court he has uncovered evidence suggesting that Nags Head was prepared to wait until the subdivision development was underway, before requiring repayment on its loan.

[38] The Court does not accept this. It runs contrary to the terms of the loan. Nowhere is there documentary evidence supporting this.

[39] The first caveat (16 July 2012) claims an interest arising from an agreement to mortgage dated 31 October 2008 in respect of a loan to the previous registered

proprietor which, Mr Mawhinney claims, was a debt that was assigned to the trustee’s of the Forest Trust (whose interests are run by FTL) and then it was transferred to Mr Mawhinney – in his capacity as a trustee of another trust. The date in question was the same date on which the prior registered proprietor granted a mortgage to another company and provided a priority amount of $10M.

[40] It is highly improbable that those events occurred. Certainly there was no reference to them in a 2009 District Court proceeding in relation to claims of priority of mortgages at that time. Also it was not raised in relation to priority issues in the December 2012 hearing.

[41] Regardless, an equitable mortgage of land confers on the mortgage an equitable interest that will support a caveat. I accept Ms O’Gorman’s submission that a security agreement in which the debtor merely agrees to grant a mortgage if requested to do so by the creditor will not by itself create an equitable mortgage. In order for an equitable mortgage to come into existence, an effective request to grant a mortgage over the property must be made by the creditor. The Court agrees with Ms O’Gorman that there is no evidence that Mr Mawhinney has ever requested a mortgage under the alleged agreement to mortgage.

[42] The Nags Head mortgage is indefeasible and will defeat the interests of any prior unregistered agreement to mortgage. The Court has no knowledge of any evidence to suggest that Nags Head did not lawfully or properly obtain its indefeasible interest.

[43] Even if Mr Mawhinney did have an interest in the property capable of supporting its caveat that interest is inferior and subordinate to the indefeasible interest of Nags Head.

[44] The second caveat (registered on 25 September 2012) claims an interest by Mr Mawhinney in a 1/1000th undivided share in that land by virtue of an agreement entered into between the caveators and the then registered proprietor.

[45] This cannot succeed to defeat Nags Head’s indefeasible interest or to prevent Nags Head’s intentions of utilising its mortgage of powers to sell the land. Nags Head’s mortgage was registered long before the alleged agreement between FTL and Mr Mawhinney.

[46] This caveat suffers the same protestations of abuse of process by counsel for Nags Head because of Mr Mawhinney’s failure to have advanced these arguments when he had an opportunity to do so in December 2012.

[47] The third caveat (registered 5 April 2013) claims to rely upon an agreement entered into on 23 September 2012 between FTL as registered proprietor and mortgagor and Mr Mawhinney and Zebra as mortgagee transferees, to request Nags Head as the mortgagee in its mortgage to transfer that mortgage of its to Mr Mawhinney.

[48] Earlier in this judgment I referred to the circumstances of Mr Mawhinney’s request to Nags Head to transfer their mortgage to him. He claimed that because there was no reference in the mortgage to an amount owing that no payment was required to be made in consideration of the request of a transfer.

[49] Under s 102(1) of the Property Law Act (PLA), FTL may request Nags Head to transfer its mortgage to a nominated person. Under s 103 and after receiving such request, Nags Head must transfer the mortgage to the nominated person on:

(a) payment to Nags Head of all amounts that would have been payable if the discharge of the mortgage had been sought under ss 97 to 101 of the PLA; and

(b) the performance of all other obligations secured by the mortgage.

[50] Ms O’Gorman submits that Mr Mawhinney’s rights (if any) under ss 102 and

103 of the PLA are (at most) equivalent to a right of pre-emption, or a right of first refusal. The holder of such rights will not have an interest in land capable of

supporting a caveat “unless and until the circumstances are such that specific performance can be ordered”. [2]

[51] It is questionable whether the circumstances described wherein a mortgagee must transfer the mortgage to another, does give rise to an interest in land capable of supporting a caveat. Regardless, such a claim of an interest would still be inferior and subordinate to the indefeasible interest of Nags Head.

[52] Quite clearly Mr Mawhinney has not paid all amounts secured by the mortgage and therefore s 103 of the PLA has not been satisfied. Indeed he confirmed to me that the Nags Head’s debt will have to be paid. His point is that it has no rights to that payment now.

[53] In the Court’s view Mr Mawhinney’s claim is unsupported by case authority. The Court accepts the submission of Ms O’Gorman that for the reason summarised in Hart v ANZ Bank of New Zealand Limited [3] all registered “all obligations” mortgages validly secured debts that are admitted to be owed under loans signed and authorised by the mortgagor. The Court agrees that the loan agreement upon which Nags Head’s mortgage relies clearly falls within the scope of the provisions in the registered memorandum of mortgage.

[54] Nags Head has no obligation to transfer its mortgage until all amounts secured by the mortgage have been paid. But, even if Mr Mawhinney had an interest in the property capable of supporting his caveat, his interest is nevertheless inferior to that of Nags Head.

Conclusion

[55] The Court does not accept that Mr Mawhinney has any caveatable interest in the property.

[56] Mr Mawhinney has lodged the caveats without reasonable cause. For reasons identified the Court considers there has been an abuse of process in the methods he

has engaged for his purpose to resist any threat to his development plans. Abuse occurs also because the arguments raised in their cause could have been raised in the priority interest proceeding.

[57] Whilst balance of convenient considerations should only be adopted with caution, in the present case and even if a caveatable interest claim was considered arguable it is quite clear that in light of Mr Mawhinney’s conduct to-date that the Court should exercise its discretion to remove the caveats.

[58] The applications to sustain the caveats in question are dismissed.

_{[59] Costs are payable to Nags Head on a 2B basis.}

Associate Judge Christiansen

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[1] Nags Head Horse Hotel Limited v Forest Trustee Limited & Ors [2012] NZHC 3271.

[2] _{Motor Works Limited v Westminster Auto Services Limited (1997) 1 NZLR 762.}

[3] [2013] NZSC 44 at [17] – [20].