Edith Farms Limited v Providence Lands Limited [2013] NZHC 3108 (25 November 2013)

Last Updated: 5 December 2013

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2013-419-820 [2013] NZHC 3108

IN THE MATTER of an application to sustain a caveat

IN THE MATTER of an application pursuant to the Land

Transfer Act 1952

BETWEEN EDITH FARMS LIMITED Applicant

AND PROVIDENCE LANDS LIMITED Respondent

Hearing: 14 November 2013

Counsel: DM O'Neill for applicant

AR Gilchrist for respondent

Judgment: 25 November 2013

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application that caveat not lapse]

This judgment was delivered by me on 25 November 2013 at 3pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

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

Solicitors: Botherway Legal, Hamilton 3240

Kiely Thompson Caisley, Auckland 1141

EDITH FARMS LIMITED v PROVIDENCE LANDS LIMITED [2013] NZHC 3108 [25 November 2013]

The application

[1] The applicant applies for an order pursuant to s 145 of the Land Transfer Act

1952 that caveat 9478968.1 not lapse.

[2] The caveat was lodged against the title of a 34.7346 hectare property at Walton, which currently milks 600 dairy goats. The application is made as a result of a notice issued on behalf of the Registrar General of Land. That notice advised that application had been made to register a notice, a discharge of mortgage, a transfer and a mortgage.

[3] The caveat claims an interest in the property as purchaser under

a Heads of Agreement for the sale and purchase of the property dated

28 May 2013 between the registered proprietor as Vendor and the caveator as purchaser.

The parties

[4] The respondent is the registered proprietor and the applicant is the purchaser described in the caveat.

Compliance with s 145(1) of the Land Transfer Act 1952

[5] No issue is taken as to the timeliness of the application. It is acknowledged that the appropriate notice and an interim order have been served on the Registrar in accordance with s 145(1) of the Land Transfer Act 1952.

The opposition

[6] The application is opposed by the current registered proprietor of the property. The notice of opposition pleads that:

(a) The applicant has no caveatable interest in the land;

(b) The agreement dated 28 May 2013 does not constitute a binding or completed agreement for sale and purchase of the land;

(c) The respondent has not sought to repudiate any contract and has sold the property to a third party and that the third party was not aware that the property was the subject of any prior agreement for sale and purchase.

[7] Those grounds were clarified somewhat in Mr Gilchrist’s submissions and

were advanced on four bases, namely:

(a) The applicant had no entitlement to lodge the caveat against the property because the trustee, or beneficial owner of the shares in the applicant company, had no power to delegate their functions to the person who signed the document which is alleged to be the agreement;

(b) In any event, the alleged agreement is void for uncertainty;

(c) Even if it is not void for uncertainty, it is a conditional agreement and the conditions have not been fulfilled so that it is now at an end;

(d) If the court holds that there is a caveatable interest, the applicant has nevertheless repudiated the agreement entitling the respondent to resell, thus limiting any claim which the applicant has to a claim for damages against the respondent and not for an interest in the land.

The applicable principles in relation to applications under s 145 of the Land

Transfer Act 1952

[8] The applicable principles that apply when considering applications pursuant to s 145 of the Land Transfer Act 1952 are well known and can be shortly stated. They are:

a) Sections 143, 145 and 145A of the Land Transfer Act 1952 give no guidance as to the circumstances in which the court may make an

_{order that a caveat be removed;}¹

¹ Catchpole v Burke [1974] 1 NZLR 620 (CA) at 623.

b) If it is clear that there was no valid ground for the lodging of a caveat, or that the interest which in the first place justified the lodging of the caveat no longer exists, such a caveat should be removed;²

c) The onus under s 143 of the Land Transfer Act 1952 lies on the caveator to show that he has a reasonably arguable case for the interest he claims;³

d) The caveat, being a creature of statute, may be lodged only by a person upon whom a right to lodge it has been conferred by statute. It is not enough to show that the lodging and continued existence of the caveat would be in some way advantageous to the caveator;⁴

e) What the caveator must establish is an arguable case for claiming an interest of the kind referred to in s 137 of the Land Transfer Act 1952;

f) Even if the caveator establishes an arguable case for the interest in the land claimed, the court retains a discretion to make an order removing the caveat although it will be exercised cautiously;⁵

g) The court has a discretion to impose conditions in respect of any order made sustaining a caveat.⁶

Background

[9] The respondent is the current registered proprietor of the property at Walton. The respondent, until recently, milked 600 dairy goats on the property.

[10] Mr CW Hickey is employed by the applicant company. The applicant company is the corporate trustee of the Edith Farms Trust. A director of the

_{applicant company, Mr DW Waine, has filed an affidavit. He has sworn that he}

² _{Sims v Lowe [1988] 1 NZLR 656 (CA) at 659–660.}

³ _{Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 (CA) at106}

⁴ _{Guardian Trust & Executor Co of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025.}

⁵ Pacific Homes Ltd (in receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at

_656.

⁶ Raiser Developments Ltd v Trefoil Properties Ltd [2008] NZCA 73, (2008) 9 NZCPR 16 at [33]..

authorised Mr CW Hickey to undertake all dealings on behalf of the applicant company in relation to the proposed purchase of the respondent’s property at Walton. He confirms that he is aware of Mr Hickey’s dealings and confirms that the Trust itself approves of them.

[11] Ms LA Misson is the sole director of the respondent company. She advises that she and her family trust are the only shareholders of the respondent company.

[12] Mr Hickey approached Ms Misson in late May 2013. It is apparent that they had discussions and then exchanged emails and texts.

The Heads of Agreement

[13] A document was created with the assistance of a real estate agent. I set out in full the short document:

HEADS OF AGREEMENT

1557 Morrinsville-Walton Road, Morrinsville

Providence Lands Limited

(The Owner)

And

Edith Farms Trust

(The Purchaser)

The Purchaser formally expresses an interest to buy the following property as currently owned by Providence Lands Limited.

SA27D/1300 being some 34.7346 hectares

The Purchaser hereby makes an offer to purchase the above described property inclusive of the following:

Land and buildings

Approximately 1600 does and doelings

Associated farm machinery

Feed on hand as budgeted for the next 90 days

The Purchaser offers a consideration of $4,200,000 $4,800,000 plus GST (if any).

The deposit will be paid within 10 days of both parties agreeing to a formal lease. The deposit amount will be 20% of the purchase price and be secured over the livestock.

The purchaser offers to lease the subject property, such lease to be effective from the 14th June 2013 for an amount of $40,000 + GST if any.

Settlement will be made in full on Friday the 30th May 2014. For all purposes the following values shall apply:

Company-opposition Shareholding at $23 per share

Scanned in-kid does at $572 per head

Scanned in-kid doelings at $572 per head

In order for this agreement to be declared unconditional the purchaser requires some due diligence.

All such conditions to be sufficed by the 7 June 2013.

The purchaser agrees that on 31 May 2014 there will be no less than 625 goats on the property and a supply contract to supply 50,000 ms/year at a milksolid price of $14/kgms.

CAC Free

Signature 28.5/13

The Owner Date

Signature 28/5/13

The Purchaser Date

As trustees of Edith Farms

[14] A consideration of the heads of agreement discloses the following:

(a) The purchaser is described as “Edith Farms Trust” and not the applicant caveator “Edith Farms Ltd”;

(b) Mr Hickey has signed the document “the Purchaser as trustees of

Edith Farms Trust”.

(c) The terminology used in the document is that of offer. There is a reference to “in order for this agreement to be declared unconditional the purchaser requires some due diligence”;

(d) Provision is made for the purchaser to carry out due diligence;

(e) The document makes provision for both parties agreeing to a formal lease. It then records that the purchaser offers to lease the subject property from 14 June 2013 at $40,000 plus GST;

(f) There is no definition or list of associated farm machinery;

(g) There is a deadline set for compliance with the conditions in the document, namely 7 June 2013.

Lease terms

[15] Mr Hickey had the lease terms prepared. These he sent to Ms Misson. No- one on behalf of the applicant company signed them. They were not signed by the respondent. Mr Hickey makes it clear that a lease pending settlement was essential to this contract. The applicant purchaser needed possession forthwith and with a view to settling the purchase next year, that is, on 30 May 2014. There is no evidence to suggest that the parties agreed on anything in relation to the lease other than that which is in the heads of agreement.

Associated farm machinery

[16] The evidence discloses that is a matter that Mr Hickey complained about. In his reply affidavit at [13] he says:

One of the reasons why there were a number of discussions around the heads of agreement was because of the lack of information forthcoming about the asset schedule. This was continually changing and I needed to know precisely what assets were coming with the farm and the goats.

[17] There is no evidence that the parties agreed on a specific schedule of farm machinery to be incorporated in the sale.

Further contract document

[18] The evidence on both sides is that the parties contemplated a further contractual document. Ms Misson put it as follows:

13. I was hopeful of “doing a deal” with him. I was told by him that his

lawyer would draw up a full and proper contract, and we could progress

matters from there. No formal Agreement for Sale and Purchase was ever provided to me or ever executed by either of us.

[19] Ms Misson further said:

17. THE fact that there was no Agreement, and demonstrating Mr Hickey’s lack of interest was my advice by text of 22 June 2013 (which appears at exhibit “I” to Mr Hickey’s Affidavit) that the farm was going back on the market. His response – three weeks later on 19 July 2013 – is to ask to bring his children round. No mention is made of any Agreement. Even if the Agreement was capable of being declared unconditional, it had not been done so by 7 June 2013, and was thus at an end. It was quite clear from that email that there was no Agreement between us, and that any negotiations were at an end.

[20] Mr Hickey’s response in his affidavit in reply at [12] is as follows:

The agreement for sale and purchase was going to effectively transpose the deal that had been reached with greater detail. It does not take away anything from the heads of agreement. It was only after Mrs Misson got cold feet and started to renege on the deal that it was seen as something that was probably a waste of time by that stage and was particularly so when she started selling the farm through a real estate agent.

[21] Mr JD Mackay, a solicitor and principal in the Tauranga legal firm of Holland Beckett, has sworn an affidavit. He advised that the respondent instructed him following the listing of the property with real estate agents. He had been provided with a copy of the heads of agreement. He took the view that it was a precursor to a formal agreement being entered into.

[22] Mr Mackay said that he telephoned Mr Hickey’s lawyer, Mr Damian

Botherway, on 27 June 2013.

[23] Mr Botherway has also filed an affidavit. Although the lawyers do not agree entirely with each other as to what transpired in the telephone discussion on 26 June

2013, what is clear is that Mr Botherway acknowledges the following:

We discussed the fact that it was anticipated an agreement for sale and purchase and lease arrangements was to be completed, based on the heads of agreement. I told Mr McKay that I would draft these and forward them to him for his perusal.

He then confirms that those drafts were not sent by him to Ms Misson’s lawyer,

Mr Mackay. He says the reason was because Ms Misson had appointed a land agent

and had directed all communications to be through the land agent. What is significant about the lawyers’ evidence is that both record instructions to the effect that the parties contemplated the entry into a more formal document recording the terms of the agreement for sale and purchase and the lease arrangements.

Identity and authority of the contracting parties

[24] The evidence is that the trustee of the trust is the caveator. The trust deed has been produced. There is no provision in the trust deed which authorises Mr Hickey to make decisions for the trustee.

[25] It is trite law where either the vendor or the purchaser is a trust the parties to the contract must be the trustees of the trust. The trust itself is not a legal person.⁷

[26] Mr Hickey has signed the document as trustee of the Edith Farms Trust. The evidence is that he is not a trustee of the trust. He is not a director or shareholder of the caveator Edith Farms Ltd.

[27] There is nothing in the heads of agreement which connects the document with Edith Farms Ltd, the caveator. The caveator is not the purchaser described in the heads of agreement. The company, therefore, has no basis for claiming that it is the purchaser. The only person who has signed the heads of agreement as trustee is Mr Hickey. The applicant’s case overlooks the separate legal status of the company

by the operation of s 15 of the Companies Act 1993.⁸

[28] The above, by itself, is sufficient to refuse the application on the basis that the company has no caveatable interest in the property. Even if it is alleged that Mr Hickey was acting on behalf of the company, it is an established rule of trust law that a trustee must not delegate his or duties and powers.⁹ The company, as trustee, had no power to delegate to Mr Hickey the authority to negotiate and sign a contract

_{to purchase on its behalf.}

⁷ _{DW McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at 87.}

⁸ _{See also, Lee v Lee’s Air Farming Ltd [1961] NZLR 325 (PC).}

9. Niak v Macdonald [2001] 3 NZLR 334 (CA) at [16]; Ponniah v Palmer [2012] NZCA 490, (2012)3 NZTR 22-207 at [22].

[29] The position, then, is that the corporate trustee company, which is the caveator, has not been identified in the heads of agreement. Someone else is described as the trustee. That someone else is Mr Hickey. There is no legal basis for the proposition that the director of the caveator company had power to delegate to Mr Hickey authority to negotiate and sign an agreement to purchase. There are therefore two specific reasons why the applicant company has no caveatable interest. The first is that it is not described as the purchaser in the heads of agreement and the second is that the person who purportedly signed it as trustee could not, on the material that has been placed before the court, be authorised to have done so on behalf of the trust.

[30] This leads me to the conclusion that the caveator can have no caveatable interest in the property as a purchaser. That was the first ground pleaded in the notice of opposition. This position also satisfies the expanded reasons that Mr Gilchrist advanced and which I have referred to in [7](a) of this judgment.

Does the heads of agreement document evidence an intention to be bound without further agreement?

[31] Even if I am wrong in the conclusion just recorded, I consider the next issue.

[32] In Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd the Court of Appeal concluded that the prerequisites to formation of a contract were an intention to be immediately bound and an agreement, express or implied, or the means of forming an agreement (eg an arbitration clause) on every term legally essential to formation of the contract or manifested by the parties as essential to their bargain.¹⁰

[33] The following difficulties stand in the way of the applicant in this case, namely:

(a) The heads of agreement did not provide any machinery for determining what associated farm machinery was to be included in the

¹⁰ Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR

433 (CA).

contract. Mr Hickey acknowledged that that was important to his interests;

(b) The heads of agreement provided for the parties to agree to a formal lease. Whilst it records the trust’s offer as to the term and the overall rent to be paid, the parties at no time agreed on the terms to go in a formal lease;

(c) The deposit has not been paid. If there had been agreement on the formal terms of the lease, one would have expected the deposit to have been paid as provided for in the heads of agreement, namely within 10 days of the parties so agreeing. That did not occur.

[34] Both sides contemplated the entry into a more formal contract document. They gave instructions to their lawyers for the preparation of it. They were doing what is customary in contracts for the sale of land.¹¹ The Court of Appeal in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd expressly approved of a consideration not only of the words of the formal document on which the alleged contract was based, but also background facts and the parties’ subsequent conduct towards each other.¹² There is, in this case, an absence of explanation as to why no formal step to enforce the alleged agreement was not taken by Mr Hickey between 19 June 2013, when he was told that the property was going to be listed with real estate agents, until a formal contract was entered into with another purchaser on 20 July 2013.

[35] The fact the assets schedule had not been provided, the lease had not been agreed to and executed, thus leading to a situation where the deposit had not been paid and no formal contract was put forward for execution lead me to conclude that there was never any enforceable contract for the purchase of the property and its

_{stock and plant and for a lease pending final settlement.}

¹¹ _{Carruthers v Whitaker [1975] 2 NZLR 667 (CA).}

¹² Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd above n 10, at

[56].

[36] When I view these circumstances, I reach the conclusion that the heads of agreement lacks agreement on a number of the essential terms which the parties contemplated were required in their agreement before it could be said that a contract in final form had been entered into. That being the case, even assuming that the caveator was the contracting party for the purposes of this part of this judgment, no contract had been formed which justifies the lodging of the caveat. On this independent ground the applicant is not entitled to the order it is seeking.

Compliance with conditions

[37] There is some difference between the parties as to whether there had been a formal notification that the conditions had been met and that due diligence had been completed. I do not make any finding on that, but if the case turned on that matter, it would be appropriate that the caveat be sustained.

Repudiation

[38] Another matter that was raised was whether there had been a repudiation of the alleged agreement by the caveator. If this case turned on that point, I am not satisfied that there has been, as Mr Gilchrist submitted, a cancellation in terms of s 8 of the Contractual Remedies Act 1979 notified to the caveator or to Mr Hickey’s interests. Accordingly, if it came down to the question of repudiation, I would have found against the respondent.

Form of order if caveat was to be sustained

[39] Out of an abundance of caution, I discussed one other matter with counsel and that is, that if I were shown to be wrong on the primary grounds for refusing to sustain this caveat, what order in the circumstances would have been appropriate. Both counsel accepted that it is normal in situations like the present to make a conditional order, namely, conditional on the caveator as purchaser filing an undertaking to prosecute a proceeding seeking specific performance of the alleged

_contract.¹³

¹³ Raiser Developments Ltd v Trefoil Properties Ltd, above, n 6.

[40] The difficulty with that type of order in this case is the existence of the sale of the subject property to a third party, Miller and Smith Farms Ltd. That was partly settled on 31 July 2013. That has led to the presentation of documents for registration with the Land Transfer Office. A way to address this problem might have been to impose two conditions on the caveator. The first could have been a condition that the caveator file and serve an application pursuant to s 143 of the Land Transfer Act 1952 to remove the caveat that had been placed on the title of the subject property by Miller and Smith Farms Ltd on 30 July 2013. If the applicant failed in that application there would be no purpose served in pursuing an application for specific performance because it would have identified the fact that the decree would not have been granted in that case because of the existence of the sale to Miller and Smith Farms Ltd.

[41] What became apparent in the discussion with counsel was that there had been a guaranteed searched obtained by the solicitor acting for Miller and Smith Farms Ltd before he settled with the respondent company. At that time there was nothing on the title that would have stood in the way of registration of the transfer to Miller and Smith Farms Ltd. What has apparently prevented that transfer being registered is the registration of the applicant’s caveat on 6 August 2013 six days after the actual settlement of the sale to Miller and Smith Farms Ltd. Counsel were agreed that in the circumstances a short affidavit from the solicitor who acted from Miller and Smith Farms Ltd could resolve that issue. I issued a minute accordingly.

[42] Mr Turrall, the solicitor for Miller and Smith Farms Ltd, has filed an affidavit. It records that he was instructed to act by Miller and Smith Farms Ltd to complete the conveyancing of the subject property. He says he obtained a guaranteed search at 11:17am on 31 July 2013, which was the day of settlement. On the afternoon, he obtained a further guaranteed search at 4:41pm. He has exhibited both. Neither refer to anything that would prevent registration of the transfer to Miller and Smith Farms Ltd. Finally, he says that the discharge of mortgage, transfer and mortgage to the company was presented for registration at 4:41pm on 31 July

2013. That indicates to me that, if I were to sustain the caveat, there probably would be no point directing the issue of proceedings for specific performance because the

respondent’s answer would be that it was now impossible to perform such a decree if it were granted.

Conclusions

[43] I conclude that the application that the caveat not lapse must fail. Accordingly, the application is refused.

Order

[44] I make an order that Caveat 9478968.1 be removed from the title to the subject property.

Costs

[45] At counsel’s request I reserve costs. If counsel cannot agree, memoranda in support, opposition and reply shall be filed and served at seven-day intervals. The first memorandum shall be filed and served not more than 15 working days after the

_{release of this judgment.}

JA Faire
Associate Judge