CIT Holdings Limited v Glover No.2 Limited [2014] NZHC 3114 (5 December 2014)

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UNDER	the Land Transfer Act 1952
IN THE MATTER OF	an application to remove caveats numbered 9455113.1 and 9645842.1 pursuant to section 143 of the Land Transfer Act 1952
BETWEEN	CIT HOLDINGS LIMITED Applicant
AND	GLOVER NO 2 LIMITED Respondent

Hearing:	15 September 2014 Additional Memoranda (by leave): 24, 27 and 28 November 2014
Appearances:	G M Sandelin and K T Haemmerle for Applicant R C Knight and T Chubb for Respondent
_Judgment:	_{5 December 2014}

BNZ	Bank of New Zealand
CIT	CIT Holdings Ltd (the applicant), registered proprietor of the caveated properties
Colliers	Colliers International NZ Ltd (valuers)
Glover Trust	the Glover Trust, of which Glover Trust Corporation Ltd is trustee
Glover No 2	the Glover No 2 Trust, established by Ms Sparks, of which Glover No 2 Ltd is currently trustee
IRD	Inland Revenue Department
Mr Olliver	Gregory Martin Olliver
Mr Thomas	Donald Bruce Thomas (solicitor)
Ms Sparks	Sarah Patricia Sparks (married name, Olliver)
Waimarie JV	a joint venture agreement entered into on March 2009
Waimarie Trust	the Waimarie Trust, of which Waimarie Trust Ltd is currently trustee.

[1] Ms Sparks and Mr Olliver had a marriage, soon to be (if not already) dissolved. Mr Olliver has come and gone through financial difficulties, reaching a nadir when in early 2009 he had to make a proposal under Part 5 of the Insolvency Act 2006.

[2] Ms Sparks and Mr Olliver have experience as property developers. Mr Olliver’s interests had, before 2009, acquired a number of adjoining properties at St Heliers, Auckland (the Waimarie properties) for development.

[3] This proceeding concerns caveats which Ms Sparks arranged for Glover No 2 to lodge against the titles to the Waimarie properties. Glover No 2 is a trust established by Ms Sparks.

[4] CIT Holdings Ltd (CIT) is the registered proprietor of the Waimarie properties and made this application for an order that the caveats be removed.

[5] CIT commenced the proceeding by naming itself as plaintiff and Glover No 2 as defendant. As this is an originating application, and upon discussion with counsel, I made an oral order at the commencement of the hearing amending the description of the parties to be respectively “applicant” and “respondent” as now shown in the intituling to this judgment.

[6] When Mr Olliver’s insolvency proposal was being pursued in 2009, Mr Olliver and Ms Sparks embarked upon arrangements to have Mr Olliver drop out of both legal and beneficial ownership of assets held by them or their interests.

[7] Central to their arrangements was a joint venture agreement of March 2009 (the Waimarie JV) to which the Glover Trust and the Waimarie Trust were (through their corporate trustees) parties.¹(Glover No 2 subsequently took the Waimarie Trust’s place as a party by the deed of novation referred to at [17] below).

A The parties have experience in the acquisition and potential for the Property. The opportunity has arisen to acquire the Property by mortgagee sale. The purchase of that has to be completed as a total package.

B For the purposes of preserving the residential portion of the Property for the benefit of Waimarie and maximising the potential for the residue of the property without prejudicing the residential portion the parties are to form the Joint Venture.

C Glover and Waimarie intend to contribute to the Joint Venture by investing capital and borrowing on current account loans to the Joint Venture on the basis set out in this agreement.

[9] The “Property” referred to in the Waimarie JV was defined as comprising a

[10] The parties agreed that the Waimarie Trust would contribute “capital” and that the Glover Trust would contribute the Property. The Waimarie JV included the following further provisions:

“Percentage interests” means for Waimarie (yet [sic] having contributed to be [sic] cash equity to the Joint Venture) a 60% share, which shares shall include the distribution or transfer in specie of the residential portion of the Property, and for Glover a 40% share.

“residential portion” means the property (more or less) set out as the first listed in the schedule [being a reference to 22 to 24 Waimarie Street].

(b) Glover shall contribute the Property. The Property to remain in the name of the Glover owned company, CIT Holdings Ltd (“CIT”), for so long as the Property or any part of it remains part of the assets of the Joint Venture. The beneficial ownership of the Property and other assets of the Joint Venture shall be determined in accordance with the terms of this agreement and not by reference [sic] the title to any part of the Property or the shareholding of CIT.

6.1 This agreement shall terminate upon the transfer of the residential portion to the Waimarie free of any encumbrance and completion of the realisation by sale of the remainder of the Property. On the completion of the transfer of the residential portion and all sales of the remainder of the Property any remaining cash assets shall be divided between the parties in proportion to their respective percentage interests in completion of the termination of the Joint Venture.

[11] The Waimarie JV concludes with an entire agreement clause which strips any prior understandings of all force or effect and provides that the JV agreement constitutes the sole understanding of the parties with respect to the subject matter. In other words, the correct construction of the agreement is to be derived from the words used in the written document read in their context²but not (by reason of the entire agreement clause) from any previous written or oral discussions or understandings.

[12] On 9 March 2009, CIT bought the first tranche properties funded by the Waimarie Trust’s $2,000,000 and an advance from the Bank of New Zealand (BNZ) of $6,750,000. The bank loan was secured by a first ranking mortgage over the first

_{tranche properties and a General Security Agreement (GSA) over
CIT’s present and}

²Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [4], [23], [62]

[13] The following month, April 2009, the Glover Trust and the Waimarie Trust entered into an agreement supplementary to the Waimarie JV.³The supplementary agreement recorded the purpose:

(The gap in paragraph A, with a date omitted, is as it appears in the document).

[14] In the supplementary agreement the Waimarie Trust agreed to contribute further capital of $1,675,000 which the joint venture was to apply to the purchase of further properties (which I will refer to as the second tranche properties). The supplementary agreement repeated in materially identical terms the beneficial ownership clause of the Waimarie JV.

[16] The BNZ was not notified of the purchase of the second tranche properties but those properties became subject to the GSA as after-acquired property of CIT.

[17] In the latter part of 2010, the relationship between Ms Sparks and Mr Olliver began to deteriorate. The couple separated in July 2012. Ms Sparks deposes that she was concerned about Mr Olliver’s commercial activities and financial habits. Unbeknown to Mr Olliver, Ms Sparks took advice from Mr Thomas, the solicitor who had been representing the couple’s joint interests, as to action which might

_{protect the interests of Ms Sparks and the children of the marriage. On
Mr Thomas’}

suggestion, Ms Sparks also took advice from senior counsel with expertise in relationship property. A plan of action was decided upon in 2011. Ms Sparks settled the Glover No 2 Trust and controlled it through its corporate trustee. She then executed a suite of documents for the purpose of transferring the second tranche properties from CIT (of which she was director) to Glover No 2. By a deed of novation (executed by Ms Sparks for all parties on 17 October 2011) Glover No 2 replaced the Waimarie Trust as a party to the Waimarie JV. At the same time, Ms Sparks had executed a declaration by Glover No 2 that it held the second tranche properties on a bare trust for CIT.

[18] Ms Sparks later had the titles to the second tranche properties transferred into the name of Glover No 2.

[19] CIT’s recovery of the properties through extensive litigation was pursued by the corporate trustees controlling CIT. In the meantime Ms Sparks had arranged for Glover No 2 to borrow funds from Southern Cross Finance Limited on first mortgage security over the second tranche properties. She used borrowed funds for her personal purposes and not those of Glover No 2. It was subsequently established by judgments of this Court and the Court of Appeal that CIT was entitled to have the

second tranche properties re-transferred to it.⁴Notwithstanding the order of the High

Court (as confirmed by the Court of Appeal), Ms Sparks failed to have Glover No 2 execute a registrable transfer of the second tranche properties back to CIT, the Registrar ultimately carrying out that duty on direction of the Court.

[20] Glover No 2 caveated CIT’s titles in relation to both the first tranche and second tranche properties.

⁴Glover Trust Ltd v Glover Trust Corporation Ltd [2013] NZHC 545 (20 March 2013); with supplementary judgment [2013] NZHC 545 (23 September 2013); Glover No 2 Ltd v The Glover Trust Ltd [2013] NZCA 608 (3 December 2013). Leave to appeal to the Supreme Court was declined on 7 May 2014 – Glover No 2 Ltd v The Glover Trust Ltd [2014] NZSC 54. Sums owing by Glover No 2 pursuant to costs orders of the High Court, Court of Appeal and Supreme Court were the subject of a statutory demand issued by CIT in April 2014, which was set aside in Glover No 2 Ltd v CIT Holdings Ltd [2014] NZHC 2786 (10 November 2014).

[21] The interest claimed by Glover No 2 in each case is materially identical. Glover No 2 claims a beneficial interest in the properties. It asserts that it is a beneficiary of a trust of which CIT is trustee. It relies upon the provisions of the Waimarie JV and the supplementary agreement. (Glover No 2 had replaced Waimarie Trust as a party to the Waimarie JV through the October 2011 Deed of

[22] The BNZ loan secured over the properties was due to expire in March 2011. It was extended a number of times until 31 July 2012. The BNZ agreed to extend the facility after St Heliers Capital Ltd (a company associated with Mr Olliver) provided a guarantee of the loan.

[23] The BNZ issued Property Law Act 2007 notices requiring the loan defaults to be remedied by 4 February 2013. CIT was unable to remedy the defaults.

[24] Craig Dungey, described as a “Partner–Corporate Banking” has given evidence as to the BNZ’s position. The BNZ has supported an orderly sell-down process of the properties to preserve the maximum equity in the properties. The BNZ’s security continues to be eroded while the parties are in dispute. Mr Dungey regards the BNZ’s present position as untenable and unable to continue. He deposes that, if the caveats are not removed as a result of this proceeding, the BNZ will have no choice but to exercise its rights to force the sale of the properties either by way of mortgagee sale or through the appointment of a receiver. He notes that in the BNZ’s experience a forced sale will almost always result in a purchase price being achieved at a value which is less than the price which would be achieved through a sale on the open market. With continuing delay and costs, he deposes that there is a real risk that the BNZ may not be fully repaid from the sale of the properties. The approximate debt of CIT to the BNZ as at mid-October 2014 was $10,199,261 (together with

[25] As at mid-October 2014 CIT additionally owed to Princeton Securities Limited a debt of approximately $237,821 (plus legal and associated costs). The debt to Princeton replaced the advance which Ms Sparks had arranged from Southern Cross while in control of the properties.

[26] CIT will also be incurring liabilities for other expenses such as those in relation to the caveats and this proceeding.

[27] In all, CIT’s secured debts almost certainly exceed $10,440,000 at present.

[28] In addition to secured debt, CIT has a number of other creditors. Most significantly, the Commissioner of Inland Revenue claims a sum approaching

$3,000,000 in relation to GST on the properties. Mr Olliver has deposed that the Commissioner’s claim as at 30 June 2014 was $2,994,759.86, which takes into account penalties and interest. The GST liability is the subject of an as yet unresolved dispute which Mr Olliver is conducting.

[29] Additionally, advances from related parties substantially exceed $1 million. CIT may be able to make some recoveries of advances but they do not significantly affect CIT’s overall financial position. Of note, however, is a sum of $152,089 which CIT will need to recover from Glover No 2 stemming from the money which Ms Sparks had Glover No 2 borrow from Southern Cross in the period when Glover No 2 was the registered proprietor of those properties.

[30] In February 2014, CIT instructed a real estate agent, Unlimited Potential Limited, to undertake a four-week marketing campaign for a sale of the properties by tender closing on 25 March 2014. The tender process failed. The reports provided by Unlimited Potential indicate a degree of interest expressed by some parties focused on purchasing separate titles rather than the properties as a whole. The issuing of separate titles would have involved further development for which CIT had no funding, and was therefore not an option.

[31] In March 2014, CIT commissioned a valuation report from Savills (NZ) Limited, to be relied upon by CIT and the BNZ. In a comprehensive report, Steven

Dunlop and Mark Lyons of Savills assessed the market value of the properties as at

31 March 2014 at $10,570,000 (inclusive of any GST). The report notes that in the event a sale were to occur in circumstances not reflecting a market value definition, the price realised might be at a substantial discount to the assessed value.

[32] On 12 May 2014, CIT’s solicitors wrote to Glover No 2 and Ms Sparks. Information was included as to the unsuccessful tender exercise and the Colliers valuation. Mr Olliver’s preference not to purchase the properties was recorded but with an indication that Mr Olliver would be happy to see the properties sold to Ms Sparks if all secured creditors were repaid in full. Ms Sparks was invited to make an offer for the properties on terms which might be acceptable to the BNZ in the light of the valuations obtained.

[33] CIT did not receive an offer from Ms Sparks or Glover No 2 to purchase the properties.

[34] On 19 June 2014, CIT entered into two agreements for sale and purchase of the properties for prices totalling $10,570,000 being:

(a) a purchase by BBG Holdings Ltd of 14, 14A, 16, 16A, 20, 30 and 30A Waimarie Street; and

Both agreements are conditional on CIT procuring the release of the caveats. Settlement date was 19 October 2014.

[35] On 23 June 2014, CIT’s solicitors wrote to Glover No 2 and Ms Sparks informing her of the sales and attaching copies of the agreements. Confirmation was sought that Glover No 2 would withdraw its caveats.

[36] In the absence of a response from Glover No 2 or Ms Sparks during June, CIT made this application on 1 July 2014.

(a) Glover No 2 has no interest in the property sufficient to sustain a caveat because Glover No 2’s interest under the JV agreement is limited to a share of the proceeds of sale (save in respect of the residential portion at 22-24 Waimarie Street);

(b) even were the Court to find a caveatable interest to exist, the caveats ought to be removed because there is no equity in the properties;

(i) the lack of any legitimate interest for Glover No 2 in the maintenance of the caveat; and

[38] Section 143 of the Land Transfer Act 1952 empowers the Court to order removal of a caveat. It provides:

(1) Any such applicant or registered proprietor, or any other person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the High Court for an order that the caveat be removed.

(2) The Court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the Court seems meet.

(a) the burden of establishing that the applicant has a reasonably arguable case for the interest claimed is upon the caveator;

(b) the caveator must show an entitlement to, or beneficial interest in, the estate referred to in the caveat by virtue of an unregistered agreement or an instrument or transmission, or of any trust expressed or implied: s 137 Land Transfer Act 1952;

(c) the summary procedure involved in an application of this nature is wholly unsuitable for the determination of disputed questions of fact – an order for removal of the caveat will not be made unless it is clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so;

(d) when an applicant has discharged the burden upon the applicant, there remains a discretion as to whether to remove the caveat, which will be exercised cautiously;⁶and

[40] I will return, in my discussion of CIT’s specific grounds of application to

[41] CIT’s application recognised that Glover No 2’s interest in the residential portion as defined in the Waimarie JV (being 22–24 Waimarie Street) was caveatable, the express wording of the first ground in the application stating:

Save in respect of the Residential Property, the respondent has no interest in the Properties sufficient to sustain First and Second Caveats.

[42] Although Mr Sandelin’s written submissions for CIT included a proposition that Glover No 2 had no caveatable interest at all, the concession in the application itself was not withdrawn and was, in any event, a proper concession. As a plain matter of the construction of the agreement, CIT was a trustee of the residential portion for Glover No 2.

[43] Glover No 2’s interest is reinforced by a note in financial statements of CIT for the nine month period to 31 March 2014, produced by Mr Olliver. The accounts note:

[44] In this jurisdiction in which a caveator must establish a reasonably arguable case for the interest it claims, Glover No 2’s caveat in relation to the residential portion is clearly sustainable.

Any interest the respondent does have pursuant to the JV agreement and the supplementary agreement (save in respect of the Residential Portion) is as trustee of Glover No 2 Trust to a share of the proceeds of sale of the Properties only.

[46] Mr Sandelin and Mr Knight (for CIT and Glover No 2 respectively) recognise that whether a caveatable interest exists depends on the construction and wording of the particular interest.

[47] In opposition to the application, Mr Knight focuses on the proposition that a beneficial and therefore caveatable interest in land may be held by a joint venture.

[48] Of relevance is the judgment of Williams J in Symphony Group Ltd v Pacific

Heritage (Auckland) Development Ltd.⁷In that case, a company (Heritage), was set up by joint venturers as a bare trustee to hold the land involved in a redevelopment.

⁷Symphony Group Ltd v Heritage Developments (Hobson Street) Ltd HC Auckland M751/98, 6

The plaintiff (Symphony) applied for an order removing caveats lodged by one of the joint venturers. Symphony argued that the joint venturer’s interest was limited to a share in the ultimate proceeds of the joint venture.

[49] The Court dismissed Symphony’s application for removal of the caveats. In doing so, Williams J held that Pacific Heritage had a caveatable interest at the time the caveats were lodged. His Honour observed:⁸

Whilst a shareholder normally has no proprietary interest sufficient to support a caveat in land owned by the company in which shares are held (ex parte Canowie Pastoral Co. Ltd [1931] SAStRp 61; [1931] SASR 502, Ten Pin Properties Ltd v Bowlarama (NZ) Ltd (18 December 1989, High Court Christchurch Registry, M 655/89, Tipping, J), Hinde McMorland & Sim, Land Law in New Zealand (1997) para 2 149 p 273), a beneficiary of a trust may caveat a title if the beneficiary can show that the trust confers a beneficial interest in the land (although it is questionable whether the beneficiary of a trust for sale has such an interest or immediate interest in the proceeds Merbank Corp Ltd v Price (1978) 1 NZCPR 24, 28, Hinde McMorland & Sim, op cit para 2 148 p

In this case, the deed of nomination expressly obliged Heritage Development to “transfer the property to the beneficiaries in the shares as and when the beneficiaries ... direct” and said that nothing in the deed would “deprive the beneficiaries of the right of beneficial ownership including the right of possession of the property”. In this Court’s view, those provisions must be read as making it clear that the Joint Venturers intended that each should have a beneficial interest in the land and the right to call for it to be transferred to them in their respective shares. Those rights included physical possession.

[50] For CIT, Mr Sandelin sought to bring the arrangements between the parties within the framework of a line of cases which held that the claimant had a right only in the proceeds of some venture or the proceeds of the sale of some asset. He cited the judgment of the New South Wales Supreme Court in Luxury Homes Pty Ltd v

Danieli.⁹An examination of such cases, however, serves to emphasise how fact-

dependent, turning particularly on their own arrangements, each of the cases is. This is illustrated by the following passage from the judgment of White J:¹⁰

In Epple v Wilson [1972] VicRp 50; [1972] VR 440, it was held that an interest in the proceeds of the sale of land does not necessarily involve an interest in the land itself, even where there is a trust for sale. In Simons v David Benge Motors Pty Limited [1974] VicRp 69; [1974] VR 585, it was held, following Epple v Wilson, that an

agreement to share the profits of resale of land, did not confer on the lender of the moneys an interest sufficient to support a caveat. The position may be different if the plaintiff has a right to have the land sold and to have the proceeds divided, being a right which the plaintiff could enforce by an order for specific performance (Davies v Uratoriu (1995) 6 BPR 13,917 at

[51] It is at least arguable that, unlike the caveator in Luxury Homes Pty Ltd v Danieli, Glover No 2 in this case has an interest both in the land and the net proceeds of the sale of the joint venture assets. The beneficial ownership clause¹¹makes it clear that CIT is to become the owner of the properties only “in name”, with beneficial ownership of the properties and other assets of the joint venture being determined in accordance with the terms of the Waimarie JV. The joint venturers’

respective interests through their beneficial ownership of the property and other assets are then defined to be a 60 per cent and 40 per cent share respectively. While it is clear that the Waimarie JV contemplates that the share of each party will ultimately be received (with the exception of the residential portion) by way of the proceeds of sale of the remainder of the property it is arguable that at least for the time being each party has an interest not only in the ultimate proceeds but in the properties themselves.

[52] Such position suggests also the potential application of the authority referred to by White J in Luxury Homes Pty Ltd v Danieli whereby a caveat will be sustained if a claimant has a right to have land sold and proceeds divided which could be enforced through an order for specific performance.¹²If the reference to CIT’s bare trusteeship which appears in the 31 March 2014 financial statements prepared by Mr Olliver is ultimately found to reflect the legal position, the joint venturers would

each have the right to obtain an order requiring CIT to have the properties sold.

[53] Mr Sandelin for CIT referred also to Maruha Corp v Amaltal Corp Ltd, as a case in which the Supreme Court has recognised that fiduciary duties will rarely be

_{found to sit along shareholder relationships under the Companies Act
1993 when}

¹²Luxury Homes Pty Ltd v Danieli, above n 9, at [23], citing Davies v Uratoriu (1995) 6 BPR

commercial parties have elected to use an incorporated vehicle for their venture.¹³I accept Mr Knight’s submission that a more complete understanding of the Supreme Court’s observations may be gained from the following passage in the judgment:

[20] The characterisation of a commercial arrangement as a joint venture can be unhelpful as a guide to whether the parties owe each other fiduciary obligations. In our view, when commercial parties elect to use an incorporated vehicle for a venture that can only loosely be called a joint venture, it is unlikely that their relationship as a whole will be fiduciary in nature. To that extent we agree with the Court of Appeal.

[54] The parties in this case did not “loosely” structure a joint venture. Rather they deliberately structured it and documented it, with rights and obligations spelt out. The rights went beyond those which would apply between ordinary shareholders. The parties to the Waimarie JV clearly intended that there would be rights beyond those which existed as a matter of CIT’s shareholding.

[55] Accordingly, the first ground of CIT’s application fails. Glover No 2 arguably has a caveatable interest in the properties.

[56] When the caveator establishes a reasonably arguable caveatable interest, the Court may nevertheless order removal of the caveat if the legitimate interests of the caveator will not be prejudiced. This is an aspect of the Court’s residual discretion.¹⁴

The Court possesses a wide discretion, conferred by the power under s 143 of the

[57] The situation which arises when the maintenance of a caveat would serve no practical advantage was addressed by the Court of Appeal in Pacific Homes Ltd (in

¹⁴_{Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd
[1996] 2 NZLR 652 (CA) at 656.}

¹⁵Varney v Anderson [1988] NZCA 11; [1988] 1 NZLR 478 (CA) at 479. See also Willigers v McFarlane (2005) 6

rec) v Consolidated Joineries Ltd.¹⁶Rejecting an argument based on observations in the Court of Appeal in Sims v Lowe,¹⁷Blanchard J for the Court of Appeal said:¹⁸

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 and were 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 benefit from continuance of 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 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.

[58] Subsequently, in Stewart v Kaipara Consultants Ltd Blanchard J, again delivering the judgment of the Court of Appeal, identified the Pacific Homes test as requiring the Court to determine^:19

[59] In Pacific Homes, Blanchard J gave three examples of situations in which a caveator might have no reasonable expectation of obtaining a benefit from continuance of the caveat, being:²⁰

(a) recovery of money owing to the caveator secured over the land was no longer achievable;

(b) specific performance of an agreement in favour of the caveator was no longer available; or

¹⁸_{Pacific Homes Ltd (in rec) v Consolidated Joineries
Ltd, above n 14, at 656.}

¹⁹_{Stewart v Kaipara Consultants Ltd [2000] NZCA 92; [2000] 3 NZLR 55
(CA) at [23].}

²⁰Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd, above n 14, at 656.

(c) the caveator’s interest could reasonably be accommodated in some other way, such as by substituting a fund of money under the control of the Court.

[60] In Lombard Finance & Investments Ltd v Albert Street Ltd Keane J explored the degree of caution which the Court must exercise.²¹His Honour explained also that the required caution involves also a shift of onus to the applicant for removal. His Honour said:²²

[16] The onus shifts to the applicant to exclude any possible advantage to the caveator, and they can be various and indirect as well as direct. Instances identified, at 652, were ‘... recovery of money secured over the land or specific performance of an agreement or ... substituting a fund of money under the control of the court ...’. Also, the Court was at pains to emphasise how ‘cautiously’ the residual discretion is to be exercised:

An order will only be made for removal where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced.

[17] Those instances in which this Court has looked to mortgagees to exercise their powers of sale, before seeking removal of caveats, on which Axis Wolfe relies alternatively, of which McDiarmid v Burton is the foremost, illustrate the care taken to ensure that the interests of caveators are not inadvertently prejudiced. That the conflicting claims might be resolved in priority under s 104 of the Land Transfer Act, as illustrated by Hope v Hope appears not to have sufficed.

[61] Finally, in terms of Pacific Homes it is only the “legitimate interest” of the caveator which the Court will strive to protect. In Holt v Anchorage Management Ltd, Casey J delivering the judgment of the Court of Appeal said that a caveator’s refusal to consent to a transaction:²³

... may appear so unreasonable as to lead to the conclusion that he is not acting bona fide and is using the caveat for purposes other than the genuine protection of his interest in the property. In such a case the Court could be justified in exercising its discretion to remove it or let it lapse.

²¹Lombard Finance & Investments Ltd v Albert Street Ltd HC Auckland CIV-2004-404-2120, 14

[62] In this case, CIT invokes the “no legitimate interest” argument on the single basis that, with accruing interest debts, there will probably be no equity in the properties as and when they are transferred to the purchasers under the 19 June 2014 agreements for sale and purchase. Alternatively, in the event it transpires that the proceeds of sale are sufficient to repay the secured creditors, CIT submits that a stakeholding of surplus funds for the claims of unsecured creditors (including Glover No 2) would fully protect Glover No 2.

[63] It was implicit in Mr Sandelin’s submissions that if CIT does not satisfy the Court that there will be no significant proceeds of sale remaining after satisfaction of the debts of the two secured creditors, it would not be open to the Court to exercise a discretion to remove the caveat on the “no legitimate interest” basis.

2014 agreements for sale and purchase were due to be settled) effectively no equity in the properties, CIT relies upon three sources of fact or evidence, namely:

[65] If CIT transfers the properties and settles the sale in terms of the 19 June

[66] In turn, the figure CIT will need to pay its two secured creditors in order to obtain discharges of their mortgages will almost certainly exceed $10,440,000 (with additional interest and costs of approximately $2000 per day from 19 October 2014 to be taken into account). On that approach I accept that it is likely that there would be minimal equity remaining in the properties if the 19 June 2014 agreements are completed.

[67] In the event that there were modest proceeds remaining, there would on that scenario be an irresistible case for the proceeds being committed to a stakeholding while unsecured creditors’ rights were determined. Responsibly, Mr Knight for Glover No 2 did not suggest otherwise. Rather, Glover No 2’s opposition and Mr Knight’s submissions narrowed down to three propositions:

(a) the properties had arguably not been so marketed as to achieve a market price;

(b) the valuation evidence relied upon by CIT was not conclusive: overall the evidence points to the possibility of an aggregate market value higher than $10,570,000; and

(c) CIT and Mr Olliver’s conduct had arguably been in breach of trust and/or fiduciary duties in relation to both marketing of the properties and self-dealing through the 19 June 2014 agreements.

[69] CIT’s evidence as to the marketing of the properties relates primarily to the four-week marketing campaign undertaken by Unlimited Potential in February and March 2014.²⁵Mr Olliver deposed in relation to the establishment of that campaign

[70] Mr Olliver does not exhibit any report or other advice from Unlimited Potential in relation to the marketing campaign to be conducted (of the nature the Court is accustomed to seeing when the conduct of a mortgagee sale is in issue). The material exhibited by Mr Olliver includes photos and maps of the properties and a one-page notice from Unlimited Potential’s website identifying in eight lines the nature of the properties and advertising the closing of tenders on 25 March 2014. Mr Olliver exhibits also a small number of email reports received from Bryce Hawkins of Unlimited Potential, indicating a limited degree of interest in the properties. It is clear from the evidence of both Mr Dungey and Mr Olliver that CIT was under understandable pressure from BNZ to effect a sale of the property without the need for the BNZ to intervene through a mortgagee sale. There must be recognition of the fact that that is the context in which Mr Olliver instructed Unlimited Potential. On the other hand, the thrust of CIT’s case is that the $10,570,000 aggregate sale price under the 19 June 2014 agreements represents a market value figure and not a figure representing an element of forced sale.

[71] On the evidence filed I cannot be completely satisfied that the failed tender exercise of February/March 2014 reinforces the $10,570,000 figure as a market value. The scope and approach of the tender exercise is not clear from the evidence adduced. The extent of adequate funding of the tender exercise is also not clear. The fact that Mr Olliver arranged for the exercise to be undertaken is evidence that he was seeking to deal with the situation with the BNZ’s cooperation. However, this summary context, and the state of the evidence before me, does not allow me to be completely satisfied either that full care was taken in the tender exercise or that the failure of the tender exercise provides any conclusive evidence relevant to valuation. (In that regard, I observe that the Savills’ valuation prepared within a week of the tender closing did not refer to the failed tender exercise or make any conclusions in relation to it).

[72] To establish that the $10,570,000 aggregate price for the properties (through the 19 June 2014 agreement) places a market value on the properties, CIT relies upon the Savills’ valuation of 31 March 2014 which assessed a market value of exactly $10,570,000 (as against a forced sale value of $8,460,000).

[73] In May 2014, when CIT offered Glover No 2 and Ms Sparks in May 2014 the opportunity to purchase the properties at that market value there was no response. CIT then entered into the 19 June 2014 contracts with Mr Olliver and BBG Holdings Limited.

[74] Glover No 2 did not produce a recent or up-to-date report of a registered valuer in relation to the properties.

[75] In his submissions at the hearing, Mr Knight for Glover No 2 submitted, having regard to an earlier valuation and other material, that the Court could not be satisfied in this summary context that the sale price of $10,570,000 represented a market value. Mr Knight submits that it is not clear that the $10,570,000 valuation figure which was apparently adopted by the parties to the 19 June 2014 agreements fairly reflects the market value of the properties. Mr Knight submitted that the possibility of a higher realisation on the market is indicated by at least two other pieces of evidence.

[76] First, Mr Knight referred to a desk-top market assessment contained in a report addressed by Colliers International NZ Ltd to Mr Olliver on 28 February

2013. The report is by its nature brief although it has reference to comparable sales. The valuer (Michael Granberg) assesses a figure of $11,937,000 (including any GST) for sale of the properties as a single asset in a normal market transaction situation. He assessed the figure for a forced sale at $9,550,000. (Those figures followed assessments in the report of aggregate prices based on a property-by- property sale, which cannot apply in this case having regard to the current state of the portfolio).

[77] Secondly, Mr Knight referred to an offer (in the form of the agreement for sale and purchase) made to CIT by Olliver Trustee Ltd three months after the Colliers’ valuation. Olliver Trustee Ltd offered to purchase the property for

$12,000,000 (including GST), with settlement on 30 September 2013. The offer was apparently not accepted.

[78] In reply evidence, Mr Olliver noted that the Savills’ valuation was more up- to-date than the Colliers’ valuation and was a full registered valuation of the properties. He also noted, without detail, that development costs have increased significantly since the Colliers’ valuation was prepared and are almost double the costs estimated in 2013. Such would clearly have an impact on any residual calculation valuation but the detail of that was not explored in evidence. Mr Olliver added in reply that the BNZ is not now prepared to continue to support CIT having regard to the litigation, the passage of time and increased development costs. This latter evidence may explain urgency attaching to any sale process and the potential for the impact of a forced sale on value – that clearly may become a consideration for the parties but in the application before me, counsel have understandably elected to assess the equity in the properties on the basis that the consideration should focus on their market value.

[79] After submissions had been completed and the Court had reserved its decision, Glover No 2 through Mr Knight applied for leave to adduce evidence as to the general revaluation of the properties which Auckland Council has had carried out for rating purposes. The valuations assessed the value of the properties at 1 July

[80] I granted leave to Glover No 2 to adduce this further evidence which was not available at the time of the hearing. Pursuant to the Practice Note on further submissions I also granted leave to counsel to make further submissions in relation

[81] The revaluations are valuations of the capital value of each property. Aggregated, the valuations total $16,920,000. That figure may be compared to the aggregate of $10,940,000 represented by the Council’s rating revaluations as at 1

[82] It is Mr Knight’s submission that the revaluations as at 1 July 2014 indicate that the values of the subject properties have increased substantially from 2013 to mid-2014 and are well above the proposed (aggregate) purchase price contained in the agreements for sale and purchase of the subject properties.

[83] Pursuant to the leave I granted in relation to further submissions in evidence, CIT filed further affidavits of Mr Olliver and Mr Dunlop, the valuer. Mr Olliver notes that the revaluations are subject to an appeal or objection period and that CIT has filed objections. The combined effect of Mr Dunlop’s and Mr Olliver’s evidence is to the effect that the revaluations, not being the equivalent of current market valuations completed by a registered valuer, and in any event still subject to a current objection, cannot be taken to truly represent the current market value of the properties taking into account:

[84] I accept, as Mr Sandelin submits, that care must be taken in placing any significant weight on the revaluations. Reliable conclusions as to a particular valuation figure cannot be reached from the now-available (but objected to)

_{Auckland City revaluations. However, reminding myself that this is not
a trial where}

all evidence is tested, I accept that there is force in Mr Knight’s submission that a significant upward movement between 1 July 2013 and 1 July 2014 may be some evidence that values have trended upwards. The context in which to determine categorically where market values now stand is at a trial and not in the present proceeding.

[85] I cannot be completely satisfied that the current market value of the properties on an aggregated basis is as low as $10,570,000 or that an auction on an open market basis as at either June 2014 or now would not produce a higher figure.

[86] There is a further matter which should properly be considered in the context of the exercise of a discretion which would effectively override what I have found to be Glover No 2’s arguable caveatable interest in the properties. It lies in the fact that CIT wishes to have the caveats removed in order to complete sales to Mr Olliver or entities associated with him. I find this to be a further complicating factor in this proceeding which weighs against the exercise of the residual discretion.

[87] The fact that Ms Sparks did not take up the opportunity to purchase the property for $10,570,000 when offered does not establish that that figure (as subsequently offered by Mr Olliver and the Olliver Family Trust) represents a current market value. Ms Sparks and her entities were not intended to be the ultimate purchaser of all the properties. Apart from the residential portion, the properties were to be sold on the market. It is Ms Sparks’ contention that Mr Olliver (and/or others associated with him) has abused his position in entering into the agreements for sale and purchase at prices which may not reflect the market. Suggestions are made as to Mr Olliver’s motives. He has given evidence as to the purity of his motives. Ms Sparks remains suspicious. Having regard to the limited evidence which I have heard, I refrain from reaching any conclusion in that regard, because for the other reasons relating to the valuation evidence, I am not completely satisfied that the removal of the caveat will not prejudicially affect Ms Sparks’ legitimate interests.

[88] CIT, through its application, invited the Court in its residual discretion to order removal of the caveats because Glover No 2 had been a party to a known breach of the terms of the Waimarie JV. CIT refers to the period from 2011 onwards when Glover No 2 took steps to take control of the JV, steps which later had to be undone through litigation.

[89] I reject the invitation to invoke the residual discretion in this way on the

[90] I have already concluded that it is arguable that Glover No 2 has caveatable interests as claimed to have arisen through the Waimarie JV. The Waimarie JV remains on foot. Whether there have been breaches of the Waimarie JV by Glover No 2 and/or Ms Sparks and, if so, what remedies ought to appropriately flow from those breaches is not a matter directly in issue in this caveat proceeding. Such issues are capable of just determination only in a trial with the benefit of pleadings and evidence focused on those particular issues. Assessment of disqualifying conduct and any consequences which should flow from such conduct will rarely be so stark as to be reliably carried out in an application such as this.

[91] In the absence of a substantive determination as to breaches and consequences of breaches, it would be unjust in this caveat proceeding to effectively allow the allegations of such breaches to be treated as a basis for overriding Glover No 2’s arguable interest in the properties.

[92] I find against CIT on each of its grounds of application. It follows on that basis that the application must be dismissed.

[93] It is understandable with the BNZ’s level of financial exposure in relation to the Waimarie JV that the BNZ would much prefer an orderly sale by CIT than to have to resort to a mortgagee sale. Mr Dungey has made clear the BNZ’s support for

the 19 June 2014 agreements for sale and purchase. But this is not an application in which a mortgagee, either on the point of exercising its power of sale or afterwards, itself applies for an order for removal of a caveat. The present application is predicated on the basis that the vendor will be CIT as registered proprietor.

[94] To the extent that CIT itself pursues this application in the light of agreements for sale and purchase which may produce just sufficient to make repayments to discharge the two mortgages, it would not be appropriate for this Court on this application to treat the situation as in some way akin to a mortgagee sale. CIT, with the cooperation of the Bank, has proceeded on the basis that it as registered proprietor will pursue a sale at market. That is the basis upon which the Court’s consideration of its residual discretion has had to proceed.

Glover No 2 Limited v CIT Holdings Limited – the statutory demand proceeding

[95] After the hearing of this proceeding, Associate Judge Matthews heard and determined an application by Glover No 2 Limited to set aside a statutory demand issued by CIT.²⁸Mr Knight sought leave to produce the judgment and to make submissions upon it, which I granted. I have since reviewed the judgment and received submissions. The Associate Judge set aside CIT’s demand. I do not find the judgment of assistance in relation to the issues I had to determine. It can create

no estoppel on any issue in this proceeding. Its outcome turned on the evidence adduced in that proceeding.

[96] The Court views with sympathy the position faced by CIT in seeking to minimise losses in difficult financial circumstances. But CIT had alternative litigation procedures available to it when faced with the need to sell the properties. It entered into the agreements with Mr Olliver and his interests in the knowledge that Glover No 2 had already lodged caveats. This Court has the ability to respond with urgency in appropriate cases to bring on proceedings for hearing so that urgent issues may be determined at trial. An application for directions under the Trustee Act 1956

_{may be one such proceeding. This caveat removal application did not lend
itself to}

the making of orders which would prejudicially affect beneficial interests which arguably exist. If the properties are truly worth more on the market than the

$10,570,000 which Mr Olliver and his interests would pay for them, then the effect of removing the caveats to allow this transfer to proceed is that CIT and the joint venturers will lose the benefit of CIT’s equity. Whether that should be permitted to occur is properly a matter for a proceeding in which rights are determined by trial.

(b) the applicant is to pay the respondent’s costs on a 2B basis together with disbursements to be fixed by the Registrar.

High Court of New Zealand Decisions

CIT Holdings Limited v Glover No.2 Limited [2014] NZHC 3114 (5 December 2014)