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High Court of New Zealand Decisions |
Last Updated: 5 July 2018
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
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CIV-2018-418-000057
[2018] NZHC 1111 |
BETWEEN
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MICHAEL BRUCE STIRLING
Applicant
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AND
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PREMA WATI SHARMA
Respondent
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Hearing:
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26 April 2018
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Appearances:
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Rowan Butler for the Applicant Scott McKenna for the Respondent
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Judgment:
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18 May 2018
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JUDGMENT OF MOORE J
This judgment was delivered by me on 18 May 2018 at 2:30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
STIRLING v SHARMA [2018] NZHC 1111 [18 May 2018]
Introduction
[1] The applicant, Michael Bruce Stirling (“Mr Stirling”), holds a caveat against dealings over a property registered in the name of the respondent, Prema Sharma (“Mrs Sharma”).
[2] The caveat was lodged in 2004 and in February 2018 Mr Stirling received notice that Mrs Sharma had applied to have the caveat lapse.
[3] Mr Stirling now applies for interim orders, pending a substantive hearing, to sustain the caveat. He says that he has a caveatable interest, in the form of an equitable mortgage, over the property.
[4] Mrs Sharma opposes the application. She denies the existence of any equitable mortgage. She says that her daughter, Irene Kumar (“Mrs Kumar”), who purported to grant the mortgage over the property, had no beneficial interest in the property and otherwise had no authority to encumber Mrs Sharma’s property.
Factual background
[5] The property in question is situated at 166B Bankwood Street, Hamilton (“the property”). It was originally acquired Mrs Kumar in 1997. In 1999 the property was transferred into the joint names of Mrs Kumar and her husband, Prem Kumar.
[6] In mid-2000 Mr and Mrs Kumar were facing a potential forced sale by the mortgagee, the ANZ Bank. Robert Stirling (“Robert”), who is Mr Stirling’s brother, has made an affidavit in support of the application. He says he was approached by Prem Kumar who asked him to assist the couple by refinancing the property. Robert had some experience in purchasing properties at mortgagee sales brought by the ANZ Bank and arranging refinancing facilities for the previous owners.
[7] According to Robert, the proposal was that he would buy the property at the mortgagee sale and then transfer it to Mrs Sharma, who would hold it on trust for Mr and Mrs Kumar. Mr Stirling arranged for Mr Bogiatto, an Auckland solicitor, to
act for Mrs Sharma. He also arranged for another Auckland solicitor, Mr Warburton, to act on the purchase of the property from the mortgagee.
[8] In support of this claim Robert exhibited a copy of a file note said to be from the office of the solicitors acting on the sale. The file note dated 17 July 2000 was apparently authored by a legal executive and records, in part, the following:
“I telephoned [Robert Stirling]1 to find out what was happening about settlement today for the above two properties.2 [Robert Stirling] advised he was with Prem Kumar working it out.
I had tried to speak with Irene Kumar earlier but she was going to call back and never did.
[Robert Stirling] advised that the settlement is going to happen contemporaneously with a Trust purchasing the property from Mr R W Stirling. Mr George Bogiatto is acting. [Robert Stirling] will get Mr Bogiatto to contact Bob to discuss the matter.
So, the Trust is obtaining funds to purchase the properties. [Robert Stirling] has asked to keep the on-sale as confidential so the ANZ do not find out about it.”
[9] In his evidence, Robert said it was his clear understanding at the time that Mrs Sharma would be holding the property on trust for her daughter and son-in-law, Mr and Mrs Kumar, who were the beneficial owners.
[10] The arrangements which Robert put in place were successful. He purchased the property at the ANZ Bank’s mortgagee sale before transferring his interest to Mrs Sharma who took title on 24 August 2000.
[11] However, Mr and Mrs Kumar’s financial difficulties continued. They approached Robert again. He introduced them to his brother, Mr Stirling. Mr and Mrs Kumar wished to borrow $50,000. At the time Mr Stirling was obtaining finance from Provincial Finance Limited (“PFL”).
2 These are referred to as 1/166 and 2/166 Bankwood Road, Hamilton.
[12] According to Mr Stirling he reached an oral agreement with Mr and Mrs Kumar under which he would draw down $50,000 from PFL and lend that amount to them. The arrangement was that they would meet all PFL’s fees, and all interest payments and costs associated with the loan.
[13] Mr Stirling did not advance the funds personally. Instead, the funds were advanced through a trust of which he is a trustee. The trust also owns the farm against which the funds were borrowed from PFL.
[14] The loan was secured against the property as well as a number of cars. Sometime later Mr Stirling received a demand from a firm of solicitors that the charges against the cars be lifted on the grounds they were not owned by Mr and Mrs Kumar. The charges over the cars were lifted and, as a result, the security was against the property only. The oral agreement between Mr Stirling and Mrs Kumar is claimed to be recorded in writing. Mr Stirling exhibited a copy to his affidavit. It is in handwriting, and appears to bear Mrs Kumar’s signature. It is reproduced below:
“Irene Sharma Kumar 166 Bankwood Street
Hamilton 10 July 2003
To Bruce Stirling 4 RD
Balclutha
Re loan to Kumars/Aween Bouiki NZ Limited From Provincial Finance Drawdown
Bruce, to further secure your loan to us I undertake to provide you or your nominee a Registered Mortgage over our property here at 166 Blackwood Street in Hamilton, where we live (title SA50A/785).
This is to better secure the original loan, made on the 26th June 2003 to us by yourself ($50,000).
It is to secure all of Provincial’s fees, interest and costs associated with the loan along with original amount of $50,000 or any part thereof that may become outstanding.”
[15] Furthermore, Mr Stirling has exhibited two further documents which he claims were signed by Mrs Kumar on 10 July 2001. The first confirms she was appointed as
her mother’s attorney, “on the terms and subject to the conditions set out in the said deed, which was deposited in the Land Registry Office at Hamilton as number B.533952.1.” The second confirms she was appointed as attorney of Crisan Dat Sharma. The documents confirm that the appointment has not been revoked. Both documents appear to be signed by Mrs Kumar. Neither is witnessed.
[16] Mr Stirling’s caveat was lodged against the property’s certificate of title on 19 July 2004. It claims the following interests:
“As mortgagee by virtue of an oral agreement to mortgage given on the 11th day of June 2003 and confirmed in writing on the 10th day of July 2003 by Irene SHARMA/KUMAR as beneficial owner or by Irene
SHARMA/KUMAR as attorney for the beneficial owner, Crissan [sic] Dat
SHARMA and/or as agent for the registered proprietor Prema Wati SHARMA as mortgagor and Michael Bruce STIRLING as mortgagee.”
[17] In 2013 Mr Stirling says he received a letter from a lawyer acting for Mr and Mrs Kumar asking that the caveat be withdrawn. He responded with a statement of account revealing the balance of the loan had grown to $97,000. Although some repayments of interest had been made by Mr and Mrs Kumar, Mr Stirling’s evidence is that the last payment of $100 was received on 5 September 2011.
Legal principles
[18] Section 137 of the Land Transfer Act 1952 (“the Act”) allows any person to lodge a caveat against dealings if the person:3
“claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise”
[19] In Sims v Lowe, the Court of Appeal held that an equitable mortgage was capable of sustaining a caveat under the Act.4 The circumstances in which an equitable
3 Land Transfer Act 1952, s 137(1)(a).
4 Sims v Lowe [1988] NZCA 253; [1988] 1 NZLR 656 (CA) at 660.
mortgage may arise were defined in Swiss Bank Corp v Lloyds Bank Ltd, where Buckley LJ said:5
“An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so ...”
[20] The principles governing applications to sustain caveats are also settled. The caveator bears the onus of proving he or she has a reasonably arguable case for the caveat to be sustained.6 The caveat will not be removed, however, unless it is patently clear that it cannot be maintained, either because there was no valid ground for lodging it or because any valid ground no longer exists.7 Generally, evidence advanced by the caveator should be accepted as correct unless patently lacking credibility on its face.8
Respondent’s submissions
[21] Mr McKenna, for Mrs Sharma, submits that the issue of whether or not any agreement entered into between Mr Stirling and Mrs Kumar gives rise to a caveatable interest turns on the facts. While he accepts that an equitable mortgage would support the lodging of caveat, he submits that in the present case there is simply no evidence to suggest that Mrs Sharma granted her daughter permission to offer, let alone use her mother’s property as security.
[22] In particular, he submits that there is no evidence of the following facts, all of which have to be established to prove that the property was held on trust by Mrs Sharma for her daughter:
(a) a trust was formed;
5 Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 (CA) at 594-595.
6 Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 (CA) at 106.
7 Sims v Lowe, above n 4, at 659–660.
(c) Mrs Sharma purchased the property in her capacity as a trustee.
[23] He submits the evidence establishes nothing other than the fact that Mrs Sharma purchased the property in her own name and for her own benefit.
[24] Mr McKenna submits that even if it could established that Mrs Sharma held the property on trust for her daughter, Mr Stirling would still have to show that the terms of the trust were such that Mrs Kumar was entitled to grant a mortgage over the property.
[25] In answer to the claim Mrs Kumar held a power of attorney from her mother to grant a mortgage, Mr McKenna submits this must also fail because there was no consideration for the agreement to mortgage and the requirement that any mortgage must be in writing has not been satisfied.9
[26] Mr McKenna submits that a mortgage cannot be granted by a party which is not the registered proprietor and without the registered proprietor’s knowledge or consent.
Analysis
[27] The central issue on this application is whether Mr Stirling has provided sufficient evidence to establish that Mrs Kumar had a beneficial interest in the property or sufficient authority to grant an equitable mortgage over the property. In the absence of either the caveat must lapse.
[28] I am satisfied that the evidence produced by Mr Stirling establishes a reasonably arguable basis to support the caveatable interest he claims. That evidence establishes the existence of an equitable mortgage created by an agreement between the parties, both orally and in writing. Two reasons, in particular, lead me to that conclusion.
9 Contracts Enforcement Act 1956, s 2.
[29] First, there is evidence which establishes Mrs Kumar may have retained a beneficial interest in the property when Robert entered into the sale arrangement which led to Mrs Sharma assuming registered proprietorship of the property. On Robert’s evidence Mrs Sharma intended to hold the property on trust. That is not a mere assertion on the part of Robert, although in theory that is sufficient. There is corroborative evidence in the form of the legal executive’s apparently contemporaneous file note.
[30] Mr McKenna submits that the file note is hearsay. He says it provides no evidence of Mrs Sharma’s intention, nor is it conclusive evidence a trust was established to purchase the property.
[31] That may be so. However, I am satisfied that the file note does, on its face, provide independent support to Robert’s claim that such a trust was, in fact, created. On that basis it is thus reasonably arguable that Mrs Kumar maintained the beneficial interest in the property. This is certainly not a case where the evidence is patently lacking credibility on its face. Mr McKenna’s criticisms would be more appropriately advanced at a substantive trial.
[32] Secondly, I am satisfied there is sufficient evidence suggesting Mrs Kumar had either actual or apparent (ostensible) authority to grant an equitable mortgage on behalf of Mrs Sharma. In my view it is reasonably arguable that the certificates of non-revocation of power of attorney, in combination with their registration with the Land Registry Office, are sufficient to establish Mrs Kumar’s apparent authority to act on her mother’s behalf.
[33] Mrs Sharma has explicitly rejected Mr Stirling’s claim that Mrs Kumar held power of attorney at the relevant time. In Mrs Sharma’s affidavits sworn in opposition, she says that her daughter was granted power in the past to sign documents on Mrs Sharma’s behalf while she was overseas, and that any such power ceased when Mrs Kumar was adjudicated bankrupt in 2001. Despite those claims, the provisions of the Act relating to powers of attorney may make an argument based on authorisation
tenable. Section 151 provides that a power of attorney deposited with the Registrar must be verified to the satisfaction of the Registrar. And s 152(3) provides:
“No power of attorney shall be deemed to have been or to be revoked by the bankruptcy of the grantee ...”
[34] I also accept the submission of Mr Butler, for Mr Stirling, that there is evidence Mrs Kumar represented to Mr Stirling she would retain a beneficial interest in the property despite her mother becoming the registered proprietor. That Mr and Mrs Kumar were living at the property and continue to do so would only have reinforced Mr Stirling’s belief in the legitimacy of Mrs Kumar’s claim of authority. While I accept the onus lies with the applicant to prove these matters, it is noteworthy in my view that Mrs Kumar, who is best placed to contradict Mr Stirling’s claims if they were untrue, has not filed any evidence herself. As such the Stirling brothers’ evidence as to their dealings with Mr and Mrs Kumar is unchallenged.
[35] Nor do I accept Mr McKenna’s submission that an equitable mortgage was not created because no consideration was given and the requirement for writing was not satisfied.
[36] In my view both these arguments would fail if it was proved that Mrs Kumar retained an equitable interest in the property. As to the first, it is plain that the agreement between Mrs Kumar and Robert was concluded with valid consideration. If Mrs Kumar retained beneficial interest in the property it would be unnecessary for Mrs Sharma to have been a party to any agreement to mortgage that equitable interest. As to the second, s 2 of the Contracts Enforcement Act 1956, which was in force at the relevant time, requires a written record of an agreement to be “signed by the party to be charged therewith”. On the evidence, Mrs Kumar signed the written record of the parties’ agreement. As already discussed there was no need for Mrs Sharma to sign the agreement. On the evidence before me I cannot rule out that Mrs Kumar held a beneficial interest in the property. As a consequence, neither of these arguments operates to defeat the application.
[37] For the foregoing reasons, in my view there is a tenable argument as to whether Mrs Kumar had actual or apparent authority to grant Mr Stirling an equitable
mortgage. Throughout his argument, Mr McKenna emphasised that each issue on this application turns on its facts. As Mr Butler submitted in oral argument, such a stance is hardly a promising basis for opposition, having regard to the principle that before declining an application it must be “patently clear” that a caveat cannot be sustained. Unless that threshold is reached, the appropriate forum to resolve factual issues is at the substantive trial.
[38] Applying those principles it follows that I am satisfied the application should be granted.
Result
[39] The application that caveat 6086121.1 not lapse is granted.
Costs
[40] The applicant seeks costs on the present application. Being the successful party it follows he is entitled to an award of costs.
[41] In my view an award on a 2B basis is appropriate. I invite counsel to confer with a view to reaching agreement and filing a joint memorandum to that effect. If the parties are unable to agree each is to file a memorandum not exceeding five pages in length within 20 working days of the date of this judgment.
Moore J
Mr Butler, Auckland Grantham Law, Hamilton
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