week fifteen

Question 1

what three questions arise with no caveat clauses

Answer 1

1. is a no caveat clause an enforceable contractual term?
2. does the lodgement of a caveat in defiance of a no caveat clause constitute a breach of contract?
3. Does a no caveat clause preclude the court from sustaining a caveat?

Question 2

is a no caveat clause an enforceable contractual term?

Answer 2

yes - Cash Handling Systems - clause is not ‘inherently undesirable’

Question 3

what was said about the enforceability of no caveat clauses in Cash Handling Systems Ltd v Augustus Terrace Developments

Answer 3

you should be able to contract on the terms you want to contract on and the court should not interfere, particularly where both parties are commercial and have equal bargaining strength

Question 4

what happened in Landco Albany Ltd v Fu Hao Construction Limited

Answer 4

in some cases there could be injustice with no caveat clauses where the parties are of unequal bargaining power but there are reasonable commercial and private reasons why they might be stipulated and accepted

Question 5

what should you look for for whether no caveat clauses are enforceable?

Answer 5

they are enforceable contractual terms, but look for whether they are commercial parties and whether they have equal bargaining power

Question 6

does the lodgement of a caveat in defiance of a ‘no caveat clause’ constitute a breach of contract

Answer 6

maybe

• if they were bound at the time of lodging the caveat then it is a breach
• it not it is not a breach

Question 7

how can lodging a caveat in breach of a no caveat clause not be a breach of contract

Answer 7

E.g. vendor agreed to sell you the property and then in breach of that contract signed up to sell it to another party, you as the person who was being harmed could cancel the contract because the other party had repudiated it. If you’ve cancelled the contract, you are no longer bound by the no caveat clause in that agreement. But then you lose your right to enforce that contract and you’d only be able to get damages for breach of contract.

If the contract is still in force (maybe they didn’t want to cancel it so they wouldn’t lose their right), it will be a breach of contract.

Question 8

does a no caveat clause preclude the court from sustaining a caveat

Answer 8

no - caveat should be sustained where the caveator has made out a reasonably arguable case in support of the interest claimed. the court could use its residual discretion to remove the caveat.

Question 9

what happened in Mortre Holdings Ltd v ANCL Investments Ltd

Answer 9

Mortre owned 7ha property at Snell’s Beach (desirable). It fell into arrears with its mortgage and was facing a mortgagee sale so it sold its property to ANCL. It needed to do a quick sale, so it sold to ANCL at an undervalue and as part of that sale when ANCL subdivided the land, it would give Mortre two of the lots (making up for the purchase price).

Problem: they put down a time frame that subdivision had to be completed by. In the ASAP there was a no caveat clause. The development was slow to get going - the titles were unlikely to get back to Mortre in the time frame so it lodged caveats on the property in breach of its no caveat clause in the contract.

Mortre applied for caveats to be sustained but ANCL wanted caveats removed on the grounds that there was no caveatble interest and it was a breach of the no caveat clause.

both the HC and CA held the caveat to be removed.

it was reasonably arguable, despite the clause, that there was a reasonably arguable case that Mortre had an equitable interest in the land capable of supporting a caveat.

Court will use its residual discretion to remove a caveat and it will take into account the fact that there is a no caveat clause in the contract and the courts ability to use its residual discretion in terms of that no caveat clause is low (its more likely they will remove the caveat).

Question 10

what are the 3 methods of removing a caveat

Answer 10

• withdrawl
• court order
• lapse

Question 11

under what section of the LTA 2017 can a caveat be withdrawn (e.g. when the issue has been solved)

Answer 11

144

Question 12

under s 142 LTA 2017, the court may, on application by a person __ __ __ __ __ __ affected by a caveat against dealings, order that the caveat __ __

Answer 12

who has an estate or interest

is removed

Question 13

what are 3 effects of removing a caveat by order of the court

Answer 13

• loss of existing equitable priority
• loss of protection
• cannot lodge a second caveat except by order of court (s146) which the courts don’t like

Question 14

what happened in Sims v Lowe - HC order to remove a caveat

Answer 14

• Mr and Mrs Sims were ROs of a farm and went to Lowe’s trust to borrow money.
• their mortgage was never registered and sat behind two other mortgages and a statutory land charge
• the Sims trust account at the law firm was credited with money but on the same day this was withdrawn to pay Mr Benseman
• mortgage repayments were never made as the Sims said they never received the money
• Low lodged a caveat against Sims’ property for the monies owed under the mortgage and Mr Sims applied to the court for an order to remove the caveat under s143 LTA 1952
• CA held Low had a reasonably arguable case the Sims had received the money but that they couldn’t decide off the affidavits so they said the caveat shall stay in place while they are waiting for the substantive hearing to be herd

Question 15

who can apply for a lapse of a caveat

Answer 15

• a person who wishes to register an instrument affecting the estate or interest
• RO

Question 16

what is the procedure for a lapse of a caveat under s143 LTA 2017

Answer 16

1. registrar gives notice of the application for the lapse of a caveat to the caveator
2. caveat will lapse unless:
   a) within 10 working days from the date of notice of application, the caveator gives notice to the Registrar that an application has been made to the court for an order the caveat not lapse and

b) within 20 working days from notice to registrar in (a) the caveator serves a court order on the registrar

these orders may be:

a) an order the caveat not lapse
b) an interim order that the caveat not lapse
c) an order adjourning the application

Question 17

when will a caveat lapse

Answer 17

when the caveator doesn’t take action and get the court order - the caveat will automatically lapse by operation of law

Question 18

how can an application for the lapse of a caveat be withdrawn (e.g. if you realise the caveat should stay there)

Answer 18

• with leave of the court - if application has been made
• or without the leave of the Court is the registrar has not yet given notice or if the notice is given by the caveator has not yet applied for an order

under s 143 (8) LTA 2017

Question 19

what is the effect of a caveat lapsing

Answer 19

• loss of existing equitable priority
• loss of protection
• cannot lodge a second caveat except by an order of the court (s146 LA 2017) which has a high threshhold

Question 20

what happened in Harris v Anais Holdings

Answer 20

Harris had a farm property consisting of a home block and 2 northern blocks which they sold to Anais Holdings due to financial difficulty.

The Harris’ solicitor asked for a ROFR in the contract on the day of the sale, but Anais said they wouldn’t give a formal ROFR but would bear them in mind if they decided to sell.

A year later Anais entered an ASAP to sell the northern blocks to Z (long settlement date so it just sat there for now)

Six months later Anais entered ASAP to sell the home block to K, conditional on the Harris’ not purchasing it by a specified date.

Harris’ solicitor wrote saying they did want to purchase unconditionally, but there was a miscommunication and the ASAP signed by the Harris’ that their solicitor enclosed described the whole farm not just the home block.

The deposit was paid and when the agent realised the mistake they immediately refunded the deposit.

Harris’ solicitor argued they had pre-emptive buy back rights to the whole farm.

Anais denied pre-emptive rights, said Harris’ knew of the sale of the north block and the OTP related to the home block only. Therefore Harris had not exercised option within deadline so it had lapsed.

Harris’ lodged caveat over the titles of the home and northern blocks.

HC held caveat over northern block should lapse but home block sustained. Z was a bona fide purchaser so had an unconditional ASAP.

there was no contract for the ROFR, it was only a moral obligation so with no contractual right the Harris’ had no way to get an order for specific performance - no interest to sustain a caveat over the northern blocks.

CA agreed - unenforceable moral obligation on Anais could not be binding to Z.

Question 21

the CA in Philpot v Noble Investments laid out applicable legal principles that govern an application to sustain a caveat at 26 - 29, what are they?

Answer 21

• onus is on applicant to demonstrate they hold an interest in the land that is sufficient to support a caveat, but need not establish that definitively
• it is enough if the applicant puts forward a reasonable arguable case to support the interest they claim
• an order for removal will only be made if it is patently clear the caveat cannot be maintained either because there was no valid ground for lodging it in the first place or because such a ground no longer exists
• even if the applicant proves a reasonably arguable case to support the interest they claim, the Court retains a discretion to remove the caveat where there is no practical advantage in maintaining a caveat or if there is another way to protect the caveators interest

Question 22

the court can exercise its residual discretion to remove a caveat where there is no practical advantage: no prospect of what?

Answer 22

• being able to recover money or
• obtaining specific performance of an agreement or
• if caveator’s interests can be reasonably accomodated in some other way

Question 23

what happened in Pacific Homes Ltd (In rec) v Consolidated Joineries Ltd

Answer 23

receivers applied for removal of a caveat over Pacific’s property and said through their valuations there wasn’t going to be any money left over once the bank was repaid.

it didn’t put this evidence before the court so they had no evidence to say that so they kept the caveat

Question 24

what happened in Blumentahal v Steward

Answer 24

Mr B’s stepfather died leaving a trust that owned property. He was not a named beneficiary under the will or the trust but alleged as step-son and because of his personal relationship with his step-father, helping him around the property, caring for him and the step father saying the property would be his that he had a right to it - interest by way of a constructive trust.

B lodged a caveat over the title and applied for an interim injunction to stop the trust’s sale of the property. Mr S as trustee brought an application to remove the caveat.

1. is there an arguable case?
   - no: contributions no more than that expected from a family member and not enough to produce constructive trust rights
2. should the court use its residual discretion to decline to maintain the caveat?
   - even if there was an arguable case, the court would’ve exercised discretion to order removal because S had agreed to set aside the proceeds of the sale pending the outcome of B’s claim in the substantive proceeding - this adequately protected B’s interest in a different way

ordered: remove caveat, S to put money into account until after the substantive hearing

Question 25

in Mortre, they had agreed to leave the process of the development to ANCL and allow it to proceed without …

Answer 25

the disadvantage of a caveat on the land

Question 26

the courts ability to enforce a no-caveat clause, is seen as an exercise of ? notwithstanding that a reasonable arguable case has been shown for the claimed interest

Answer 26

the courts’ residual discretion to remove a caveat

Question 27

what did Elias J say about no-caveat clauses in Cash Handling Systems Ltd v Augustus Terrace Developments Ltd

Answer 27

“I do not accept that such clauses are inherently undesirable”

Question 28

what are some examples of conduct that may affect equitable priority

Answer 28

• failure to lodge a caveat
• withdrawing a caveat
  previously lodged
• failure to act promptly
• knowledge of existence of prior interest
• giving another person the power to deal with land
• a bona fide purchaser for value without knowledge of earlier equitable interest is likely to be given priority over the earlier equitable interest

Question 29

what happened in O’Leary v Sentiero Properties Ltd?

Answer 29

the O’Leary’s were the registered owner and had given Farmers that leased it an option to purchase. Later they entered into a conditional ASAP with Sentiero and did not check if Farmers wished to exercise or make it conditional upon Farmers not exercising option to purchase.

Farmers found out about the sale but were not aware of the option to purchase. Sentiero knew but said nothing.

A variation of agreement was signed and became unconditional.

Farmers became aware of the option and immediately notified O’Leary Trusts that it wanted to exercise. They had now sold the property twice.

The normal rule is that it goes to the first in time. It was clear Farmers acquired the first equitable interest through the option to purchase but court went through the principles to be applied in determining priorities between competing equitable interests and said “an equitable interest acquired with notice of an earlier equitable interest cannot prevail over that earlier interest”

Therefore Sentiero would have to show they were not aware of the prior equitable interest but the first ASAP had the lease attached and they would look at this as part of their due diligence. The real estate agents also knew Farmer’s had an option so Senyiero did not establish a reasonably arguable case that it did not have knowledge of Farmers’ option.

There was not exceptions either

Question 30

what happened in Mercury Geotherm Ltd (in rec) v McLachlan in relation to equitable priorities

Answer 30

McLachlands unregistered lease was first in time interest on MEL property and Contact Energy’s ASAP was second in time,

McLachlan’s failure to caveat was not conduct that should reverse order of priorities, contact did not have actual notice but they should’ve made further inquiry.

overall, Contact Energy took title to the properties subject to the lease

Question 31

what happened in Waikato-Tainui Te Kauhanganui Inc v Housing New Zealand Corporation

Answer 31

HNZ wrongly believed they had to offer to WT under Waikato Raupatu Claims Settlement Act 1995. Offered them ROFR. WT waived its right to purchase so HNZ entered into ASAP with Community Association.

HNZ reoffered to WT because it believed the terms of the sale to CA were more favourable than the earlier offer and WT elected to exercise its right to purchase.

HNZ realised error and advised WT it would sell to CA. They claimed agreement was unconditional because it was not required by the Act to first offer to WT or make the reoffer.

HNZ claimed second offer to WT was enforceable but CA has a better equitable interest in the property.

HNZ accepts WT is entitled to an award for damages.

Held for the CA, no reversal of priorities because they were tenant for 14 years, a central feature and focus in the community and had funding from Lotteries grant to purchase this particular house.