IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV JUDGMENT OF RONALD YOUNG J

Transcription

1 IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV BETWEEN AND JANICE MARY MENERE, RUPERT OLIVER SMITH AND KELLEE ANN MENERE Plaintiff JACKSON MEWS MANAGEMENT LIMITED Defendant Hearing: 1 October 2008 Counsel: G Manktelow for the Plaintiffs P Withnall for the Defendant Judgment: 6 October 2008 JUDGMENT OF RONALD YOUNG J This judgment was delivered by Justice Ronald Young on 6 October 2008 pursuant to r540(4) of the High Court Rules JANICE MARY MENERE, RUPERT OLIVER SMITH AND KELLEE ANN MENERE V JACKSON MEWS MANAGEMENT LIMITED HC WN CIV October 2008

2 [1] Whether a memorandum of encumbrance is a mortgage and whether it is redeemable before expiry of its terms are the questions this case raises. [2] Jackson Mews is a retirement village of 34 units in Petone which was developed in the early 1990s. Each unit has its own certificate of title. The plaintiffs own Unit 21 (CT WN 44B/578). The original owner was a Mrs Jean Reid. [3] When the units were first purchased, it was intended that each purchaser would agree to the registration of a memorandum of encumbrance against the title to their property. One such memorandum is registered against the plaintiffs land although only 27 of the 34 units have such an encumbrance. [4] The encumbrance has a primary and collateral purpose. The primary purpose is expressed in this way in the encumbrance: NOW THIS MEMORANDUM WITNESSETH that the Encumbrancer hereby encumbers the said Unit for the benefit of the Encumbrancee for a term of 99 years with an annual rental charge of 10 cents to be paid on the first day of April in each year if demanded by that date the first payment if so demanded being due on the 1 st day of April 1994 subject to the following terms and conditions: [5] The collateral purpose in this way: The original Encumbrancer JEAN REID as proprietor of Unit 21 of Jacksons Mews has negotiated a Jackson Mews Maintenance and Service Agreement with the Encumbrancee in relation to the provision of certain maintenance and services and facilities to the proprietor(s) for the time being of Unit 21 of Jackson Mews. In consideration of the Encumbrancee having agreed at the request of the Encumbrancer, to enter into Jackson Mews Maintenance and Service Agreements in the form then currently in use and at the fortnightly levy then currently being charged for Jackson Mews with each of the original Encumbrancer s successors in title in respect of Unit 21 of the original Encumbrancer JEAN REID hereby covenants on behalf of and for each of her successors in title that they will each enter into such JACKSON MEWS MANAGEMENT AND SERVICE AGREEMENTS in the form then currently in use for Jackson Mews AND that they will each make payment of the fortnightly levy at that time being charged by the Encumbrancee in respect of the maintenance, services and facilities provided for therein. The Encumbrancee shall make available on request copies of the form of Jackson Mews Management and Service Agreement currently in use to all prospective purchasers of Units in Jackson Mews.

3 [6] Mrs Reid signed the memorandum in September 1996, which in turn allowed registration of encumbrance against the title to Unit 21. She also signed a management and service agreement with the defendant company. [7] The management and service agreement requires the defendant to provide a number of services including: the provision of a 24 hour paging service (clause 2.1.1); maintenance and upkeep of the common property (clause 2.1.2); exterior maintenance of the unit (clause 2.1.3); a collection of the unit holders rubbish (clause 2.1.4); distribution of the mail to each of the units (clause 2.1.5); and prescription collection from pharmacies (clause 2.1.6). The unit owner in turn pays for this service. [8] When the plaintiffs purchased the Unit from Mrs Reid the encumbrance remained on the title. Despite the terms of the encumbrance, which (see [5]) effectively required that Mrs Reid obtain the purchaser s commitment to the management service agreement with the defendant company, no such agreement was ever signed by the plaintiffs. They did, however, sign an automatic payment from their bank account agreeing to pay the defendant a fortnightly sum. The plaintiffs accept that they understood payment of this sum was for the provision of the services the defendant company had agreed to provide owners of the units in the management and service agreement. [9] These proceedings arose from a dispute between the defendant company and some of the unit owners. The unit owners maintain that, save for the provision of a pager which was of little emergency use, none of the services the defendant company agreed to provide, for which the unit holders were paying, were in fact provided. [10] Jackson Mews was developed so that each of the unit holders have a separate certificate of title for the land their unit occupies. The remaining property of the Mews was common property. The Unit Titles Act 1972 therefore provided for the issue of certificates of title for each unit for the stratum estate (s8), for the common land to be held by all unit holders (s9) and for a body corporate to be formed to be registered proprietor of the common land (s12) and accordingly to be responsible for the upkeep of the common area.

4 [11] The body corporate contracted the defendant to undertake the required functions of the body corporate, including such things as the payment of insurance and the provision of maintenance services for the common area and for the exterior of some units. Some time later at a special general meeting, the body corporate cancelled the contract between itself and the defendant company. It took the view the defendant company was not performing the duties it had contracted to provide and was being paid to provide. [12] The plaintiffs along with a number of other unit owners in the Mews have now cancelled their automatic payment to the defendant company for the management fees. They say that they are not obliged to make payment because the defendant company failed to keep its end of the bargain. They, along with others in the village, pay a modest weekly amount on which appropriate common services for the village are provided. [13] To return to the memorandum of encumbrance. The memorandum recorded that the annual rental charge was for 10 cents per annum for a period of 99 years. In early March 2008 the plaintiffs tendered the sum of $9-90, the total rental payable for the 99 years, and asked the defendant company to discharge the encumbrance. The defendant refused to do so. [14] These proceedings were then issued, asking for a declaration that the encumbrance was a mortgage and an order the defendant discharge the encumbrance on payment to it of $9-90. Is the encumbrance a mortgage? And if so, is it redeemable? [15] I am satisfied that the memorandum of encumbrance registered against the plaintiffs land is a mortgage and is redeemable. [16] The relevant law is that which applied prior to the coming into force of the Property Law Act Section 367 of the 2007 Act provides, as relevant:

5 367 Existing matters, proceedings, and instruments (1) Matters or proceedings may be continued, completed, and enforced under a provision of this Act that, with or without modification, replaces, or corresponds to, an enactment referred to in section 365 or 366, if those matters or proceedings were (a) commenced under the enactment referred to in section 365 or 366; and (b) pending or in progress immediately before 1 January (2) A period of time within which a thing must be done and that, immediately before 1 January 2008, was running for the purposes of an enactment referred to in section 365 or 366 continues to run for the purposes of any corresponding or replacement provision of this Act as though that thing were required to be done under this Act, but not so as to extend or reduce a period of time that began to run before 1 January (3) No alteration in the law made by this Act affects (a) (b) a right, interest, title, immunity, or duty, or a status or capacity, existing under the law so altered and immediately before 1 January 2008; or the validity, invalidity, effect, or consequences of (i) (ii) an instrument of the kind to which this Act applies and that came into operation before 1 January 2008; or anything done or suffered before that date. (4) All instruments of the kind to which this Act applies and that came into operation before 1 January 2008 must, to give effect to subsection (3), be read and construed as if the law existing immediately before 1 January 2008 continued to have effect, and must be given only the effect and consequences that they would have had under that law. [17] The parties agree that this provision identified the law to be applied as that prior to 1 January [18] Section 101 of the Land Transfer Act 1952 identifies both mortgage and encumbrance instruments and provides what they must contain if they are to be a charge against land. In particular subsection 4 provides:

6 (4) An encumbrance instrument must contain the following information: (a) (b) (c) (d) (e) the land or estate or interest to be encumbered, which must include a reference to the register in the prescribed manner; and the person for whose benefit the land or estate or interest is to be encumbered; and the nature of the sum, annuity, or rentcharge secured; and the events (if any) on which the sum, annuity, or rentcharge becomes or ceases to be payable; and the covenants and conditions (if any). [19] Section 101 is headed Forms of Mortgage. [20] Mortgage is defined in s2 of the Land Transfer Act as follows: Mortgage means any charge on land created under the provisions of this Act for securing (a) (b) (c) (d) The repayment of a loan or satisfaction of an existing debt: The repayment of future advances, or payment or satisfaction of any future or unascertained debt or liability, contingent or otherwise: The payment to the holders for the time being of any bonds, debentures, promissory notes, or other securities, negotiable or otherwise, made or issued by the mortgagor before or after the creation of that charge: The payment to any person or persons by yearly or periodical payments or otherwise of any annuity, rentcharge, or sum of money other than a debt: [21] Subsection (d) has particular relevance to the facts of this case. The memorandum of encumbrance in this case is: (i) a charge on land, it is registered against the title to the land under the Land Transfer Act; and (ii) it secures the payment by the plaintiffs to the defendant of what is described in the encumbrance as a rent charge (see (d) in [20]).

7 [22] The definition of encumbrance in turn accepts that it can be a mortgage (see s2, Property Law Act 1952). [23] In addition s4 of the Property Law Act 2007 defines a mortgage in this way: mortgage includes (a) (b) (c) any charge over property for securing the payment of amounts or the performance of obligations; and any registered mortgage; and any mortgage arising under a mortgage debenture [24] The statutory provisions relating to the mortgagee s right of sale also appear to contemplate a mortgage securing a rent charge. Section 106 of the Land Transfer Act identifies the rights and remedies of a mortgagee. It provides: 106 Mortgagee may, after default, enter into possession The mortgagee, upon default in payment of the principal sum, interest, annuity, or rentcharge secured by any mortgage, or of any part thereof, may enter into possession of the mortgaged land by receiving the rents and profits thereof, or may bring an action for possession of the said land either before or after entering into the receipt of the rents and profits thereof, and either before or after any sale of the land is effected under the power of sale given or implied in his mortgage. [25] The defendant argues that the memorandum of encumbrance is not in the nature of a mortgage with the ordinary rights of redemption. It submits that the only monetary sum here is a rent charge which is only payable if demanded and which is not required to be redeemed. Counsel submits that the memorandum of encumbrance does not charge either past or future advances as a mortgage does. [26] The defendant, therefore, argues that given it could hardly be suggested non-payment of the annual 10 cent rent charge could give rise to a power of sale, then this memorandum of encumbrance could not be said to be a mortgage and, therefore, no entitlement to redemption can arise. [27] The defendant maintains the purpose of the memorandum is not to secure payment of the 10 cents per annum, but to secure continuity of the maintenance and service agreements with future purchasers.

8 [28] The statutory provisions in [18], [20], [23], [24] appear to encompass the facts of this case. The memorandum of encumbrance here secures the payment of a rent charge, a sum of money. The encumbrance is a charge on land securing this rent charge and is, therefore, a mortgage as defined by the Land Transfer Act. [29] This encumbrance is a charge on land and in the words of the memorandum itself encumbers the said unit with an annual rental charge. The basis upon which registration of such an instrument is permitted is that it is a mortgage within the definition of the Land Transfer Act. Section 101 identifies an encumbrance instrument which can be registered and is a mortgage. The encumbrance must have all of the ingredients required in terms of section 101. Here the encumbrance has all of the required information. It comes clearly within the definition of a mortgage as a charge on land securing the payment by the plaintiffs to the defendant of a rent charge. Whatever interesting historical perspectives the defendant s submissions provide, the statutory regime contained in the Land Transfer Act and Property Law Act 1952 determine whether or not a particular instrument is or is not a mortgage. [30] For the reasons given, therefore, I am satisfied that the memorandum of encumbrance is a mortgage. Redemption [31] The plaintiffs are, upon their tender of the whole of the amount owing to the mortgagee under this encumbrance, entitled to redemption of the mortgage. [32] The defendant submitted that the equitable right of redemption was developed to ensure a lender did not end up with both the money and the land. When the mortgagor paid all that was owing then he/she was entitled to redeem the mortgage and have the land unencumbered by that mortgage. [33] The defendant says this idea of redemption seems to have little to do with a future payable rent charge. Thus the defendant argues the right of redemption simply does not arise with regard to this memorandum of encumbrance.

9 [34] In my view, s81 of the Property Law Act 1952 provides a straightforward answer to these submissions. Section 81 provides as follows: 81 Equity of redemption (1) A mortgagor is entitled to redeem the mortgaged land at any time before the same has been actually sold by the mortgagee under his power of sale, on payment of all money due and owing under the mortgage at the time of payment. (2) A mortgagor is entitled to redeem the mortgaged land although the time for redemption appointed in the mortgage deed has not arrived; but in that case he shall pay to the mortgagee, in addition to any other money then due and owing under the mortgage, interest on the principal sum secured thereby for the unexpired portion of the term of the mortgage. (3) A mortgagor seeking to redeem after the expiry of the term of the mortgage, or of any further term for which it has been renewed or extended, shall give to the mortgagee 3 clear months' notice in writing of his intention to redeem, or shall pay to the mortgagee 3 months' interest in lieu thereof: Provided that this subsection shall not apply in any case where the mortgagee has entered into possession of the mortgaged land or any part thereof, or has taken any steps to realise his security. (4) For the purposes of this section the expression money due and owing under a mortgage includes all expenses reasonably incurred by the mortgagee (a) (b) For the protection and preservation of the mortgaged land, or otherwise in accordance with the provisions of the mortgage; and With a view to the realisation of his security, and in either case includes interest on the sums so expended at the rate expressed in the mortgage deed. (5) This section extends to mortgages comprising both land and chattels. (6) Nothing in this section shall affect the operation of section 16 of the Limitation Act [35] This section gives the right ( entitled in ss (1)) to redeem the mortgaged land upon payment of the money owed. Section 81 allows redemption before the time for redemption provided for in the mortgage arrives (here 99 years), if a mortgagor tenders the whole sum owed plus interest to the full term (ss (2)).

10 [36] The statutory right contained in s81 is not subject to any of the propositions advanced by the defendant. The limits on the right are statutorily defined. [37] In my view the position of the plaintiffs falls squarely within s81 of the Property Law Act 1952 and they are entitled to redemption having tendered the money payable to the mortgagee. [38] The request in the statement of claim in the first prayer is for a declaration the plaintiffs are entitled to redeem the land (Certificate of Title WN44B/578, Wellington Land Registry, comprised in the mortgage be ) on the payment of $9-90 to the defendant. For the reasons given, I make such a declaration. [39] The second prayer seeks an order that I direct the defendant to provide a discharge of the encumbrance under the Land Transfer Act on payment of the $9-90. Such an order is, therefore, made in terms of the plaintiffs prayer. Three further matters [40] Both parties raised in their submissions the effect of the declaration and order that I have now made on the collateral provision in the encumbrance (relating to the management contract). [41] The plaintiffs in their submissions argued this collateral provision died with the redemption of the land. The defendant said it survived any such redemption and remains in full force and effect. [42] During submissions the plaintiffs said, given they had not asked that this question be answered in its pleadings, they sought only the declaration and order as pleaded. They did not, therefore, ask that I answer the question relating to the survival or otherwise of the collateral provision. [43] In those circumstances, therefore, it would be wrong of me to attempt to provide an answer which might be thought to bind the parties. However, it is probable the parties will need to resolve this issue between them in the future. For

11 what it is worth, therefore, having heard argument, I set out in brief form my view, that the collateral provision does survive my declaration and order. [44] My reasons are, firstly, there is nothing in the encumbrance itself which suggests that full payment of the outstanding rental and subsequent redemption of the land by way of discharge of the encumbrance would somehow void the collateral agreement. [45] Secondly, the collateral provision does not relate directly to the land at all. It requires the present owners of the property to agree that they and future owners will enter into a management contract with the defendant company. The agreement, therefore, is a personal obligation by the owner of the unit. It should not, therefore, be tied to the discharge of the encumbrance. [46] Thirdly, the rent charge provision is no more than a device to enable registration of the encumbrance and thereby enable ease of renewal of the management contract as the unit is sold and resold. The fact the collateral provision cannot now be enforced in this way is not to say that it has no legal effect at all. [47] The plaintiffs suggested that the collateral provision should be struck down as unconscionable and unfair as part of the Court s equitable jurisdiction. [48] The idea behind the encumbrance and the consequential management agreement seems sound enough. It is preferable, as all parties agree, to have one body responsible for the upkeep of all common areas and to deal with the common areas of responsibility (for example, insurance) in a retirement village. [49] The difficulties, from the plaintiffs point of view (denied by the defendant) is that the defendant won t do its job as it has agreed to and it charges too much for what they do. The position regretfully is further complicated in this case by virtue of the fact that the premises are owned as unit titles and therefore a body corporate must be appointed to ensure the maintenance of the common areas. However, the unit owners have other remedies to deal with the defendant s failure to adhere to the agreement.

12 [50] The collateral provision itself, therefore, could hardly be said to be unfair or unconscionable. Although there appears to be no mechanism prescribed for properly setting the fees to be charged, no doubt the plaintiffs and other unit holders would have a legal remedy should the charges bear no relationship to the work done. [51] My view is, therefore, the collateral provision in the encumbrance survives and that provision will, therefore, define the parties legal rights and responsibilities. [52] I record that the plaintiff objected to the admissibility of the evidence of Ms Rendall (who swore an affidavit) as irrelevant. I have not considered her affidavit and it has not seemed to me it was relevant in terms of the legal issues in this case. Costs [53] The plaintiffs are entitled to costs on a 2B basis and disbursements as incurred. Ronald Young J Solicitors: Manktelow, Guy & Toby, PO Box 12091, Palmerston North P Withnall, Barrister, Wellington, pwithnall@xtra.co.nz