competing equitable interests

when do the competing equities rules apply

when both interests are unregistered, all unregistered interests are equitable (LTA s 24)

what do you check first in a competing equities question

each part has a property interest, a licence cannot compete

what if one party is registered

go to LTA (s 51 and its exceptions), not a competing equities

what is the starting rule of competing equities

if the equaties are equal, the first in time wins (rice)

who bears the onus

The later interest holder, must prove that the first in time should loose priority

is a failure to caveat decisive

No → it is an important factor combined with other conduct (AGC; Emslie; Mercury Geotherm)

Case	Failure to caveat	Other factors	Result
AGC v CFC (CA)	AGC delayed caveating its mortgage by 9 days, with no explanation	AGC also left the duplicate certificate of title with the owner (Dante), knowing he might approach other lenders. CFC searched a clear register	The delay plus leaving the title document armed Dante under false colours, so priority was reversed to CFC. But CFC's own later delay meant it had to pay AGC $54,917.87
Emslie	The Emslies' first caveat lapsed (lawyer error), and there was no caveat when the RS Trust contracted	The Emslies had transferred title to Genuine under a buy-back deal, which was commercially reckless. The RS Trust had no notice of their claim (it thought they were tenants)	No caveat plus title in the wrongdoer's name armed Genuine, so priority was reversed, and the RS Trust won
Perkins v Purea	June told her lawyer to caveat; he didn't, and told her he had	June was in occupation and actively enforcing her interest. The Perkins had constructive notice: the occupier had "kicked out" the owner, and they didn't inquire before contracting	The failure was excused because it wasn't her fault. Combined with the purchasers' constructive notice, there was no reversal, and June won
Mercury Geotherm	McLauchlan didn't caveat his equitable lease until just before settlement	His failure was understandable, because he relied on Network (his joint venture partner and trustee) to set things up. Contact had constructive knowledge (he was farming the land) but didn't inquire	Finely balanced, so no reversal. Contact took subject to the lease, but without the right of first refusal

first in time wins unless what

unless the first in time armed the owner to go out into the world under false colours, causing the second in time to act to its prejudice

The pattern:

	Armed the owner?	Second holder misled to its prejudice?	Reversed?
AGC	Yes: delay plus title documents left with the owner	Yes: relied on a clear search and the title document	Yes
Emslie	Yes: title transferred, no caveat	Yes: bought from the apparent owner, thinking the occupiers were tenants	Yes
Perkins	No: lawyer's fault; she was in occupation	No: constructive notice from the red flags	No
Mercury Geotherm	Weakly: excusable reliance on a partner	Weakly: should have inquired about the occupier	No (balanced)

does lodging a caveat improve priority

never

what knowledge counts against the second holder

• actual or constructive knowledge before or when contracting (Perkins)
  
  
  

  Case	Second holder's knowledge	Counted against it?	Outcome
  Perkins	An occupier had "kicked out" the owner; no inquiry before contracting	Yes (constructive)	First holder wins
  Mercury Geotherm	Knew of the farming and the joint venture history; didn't inquire	Yes (constructive), but balanced	No reversal; partial result
  Emslie	Knew of the tenants (an innocent explanation)	No	Second holder wins
  AGC	Clear search; nothing known when lending	No (but its later delay counted)	Second holder wins, with payment to AGC

is occupation notice of all the occupiers rights

• not automatically, ask whether it was reasonable to inquire (mercury Geotherm)

why did the RS trust win in Emslie

It had no disentitling conduct, and the emslies were commercially reckless in transferring the title arming genuine. also did not caveat (allowed it to lapse)

why did june win in perkins

The perkins had constructive knowledge (owner was kicked out by occupier) → june not at fault ( lawyers fault instructed to caveat told june they did but did not), occupation, active enforcement → proactive

what was the result of Mercury Geotherm

a balance: no reversal, so contact took title subject to the lease, without right of first refusal

→ case about network and McLachlan joint venture

Occupation is one factor, not automatic notice. Ask whether it was reasonable to inquire.

• The second holder's constructive knowledge is weighed against the first holder's (excusable) failure to caveat, for example where they relied on a trusted partner.

• The result can be balanced and partial: here Contact took subject to the lease, but without the right of first refusal. (look at situations where neither part acted good, wasnt enough to reverse maybe apply Mercury)

what was the result of AGC v CFC

priority reversed to CFC, but CFC had to pay AGC what it was owed because of its own delay (conduct after which was prejudice to AGC)

can court consider conduct after the second interest arose

yes → AGC

what protects a short term lease

PLA s 209: priority over earlier unregistered interests if it entered in good faithm without actual notice and no caveat was lodged, and over later ones

is the winner then exposed to an LTA fraud argument

→ no the winner registers free of the loser

why did the court look at CFC conduct after becoming aware of AGC

• after CFC learned of AGC's caveat.

  • CFC did nothing for over a year.

  • During that time the owner's debts grew, and the value of the security (including a Mercedes) fell.

  • CFC's delay and acquiescence prejudiced AGC.

• The result: CFC kept priority, but on condition that it pay AGC $54,917.87 (what AGC was owed) out of the sale proceeds.

case fact summaries

• AGC v CFC (1995 CA): Dante gave AGC an unregistered mortgage over his Rotorua land. AGC delayed 9 days in caveating and left the duplicate title with Dante. Meanwhile CFC searched a clear register, took the title, and lent on a second mortgage. Later, CFC ignored AGC's caveat for over a year while the debt grew.

• Emslie v Genuine Investments (2005 HC): a naïve, indebted couple transferred their home to Genuine under a buy-back deal, were never paid, and stayed on as "tenants". Their caveat lapsed through a lawyer's error. Genuine then sold to the RS Trust, which knew only of a tenancy, not the buy-back claim.

• Perkins v Purea (2008 HC; affirmed CA): under a 1988 deal, daughter June would get the house if she lived there and paid off the mortgage, which she did. Her lawyer failed to caveat. After a falling-out, her father (the registered owner) agreed to sell to the Perkins, who were told June had "kicked out" her father but didn't inquire.

• Mercury Geotherm v McLauchlan (2006 HC): under a joint venture, Network held land on trust. McLauchlan was to receive a lease with a right of first refusal, but it was never properly set up. He kept farming the land. Network's receivers sold to Contact Energy, which knew he farmed there but not of the lease. He caveated just before settlement.

PQ engine

1. does each party have a property interest

2. Is either interest registered

3. Starting point (rice) first in time priority, second in time onus

4. should priority be reverse → look at the circumstances, and conduct of both parties (use cases)

• (a) first interest → did they arm the owner

• other factors: transferring title to, or putting title in the name of the wrong doer (Emslie); leaving title documents with the owner (AGC); commercially reckless (emslie); failing to cavear

• factors which excuse first holder: lawyer failure (perkins); relying on trusted partner to carry out arrangement (Mercury geotherm); proactive steps to enforce interest (aksed her father to sign multiple timess → Perkins)

• (b) second interest holders knowledge and conduct

• actual or constructive knowledge makes reversal unlikely (perkins)

• occupation of the land by the first interest is a factor (not automatically notice of the occupoers rights (mercury)) → Q is whether it was reasonable in the circumstances to inquire (mercury)

• a occupation with a innocent explanation (such as apparent tenancy) may not put second holder on inquiry (Emslie)

• a profit druven purchaser is not criticised for that alone (emslie)

• [c] balance the two → the court weighs the 1st interest conduct in pursuit of justice and fairness (Mercury Geotherm)

5. shape the remedy → court has discretion to reach a just result, can look at conduct after second interest rose (AGC), also can be a partial result seen in Mercury Geotherm

6. stop there → wheoever wins can register free from the loser

7. short term lease exception (PLA s209(3)) → short term lessee who gave value has priority over unregistered interests in two situations. 1. interests created before it went into occupation, if it entered in good faith without actual notice and no caveat was then lodged; and 2. interests created after it entered into occupation