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Adams v Sun

Adams v Sun

Case [2014] NZHC 912 6 May 2014

Contract Formation

Security Interest

Priority of Security Interests

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
COMMERCIAL LIST

CIV 2013-404-4168 [2014] NZHC 912

UNDER THE COMPANIES ACT 1993

IN THE MATTER OF

STARPLUS HOMES LTD (IN LIQUIDATION)

BETWEEN

SHAUN NEIL ADAMS AND JOHN ROBERT BUCHANAN (AS LIQUIDATORS OF STARPLUS HOMES LTD (IN LIQUIDATION)) Applicants

AND

DAVID WEI SUN First Respondent

MAGSONS HARDWARE LTD Second Respondent

HAMILTON HARDWARE RETAIL LTD Third Respondent

UNITED TIMBER MERCHANTS LTD Fourth Respondent

DALE KING BUILDING SUPPLIES LTD Fifth Respondent

RD 1 LTD

Sixth Respondent

Hearing: 24 and 25 February 2014

Counsel:

No appearance by or on behalf of Applicants
N W Ingram QC and C J R Baird for First Respondent
M D Arthur for Second Respondent

M D Branch for Third Respondent

P R Cogswell for Fourth Respondent

K A Lomas for Sixth Respondent

No appearance by or on behalf of Fifth Respondent

Judgment:

6 May 2014

JUDGMENT OF HEATH J

This judgment was delivered by me on 6 May 2014 at 4.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

ADAMS AND BUCHANAN (AS LIQUIDATORS OF STARPLUS HOMES LTD (IN LIQUIDATION)) v SUN [2014] NZHC 912 [6 May 2014]

CONTENTS

The problem  [1] The application  [3] Background  [7] The competing claims  [13] The “validity” questions  [20] Magsons’ claim
(a)      The contractual provisions  [21]
(b)      The security interest  [24] Hamilton Hardware’s claim
(a)      The contractual provisions  [36]
(b)      The security interest  [40] United Timber’s and RD 1’s claims
(a)      The contractual provisions  [54]
(b)      The security interest  [57] Priority issues
(a)      Legal principles       [59]
(b)      Priorities as among charge holders  [64] Marshalling  [75] Result  [95]

The problem

[1] Starplus Homes Ltd (Starplus) was engaged in property development. It was put into liquidation on 22 April 2013.1 Starplus owned a large number of properties, over which its primary lender, ASAP Finance Ltd (ASAP), held first mortgages. All fell into default. ASAP conducted mortgagee sales to recover the amount owing to it. Not only were the proceeds of sale sufficient to repay ASAP in full, but there was also a surplus to be applied towards other debts.

[2] How should the surplus be distributed? A number of creditors claim legal or equitable security interests in some or all of the properties. It is necessary to consider the validity of each security interest claimed, the respective priorities, and whether there should be any apportionment of the fund among the secured claimants,
through the equitable principles of marshalling.2

1 Subsequently, on 24 April 2013, Messrs McKay and Cregton were appointed as receivers of Starplus by Westpac Banking Corporation, the holder of a general security agreement. Westpac having been paid in full, the receivers resigned on 23 August 2013. For that reason, there is no need for me to discuss the involvement of the receivers.
2 Discussed at paras [59]–[63] below.

The application

[3] Starplus was incorporated on 5 December 2007. Initially, it carried on its business in the Waikato, later expanding into South Auckland. When it was put into liquidation on 22…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Adams v Sun

Details

AGLC: Adams v Sun [2014] NZHC 912
Case: [2014] NZHC 912
Decision Date: 6 May 2014

CaseChat Overview and Summary

In the High Court of New Zealand, the case of Adams v Sun involved the liquidation of Starplus Homes Ltd and the distribution of surplus funds derived from the sale of its properties. The primary issue was determining the validity, priority, and distribution of security interests claimed by various creditors, including David Wei Sun, Magsons Hardware Ltd, Hamilton Hardware Retail Ltd, United Timber Merchants Ltd, and RD 1 Ltd. The court found that Mr. Sun had a valid second mortgage over two properties, while the building supply companies claimed equitable interests in Starplus's properties based on agreements to mortgage. The court held that the equitable interests claimed by Magsons, Hamilton Hardware, United Timber, and RD 1 were valid and arose from their respective agreements with Starplus. The priority among the equitable interests was determined based on the dates of their agreements, with Magsons, Hamilton Hardware, and RD 1 agreeing on their relative priorities. The court applied the doctrine of marshalling to adjust the distribution of surplus funds among the junior creditors, ensuring a fair outcome considering the arbitrary order in which ASAP, the senior creditor, chose to sell the properties. The court ordered a timetable for further submissions on the amounts payable to each creditor from the surplus fund and reserved costs.

Orders