AFI Management Pty Limited v Lepionka & Company Investments Limited
[2018] NZHC 586
•29 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-2836
[2018] NZHC 586
IN THE MATTER of the Property Law Act 2007 BETWEEN
AFI MANAGEMENT PTY LIMITED
Plaintiff
AND
LEPIONKA & COMPANY INVESTMENTS LIMITED
Defendant
……………………………/continued
Hearing: 28 March 2018 Counsel:
DW Grove for plaintiffs in CIV-2015-404-2168 MD O'Brien QC and MG Colson for defendants No appearance for plaintiff in CIV-2015-404-2836
Judgment:
29 March 2018
JUDGMENT OF FITZGERALD J
[As to application for redemption statement to permit redemption on a “without prejudice” basis]
This judgment was delivered by me on 29 March 2018 at 3 pm], pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Downie Stewart, Dunedin (P Hubbard)
Foy Halse, Auckland (G Halse) Bell Gully, Wellington (J Stevens)
AFI Management Pty Limited v Lepionka & Company Investments Limited [2018] NZHC 586 [29 March 2018]
CIV-2015-404-2168
BETWEEN GLW GROUP LIMITED
First Plaintiff
GARTH BOWKETT PATERSON
Second Plaintiff
ANDLEPIONKA & COMPANY INVESTMENTS LIMITED
First Defendant
LEPIONKA & COMPANY LIMITED
Second DefendantSTEFAN JOZEF JOHN LEPIONKA and
NIGEL WARREN HUGHES as trustees of the SJ Lepionka Family Trust
Third Defendants
STEFAN JOZEF JOHN LEPIONKA
Fourth Defendant
Introduction
[1] In December 2017, I issued a substantive judgment in these proceedings.1 As noted in the introduction to that judgment, the proceedings concern what has now been a protracted battle for control of a 24-hectare block of land on the banks of the Tuki Tuki River in the Hawkes Bay region (the “Property”). GLW Group Ltd (“GLW”) is the registered proprietor of the Property. Lepionka & Company Investments Ltd (“LCIL”) is the first mortgagee, and since April 2015, has been a mortgagee in possession. AFI Management Pty Ltd (“AFI”) is second mortgagee.
[2] My substantive judgment sets out the factual background to the proceedings, which, given the urgency with which this judgment is being delivered, is not repeated here.2
[3] The substantive proceedings gave rise to a plethora of factual and legal issues. Central to those issues, and my findings in relation to them, were the following:
(a)Having entered into possession of the mortgaged Property, but prior to exercising its power of sale, did LCIL wrongfully refuse to permit GLW to redeem the LCIL mortgage? I answered that question “no”.
(b)Having entered into possession of the mortgaged Property, did LCIL’s adoption on 7 April 2015 of existing agreements for sale and purchase of the Property, pursuant to s 179 of the Property Law Act 2007 (“PLA”), amount to an exercise of LCIL’s power of sale? I answered that question “yes”.
(c)Was GLW’s right to redeem the LCIL mortgage extinguished on the exercise of LCIL’s power of sale? I answered that question “yes”.3
1 AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2017] NZHC 3116.
2 See [25]–[134].
3 Section 97 of the PLA.
(d)In exercising its power of sale, did LCIL breach either its equitable duty or its duty under s 176 of the PLA?4 I found that LCIL breached its equitable duty, though I was not in a position to determine whether it also breached its statutory duty, given breach of that duty turns on whether that mortgagor has suffered damage (which is yet to be resolved).
(e)Given my finding that LCIL breached its equitable duty, what was the appropriate remedy, and in particular, should the exercise of LCIL’s power of sale be set aside, thus restoring GLW’s right to redeem, or should GLW’s remedy be confined to damages? I considered it would be inequitable to set aside the exercise of LCIL’s power of sale and thus confined GLW’s remedy to damages.
[4] GLW has appealed my substantive judgment, including the key findings set out above. By application dated 12 February 2018, it also applied for orders staying my judgment, and for orders granting associated interim relief, pending determination of the appeal (the “stay application”). The stay application is set down for a one-day hearing before me on 21 May 2018.
[5] On 20 March 2018, GLW applied for two of the orders sought in its stay application to be heard on an urgent basis. This led to the urgent hearing before me yesterday, resulting in this judgment.
[6] Finally, by way of introduction, GLW’s notice of appeal was filed on 2 February 2018. As at yesterday’s hearing, and other than filing the appeal, GLW has not taken any steps to progress it. At yesterday’s hearing, Mr Grove assured me that GLW’s appeal would now be pursued with urgency.
Background — some further detail
[7] The need for urgency in relation to some of the orders sought in GLW’s stay application is said to arise from the fact that AFI has recently served a statutory
4 Namely a duty of reasonable care to obtain the best price reasonably obtainable at the time of sale.
demand on GLW. As I understand matters, the statutory demand requires payment of AUD 4,109,480.00, being the total amount owed by GLW to AFI and secured by AFI’s mortgage over the Property.5 That total amount is not in dispute. Mr Paterson, on behalf of GLW, says in an affidavit filed in support of GLW’s present application, that he has reached an agreement with AFI that it will accept $1.6 million to redeem AFI’s mortgage over the Property.
[8] GLW does not itself have sufficient funds to pay what is owing under that AFI mortgage, or the LCIL mortgage. However, Mr Paterson says he has secured funding (from Mr Warren Ladbrook, or an entity associated with Mr Ladbrook, the Bamboo Trust) to pay AFI $1.6 million. However, Mr Paterson says that a condition of that funding is that the LCIL security “is secured by funds paid into Court or a solicitor’s trust account”.
[9] Mr Ladbrook also provided an affidavit in support of GLW’s application. Mr Ladbrook says that, as of 2016 (that is, well after the date on which I determined LCIL had exercised its power of sale), he has had an agreement with GLW to purchase the Property. Mr Ladbrook says that “in order to preserve the Bamboo Trust’s and my interest in the Property, it has become apparent that the Bamboo Trust, or its nominee, will have to obtain both the [LCIL] and [AFI] mortgages”. He says he has agreed with AFI that it will accept $1.6 million for Mr Ladbrook, or one of his entities, to purchase the AFI mortgage. Mr Ladbrook goes on to say that:
The Bamboo Trust will be in a position to pay that sum of $1.6 million to acquire the Second Mortgage. However, should the Bamboo Trust only obtain the Second Mortgage it will not have control over the sums which remain owing under the First Mortgage, and will remain in a compromised position with respect to the Property.
[10]Mr Ladbrook concludes that:
The Bamboo Trust will be in a position to pay up to a total of $4.5 million (or more by agreement) to or on behalf of GLW for the First and Second mortgages, redeeming those Mortgages, any additional development costs and (if necessary) the Lepionka Deposit[6] in consideration for a first mortgage over the Property on appropriate commercial terms.
5 AFI also has security over property owned by GLW in Australia.
6 Paid to GLW under the Lepionka Purchase Contracts (as referred to in my substantive judgment), being the agreements for sale and purchase which LCIL adopted on 7 April 2015.
[11] Thus, as Mr Grove, counsel for GLW, stated in his written submissions, an order is sought “allowing the [LCIL] mortgage to be redeemed and secured pending conclusion of the appeal”. In his oral submissions, and in response to questions from me as to what the practical consequence of this would be, Mr Grove explained that the LCIL mortgage would be redeemed, such that LCIL would relinquish its security, and Mr Ladbrook, or an entity associated with him, would become first mortgagee over the Property. Despite further questioning from me, it remains unclear how the LCIL mortgage would be redeemed “without prejudice”, or on an interim basis in such circumstances, given LCIL will have been replaced as first mortgagee by Mr Ladbrook or the Bamboo Trust.
[12] Mr David Johnson of AFI filed an affidavit in response to Mr Paterson and Mr Ladbrook’s affidavits. He confirmed that he has had discussions with Mr Ladbrook, but says AFI “does not currently have an agreement” to sell the GLW debt and associated security to Mr Ladbrook for $1.6 million. He also states that AFI does not currently have an agreement with GLW or Mr Ladbrook to restrict the amount owing under the AFI mortgage to $1.6 million.
[13] In support of its opposition to GLW’s application, LCIL filed an affidavit of Mr Matthew Holder. Mr Holder’s firm is presently contracted to LCIL to manage the completion of the Property’s development.7 Mr Holder has had a long involvement in the Property dating back several years, including prior to LCIL becoming a mortgagee in possession. His affidavit explains the current status of the Property’s development, the work carried out by LCIL since delivery of my substantive judgment and what is required to complete the development.8 In summary, he states that for a number of
7 Completion of the development is required in order for existing agreements for sale and purchase of the Property, including those entered into by GLW, to settle.
8 The development had been “on hold” from approximately December 2015, first, as a result of Mr Paterson seeking to retake possession of the Property at that time; and second, from February 2017, pursuant to an interim order made by Peters J on 17 March 2017 (pending determination of the substantive claims). Peters J’s order was only made in March 2017 as, from the commencement of the proceedings in September 2015 until its second amended statement of claim in February 2017, GLW’s remedy was limited to damages. However, in its amended claim of February 2017, GLW amended its prayer for relief to include, in addition to damages, an order setting aside or “declaring void” the exercise of LCIL’s power of sale; an order “cancelling or declaring unenforceable the agreement for sale and purchase adopted by LCIL” and an order “fixing the amount due, if anything, to LCIL” under the mortgage.
reasons, it would be detrimental to the Property’s development if it were put on hold again.
Jurisdiction to grant to the type of relief sought by GLW
[14] There was some confusion in the papers as to the source of my jurisdiction to grant the orders sought by GLW. GLW initially relied on r 20.10(3)(d) of the High Court Rules 2016, a rule which does not exist. Putting that issue aside, pt 20 of the Rules deals with appeals to the High Court. The appropriate rule is r 12(3) of the Court of Appeal (Civil) Rules 2005. That rule provides the Court of Appeal and the High Court with concurrent jurisdiction as follows:
12 Stay of proceedings and execution
…
(3)Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,—
(a)order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or
(b)grant any interim relief.
(4)An order or a grant under subclause (3) may—
(a)relate to execution of the whole or part of the decision or to a particular form of execution:
(b)be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.
(5)If the court appealed from refuses to make an order under subclause (3), the Court may, on application, make an order under that subclause.
(6)If the court appealed from makes an order under subclause (3), the Court may, on application, vary or rescind that order.
(7)The Court may, at any time, vary or rescind an order made by it under this rule.
[15] In considering whether to grant relief under r 12(3), a court must balance the competing rights of the party who obtained the judgment under appeal “against the
need to preserve the appellant’s position against the event of the appeal succeeding”.9 Factors to be taken into account in the balancing exercise include:10
(a)Whether the appeal may be rendered nugatory by the lack of a stay;
(b)The bona fides of the applicant as to the prosecution of the appeal;
(c)Whether the successful party will be injuriously affected by the stay;
(d)The effect on third parties;
(e)The novelty and importance of the questions involved;
(f)The public interest in the proceeding; and
(g)The overall balance of convenience.
[16] Interim relief sought pursuant to r 12(3)(b) must be sought to protect the position that will be ruled on in the appeal. This is because the interim relief is granted pending the determination of an appeal and, as such, is designed to preserve the pending appeal, so that the Court of Appeal can do justice between the parties, irrespective of the outcome of the appeal. As Asher J explained in Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd:11
[T]he discretion [under r 12(3)] cannot be treated as unlimited. It is for “relief” presumably from the effects of the judgment. The relief is stated to be “[p]ending the determination of …an appeal. So it is “interim”; that is, to last only until the appeal is determined. Its purpose is to provide a mechanism to ensure that there will be no developments following the judgment that prevent justice ultimately being done between the parties when the appeal is heard.
[17]I agree with and respectfully endorse his Honour’s comments.
9 Andrew Beck (ed) McGechan on Procedure (looseleaf ed, Thomson Reuters) at [CR12.01(1)(a)], citing Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.
10 Andrew Beck (ed) McGechan on Procedure (looseleaf ed, Thomson Reuters) at [CR12.01(1)(c)].
11 Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd HC Auckland CIV-2009-404-7207, 23 February 2011 at [14].
[18] The relief sought must also have a direct connection to the proceedings or the execution of the judgment. In other words, relief ought not to be granted if it were to go further than the relief sought at trial or on appeal.12 In the absence of such a connection, an appeal will be unlikely to be rendered nugatory by a refusal to grant the interim relief sought.13
[19] For completeness, Mr Grove also relied on the Court’s inherent jurisdiction to grant the orders now sought. In this context, he points to the Privy Council’s decision in Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 5), and the Board’s observation that it had jurisdiction to grant interim relief “in order to ensure that any other order which it makes on the eventual hearing of the appeal should not be rendered nugatory”.14 However, in this case, there is no dispute that this Court, and if required, the Court of Appeal, has such jurisdiction pursuant to r 12(3) in any event.
Submissions
GLW’s submissions
[20] As noted, Mr Grove submits the relief sought is necessary to guard against GLW’s appeal being rendered nugatory. A statutory demand has been issued against GLW, though an application to set aside the statutory demand has been filed and served, and has a first call on 20 April 2018.
[21] GLW’s present application hinges on the proposition that GLW’s ability to repay AFI (and thus satisfy the statutory demand) is contingent on its ability also to redeem the LCIL mortgage. This is because of the terms of the funding that it is being offered. Absent being able to redeem the LCIL mortgage, and thus the AFI mortgage, Mr Grove submits there is a real prospect of GLW being put into liquidation and thus losing the ability to pursue its appeal.
[22] Mr Grove acknowledges that in my substantive judgment, I found that GLW’s right to redeem the LCIL mortgage had been extinguished upon the exercise of LCIL’s
12 At [18] and [22]. This was referred to at the hearing before me as “the pleadings point”.
13 At [22].
14 Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 5) [2013] UKPC 25, [2016] AC 1023 at [17].
power of sale. Given this, the exercise of LCIL’s power of sale would need to be set aside in order to restore GLW’s right to redeem. As noted, I found that it would be inequitable to set aside the exercise of LCIL’s power of sale, and thus confined GLW’s remedy to that originally sought, namely damages. Mr Grove submits, and I of course recognise, that those findings have been appealed and it is currently not known what the Court of Appeal’s conclusions might be. On that basis, Mr Grove submits the present relief is necessary to ensure GLW’s ability to redeem the LCIL mortgage, if GLW’s appeal on these points is upheld, is preserved.
[23] In this context, Mr Grove referred to several authorities, on the basis of which he submits GLW retains the right to redeem the LCIL mortgage. I address those authorities later in this judgment. However, based on these authorities, Mr Grove submits GLW ought to be permitted to redeem the LCIL mortgage now (albeit on a “without prejudice” basis, pending the appeal). Mr Grove further submits there can be no prejudice to LCIL from the proposed course of action, as its interest can only be in recovering the sums due to it and secured by its mortgage. He submits that LCIL’s interests will fully be met by, in essence, “substituting” its current security with payment into a trust account or into Court of the amount LCIL estimates is presently owing under the mortgage.
[24] Mr Grove also referred to recent negotiations between LCIL and AFI, by which LCIL would purchase or take an assignment of AFI’s mortgage, as a further reason why the interim relief is required on an urgent basis. By way of background to this issue, on 20 March 2018, GLW sought urgent interim, interim relief, to prohibit any such agreement between LCIL and AFI being concluded. I declined to grant that interim, interim relief for the reasons set out in my (second) minute dated 20 March 2018. I do not repeat that reasoning here. However, I note that no application to pursue that relief has been filed, and I presently have real doubts as to the basis upon which I could grant such relief in any event. No legal basis was advanced as to why LCIL and AFI ought to be prevented from entering into such an agreement. And any such agreement would not, in and of itself, render GLW’s appeal nugatory. For example, if the Court of Appeal were to conclude that the exercise of LCIL’s power of sale ought to be set aside, such that GLW’s equity of redemption was restored, it would remain open to GLW to exercise its right to redeem the LCIL mortgage. Given this, I
have considered GLW’s current application, and the stated need for urgency, primarily in the context of AFI’s recent service of a statutory demand.
LCIL submissions
[25] LCIL says the present application is an attempt by GLW to relitigate matters which were the subject of the hearing before me last year, and finally determined in my substantive judgment of December 2017. Mr O’Brien QC for LCIL submits that the relief sought by GLW goes further than preserving the status quo pending the appeal, and has the effect of asking this Court to “unwind”, or overturn, its own findings — that the right to redeem was extinguished on the exercise of LCIL’s power of sale and that the exercise of the power of sale ought not to be set aside. Mr O’Brien queries how the relief sought can be said to be “interim”, when it would have the effect of ordering LCIL to relinquish its security. Mr O’Brien says the relief goes further than any relief GLW sought at trial in any event.15
[26] Mr O’Brien accordingly submits the Court has no jurisdiction to grant the relief sought, even pursuant to r 12(3). He further submits the authorities relied on by GLW relate to quite different factual scenarios and do not advance GLW’s position. Moreover, he submits there is simply no need to grant the relief in any event given, absent the relief, GLW will remain able to pursue its appeal.
[27] Mr O’Brien further says that a factor against exercising my discretion to grant the relief sought is that GLW comes to the Court seeking urgent relief , said to be necessary to preserve its position pending the appeal, when other than filing the appeal, it has taken no steps to progress it. He accordingly submits that the Court should view GLW’s application for what in substance it is, namely, an attempt to relitigate matters already determined and to enable GLW’s apparent funder to obtain control of the Property at what it presumably considers to be an advantageous price.
15 This is the “pleading point” referred to earlier (see above n 12). However, Mr Grove referred me to commentary which suggests that proceedings may be treated as a “redemption suit” although they involve a claim to set aside a sale by the mortgagee; ELG Tyler, PW Young and CE Croft Fisher and Lightwood’s Law of Mortgage (3rd, Australian ed, LexisNexis Butterworths, Chatswood, NSW, 2014) at [33.10]. As neither party addressed me further on this issue, I proceed on the assumption that it is arguable that, as GLW’s claim sought an order setting aside the exercise of LCIL’s power of sale, the claim included a claim for redemption.
Analysis
[28] My primary concern is to preserve the status quo pending GLW’s appeal being determined.
[29] I am not satisfied the relief GLW seeks is necessary for this purpose. Indeed, the relief sought goes some way further. It would alter the status quo which existed at the time the proceedings were commenced, at the time of my judgment and now; by removing LCIL as first mortgagee and replacing it with an entity associated with Mr Ladbrook.
[30] As noted, Mr Grove submits there can be no prejudice to LCIL in such circumstances, as its only interest is to recover the moneys due to it and secured by its mortgage. But even putting aside for present purposes the issues raised in Mr Holder’s affidavit, the fact remains that I have already determined, on a final basis, that GLW’s right to redeem has been extinguished. Further, it is not at all clear to me how redemption of LCIL’s mortgage on a “without prejudice” basis pending the appeal would work in practice. Mr Ladbrook, or an entity associated with him, would be registered as first mortgagee, with the full powers available to a party in those circumstances. Mr Grove was not able to articulate how, if the Court of Appeal were to uphold my key findings as summarised at the outset of this judgment, the “interim” relief GLW seeks would be unwound. Equally, if the Court of Appeal were to overturn my key findings set out above, and absent the relief being granted, GLW would still be able to redeem the LCIL mortgage. In that way, the relief is not required to preserve GLW’s position.
[31] Turning to the authorities relied on by GLW, Mr Grove first referred to the Privy Council’s judgments in Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 5)16 and Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 3).17 However, I do not consider they advance GLW’s present application. In Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 3), the Board
16 Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 5) [2013] UKPC 25, [2016] AC 1023.
17 Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 3) [2013] UKPC 2, [2016] AC 923.
considered (on a final basis) whether the appellant ought to be granted relief against forfeiture of shares, which had been given by it as security for a substantial loan, but which had been appropriated by the respondent upon the appellant’s default under the loan. The Board noted that:18
The equitable relief sought is either (i) relief pursuant to the general equitable jurisdiction to relieve from forfeiture or (ii) relief pursuant to the particular equitable jurisdiction to revive a mortgagor’s equity of redemption after it has been destroyed, and to give the mortgagor a further opportunity to pay the debt and recover its property. The Board agrees with Mr MacLean that, whether these two jurisdictions are separate, or whether the latter is merely a particular application of the former, is open to question, but this is of academic interest only in the present case.
[32] The Board concluded that it was appropriate to grant relief against forfeiture in that case, with the result that the appellant was given the opportunity to redeem the charge over the shares. The Board ordered that relief on strict terms, including as to precisely how and when the redemption was to be carried out.
[33] This aspect of the Board’s decision was not concerned with granting interim relief pending an appeal. The factual scenario before the Board was accordingly very different to this case, particularly as I have already determined that GLW’s equity of redemption was extinguished on LCIL’s exercise of its power of sale; that LCIL breached its equitable duties in exercising its power of sale; but that in the circumstances of this case, it would be inequitable to set aside the sale and restore the right to redeem.
[34] Mr Grove is correct that in Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 3), the Board observed that:19
[A]ny act by way of enforcement of the security (at least if it is purely) for a collateral purpose will be ineffective, at any rate as between the mortgagor and mortgagee”.
[35] However, I do not read this passage as purporting to overturn or alter leading authorities on the remedies available to a mortgagor in the event of a mortgagee’s breach of its equitable duty when exercising its power of sale. Those authorities (none
18 At [83].
19 At [73].
of which are cited in Board’s judgment) are summarised by the authors of Land Law in New Zealand as follows:20
There are three remedies potentially available to a mortgagor in respect of a breach by the mortgagee of the equitable duty of good faith in exercising the power of sale. The first two are equitable remedies that render ineffective the sale by the mortgagee. Thus, the mortgagor may obtain (1) an injunction restraining the mortgagee from exercising the power of sale in a manner that would constitute a breach of the equitable duty; or (2) an order setting aside the sale by the mortgagee. The third remedy available to a mortgagee is damages.
A mortgagee is, subject to two qualifications, generally free to choose between these three remedies. The first qualification is that the mortgagor will be confined to a remedy in damages where, on ordinary equitable principles, it would be inequitable to grant an injunction or set aside the sale….The second qualification is that setting aside is likely to be unavailable if the purchase from the mortgagee has become the registered proprietor. The purchaser would then have an indefeasible title. The sale could be set aside only if one of the exceptions to the concept of indefeasibility could be raised against the purchaser.
[36] Mr Grove emphasises the orders sought do not themselves seek to set aside the Lepionka Purchase Contracts, correctly noting that that issue is a matter for the Court of Appeal. But so too is the issue of whether, pursuant to s 97 of the PLA, GLW’s equity of redemption was extinguished by the exercise of LCIL’s power of sale; and if the exercise of the power of sale was in breach of LCIL’s equitable duty, what the appropriate remedy ought to be. It is not open to GLW to seek to relitigate those matters on this interim application.
[37] Other aspects of the decision in Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 5) upon which GLW relies, such as the Board’s comment that “this is not a case where the mortgagee is simply wrongly refusing repayment; it is a case where the mortgagee is doing its level best to thwart repayment of a debt owed to it for collateral reasons of its own,” are not relevant in the present context.21 Those comments were made in the context of the Board’s earlier orders that the appellant was entitled to relief from forfeiture; but where the respondent was deliberately
20 DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at [15.135], footnotes omitted. See also Brendan Edgeworth Butt’s Land Law (7th ed, Thomson Reuters, Sydney, 2017) at [11.1480].
21 Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 5) [2013] UKPC 25, [2016] AC 1023 at [36].
obstructing the appellant from complying with the Board’s orders as to how and when the redemption was to occur.
[38] Mr Grove also referred to Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq), a 1965 decision of the High Court of Australia.22 In that case, the High Court upheld the trial Court’s findings that a mortgagee, in exercising its power of sale, had committed fraud (in the sense of embarking on a “dishonest course”) in the exercise of its power of sale. The Court stated that in those circumstances, and as between the mortgagor and mortgagee, the sale would have been set aside. However, given the mortgagor’s significant delay in seeking relief, and intervening sales to third parties, the application to set aside was declined.
[39] Again, this case does not address granting interim relief to maintain the status quo pending an appeal. Rather, GLW deploys this decision in support of its argument that if a mortgagee breaches its equitable duty to exercise its power of sale for a proper purpose, the exercise of the power of sale will be ineffective to extinguish the right to redeem. I repeat that engaging on these issues seeks to relitigate matters which were determined at trial. Further, and in any event, the High Court of Australia’s decision predated the leading authorities summarised in the extract from Land Law in New Zealand set out at [35] above. The Court’s observations were also confined to circumstances when fraud, in the land transfer sense, has been established, a point noted by Randerson J in Ruawai Properties Ltd v Black Developments Ltd.23 Randerson J went on to observe that even where fraud in the land transfer sense is established, any competing equities must still be weighed.24 I note that fraud in the land transfer sense was not raised as a specific issue at trial in any event.
[40] Mr Grove also submits that “the provision of security by way of a cash deposit to replace security documents” pending determination of accounts is not unusual, at least in Australia. He refers in this regard to Equus Financial Services Limited v RMBL Investments Pty Ltd.25 However, although not expressly stated in the judgment, it seems clear that that practice occurs when a mortgagee is in possession, but prior to
22 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265.
23 Ruawai Properties Ltd v Black Developments Ltd (2008) 9 NZCPR 483 (HC) at [51].
24 At [53].
25 Equus Financial Services Ltd v RMBL Investments Pty Ltd (1996) 22 ACSC 744 (NSWSC).
the exercise of its power of sale; for example, in the context of an action to restrain the exercise of the power of sale where the amount necessary to redeem the mortgage is in dispute.26
[41] In that context, there is no dispute as to the mortgagor’s right to redeem, but the taking of an account is required to settle the amount to redeem. In those circumstances, interlocutory orders may be made that require the mortgagor to pay into court a (clearly) sufficient amount to meet any amount necessary to redeem the mortgage, upon which the mortgage is discharged in advance of the taking of the account. In Equus Financial Services Limited v RMBL Investments Pty Ltd, the Court stated:27
In my view it has been established that the court has power by an interlocutory order to require the mortgagee to give up the security while the accounts have not been settled, the amount payable to the mortgagee has not been ascertained and there is still a difficult course to follow before these things happen. It should be clear before the court does so that reasonable protection is available and that a fund of money sufficient to pay any amount likely to be found to be due is under the control of the court. What the court is asked to do is require an unwilling mortgagee to accept a sort of security, namely a fund of money, different to the security which it has bargained for and wishes to have, and while the court does have that power, it should only do so where it is satisfied that the interests of justice require an interlocutory order to that effect.
[42] Again, that is a scenario quite different to the present, where the Court is concerned only with any interim relief required to ensure GLW’s appeal is not rendered nugatory. Moreover, while requiring LCIL to give up its security now (and be replaced as first mortgagee by Mr Ladbrook or an entity associated with him) may serve GLW and Mr Ladbrook’s interests, it is not necessary to serve the interests of justice, namely to preserve GLW’s position pending the appeal.
[43] As I noted with the parties at the hearing, the key concern is not the need to redeem the mortgage now, but GLW’s desire to preserve its ability to pursue its appeal in the face of AFI’s statutory demand. Mr O’Brien submits that even if the statutory demand process were to result in GLW being placed in liquidation, that does not mean GLW as an entity will be unable to progress the appeal. Rather, a liquidator will be able to take a measured and commercial view as to whether pursuing the appeal is in
26 Brendan Edgeworth Butt’s Land Law (7th ed, Thomson Reuters, Sydney, 2017) at 11.1440
27 Equus Financial Services Ltd v RMBL Investments Pty Ltd (1996) 22 ACSC 744 (NSWSC) at 747.
GLW’s best interests. While I accept those propositions, if the Court of Appeal were to find, for example, that the exercise of LCIL’s power of sale ought to have been set aside and restores GLW’s right to redeem, then it is arguable GLW will have lost its present ability to control its own decision-making around redemption of the LCIL mortgage. That is arguably a different proposition to GLW’s position in liquidation. It is not appropriate to consider these matters further, however, as AFI (understandably, and with leave of the Court) did not participate in yesterday’s hearing.
[44] Mr O’Brien agreed at the hearing yesterday that LCIL would prepare and serve on GLW a statement setting out its estimate of what is presently owing by GLW to LCIL and secured by the LCIL mortgage. This would obviously be without prejudice to LCIL’s position (based on my findings) that GLW’s right to redeem was extinguished on the exercise of LCIL’s power of sale. Mr Grove, for his part, accepted it would need to be an estimate only, as there are several issues yet to be determined before an account of the amounts due and secured by the mortgage can be finalised.
[45] Mr O’Brien estimated that it could take two to three weeks to prepare such a statement. I agree with Mr Grove that that seems a relatively long time, particularly given a full schedule of the sums due under the mortgage was presented at the substantive hearing. I accordingly consider LCIL ought to produce such a statement within two weeks, namely on or before 12 April 2018. I do not consider it necessary or appropriate to make any further orders. What GLW and/or Mr Ladbrook choose to do in light of that statement is a matter for them.
Evidential matters
[46] Finally, Mr O’Brien referred me to aspects of Mr Paterson’s affidavit filed in support of GLW’s application, submitting that they amounted to objectionable and inadmissible hearsay and inviting me to strike them out or not take those aspects of the affidavit onto the file. Those aspects are Mr Paterson’s recount of a telephone call between himself and Mr Johnson of AFI, and certain statements made by Mr Lepionka which Mr Paterson says Mr Johnson relayed to him. Mr Johnson has provided an affidavit in which he does not comment in detail on Mr Paterson’s account of the discussion, but says it differs from Mr Paterson’s account. I do not propose to make
any orders in this regard. Hearsay is permissible on interlocutory applications. But in any event, Mr Grove accepted that the passages objected to are not material to the issues I must determine. Moreover, Mr Johnson has indicated that the discussion as recounted by Mr Paterson does not accord with his recollection of the discussion. I have already made findings in my substantive judgment as to Mr Paterson and Mr Johnson’s respective credibility and reliability. The passages from Mr Paterson’s affidavit to which LCIL objects have not played any part in my decision-making on this application.
Result
[47]I accordingly make the following orders:
(a)On or before 12 April 2018, LCIL is to provide GLW with a statement of what it estimates to be currently owing by GLW and secured by the LCIL mortgage.
(b)The file for GLW’s application to set aside AFI’s statutory demand is to be referred to me. That application is to be relisted before me at 9am on 20 April 2018.
[48] The order at [47](a) above effectively grants the order sought at paragraph 1(b) of GLW’s application dated 12 February 2018 (though on the basis all parties accept the statement will need to reflect LCIL’s present best estimate of the amounts secured by the LCIL mortgage).
[49] I dismiss GLW’s application for an order “allowing [GLW] to redeem the mortgage on a without prejudice basis” (paragraph 1(c) of GLW’s application). Paragraph 1(a) of GLW’s application will be the subject of the hearing before me on 21 May 2018.
[50] Mr O’Brien sought LCIL’s costs on this application on an indemnity basis. It is appropriate the parties have an opportunity to file memoranda addressing costs in light of the outcome of this judgment. LCIL’s memorandum is to be filed and served within 10 working days of the date of this judgment; GLW’s memorandum in
response is to be filed and served within a further 5 working days. Each memorandum is to be no longer than five pages in length. I will thereafter determine costs on the papers.
Fitzgerald J
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