Allan v Cressida Capital Investment Limited HC Auckland CIV 2008-404-003856
[2008] NZHC 2391
•30 June 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2008-404-003856
BETWEEN ROSS JOHN ALLAN AND SARA LOUISE ALLAN AS TRUSTEES OF THE ALLAN FAMILY TRUST
First Plaintiff
ANDROSS JOHN ALLAN AND SARA LOUISE ALLAN
Second Plaintiff
ANDCRESSIDA CAPITAL INVESTMENT LIMITED
Defendant
Counsel: Mr D M Hughes for the First and Second Plaintiffs
Minute: 30 June 2008 at 4.15pm
JUDGMENT OF WYLIE J
[Ex-parte application for interim injunction]
This judgment was delivered by Justice Wylie on 30 June 2008 at 4.15pm, pursuant to
r 540(4) of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Kensingon Swan, P O Box 92 101, Auckland ([email protected])
R J ALLAN AND S L ALLAN AS TRUSTEES OF THE ALLAN FAMILY TRUST AND ANOR V CRESSIDA CAPITAL INVESTMENT LIMITED HC AK CIV 2008-404-003856 30 June 2008
[1] I received this morning an application for an interim injunction. The plaintiffs seek to restrain the defendant from proceeding with a mortgagee’s sale of their family home, a property at 531 Speargrass Road, Queenstown. The defendant issued a Property Law Act Notice dated 27 May 2008. That notice alleged three defaults, and it is due to expire on 30 June 2008. The mortgagee’s sale of the property is set to take place on 4 July 2008 if the property is not previously sold.
[2] The application was made on a “Pickwick” basis but I have not considered it necessary to hear from the parties.
Background
[3] The property at 531 Speargrass Road, Queenstown is owned by the Allan Family Trust. It was purchased on 10 April 2007. The purchase price was $2.5 million (inclusive of GST).
[4] At the time, the defendant obtained a market valuation for the property from Moore & Percy Ltd. That valuation is dated 28 February 2007, and was in the sum of $2,600,000 as at 27 February 2007. The mortgage recommendation was 70% of the assessed market value.
[5] The Allans obtained mortgage finance from the defendant in the sum of
$1,875,000 to complete the purchase. They signed a loan facility agreement which had two schedules annexed to it. Inter alia the second schedule provided for events of default. Clause 11.1 provided that if any of various listed matters occurred, whether or not they were in the control of the borrower, the amount outstanding would be due and payable immediately, and all security interests would immediately become enforceable. Among the listed matters were the following:
(g) Material reduction in value: there is in the absolute opinion of the
Lender a material reduction in the value of the Secured Property;
(h)Material Adverse Change or Effect: there is a material change in the financial condition of the Borrower or any Guarantor which in the reasonable opinion of the Lender, may have a material adverse effect on the Borrower or any Guarantor;
[7] Mr Allan’s affidavit states that there was a default in January 2007. I expect that is a typograhical error, and that the default occurred in January 2008. The trust failed to pay the interest due for the month of December 2007.
[8] The defendant obtained a new valuation of the property from a Mr McElrea of MAC Property as at 8 February 2008 which valued the property at $2,250,000.
[9] A first notice was issued under the Property Law Act on 14 February 2008. It did not refer to the fact that on the two valuations then available there had been a material reduction in the value of the property.
[10] In the event the matters raised in the first Property Law Act Notice were satisfied. The trust paid the outstanding loan interest, granted a third mortgage over a property owned by it situated on Waiheke Island, and agreed to make a reduction in the principal sum owing to the defendant if and when it refinanced borrowings it had on the Waiheke Island property.
[11] At about the same time the first mortgagee of the Waiheke Island property served a Property Law Act Notice on the trust. I do not know if this was known to the defendant at the time it took its third mortgage over that property.
[12] On 18 April 2008, the defendant issued a second Property Law Act Notice. That notice sought the payment of various monies said to be outstanding and owing by the trust in respect of the Queenstown property. Again it did not refer to any default under cl 11.1(g) of the loan facility agreement.
[13] On 22 April 2008, the defendant was served with a Property Law Act Notice by the second mortgagee of the Waiheke Island property.
[14] In the event the monies claimed in the second Property Law Act Notice were paid on 19 May 2008, and the defendant confirmed in an email dated 20 May 2008 that the defaults had been remedied.
[15] This notwithstanding, on 20 May 2008, the defendant wrote to the family trust alleging new defaults. It then issued a third Property Law Act Notice on
27 May 2008. The notice relies on three defaults:
a) that there had been a material reduction in the value of the property at
Speargrass Road in the sum of $350,000;
b)there was a material change in the borrower’s financial condition given the Property Law Act Notice which had been served by the second mortgagee of the Waiheke Island property; and
c) there were outstanding rates owed to the Queenstown-Lakes District
Council on the property.
[16] The rates have since paid – they were paid on 29 June 2008. Ordinary interest for May 2008 was paid on 3 June 2008. The next interest payment is due on
1 July 2008. The trust solicitor is holding funds on trust to meet that payment.
[17] The trust as first plaintiff, and Mr and Mrs Allan as second plaintiffs, have filed a statement of claim alleging breach of contract by the defendant, and harsh and oppressive conduct under s 120 of the Credit Contracts and Consumer Finance Act
2003. They seek an interim injunction.
[18] I have received a helpful memorandum from counsel for the Allans. He points out that the Court must decide whether there is a serious question to be tried in the proceedings, and where the balance of convenience lies. He refers me to the well known decision in American Cyanamid Co. v Ethicon Limited [1975] AC396, and Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited [1985] 2
NZLR 140. He acknowledges that the key consideration in determining the balance of convenience is an assessment of whether damages would be an adequate remedy to either party if the injunction is wrongly granted or refused.
[19] The Allans claim that the defaults relied on by the defendant in its third Property Law Act Notice do not constitute events of default under the loan facility agreement.
[20] I do not consider that there is a serious question to be tried in this regard. I have set out the relevant provisions in the loan facility agreement above. In my view its terms are quite clear. The evidence adduced by Mr Allan does suggest that there has been a material reduction in the value of the Queenstown property. The valuation undertaken by Moore & Percy Ltd is before the Court but the valuation undertaken by Mr McElrea of MAC Property is not. Nevertheless Mr Allan does not suggest this valuation was not undertaken. Rather he asserts that Mr McElrea did not have access to the interior to the property, and suggests that the valuation may have been different had he got inside the house. That is but speculation. On the face of the two valuations – the first undertaken in February 2007, and the latter in February 2008, there has been a reduction in the value of the mortgage security. The extent of the reduction is $350,000. That would seem to me to be a material reduction in both percentage and dollar terms. On the face of it, it seems to me that there is an event of default in terms in clause 11.1(g) of the loan facility agreement, and do not consider that there is a serious question to be tried in this regard.
[21] Further, I doubt that there is a serious question to be tried in relation to whether or not the borrower has suffered a material change in its financial condition.
[22] The trust also owns a property on Waiheke Island. While Mr Allan has annexed to his affidavit a valuation of that property at November 2006, there is no up-to-date evidence of its value. Moreover there is nothing before the Court to indicate the amount owing under the mortgages secured against the property. The only knowledge the Court has is that the both the first and second mortgagees have given notice under the Property Law Act. The third mortgage in favour of the defendant of the Waiheke Island property was given on 25 March 2008. The Property Law Act Notice served by the first mortgagee was apparently served on the family trust’s Auckland solicitors on 4 March 2008, but was only received by Mr
and Mrs Allan personally on 25 March 2008. Whether or not the defendant was aware of it at the time it took the third mortgage on 25 March 2008 is unclear. In any event, the defendant relies not on the issue of the Property Law Act Notice by the first mortgagee, but rather on the issue of the Property Law Act Notice by the second mortgagee. That was not served until 22 April 2008. There is no suggestion by Mr Allan in his affidavit that the notice was not properly issued by the second mortgagee. The issue of a Property Law Act Notice indicates that the mortgagee believes there is a default under its mortgage, and signals that it is calling up the amount secured under the mortgage. In the circumstances, it seems to me that the issue of the Property Law Act Notice by the second mortgagee, in respect of a property which constitutes partial security for the defendant’s advance, does suggest that there has been material change in the financial condition of the borrower. Again I do not think that there is a serious question to be tried in this regard.
Oppressive conduct
[23] The plaintiffs are in my view on slightly stronger grounds in relation to their allegations of oppressive conduct.
[24] Relevantly s 120 of the Credit Contracts and Consumer Finance Act 2003 reads as follows:
The Court may reopen a credit contract, a consumer lease, or a buy-back transaction if, in any proceedings (whether or not brought under this Act), it considers that—
(a) the contract, lease, or transaction is oppressive; or
(b) a party has exercised, or intends to exercise, a right or power conferred by the contract, lease, or transaction in an oppressive manner; or
(c) a party has induced another party to enter into the contract, lease, or transaction by oppressive means.
[25] Here the defendant is alleging default under cl 11.1(g) of the second schedule to the loan facility agreement. It relies upon two valuations – one undertaken by Moore & Percy Ltd dated 28 February 2007, and the other undertaken by MAC Property dated 8 February 2008.
[26] It must have been aware of the significant decrease in value assessed in those valuations as from early February 2008. Nevertheless it issued both its first and second Property Law Act Notices without any reference to alleged default, and without relying on cl 11.1(g). It raised the alleged default for the first time in the third notice issued on 27 May 2008 when other breaches had been remedied. In the circumstances, it seems to me that it is arguable that its actions in doing so are oppressive.
[27] The same cannot however be said in relation to the second alleged default –
that under cl 11.1(h) of the second schedule to the loan facility agreement.
[28] The first Property Law Act Notice was issued on 12 February 2008. The second notice was issued on 18 April 2008. The notice given by the second mortgagee under the Property Law Act in relation to the Waiheke Island property was not served on the defendant until 22 April 2008. To my mind, it is difficult to argue that there is any oppression in issuing the third notice raising that default on
27 May 2008.
[29] Further, the Court is not in a position to make an informed decision as to what is oppressive or not from the stand point of commercial dealing. There is no evidence before the Court as to what objective standards of commercial practice are relative to the loan facility agreement and securities here in place. In my view, such evidence was necessary before the Court could be satisfied that there is a serious question to be tried in these proceedings.
[30] In summary, I am not satisfied that there is a serious question to be tried in this matter.
Damages
[31] Further, in my view damages are an adequate alternative remedy to both parties.
[32] While the applicants have offered an undertaking to damages, there is little or nothing in the papers to suggest that that undertaking can be honoured.
[33] Mr Allan in his affidavit has simply asserted baldly that there is significant equity in the Queenstown property and in the Waiheke Island property which could cover any damages award if an interim injunction were to granted and subsequently set aside. He also asserted that he and his wife have various other interests and significant assets, and that they are in a position to meet any damages award that may be made against them.
[34] These bald assertions are not supported by any relevant or up-to-date accounts, or a schedule of assets. The circumstances disclosed in Mr Allan’s affidavit, namely that a series of Property Law Act Notices have been issued not only by the defendant, but also by the first and second mortgagees of the Waiheke Island property, and that the trust has been unable to satisfy its various obligations under these various mortgages, do not suggest that there is any surplus or sufficiency of assets which could be used to cover any damages award that may follow if it turns out that the interim injunction was wrongly granted.
Summary
[35] In the circumstances, I am not convinced that the issue of an interim injunction is appropriate. In my view, there is no serious question to be tried, and the justice of the case does not require that an interim injunction be granted.
[36] The proceedings are to be set down for a first conference before an Associate
Judge at 2.30pm on 21 August 2008.
Wylie J
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