Axa New Zealand Nominees Limited v 10 Gilmer Limited (in rec) HC Wellington CIV 2011-485-1572

[2011] NZHC 1121

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2011-485-1572

BETWEEN  AXA NEW ZEALAND NOMINEES LIMITED

Plaintiff

AND10 GILMER LIMITED (IN RECEIVERSHIP)

First Defendant

ANDGILMER SERVICES APARTMENTS LIMITED (FORMERLY CALLED QUEST G10 LIMITED) (IN RECEIVERSHIP)

Second Defendant

AND154 LIMITED Third Defendant

ANDHAYIM NACHUM Fourth Defendant

AND10 GILMER SERVICES APARTMENTS LIMITED

Fifth Defendant

ANDMEHDI ZERHOUNI Sixth Defendant

Hearing:         6 September 2011

Counsel:         S Barker and E Ritchie for Plaintiff

L McKeown for defendants

Judgment:      6 September 2011

JUDGMENT OF MALLON J

[1]      AXA seeks urgent interim orders.  AXA has loaned $5.8 million to the first defendant (Gilmer).  The loan is guaranteed by the second to fourth defendants.  The

loan is secured by mortgages and a general security agreement in AXA’s favour over

AXA NEW ZEALAND NOMINEES LIMITED V 10 GILMER LIMITED (IN RECEIVERSHIP) HC WN CIV

2011-485-1572 6 September 2011

a   property   at   10   Gilmer   Terrace,   Wellington,   from   which   a   short   term accommodation and apartment rental business is operated.

[2]      In its substantive proceeding AXA seeks repayment of its loan and vacant possession  of  the  property.    It  has  sought  summary  judgment.    The  summary judgment application has its first call on 26 September 2011.  The interim orders are sought on the basis that AXA will suffer irreparable damage before the summary judgment application is determined.

[3]      Urgent interim orders were put in place on 17 August 2011.  The proceedings had at that time been served on the defendants on a “Pickwick basis”.  These orders were put in place to preserve the position pending a hearing of an interim injunction application which was scheduled to take place on 31 August 2011.  By consent that hearing was adjourned to allow the defendants an opportunity to put in place refinancing arrangements which it expected to be able to do by 4pm on 5 September

2011.  Refinancing has not occurred but the defendants believe it will occur if further time is allowed.   AXA has no confidence of this occurring and considers it will suffer irreparable harm if further time is allowed.

[4]      The substantive proceeding claims that Gilmer breached the terms of the loan agreement because the balance of the loan exceeded more than 60% of the valuation of the secured property.   On 22 February 2011 AXA made demand for Gilmer to remedy the default.  Gilmer did not do so which led to AXA issuing Property Law Act notices on 21 June 2011.   The notices required the default to be remedied by

29 July 2011 failing which all the loan would become due and payable and AXA

would have the right to enter the property and to sell it.

[5]      AXA’s loan is also secured by a General Security Agreement.   On 25 July

2011 AXA appointed receivers of the first and second defendants pursuant to that agreement.  Pursuant to that appointment the receivers attended the property.  At this time they were informed that a new company (the fifth defendant) was now the owner of the accommodation business at the property and that apartments in the property had been or were in the process of being sold.  This had occurred without notice  to  or  the  consent  of  AXA  as  was  required  under  the  terms  of  the  loan

agreement.   The consideration paid by the fifth defendant for the accommodation business was $100.

[6]      AXA  contends  that,  in  addition  to  the  breach  of  the  loan  agreement  in exceeding the maximum loan-to-value ratio and by disposal of the business to the fifth defendant, there are other breaches.   Those include a failure to insure (the receivers were advised that the insurance was cancelled in late June 2011 for non- payment of the premium) and significant rates arrears.

[7]      The affidavit filed on behalf of the defendants essentially contends that there were commercial reasons for the sale of the business to the fifth defendant.  It has obtained its own valuation, using a different methodology from that used by AXA’s valuer, which it says confirms that the loan-to-value ratio has not been breached.  It denies not having insurance in place and says that the insurance was cancelled by the receivers.   It says that there is a dispute in respect of rates and that it had been negotiating with Wellington City Council regarding that.  It says that AXA is acting oppressively for its own reasons so as to obtain repayment, when the defendant’s position under the loan agreement does not warrant this.

[8]      On the basis of the information before me AXA has demonstrated a serious question to be tried.  The real question is whether the balance of convenience favours further interim relief pending the hearing of the summary judgment application, and more particularly whether such relief should be ordered now rather than next week (the Registry having advised the parties that the interim injunction application could be heard on 13 September 2011).

[9]      The defendants contend that there is no such urgency.   They have filed an undertaking that they will not damage any part of the property nor remove any chattels located within the property.  They are concerned that AXA will impede their refinancing efforts.  They are also concerned that the effect of the interim orders will be to disrupt the running of the business.   They say that they have substantial forward bookings which will be put at risk if they are excluded from operating the business.

[10]     AXA does not agree.  It says that the defendants have acted in an underhand way.   It refers to the timing and nature of the sale of the business to the fifth defendant without notice to AXA.  It refers to purported agreements for the sale of

13 of the units which have been entered into without AXA’s consent, which are not in the name of the registered proprietor and which are supported by a deed of assumption of responsibility (signed four days prior to the receivership of Gilmer and the second defendant) at an apparent attempt to get around this.

[11]     Further,  from  the  Bar,  AXA’s  counsel  advised  that  it   has  received information that the defendants have told their insurance broker that Gilmer is not in receivership (which is untrue).  It is aware of an insurance application purportedly signed on behalf of Gilmer (in receivership) but which has not been signed by the receivers or any of the receivers’ staff.

[12]     The interim orders put in place on 17 August 2011 included an order that “any  and  all  rental  payable  by  the  fifth  defendant  to  the  first  and/or  second defendants must instead [be] paid into the plaintiff’s solicitors’ trust account”.  No rental has in fact been paid to AXA’s solicitors pursuant to that order.   The defendants’ affidavit asserts that this is because the fifth defendant has overpaid rent to the first and/or second defendants and that accordingly no rent is due or owing. The defendants contend that this was raised at the time of the hearing on 17 August

2011.  Regardless of whether that was made clear to AXA’s counsel or not (which I understand to be contested), the payment of substantial rental sums would have provided a degree of protection for AXA which it does not now have.

[13]     AXA’s counsel submits that AXA has no intention to impede refinancing arrangements.  It is in its interests for refinancing to occur if it is to be repaid in full. For that reason it has been prepared to allow Gilmer the opportunity to put in place refinancing arrangements.  However AXA has no confidence that refinancing can be arranged given that its latest effort, which the defendants expected to have occurred by 5 September 2011, was the third unsuccessful attempt by the defendants to do so. In  the meantime  AXA  is  being  prevented  from  exercising  its  powers  under  its securities with the prospect that the value of the business is diminishing.   It is concerned that the defendants will seek to sell some of the units without its consent.

AXA is concerned that the defendants are insolvent and that therefore any damages award will be an inadequate remedy.

[14]     I accept that the balance of convenience favours AXA.  That might not have been the case had all the rental income received by the fifth defendant been paid to AXA’s solicitors in trust without deduction for claimed credits.   The defendants apparently chose not to challenge the Property Law Act notices of default in a legal forum but are entering into arrangements without AXA’s consent.  The arrangements the defendants have entered into appear on their face to be odd and at the least raise an issue as to whether the defendants are seeking to subvert AXA’s rights under its securities.   The information about the insurance application, if correct, is also of concern.   In light of the unpaid rates and insurance (if correct), and that there is presently an insolvency application before the Court concerning a debt to the Fire Service, there is a real risk that damages will be an inadequate remedy.

[15]     In contrast, the defendants are less likely to suffer irreparable harm if the receivers are permitted to run the business pending the hearing of the summary judgment application.  Refinancing negotiations can continue.

[16]     Accordingly  I  make  the  orders  sought  at  paragraphs 1(a)  and  (b)  of  the interim injunction application which are as follows:

a)       Granting an interim injunction against the first defendant, the second defendant and the fifth defendant restraining them, whether acting by themselves, through their directors or employees, or in any other way whatsoever, from assigning or purporting to assign the existing leases or creating additional sublease arrangements as between them for the apartments within the property at 10 Gilmer Terrace, Wellington (as comprised and more fully described in certificates of title WN9C/86 and WN46C/783 (both Wellington Land Registration District)) (“the Property”) without first having obtained the prior written consent of AXA as mortgagee;

b)Granting an interim injunction against the fifth defendant restraining it, whether acting by itself, through its directors or employees, or in any other way whatsoever, from asserting and/or retaining possession of the Property to the exclusion of AXA as mortgagee until further order of the Court.

[17] These orders are conditional on AXA filing an affidavit confirming the matters referred to at [11] above and are made on the basis that AXA will not unreasonably impede refinancing arrangements or cause harm to the operation of the day-to-day business. These orders apply until further order of the Court. For the avoidance of doubt these orders do not permit AXA to exercise its power of sale, the intention being that the business is to continue to operate pending the determination of the substantive proceeding. Leave is reserved to the parties to apply to vary or discharge the orders should that become necessary. AXA is entitled to costs.

Mallon J