Benhar Properties Limited v Church

[2022] NZHC 2904

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2025

[2022] NZHC 2904

UNDER

Part 18 of the High Court Rules 2016

IN THE MATTER

of the Property Law Act 2007 and the

threatened exercise of a power of sale under a mortgage

BETWEEN

BENHAR PROPERTIES LIMITED

Plaintiff

AND

DAVID JOHN CHURCH

Defendant

Hearing:

7 November 2022

Appearances:

W C Pyke for Plaintiff

L M Van and J E Morton for Defendant

Judgment:

7 November 2022

JUDGMENT OF LANG J

[on application for interim injunction]

This judgment was delivered by me on 7 November 2022 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:

Sellar Bone & Partners, Auckland

BENHAR PROPERTIES LTD v CHURCH [2022] NZHC 2904 [7 November 2022]

[1]    Benhar Properties Limited (Benhar) is the owner of a vacant section situated in Onetangi on Waiheke Island (the Onetangi property). The Onetangi property is subject to a mortgage registered in favour of the defendant, Mr David Church.

[2]    Mr Church contends the sums secured by the mortgage have fallen due and that demands for repayment have not been satisfied. He therefore proposes to exercise his powers under the mortgage to sell the property. He has arranged an auction of the property on Wednesday 9 November 2022.

[3]    Benhar disputes Mr Church’s ability to sell the property using his powers under the mortgage. It has therefore applied for an interim injunction preventing Mr Church from proceeding with the auction on 9 November.

Interim injunction: relevant principles

[4]    There is no dispute regarding the test for interim injunctive relief. The applicant must establish that there is a serious question to be tried and that the balance of convenience favours the granting of relief. These two issues inform the ultimate issue, which is whether the overall justice of the case requires relief to be granted.1

[5]    The issue of whether damages would amount to an adequate remedy is also relevant to this issue.

The alleged debt

ASPAC Dairy Holdings Ltd

[6]Benhar’s sole director is Mr Brian Ellis. He is Mr Church’s brother-in-law.

[7]    Mr Church’s family trust, the Amand Trust, owns 42.65 per cent of the shares in a company called ASPAC Dairy Holdings Ltd (ASPAC). It acquired those shares from interests associated with Mr Ellis in October 2018. Mr Church is a trustee of the Amand Trust together with his wife and a solicitors nominee company. Mr Church is also a beneficiary of the Trust.

1      Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).

[8]    The Amand Trust advanced monies to ASPAC and these were recorded in a Loan Agreement executed in September 2020. When the loan fell into default the Trust placed ASPAC in receivership on 16 August 2021.

The First Deed

[9]    Mr Church says that Mr Ellis approached him for financial assistance in or about August 2017. Mr Ellis needed to obtain funding to address issues that had arisen in relation to ASPAC.

[10]   Mr Church says he advanced the sum of $225,000 to Mr Ellis by means of a payment made to Mr Ellis from the Amand Trust’s bank account.

[11]   This advance was subsequently recorded in a deed of acknowledgement of debt that Mr Ellis prepared (the First Deed). At that stage Mr Ellis was a practising solicitor. Mr Ellis and Mr Church signed the First Deed on 26 September 2018.

The Deed of Variation

[12]   Benhar, Mr Ellis and Mr Church then signed a deed of variation of the acknowledgement of debt on 13 May 2021 (the Deed of Variation).  By  this stage Mr Ellis had been struck off the roll of barristers and solicitors for professional misconduct.

[13]   The deed of Variation, prepared by Mr Ellis, recorded the existing advance from Mr Church to Mr Ellis in the sum of $225,000 together with a further advance in the sum of $111,000 that Mr Church had agreed to make to Mr Ellis. Benhar acknowledged and agreed in the Deed of Variation that Mr Church was entitled to lodge a mortgage over the Onetangi property to secure Mr Ellis’ indebtedness under the Deed of Variation.

The Deed of Confirmation

[14]   Mr Church says that, by June 2021, he had advanced more than $800,000 to Mr Ellis. Mr Ellis then asked for a further loan in the sum of $180,000. On this

occasion Mr Church instructed a solicitor to document the terms upon which the advances to Mr Ellis were made.

[15]   Mr Church’s solicitor prepared a document headed “Deed of Confirmation”. Benhar, Mr Ellis and Mr Church acknowledged and confirmed in this document that the intention of the Deed was to record the sums owed by Mr Ellis to Mr Church, the circumstances in which those sums were to be repaid and the security to be provided for the advances.

[16]   The parties acknowledged in the Deed that Mr Church had advanced the sums of $225,000 and $111,000 to Mr Ellis under the First Deed and the Deed of Variation. The Deed of Confirmation referred to those documents as “the Existing Deeds”.

[17]   The Deed of Confirmation recorded that Mr Church had advanced further sums to Mr Ellis totalling $465,154.07. In addition, it stated that Mr Church was to make a further advance to Mr Ellis in the sum of $180,000. The Deed also referred to another advance in the sum of $400,000 that was in dispute. The parties agreed that the Deed was not to apply to this sum.

[18]   Reflecting these matters, the Deed of Confirmation recorded that the amount then outstanding by Mr Ellis to Mr Church was $981,154.07 together with any further advances made in the  future.  Mr  Ellis  acknowledged  that  he  was  indebted  to Mr Church for that sum under both the Existing Deeds and the Deed of Confirmation.

[19]   The Deed of Confirmation also recorded that Mr Church may advance further amounts to Mr Ellis from time to time. Where that occurred Mr Ellis was to confirm in writing that the advance was to form part of the outstanding amount for which Mr Ellis had confirmed he was liable to Mr Church in the Deed of Confirmation.

[20]   The Deed of Confirmation provided for the outstanding amount to be repayable on the earlier of three events:

(a)An insolvency event affecting Benhar or ASPAC.

(b)Bankruptcy proceedings being threatened or commenced against Mr Ellis.

(c)Immediately on demand being made by Mr Church provided that three months notice was required to make demand for repayment of the sum of $361,896.92.

Included within the definition of “insolvency event” was the appointment of a receiver.

[21]   In Schedule 1 to the Deed of Confirmation Benhar, as guarantor, guaranteed to Mr Church the punctual performance of Mr Ellis’ obligations under the Deed of Confirmation and the Existing Deeds. In addition, Benhar undertook that, whenever Mr Ellis did not pay any amount due, Benhar would immediately, on demand, pay that amount as if it was the principal obligor.

[22]   Benhar also acknowledged it had agreed to grant Mr Church a mortgage over the Onetangi property to secure the total amount owing under the Existing Deeds and the Deed of Confirmation. The mortgage was to secure the total amount outstanding at any time including interest and costs.

[23]   After entering into the Deed of Confirmation Mr Church says he made further advances to Mr Ellis in the sum of $215,000. Before doing so he obtained email confirmation from Mr Ellis that the advances were being made under the Deed of Confirmation and would be subject to it.

The mortgage

[24]   After the parties executed the Deed of Confirmation Mr Church instructed his solicitors to register a mortgage over the Onetangi property. Benhar signed an authority and instruction form authorising the registration of the mortgage in Mr Church’s favour. The mortgage was registered against the title to the Onetangi property on 14 July 2021.

Subsequent events

[25]   When the Amand Trust placed ASPAC in receivership on 16 August 2021  Mr Church considered this was an insolvency event in terms of the Deed of Confirmation. This entitled him to require Mr Ellis and Benhar to repay the amounts owing under the Deed of Confirmation.

[26]   On 28 January 2022 Mr Church’s lawyers made demand on both Mr Ellis and Benhar seeking repayment of the sum of $1,196,154.07. The demand expired unremedied at 5 pm on 4 February 2022.

[27]   On 31 March 2022, Mr Church’s solicitors issued and served notices on both Mr Ellis and Benhar under s 119 of the Property Law Act 2007 (the PLA). The default specified in those notices was the appointment of the receivers to ASPAC. This default was stated to be incapable of remedy. The notices expired on 13 June 2022.

[28]   On 14 June 2022 Mr Church’s lawyers made demand on Mr Ellis for the outstanding amount under the Deed of Confirmation being the sum of $1,196,154.07. This expired unremedied at 5 pm on 21 June 2022.

[29]   On 30 June 2022, Mr Church’s lawyers made demand on Benhar as guarantor requiring it to repay the same sum. This expired unremedied at 5 pm on 7 July 2022.

[30]   On 8 July 2022, Mr Church’s lawyers issued a second set of PLA notices to commence enforcement action under the mortgage (second PLA notices). These were served on both Benhar and Mr Ellis on 12 July 2022.

[31]   The default claimed in the second PLA notice served on Benhar was its failure to pay the amount claimed in the demand served on it on 30 June 2022. The notice required Benhar to remedy the default by paying that sum together with the costs and disbursements incurred in preparing and serving the second PLA notices.

[32]The second PLA notices expired unremedied on 9 September 2022.

[33]   The parties then entered into without prejudice correspondence. This resulted in Mr Church extending the time for compliance with the second PLA notices until 30 September 2022. On that date Mr Ellis’ solicitors sent Mr Church’s solicitors a letter denying liability for the amounts claimed in the second PLA notices.

[34]   Subsequent correspondence between the parties’ solicitors did not result in any resolution being reached. Mr Church then made arrangements to have the Onetangi property sold by auction. On 20 October 2022 Benhar filed the present proceeding seeking to prevent the mortgagee sale from taking place.

Issues

[35]   Benhar raises the following issues in support of its submission that it has a serious issue to be tried against Mr Church:

(a)Any advances to Mr Ellis were made by the Amand Trust and not by Mr Church.

(b)Benhar validly cancelled its guarantee due to misrepresentations made by Mr Church regarding the identity of the entity making the advances.

(c)There is a genuine dispute regarding the amount, if any,  owing by   Mr Ellis to Mr Church.

(d)Mr Church has unreasonably delayed the exercise of the power of sale under the mortgage.

Payments made by the Amand Trust rather than Mr Church

[36]   This is the central issue to be determined. Benhar contends Mr Church is not entitled to exercise his power of sale under the mortgage because he did not advance any funds to Mr Ellis. This argument relies on the fact that the advances were made to Mr Ellis through the bank account of the Amand Trust.

[37]   Mr Church says he chose to structure the advances in this way for his own reasons and that these are irrelevant for present purposes. Mr Church relies on the

three contractual documents the parties signed. In each of these Benhar and Mr Ellis acknowledged they were liable to Mr Church for the funds that had already been advanced and for those to be advanced in the future. Benhar also allowed Mr Church to register a mortgage over the Onetangi property to secure the advances. Mr Church says that any issues arising out of the arrangement under which he used the Amand Trust’s bank account to make the payments to Mr Ellis are matters between him and the Trust. He contends they have nothing to do with the liability imposed on Benhar and Mr Ellis under the three contractual documents.

[38]   I accept Mr Church’s argument. The three contractual documents the parties signed make it clear that, regardless of the source of the funds used to make the advances to Mr Ellis, Mr Ellis and Benhar acknowledged their liability to  repay    Mr Church the funds Mr Ellis had already received or was to receive in the future. Those documents also set out the terms on which the advances were made, including the circumstances in which Mr Church  could require them to be repaid.  Neither   Mr Ellis nor Benhar challenges the terms of the documents.

[39]   By way of contrast, there is no evidence of any contractual relationship between the Amand Trust and Mr Ellis. It follows that, if the advances to Mr Ellis were made by the Trust rather than Mr Church, the Trust was content to do so without creating any written record of the terms on which they were made. The Trust would also have made the advances without any security being given for them. This is obviously contrary to the manner in which it recorded and obtained security for the advances it made to ASPAC. I therefore consider this to be an unlikely proposition.

[40]   Mr Pyke acknowledges there is no evidence to suggest the Amand Trust entered into a formal loan arrangement with Mr Ellis. However, he submits that Benhar is now in a difficult position because there is also no evidence Mr Church made the payments to Mr Ellis with the authority of the remaining trustees. Mr Pyke contends that, if Mr Church acted without their authority in making the advances, the Trust would be entitled to pursue Benhar for repayment even if it repaid the advances in full to Mr Church.

[41]   I do not accept this argument. Given the absence of any contractual relationship with Benhar the Trust could only seek repayment of the advances from it through claims based in equity. Benhar never received any of the funds advanced to Mr Ellis so no claim would lie against it in equity.

[42]   I have concluded the fact that Mr Church funded the advances through the bank account of the Amand Trust does not affect the contractual  position  in  any  way. Mr Church was entitled to structure the transactions in that way if it suited him to do so. Any issues as between the Trust and Mr Church are matters for them to resolve. Furthermore, neither Mr Ellis nor Benhar raised this issue at any stage prior to the present proceeding.

[43]   It follows that I do not consider there is any substance to Benhar’s argument that the advances to Mr Ellis were made by the Amand Trust and not Mr Church.

Cancellation of the guarantee

[44]   Benhar contends that it validly cancelled its guarantee based on misrepresentations made by Mr Church about the identity of the person who was making the advances. It says that, by virtue of s 42 of the Contract and Commercial Law Act 2017, Benhar is no longer required to perform its obligations under the guarantee. Benhar also proposes to seek relief under s 42 of that Act and will ask the Court to restrain Mr Church from exercising his power of sale under the mortgage.

[45]   It is arguable that Benhar had no power to cancel its guarantee. Schedule 1 to the Deed of Confirmation, which sets out the terms on which Benhar gave the guarantee, states  that  Benhar  “irrevocably  and  unconditionally”  guarantees  to  Mr Church the punctual performance by Mr Ellis of his obligations under the Deed and the Existing Deeds.

[46]   Putting that issue to one side, the argument for Mr Ellis is effectively answered by my conclusion in relation to the first issue. Mr Church was the person who made the advances to Mr Ellis. There was no misrepresentation about that issue.

The PLA notices

[47]   Benhar contends the PLA notices are void because Mr Church had no right to issue them given that he was not the lender. I reject this argument for the reasons I have already given.

[48]   Benhar also says the PLA notices are defective because the amounts referred to in them cannot be substantiated. Benhar contends Mr Church has sought repayment of the sum of $491,896.15  from  ASPAC  as  well  as  from  himself  and  Benhar. Mr Church acknowledges that this is the case and says he erred in seeking repayment of that sum from ASPAC. He says they were further advances made to Mr Ellis after the parties signed the Deed of Confirmation. He has now deducted that sum from his claim against ASPAC.

[49]   Mr Church explains that part of the reason for his error lies in the fact that  Mr Ellis requested him to pay several of the advances directly to ASPAC. There are also no internal records of the Amand Trust stating the basis on which it made the advances to Mr Church that enabled him to fund the advances to Mr Ellis. Mr Church says these issues led him to mistakenly include five advances that he made to Mr Ellis in the claim against ASPAC. These were made on 23 April 2021 ($10,896.15), 13 May 2021 ($111,000), 28 May 2021 ($70,000), 17 June 2021 ($180,000) and 30 June 2021 ($120,000).

[50]   I see no reason to question Mr Church’s evidence on this point. In this context I consider it noteworthy that Mr Ellis and Benhar have never disputed the amount claimed by Mr Church up until this point. The demands for repayment and the PLA notices were served on them between 28 January and 30 June 2022. If Mr Church had attempted to seek repayment of $491,896.15 in excess of the sum actually owed, I have no doubt that Mr Ellis and Benhar would have raised this issue much earlier in the piece. I therefore do not consider it raises a serious question to be tried.

Delay

[51]   Benhar points out that Mr Church has been threatening to exercise his power of sale under the mortgage since March 2022. He issued the second PLA notices on

8 July 2022 but took no steps to advertise the sale of the property until October 2022. By that stage Benhar had given notice of its intention to apply for injunctive relief. Benhar contends Mr Church is attempting using the sale process to “steal a march” on its application for injunctive relief.

[52]   The obvious answer to this submission is that Benhar has suffered no detriment because the present application will be determined before the date fixed for the auction. In addition, it appears that the reason Mr Church took no steps to sell the property until October 2022 was because he extended the time for complying with the second PLA notices to 30 September 2022. This was done to accommodate without prejudice settlement discussions with Mr Ellis. I therefore do not consider Mr Church can be criticised for unreasonably delaying the exercise of his powers of sale under the mortgage.

Result

[53]   None of the issues raised by Benhar has been found to have any substance. Benhar has therefore failed to establish a serious question to be tried and there is no jurisdiction for the Court to grant the interim relief it seeks.

[54]The application for an interim injunction is accordingly dismissed.

Costs

[55]   Mr Church has a contractual right to recover the costs he has incurred in defending the application. I therefore make an order under r 14.6(4)(e) of the High Court Rules 2016 awarding him his reasonable costs on a solicitor/client basis.

Lang J

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