Denize Trustee Company Limited v Waimauri Limited
[2020] NZHC 1718
•17 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-636
[2020] NZHC 1718
BETWEEN DENIZE TRUSTEE COMPANY LIMITED
Applicant
AND
WAIMAURI LIMITED
Respondent
Hearing: 3 June 2020 Appearances:
E J Grove for the Applicant
D Chisholm and M Lenihan for the Respondent
Judgment:
17 July 2020
JUDGMENT OF HINTON J
This judgment was delivered by me on 17 July 2020 at 2:30 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Solicitors/Counsel:
Chris Patterson Barrister Ltd, Auckland Peter Nolan, Solicitor, Auckland
David Chisholm QC, Auckland Michael Lenihan, Barrister, Auckland
DENIZE TRUSTEE COMPANY LTD v WAIMAURI LTD [2020] NZHC 1718 [17 July 2020]
[1] This is an application by Denize Trustee Company Ltd for an interim injunction preventing Waimauri Ltd from exercising a claimed mortgagee power of sale over a property in Island Bay, Wellington. The question at issue is whether notices under s 119 of the Property Law Act 2007 were properly served on Denize.
Introduction
[2] Waimauri lent money to Denize under two loan agreements secured by a mortgage over the Island Bay property.
[3] Denize is in default of its obligations under the mortgage. In an affidavit in support of this application, Mrs Denize, the company’s sole director, appeared to deny the default but in submissions counsel accepted the loan payments are in arrears and the mortgage in default. In any event that matter is not at issue in this application.
[4] Denize says it is trying to refinance the loans with a third party financier, and expects that will occur within a few weeks, once valuations are completed. In his affidavit evidence, Mr Tim Edney, Waimauri’s sole director, says Mrs Denize and her husband have told him that refinancing of Denize’s obligations is imminent on several occasions in the past, but this has never happened. Whatever the position, Waimauri no longer wishes to allow Denize more time.
[5] Waimauri says it has served two notices on Denize under s 119 of the Property Law Act 2007 (the Act), and that the notices have expired unremedied. Consequently, Waimauri says it is entitled to exercise its mortgagee power of sale in respect of the property and is currently marketing it.
[6] Denize contends that the s 119 notices were not properly served and seeks an interim injunction preventing Waimauri, pending further order of the Court, from taking “any legal steps” in reliance on the notices, including selling the property.
[7] Pursuant to s 119(1) of the Act, no mortgagee may enter into possession of mortgaged land or sell mortgaged land unless the mortgagee has first served a notice on the mortgagor in compliance with s 120. Under s 352 of the Act, a notice required to be given under s 119 must be served in accordance with s 353. Section 353 provides
that a s 119 notice “is not adequately given or served” unless served, in the case of a company like Denize, “in a manner provided for in section 387(1) (other than paragraph (e)) or section 388 of [the Companies Act 1993]”. Section 388 is not relied on here.
[8] The relevant parts of s 387(1) of the Companies Act 1993 provide that a document may be served on a company:
(a)by delivery to a person named as a director of the company on the New Zealand register; or
(b)by delivery to an employee of the company at the company’s head office or principal place of business; or
(c)by leaving it at the company’s registered office or address for service; or
(d)by serving it in accordance with any directions as to service given by the court having jurisdiction in the proceedings; or
[…]
(f)by serving it at an address for service given in accordance with the rules of the court having jurisdiction in the proceedings or by such means as a solicitor has, in accordance with those rules, stated that the solicitor will accept service.
Background
[9] In November 2019, Mr Penny, a property manager employed by Waimauri, was asked by Mr Edney to serve the two s 119 notices on Denize. According to Mr Penny and Mr Edney’s affidavits, this followed extensive discussions between Mr Edney and Mr and/or Mrs Denize regarding Denize’s attempts at refinancing. (It appears that Mr Denize is actively involved in the company’s affairs, and was the main party negotiating with Waimauri, despite not being a director at any material time.)
[10] On 19 November 2019 Mr Penny emailed copies of the two s 119 notices to both Mr and Mrs Denize. He sent the emails to several different addresses he had for Mrs Denize. Only one, an email address containing Mrs Denize’s name registered to her employer’s domain, did not receive an automated reply saying the address did not exist. Mr Penny also sent emails to two email addresses he had previously used to
deal with Mr Denize. He makes no reference in his affidavit to any issue with the delivery of those two emails.
[11] Mrs Denize’s affidavit evidence is equivocal as to whether she received the email sent to what appeared to be her work address. She does accept however that Mr Denize received at least one of the emails sent to him (with the attached copies of the s 119 notices) but says they were “unfortunately caught by his spam filter” and only noticed by him at the end of February 2020. It must be taken from that evidence that at the latest Mr and Mrs Denize become aware of the emails and the s 119 notices by the end of February 2020.
[12] In his 19 November 2019 emails Mr Penny informed Mr and Mrs Denize that he would be serving the s 119 notices on Denize on 20 November by leaving them at Denize’s registered address. That was and remained at the hearing date, 64 Broomfields Road, a single dwelling residential property near Whitford. Mrs Denize, as sole director, was also listed with the Companies Office as living at 64 Broomfields Road both as at November 2019 and at the date of hearing. Mr Penny’s evidence is that Waimauri’s solicitor had told him to serve Denize at Broomfields Road although Waimauri was well aware that Mr and Mrs Denize did not or no longer lived there.
[13] Counsel for Denize, Mr Grove, accepts that Mrs Denize has been remiss in advising the Companies Office of the changes of address. He accepts that Mr and Mrs Denize have not lived at the Broomfields Road address at any material time, and that their tenants have occupied that address at all material times.
[14] At 1.54 pm on 20 November 2019, Mr Penny arrived at Broomfields Road and handed a copy of the s 119 notices to a man who answered the door. That person accepted both notices and told Mr Penny, as Mr Penny already knew, that Mr and Mrs Denize did not live at the address anymore. Mr Penny emailed Mr Edney at 2.09 pm on 20 November 2019 to report that he had effected service and the manner of it.
[15] As noted, at the latest Mr and Mrs Denize became aware of Mr Penny’s 19 November 2019 emails and the s 119 notices in late February 2020. Mrs Denize
then replied to Mr Penny’s 19 November email on 1 March 2020 saying she was happy to accept service by email. Mr Penny replied on 3 March 2020 saying that service had already been effected from Waimauri’s perspective and Denize’s time for complying with the notices would expire on 6 March 2020.
[16] Mrs Denize deposes that she and her husband checked with their tenants at Broomfields Road, who told them they were unaware of the s 119 notices ever having been left or served at the address. She emailed Mr Edney and Mr Penny further on 4 March 2020, asking for proof of service. Mr Penny and Mr Edney pointed her to the November 2019 emails.
[17] Immediately after the end of the COVID-19 lockdown, a real estate agent who was apparently instructed by Waimauri approached Denize’s tenant at the Island Bay property in connection with Waimauri’s proposed mortgagee sale of that property.
[18] Following that, Denize filed the present application on 5 May 2020, together with its statement of claim in the underlying substantive proceeding. By its statement of claim, Denize applies for declarations that the purported service of the s 119 notices was invalid, and also seeks reopening of the loan agreements pursuant to s 122 of the Credit Contracts and Consumer Finance Act 2003 on the basis that they are oppressive credit contracts.
Applicable Principles
[19] Ordinarily, an application for an interim injunction would be resolved by determining whether the applicant has established there is a serious question to be tried, whether the balance of convenience favours the grant of relief, and finally, whether the overall justice of the case is consistent with relief issuing.1
[20] However, the parties are agreed that relief will issue as a matter of course if Denize establishes that Waimauri has no legitimate right to exercise its power of sale,
1 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12], applying American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) and Eng Mee Yong v Letchumanan [1980] AC 331 (PC).
without any further need to consider the balance of convenience.2 That is because the exercise of the jurisdiction to award interim relief does not turn on a formulaic approach,3 but rather on an assessment of the justice of the case as a whole and justice will invariably require that a mortgagee be prevented from wrongfully purporting to exercise a power of sale, given the special character of land. In that sense, the approach the parties are agreed should apply is an application of the general principles governing applications for interlocutory relief, not some exception.
Submissions
[21] The parties agree that the question of whether the s 119 notices were validly served is to be determined using an accepted two-stage analysis discussed in a decision of Laurenson J in Argyle Estates Ltd v Bowen Group Ltd.4 That involves first an assessment of whether the service undertaken was valid in terms of s 387(1)(c) (the relevant subsection here), that is to say technically compliant with the statutory requirement. The second step is an assessment of whether the service was ‘effective’ in the sense of there having been some reasonable prospect of it actually bringing the s 119 notices to Denize’s attention so as to ensure no miscarriage of justice will result from allowing the notices to stand and the mortgagee sale to proceed. I agree with that approach but would somewhat restate the second limb. I come back to that.
[22] Counsel for Denize accepted in written submissions that Mr Penny’s leaving the documents with the occupant of 64 Broomfields Road technically complied with s 387(1)(c). However at the hearing he submitted that Waimauri has not complied with that subsection and therefore fails at the first stage. He relies in that regard on Richard Zhou Lawyers Ltd v Chen.5 Secondly, Mr Grove argues that even if the service effected by Waimauri is found to have been technically compliant with s 387(1)(c), it was not ‘effective’ in the sense noted above. He says, correctly, there is no evidence Mr Penny asked the man answering the door at Broomfields Road for any information about his identity, or his ability to direct the documents to Denize’s
2 Propst v ANZ National Bank Ltd [2012] NZHC 1012 at [49] and [65].
3 NZ Tax Refunds at [47]. See also Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA) at 142.
4 Argyle Estates Ltd v Bowen Group Ltd (2003) 17 PRNZ 57 (HC).
5 Richard Zhao Lawyers Ltd v Chen [2015] NZHC 3230.
attention, nor is there clear evidence that Mr Penny explained to the occupant that the documents were for service on Denize. Accordingly, Mr Grove submits that Mr Penny as Waimauri’s service agent “could not reasonably have had any particular confidence” the man he met would, or even could, bring the notices to the company’s attention.
[23] For Waimauri, Mr Chisholm QC submits that s 387(1)(c) has been complied with on its plain meaning and on any sensible construction of that provision. As to whether a miscarriage of justice will result if the s 119 notices are allowed to stand, Mr Chisholm says that Mr and Mrs Denize have contrived to create ambiguity as to whether the service undertaken by Waimauri was ‘effective’ by deliberately keeping the Broomfields Road address as Denize’s registered address for service, and as Mrs Denize’s registered residential address, even while not living or based there. They should not, he submits, be able to take advantage of their delinquency in notifying the Companies Office of their updated details, to prevent Waimauri from exercising its rights as mortgagee. He argues that there is no risk of a miscarriage of justice resulting from allowing service to stand as valid, even where that service may not have been ‘effective’ in the sense described by Mr Grove, where directors have contrived to that end. In the alternative Mr Chisholm submits service was effective in any event in the circumstances.
Analysis
Has s 387(1)(c) of the Companies Act 1993 been complied with?
[24] As noted, Mr Grove relies on Doogue AJ’s decision in Richard Zhao Lawyers Ltd v Chen6 to contend that Waimauri has not validly served Denize in terms of s 387, and therefore fails at the first stage.
[25] Richard Zhao concerned an application to set aside a bankruptcy notice. Doogue AJ was required to determine whether the debtor’s application to set aside had been properly served on the creditor. The process server went to the creditor’s registered office. The creditor no longer carried on business there. The process server
6 Richard Zhao Lawyers Ltd v Chen [2015] NZHC 3230.
spoke to a manager of a third party company that had taken over the premises and was told the manager was not associated with the creditor and had never agreed to accept documents on the creditor’s behalf. The process server nonetheless handed the documents to the manager. The debtor sought to rely on that act and s 387(1)(c), to say the creditor had been properly served.
[26] The Associate Judge held that service was non-compliant because the server had “left” the documents at the registered office but also “left” them with the employee of a different company.7 The Associate Judge said that Parliament had intended s 387 to be mandatory, and its provisions strictly complied with. Compliance with the section, at least where service of legal proceedings (as was the case there) was concerned, was “not just a matter of technicalities”.8 Rather, the service rules “have as their objective, reliable means by which documents for service on companies can be brought to the attention of the company”.9 Doogue AJ further noted the need for certainty if commerce is to be carried on effectively and efficiently.
[27] The Associate Judge considered the objective of commercial certainty would not be promoted by allowing a party required to effect service to hand the documents in question to a person encountered at the intended recipient’s registered address, who was unconnected with the intended recipient. He commented that, conversely, it could safely be presumed that an employee of the intended recipient company at that address would direct the documents to the attention of the appropriate officer of the company, achieving the objective of the service rules.10
[28] Mr Grove submits that the situation here is analogous. He says Mr Penny did not physically leave the documents at the Broomfields Road address but rather handed them to a man unconnected with Denize, whom he encountered at the address. Further he submits there was no evidence that Mr Penny knew who the man was or whether he would, or even could, hand the documents on to Mrs Denize as Denize’s director.
7 At [27].
8 At [23].
9 At [27].
10 At [27]-[28].
[29] Without departing from the Associate Judge’s conclusion I disagree with his analysis. I agree with Mr Chisholm that s 387(1)(c) had been complied with in that the documents were left at the premises, regardless of their having been handed to a third party. That is a common-sense construction of the section. Any further analysis around the detail or efficacy of the service process should then have formed part of a second stage inquiry. My impression from the judgment is that the Judge was not aware that he had a residual discretion to determine that service was not valid.
[30] As a matter of ordinary practice, handing a document to a person encountered inside the premises of a company’s registered office, at least where that person appears to have some connection to those premises, is leaving that document there. It would be strange, as Mr Grove accepted, if that were non-compliant, when service can be effected by leaving documents on the ground; throwing them down at a person’s feet; leaving them on a counter or table in front of the person; pushing documents through a letter box; wedging them under a door; or affixing them to a front door or front gate.11
[31] The position is likely to be different where documents are handed to a third party on their way out of the premises of a registered office, or otherwise to someone clearly having no connection to the premises (such as a delivery person, a party guest, or the like). It may be in such a case that s 387(1)(c) is not complied with.
[32] In this case while some criticism can be made of Mr Penny’s not doing more to ascertain to whom he was handing the documents, there is nothing to suggest the man who answered the door was not connected with the dwelling at 64 Broomfields Road. In fact that person told Mr Penny that Mr and Mrs Denize did not live there anymore.
[33] On the proper construction of s 387(1) I am satisfied that Mr Penny, as Waimauri’s service agent left the s 119 notices at Denize’s registered office as required by s 387(1)(c). In the circumstances it follows that Waimauri has in turn satisfied the requirements of ss 319, 352, and 353 of the Property Law Act 2007.
11 See, for example, the facts of the cases cited at n 15 and 16 below.
Will a miscarriage of justice result if Waimauri is allowed to rely on the s 119 notices?
[34] As noted, it is common ground that I have a residual discretion to prevent Waimauri from relying on service validly effected in terms of s 387(1)(c) if it was, although valid, nonetheless not ‘effective’.
[35] While Laurenson J in Argyle Estates Ltd v Bowen Group Ltd and others since, have talked about the ‘efficacy’ of service,12 in my view that is just part of a wider inquiry into whether reliance on the service rules would otherwise create a miscarriage of justice.13 Whether allowing service to stand will create a miscarriage of justice is the key question at the second stage of the analysis.
[36] A purposive and common usage approach is therefore taken to application of s 387(1) in terms of assessing technical compliance at the first stage of the analysis, but the residual discretion enables the Court to balance the conflicting policy objectives underpinning that provision. It provides appropriate protection to companies against the consequences of validly served notices of which they had not fairly become aware (which would be contrary to the purpose of the service rules). At the same time, parties required to serve companies can be reasonably certain that service complying with the statute will fulfil their obligations absent injustice. This produces certainty conducive to the interests of commerce, as Doogue AJ put it.
[37] Reviewing the cases to which counsel referred me the following matters have been considered relevant to the second-stage assessment:
(a)whether any shortcomings in the ‘efficacy’ of service are attributable to honest mistake or ignorance or, conversely, sharp or otherwise deliberate conduct on the part of the notice-giver;14
12 Argyle Estates Ltd v Bowen Group Ltd (2003) 17 PRNZ 57 (HC) at [29], [34], and [40].
13 See Stellaria Ltd v Waere Developments Ltd [2018] NZHC 2110 at [10].
14 Argyle Estates Ltd v Bowen Group Ltd (2003) 17 PRNZ 57 (HC) at [29] and [40]; Apparel by Design at [28]; Richard Zhao Lawyers at [14] and [29]; and Reynolds v Ascot Aluminium Ltd [2012] NZHC 1787 at [3].
(b)where the address for service contained multiple premises, whether the notice-giver left the documents at the part of the address actually in use by the recipient company;15
(c)whether there was a sufficient connection between a person to whom the documents were handed and the address for service;16
(d)whether the recipient company’s unreasonable actions, especially any delinquency in registering a new address for service, have rendered achieving ‘effective’ service impossible or impracticable;17 and
(e)the consequences for the recipient company if relief is not granted, and the seriousness of those consequences for the recipient company.18
[38] Further, in circumstances where the party to be served is on notice of the proceeding or matter at issue (even if not of the particular document) and it is their own unreasonable or delinquent actions that render service ineffective, the discretion should not be exercised in their favour. That is the position here. I see no reason to disturb what would otherwise be lawful service. I am not satisfied any miscarriage of justice will result from Waimauri being able to rely on Mr Penny effecting service in the way he did.
[39] In this case the ambiguity around service is clearly the consequence of Mrs Denize’s delinquency in updating the registered office address with the Companies Office. Moreover, by also failing to update her registered residential address, Mrs Denize made it impracticable to serve documents on her personally. These defaults had still not been regularised by the date of the hearing. Waimauri and Mr Penny as Waimauri’s service agent, had no knowledge of alternative premises for Denize. The interests of justice do not require that I allow Denize to be able to take advantage of its director’s own deliberate or at best remiss approach. Any problem as
15 Apparel by Design Ltd v Team Kiwi Racing Ltd HC Auckland CIV-2007-404-5790, 21 December 2007 at [17]-[18] and [27]. Courtney J considered a similar situation in Auckland Council v Forest Trustee Ltd [2012] NZHC 3425, to which counsel also directed me.
16 Richard Zhao Lawyers Ltd v Chen [2015] NZHC 3230 at [27].
17 Argyle Estates at [29].
18 Apparel by Design Ltd at [28].
to the efficacy of notice in these circumstances should be Denize’s problem, not Waimauri’s.
[40] I note that Waimauri took the further step of sending copies of the documents for service to email addresses that, on the affidavit evidence, Mr Penny had used to successfully correspond with Mr Denize as recently as August 2019. Any exercise of the discretion is put entirely beyond doubt by the evidence that Denize did receive the s 119 notices some three months before the hearing. Denize had therefore had a number of months to remedy its default. It had not done so.
Result
[41]For all of the above reasons, the application is dismissed.
[42] The respondent, having succeeded, is presumptively entitled to costs on a 2B basis. Hopefully the parties will resolve the question of costs. If they are unable to do so, leave is reserved to the respondent to file and serve a memorandum within ten working days from the date of this judgment, with the applicant having ten working days to respond. Memoranda are not to exceed five pages, excluding intituling pages and supporting materials such as invoices.
Hinton J
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