First Mortgage Custodians Limited v Herbert - [2020] NZHC 2874

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2020-441-29

[2020] NZHC 2874

BETWEEN
FIRST MORTGAGE CUSTODIANS LIMITED
First Plaintiff

FIRST MORTGAGE MANAGERS LIMITED
Second Plaintiff

AND

ANOTHONY JAMES HERBERT and

STEPHEN PETER LUNN as trustees of the Thackeray Trust

First Defendants

AND OTHERS

Second to Ninth Defendants

CIV-2020-441-31

BETWEEN

FIRST MORTGAGE CUSTODIANS LIMITED
First Plaintiff

FIRST MORTGAGE MANAGERS LIMITED

Second Plaintiff

AND

MALCOLM ANDREW HERBERT and

STEPHEN PETER LUNN as trustees of the Thorn Place Trust

First Defendants

AND OTHERS

Second to Fifth Defendants

Hearing: 22 September 2020

Appearances:

D Fraundorfer and R Rosser for plaintiffs in both proceedings D J O’Connor for defendants in both proceedings

FIRST MORTGAGE CUSTODIANS LIMITED v HERBERT and [2020] NZHC 2874 [3 November 2020]

Judgment: 3 November 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1] Before the Court for determination are summary judgment applications by the plaintiffs in these two related proceedings. At the centre of both proceedings are loan transactions, and the plaintiffs’ summary judgment applications seek orders for the enforcement of what they assert are their contractual rights following alleged defaults by the borrowers in each case.

[2] The factual background in each case is not so much complicated as detailed. Accordingly, the pleadings, or, rather, the plaintiffs’ statements of claim, and the parties’ affidavit evidence in support of their applications for summary judgment and notices of opposition to the same, are voluminous, as they needed to be. However, the overwhelming majority of the background is uncontroversial and can be summarised briefly.

Parties

[3] Throughout the history of the loan arrangements, some of the parties involved have changed. The first plaintiff (FMC) owns the assets of a substantial investment fund. The second plaintiff (FMM) manages the fund. The entities that have performed these roles over the relevant period of time have apparently changed. As to the defendants, the loan arrangements were varied over their terms and this involved the introduction of additional guarantors and securities.

[4] However, nothing turns on these changes. Counsel argued both cases ignoring them as inconsequential. I will follow their lead in this.

CIV-2020-441-29 – the Thackery proceeding

[5] In May 2018, the parties entered into loan arrangements, the purpose of which was to finance a commercial development in Munroe Street in Napier.

[6] These involved an interest only loan, with the principal repayable at a fixed date in the future and interest payable monthly.

[7] The lenders were FMC and FMM. The borrowers were the first defendants, the trustees of the Thackeray Trust (the Thackeray trustees). The obligations of the Thackeray trustees were guaranteed by the second to ninth defendants (the Thackeray guarantors). The Thackeray trustees and the Thackeray guarantors all provided security. Ultimately, the principal sum was $11,000,165 repayable on 10 March 2021.

[8] By March 2020, the plaintiffs had concluded that the Thackeray trustees were in default, and resolved to call in the loan and if necessary exercise their rights as security holders.

CIV-2020-441-31 – the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NZHC 2874
Decision Date: 3 November 2020

CaseChat Overview and Summary

This case involved two summary judgment applications brought by First Mortgage Custodians Limited (FMC) and First Mortgage Managers Limited (FMM) against various defendants in two separate proceedings. The plaintiffs sought to enforce their contractual rights following alleged defaults by the borrowers in two loan transactions. The central issue in both cases was whether the borrowers were in default entitling the plaintiffs to foreclose on the loans. In the first case involving the Thackeray Trust, the plaintiffs claimed that the trustees were in default for failing to secure a code compliance certificate by the agreed date. The trustees argued that the date was extended due to the lenders' involvement and knowledge of the extension process, potentially constituting a waiver of the original deadline. The Court found that it was open to the trustees to argue that the lenders waived their contractual entitlement, leaving real doubt as to whether the plaintiffs could establish the trustees had no defence. Consequently, the summary judgment application against the Thackeray trustees was dismissed.

In the second case involving the Thorn Trust, the trustees argued that the plaintiffs caused the default by refusing to release funds from another loan to cover the outstanding amount. The Court rejected this argument, finding that there was no obligation for the plaintiffs to transfer funds between the loans and no evidence of an agreement or estoppel to support such a claim. The Court concluded that the plaintiffs had demonstrated that the defendants had no defence and granted summary judgment in their favour. The Court reserved the issue of costs, expecting them to be agreed upon but allowing for submissions if necessary.

Orders