FM Custodians Limited v Hannan

[2017] NZHC 2578

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV-2016-485-983 [2017] NZHC 2578

UNDER

THE INSOLVENCY ACT 2006

IN THE MATTER OF

The bankruptcy of Patrick Bernard
Christopher Hannan

BETWEEN

FM CUSTODIANS LIMITED Judgment Creditor

AND

PATRICK BERNARD CHRISTOPHER HANNAN

Judgment Debtor

Hearing:	12 October 2017
Appearances:	A M Cunninghame for the judgment creditor P B Hannan self-represented judgment debtor R B Hucker for the receiver
Judgment:	20 October 2017

JUDGMENT OF CULL J

[1]      Mr Hannan seeks an interim injunction, preventing the sale of Unit 7A Waiu Street, Wainuiomata and any other assets of Paddy Hannan Contracting Ltd, until the determination of his defended bankruptcy proceedings, which have been reserved for the decision of Associate Judge Smith.

[2]      Mr Hannan filed his application without notice on 9 October 2017 and sought urgency,  because the  receiver of Paddy Hannan  Contracting  Ltd  had  authorised Bayleys Real Estate, to place 7A Waiu Street on the market for tender and after three

previous unsuccessful attempts, the Lower Hutt City Council had signed a conditional

FM CUSTODIANS LIMITED v HANNAN [2017] NZHC 2578 [20 October 2017]

Sale and Purchase Agreement, which was to become unconditional on Friday 13

October 2017.

[3]      In his application, the reason given for needing to stop the sale is to enable

Mr Hannan to file a claim for damages against the receiver and the judgment creditor.

[4]      Given the urgency, the matter was set down for hearing on Thursday afternoon of 12 October 2017, after the judgment creditor and the receiver had been served.

Background facts

[5]      Mr Hannan’s  company,  Paddy  Hannon  Contracting  Ltd,  was  placed  in receivership on 3 February 2014. Mr Whitley, a chartered accounted and an accredited insolvency practitioner, was appointed receiver of four companies.  Of relevance to this application, the companies in receivership owned four blocks of land, one of which is 7A Waiu Street.

[6]      7A Waiu Street had been used as a cleanfill operation and at the date of

Mr Whitley’s appointment as receiver, was subject to investigation by the Hutt City Council, in respect of enforcement issues issued by the Environment Court with regard to the cleanfill operation.

[7]      On 14 February 2014, when Mr Whitley visited the blocks of land, including

7A Waiu Street, it had ceased being operated as a cleanfill site but was not in marketable form at the time.

[8]      After some inquiry and investigation, including resource consent applications to deal with outstanding issues in relation to the site, Mr Whitley instructed Bayleys to market the property by tender.  This followed an unsuccessful agreement for sale and purchase for the sale of 7A Waiu Street, which did not settle, despite settlement notices being served.

[9]      When the property was marketed by tender, Mr Hannan, through another entity, offered $2.2 million subject to a 90 day due diligence clause and payment of no deposit.  Mr Whitley has deposed that the $2.2 million offer is the level of debt owed

by Mr Hannan to the secured creditor, FM Custodians Ltd.  None of the tenders were acceptable.  Mr Whitley questions the purpose for Mr Hannan taking this course of offering the debt amount, as it was always open to Mr Hannan to redeem the security and pay the money directly to the secured creditor if he had it or had access to it.

[10]     Following the first two unsuccessful tenders on 7A Waiu Street, Mr Whitley took advice from Bayleys Realty Group who suggested that he re-tender the property, which he did.

[11]     7A Waiu Street has a contaminated land designation on it and it is the third time it has been tendered.  Mr Whitley deposes that it has proven very difficult to sell and on three separate occasions, well-marketed efforts have been undertaken on a full public tender process.

[12]     On  this  occasion,  the  property  was  marketed  from  8  August  2017  to

12 September 2017 and the tender process was complete.  Lower Hutt City Council entered into a conditional agreement for sale to pay $225,000, with the conditional date expiring this Friday, 13 October 2017.

[13]     Mr Whitley evidenced a schedule showing the loan balance outstanding to the judgement creditor at the time each of the receiver’s reports was filed with the Companies Office.   The details of the disputed bankruptcy are the subject of the reserved decision of Associate Judge Smith.

[14]     For the purposes of this hearing, Mr Hannan alleges that the mortgage from FM Custodians Ltd has been repaid, because payments totalling $763,209.97 were made in reduction of the mortgage debt.   Mr Hannan’s assertions, in the affidavit evidence before the Court, are subject to the Associate Judge’s reserved decision.

[15]     Both the judgment creditor and the receiver appeared at the hearing to contest

Mr Hannan’s injunction on the grounds that there was no serious question to be tried and the balance of convenience favoured the judgment creditor and the receiver, in refusing the grant of relief.

Relevant principles

[16]     The relevant principles upon which an interim injunction should be decided have been long established in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd.1    The relevant principles have more recently been confirmed by the Court of Appeal in New Zealand Tax Refunds v Brooks Homes Ltd.2

[17]     The first threshold an applicant must establish is the serious question to be tried.  The second is whether the balance of convenience in granting injunctive relief favours the applicant or the judgment creditor and the receiver. Finally, an assessment of the overall justice of the position is required as a check.

[18]     I turn then to consider all three limbs of the threshold test.

A serious question to be tried

[19]     In  filing  his  application  for  an  interlocutory  injunction  without  notice,

Mr Hannan provided an affidavit in support, but no statement of claim. The basis for his application was not outlined in a formal way for the Court’s determination.  The reason for filing his application is contained in the application, namely, that if he is successful under his defended bankruptcy proceedings, he will be able to file a claim for damages against the receiver and the judgment creditor.

[20]     On that basis alone, there is sufficient justification for declining his application. An interim injunction will not be granted, if a remedy is available in damages.3

Mr Hannan wishes to bring claims against the receiver and the judgment creditor for “irresponsible and negligent lending” and other allegations of “fraudulent receivership conduct.”

[21]     The determination of Mr Hannan’s defended bankruptcy hearing does not have any bearing on the sale of the Paddy Hannon Contracting Ltd properties.   Those

companies are in receivership and own the land, specifically 7A Waiu Street.

1      Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140.

2      NZ Tax Refunds v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12].

3      American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 408.

[22]     In his 29 May 2017 affidavit, Mr Hannan deposed that the receiver should have sold the collaterally secured properties when he filed his defence to the bankruptcy proceedings.  Mr Hannan said:

[17] It is beyond my comprehension why the judgment creditor and the receiver did not move to sell the collaterally secured properties to avoid the running up of this huge amount of debt.

[23]     There was no contest that Mr Hannan had provided a tender to purchase

7A Waiu Street but took no steps to provide the funds to do so.  Further, it was also accepted by Mr Hannan that he had been advised on a number of occasions that he could purchase 7A Waiu Street and the other properties if he wished to do so. Similarly, the same applied to his other shareholders.   Mr Whitley deposed that

Mr Hannan has not availed himself of the opportunity, despite his active participation in the tender for 7A Waiu Street.

[24]     On any view of the matter, there is no serious question to be tried. The outcome of Mr Hannan’s bankruptcy proceedings does not impact on the receiver ’s obligation to realise the assets to reduce debt.

[25]     At the hearing, Mr Hannan acknowledged that if he wished to pursue his complaints against the receiver and the judgment creditor, there were other fora in which to do so, but any resulting remedy he sought, would be a remedy in damages. There is no basis for issuing an interim injunction to stop the sale of 7A Waiu Street.

Balance of convenience

[26]     From  the  above,  it  is  plain  that  the  balance  of  convenience  favours  the judgment creditor and the receiver.  7A Waiu Street is a difficult property to sell and has been the subject of three attempts so far. Any delay in sale will likely incur further costs to recommence the sale process.  The receiver is undertaking his role to realise property to reduce debt.  It has taken some time to reach the point of a successful sale and the balance of convenience clearly favours the sale process continuing to finality.

[27]     As referred to above, the appropriate remedy for a receiver’s wrongdoing or unfairness on the part of the judgment creditor can be met in damages, which precludes the grant of injunctive relief.

Overall Justice

[28]     The overall justice assessment is a check on the position reached following the analysis of the first two limbs of the threshold test.4   I am satisfied the overall justice of the case does not require the issue of an interim injunction.

Conclusion

[29]     The threshold for an interim injunction has not been reached.   There is no serious question for this Court to try and the balance of convenience favours the judgment creditor and the receiver.  Further, the overall justice in this case does not favour issuing an interim injunction. The interim injunction application is dismissed.

Cull J

Solicitors:

Anderson Lloyd, Dunedin for the judgment creditor

4      NZ Tax Refunds, above n 2, at [47].