Gibbston Downs Wines Limited v Perpetual Trust Limited HC Christchurch CIV 2010-409-1716
[2010] NZHC 1495
•25 August 2010
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2010-409-001716
BETWEEN GIBBSTON DOWNS WINES LIMITED RFD FINANCE NO 2 LIMITED Plaintiffs
ANDPERPETUAL TRUST LIMITED First Defendant
ANDJOHN MAURICE LEONARD PAUL GRAHAM SARGISON Second Defendants
Hearing: 24 August 2010
Appearances: A J Forbes QC and K W Clay for Plaintiffs
Mr Vautier for First Defendant
No appearance for Second Defendants
Judgment: 25 August 2010
ORAL JUDGMENT OF HON. JUSTICE FRENCH
Introduction
[1] The second defendants, Mr Leonard and Mr Sargison, are the receivers of the personal property of a company called Anthem Holdings Limited. They were appointed receivers by the first defendant, Perpetual Trust Limited. Perpetual holds security over Anthem Holdings’ present and after-acquired personal property under a general security agreement. The receivers are currently in the process of selling Anthem Holdings’ wine stocks.
[2] The plaintiffs, Gibbston Downs Wines Limited and RFD Finance No 2
Limited, are not satisfied the sales are being conducted at a fair sale price. They
GIBBSTON DOWNS WINES LIMITED AND ANOR V PERPETUAL TRUST LIMITED AND ORS HC CHCH CIV-2010-409-001716 25 August 2010
claim to have a prior security interest to that of Perpetual and have filed a statement of claim seeking to have that recognised by way of formal declaration.
[3] In the meantime, they have applied for an interim injunction effectively seeking to halt all wine sales and prevent the distribution of any sale proceeds pending the substantive hearing.
Factual background
[4] The application is made against the following factual background.
[5] In April this year I issued a judgment declaring that the wine stocks in question were the personal property of Anthem Holdings and that the receivers, Messrs Leonard and Sargison, were entitled to immediate possession of the wine and to sell it.
[6] Anthem Holdings is part of a group of companies owned and controlled by Christchurch property developer, Mr David Henderson. The applicant companies, Gibbston Downs Wines and RFD Finance No 2 Limited are also owned and controlled by Mr Henderson.
[7] In the earlier proceedings, Mr Henderson claimed the wine belonged not to Anthem Holdings, but rather to Gibbston Downs Wines, which he asserted had sold it to another of his companies, Anthem Wine Company Limited. I rejected that claim, finding the evidence of there having been an alleged sale by Gibbston Downs Wines to be lacking in credibility.
[8] Following my decision in April 2010, the receivers duly took delivery of the wine and started selling it.
[9] On 5 August the plaintiffs, Gibbston Downs Wines and RFD Finance No 2
Limited, issued the current proceedings, contending that they, not Perpetual, hold the first ranking security interest over Anthem Holdings and that they and not the receivers are entitled to possession of the wine and to sell it.
[10] In order to explain the basis for this contention it is necessary to go back in time to 2005.
[11] According to Mr Henderson’s affidavit evidence, in March 2005 Anthem Holdings entered into a loan agreement and a general security agreement with a finance company, Propertyfinance Securities Limited.
[12] Mr Henderson says the plaintiffs have been unable to find a copy of either agreement. However, Mr Henderson has produced a copy of a letter from Propertyfinance to his solicitors in 2005 recording the terms of the loan offer and referring to the fact that a general security agreement described as being in the ADLS form 6301 was required. ADLS form 6301 is a standard all obligations agreement which, if it was the document signed, would cover all debts owed by Anthem Holdings to the secured party.
[13] Mr Henderson has also produced two other documents. One is a letter from his solicitors dated 30 March 2005 to Propertyfinance purporting to enclose the signed loan documents. The other document is a solicitor’s trust account ledger showing an advance of $906,000 from Propertyfinance to Anthem Holdings on the relevant date.
[14] There is also evidence of the Personal Property Securities Register at the relevant time. It shows Propertyfinance as the first registered security holder, the financing statement having been registered on 31 March 2005 and with an expiry date of 31 March 2010.
[15] In April 2006, Anthem Holdings obtained additional finance from Capital + Merchant Finance Limited. Capital + Merchant registered its financing statement on
3 April 2006, the expiry date being 3 April 2011. It was apparently a condition of the loan contract that Anthem Holdings provide Capital + Merchant with a first ranking general security agreement. As at 3 April 2006, however, the general security interests of Capital + Merchant were of course subject to the prior Propertyfinance interest.
[16] In November 2006 this changed when Propertyfinance agreed to subordinate its general security interest to that held by Capital + Merchant, and so become second ranking. The only written record of the subordination agreement before the Court is an email exchange between Anthem Holdings’ solicitors and the solicitors acting for Capital + Merchant, together with a fax cover sheet enclosing a verification statement.
[17] The email exchange reads:
From: Grant Smith
Sent: Tuesday, 14 November 2006 9:20am
To: Colin Girven
Subject: Anthem Holdings Limited
Importance: High
Dear Colin.
We have received advice that propertyfinance securities limited is willing to become second security holder behind capital & merchant. Please forward us the necessary documents.
Grant Smith
From: Colin Girven
Sent: Thursday, 16 November 2006 09:44
To: Grant Smith
Subject: RE: Anthem Holdings Limited
Hi Grant,
My view is that all that the prior registered party has to do is register a financing change statement, subordinating its charge to CM’s financing statement FM2AU7906XS91756.
Can you ask Property Finance Securities Limited (is that their name?) to attend to that asap, and let me know when they have done so.
Alternatively, to save you time and effort, perhaps you can let me know who
I should be dealing with and I shall follow it up directly.
Regards and thanks for your help. Colin Girven
[18] Significantly for present purposes, the verification statement shows the date of subordination as being 28 November 2006 and the subordination expiry date as 31
March 2010.
[19] Capital + Merchant transferred its interest under the general security agreement to Perpetual the following day.
[20] At some stage Anthem Holdings repaid the 2005 Propertyfinance loan, but in December 2006 Propertyfinance advanced further monies to Anthem Holdings. The loan agreement relating to the December 2006 Propertyfinance advance has been produced. It describes the security for the loan as including “all other existing and future securities granted by the borrower to the lender”.
[21] The next significant event was in November 2007, when Propertyfinance transferred its rights under the loan and general security agreement to Propertyfinance Funding Nominees Limited and others.
[22] There matters stood, until Anthem Holdings defaulted on its loans and in
August 2008 Perpetual appointed Messrs Sargison and Leonard as receivers.
[23] The dispute then arose about the ownership of the wine, which led to the receivers issuing the earlier proceedings in 2009.
[24] As I have already mentioned, Propertyfinance’s financing statement had an expiry date of 31 March 2010. On 28 January 2010 (ie while the receivers’ proceedings about the ownership of the wine were still in train) registration of Propertyfinance’s interest was renewed for a further five years. The financing statement effecting renewal refers to the subordination and shows it with its expiry date still at 31 March 2010.
[25] According to Mr Henderson’s evidence, on 19 July 2010, several months after my decision was delivered, Propertyfinance Funding sold its interest in the loan and general security rights to the plaintiffs pursuant to a written sale and purchase
agreement. Propertyfinance Funding then registered a financing change statement, changing the name of the secured party to the plaintiffs.
[26] The plaintiffs’ case is that by July 2010 the subordination agreement with Capital + Merchant, and hence its assignee Perpetual, had expired, restoring the Propertyfinance interest, now assigned to the plaintiffs, as the first ranking security holder. As a result, the plaintiffs say, it is they who are entitled to possession of the wine and to sell it. They are motivated to bring these proceedings because of the belief they can secure a significantly better price for the wine than the receivers are currently achieving, and secondly because if they are in charge of selling the wine they will deduct only the direct costs of sale, whereas the receivers are likely to deduct the cost of the receivership as a whole.
[27] As at today’s date, a significant portion of the wine stocks has been sold. There is approximately $100,000-worth of wine still unsold, a quantity of wine that has been sold but not yet delivered to the purchasers in question, as well as some sale proceeds as yet undisbursed.
[28] The application for an interim injunction seeks:
1.1An interim injunction restraining the defendants by themselves, their servants or agents from removing, selling or otherwise disposing of the wine of Anthem Holdings Ltd held at the premises of VinPro Limited or at Maude Vineyard without the agreement of the parties hereto or further order of the Court.
AND
1.2An interim injunction that any proceeds of sale from settled sales of the wine set out in order 1.1 herein be held in the receivers’ solicitors’ (Keegan Alexander) trust account and are not to be distributed or otherwise disposed of until further order of the Court.
[29] The application for injunctive relief is strongly opposed by Perpetual.
[30] For their part, the receivers abide the decision of the Court. Mr Sargison has, however, sworn an affidavit in which he states there is a real risk of the wines deteriorating in quality, which will adversely affect the price recoverable if the receivers are restrained from continuing to sell the wine. Apparently the wine is
over-oaked in the barrels because it has been left there too long. Mr Sargison also says there is a risk of Perpetual sales being lost if the receivers are unable to conclude arrangements for sale and delivery as a matter of urgency.
[31] When this application was first called I allocated a fixture date but declined to make an interim interim order pending the hearing. My reasons for making that decision were:
i)The absence of the critical 2005 documentation. At that time the documents I have mentioned earlier had not been filed by Mr Henderson.
ii)The absence of any evidence of the worth of the plaintiffs’ undertaking as to damages. As noted in my minute, evidence given in the earlier proceeding suggested that the undertaking at least of Gibbston Downs Wines may be worthless.
iii) The fact of there being an ongoing process and existing sale.
The principles relating to the granting of interim injunctions
[32] It is well established that in considering an application for an interim injunction the Court should have regard to:
a) Whether the plaintiff can show there is a serious question to be tried. b) The balance of convenience between the parties.
c) The overall justice of the case.
[33] The balance of convenience has often been described as the balance of the risk of doing an injustice. The Court is required to balance the injustice that will be caused to Perpetual if the injunction is granted as against the injustice to the plaintiffs if the injunction is not granted.
[34] In determining where the balance of convenience lies, the factors to which the Court usually has regard are:
a) the adequacy of damages for both parties;
b) the status quo;
c) the relative circumstances of the case;
d) the relative strength of each party’s case;
e) the effect on innocent third parties;
f) the conduct of the litigants.
Arguable case or serious question to be tried
[35] In my view, the absence of the 2005 loan agreement and general security agreement is not fatal to the plaintiffs’ case, at least in terms of whether there is a serious question to be tried. It must be arguable that the written material which Mr Henderson has produced in his second affidavit is sufficient to evidence a security agreement and a security interest. It is most unlikely that Propertyfinance would have advanced the monies without the requisite documentation being in place.
[36] The key issue at the substantive hearing is likely to centre on what were the terms of the subordination agreement, in particular whether its expiry date was 31
March 2010.
[37] At this preliminary stage I do not have the benefit of any evidence regarding the background or factual matrix to the subordination agreement. All that is before me is the email exchange, the fax cover sheet and the verification agreement. There is no record of any agreement or understanding that the subordination would only subsist for a fixed period of time. Nor is there any agreement it would not.
[38] Under s 159 of the Personal Property Securities Act, it was not necessary for the subordination to be registered. However if a subordination is registered, the regulations require that the statement must specify an expiry date and that the expiry date so specified must be the same as the earlier date of the two financing statement expiry dates. That could explain the date of the 31 March 2010 which, it will be remembered, was the date registration of Propertyfinance’s interest expired.
[39] In the absence of evidence of any reasons why Capital + Merchant would have agreed to a term of only four and a half years, I consider it highly unlikely they would have done so. In my view it is much more likely that it was intended and always understood by both parties that the subordination would endure. If that is the correct position then I consider the subordination agreement and its terms would be binding on the plaintiffs as the assignees of Propertyfinance. However, while I consider it unlikely there was an agreed expiry date of 31 March 2010, I accept on the basis of the material before me that it must undoubtedly be arguable. It follows that in my view the plaintiffs definitely satisfy the threshold of there being a serious question to be tried.
The balance of convenience and overall justice
[40] In support of the argument that the balance of convenience favours them, the plaintiffs argue:
i)That damages will not be an adequate remedy because the wine market is constantly changing and there will be difficulties of quantification.
ii)The interest of innocent third parties will be adversely affected. It is submitted that if an injunction were not to be granted, purchasers who buy from the receivers will be exposed to the possibility of not receiving clear title, there being some doubt as to whether a sale by a receiver of inventory is in the ordinary course of business. The plaintiffs, it is said, could take action to register and enforce their
security against purchasers. The spectre has also been raised of the plaintiffs appointing their own receiver, which in turn could lead to yet further litigation.
[41] I have very carefully considered these submissions. The interests of innocent third parties is a matter that generally weighs heavily with the Courts. However, I have come to a clear conclusion that the balance of convenience and overall justice is against the issuing of an interim injunction.
[42] I have come to that conclusion for the following reasons.
[43] First, in my view, the difficulties of quantifying the value of the wine are overstated. Damages will be an adequate remedy, and as between the parties, it is Perpetual and the receivers that are able to meet a damages award, whereas the plaintiffs are clearly not. Despite my requiring evidence of the worth of the plaintiffs to sustain their undertaking as to damages, none has been provided. I infer that their undertaking is worthless.
[44] Mr Henderson states that his solicitors are holding the sum of $20,000 in their trust account in the name of another of his companies, SCV Limited, which he is prepared to make available to support the plaintiffs’ undertaking. This, however, does not alleviate my concerns, not least of all because of the lack of any information about SCV and its relation to the plaintiffs, but also, more importantly, because
$20,000 is on anyone’s view of it inadequate.
[45] By virtue of s 19 of the Receiverships Act 1993, the receivers are already under a statutory obligation to obtain the best price for the wine that is reasonably obtainable. Further, if the plaintiffs believe they can obtain higher prices, they are always able to provide details of the buyers to the receivers and so minimise any potential loss or damage. There is evidence that the receivers have in fact requested that information, but Mr Henderson has either refused or failed to provide it.
[46] Certainly Mr Henderson has produced copies of invoices showing sales of
Anthem wines by other entities in 2010 to support his claim that better prices can
and should be obtained. On the other hand, in July 2010 emails he also claimed to have found a buyer for all of the wine and to have negotiated a sale at prices double those being obtained by the receivers. Yet absolutely no evidence about this or the identity of the buyer has been provided.
[47] That is one of several concerning aspects of the plaintiffs’ application.
[48] Obviously significant allowance must be made for the exigencies of an injunction application. However, there are some notable omissions or gaps in the evidence.
[49] First, there is no evidence as to what searches have been made for the missing
2005 documentation.
[50] Secondly, both Mr Henderson and his solicitors were involved in the critical
2005 and 2006 transactions. According to the affidavit from Propertyfinance’s managing director, Mr Queen, it was Mr Henderson who made the request for subordination. Yet Mr Henderson’s affidavit is silent as to the circumstances in which subordination was sought and the reasons for it, and does not even address the key issue of the period of the subordination other than to produce a copy of the financing statement. Moreover, there is no affidavit from his solicitor, who was personally and actively involved in the negotiation of the subordination agreement.
[51] There is, as I have said, an affidavit from the managing director of Propertyfinance Securities. However, curiously, he does not address the key issue of the period of subordination – all he says is that he did not see that PFS was obtaining any benefit from agreeing to the subordination, nor was it sustaining any prejudice, because he understood that Anthem Holdings did not own any personal property.
[52] Another significant omission is the absence of any evidence about the circumstances in which the registration of the security came to be renewed on 28
January 2010.
[53] Another matter telling against the issue of injunction is delay.
[54] Mr Forbes fairly points out that the plaintiffs only acquired their security interest in July 2010 and that there has been no delay since July. However, if Mr Henderson and his solicitors truly believed or understood that the subordination agreement expired in March 2010, then there is an argument for saying they should have raised it well before July. After all, as I have said, Mr Henderson and his solicitors were instrumental in the original loan and general security agreements as well as the subordination agreement. They also knew of the appointment of the receivers in August 2008. There are matters that must be peculiarly within their knowledge.
[55] As for the position of third parties, I am not persuaded that the risk to third parties is an appreciable or realistic one. If the plaintiffs were to carry out their threatened action, I consider that would be contrary to their own interests and something they are unlikely to do. There is some force in Mr Vautier’s submission that these are idle threats. In any event, even if I am wrong on that, I consider that in this case they are outweighed by all the other factors I have mentioned.
[56] I have considered whether an injunction permitting the receivers to continue selling but on terms would be the most just and appropriate solution. The terms could include giving Mr Henderson an opportunity to find a better price, and also requiring the sale proceeds to be frozen. Such a solution would certainly address the problem of the deteriorating wine and so reduce the amount of the loss to which the receivers would be exposed if an injunction were granted but later found unjustified.
[57] However, even if an injunction on terms were to be issued, the receivers will still be exposed to loss. Mr Vautier estimated this to be as much as $100,000 excluding costs. While I consider that to be an exaggerated figure, I accept that the potential loss would still be significant and that $20,000 would not provide adequate protection.
[58] There is no certainty as to when the substantive hearing can be held, especially given that it will apparently require a three-day hearing. There is likely to be significant delay. That, plus the fact the case of the plaintiffs is not strong, means there is a very real risk in my view of the receivers being exposed to significant,
irretrievable loss. That would be coming on top of an already protracted and expensive battle about the ownership of the wine.
[59] Standing back and looking at the case overall, my view is that the interests of the plaintiffs will be adequately protected by an award of damages if their claims are later upheld. The converse, however, is not true, and on balance my view is that it would be wrong now to interfere with a process that has been validly pursued for some considerable time.
[60] For all of the reasons I have traversed, the application for an injunction is accordingly dismissed.
[61] I direct that the file now be referred to the Associate Judge for a case management conference so that timetabling directions can be put in place for the substantive hearing.
[62] Finally there is the issue of costs. My provisional view is that these should be reserved and await the outcome of the substantive hearing. However it is a provisional view only, and if counsel hold different views and seek an award, Mr Vautier is to file submissions, with Mr Forbes having an opportunity to file any reply argument within five working days.
Solicitors:
Cousins & Associates, Christchurch
A J Forbes QC & K W Clay, Christchurch
Glaister Ennor, Auckland
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