Glover Trust Limited v Glover Trust Corporation
[2013] NZHC 2056
•14 August 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-006931 [2013] NZHC 2056
IN THE MATTER OF Part 18 of the High Court Rules BETWEEN
THE GLOVER TRUST LIMITED, BAILEY TRUSTEE SERVICES LIMITED and AUCKLAND WEST LEGAL SERVICES LIMITED
Plaintiffs
AND
GLOVER TRUST CORPORATION
First Defendant
AND
GLOVER NO 2 LIMITED
Second Defendant
| Hearing: | 2 August 2013 |
Counsel: | J P Nolen for the Plaintiffs R C Knight and T A Chubb for the Defendants |
Judgment: | 14 August 2013 |
JUDGMENT OF DUFFY J
[Re Application to Vary Freezing Orders]
This judgment was delivered by Justice Duffy on 14 August 2013 at 2.00 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Counsel: R C Knight, Auckland
T A Chubb, Auckland Solicitors: Lowndes Associates, Auckland
GLOVER TRUST LTD and ORS v GLOVER TRUST CORPORATION and ANOR [2013] NZHC 2056
[14 August 2013]
[1] Judgment was delivered in this proceeding by Allan J on 20 March 2013: see The Glover Trust Ltd v Glover Trust Corporation Ltd HC Auckland CIV 2012-404- 6931, 20 March 2013.
[2] I heard the defendants’ application for a stay of execution of the judgment on 18 April 2013. The defendants have filed an appeal against Allan J’s judgment. Following the issuing of a Minute on 13 May 2013 in which I raised concerns about certain legal issues regarding the standing of the plaintiffs to obtain the judgment, the plaintiffs filed an application for recall of Allan J’s judgment. Whilst these various matters are in the process of being resolved, there have been new developments relating to what are described in Allan J’s judgment as the “second tranche Waimarie Street properties”. The defendants contend that these developments necessitate a variation of the “interlocutory” freezing “orders” that Allan J made on 14 March 2013. The plaintiffs dispute this.
[3] The parties were earlier agreed that I should refrain from delivering judgment on the stay of execution application until such time as the application for recall of Allan J’s judgment was determined. As yet, it has not been heard. During the course of the hearing for the variation of the freezing orders, I raised with the parties my concern over the time that had now elapsed with the stay of execution still being unresolved. The plaintiffs remain of the view that the judgment on the stay of execution should be delayed until after the recall application is determined. The plaintiffs anticipate that the recall application, if successful, will cure the concerns that I had raised about the plaintiffs’ standing to obtain the relief they had sought in regard to the second tranche Waimarie Street properties. The plaintiffs perceive this outcome as giving them an advantage when it comes to the stay of execution. The defendants now seek that I determine the stay of execution application.
[4] The issues for determination are:
(a)Whether the Court has jurisdiction to vary the freezing order after judgment has been delivered on the substantive matter;
(b)If the Court does have jurisdiction, whether it should exercise its authority to make the variation; and
(c)Whether the Court should continue to delay delivering judgment on the stay of execution application?
Jurisdiction
[5] I am satisfied that the Court has jurisdiction to vary the freezing order, despite judgment on the substantive matter having been delivered. In Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers 2011) at [7.1.12], the author states that a freezing order is not purely interlocutory and will normally be expressed to continue until further order of the Court. The author also
states that it will be discharged with the dismissal of the proceeding, but not necessarily otherwise. The author acknowledges that it will be rare for a freezing order to be sought or required after judgment, as the judgment creditor has rights under r 17.42 of the High Court Rules to issue a charging order without further leave, and has access to all other means of enforcement provided by the rules. But the author then notes that there are instances historically where orders of like or similar effect have been made after delivery of the judgment, citing Goh v Xygalas HC Wellington CP358/98, 26 February 1999; Deutsche Schachtbau-Und Tiefbohrgesellschaft mbH v R’As Al Khaimah National Oil Company [1987] 2 All ER 769 (CA) and Camdex International Ltd v Bank of Zambia (No 2) [1997] 1 WLR 632 (OA).
[6] In Camdex International, Phillips LJ, in relation to a Mareva injunction, said at 639:
A Mareva can properly be granted after judgment in circumstances, which must be rare, where this is necessary to prevent the removal or dissipation of an asset before the process of execution can realise the value of that asset for the benefit of the judgment creditor.
[7] The plaintiffs argued that since the substantive matter has been determined, this Court now has no jurisdiction to interfere with the freezing order granted by Allan J. They referred me to r 7.49, which deals with when an interlocutory order
may be varied, and to the note in McGechan on Procedure at [HR7.49.10] that an interlocutory decision is spent once a final decision has been made on the substantive proceeding. They also referred me to the case law cited in support of the commentary in [HR7.49.10]: see Re Rakich ex parte Wrightson NMA Ltd B25/89, 16 November 1989 and Ryde Holdings Ltd v Sorenson (1995) 8 PRNZ 339 (HC). However, those cases deal with different issues.
[8] In Rakich, Henry J refused to rescind an order for adjudication under the Insolvency Act 1967; the refusal appears to me to turn on the language of that Act. In Ryde, Fisher J was faced with an argument that he had no jurisdiction to set aside a consent order providing for a dispute to be determined by an arbitration regime with rights of appeal to the courts. In finding that he did have jurisdiction to set the consent order aside, Fisher J stated at 344 that:
... in procedural matters the Court retains an implied or inherent jurisdiction to continue to control its own procedures until it reaches the point that a substantive judgment is given finally determining the parties’ rights.
By this statement, I understand the Judge to do no more than to state the scope of the jurisdiction available to him when it came to the setting aside of the consent orders.
[9] I note that at [56] of the substantive judgment, Allan J has referred to the freezing order as an “interlocutory freezing order”, which might suggest that the order he made was limited to applying until delivery of judgment on the substantive matter. On the other hand, it is clear from [56] that he saw the freezing order having a continuing effect after the delivery of his judgment. I consider that his reference to the freezing order as being interlocutory was an inadvertent mistake on his part. It is clear from r 32, from the text Civil Remedies in New Zealand and from the authorities referred to therein that a freezing order is not an interlocutory order. I do not think, therefore, that simply by describing the order he had made as an interlocutory order that Allan J can be understood to have limited the effect of the order.
[10] The case law makes it clear that a freezing order will only be granted after judgment in rare circumstances. This seems to me to be an issue that goes to the
merits of whether the authority will be exercised, rather than to place a limit on the scope of the authority.
Should the freezing order be varied?
Procedural history
[11] Here, it is the unsuccessful defendants who seek the variation of the freezing order, and they do so in a way that might be seen to advantage them over the plaintiffs. Ordinarily, such circumstances would never be thought to warrant the making of the order sought. However, the circumstances of this case are very unusual.
[12] As recorded by Allan J at [56] of his judgment, this is a case where the second defendant has raised funds of $500,000 from Southern Cross Finance Ltd (SCFL) on the security of a mortgage over the second tranche Waimarie properties. When the plaintiffs discovered this, they sought the freezing order to prevent the plaintiffs from dealing with the funds secured by the mortgage (the funds). Since the order was made, access to the funds, which had been deposited in the second defendant’s bank account, has been frozen.
[13] The freezing order was made without notice. Allan J made provision for the defendants to have an urgent hearing to determine if it should be set aside. No such step was taken. Even at the time the stay of execution was heard, the defendants were saying that they were not seeking to disturb the freezing order. Matters have now changed.
[14] Since the freezing order was made, the defendants say that they have not been able to access funds to service the mortgage. It is now in arrears. The plaintiffs contend that the defendants have sufficient funds available to them to meet the obligations under the mortgage and so they have no need to draw on the frozen funds. They also contend that the defendants acted unlawfully when they secured the funds against the second tranche Waimarie properties. I am not in a position to make any determination on the papers regarding these conflicts of evidence.
However, it is clear to me that, for whatever reason, the mortgage is not being serviced. Further, on 12 June 2013, SCFL issued notices under the Property Law Act 2007, which were served on 25 June 2013, seeking payment of $25,695.94 in arrears and related fees. Thus, there has been a deterioration regarding the secured debt. There is no indication that this will improve in the short term.
[15] The mortgage secures a genuine bona fide debt. There is no suggestion that SCFL has colluded with the defendants or is in any way partial to them and so seeking to give them an advantage. Whilst the plaintiffs may have grounds for complaint regarding the acts of the second defendant in securing the borrowed funds against properties that were the subject of legal action by the plaintiffs, SCFL did not know this. It has every right to rely on its legal rights under the mortgage.
[16] The defendants have approached the plaintiffs’ solicitors to see if they would consent to a variation of the freezing order to enable the frozen funds to be accessed from the defendants’ bank accounts to pay the mortgage arrears. The plaintiffs will not agree to this. Apart from the arrears specified in the Property Law Act notices, ongoing arrears are accruing since the date of the notice down to the present time. There are also ongoing monthly interest payments of $3,337.50.
Relevant evidence and findings
[17] Gregory Olliver is a settlor of the Glover Trust, a trustee of the Glover Trust and a sole director of Glover Trust Ltd. He has deposed that he is authorised to give evidence on behalf of the plaintiffs in opposition to the application to vary the freezing orders. On behalf of the plaintiffs, Mr Olliver has said in his affidavit, dated 31 July 2013, at [27] that:
I remain firmly of the view that, if the stay application is not determined in the near future, or if a stay is granted pending the appeal the bank will take steps to sell the CIT properties. As I have detailed in my affidavit for the stay hearing, this is likely to result in a sale at a substantially reduced value from what may otherwise be achieved.
By his reference to the CIT properties, he means the Waimarie second tranche properties.
[18] Thus, whilst the plaintiffs are not agreeable to the frozen funds being used to satisfy SCFL’s demands, Mr Olliver does recognise that if the present situation continues, there is a real risk that the second tranche Waimarie properties will be sold at mortgagee sale, which is likely to result in a lower value being achieved than if they were sold otherwise.
[19] The parties to this dispute recognise that the persons having a competing legal interest in the Waimarie second tranche properties are the second defendant and a registered company, CIT Holdings Ltd. Allan J’s judgment records that before legal ownership of those properties was transferred to the second defendant, the registered owner was CIT Holdings Ltd. Allan J found that when these properties passed to the second defendant, they were also subject to a bare trust for CIT Holdings Ltd. He also found that under the deed of trust, CIT Holdings Ltd could request the return of the properties. This, in part, is why he made an order that the second defendant return the properties to CIT Holdings Ltd.
[20] As a registered company, CIT Holdings Ltd has a separate legal personality and it stands apart from its shareholders. It was not a party to the proceeding heard by Allan J. Following the query I raised in the Minute of 13 May 2013 relating to the standing of the plaintiffs to make a claim for the transfer of the Waimarie second tranche properties, the plaintiffs have responded by seeking a recall of Allan J’s judgment. They have not sought to answer the concerns I raised with legal argument to allay those concerns. Instead, they have taken action (by the recall application) that will involve an attempt to join CIT Holdings Ltd as a plaintiff at this late stage. Their conduct suggests to me that they accept that CIT Holdings Ltd either was, or may be the proper plaintiff when it comes to a claim for the return of the Waimarie second tranche properties. In the meantime, the defendants are pursuing their appeal against the judgment of Allan J.
[21] Behind the various entities for each opposing group in this proceeding are Mr Olliver (plaintiffs) and Ms Sparks (defendants), who is the estranged wife of Mr Olliver. While a married couple, they enjoyed the benefit of a complex set of arrangements that organised their wealth in a way that best preserved it from the demands of others. They are now involved in a relationship property dispute. In the
context of a civil proceeding in this Court involving legal entities that either Mr Olliver or Ms Sparks have an interest in, I am not prepared to look through the separate legal character of those entities and treat what is before me as simply a dispute between Mr Olliver and Ms Sparks. This Court is obliged to give proper recognition to the legal character of the persons, natural and corporate, that appear before it.
[22] Further, there is unchallenged evidence from Ann Dew, an accountant with knowledge of the parties’ financial transactions, that CIT Holdings Ltd was advanced the sum of $3,655,000 by the trustees of the Waimarie Trust. Subsequently, in 2012, a part payment of $342,100 was made, leaving the balance outstanding of
$3,312,900. By a deed of novation, the assets of the Waimarie Trust were transferred to the second defendant. Thus, the advance of $3,312,900 is now an asset of the second defendant. It follows that any loss that CIT Holdings Ltd suffers as a result of the variation to the freezing orders as sought by the second defendant may be offset against the advance of $3,312,900.
[23] The plaintiffs sought to argue that the advance was in fact a capital contribution that the second defendant had made under the terms of a joint venture, rather than an advance by way of loan to CIT Holdings Ltd. The difficulty the plaintiffs face in this respect is that Ms Dew’s affidavit was filed in this Court on 22 March 2013 in opposition to the original freezing order. The plaintiffs have filed no evidence to challenge what she says. Their counsel referred me to the joint venture agreement, which was in evidence for the stay of execution hearing. The joint venture agreement is not between the second defendant and CIT Holdings Ltd. Whilst the second defendant was obliged to make a capital contribution under the joint venture agreement, I am not prepared to treat this obligation as something that alters the character of the advance that Ms Dew has referred to in her affidavit.
[24] The plaintiffs’ counsel sought to place before me an opinion in the form of a letter from someone at PricewaterhouseCoopers to explain the connection between the advance to CIT Holdings Ltd and the capital contribution that was made under the joint venture agreement. The defendants objected to me accepting this evidence from the bar. First, they said that there had been ample time since Ms Dew’s
affidavit was filed for the plaintiffs to file evidence to challenge her evidence. They had not done so. Secondly, to accept new evidence from a party opposing an application in the course of the hearing removes from the applicant the opportunity of filing evidence in reply. Thirdly, the opinion attempted an explanation of the joint venture agreement that the plaintiffs sought to rely upon. The joint venture agreement is a legal document and the Court can interpret its effect. Thus, I saw no basis for accepting the new evidence from the bar and refused to do so.
Analysis
[25] As matters stand, the defendants seek to gain access to the frozen funds to rectify the mortgage arrears and prevent further arrears. They claim through their appeal that Allan J has erred and that they are the rightful legal owner of the Waimarie second tranche properties. They are concerned, therefore, to prevent loss of these properties through a mortgagee sale.
[26] The party that Allan J has found to be entitled to the Waimarie second tranche properties has not been heard. It did not attempt to intervene for the purpose of informing the Court of its stance on the variation of the freezing order, even though properties that Allan J has found should be returned to it are now at risk of mortgagee sale.
[27] Mr Olliver, for the plaintiffs, has acknowledged in his evidence that there is a risk a mortgagee sale will take place if the mortgage remains in arrears and that if this is so, the properties are likely to sell at undervalue. Thus, the risk for CIT Holdings Ltd of a mortgagee sale eventuating and the Waimarie second tranche properties being sold at a “substantially reduced value” is not disputed by the plaintiffs.
[28] In circumstances where the risk of a mortgagee sale eventuating and leading to loss for those having an interest in the subject properties is acknowledged by all concerned, I consider that it is better to alleviate this risk, rather than to let it continue. Release of frozen funds that have been secured against the Waimarie second tranche properties will be detrimental to the interest of CIT Holdings Ltd.
But the greater detriment to the company’s interest will come from a mortgagee sale of these properties. Further, to sit back and allow arrears to continue to accrue, which will necessarily include penalty interest and costs related to the SCFL taking steps under the mortgage to protect its interests, will also damage the interests of CIT Holdings Ltd. Looked at objectively, I consider that it is in the interests of CIT Holdings Ltd, and of the second defendant for the freezing order to be varied to allow for the arrears to be paid and for ongoing payments to be kept up to date. This is particularly appropriate given that CIT Holdings Ltd may offset any loss against the advance by the trustees of the Waimarie Trust.
Conclusion
[29] I propose to vary the freezing order to allow the frozen funds to be used to pay SCFL. However, I do not propose to make the variation on the conditions as sought by the second defendant, which would have the funds being accessible until the appeal was heard. Instead, I make the following orders:
(a)The sum of $25,695.94 is to be released from the second defendant’s bank account for payment to SCFL;
(b)Any additional arrears that SCFL gives written notice of are to be released from the second defendant’s bank account for payment to SCFL. A copy of the written notice is to be served on the plaintiffs by the second defendant and filed in Court;
(c)The monthly sum of $3,337.50 is to be released from the second defendant’s bank account for payment to SCFL;
(d)Payment is to be by way of bank cheque made payable to SCFL and to be conveyed by the second defendant’s solicitors to SCFL;
(e)The release of funds to meet obligations under the SCFL mortgage is to continue until the recall application is heard and determined, or until further notice of the Court, whichever is the sooner;
(f)Leave is reserved to the parties to return to Court on any matters arising from the variation of the freezing order, as a matter of urgency; and
(g)Subject to the express variations made herein, the terms and conditions of the freezing order made on 14 March 2013 remain in force.
Stay of execution
[30] The plaintiffs contend that the present delay in delivering judgment on the stay of execution (which each group of parties initially wanted) operates as a de facto stay of execution. For this reason, the plaintiffs contended that there was no need to go the further step and deliver judgment at this time. They would prefer that judgment is delayed until the recall application is dealt with. They anticipate that the outcome is likely to be favourable for them if the recall is granted and CIT Holdings Ltd is added as a party to the proceeding, with Allan J then issuing judgment on the same terms as originally.
[31] The second defendants now seek to have their stay of execution application determined. No one wants a second hearing to deal with the merits of the application, should CIT Holdings Ltd be jointed as a plaintiff to the proceeding. That is why delaying giving judgment has been seen to be advantageous to everyone. On the other hand, when I issued the Minute on 13 May 2013, I did not envisage the delay of delivery of judgment on the stay continuing for this length of time. I consider that matters cannot be left in limbo for any longer.
[32] I consider that it is open to me to deliver an interim judgment on a single issue, with leave reserved to the parties to return to Court on the remainder, should a decision on those issues be required.
[33] I consider that until the question of standing is resolved, and the question of whether it is now possible to join CIT Holdings Ltd as a plaintiff to the proceeding is determined as part of the recall application, that the judgment delivered on 20 March
2013 should not be executed. Whilst these matters are outstanding, it is better if the status quo is preserved. Any further change at this time may make untangling the procedural complexities that currently exist more difficult. Accordingly, for that limited reason, the stay of execution is granted. I expressly reserve for further consideration any determination of the merits of arguments that the plaintiffs and defendants advanced at the hearing on 18 April 2013. Once the recall application is dealt with, the parties can, if they so wish, apply to have the Court determine the outstanding arguments regarding the stay of execution.
Result
[34] The freezing order made on 14 March 2013 is varied, as stated in [29] herein.
[35] The stay of execution of the judgment of Allan J delivered on 20 March 2013 is granted.
Duffy J
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