GLW Group Limited v Lepionka & Company Investments Limited
[2017] NZHC 491
•17 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2015-404-2168 [2017] NZHC 491
BETWEEN GLW GROUP LIMITED
First Plaintiff
GARTH BOWKETT PATERSON Second Plaintiff
AND
LEPIONKA & COMPANY INVESTMENTS LIMITED First Defendant
LEPIONKA & COMPANY LIMITED Second Defendant
STEFAN JOZEF JOHN LEPIONKA and
NIGEL WARREN HUGHES Third Defendants
Hearing: 10 February 2017 Appearances:
D W Grove for Plaintiffs
M G Colson and M J Tingey for First DefendantJudgment:
17 March 2017
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 17 March 2017 at 1 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Solicitors: Foy & Halse, Auckland
Bell Gully, Auckland
Counsel: D W Grove, Auckland
M J Tingey, Auckland
GLW GROUP LTD v LEPIONKA & COMPANY INVESTMENTS LTD [2017] NZHC 491 [17 March 2017]
[1] On 6 March 2017 I issued a results judgment in respect of some of the relief sought by the first plaintiff (“GLW”) in its application for interim relief against the first defendant (“LCIL”).1 This judgment gives my reasons for those decisions and determines the other relief sought.
Introduction
[2] GLW is the registered proprietor of 21.6 hectares of land in Hawkes Bay, being Lot 7, DP491023, CT 716653 (“land”). The land is the balance of a larger parcel of approximately 25 hectares which GLW purchased in October 2009, and is subject to a scheme of subdivision.
[3] LCIL has been in possession of the land as mortgagee since March 2015, when it took an assignment of Westpac’s first mortgage of the land following a default under the mortgage by GLW.
[4] Mr Stefan Lepionka is LCIL’s sole director and shareholder. Mr Lepionka is also associated with the second and third defendants (“Lepionka company”, “the trustees” and together the “Lepionka purchasers”). Mr Lepionka is a director and shareholder of the Lepionka company and is one of the third defendants, as a trustee of the Lepionka Family Trust. The Lepionka purchasers entered into agreements with GLW in January 2014, pursuant to which GLW agreed to sell and they agreed to purchase lots in the subdivision and in respect of which they paid GLW deposits totalling $463,000 (“Lepionka agreements”).
[5] LCIL adopted the Lepionka agreements shortly after taking the assignment of Westpac’s mortgage.2 The parties have been in dispute since. In the course of determining this application, I have read decisions of this Court in GLW Group Ltd v Lepionka & Company Investments Ltd and Lepionka & Company Investments Ltd v
Horseshoe Bend Hawkes Bay Ltd; and the Court of Appeal’s decision in Coltart v
1 Amended Interlocutory Application by First Plaintiff on Notice of Injunctive Relief dated
23 December 2016.
2 Property Law Act 2007, s 179.
Lepionka & Company Investments Ltd.3 All of these involve one or more of the parties and traverse the background to events.
[6] The plaintiffs, GLW and Mr Paterson, commenced this proceeding in September 2015. There is to be a two week trial commencing 17 July 2017. A critical issue at that trial will be whether the Lepionka purchasers are entitled to enforce their agreements. That is likely to be affected by the Court’s finding as to the date on which LCIL adopted the Lepionka agreements and, in particular, whether it was before or after GLW gave notice of intention to redeem the mortgage, and whether LCIL has acted in good faith as mortgagee. There will also be an issue as to the quantum of the debt that LCIL is entitled to recover.
[7] GLW filed its (original) application for interim relief in November 2016.4
The most significant orders sought by GLW were/are, first, that the defendants refrain from settling the Lepionka agreements and, secondly, that the land be sold to a third party on terms described below, or sold by the Registrar of the High Court.
[8] The defendants did not object to the first, so I made an order to that effect on
6 March 2017.5 However, they did object to any sale of the land now, on the ground that it would preclude the Lepionka purchasers enforcing their agreements and thus predetermine the most significant point in the trial which is only months away. I accepted that submission for the reasons given below, and thus declined to make the order sought.
Application for interim relief
[9] GLW also sought orders:
(a) requiring LCIL to retain the proceeds of any sale, subject to any disbursements to be agreed;
3 GLW Group Ltd v Lepionka & Company Investments Ltd [2016] NZHC 3125; Lepionka & Company Investments Ltd v Horseshoe Bend Hawkes Bay [2016] NZHC 2318; and Coltart v Lepionka & Company Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36.
4 GLW filed an amended application as referred to in footnote 1 above.
5 GLW Group Ltd v Lepionka & Company Investments Ltd [2017] NZHC 347.
(b)restraining LCIL from disposing of or further encumbering the land or borrowing or incurring further costs relating to the land; and
(c) various orders in respect of what is referred to as Lot 4.
[10] For the sole purpose of determining this application, the defendants accept that there is a serious issue to be tried.
Land
[11] As I have said, the land in issue is the balance of a larger parcel purchased in October 2009. Some of the original parcel has been sold. The present position is as follows.
[12] First, what are referred to as Lots 1, 2 and 6 have been sold. EHNP Nominees Limited (“EHNP”) is the registered proprietor of Lot 1, Tuki Tuki Limited (“Tuki Tuki”) Lot 2, and Andrew and Susan Coltart Lot 6. Each of these parties has rights in respect of proposed common land. In addition EHNP has a separate agreement to purchase Lot 9. The sale of Lot 1 was completed before LCIL went into possession. LCIL has, however, received the net proceeds of sale of Lots 2 and
6, being approximately $3.1 million.
[13] Secondly, the Lepionka purchasers have agreements to purchase Lots 3, 5 and
8 for $1,330,435, and Lots 4 and 11 (the latter previously referred to as the “Lot 4
Fishing Hut”) for $3.3 million. I shall refer to these lots as the Lepionka lots.
[14] The Lepionka purchasers have paid their deposits of $463,000. Also, LCIL’s evidence is that the land in Lot 8 is unstable and that a reduction of $300,000 to the purchase price is required for this. New titles have not issued for any of the Lepionka lots, and they will not be issued until the subdivision is completed. There is no evidence before me as to the likely costs to complete the subdivision but counsel for the defendants informed me at the hearing that it would be “about
$1 million”. If so, the net proceeds of sale of the Lepionka lots will be less than
$3 million.
[15] GLW contrasts this outcome with the more favourable outcome that would be achieved if I were to order a sale on the terms that GLW proposes, that is to Mr Warren Ladbrook as trustee of the Bamboo Trust, or nominee, for $4.5 million (including GST) (“Ladbrook offer”). The Ladbrook offer (an amended offer was filed after the hearing) is on an “as is where is” basis, and so there would be no further subdivision costs to the parties. The offer also requires the purchaser to perform the agreement to sell Lot 9 to EHNP and to perform the obligations owed to the registered proprietors of Lots 1, 2 and 6 regarding the common land. By memorandum filed after the hearing, counsel for GLW advised that the GST payable on the sale is less than $200,000, although LCIL submits that it would be more than that.
[16] GLW submits, and I accept, that a sale of the land on these terms would give GLW a better result than that which will be achieved if the land is sold to the Lepionka purchasers on the terms of their agreements. Accordingly, GLW submits that I should order a sale on these terms, with the proceeds of sale to be held in trust pending agreement with LCIL or further order for the Court.
[17] Although GLW did not serve its application for interim relief on affected third parties, it filed memoranda (again after the hearing) to the effect that:
(a) Tuki Tuki does not object to a sale to Mr Ladbrook on the proposed terms and that GLW can assume Mr and Mrs Coltart (who are closely associated with Tuki Tuki) are of the same mind; and
(b)AFI Management Pty Limited (“AFI”) does not object to a sale to Mr Ladbrook on the proposed terms. AFI is a second but unregistered mortgagee of the land. The evidence before the Court is to the effect that GLW’s debt to AFI exceeds NZ$6.89 million.
[18] Counsel for EHNP has filed memoranda. The most recent of these states that EHNP is “neutral as between the parties, and would be unconcerned as to the outcome of the current proceeding, so long as [its] overall interests are preserved.
Subject to that proviso, EHNP neither supports nor opposes the relief sought”.6 It is unnecessary for me to comment on this memorandum, given the decision that I have reached.
Debt owed to LCIL
[19] LCIL did not file evidence prior to the hearing of what it believes it is owed. However, in a statement provided at my request after the hearing, LCIL stated that it was owed approximately $2.7 million as of 31 January 2017. This comprises
$2,681,345.43 to Westpac for the assignment plus capitalised interest plus interest plus legal costs of $1.5 million plus other costs, less $3.1 million received from the sale of Lots 2 and 6. LCIL also advises that interest is accruing at the default rate under the mortgage, at present approximately 12 per cent per annum.
[20] GLW contends that LCIL is not owed anything given its receipt of the proceeds of sale of Lots 2 and 6. Its case is that LCIL was required to allow GLW to redeem the mortgage shortly after LCIL took the assignment and had it done so none of these other costs claimed by LCIL would have been incurred.
Discussion
[21] I declined to order a sale of the land because, as counsel for the defendants submitted, such a sale would predetermine the issue that will be central at trial, namely whether the Lepionka purchasers are entitled to require the Lepionka lots to be conveyed to them at the price and on the terms that they and GLW agreed in January 2014. The trial date that has been fixed is close at hand and that trial is the parties’ opportunity to present their evidence and make their submissions.
[22] The fact that a sale on the terms of the Ladbrook offer would be more favourable financially to GLW is not a sufficient reason for denying the defendants the right to argue their case before the Court. Moreover, there is no evidence to suggest that the land will not be able to be sold after trial on terms as good as those
offered now, if the plaintiffs succeed at trial. The evidence is that Mr Ladbrook has
6 Second Memorandum of Counsel for EHNP Nominee Ltd dated 22 February 2017.
made previous offers to purchase, as has Tuki Tuki. Nor will holding the proceeds of sale in trust stop interest accruing on whatever debt remains owing to LCIL.
[23] In addition to these matters, there can be no expectation that GLW will be able to pay any damages ordered against it. It has given an undertaking in damages but its debt to AFI essentially rules out any payment. Equally there is no evidence as to LCIL’s financial position.
[24] In my view, the balance of convenience and overall justice lies in declining to order a sale to Mr Ladbrook (or a sale by the Registrar of the High Court) and otherwise preserving the status quo pending trial. Preserving the status quo requires LCIL to refrain from settling the Lepionka agreements, at least in the absence of GLW’s agreement.
Possession of Lot 4
[25] The background to the orders that GLW seeks in respect of Lot 4 is as follows.
[26] There is a house on Lot 4 referred to as “the Lodge”. Against LCIL’s wishes,
the second plaintiff, Mr Paterson, occupied the Lodge in late 2015. In November
2016, LCIL required Mr Paterson to vacate the Lodge. LCIL advised that it would commence proceedings if Mr Paterson did not vacate. In response, GLW advised that Mr Paterson was in occupation by prior agreement with GLW, that he would not vacate and that GLW would oppose any proceedings for possession.
[27] Despite its advice that it would commence proceedings, LCIL re-entered the Lodge when Mr Paterson was absent in Australia and it has not permitted him to resume occupation. The Lodge is now occupied by others at LCIL’s behest.
[28] For the sake of completeness I record that it is a term of the Ladbrook offer that the vendor or its nominee (no doubt Mr Paterson) resume occupation of the Lodge for six months, rent free. I accept the submission of counsel for the defendants that this term indicates that Mr Ladbrook is not independent of the plaintiffs. However nothing turns on this, given the reasons for my decision.
[29] The orders that GLW seeks as regards Lot 4 are these:
(a) Directing the defendants and its agents or employees to forthwith vacate the [land] and specifically grant access to the second [plaintiff] to the house located on Lot 4.
(b) Requiring the defendants and its employee/agents to forthwith return all property and belongings, including the second [plaintiff’s] vehicle to the house at Lot 4.
(c) Requiring the defendants and their [employees]/agents to provide an undertaking to the Court that they have not retained, copied or duplicated any documentation or computer records that were located on the property.
(d) Restraining the defendants and their employees/agents from further attending upon the [land].
[30] In his submissions regarding this part of the application, Mr Grove for GLW said that GLW would require possession so that it could effect the proposed sale to Mr Ladbrook. Mr Grove also submitted that it was pointless for LCIL to be in possession of the land because it has failed to progress the subdivision, despite having adopted the Lepionka agreements which cannot be settled until the subdivision is completed and title has issued. Moreover, there are provisions in the Lepionka agreements which require the vendor to complete the subdivision promptly.
[31] Whatever LCIL’s failure to complete the subdivision, I do not propose to order LCIL to cede possession in advance of trial. Nor do I propose to make an order requiring the defendants to grant Mr Paterson access to the Lodge.
[32] I am not able to determine whether Mr Paterson’s occupation of the Lodge prior to November 2016 was lawful. However, at Mr Paterson’s instigation, the Tenancy Tribunal has considered the issue of his occupation. There was a hearing before the Tribunal on 16 December 2016. This hearing took place, notwithstanding that LCIL sought an order from the High Court to prevent that Tribunal considering
the matter. Woodhouse J declined to make the order sought.7
7 GLW Group Ltd v Lepionka & Company Investments Ltd [2016] NZHC 3109.
[33] The Tribunal issued its decision on 19 December 2016. It determined that Mr Paterson did not have the right to possession of the land nor the right to occupy the Lodge in March 2015 when LCIL entered into possession. The Tribunal held that any rights that might exist as between GLW and Mr Paterson could not confer on Mr Paterson rights to occupy that were enforceable against LCIL.
[34] On 23 December 2016, Mr Paterson filed an application for rehearing before the Tribunal. The Tribunal was to hear Mr Paterson’s application for rehearing on
22 February 2017. However, counsel for LCIL has since filed a memorandum stating that Mr Paterson withdrew the application for rehearing on 16 February 2017.
[35] Given these matters, I do not propose to make an order granting Mr Paterson access to the Lodge. Again, it is a matter that will have to be determined at trial.
[36] However, the defendants and their employees and/or agents should return to the plaintiffs any property of the nature described in [29](b) above. As I understood their position before me, the defendants contend that they have already returned the property in issue. I require counsel to make the appropriate arrangements to the extent that any such property remains outstanding.
[37] The defendants also advised the Court that neither they nor their agents have taken any of the steps referred to in [29](c) above. Again, the defendants and their agents should file and serve a written undertaking of the nature described in [29](c) within five working days of this decision.
Result
[38] I make orders:
(a) pending further order of the Court, restraining LCIL from: (i) settling the Lepionka agreements;
(ii)disposing of or further encumbering the land or borrowing or incurring further costs relating to the land;
(b)requiring the defendants and its employee/agents to forthwith return all property and belongings, including the second plaintiff’s vehicle, to GLW; and
(c) requiring the defendants and their employees/agents to provide a written undertaking to the Court and GLW that they have not retained, copied or duplicated any documentation or computer records located on the property.
[39] I decline to make any of the other orders sought in GLW’s amended
application for injunctive relief dated 23 December 2016.
Other matters
[40] The parties will be notified of a further case management conference, to be held in the next two weeks.
[41] Costs are reserved.
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Peters J
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