Gold Band Finance Ltd v Philpott
[2016] NZHC 1674
•22 July 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000716 [2016] NZHC 1674
UNDER Land Transfer Act 1952 IN THE MATTER
of Caveat 8322656.1, Caveat 9233653.1 and Caveat 8003770.1
BETWEEN
GOLD BAND FINANCE LIMITED Applicant
AND
SHAYNE PHILPOTT AND NEW ZEALAND TRUSTEE SERVICES LIMITED, COLIN PETER STOKES AND FAY EUNICE RICHARDSON, ROBERT WILLIAM SMITH AND GREGORY ROBERT SMITH
First Respondents
AND
STUART ELLESMERE LINDSAY AND JULIE IVONNE LINDSAY
Second Respondents
Hearing: 1 July 2016 Appearances:
S R Caradus for First Respondents (C P Stokes and G R Smith - Applicants for stay)
C R Vinnell and C T Jolliffe for Applicant (Respondent on this application)
No appearance for Second Respondents
Judgment:
22 July 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE ON STAY APPLICATION
Introduction
[1] In this proceeding the applicant, Gold Band Finance Limited (Gold Band), successfully sought orders in relation to the removal of caveats which the
respondents had lodged against property (the Noble property) owned by Noble
GOLD BAND FINANCE LIMITED v PHILPOTT [2016] NZHC 1674 [22 July 2016]
Investments Ltd (Noble) and mortgaged to Gold Band. My judgment in that regard
(the judgment) is the subject of an intended appeal.1
[2] The effect of the judgment was to order removal of caveats which had been lodged by the respondents so that Gold Band could effect a mortgagee sale of the property unimpeded by the respondents’ caveats. Two of the respondents (Colin Stokes and Gregory Smith) seek a stay of enforcement of the orders as to removal of caveats until an appeal is heard and finally determined. I will refer to Messrs Stokes and Smith simply as “the respondents”.
[3] The stay application is opposed by Gold Band.
The caveat judgment summarised
[4] To place counsels’ submissions in context, I will summarise the judgment
which the respondents intend to appeal.
[5] Noble developed a large piece of rural land on the edge of Christchurch to be known as Noble Village. Noble sold lots to the respondents (and others) in advance of the subdivision. The respondents lodged caveats over the titles.
[6] Gold Band provided finance to Noble secured over the titles held by Noble in the subdivision. The loan fell into default. Gold Band wished to proceed with the mortgagee sale and would have done so but for caveats lodged by the respondents.
[7] Although the respondents had become registered proprietors of land within the subdivision (full ownership of part and a one-tenth share of another part), the caveat proceeding has not been concerned with those interests. Rather, the respondents claim interests in titles held by Noble pursuant to Noble’s undertaking to provide access and services. Those had been recognised, between the respondents
and Noble, as arguably caveatable interests by earlier judgments.2
1 Gold Band Finance Ltd v Philpott [2015] NZHC 2383, (2015) 16 NZCPR 746.
2 Philpott v Noble Investments Ltd [2012] NZHC 1431; Philpott v Noble Investments Ltd [2013] NZHC 400 (caveatable interests upheld on appeal, but with appeal allowed on other grounds – Philpott v Noble Investments Ltd [2015] NZCA 342); Lindsay v Noble Investments Ltd [2014] NZHC 799 and Lindsay v Noble Investments Ltd [2014] NZHC 2127.
[8] Gold Band applied for orders removing the caveats, invoking the Court’s residual discretion under s 143 Land Transfer Act 1952 to make removal orders. The respondents recognise that the general law is that (by reason of indefeasibility of title) a caveator’s claim against a mortgagor’s estate is subject to the power of sale of any prior registered mortgagee. The respondents nevertheless opposed the removal application on two grounds:
(a) Gold Band consented to the interest protected by the respondents’ caveats and for that reason could not rely upon the principle of indefeasibility of title; and
(b)an arrangement which Gold Band entered into with Delta Utility Services Ltd (Delta) after the respondents’ caveats were lodged amounted to fraudulent or collusive conduct in an attempt to defeat the respondents’ interests, thereby disentitling Gold Band from relying on the priority it might have previously had.
[9] I held on the evidence that the respondents could not establish an arguable case of consent.3 This aspect of the judgment is not the intended subject of the respondents’ appeal and I mention it no further.
[10] The respondents’ second ground of opposition involved the proposition that Gold Band’s relevant rights as mortgagee had arguably been displaced by unconscionable conduct. In particular, the respondent asserted that Gold Band had assisted subordinate parties to defeat the respondents’ interests. Counsel for the respondents relied upon the reasoning and conclusions of Venning J in Instant Funding Ltd v Greenwich Property Holdings Limited.4 In that case the mortgagee’s arguably improper conduct led to the dismissal of an application to remove a
subsequent caveat.
3 Gold Band Finance Limited v Philpott, above n 1, at [38] – [39].
4 Instant Funding Ltd v Greenwich Property Holdings Ltd HC Auckland CIV-2007-404-6806,
20 December 2007.
[11] In my judgment in Gold Band Finance Ltd v Philpott I summarised the
factual basis of the respondents’ argument as to unconscionable conduct:5
[42] Gold Band had a registered security with priority over the interest caveated by Philpott. The value of the security may be sufficient to protect Gold Band’s exposure.
[43] Delta provides utility services and did so in relation to Noble’s subdivision from, at the latest, 2009. On 20 November 2009, Delta and Noble entered into a loan contract including Noble’s agreement to grant a first mortgage security over Noble’s Lot 14. Gold Band had agreed to Delta’s mortgage having first priority capped at an amount of $5 million. Philpott was approached to withdraw the Philpott caveats or to provide consent to allow registration of the Delta mortgage as a first mortgage, but refused to do either.
[44] Gold Band, Delta and Noble entered into a Security Sharing Deed on
14 April 2010. The parties recorded that, since Philpott had refused to withdraw the caveat to allow the registration of the Delta mortgage as a first mortgage, Gold Band had agreed to hold its mortgage over Lot 14 as trustee for Delta, Gold Band thereby subordinating its priority in favour of Delta.
[45] Noble and Delta subsequently entered into a second loan agreement in respect of further work completed by Delta. Delta was again unable to register a mortgage having priority over the Gold Band mortgage because Philpott refused to withdraw its/their caveats so far as they affected Lots 18 and 19. Gold Band, Delta and Noble then (on 21 December 2011) entered into a second Security Sharing Deed giving Delta first priority to $8.6 million on the new mortgage and increasing its priority under the first mortgage to $5.5 million.
[46] On 20 August 2013, Noble and Delta entered into a further
(collateral) mortgage agreement over the remaining lots (other than Lots 14,
18 and 19).
[47] On 22 August 2013, Gold Band and Delta entered into a deed of partial assignment of debt and security sharing with Avanti Finance Ltd (Avanti). By that deed, Gold Band sold 37.5 per cent of its Philpott loan to Avanti and 30 per cent to Delta. Gold Band also agreed to hold part of its mortgage security on trust for Delta and Avanti in those proportions.
[48] As a consequence of the various dealings between Gold Band, Noble, Delta and Avanti, the legal position is:
(a) Gold Band is the first mortgagee (both legal and beneficial of Lots 11–13 and 15–17); and
(b) Gold Band holds its first mortgage in Lots 14, 18 and 19 in trust for Delta; and
(c) Gold Band’s interests include those of Avanti.
5 Gold Band Finance Limited v Philpott, above n 1.
[49] I observe that notwithstanding the consequence of Gold Band’s assignments identified at [48], the position of Philpott remains exactly the same as it had been. Matters between Gold Band, Delta and Avanti are essentially internal to that grouping, provided Gold Band acts properly in its exercise of its powers as mortgagee. The single issue raised for Philpott in that regard is the suggestion that Gold Band has fettered its ability to act properly as mortgagee.
[12] I concluded, on analysis of Instant Funding Ltd v Greenwich Property Holdings Ltd, that Venning J had rested his judgment there on the arguability of both fraud and unconscionable conduct.6 I concluded, having regard to the evidence that:
(a) The respondents were unable to point to anything which implied cheating or dishonest conduct in the taking and registration of the mortgage, and subsequent arrangements to share the security of Delta or the steps being taken to exercise the power of sale.7
(b)Gold Band had a clear commercial justification for entering into the security sharing arrangements in order to have civil works associated with the subdivision completed.8 Gold Band also had a clear
commercial justification for pursuing the mortgagee sale.9
(c) While Delta had the right under the trust arrangement to instruct Gold Band on aspects of enforcement, there was no evidence to support the inference that Gold Band (in taking the then-current enforcement action upon the basis of its valid security) was doing so for a purpose affected by motivations other than recovery of its debt.10
The respondents’ case, even at the level of what was arguable, lacked
the unconscionability arguable on the facts of Instant Funding.11
[13] In my judgment, I brought together my findings:
[75] Neither the circumstances relating to Gold Band’s security sharing arrangement with Delta nor Gold Band’s present intention to enforce its
6 At [72].
7 At [69].
8 At [71].
9 At [71].
10 At [73].
11 At [74].
security by mortgagee sale involve, even arguably, unconscionable conduct by Gold Band. Gold Band made a commercial decision to share its security with Delta. Now, in the absence of repayment by Noble, Gold Band seeks to realise that security through an ordinary sale process. The arguable inference of unconscionable motivation in the selection of one buyer and the rejection of another in Instant Funding is not available in this case.
The appeal – filed and abandoned
[14] My judgment was delivered on 30 September 2015. On 27 October 2015 (within time) three of the respondents filed a Notice of Appeal. They identified three grounds of appeal:
1.That the learned judge erred in fact and law in concluding that the factors outlined in paragraphs 31(a) to (i) and 37(a) to (f) of that decision did not individually or collectively give rise to an arguable case of consent to the appellant’s caveatable interest pursuant to s
105 of the Land Transfer Act 1952.
2That the learned judge erred in fact in concluding that the respondents had a commercial justification for entering into the security sharing arrangement with Delta Utility Services Limited and Avanti Finance Limited.
3That the learned judge erred in fact and law in concluding that there was no arguable case that Gold Band Finance Limited engaged in unconscionable conduct.
[15] Under the Court of Appeal (Civil) Rules 2005, the respondents had:
(a) 20 working days from 27 October 2015 to pay to the Registrar
security for Gold Band’s costs;12 and
(b)three months from 27 October 2015 in which to file the case on appeal.13
[16] The respondents complied with neither time limit.
[17] By r 43 Court of Appeal (Civil) Rules the appeal came to be treated as having
been abandoned on 19 February 2016, through the respondents’ failure to file the
12 Rule 35(3).
13 Rule 40(2)(b).
case on appeal. Notice of that result was given by the Court of Appeal to the parties on 19 February 2016.
[18] By reason of r 43(3) Court of Appeal (Civil) Rules the respondents then had three months (that is until 19 May 2016) within which to apply for an extension of the period for filing the case on appeal.
[19] The respondents eventually on 13 May 2016 applied for an order extending the time for filing the case on appeal (and at the same time sought leave to adduce further evidence). On the same day the respondents provided the required security for costs.
[20] Counsel for the respondents by Memorandum to the Court of Appeal explained that the respondents had not earlier filed their case on appeal because:
4.1After filing the appeal, the appellants subsequently decided that, despite having faith in the merits of their appeal, they would not pursue the appeal due to the possibility of an award of damages being made against them.
4.2The appellant decided to pursue a different avenue to protect their interests including:
4.2.1Seeking to negotiate with the respondents to ensure their caveatable interests are protected during the mortgagee sale process;
4.2.2Seeking to redeem the respondent’s mortgage over land registered to Noble Investments Limited (Noble) at Yaldhurst Road over which the appellants hold caveats
8322656.1 and 8003770.1 being subject of the appeal.
4.3The appellants have been unable to reach a satisfactory resolution outside of pursuing their appeal and, in particular, the respondent is unwilling to allow the appellants to purchase its mortgage at full cost including any accrued interest and costs.
4.4The recent decision of Coltart v Lepionka [2016] NZCA 102 sheds further light on the rights of caveators arising from existing agreements for sale and purchase, bad faith, and the right of caveators to redeem mortgagees.
4.5The appellants are involved in substantive proceedings in the High Court against Noble in CIV-2014-409-549. While discovery is yet to be completed, the appellants have obtained evidence about the respondent’s dealings they believe is relevant to the appeal.
Gold Band’s mortgagee sale process
[21] Gold Band’s intended mortgagee sale has been held up by the existence of the
respondents’ caveats.
[22] I turn to summarise events during which Gold Band initially pursued a mortgagee sale process which might have accommodated the respondents’ protection of claimed interests. But subsequently, when the appeal was (deemed) abandoned, Gold Band entered into a contract for sale which no longer contained such protection.
[23] Gold Band’s power of sale of the Noble property had become exercisable in July 2014 following the service of notices under the Property Law Act 2007. Gold Band at that time asked the respondents to remove the caveats. The respondents refused to do so. On 30 October 2014 Gold Band filed an originating application to have the caveats removed. Gold Band in its evidence disclosed the existence and essential details of the Security Sharing Deed and related agreements which it had entered into with Delta.
[24] In his evidence, John Mander (Gold Band’s then-Chief Executive) deposed that Noble was (by mid-2014) clearly in financial difficulty. Mr Mander explained why Gold Band was pursuing the removal application/s:
Gold Band simply wants to sell the security properties in the conventional manner under its first ranking mortgage, free from all caveats in favour of unregistered interests to which Gold Band has not consented, and free from issues and disputes which are not of Gold Band’s making. I am concerned that anything less than this will severely detract from the value and/or saleability of the property. I am concerned to ensure that Gold Band discharges its duty (owed not only to Noble but to other secured creditors and to guarantors) to take all reasonable steps to obtain the best sale price.
[25] Gold Band’s application was originally set down for hearing in February
2015. The hearing was adjourned when the parties entered into “meaningful discussions”. When those discussions did not achieve settlement, the application was brought on for hearing, resulting in the judgment which in turn became the subject of the respondents’ appeal on 27 October 2015.
[26] At that point Gold Band still planned to proceed to a mortgagee sale. In December 2015 Gold Band had the Noble property advertised for sale by mortgagee tender with tenders to close on 22 January 2016. The original tender terms dealt with the possibility of a stay application by the respondents, giving them, in the event of a stay application, the ability to defer or cancel any sale agreement entered into or to require a purchaser to enter into an arrangement under which the mortgagee sale was able to be settled but with any easement rights of the respondents protected pending the outcome of proceedings to establish entitlements (“the anti-stay provisions”). The respondents were advised of these planned tender terms. There was a negotiation as between Gold Bank and the respondents to agree on the specific terms but agreement was not reached.
[27] Gold Band decided not to enter into a sale contract before 1 February 2016. Martin Brennan, the now-Chief Executive of Gold Band, deposed that, following negotiations with the respondents, Gold Band regarded itself as being bound not to enter into a sale contract before 1 February 2016. It regarded itself as required to give the respondents 10 working days’ notice of any impending mortgagee sale settlement should they wish to apply for a stay.
[28] The initial tender close date had been 22 January 2016. Gold Band amended the tender terms and reissued them with the tender close date becoming 12 February
2016. The anti-stay provisions remained in the tender terms. On 12 February 2016
Gold Band received four tenders for the property, incorporating the anti-stay provisions.
[29] Colin Stokes has provided the evidence for the respondents in support of the current application for stay. Mr Stokes does not refer to any decisions subsequently made by the respondents in relation to the appeal, whether in relation to a stay application, payment of security, filing of the case on appeal, or abandonment of the appeal.
[30] The most detailed explanation the Court has for the respondents’ reasons for not taking the appeal further is what the respondents have stated through counsel in their Memorandum to the Court of Appeal:
After filing the appeal, the appellants subsequently decided that, despite having faith in the merits of their appeal, they would not pursue the appeal due to the possibility of an award of damages being made against them.
[31] It is therefore plain, on the respondents’ own grounds of appeal, that the failure to file the case on appeal by 19 February 2016 (and consequential deemed abandonment) and the failure to provide security for costs (not done until 13 May
2016) occurred through a deliberate decision on the part of the respondents and not through accidental omission. Mr Brennan has deposed that the respondents had not attempted to liaise with Gold Band’s counsel concerning any matters relating to the appeal in this period. That is of course consistent with the fact that the respondents had made their decision not to pursue the appeal.
[32] Accordingly, on 20 February 2016 Gold Band was in a position to no longer complicate the tender terms for sale of the property by imposing an obligation on the purchaser to recognise any rights established by the caveators on appeal. Mr Brennan has deposed that Gold Band was concerned to meet its duty to take all reasonable steps to obtain the best price for the property. He states that Gold Band received legal advice in relation to that obligation. On 22 February 2016 Gold Band’s solicitors by email informed the respondents’ solicitors that Gold Band was removing the anti-stay provisions from the tender terms in light of the abandonment of the appeal. The respondents did not substantively respond to that email.
[33] Gold Band’s solicitors then wrote to all parties who had expressed interest in the Noble property (including the existing tenderers) advising them that the “anti- stay” provisions were being removed and inviting the re-submission of tenders to reflect the removal. Mr Brennan deposes that upon receipt of fresh tenders and upon further negotiation, an offer from the highest tenderer was accepted by Gold Band (without anti-stay provisions) on 5 April 2016. A backup offer with another party (also without anti-stay provisions) was entered into on 5 April 2016. The backup contract was activated when the first contract was subsequently voided due to non- fulfilment of conditions. Mr Brennan deposes that the backup contract remains conditional, although finance has been confirmed. The period for due diligence by the purchaser is running.
[34] Mr Brennan deposes that Gold Band has to date incurred $130,100.47 in relation to the mortgagee sale process comprising $26,000.00 in advertising costs and $104,100.47 in legal fees. He says that those expenses would be largely wasted if the sale process was now delayed.
[35] Mr Brennan deposes that a delayed sale will also cause Gold Band operational difficulties by reason of its obligations as a finance company. He deposes that the debt Noble owes to Gold Band amounts to a single exposure which has historically been in excess of the requirements of Gold Band’s debenture trust deed. Under the deed, no single loan may exceed 10 percent of Gold Band’s total tangible assets. Between June 2013 and October 2014 Gold Band had to cease accepting deposits from the public to fund its business because the level of the Noble debt was in excess of the 10 percent limit. The supervisor was not prepared to waive the limit.
[36] Gold Band is also required to meet its obligations under the Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 and needs to be able to continue to hold a licence from the Reserve Bank of New Zealand as a licensed non-bank deposit taker. Mr Brennan deposes that if the Noble debt remains outstanding and (with interest accruing at 22.5 percent per annum) continues to grow substantially, there will be serious consequences both for Gold Band’s ability to trade and for Gold band’s standing in the market.
[37] Mr Brennan deposes that of greater concern still is that any delay in settlement may cause the purchaser of the Noble land to “walk away from the contract”. Mr Brennan deposes that delay will become a particular concern if it transpires that the market for residential subdivisions falls between now and the outcome of the appeal process.
[38] If the purchaser felt unable to confirm the contract by reason of delay through an appeal there will clearly have been financial consequence for the purchaser. Mr Brennan observes that the purchaser has been involved in extensive due diligence by reason of the complexity of the subdivision. He has been informed that the legal
costs incurred by the purchaser to date in relation to due diligence are approximately
$80,000.
[39] As between Gold Band and Noble, Mr Brennan deposes that Noble has previously complained as to the level of interest and costs accruing on the debt. Mr Brennan refers to the fact that there is a potential dispute over interest and costs which, although Gold Band rejects the grounds of dispute, poses a risk of future argument which Gold Band wishes to curtail at the earliest point.
[40] Noble who also has an interest, shared with holders of subsequent securities, in any sale achieving the best price reasonably available. While for the respondents Mr Caradus developed a submission based on the proposition that Gold Band is unlikely to suffer damage through delay because of a likely margin between sale price and Gold Band’s debt, the Court on the present application must consider potential losses for everyone affected, including other security holders, Noble itself and Noble’s unsecured creditors.
The stay jurisdiction
High Court Rules, r 20.10
[41] The High Court Rules make specific provision for a stay of enforcement of a judgment. In particular, r 20.10 provides:
20.10 Stay of proceedings
(1) An appeal does not operate as a stay—
(a) of the proceedings appealed against; or
(b) of enforcement of any judgment or order appealed against.
(2) Despite subclause (1), the decision-maker or the court may, on application, do any 1 or more of the following pending determination of an appeal:
(a) order a stay of proceedings in relation to the decision appealed against:
(b) order a stay of enforcement of any judgment or order appealed against:
(c) grant any interim relief.
(3) An order made or relief granted under subclause (2) may—
(a) relate to enforcement of the whole of a judgment or order or to a particular form of enforcement:
(b) be subject to any conditions for the giving of security the decision-maker or the court thinks just.
Factors relevant to the discretion
[42] Counsel agreed that the factors which this Court considers in relation to a stay application were those recognised in Duncan v Osborne Buildings Ltd,14
Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprise Ltd,15 and Keung v
GBR Investment Ltd.16
[43] In accordance with the approach established in those cases, I adopt the following passage from the judgment of the Court of Appeal in Keung v GBR Investment Ltd:17
… In determining whether or not to grant a stay, the Court must weigh the factors “in the balance” between the successful litigant's rights to the fruits of a judgment and “the need to preserve the position in case the appeal is successful”. Factors to be taken into account in this balancing exercise include:
(a) whether the appeal may be rendered nugatory by the lack of a stay; (b) the bona fides of the applicant as to the prosecution of the appeal;
(c) whether the successful party will be injuriously affected by the stay; (d) the effect on third parties;
(e) the novelty and importance of questions involved; (f) the public interest in the proceeding; and
(g) the overall balance of convenience.
That list does not include the apparent strength of the appeal but that has been treated as an additional factor.
14 Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at [87].
15 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprise Ltd (1999) 13 PRNZ 48 (HC)
at 50.
16 Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].
17 At [11].
Staying the judgment
[44] Under r 12(3) Court of Appeal (Civil) Rules the respondents could have applied either to this Court or to the Court of Appeal for a stay of execution of the judgment.
[45] The respondents chose not to seek a stay of execution (I infer that that was because Gold Band had volunteered to incorporate the “anti-stay” provisions into the terms of tender.) But, the respondents have subsequently (on 13 May 2016, at the same time as filing the application for extension in the Court of Appeal) filed the application which is the subject of this judgment.
[46] Had the respondents pursued a stay of execution at the time they filed their appeal, they would have expected any stay to be subject to at least one condition. Rule 12(4)(b) allows the Court to impose such conditions as the Court thinks fit. In one of the leading cases in this area, Duncan v Osborne Building Ltd, Gault J (delivering the judgment of the Court of Appeal) observed: 18
In applications of this kind it is necessary carefully to weigh all of the factors in the balance between the right of a successful litigant to have the fruits of a judgment and the need to preserve the position in case the appeal is successful. Often it is possible to secure an intermediate position by conditions or undertakings and each case must be determined on its own circumstances.
[47] As observed by the authors of McGechan on Procedure the conditions imposed by the courts when granting a stay have included strict timetabling.19
Sometimes that is achieved through the specification of dates by which steps must be taken on the appeal. More generally it is achieved by making a stay conditional upon the prosecution of the appeal with all due diligence.20
[48] Given that the respondents’ caveats were delaying Gold Band’s mortgagee
sale process, it is virtually inevitable that this Court (or the Court of Appeal) would
18 Duncan v Osborne Building Ltd, above n 14, at [87].
19 A C Beck and Others McGechan on Procedure (looseleaf ed, Thompson Reuters at
CR12.01(2)(a).
20 As was done in Patience & Nicholson (NZ) Ltd v Cyclone Hardware Ltd (2000) 14 PRNZ 534 (HC) at [25] and [28]; Paugra Holdings Limited (in liq) v Harvestfield Holdings Ltd [2013] NZHC 2642 at [28].
have made any stay conditional upon the diligent prosecution of the appeal. The memorandum of counsel filed in the Court of Appeal for the respondents indicates that a deliberate decision was made, at the time the case on appeal was due, to not proceed because of the risk of an adverse award of damages. Had a (conditional) order staying execution been obtained earlier, it is very likely that, by reason of the failure to file the case on appeal and (resulting in deemed abandonment on
19 February 2016), the stay would have been rescinded.
[49] The court, when granting a stay, will also consider whether the appellant has provided an undertaking as to the payment of damages in the event the appeal fails. Such an undertaking may relate to the damages the respondent will sustain.21 It may
also relate to the damages non-parties may sustain.22
The emphasis in counsels’ submissions
[50] In their submissions, counsel addressed me on the recognised factors as they apply to this case. Detailed submissions were addressed on two matters which stand out as the most significant:
(a) the respondents’ delay in pursuing an appeal; and
(b) the respondents’ identification of a fresh argument and fresh evidence.
Consideration of relevant factors
A nugatory appeal?
[51] A mortgagee sale of the property would remove any interest which the respondents have in the Noble property. Responsibly, Mr Vinnell for Gold Band accepts that the refusal of a stay would render the appeal nugatory in the sense that
that word is normally used in this context.
21 See for example Spackman v Queenstown Lakes District Council [2007] NZCA 463, the Court discussing at [5] the undertaking provided by the appellants in the High Court; Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd, above n 20, at [28]; Verissimo v Walker HC Auckland CIV-2004-404-2271, 24 February 2005 at [3] to [4].
22 See for example Tasman Insulation NZ Ltd v Knauf Insulation Ltd (No 3) [2014] NZHC 1400 per Brown J at [19], [28], and [30](c).
[52] Mr Vinnell nevertheless refers to the alternative approach to “nugatory” illustrated in the Court of Appeal’s judgment in Savill v Chase Holdings (Wellington) Ltd.23 In Savill, the Court of Appeal held that the ability of the appellants to substitute a claim for damages for their claim for specific performance in the event of an interim sale of the subject properties meant that an appeal would not be rendered nugatory by the stayed execution.
[53] Savill is distinguishable. The subject matter of this proceeding is the sustaining of caveats to protect the respondents’ claimed interests in land. The respondents’ case is that the claimed interests are integral to the benefit and use of the land they already own in their own rights. If the caveats are removed and the Noble property sold before an appeal hearing, there is no remaining purpose to this caveat proceeding. By contrast, in the situation of the Savills’ ordinary proceeding for specific performance, the Savills had their right to substitute in the action a claim for damages. There is no similar scope for substitution in this proceeding. Furthermore the interrelationship between the respondents’ claimed interests in the Noble property and their own (neighbouring) land does not lend itself to a simple substitution of a damages remedy even had substitution of remedy been available in the same proceeding.
The bona fides of the appeal
[54] I view the primary relevance of the bona fides of the respondents as to the prosecution of their appeal as informed by their current attitude. I am satisfied on the evidence that it is their current intent to pursue the appeal. As much is indicated by the analysis that has gone into what they propose to rely on as fresh argument and fresh evidence.
[55] I do not overlook a submission of Mr Vinnell that the respondents’ bona fides may be questioned having regard to their performance to date in relation to the appeal. Their non-payment of security in November 2015 and thereafter suggests they were hedging their bets. But their other non-performance (in relation to the case on appeal due in February 2016) is explained by the decision they had made at
that time not to pursue the appeal by reason (as they say) of their exposure to damages. Their subsequent re-commitment to the appeal process appears to be bona fide. At most, what Gold Band can point to is some history of wavering which might yet produce a further resiling. The risk of that may be taken into account in the balancing exercise which the Court undertakes.
Injurious effect on Gold Band?
[56] In approaching the effect of a stay on Gold Band, I bear in mind that the Court is balancing two competing rights, being those of a successful litigant to the fruits of its judgment against an unsuccessful litigant’s entitlement to pursue an appeal. The Court must give appropriate weight to each. The question is primarily
one of rights and not of fairness.24
[57] The right which Gold Band sought to uphold arises by reason of its priority as mortgagee under s 105 Land Transfer Act 1952 and the general principle of indefeasibility under that Act. Through the judgment Gold Band obtained the right to have Land Information New Zealand remove the caveats so as to enable registration of a transfer pursuant to Gold Band’s power of sale.
[58] In the Court’s balancing exercise, it is to Gold Band’s credit that, following the respondents’ filing of an appeal, Gold Band initially inserted into the tender conditions of the mortgagee sale protected provisions in relation to the respondents’ claimed interests. But even more significantly, Gold Band is entitled to look to the Court to have regard to the fact that only after the abandonment of the respondents’ appeal did Gold Band pursue and enter into a sale agreement stripped of the protection provisions.
[59] A stay now would clearly decrease the likelihood of the purchaser confirming its purchase. Alternatively the purchaser might confirm its purchase and thereby expose Gold Band to the consequences of not being able, by reason of a stay, to
effect settlement of the sale. Gold Band, upon cancellation of the contract, would
24 Farmers Meat Export Ltd v Waitaki (NZ) Refrigerating Ltd HC Christchurch A29/81,
6 December 1985; Patience & Nicholson (NZ) Ltd v Cyclone Hardware Ltd, above at n 20, at
[3].
incur as wasted costs the expenses identified by Mr Brennan.25 There are also clearly potential downstream consequences of the event of a delayed sale. There is the immeasurable risk of a downturn in the market which might impact on Gold Band, especially in the event of lengthened delay. There is also an impact on Gold Band through its regulatory constraints as a finance company. Finally, there is the potential for Gold Band to be involved in dispute with Noble as to the extent of accrued interest and costs when Gold Band recovers those from the sale proceeds. As delay on a compounding basis increases the total of costs and interest (the latter accruing at 22.5 per cent per annum), there will be an increased likelihood that Noble might litigate issues as to interest and charges.
Effect on third parties
[60] Following the abandonment of the appeal, a third party has entered into an agreement for sale and purchase of the Noble property. It is clear that the purchaser of the Noble property would have had to embark upon an extensive due diligence at substantial cost. The subdivision for some years has been embroiled in various streams of litigation. The complexity of issues relating to roading infrastructure and other services is a matter of record in the numerous judgments of this Court.
[61] In the event of a delayed sale, there is also an unquantifiable potential for impact on other creditors and on Noble itself as the debt to Gold Band continues to grow. There are also the same risks of a market downturn negatively impacting on other creditors’ ability to recover in full.
Absence of an undertaking as to damages
[62] The respondents have not offered an undertaking as to payment of any damages which Gold Band or third parties might sustain through a delay in the mortgagee sale process.
[63] The particular significance of the lack of such an undertaking in this case is that the exposure to a damages award was, in terms of the respondents’ grounds of appeal, the very reason they initially allowed the appeal to lapse. Furthermore,
neither of the respondents has provided any evidence as to his financial ability to meet any damages awards. In the context of the Noble debt and the impact of a delayed sale for Gold Band and others, the absence of both an undertaking and evidence of ability to meet a damages award is for consideration.
Novelty and importance of questions involved/public interest
[64] It was not suggested by Mr Caradus for the respondents that the appeal involves such questions of novelty and importance or of public interest as to militate in favour of a stay.
The prospect of a successful appeal
[65] While it has been recognised that the apparent strength of an appeal may be an additional factor to be considered by the Court in relation to a stay application, I would not attach great weight to this consideration in the circumstances of this case.
[66] The respondents’ own conduct, in allowing the appeal to become abandoned, has complicated the prospects that any appeal will succeed. Furthermore, it is evident, in the grounds to be pursued on appeal, that the respondents’ arguments to be pursued on appeal may significantly depend on fresh evidence (which itself will depend on whether the Court of Appeal grants leave) and on fresh grounds of opposition relating to the law of redemption (in the words of Mr Caradus “clarified
[since my judgment in this proceeding] in Coltart v Lepionka”.26 And as a
prerequisite to an appeal hearing of such arguments, the respondents will first have to obtain leave to file their case on appeal out of time. For present purposes I am prepared to regard it as possible that the various leave requirements may be overcome and that the Court of Appeal might find the grounds of appeal arguable. But, there will remain significant hurdles for the respondents.
[67] The intended argument as to attempts to redeem Gold Band’s mortgage are an illustration of the difficulties. Mr Stokes’ affidavit identifies the emails upon which the mortgage redemption argument would be based. The email trail runs from
16 December 2014 to 12 February 2015. Gregory Smith, one of the respondents,
was one of the parties in those exchanges. The entire exchange had ended a month before the hearing commenced in the High Court.
[68] I do not overlook that in the other ground of appeal – as to unconscionable conduct – the respondents assert that they have since the 2015 hearing obtained fresh, supporting evidence. Ultimately it will be for the Court of Appeal to consider both the freshness and the relevance of that evidence. If it is admitted the Court of Appeal will still be left to determine whether it arguably amounts to fraud or collusive conduct so as to disentitle Gold Band from relying on its indefeasible title.
[69] For the purposes of this interlocutory application I consider it appropriate to regard the respondents as having some prospect of obtaining leave to pursue an appeal on at least some grounds, on the basis the Court of Appeal may regard one or more appeal points as arguable.
Overall balance of convenience
[70] Following the filing of the respondents’ appeal, Gold Band acted responsibly in moving forward with the mortgagee sale process but in a way which sought to protect the ability of the respondents to pursue their substantive claims. An arrangement in the nature of stay was put in place in the absence of a formal Court order of stay. As between the parties, the appropriateness of that arrangement came to an end when the appeal was (deemed) abandoned. Gold Band again acted responsibly by having its solicitor send an email to the respondents’ solicitor on 22
February 2016 (three days after the abandonment of the appeal). By the email the respondents were notified that the existing, protective arrangements were at an end and that Gold Band would be proceeding with the tender (with the possibility of a stay no longer to be addressed).
[71] In the three months which followed Gold Band undertook the completion of the tender exercise and obtained an agreement for sale and purchase of the Noble land. Should a stay of execution now be granted, there is the reality of accruing debt yet to be recovered by Gold Band and a probability of delay causing damage to Gold Band, the purchaser of the Noble land, secured and unsecured creditors of Noble and Noble itself. On the evidence provided by the respondents, the Court has no means
of assessing the likelihood that the respondents would be able to meet unliquidated damages of any substance. As Mr Vinnell has submitted, the very fact that a concern as to the payment of damages was involved in the respondents’ decision to effectively abandon the appeal at least suggests a concern on the part of the respondents as to the impact that a damages award would have on their financial positions. Whether that financial impact might affect the respondents’ solvency is a matter the Court should not speculate upon. The respondents have elected neither to give evidence of solvency nor to provide undertakings.
[72] For the period of eight months in which these various developments have occurred (since the respondents filed their appeal), the prospect of an appeal hearing and judgment has been delayed. Had the respondents obtained an order of stay it inevitably would have been conditional upon diligent prosecution of the appeal to hearing. The stay would have come to an end with the abandonment of the appeal. To now grant a stay order subject to a condition of diligent prosecution (with an interlocutory process still to be undertaken in the Court of Appeal) in my view would not appropriately balance the competing interests of the parties.
[73] Gold Band has previously offered to put the respondents in touch with the successful tenderer to enable the respondents to pursue informal discussions with that tenderer.
Outcome
[74] The respondents have not satisfied the Court that, on the balancing of competing rights, it would be just to stay execution of the judgment delivered on
30 September 2015. The appropriate outcome, having regard to the rights of Gold Band and the legitimate interests of Gold Band and third parties is to allow Gold Band to pursue the unconditional status of its agreement for sale and purchase and (assuming the contract becomes unconditional) to effect transfer.
Costs
[75] Costs must follow the event against Colin Stokes and Gregory Smith as the remaining applicants on the stay application. I am inclined, as on the 30 September
2015 judgment, to award costs on a 2B basis. If there is disagreement submissions are to be filed (five pages maximum); applicant for costs to file first; respondents within five working days thereafter. I will decide the matter on the papers.
Orders
[76] I order that:
(a) The application dated 13 May 2016 is dismissed. (b) Costs are reserved.
Associate Judge Osborne
Solicitors:
Duncan Cotterill, Christchurch
Anthony Harper, Christchurch
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