Hannon v Senior Trust Capital Ltd
[2023] NZHC 16
•19 January 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2022-404-002442
[2023] NZHC 16
BETWEEN CATHERINE PHYLLIS HANNON
First Applicant
CATHERINE PHYLLIS HANNON and TOMPKINS WAKE TRUSTEES 2019 LIMITED
Second ApplicantAND
SENIOR TRUST CAPITAL LIMITED
Respondent
Hearing: 16 January 2023 Appearances:
B J Burt for the Applicants
M J Tingey & C Morrison for the Respondent
Judgment:
19 January 2023
JUDGMENT OF TAHANA J
(Application for Interim Injunction)
This judgment was delivered by me on 19 January 2023 at 3.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
James Burt, Barrister, Auckland Murray Tingey, Barrister, Auckland
Couch Harlowe Kovacevich, Auckland TWA Legal, Auckland
HANNON v SENIOR TRUST CAPITAL LIMITED (Application for interim injunction) [2023] NZHC 16 [19 January 2023]
Introduction
[1] The applicants (Ms Catherine Hannon in her personal capacity and as trustee of the Catherine Hannon Investment Trust (Investment Trust), and Tompkins Wake Trustees 2019 Limited as trustee of the Investment Trust) seek an interim injunction to prevent a mortgagee sale of a unit at Kelliher Drive, Roy’s Bay, Wānaka (Unit R4). The application is opposed by the mortgagee, Senior Trust Capital Limited (Senior Trust).
[2] Unit R4 is part of a larger development at Roy’s Bay, Wānaka that was to be developed by Roy’s Bay Estate Limited (RBEL). Ms Hannon and Mr Anthony Hannon indirectly held 50 per cent of the shares in RBEL. Ms Hannon was also director of RBEL from 9 August 2016 to 12 April 2022.
[3]On 17 July 2020 Ms Hannon entered into a limited guarantee and indemnity of
$900,000 in favour of Senior Trust to guarantee lending to RBEL (Guarantee). Ms Hannon also entered into a mortgage over Unit R4 in favour of Senior Trust with a priority sum of $900,000.
[4] On 25 August 2021 Mr and Ms Hannon borrowed $150,000 from Senior Trust to pay RBEL creditors and this loan was also secured by the mortgage over Unit R4 (the Hannon Loan).
[5]The Hannon Loan remains outstanding. As at 30 September 2022, RBEL owed
$6,664,135.28 to Senior Trust. Ms Hannon understands that this amount has since been reduced to approximately $3,000,000.
[6] In June 2022 Senior Trust issued notices under the Property Law Act 2007 (PLA) demanding payment under the Hannon Loan and the Guarantee. While Ms Hannon put Unit R4 on the market, it was subsequently withdrawn in November 2022 and Senior Trust then marketed it for mortgagee sale by auction on 20 January 2023.
[7]The applicants allege five courses of action against Senior Trust:
(a)breach of contract for failing to repay the Hannon Loan from the proceeds of sale of another property (Unit R1) owned by RBEL;
(b)misrepresentation and breach of s 9 of the Fair Trading Act 1986 (Fair Trading Act) arising from alleged representations by Senior Trust that it would use the sale proceeds from Unit R1 to repay the Hannon Loan;
(c)breach of Senior Trust’s duty under s 176 of the PLA to exercise reasonable care to obtain the best price reasonably obtainable for the land at Kelliher Drive (RBEL Land) when it was sold by mortgagee sale;
(d)duress in requiring Ms Hannon to enter into the Guarantee and provide the mortgage over Unit R4; and
(e)dishonestly assisting Ms Hannon in an alleged breach of trust and/or breach of fiduciary obligations in providing the mortgage over Unit R4.
[8] The applicants initially filed a without notice application on 23 December 2022 and were directed to serve the application on Senior Trust for hearing on 16 January 2023.
[9]The application was heard on an urgent basis given the upcoming auction.
Background
Lending to RBEL
[10] On 29 November 2016 RBEL and Senior Trust entered into a loan agreement for $3,350,000 to be repaid on the “Expiry Date” being 18 months from the date of the agreement (2016 Loan Agreement). The loan was guaranteed by Mr Hannon and Mr Christopher Holmes and secured by a registered second mortgage over the land owned by RBEL (RBEL Land).
[11] By a variation dated 3 May 2018, the loan amount was increased to $8,350,000 and the “Expiry Date” was extended to 20 April 2021.
Purchase of Unit R4
[12] In October 2019, Ms Hannon purchased Unit R4 after Senior Trust had expressed concerns that the unit had not been purchased by Mr Hannon. The sale and purchase agreement records that Unit R4 was to be leased to RBEL and used as a show room. The funds for the purchase were advanced by the Investment Trust and Ms Hannon purchased Unit R4 in her own name. A declaration of trust dated 3 October 2019 acknowledges that Ms Hannon holds Unit R4 in trust for the Investment Trust.
Funding from Senior Trust Retirement Village Income Generator Limited
[13] Mr John Jackson is a director of both Senior Trust and Senior Trust Retirement Village Income Generator Limited (Income Generator). Mr Scott Lester is the other director of Income Generator. Mr Jackson deposed that where there is a potential conflict between Senior Trust and Income Generator, Mr Lester makes decisions for Income Generator.
[14] On 9 June 2020 Mr Lester of Income Generator sent an email to Mr Jackson and Mr and Ms Hannon. The email refers to a letter of offer from Income Generator (presumably to RBEL) detailing terms for a “proposed facility.” The email then refers to matters to agree prior to execution of the letter of offer, including:
·Senior Trust Capital, being party to these negotiations, have expressed their willingness to continue to support the development as junior lender. They are prepared to do so on the following basis:
(a)continued progress in completing the refinancing by the Income Generator; and
(b)a limited guarantee from Catherine [Ms Hannon] supported by a first mortgage registered security on the Show Home [Unit R4], which will meet the previously stated requirement for additional security.
·We understand that as this additional security will be provided by Catherine [Ms Hannon], this may necessitate a reorganisation in respect to shareholder capital. We have no objections for Catherine’s [Ms Hannon’s] shareholding in Roy’s Bay Estate Limited to increase. We appreciate the additional support provided by Catherine [Ms Hannon] as Director and Shareholder.
[15] In response to the above email, on 10 June 2020, Mr Jackson indicated that on the basis that Mr Lester’s email is the agreed way forward, Senior Trust will action a partial drawdown of a loan and the balance of the drawdown is pending the documentation of the various points in Mr Lester’s email.
Guarantee
[16] On 3 July 2020 the solicitors for Senior Trust (Baker Meech) sent the Guarantee to the solicitors for Ms Hannon (Anderson Creagh Lai (ACL)). The cover email refers to Senior Trust’s instructions that Ms Hannon had agreed to provide a limited guarantee and a mortgage over Unit R4 in favour of Senior Trust. The email also requested that ACL provide an undertaking that before Ms Hannon signed the guarantee, ACL explain to her its nature and effect. Baker Meech also requested a copy of the occupation and right agreement (ORA) in relation to Unit R4.
[17]In response, on 17 July 2020, ACL indicated they had been instructed that:
1. [Ms] Catherine Hannon’s intention when she offered to make her personal guarantee and the mortgage over the unit available was that it would to secure [sic] both continued funding from STCL and new funding from the Senior Trust Retirement Village Income Generator Fund.
2. We understand STCL is now insisting that Catherine’s [Ms Hannon’s] guarantee and the mortgage be provided before a drawdown from STCL will be permitted tomorrow, despite the Income Generator facility not yet being formally in place. This is of concern to RBEL because the drawdown is required in order for RBEL to pay its builder on time. The builder being paid on time is obviously critical for ensuring that a good relationship with the builder is maintained and that construction is able to continue without interruption.
3. Your email below only appears to contemplate that guarantee being provided as security for STCL debt. Having reviewed the STCL loan agreement, it isn’t clear as to the basis on which STCL is insisting that it is entitled to this additional security before authorising a drawdown. RBEL’s position is that it has met the requirements to drawdown without having to provide this guarantee.
4. Despite this, in good faith RBEL and Catherine [Ms Hannon] are prepared to allow her personal guarantee and the mortgage to be granted on the basis that STCL does not seek any further security for future drawdowns and in reliance upon the negotiations regarding the funding from Income Generator continuing in good faith. From the correspondence yesterday, it appears the terms of that new facility are largely agreed.
5. As a further point I note the clause limiting Catherine’s [Ms Hannon’s] liability does not record the arrangement that the cap applies to Catherine’s [Ms Hannon’s] total liability to STCL and the Income Generator fund (upon that facility being put into place). I trust this arrangement will be documented as part of the documentation for that new facility.
[18] Ms Hannon then entered into the Guarantee guaranteeing the borrowing of RBEL (as borrower) and Senior Trust (as lender) to the limited value of $900,000. A mortgage was also registered over Unit R4 for a priority sum of $900,000.
[19] Ms Hannon signed a document entitled “Waiver of Independent Legal Advice / Acknowledgement of Legal Advice” which recorded that ACL had a potential conflict and could therefore only act in a limited capacity. ACL provided the undertaking requested from Senior Trust that they had advised Ms Hannon of the nature and effect of the guarantee before it was signed.
Further extension of “Expiry Date” under 2016 loan agreement
[20] By letter dated 22 April 2021, Senior Trust and RBEL agreed to extend the expiry date by 90 days subject to satisfaction of a number of preconditions.
[21] On 27 July 2021, Senior Trust agreed to not demand repayment before 30 September 2021 as long as certain preconditions were satisfied. Those preconditions included that Mr Hannon, Ms Hannon and Mr Holmes jointly and severally enter into agreements to purchase two dwellings within the development for prices not less than $850,000 each.
Hannon Loan
[22] On 25 August 2021, Ms and Mr Hannon entered into the Hannon Loan and borrowed $150,000 from Senior Trust so that a creditor of RBEL could be paid. The Hannon Loan incorporated the mortgage over Unit R4 as security for the loan.
[23] The Hannon Loan was to be repaid by the “Expiry Date,” being three months from the drawdown date. By email dated 24 August 2021, Mr Hannon indicated to Senior Trust that their understanding was that the loan was to be repaid from the proceeds of the sale of Unit R1. Unit R1 was owned by RBEL and Income Generator
had a registered mortgage over it. Unit R1 was subsequently sold and the proceeds were not used to repay the Hannon Loan.
Sale of RBEL Land
[24] RBEL did not repay the balance owing under the 2016 loan agreement by 30 September 2021.
[25] A valuation dated 1 October 2021 valued the RBEL Land at $28 million (including GST) and a subsequent valuation dated 3 November 2021 valued the development once complete at $91,300,000 (including GST).
[26] On 18 October 2021 RBEL entered into a sale and purchase agreement to sell the RBEL Land for $24 million to S5 Consulting Group Limited (S5). That agreement went unconditional on 3 December 2021.
[27] S5 raised issues with the RBEL Land and a further agreement was signed in February 2022 for S5 to purchase it for $22 million.
[28] Ms Hannon did not explain what happened with this second agreement or why the agreement did not settle and simply stated that in or about March 2022 Senior Trust exercised its powers as mortgagee to sell the RBEL Land.
[29] Mr Jackson for Senior Trust deposes that the S5 sale and purchase agreements were cancelled by the purchaser after they went unconditional after discovering there were issues with consenting, resulting in abatement notices and issues around flooding work. Mr Jackson understands that those agreements are subject to litigation.
[30] At the relevant time, Ms Hannon was a director of RBEL as she did not resign until 12 April 2022. She would therefore have been aware of what happened and should have disclosed this information to the Court. The information is relevant to the price that was ultimately obtained under the mortgagee sale.
[31] In May 2022, the RBEL Land was subsequently sold pursuant to the mortgagee sale for $18 million. Mr Rendell of Bayleys provided an affidavit for Senior Trust
explaining the marketing campaign to sell the RBEL Land. Mr Rendell deposed that Bayleys were appointed around 28 February 2022 and undertook a sales and marketing campaign that is consistent with the strategy adopted for a property of this size, type and location. The campaign included digital and print marketing through a number of outlets. It also included direct contact of developers, investors and potential retirement village operators. Mr Rendell deposes that the entire Bayleys network was utilised to ensure maximum exposure. Five tenders were received ranging from $7.2 million to
$20 million (conditional). The RBEL Land was ultimately sold for $18 million to Roy’s Bay GCO Limited, which is a subsidiary of S5 pursuant to an agreement dated 20 May 2022.
Demand for payment
[32] On 15 June 2022, Senior Trust demanded payment of $900,000 in reliance on the Guarantee. On 22 June 2022, Senior Trust issued two notices to Ms Hannon under s 119 of the PLA for payment under the Hannon Loan and the Guarantee. As at 31 May 2022, $169,421.41 was outstanding under the Hannon Loan.
Sale of Unit R4
[33] Ms Hannon put Unit R4 on the market for sale by auction. It was subsequently withdrawn in November 2022. Senior Trust then marketed Unit R4 for sale by auction on 20 January 2023.
Statement of claim
[34] The applicants filed a statement of claim on 13 January 2023 as directed. Mr Tingey for Senior Trust submitted that additional courses of action (breach of contract, misrepresentation and breach of the Fair Trading Act) were pleaded that were not included as grounds in the original without notice application. He says that those causes of action should not be considered because Senior Trust was only notified of them at the end of the last working day before the hearing and has had insufficient time to prepare evidence in response.
[35] Senior Trust did file a second affidavit of Mr Jackson in the very short time available that addresses some of the new causes of action. Submissions were also provided despite the limited time, for which I am grateful.
[36] While the causes of action were not identified in the application for an injunction, the facts giving rise to the courses of action were included in Ms Hannon’s affidavit and therefore Senior Trust did have an opportunity to respond to the factual matters. I do not consider that there is any prejudice to Senior Trust in my considering all of the courses of action as part of this application.
Legal principles – interim injunction
[37]An application for an interim injunction is to be determined by considering:1
(a)whether there is a serious question to be tried;
(b)whether the balance of convenience favours the granting of an injunction;
(c)whether overall interests of justice favour granting the interim injunction.
[38] In considering the questions at [37(b)] and [37(c)], it is necessary to assess the adequacy of damages, preservation of the status quo, disadvantages to either party and the relative strengths of their cases.2
1 Klissers Farmhouse Bakeries v Harvest Bakereies Ltd [1985] 2 NZLR 129 (HC); and NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12].
2 Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1476, 30 July 2008 at [6]–[14].
Is there a serious question to be tried?
[39] The principles applying to this question were considered in Mikitasova v ASB Bank Ltd3 where the Court referred to the following passage in Eco Maintenance Ltd v Leighton Contractors Pty Ltd:4
In order to determine whether there is a serious question to be tried, it is necessary to consider what is the applicable law and whether there are arguable differences concerning it, what the facts are said to be on the opposing sides, and where the issues lie, and whether there is a tenable combination of resolution of the issues of law and fact on which the plaintiffs could succeed.
[40] It is necessary for the applicants to adduce sufficiently precise factual evidence to satisfy the court that there is a real prospect of succeeding in the claim.5
[41] I consider below whether there is a serious question to be tried under each cause of action.
Breach of contract
[42] The written loan agreement for the Hannon Loan does not include any term that requires it to be repaid out of the proceeds of the settlement of the sale of Unit R1. The only mention of Unit R1 in the Hannon Loan is an undertaking at clause 6.2(i) by Mr and Ms Hannon that they will procure Ms Hannon as bare trustee of the Investment Trust to purchase Unit R1 if the proposed sale to a third party does not settle when due.
[43] The applicants rely on two emails (one from Mr Hannon to Mr Jackson of Senior Trust on 24 August 2021, and another from Ms Hannon to Mr Jackson on 25 August 2021). Mr Hannon records in the 24 August 2021 email that they are happy to sign the loan agreement “on the understanding that it is repaid from the proceeds of R1 settling.” Ms Hannon forwarded this email to Mr Jackson on 22 September 2021 saying that the email indicates that Mr Jackson had accepted that the loan was to be repaid on the settlement of Unit R1 and the loan would be settled and closed.
3 Mikitasova v ASB Bank Limited [2016] NZHC 897.
4 Eco Maintenance Ltd v Leighton Contractors Pty Ltd [2014] NZHC 2340 at [7] citing Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 at 311.
5 Re Lord Cable (dec’d) [1976] 3 All ER 417 (Ch).
[44] Ms Hannon’s email to Mr Jackson on 25 August 2021 records that when settlement of Unit R2 comes through, the rest of the creditors will be repaid and then the Hannon Loan if there are funds left over. The residual of the loan will be repaid when Unit R1 settles on 30 September 2021. Mr Jackson responds and says “thanks will get onto this right away can you and tony also sign the additional document sent acknowledging this is a commercial contract.”
[45] There is also an email dated 9 September 2021 from Mr Holmes of RBEL, to which Ms Hannon is copied in, and which asks Mr Lester of Innovation Generator to confirm that the “unconditional status of R1 sale proceeds will be available for payment of Archibuild and other creditors??”
[46] The 2016 loan agreement included at clause 5.2 a requirement that RBEL repay to Senior Trust the full net proceeds of sale of Units R1, R2, R3 and R4 on the settlement of each sale. Repayment was subject to the prior consent in writing of Senior Trust.
[47] Unit R1 was owned by RBEL and not Mr and Ms Hannon personally. RBEL was required to comply with clause 5.2 of the 2016 loan agreement.
[48] There is also an email from Mr Jackson to Ms Hannon dated 18 March 2021 noting that the proceeds of sale from the units will be directed to the senior lender, who was Income Generator. Mortgage instrument 11835514 records that a mortgage with a priority sum of $20 million was granted to Income Generator on 21 August 2020 and affects records of title 881543 (Unit R1), 881544, 881545 and 907958 (the RBEL Land).
[49] Mr Jackson deposes that he understands that the proceeds from the sale of Unit R1 were used to reduce the debt owed by RBEL to Income Generator, then subsequently redrawn to help RBEL meet its obligations to creditors.
[50] I do not consider that the emails to Mr Jackson nor his response, establish that it was a term of the Hannon Loan that it be repaid from the process of sale of Unit R1.
[51] I am not satisfied that the evidence establishes that Mr Jackson agreed that the Unit R1 proceeds were to be used to repay the Hannon Loan. At best, he acknowledged the email and Ms Hannon’s desire for this to occur and indicated he would proceed to action the loan. In circumstances where the proceeds from the sale of Unit R1 were subject to a mortgage to Income Generator and Unit R1 was owned by RBEL, and not Mr and Ms Hannon personally, in my view it would have been necessary to document Income Generator and RBEL’s agreement for those proceeds to be used to repay the Hannon Loan.
[52] Further, Ms Hannon was a director of RBEL. She was therefore in a position to procure RBEL to repay the Hannon Loan from the funds it drew down to repay creditors. This is especially so in circumstances where the Hannon Loan was used to pay a creditor. That, however, did not occur which suggests that this was not done because RBEL was not in a financial position to do so.
[53] In the circumstances, I am not satisfied that there is a serious case to be tried on this course of action.
Misrepresentation and breach of FTA
[54] These courses of action rely on the same circumstances as the breach of contract claim. It is alleged that Mr Jackson on behalf of Senior Trust represented that the Hannon Loan would be repaid from the Unit R1 proceeds of sale. The applicants allege that the representations were made in a conversation between Mr Jackson and Mr Hannon on 24 August 2021, and in the emails referred to at [43] above. There is no evidence as to the contents of the conversation other than Mr Hannon’s email dated 24 August 2021 which states:
John – again per conversation this morning – we are both happy to sign the Loan Agreement consequent on the understanding that it is repaid from the proceeds of R1 settling …
(emphasis added)
[55] Mr Jackson’s evidence is that he never said or agreed that the Hannon Loan could be repaid from the proceeds of Unit R1. He says he had no power to say that as the Senior Lender, Income Generator would also have to agree, whom he had no
control over. Mr Jackson was a director of Income Generator but there was a potential conflict if Senior Trust’s interests were to be preferred to Income Generator’s.
[56] I am therefore not satisfied that there is a serious question to be tried on these causes of action.
Breach of s 176 of the PLA
[57]Section 176 of the PLA provides:
176 Duty of mortgagee exercising power of sale
(1)A mortgagee who exercises a power to sell mortgaged property,
including exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:
(a)the current mortgagor:
(b)any former mortgagor:
(c)any covenantor:
(d)any mortgagee under a subsequent mortgage:
(e)any holder of any other subsequent encumbrance.
(2)A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section 200.
[58] The obligation under s 176 to take “reasonable care” to obtain the best price reasonably obtainable has been considered in Public Trust v Ottow6 and the factors summarised as follows:
(a)The appointment of a reputable real estate agent to market the property;
6 Public Trust v Ottow (2009) 10 NZCPR 879 at [31].
(b)Obtaining a valuation report from an experienced valuer as a guide to what could reasonably be expected for the property;
(c)Marketing over a reasonably long period of time;
(d)An extensive advertising and promotional campaign;
(e)A properly conducted auction; and
(f)A sale price that, given all the circumstances, can be reconciled with expert opinion as to value.
[59] In this case, Bayleys were appointed to conduct the mortgagee sale. This included a four-week national and international advertising programme which resulted in tenders. While there is a discrepancy between the valuations and the sale price, Senior Trust submitted that the discrepancy is because of the issues arising under the abatement notices and flood issues.
[60] The tenders received in response to Bayleys campaign also indicate that the maximum price offered was $20 million and this was conditional on finance of $2 million. Mr Jackson deposes that this offer was from a purchaser known to Bayleys for not completing transactions and wasting time, and therefore Senior Trust did not have confidence in the offer.
[61] Mr Rendell of Bayleys deposes that Bayleys and Senior Trust negotiated with both the offeror of the $20 million conditional offer and Roy’s Bay GCO Ltd and ultimately sold to Roy’s Bay GCO Ltd at $18 million.
[62] Senior Trust provided affidavit evidence from Mr Rendell of Bayleys that the marketing process exceeded ordinary practice.
[63] Ms Hannon’s evidence indicates that the applicants consider that s 176 of the PLA was breached because of the discrepancy between $18 million and the agreement to purchase the land for $22 million. Ms Hannon did not provide evidence as to why the agreement for $22 million had not completed nor did she provide any evidence as
to the abatement notices and the potential flood issues. Ms Hannon also failed to inform the Court that she and Mr Hannon had submitted an offer for $16 million – suggesting they too knew the RBEL Land was worth significantly less than $22 million.
[64] Ms Hannon also refers to the limited marketing campaign in her affidavit and says the campaign only lasted one month. She says more extensive and active marketing was necessary. Against this, is the evidence from Bayleys, an experienced real estate agent.
[65] Given the marketing campaign, the affidavit evidence from Mr Rendell and the explanation for the difference between the valuations and the price achieved for the RBEL Land, Ms Hannon’s concerns as to the sale of RBEL land are unconvincing and unsupported by any expert evidence. I am satisfied on the affidavit evidence that Ms Hannon’s claim on this ground is tenuous.
[66] In these circumstances, I am not satisfied that there is a serious question to be tried as to whether Senior Trust has breached s 176 of the PLA.
Duress
[67] The elements of duress were stated by the Court of Appeal in McIntyre v Nemesis DBL Ltd:7
(a)There must be the exertion of illegitimate pressure on a victim; and
(b)The imposition of that pressure must have compelled the victim to enter the contract.
[68] When considering whether there was illegitimate pressure, this must be distinguished from “the rough and tumble of the pressures of normal commercial bargaining”.8
7 McIntrye v Nemesis DBK Ltd [2009] NZCA 329, [2010] 1 NZLR 463 at [20].
8 DSND Subsea Ltd v Petroleum Geo Services ASA [2000] EWHC 185, [2000] BLR 530 (TCC) at [131].
[69] The applicants allege that Senior Trust illegitimately demanded that Ms Hannon provide the Guarantee and the mortgage over Unit R4. The applicants say there was no basis to demand additional security under the 2016 loan agreement.
[70] In response, Senior Trust deny that it made any threats or exerted any illegitimate pressure on Ms Hannon. Ms Hannon was a director and shareholder of REBL. In those circumstances, Senior Trust says it was entitled to request Ms Hannon provide security given that RBEL had repeated cashflow problems. Senior Trust says that RBEL had failed to comply with Senior Trust’s requests to sell units in order to improve RBEL’s financial position and inject capital into the development. In these circumstances, it was open to Senior Trust to require further security before it allowed RBEL to draw down further funds. Senior Trust also submits that it was usual commercial practice to require security from a director and shareholder of a borrower in circumstances where the lender has concerns as to the borrower’s financial position.
[71] The correspondence indicates that the requirement for additional security was linked to the funding to be provided by Innovation Generator. The email from Mr Lester dated 9 June 2020 outlines the reasons for the security:
· Senior Trust Capital, being party to these negotiations, have expressed their willingness to continue to support the development as junior lender. They are prepared to do so on the following basis:
(a)continued progress in completing the refinancing by the Income Generator; and
(b)a limited guarantee from Catherine [Ms Hannon] supported by a first mortgage registered security on the Show Home [Unit R4], which will meet the previously stated requirement for additional security.
· We understand that as this additional security will be provided by Catherine [Ms Hannon], this may necessitate a reorganisation in respect to shareholder capital. We have no objections for Catherine’s [Ms Hannon’s] shareholding in Roy’s Bay Estate Limited to increase. We appreciate the additional support provided by Catherine [Ms Hannon] as Director and Shareholder.
[72] The above email discloses a legitimate reason for requiring additional security. At the time, Senior Trust had a first ranking mortgage over the RBEL Land. If Income Generator was to become the senior lender then this would impact the value of Senior
Trust’s security over the RBEL Land if Income Generator required a first ranking mortgage.
[73] The mortgage priority instrument was registered on 21 August 2020 providing first priority to Innovation Generator’s mortgage dated 21 August 2020 and second priority to Senior Trust’s mortgage dated 30 October 2015. There was therefore a legitimate commercial reason for Senior Trust to require additional security from Ms Hannon as a director with a significant indirect shareholding in RBEL.
[74] Ms Hannon’s affidavit, while providing the email from Mr Lester, did not include any explanation of this broader context or the funding provided by Income Generator despite Ms Hannon being a director of RBEL at the time. The certificate of title disclosing the mortgage priority instrument was provided by Mr Jackson.
[75] ACL’s email dated 17 July 2020 indicates that ACL had considered that the 2016 loan agreement did not require additional security but that in good faith Ms Hannon had agreed to provide it:
2. We understand STCL is now insisting that Catherine’s [Ms Hannon’s] guarantee and the mortgage be provided before a drawdown from STCL will be permitted tomorrow, despite the Income Generator facility not yet being formally in place. This is of concern to RBEL because the drawdown is required in order for RBEL to pay its builder on time. The builder being paid on time is obviously critical for ensuring that a good relationship with the builder is maintained and that construction is able to continue without interruption.
3. Your email below only appears to contemplate that guarantee being provided as security for STCL debt. Having reviewed the STCL loan agreement, it isn’t clear as to the basis on which STCL is insisting that it is entitled to this additional security before authorising a drawdown. RBEL’s position is that it has met the requirements to drawdown without having to provide this guarantee.
4. Despite this, in good faith RBEL and Catherine [Ms Hannon] are prepared to allow her personal guarantee and the mortgage to be granted on the basis that STCL does not seek any further security for future drawdowns and in reliance upon the negotiations regarding the funding from Income Generator continuing in good faith. From the correspondence yesterday, it appears the terms of that new facility are largely agreed.
[76] Further, ACL provided an undertaking to Senior Trust that before the Guarantee was signed, they explained to Ms Hannon the nature and effect of the Guarantee.
[77] The above evidence does not support an allegation of duress but rather, indicates that Ms Hannon understood that the security was linked to the funding from Income Generator which would mean Income Generator became the senior lender and took priority over Senior Trust’s mortgage. There was therefore a legitimate commercial reason to require additional security and a guarantee.
[78] In these circumstances, I am not satisfied that the evidence discloses that there is a serious question to be tried under this course of action.
Dishonest assistance – breach of trust
[79] The applicants allege that Senior Trust dishonestly, or with wilful blindness, assisted Ms Hannon’s breach of her fiduciary obligations by requiring that she grant the mortgage to secure her personal obligations knowing that Unit R4 was beneficially owned by the Investment Trust or without enquiring as to whether Ms Hannon was authorised to grant the mortgage.
[80]This course of action has four components:9
(a)the existence of a trust or fiduciary duty;
(b)a breach of that trust or fiduciary duty by a trustee or fiduciary that results in loss;
(c)participation by a defendant third party (a stranger to the trust) by assisting in the breach of trust or fiduciary duty; and
(d)dishonesty on the part of the defendant.
9 Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519 at [46].
[81] The test for dishonesty is objective, judged against what the defendant subjectively knew.10 A defendant is dishonest if they have actual knowledge that the transaction is one in which the defendant cannot honestly participate.11 Wilful blindness also suffices. In considering wilful blindness, it is “necessary that the strength of the suspicion … makes it dishonest to decide not to make inquiry.”12
[82] The only evidence as to Senior Trust’s knowledge of the Investment Trust is an email from Ms Hannon’s solicitors stating:
As your client will be aware, this unit is being purchased by the Ms Hannon Investment Trust (Trust), an entity associated with Ms Hannon, one of the directors of Roy’s Bay Estate Limited (RBEL).
[83] Senior Trust had no knowledge of the terms of Investment Trust’s trust deed. The declaration of trust was not provided to Senior Trust. While the declaration includes terms that provide for the trustees to lodge a caveat against the title or require the transfer of Unit R4 into the names of the trustees of the Investment Trust, neither of these steps were taken.
[84] There is no evidence that Senior Trust was aware that Tompkins Wake Trustees 2019 Ltd was a trustee of the Investment Trust. Unit R4 was held in the name of Ms Hannon so it was open to Senior Trust to assume that she was the sole trustee who was authorised to act on its behalf.
[85] There is no evidence that Senior Trust was aware that Ms Hannon was required to obtain the consent of any other party before granting a mortgage over Unit R4, which was registered in her name. Senior Trust was also aware that Ms Hannon had received advice from ACL.
[86] Mr Burt submitted that Senior Trust should have been aware that there was an issue in circumstances where the Hannon Loan was personal to Ms Hannon and Unit R4 was owned by the Investment Trust. In response, Mr Tingey for Senior Trust submitted that in the absence of information as to the obligations as between
10 At [77].
11 At [78].
12 Westpac New Zealand Ltd v MAP & Associates Ltd [2011] NZSC 89 at [27].
Ms Hannon and the Investment Trust, there was nothing to put Senior Trust on notice that Ms Hannon may not have been authorised to mortgage Unit R4. Mr Tingey submitted that it was open to Senior Trust to consider that Ms Hannon was entitled to distributions from the Investment Trust given the Investment Trust appears to be in her name and for her benefit. There was nothing to raise Senior Trust’s suspicions.
[87] To the extent that Ms Hannon has issues with ACL for not providing advice to her as to her obligations as a trustee, that is a matter between Ms Hannon and ACL.
[88] Further, the applicants have simply pleaded that Ms Hannon was in breach of her fiduciary duties by granting the mortgage in favour of Senior Trust. There is no evidence as to the powers of Ms Hannon as trustee or the rights of Ms Hannon as a beneficiary of the Investment Trust.
[89] Ms Hannon also alleges that ACL knew that the mortgage of Unit R4 was a breach of the ORA because the ORA included a term (cl 3.10) that precluded the total indebtedness secured by the mortgage from exceeding 50 per cent of the value of the unit. In response, Mr Jackson says that there were no implications for Ms Hannon under the ORA and that Ms Hannon was being advised by ACL. Mr Jackson says to the extent that Ms Hannon did not receive advice as to her contractual obligations, that is a matter between her and ACL. I agree that this is an issue as between Ms Hannon and ACL. In relation to ACL, I note that Mr Tingey indicated that if sufficient time had been provided, Senior Trust would have provided evidence from ACL. A solicitor from ACL confirmed on the day of the hearing that they are willing to provide evidence if required. I do not consider further evidence from ACL is necessary to determine this application, but it may be relevant to the substantive claims, should the applicants wish to pursue them.
[90] I do not therefore consider that the evidence discloses that Senior Trust dishonestly assisted Ms Hannon in breach of trust and/or breach of her fiduciary duties. It had no actual knowledge of any alleged breach of trust (which has not been established) and the circumstances of the transaction did not disclose information that indicate a basis for a suspicion of a breach of trust and/or breach of fiduciary duty.
Conclusion – serious question to be tried
[91] For the reasons set out above, I am not satisfied that there is a serious question to be tried.
Balance of convenience
[92] In considering the balance of convenience, it is necessary to balance the injustice that would be caused to the applicants if an interim injunction is refused and the applicants’ case ultimately succeeds, against the injustice to the respondent if the injunction is granted but then later discharged.
Are damages an adequate remedy?
[93] Ms Hannon says she wishes to retain Unit R4 for retirement, “to be close to [her] daughter who is likely to settle in the area, and to use as a holiday home in the meantime.” Other than this statement, there is no evidence as to why Unit R4 is unique such that damages are an inadequate remedy.
[94] Ms Hannon has never occupied the property and it was listed as a “show home” in the declaration of her and Mr Hannon’s assets and liabilities. The circumstances surrounding the purchase of Unit R4 indicate that the purpose of the purchase was to inject capital into RBEL, not to enable Ms Hannon to use Unit R4 as a retirement home.
[95] Further, Ms Hannon put Unit R4 on the market in November 2022. She was therefore willing to sell it. While she says that she thought she had no option but to do this, it does suggest that Ms Hannon does not have such a special connection to Unit R4 that selling is out of the question.
[96] Ms Hannon did not disclose to the Court that she has interests in another property in Wānaka, which is held through a company owned by her and Mr Hannon. Mr Burt for the applicants submitted that the other Wānaka property is not owned exclusively by Ms Hannon, and Ms Hannon is now separated from Mr Hannon. While this is correct, it does indicate that Unit R4 is not the only residence potentially available to Ms Hannon should she wish to retire in Wānaka.
[97] I accept Senior Trust’s arguments that Ms Hannon’s suggestion that she has a close connection to Unit R4 is very tenuous. The submission is contrary to the evidence as to the purpose for which Unit R4 was purchased and to the fact Ms Hannon was willing to sell it in November 2022.
[98] Any damages that may be awarded to Ms Hannon should her claim succeed are also quantifiable. Damages are therefore an adequate remedy.
Conduct of applicants
[99] Mr Tingey for Senior Trust submitted that the conduct of the applicants is such that the application should be declined. In support of this submission, Mr Tingey referred to:
(a)the delay in seeking relief;
(b)the failure to disclose relevant information to the Court when the without notice application was filed; and
(c)the failure to adduce any expert evidence as to the adequacy of the marketing process for the RBEL Land.
[100] The absence of expert evidence is to the applicants’ detriment and I do not consider this goes to the issue of whether there is a serious question to be tried, which I have considered above.
[101]I consider the issues of delay and non-disclosure below.
Delay
[102] The PLA notices were issued in June 2022. Ms Hannon was then on notice that Senior Trust intended to exercise its rights to enforce payment of the monies owing under the Hannon Loan and the Guarantee. It was open to Ms Hannon to obtain advice at that time and seek relief if she did not want Unit R4 sold.
[103] Mr Andrews of Bayleys deposed that Senior Trust decided to hold off on marketing the property when it realised Ms Hannon was selling Unit R4. Bayleys were not instructed to market Unit R4 until 28 November 2022. It was not therefore necessary for Ms Hannon to apply to stop the mortgagee sale in circumstances where she had been willing to sell Unit R4 herself. This does, however, suggest that Ms Hannon did not have a special connection to Unit R4, so counts against granting an injunction.
[104] Ms Hannon says that on 30 November 2022 her agent became aware that Unit R4 was being advertised for mortgagee sale. Senior Trust informed Ms Hannon of the mortgagee sale on 7 December 2022. Ms Hannon then says that “immediately after becoming aware” of the mortgagee sale she instructed her solicitors to apply for an interim injunction. There is, however, an email dated 3 November 2022 from Ms Hannon to her counsel, Mr Burt. This suggests that Ms Hannon instructed Mr Burt in early November 2022. At that stage, Unit R4 was being marketed for sale. Mr Burt has not confirmed when he was first instructed but it appears to have been early, not late, November 2022.
[105] Ms Hannon was overseas from 7 December 2022 and then contracted COVID- 19 which delayed her return as she did not test negative until 21 December 2022.
[106] Ms Hannon’s explanation for filing the application without notice is that it is unlikely a hearing would have been able to be heard before 20 January 2023 and she was concerned that Senior Trust may pre-emptively sell Unit R4. No evidence was filed as to the risk of a pre-emptive sale and there was sufficient time for the application to be head before 20 January 2023, as has occurred.
[107] Given Ms Hannon had been willing to sell, I do not consider that the delay was significant. The fact that the application was filed without notice and on the last working day before Christmas impacted Senior Trust’s ability to respond in full. That is a factor against Ms Hannon when considering the balance of convenience.
Failure to disclose relevant information
[108] Mr Tingey submitted that the applicants failed to disclose relevant information when the without notice application was filed and this goes against awarding the injunction.
[109]Mr Tingey says the non-disclosure includes:
(a)the trust deed for the Investment Trust;
(b)any evidence from Tompkins Wake Trustees 2019 Ltd regarding the alleged breach of trust by Ms Hannon;
(c)the fact that Ms Hannon has interests in another property in Wānaka;
(d)that Ms Hannon instructed counsel from at least 3 November 2022 and not 30 November 2022 as suggested;
(e)evidence as to the dispute with S5 and RBEL regarding the agreement to purchase the RBEL Land;
(f)evidence of the assets of the applicants to support the undertaking as to damages; and
(g)an explanation of Ms Hannon’s interests in RBEL.
High Court Rules
[110] Rule 7.23(2)(b) of the High Court Rules 2016 (HCR) provides that an application without notice may be made only if the applicant has made all reasonable inquiries and then taken all steps to ensure that the application and supporting documents contain all material that is relevant to the application, including any defence that might be relied on by any other party and any facts that would support the position of any other party.
[111] Rule 7.23(3) also requires that if the application is of a kind that is likely to be contested if it were made on notice, the applicant must file a memorandum that sets out information including:13
(d) all information known to the applicant that is relevant to the application, including any known grounds of opposition or defence that any other party might rely on, or any facts that would support opposition to the application or defence of the proceeding by any party.
[112] Rule 7.23(4) then provides that failure to disclose all relevant matters to the court may result in the application being dismissed.
[113] While I accept r 7.23 applied to the without notice application, the application has now been put on notice and I cannot rely on r 7.23(4) to dismiss the application. I accept that non-disclosure is relevant to the conduct of the applicants and is a factor to be considered when weighing the balance of convenience.
Detriment
[114] Senior Trust submits that it will suffer significant detriment if the injunction is granted and relies on the evidence of Mr Andrews of Bayleys. The loss includes:
(a)wasted costs of sale of at least $31,000 that will be incurred if the sale does not proceed;
(b)the loss of existing leads;
(c)a risk of the price being reduced because a later mortgagee sale will be required; and
(d)a reduction in the market value of Unit R4 given the current state of the Wānaka property market which Mr Andrews says is in the middle of a downward trend.
13 High Court Rules 2016, r 7.23(3).
[115] There is also potential detriment to third parties if the mortgagee sale is delayed as this will result in further interest accruing on the outstanding debt, thereby increasing the debt owed by RBEL and Mr Hannon under the Hannon Land.
[116] I consider that the potential loss to Senior Trust and the potential detriment to third parties of granting the injunction outweighs any detriment to the applicants. This is especially so when damages are an adequate remedy.
Undertaking as to damages
[117] While the applicants have filed an undertaking as to damages, they have not provided any evidence as to their financial position. Mr Burt referred to the statement of the assets and liabilities of Mr and Ms Hannon, which was part of the evidence filed by Senior Trust. That statement discloses assets in excess of $10 million as at June 2020. The assets appear to be held through various trusts and companies. The Investment Trust appears to hold commercial property valued at $1 million and Unit R4, which is listed as the Roy’s Bay show home. Mr Burt says that the property owned by the Investment Trust is easily ascertainable by undertaking a title search.
[118] While I do not consider this issue is determinative of this application given my findings, the applicants should have filed evidence as to their financial position so that the worth of the undertaking could be readily assessed. The financial information provided by Senior Trust is more than two years old.
Service
[119] While Senior Trust raised concerns as to the adequacy of service, I consider that the applicants took all reasonable steps to notify Senior Trust of the proceedings on 23 December 2022, including by emailing the documents to Mr Jackson and to Senior Trust’s solicitors, Baker Meech. This was the last day before the Christmas break and in those circumstances, I do not consider anything turns on the delay in effecting service on Senior Trust. Senior Trust has filed comprehensive submissions and four affidavits in the short time available.
Overall justice of the case
[120] For the reasons set out above, I consider that the overall justice of the case requires that the application for an interim injunction be dismissed.
Result
[121]I dismiss the application for interim relief.
[122] Mr Tingey submitted that Senior Trust’s costs will be covered by the mortgage over Unit R4 and therefore costs should be dealt with in the same way as in Jadie Trustee Ltd v Rabobank New Zealand Ltd14 where no order as to costs was made.
[123]I do not therefore make any order as to costs.
Tahana J
14 Jadie Trustee Ltd v Rabobank New Zealand Ltd [2012] NZHC 773 at [36].
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