Ibanez Limited v Westpac New Zealand Limited HC Auckland CIV 2011-404-5263
[2011] NZHC 1721
•1 December 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-5263
BETWEEN IBANEZ LIMITED First Plaintiff
ANDWENDY JUNE LOUISE THOMPSON Second Plaintiff
ANDSTEVEN DESMOND BARKER AND MATTHEW WARREN BARKER Third Plaintiffs
ANDWESTPAC NEW ZEALAND LIMITED First Defendant
ANDRAHOPARA FARMS LIMITED Second Defendant
Hearing: 21 October 2011
Appearances: D G Smith for Plaintiffs
R B Stewart QC and P V Shackleton for First Defendant
P T Cavanagh QC and S E Trafford for Second Defendant
Judgment: 1 December 2011
JUDGMENT OF WHITE J
This judgment was delivered by me on 1 December 2011 at 10.00 am pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar
Date: ………………….
Counsel: David Smith: [email protected]
R B Stewart QC: [email protected]
P T Cavanagh: [email protected]
S E Trafford: [email protected]
Solicitors: D J Gates, Whangaparaoa, Auckland: [email protected]
Simpson Grierson, Auckland: [email protected]
North Harbour Law, Auckland: [email protected]
IBANEZ LTD V WESTPAC NZ LTD HC AK CIV 2011-404-5263 1 December 2011
Introduction
[1] On 26 July 2011 Westpac New Zealand Limited (Westpac), as first mortgagee, sold a property known as Kelly Park and owned principally by Ibanez Limited (Ibanez) to Rahopara Farms Limited (Rahopara) for $4,550,000. At the time of the sale Ibanez owed Westpac approximately $14,000,000. Settlement of the sale was due on 31 August 2011.
[2] On 26 August 2011 Ibanez and the other plaintiffs (Ms Thompson as part owner of Kelly Park and fourth mortgagee, Mr Steven Barker as a director of Ibanez and Mr Matthew Barker as a director and shareholder of Ibanez) issued proceedings against Westpac in negligence for breach of its duty of care at common law and under s 176 of the Property Law Act 2007. The plaintiffs seek an order cancelling the sale contract or damages of $70,000,000, less the sum required to pay Ms Thompson’s mortgage. The plaintiffs also seek a declaration of illegality in respect of the agreement for sale and purchase under the Illegal Contracts Act 1970.
[3] Also on 26 August 2011 the plaintiffs applied for an interlocutory injunction staying the sale of Kelly Park to Rahopara until further order of the Court. The application was made on the grounds that the plaintiffs’ claims would be rendered nugatory if the injunction was not granted and damages would not be an adequate remedy.
[4] On 29 August 2011 Keane J granted the interim injunction as he was satisfied
“on the papers” that Ibanez did appear to raise a serious question to be tried and, given the terms of the contract between Westpac and Rahopara, which entitled Westpac to defer settlement until two days after resolution of the application, a deferral of settlement would not be to the prejudice of either. Keane J granted the interim injunction “until the merits can be gone into” and made timetable directions which led to the filing of 10 further affidavits and the hearing on 21 October 2011.
[5] At the conclusion of the hearing on 21 October 2011, I adjourned the case to enable the plaintiffs to file a further affidavit, the parties to file an agreed chronology and Westpac to file its credit submission document. By memorandum dated
28 October 2011 Westpac provided a series of documents, including two credit approval summaries, file notes and a notice and minutes of the Rodney District Council. The plaintiffs initially took issue with a number of these documents, but then indicated in a joint memorandum dated 3 November 2011, which provided the agreed chronology, that they no longer had any objection to the documents provided by Westpac. The plaintiffs filed their further affidavits on 28 October and 7
November 2011. Memoranda in response for Rahopara and Westpac were filed on
10 and 16 November 2011 respectively and a final memorandum for the plaintiffs was filed on 18 November 2011. Further reference will be made to these documents in the judgment.
[6] The issue now is whether Ibanez is entitled to an interlocutory injunction on the merits, pending determination of its claims against Westpac, or whether I should rescind Keane J’s interim injunction and leave Ibanez to pursue its claim for damages.
Legal principles
[7] The relevant legal principles relating to interlocutory injunctions are well- established and were not in dispute.[1] The Court must consider:
(a) whether there is a serious question to be tried; (b) where the balance of convenience lies; and
(c) the overall justice of the case.
[1] American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); and Klissers Farmhouse Bakeries Ltd v
Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
[8] In determining whether there is a serious question to be tried in the present case, counsel agree that the issue is whether Ibanez has established an arguable case that Westpac was in breach of its duty of reasonable care to the plaintiffs under s 176
of the Property Law Act 2007 “to obtain the best price reasonably obtainable [for
Kelly Park] as at the time of sale”. The meaning and application of this provision is
well established.[2]
[2] Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA), and [2004] 1 NZLR 721 (PC); Harts Contributory Mortgages Nominee Company Ltd v Bryers HC Auckland CP 403-IM00, 19 December 2001 at [43]; Crown Money Corporation Ltd v Pink-Martin HC Auckland CIV-2008-404-297, 5 September 2008 at [32]; Public Trust v Ottow (2010) 10 NZCPR 879 (HC) at [17]; Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd (2001) 4 NZ ConvC 193,480 (HC); and Tom Bennion, David Brown, Rod Thomas and Elizabeth Toomey New Zealand Land Law (2nd ed, Bookers Limited, Wellington, 2009) at [9.9.06] – [9.9.07].
[9] In terms of the balance of convenience, the test is whether granting or refusing an injunction would best allow for a just and fair adjustment of the rights of the parties once the substantive issues have been determined at trial.[3]
[3] Congoleum Corp Ltd v Poly-Flor Products (NZ) Ltd [1979] 2 NZLR 560 (CA) at 571.
[10] The adequacy of damages as a remedy available to the plaintiff if the plaintiff were to succeed at trial is the primary consideration.[4] In the present context even if a mortgagor has an arguable case for alleging a sale at an undervalue this will not necessarily support an injunction to prevent the sale because any failure to obtain a higher price may well be able to be compensated in damages.[5]
[4] American Cyanamid at 408.
[5] Bevin v Public Service Investment Society Ltd (1994) 2 NZ ConvC 191,821 (CA); Bhana v Westpac
[11] Another relevant factor is whether there has been any delay by the plaintiff in bringing the application.
Factual background
[12] The detailed factual background to the present case is set out in the affidavit and documentary evidence and summarised in the agreed chronology provided by the parties to the Court after the hearing. The following outline is based on the evidence and the agreed chronology.
[13] Kelly Park is a property of some 332 hectares situated at Wainui, north of
Auckland, that was subdivided into 17 certificates of title. Resource consent for the subdivision of the land had been granted in 2002. The property was originally used
principally for equestrian activities, but in recent years Ibanez has taken steps to develop it as a location for the film industry with studio facilities.
[14] Ibanez purchased the majority stake in Kelly Park from Ms Thompson in
2004. On 8 March 2004 resource consent was granted to allow parts of Kelly Park to be used for filming. The resource consent was for two years. On 23 February
2006 the Rodney District Council granted a further five year resource consent to allow parts of Kelly Park to be used for filming. In mid 2007 the Council took steps to prepare a draft change to the District Plan to allow Kelly Park to be re-zoned for filming purposes. These changes were notified on 18 December 2007.
[15] Westpac first provided finance to Ibanez in February 2008. Prior to doing so, Westpac obtained a valuation of Kelly Park from DTZ, registered valuers, in September 2007 for $31,000,000 which Westpac discounted to $24,000,000 on the grounds that, while one lot was then being leased out profitably as a film studio, the lease was on a short-term basis.
[16] Westpac offered finance to Ibanez on 13 December 2007. The offer comprised an overdraft of $50,000 and a development loan of $11,725,000. The purpose of the loan was stated to be:
To assist with the refinancing of existing debt, purchase of family home, subdivision costs and capitalised interest and fees and [sic] follows:
Refinance of existing debt $ 8,500,000
Purchase of house for Wendy Thompson $ 600,000
Subdivision Costs $ 1,300,000
Professional Fees $ 50,000
Capitalised Interest & Fees $ 1,275,000
Westpac Facility $ 11,725,000
[17] The agreed chronology records that the funds were not advanced for the purposes of the proposed change to the District Plan. The agreed statement and documentary evidence relating to the purpose of the loan supports this. Accordingly, Ibanez’s submission that the “entire purpose of the funding was to complete the film park concept” was not entirely correct.
[18] Ibanez executed the written agreements for the loan facility and overdraft on
12 February 2008. The overdraft and facility were secured by first registered mortgages over Kelly Park, a general security agreement over the assets of Ibanez, unlimited guarantees from Messrs Matthew and Steven Barker and a limited guarantee from Ms Thompson.
[19] The original Westpac loan of $11,725,000 was drawn down by Ibanez on
28 February 2008. The term of the loan was 12 months from the initial draw down.
[20] On 20 June 2008 Westpac agreed to increase the facility limit from
$11,725,000 to $11,843,000 to provide for additional costs associated with a re- zoning application. The re-zoning application referred to the proposed change to the District Plan.
[21] On 22 October 2008 the Rodney District Council approved the change to the District Plan to re-zone Kelly Park for filming purposes. The change became operative on 11 June 2009.
[22] In February 2009 Ibanez obtained a market valuation of Kelly Park from Mr John Dunckley of DTZ New Zealand Limited of $75,000,000 plus GST on the basis that the site was developed for film purposes. Mr Dunckley’s valuation report recognised that the international market would compete with Kelly Park and would be influenced by available expertise, cost of facilities and government incentives. Reference was made to competing international and New Zealand sites. The report concluded:
The value as a whole at $75,000,000 is of itself somewhat subjective as it assumes a one-off sale an [sic] there are no direct sale comparisons of this magnitude although the value rates applied to each land use are supportable and is supported by the Discounted Cash Flow approach if a discount rate of
25% is adopted.
[23] Westpac’s loan facility to Ibanez expired on 28 February 2009. Ibanez failed to repay the amounts owing under the Facility. The subdivision was incomplete and Ibanez had made limited progress with sales and in securing alternative revenue.
[24] On 11 May 2009 Westpac obtained a valuation of Kelly Park from Mr Angus McDonald and Ms Jessie Jiang of Sheldons, registered valuers, which valued the aggregate total of the individual lots at $21,750,000 (inclusive of GST) if sold as lifestyle blocks, with the shared ownership requirement removed. Sheldons valued the aggregate total of the individual lots at $26,260,000 (inclusive of GST) if sold as part of a film park.
[25] In an affidavit in this proceeding, Ms Jiang explained why Sheldons’ May
2009 valuation differed so significantly from Mr Dunckley’s valuation:
14.I do not agree with the conclusions of this valuation. Although I have not been asked to carry out a detailed critique of the DTZ Valuation at this stage, it appears to substantially over-value the property at the time. There was a reasonable amount of market sales evidence of lifestyle blocks in the area which would provide a relatively clear indication of the market level for lifestyle type use. We have assessed an aggregated value of all proposed lots at
$21,750,000 inclusive of GST in the Sheldons’ 2009 Valuation
Report.
15.DTZ appear to have applied a premium of at least $50 million to the property simply by virtue of its film park zoning. I consider such a premium as indicated by the market was excessive then and now. I am aware that at that time some of existing Auckland film studios were struggling to find tenants due to the economic downturn and the difficulty in financing film projects.
16.In summary the main difference between the subject land and other land in the locality is the film park zoning. Any premium attributable to the zoning would only be achieved if the permitted use itself is economically feasible and there was sufficient demand.
...
18.Turning to the details contained in the DTZ valuation, my main concern with the DTZ valuation is the quality of the sale evidence provided and the lack of explanation of the logic behind the land value rates (value per square metre of land) adopted in the valuation when compared to the evidence. I do not consider that the transactions referred to in the DTZ valuation are supportive of the
$75 million valuation.
19. I note that:
(a) Some of the sales of properties with substantially less land area than Kelly Park (less than one ha);
(b) Some were within established urban areas;
(c) One of the sales was of a site for high density housing redevelopment; and
(d) Half of the sales were from 2006/2007 period which was the peak of the market.
20.On analysis (and excluding three sales which I consider to be of little relevance), the general land value as suggested by the evidence relied on by Mr Dunckley ranges from $62 per m2 to $176 per m2 whereas the land value actually applied in the DTZ Valuation was
$250 - $350 per m2 over his estimated building footprint areas.
[26] Westpac asked Sheldons to value the aggregate total of the individual lots if sold as lifestyle blocks with the shared ownership requirement remaining. On
20 May 2009 Sheldons provided this valuation of $19,980,000 (inclusive of GST) to
Westpac.
[27] On 11 June 2009 the re-zoning of Kelly Park became operative.
[28] On 14 July 2009 Westpac agreed to extend the term of the facility to
31 October 2009 (an eight month extension from the original expiry date). Westpac also increased the facility limit from $11,843,000 to $12,485,000 (an increase of a further $642,000) to provide Ibanez more funds for marketing costs, capitalising interest and costs associated with the development.
[29] On 31 October 2009 the facility expired for a second time. Again no
payment was made by Ibanez. Ibanez’s proposed subdivision remained incomplete.
[30] Despite Ibanez’s default, Westpac gave Ibanez more time to complete its development. Westpac advanced further funds to Ibanez for this purpose.
[31] In November 2009 Mr Steven Barker advised Ms Madden of Westpac that the subdivision would be complete, with new titles being issued and a marketing campaign under way, by January 2010. In December 2009 Mr Barker advised Ms Madden that the estimated date for completion might now be February 2010. In March 2010 Mr Barker advised Ms Madden’s assistant that new titles were still four to five weeks away. Despite these assurances, by April 2010, new titles had still not been issued. Mr Barker advised that Ibanez’s lawyer was putting the “new title and consent conditions on to the title documents”.
[32] On 18 May 2010 Mr John Dunckley, now of Darroch Limited, provided Mr Steven Barker of Ibanez with “a one page” confirmation of his 2009 valuation for Kelly Park of $75,000,000. Mr Dunckley’s report stated:
We are able to provide you with this brief desk-top update conditional on a full inspection and review of all factors affecting the value.
...
In providing this advice we have had regard to the development work undertaken to date, approvals granted and titles issued. We have not had sufficient time to research all other data and reserve the right to amend the valuation once all investigative work is undertaken.
The development to date has significantly advanced the Film Park from the concept of 10 years ago to allowed activity today. The next critical step is the uptake and development of significant blocks within the Film Park for occupancy and use as originally intended. As yet there is no established
“internal” market.
Progress to date is impressive with significant capital cost and the risk of achieving the zone change virtually removed.
There is little in the property market from which to draw a reasoned comparison...
The best market information is the proposed contract price at $75,000,000 offered by Kalarikai Project Management (INT) Limited for the subject property. They propose an overall development estimated at some
$500,000,000...
...
Based on the current information the value as at 2009 should still be relevant. However a formal valuation cannot be provided until the necessary research is undertaken.
[33] On 25 May 2010 Mr Larry Ward (Ibanez’s broker) advised Westpac that Ibanez had been sold for $75,000,000 to Kalarikai Project Management Limited. As part of this sale, Ibanez was to refinance, with Westpac paid in full. Westpac provided Ibanez with time to explore this and other proposals.
[34] In accordance with Westpac’s instructions to its solicitors, Simpson Grierson, the plaintiffs were served with notices under ss 119 and 122 of the Property Law Act
2007 between 10 and 22 June 2010. The Property Law Act notices recorded that the total amount in arrears was $12,746,549.70, being the principal balance of
$12,704,296.76 and accrued interest of $42,252.94. The notices were issued eight
months after the extended facility expired on 31 October 2009 and after six months of unfulfilled promises by Ibanez as to when new titles would issue.
[35] On 12 July 2010 Westpac’s Property Law Act notices expired unremedied.
[36] On 25 July 2010 Westpac obtained an updated current market valuation of Kelly Park from Sheldons for selling purposes and also to provide a minimum recommended selling price under “forced sale conditions”. Sheldons’ valuation, by Mr McDonald and Ms Jiang, valued Kelly Park at $8,150,000 (exclusive of GST) based on a hypothetical subdivision approach and at $6,500,000 (exclusive of GST) on a forced sale basis.
[37] Ms Jiang explained Sheldons’ July 2010 valuation in her affidavit as follows:
10. We prepared the 2010 Sheldons’ Valuation on an “as is” basis.
11. We calculated the market value of Kelly Park using a “hypothetical subdivision” method. We also used a “block discount” method as a check. We assessed the market value of Kelly Park as a block at
$8,150,000 (exclusive of GST, if any).
12.We calculated the minimum recommended selling price under forced sale conditions at $6,500,000. We calculated this by applying a discount rate which we estimated at 20%.
[38] From July 2010 to March 2011 Westpac continued to provided Ibanez time to pursue various proposals, including a sale to (now) Kakarlapudi Infrastructure Limited (again for $75,000,000). Ultimately this sale to Kakarlapudi Infrastructure Limited did not go ahead, and Ibanez was unable to refinance.
[39] On 8 March 2011 Westpac obtained a marketing appraisal for Kelly Park from Colliers International New Zealand Limited (Colliers). The marketing appraisal recommended sale by “a Deadline Private Treaty process” rather than by Tender process or auction. Colliers advised that the advantages of a Deadline Private Treaty process were:
(a) it was confidential, which enabled them to leverage buyers; (b) it was a widely understood method of sale;
(c) it encouraged the market to value the property, thus avoiding a nominated asking price, which carried a risk that market competition was not maximised if set too low or could dissuade interest if set too high;
(d)it allowed for further qualification of interest and offers from a number of parties at the close of the campaign and allowed them to leverage parties considering the opportunity; and
(e) it enabled the vendor to deal with any party at any time during the process and encouraged buyer participation and therefore competition.
Colliers noted that they might well receive a number of offers of varying degrees of formality and conditionality and that it was likely in that scenario that they would need to negotiate further in a “second round” with a short list of selected purchasers to achieve the optimum outcome.
[40] In their marketing appraisal Colliers also described the current market conditions as follows:
There is little interest in lifestyle properties in the current market environment and we believe that it would take approximately 3-4 years to sell down the subdivided 17 sections on an individual basis. In addition we do not believe there is any value in the film facility. In fact, we believe that this an impediment to it’s [sic] desirability as a lifestyle location as likely buyers would view the presence of a commercial facility to be a detraction to the rural environment. We have made enquiries with contacts in the film industry and the facility is definitely not seen as a “first choice location” as it does not have any production facilities rather it is a large building that allows specialised set construction. To this end we do not think it is commercially viable in its current format.
Funding for the acquisition of this type of property is most likely a difficult proposition and it is expected therefore that the most likely buyer will be a small farm operator or long-term land banker purchasing the property largely with equity.
[41] Colliers identified the target market as consisting of private individuals (local and national), neighbouring property owners, land bankers, investors, and developers/subdividers. They stated that international exposure would also be a factor in their marketing, although they did not anticipate the buyer would be
overseas-based. Colliers’ appraisal also included a marketing plan which proposed media advertising in New Zealand, a detailed information memorandum for the property, site signage installed on the road front of the property, professional photography, a targeted email marketing campaign to its national database of investors and listings on various websites.
[42] Colliers indicated that “a likely realisable sales value” for Kelly Park, if sold under mortgagee instructions and assessed on a “bare-block” basis, would be between $3,400,000 and $4,250,000.
[43] Based on Colliers’ marketing appraisal, Westpac instructed Colliers to market Kelly Park for sale. Westpac had given Ibanez over two years from the date when the facility first expired in February 2009 to complete the subdivision and/or to sell Kelly Park.
[44] On 9 April 2011 Westpac obtained a valuation of Kelly Park from Mr Warren Priest of Seagar & Partners (Seagars), registered valuers. The valuation was to provide a market value for fair market and mortgagee sale purposes. Mr Priest’s fair market value was $10,800,000 (exclusive of GST) and between
$8,100,000 and $8,640,000 on a mortgagee sale. In his valuation report, Mr Priest recognised the special Kelly Park Film Village zoning of the property and the film studio, which he described as “a very useful amenity”, but he concluded that:
Due to the location, the nature of the property, and prevailing marketing conditions, we believe the highest and best use is as a lifestyle subdivision.
Given that much of the property has a neglected appearance, and that there is obviously alot of deferred maintenance, it is our opinion that if someone were looking to buy it as a whole, they would be less inclined to see much, if any, added value in the film production aspects of the properties’ zoning.
...
... [We] consider the highest and best use for the property is to uplift the remaining titles and sell these individually.
[45] On 28 April 2011 Mr Craig Morton, who was then managing the file for Westpac, met Mr Ward who advised that he was dealing with “parties” who wished to make an offer to repay Westpac’s debts.
[46] On 30 April 2011 Colliers commenced its four week marketing campaign of Kelly Park with the first advertisement being placed in the New Zealand Herald. The deadline for offers was 4.00 pm on 2 June 2011.
[47] On 4 May 2011 Mr Ward emailed Mr Morton and offered Westpac
$7,500,000 in full and final settlement of Ibanez’s debts to Westpac. Westpac rejected this offer. Ibanez later offered $10,600,000. Ibanez would pay Westpac using funds received from a refinancing. Discussions about Ibanez’s proposed refinancing continued between Mr Ward and Mr Morton.
[48] Colliers received eight offers and one expression of interest for Kelly Park at various levels and with varying conditions attached:
(a) Morgan Family Trust - $3,250,000, subject to two weeks’ due
diligence from date of acceptance and settlement on 1 July 2011;
(b)Daughters and Parents Limited (J Singh) - $4,800,000, subject to settlement in 12 months or sooner by agreement
(c) North River Properties Limited - $2,400,000, subject to settlement on
30 September 2011, and sale of another property and finance;
(d) The Liu Family Investment Trust - $4,000,000 with settlement
15 working days from unconditional;
(e) Parea Properties Limited - $3,500,000 with settlement on 5 August
2011 and subject to finance;
(f) Rahopara Farms Limited - $3,526,000, subject to due diligence;
(g)Pat Carey - $2,500,000, with settlement on 31 August 2011 (unconditional offer);
(h) Sunnylight Nurseries Limited – no indication of price or terms; and
(i)Capital Raisers Limited (Larry Ward) – email informing refinancing had been arranged.
[49] On 7 June 2011 Mr Ward emailed Mr Morton attaching a letter which advised
that the Whenua Trust was the proposed lender for Ibanez’s refinancing.
[50] On 10 June 2011 Mr Morton advised Mr Tim Lichtenstein of Colliers that none of the offers received was acceptable. Mr Morton requested that Colliers go back to the interested parties and obtain further offers.
[51] Westpac also asked Mr Priest of Seagars to review his valuation in light of the market feedback. On 14 June 2011 Mr Priest responded as follows:
If the subdivision potential of the property is excluded as a consideration, the highest and best use for this property, in our opinion, would be as a dairy farm conversion.
...
As a dairy farm conversion, therefore, the property might be worth between
$4,500,000 and $4,750,000 excluding GST, but due to the contour, we believe it would not be a particularly attractive property from the point of
view of a conversion.
... We still consider our conclusions represent the market value on a willing buyer/willing seller basis. It is based on current and recent sales, and allowance for a five-year selldown period plus what we consider to be a reasonable risk factor given that the subdivision itself is all but complete and most of the costs incurred.
We have reviewed the mortgagee sale discount which we assessed in the range of 20% to 25% from the fair market value. Given the market response, and the lack of interest from developers, we would have to conclude that the market has remarkably little appetite for developments of this nature and have accordingly increased our mortgagee sale discount range to 35% and 40%.
Our revised mortgagee sale range is, therefore, $6,500,000 ... to $7,000,000
..., excluding GST.
[52] On 17 June 2011 Mr Lichtenstein presented further offers to Mr Morton. Mr Singh had now increased his offer to $5,100,000, but the requirement for deferred settlement and due diligence remained. Mr Liu had increased his offer to
$4,200,000. Rahopara was now offering $4,026,000.
[53] On 20 June 2011 Mr Lichtenstein emailed Mr Morton and advised that one of the earlier bidders had withdrawn his offer. Mr Lichtenstein reiterated his concerns to Mr Morton that more bidders would be lost unless Westpac made a decision soon.
[54] On 29 June 2011 Mr Morton emailed Mr Ward confirming that Westpac would accept $10,600,000 in full and final settlement of its debt and security, but that Westpac would not agree to cease marketing and/or negotiating with other parties unless documentation was provided to confirm that funds were available and settlement was assured. Westpac did not received this confirmation.
[55] Also on 29 June 2011 Mr Milward, who was a director of Southern Cross Finance, one of the second mortgagees of Kelly Park, emailed Mr Morton and advised that his group of investors intended to provide an offer to Westpac by the end of the following week. Mr Milward failed to provide his offer to Westpac by that date. On 7 July 2011 Mr Morton reiterated the position set out in his email of 29
June 2011. On 11 July 2011 Mr Milward emailed Mr Morton and advised that the group of investors that he represented wished to offer $5,750,000 to purchase Kelly Park, but that they needed until 15 June 2011 to clarify issues regarding the resource consent position and the amount owing to the Rodney District Council to obtain s 224(c) certificates. On 15 July 2011 Mr Milward emailed Mr Morton and advised that a further seven days was required for due diligence. On 22 July 2011 Mr Milward submitted an agreement for sale and purchase on behalf of his group of investors. The purchaser was stated to be Mr Milward or nominee. The purchase price was $5,750,000, but the agreement was conditional on due diligence. Mr Milward required until 18 August 2011 for due diligence. On 25 July 2011
Mr Morton contacted Mr Milward and inquired whether Mr Milward could go unconditional. Mr Milward advised that he would have to consult with his investors, but he did not come back to Westpac.
[56] In the meantime on 15 July 2011 Edwards Clarke Dickie (ECD), a firm of Auckland lawyers, sent Simpson Grierson an agreement for sale and purchase in the name of their client, Phillip Arakatara. ECD advised that Mr Arakatara was a representative of the Whenua Trust. ECD also advised that the refinancing was no longer proceeding and that Mr Arakatara would now like to make an offer to
purchase Kelly Park at mortgagee sale. The purchase price was $10,600,000, but the agreement was conditional on specialist advice regarding GST and the feasibility of the subdivision. ECD also advised that financial information would be provided within the due diligence period to prove Mr Arakatara’s ability to settle the sale. On
18 July 2011 Westpac counter-offered. Westpac amended the conditional date from five working days after the agreement to 11.00 am on 22 July 2011.
[57] On 21 July 2011 Mr Morton contacted Mr Aaron Nicholls at ECD. Mr Nicholls advised Mr Morton that the financial information promised in ECD’s letter of 15 July 2011 would not be provided. Mr Nicholls also advised that Mr Arakatara now needed until 29 July 2011 for his due diligence. Later that day Mr Nicholls emailed Mr Neville Tuck of Simpson Grierson and confirmed that Mr Arakatara now needed until 29 July 2011 for his due diligence. Mr Tuck responded to Mr Nicholls advising that Westpac did not agree to the extension to the due diligence period. Mr Tuck advised that if Mr Arakatara did not agree by
5.00 pm that day (21 July 2011) to the conditional date for Mr Arakatara’s agreement being 11.00 am on 22 July 2011, then the agreement would be at an end. Mr Arakatara did not agree to this.
[58] There was no evidence from or on behalf of either Mr Milward or Mr Arakatara disputing the evidence relating to these various conditional offers and negotiations as summarised in the agreed chronology.
[59] Also on 21 July 2011 Mr Lichtenstein of Colliers advised Mr Morton by telephone that Rahopara had increased its offer to $4,600,000 and that another bidder had increased his offer to $4,500,000. Rahopara was to present an amended agreement for sale and purchase. Mr Singh would not budge on his requirement for delayed settlement.
[60] On 22 July 2011 Rahopara provided Colliers with an amended agreement for sale and purchase. The purchase price was $4,600,000, but Rahopara required Westpac to enter into possession of Kelly Park and to take steps to try and obtain vacant possession. Westpac regarded these terms as unacceptable.
[61] Also on 25 July 2011 Mr Nicholls of ECD emailed Mr Tuck of Simpson Grierson asking “Did Kelly Park sell? Our client remains interested.” Mr Tuck was away and the email was not seen until 27 July 2011.
[62] On 26 July 2011 Rahopara provided an amended offer. Rahopara had reduced the purchase price to $4,550,000, but had removed its terms regarding possession. Westpac accepted this offer on 26 July 2011.
[63] On 27 July 2011 Mr Tuck emailed Mr Nicholls and advised him that Kelly
Park had been sold the previous day.
[64] On 29 July 2011 Mr Dennis Gates, solicitor for Ibanez, wrote to Simpson Grierson alleging breaches of Westpac’s duties on the sale. Mr Gates indicated that the plaintiffs would be applying to injunct the sale. On 10 August 2011 Simpson Grierson responded to Mr Gates’ letter of 29 July 2011 setting out Westpac’s position that Rahopara’s offer was the best price reasonably obtainable. On 26 August 2011
Ibanez served Westpac with its application for an injunction.
The case for Ibanez
[65] In its first cause of action, Ibanez pleads that Westpac’s actions in the marketing of Kelly Park and the exercise of the power of sale to Rahopara were a breach of its duty of care and of the duty imposed under s 176 of the Property Law Act 2007 because:
(a) The property was not marketed on the basis on which the development had proceeded, namely as a film location and studios. It was marketed as a rural subdivision.
(b)The marketing was carried out by Colliers who had no contact with the international interests that would wish to purchase such a property. The advertising was local only.
(c) A sale price of $4,550,000 represented less than 7% of the true value of the property.
(d)Even on the basis that the property as a rural subdivision only the sale price was less than 21% of its value as a rural subdivision [sic].
[66] In its second cause of action, Ibanez pleads that Rahopara’s agreement to purchase the property from Westpac as mortgagee was illegal, as defined by s 3 of the Illegal Contracts Act 1970, because:
(a) Rahopara was, with its associated interests and its shareholders and directors, one of the larger clients of Westpac.
(b)There was a prima facie case of influence by Rahopara on Westpac in setting the purchase price for Kelly Park.
(c) The past relationship of Jeremy Dillon, shareholder and director of Rahopara and the continuing association of Rahopara’s lawyers with Ms Thompson in the past created a knowledge and ability to take advantage of the plaintiff ’s situation.
(d)The huge disparity between the sale price and the true value of the property raised a presumption that the purchase price had not been set fairly.
[67] Mr Smith, counsel for Ibanez, accepted in his submissions that the first two grounds had been disproved by the evidence, but submitted that the other two grounds remained live issues.
[68] In support of Ibanez’s case, Mr Smith submitted that there was a serious question to be tried because should the plaintiffs establish at trial:
(a) That the value of the property was at least that of the Sheldons’ Valuations ie $15,970,0009 or even, at worst the $8,150,000 plus GST as a block being Sheldons’ minimum recommended sale price for a forced sale, then the sale to Rahopara at $4,550,000 plus GST was prima facie a breach of s 176 of the Property Law Act 2007; and/or
(b)That the process for selling the property by tender over a four week period with advertising aimed at the local market with no emphasis on the film park concept and with the emphasis on the sale being a mortgagee sale of a rural subdivision was also prima facie a breach of s 176; and/or
(c) The refusal of Westpac to negotiate with Mr Arakatara for
$10,600,000 as to the conditions in his offer was unreasonable and also constituted a breach of s 176.
[69] Mr Smith was particularly critical of Colliers for advertising the property as a mortgagee sale and in failing to advertise the property nationally and internationally as a film park. Reference was also made to a claim that for nearly half of the four weeks when the property was marketed access to Colliers’ webpage was not possible.
[70] Mr Smith also relied in particular on an affidavit in reply provided for Ibanez by Mr John Binning of Jones Lang LaSalle, a financial and professional services company specialising in real estate services. In his affidavit sworn on 10 October
2011, Mr Binning expressed criticism of the marketing processing adopted by
Colliers for Westpac. He deposed that:
6. The value will not be maximised by selling the property as a farm.
Marketing should be targeted to the world’s largest film production
companies, media conglomerates and studio development firms. This would therefore maximise the price using its “Special 28” Zoning, as well as the property’s special features.
7.Overseas agents are unlikely to appropriately market a NZ property when the fee they will earn for a successful sale is circa NZ$60,000 to the company. If you are going to use overseas agents the rewards need to be appealing or they will not put in the effort.
8.JLL was asked to market the property on 13 September 2011. I quickly ascertained those involved in film and television production are aware of the property’s existence but have had no idea that it is for sale.
9.There are a small number of on-shore producers and to date none of the targets we have contacted knew of the property’s availability. We have received a positive response from these specific buyers. We have a much better chance of selling the property to an investor
from overseas but cannot rule out local buyers. In regard to the profile of the several overseas companies that we have approached, film production is just part of their business, with owning large land holdings being the other.
10.Colliers marketed the property as a forced sale, mostly to the local market (i.e. neighbours) with the associated expected mortgagee sales price.
11. JLL is selling a film park with a large land holding, not as a forced sale but as a willing vendor. We are predominantly marketing it off- shore to large production companies and carrying this out by personal contact as the marketing is unlikely to reach the correct purchaser by placing an advertisement in a NZ paper. JLL offices would also be approached.
[71] Mr Binning attached a marketing progress report to his affidavit which covered the period 19 September to 10 October 2011. The report referred to all the approaches that Mr Binning and his firm had made to potential international investors. Several indicated that they were not interested. Others said they would
“be in touch”. The leading candidate, Sahara Motion Pictures, “recently decided against a purchase”.
[72] There was, however, no suggestion at the hearing on 21 October 2011, or subsequently, that Mr Binning’s international marketing of Kelly Park had borne fruit.
[73] On the balance of convenience question, Mr Smith submitted for Ibanez that the Court had to consider several competing interests:
(a) Should an injunction not be granted pending trial then the prime remedy sought by the plaintiffs would be lost, i.e. an injunction setting aside the sale to Rahopara. The sale to Rahopara would be completed and the plaintiffs would be left with a damages claim under s 176 of the Property Law Act. Damages could not compensate the plaintiffs for the period between now and trial.
(b)A damages claim only would severely prejudice the plaintiffs. There is such a wide disparity in valuations it would be impossible for the
Court to do justice in respect of a unique property. The only way the
property’s true value could be found is to have it marketed properly.
(c) If the Court accepts DTZ’s valuation of $74,000,000 that may possibly prejudice Westpac as much as accepting the more recent valuation of $8,150,000 plus GST as a block which may prejudice the plaintiffs.
(d)The delay in Westpac realising its security is minor when compared with the huge disparity in valuations. Westpac potentially stands to gain and possibly recover all of its losses. Given the manner in which the property has been marketed to date, it is impossible for Westpac to realistically deny that possibility.
(e) Rahopara may claim that it is prejudiced by the sale being delayed, but the agreement for sale and purchase specifically enables Westpac to cancel the contract if injunction proceedings are brought. Rahopara was essentially taking a punt and attempting to take advantage of the situation. It cannot claim prejudice when the punt does not come off.
[74] Mr Smith submitted that the balance of convenience must favour the plaintiffs because it would be impossible to retrieve the situation at trial should an injunction not be issued.
[75] In the course of argument Mr Smith accepted that to obtain the interlocutory injunction it was necessary to convince the Court that damages would not be an adequate remedy. Mr Smith submitted that damages would not be an adequate remedy because the unique nature of the Kelly Park property meant that it was
“impossible” for a valuer to provide a sensible valuation. There was no benchmark in the form of comparative sales and no sale of a film park in New Zealand against which an assessment of value could be made. A valuation would depend on the subjective views of the valuer without any reference to any objective information or valuation.
[76] Mr Smith also accepted, however, that there was no valuation evidence to support the plaintiffs’ case that the highest and best use of the property at the time of its sale by Westpac to Rahopara was as a film studio.
[77] In support of Ibanez’s second cause of action under the Illegal Contracts Act
1970, Mr Smith submitted that there was a serious question to be tried because, should the Court accept that Mr Dillion’s past involvement as Ms Thompson’s solicitor created an inference that she was vulnerable, coupled with the huge disparity in price paid by someone well able to gauge the property’s true value, there must be a serious question as to the application of s 3 of the Illegal Contracts Act. What is an illegal contract is to be determined by existing rules, namely:
(a) Contracts that are illegal because an Act of Parliament forbids the entry into such a contract or the performance of the act the parties have contracted to do. This did not apply here.
(b)Contracts that are illegal at common law. This category includes such contracts as agreements to commit crimes, contracts that are sexually immoral, and contracts to defeat the course of justice. It is in this category that the contract with Rahopara falls.
[78] In the course of argument, Mr Smith submitted that the second cause of action was based on Rahopara’s knowledge as to the gross undervalue of Kelly Park. He also submitted at the hearing, and contrary to his written submissions, that s 176 of the Property Law Act 2007 was an enactment within s 5 of the Illegal Contracts Act.
A serious question to be tried in first cause of action?
[79] As already noted, in determining whether there is a serious question to be tried in the first cause of action, the issue is whether Ibanez has established an arguable case that Westpac was in breach of its “duty of reasonable care” to the plaintiffs under s 176 of the Property Law Act 2007 “to obtain the best price reasonably obtainable [for Kelly Park] as at the time of sale”.
[80] The leading case on this issue is Apple Fields Ltd v Damesh Holdings Ltd[6]
[6] Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR (CA) 586 which was upheld by the Privy
Council in Apple Fields Ltd v Damesh Holdings Ltd [2004] 1 NZLR 721 (UKPC) at [1].
As McGrath J, delivering the judgment of the Court of Appeal, noted:
[1] The enactment in 1993 of s103A of the Property Law Act 1952 gave statutory recognition to a duty of care recognised by the common law as owing by a mortgagee who has decided to exercise the power of sale of a mortgaged property to subsequent chargeholders, in particular, the mortgagor. The purpose of the provision is to protect those to whom the duty is owed in the absence of any other incentive for a mortgagee selling the property to obtain the full economic value over and above the sum which will clear the mortgage. ...
...
[47] Against that context we take the view that s103A is to be read as a legislative affirmation of the scope of the duty of care in negligence owed by a mortgagee who has decided to sell as recognised since 1974 by New Zealand courts. That duty developed from the principles originally stated by Salmon LJ in Cuckmere Brick in the cases referred to in this judgment up to and including the Court of Appeal’s decision in the Downsview Nominees and Countrywide Banking Corporation cases. The Privy Council decision in Tse Kwang Lam was an important part of those developments. In our view that duty of care coexists with the equitable duty of good faith, but, in most cases, including the present, the duty of care will be the more onerous obligation: Commercial and General Acceptance Limited v Nixon (1981) 38 ALR 225, per Brennan J at p 249.
...
[49] The duty of care owed by the mortgagee is concerned with obtaining the best price reasonably obtainable as at the time of sale. As such, it does not qualify the mortgagee’s right to decide in its own interest if and when to sell: Countrywide Banking Corporation v Robinson at p77. The reason is that a duty to sell at a particular time or at all would make the business of lending almost impracticable: see China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536, 545 P.C.
[50] Once, however, a mortgagee decides to sell it becomes subject to the duty. What constitutes reasonable care will, of course, always turn on the facts of the case. ...
(emphasis added)
[81] The Court of Appeal then dealt with a mortgagee sale to a company in which the mortgagee had an interest. That situation does not arise in the present case.
[82] In upholding the decision of the Court of Appeal, the Privy Council in its judgment delivered by Lord Scott of Foscote said:
24. Second, in deciding for section 103A purposes whether reasonable steps have been taken by a mortgagee to obtain the best price, the steps taken by the mortgagee and those acting with it must be looked at in the round. The issue is a commercial one, to be viewed in practical commercial terms. If a side benefit additional to the stated price is being procured for the mortgagor, that is part of the commercial context against which the question whether reasonable steps have been taken to obtain the best price must be examined. The examination of the issue in which Lord Templeman engaged in the Tse Kwong Lam case was an essentially practical and commercial one.
(emphasis added)
[83] The following further points are also relevant in the present case:
(a) While under s 176 the time for assessing whether the price is the best price reasonably obtainable is assessed at “the time of sale”, the duty of reasonable care arises when the mortgagee decides to sell.[7]
[7] Apple Fields Ltd (CA) at [55]; and Agio Trustees Co Ltd v Harts Contributory Mortgage Nominee
Co Ltd (2001) 4 NZ ConvC 193,480 (HC) at [77].
(b)The statutory obligation is not to obtain the best price reasonably obtainable, but to take reasonable care to obtain the best price reasonably obtainable. That price might not necessarily be obtained.[8]
[8] Bennion New Zealand Land Law at [9.9.07(4)].
(c) When the property is sold in a “forced sale situation”, such as a mortgagee sale, there is a substantial discount from the market value that the property would achieve in a sale undertaken by an owner not under financial pressure to sell.[9]
[9] At [9.9.07(7)].
(d) It is not improper for an advertisement to refer to the sale being a
“mortgagee sale”.[10]
[10] Taylor v Westpac Banking Corporation (1996) 5 NZBLC 104,104; (1996) 7 TCLR 177 (CA) at 182.
(e) Where the security is substantial, or specialised property is involved, it will usually be necessary for the mortgagee to obtain and act upon specialised advice as to the method of sale.[11] Appointing a competent agent to sell does not discharge the mortgagee’s duties, but since its
[11] Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 (PC).
duty is ultimately only one of reasonable care, putting the matter in
the hands of a competent agent will usually go a long way towards discharging the mortgagee’s duties.[12] The Court should not be asked to second guess the actions of a mortgagee acting on sound professional advice.[13]
(f) In the normal course the proposed sale will need to be advertised with an adequate description of the property’s attributes and, within reason, widely enough to attract all possible purchases. In some cases this will need to extend to both general and specialist publications.[14]
[12] Hart Contributory Mortgages Nominee Company Ltd v Bryers HC Auckland CP 403-IM00,
19 December 2001 at [43](c).
[13] Taylor v Westpac Banking Corporation Ltd (1996) 7 TCLR 177 (CA) at 182 and 183.
[14] Tse Kwong Lam v Wong Chit Sen at 61; Ansell v NZI Finance Ltd HC Wellington A434/83, 14 May
1984; and Harts Contributory Mortgages Nominee Company Ltd v Bryers at [43](d).
[84] Applying the approach mandated by these authorities, I am not persuaded that there is a serious question to be decided under s 176 in this case. My reasons for this conclusion, which largely reflect the submissions for Westpac, follow.
[85] First, the evidence establishes that during the period when Westpac’s duty of reasonable care under s 176 applied, namely from March 2011 when Westpac instructed Colliers to market Kelly Park for sale until 26 July 2011 when Kelly Park was sold to Rahopara, Westpac in fact took reasonable care “to obtain the best price reasonably obtainable” on 26 July 2011:
(a) Westpac obtained valuations from Mr Priest of Seagars, registered valuers, that valued Kelly Park on a forced sale basis on 9 April 2011 at between $8,100,000 and $8,640,000, and then on 14 June 2011 at between $6,500,000 and $7,000,000, or $4,500,000 and $4,700,000 for a dairy conversion.
(b) None of the other valuations related to the relevant time period.
Ibanez adduced no valuation evidence to challenge Mr Priest’s
valuations. As Mr Smith accepted in the course of argument, there
was no valuation evidence to support the plaintiffs’ case that the
highest and best use of the property at the time of its sale by Westpac to Rahopara was as a film studio.
(c) Westpac obtained a marketing appraisal from Colliers and retained
Colliers as agents to market and sell Kelly Park.
(d)While Ibanez criticised aspects of Colliers’ marketing of the property, there was no suggestion that Colliers was not otherwise a competent agent or that Westpac had not discharged its duty of reasonable care by putting the matter in the hands of Colliers and by accepting Colliers’ advice to market the property by way of Deadline Private Treaty.
(e) Colliers conducted a thorough four week marketing campaign both within New Zealand and internationally. The property was listed on the following websites:
(i)
(ii) and property was included in Colliers’ national portfolio magazine
which was delivered to Colliers’ branches overseas.
(f) While there was an issue with downloading Colliers’ information memorandum relating to Kelly Park, it was resolved and did not affect Colliers’ website listings.
(g)Colliers received eight offers for Kelly Park, but, on Westpac’s instructions, sought and obtained better offers from a number of the original bidders.
(h)During the period March to July 2011 Westpac, as it had done over the previous two years, allowed Ibanez more time to refinance and negotiate with other prospective purchasers about offers for Kelly Park. Neither Mr Milward nor Mr Arakatara was able to put an unconditional offer to Westpac.
(i)The offer from Rahopara, that Westpac accepted, was the best price reasonably obtainable as at the time of sale. Rahopara had previously offered $50,000 more, but on terms requiring Westpac to take possession pending settlement. Westpac would not accept this condition.
(j)While the sale price of $4,550,000 was below Westpac’s forced sale values for Kelly Park, both of Westpac’s valuers acknowledged the difficulty in assessing the value of the property. Ms Jiang from Sheldons stated that she was not surprised at the sale price. Moreover, the sale price of $4,550,000 was higher than Colliers’ forced sale estimate.
[86] Second, the submissions for Ibanez did not raise any serious question requiring resolution at trial:
(a) The 2009 and 2010 valuations that Ibanez relied on were no longer applicable during the relevant period. As already noted, Ibanez adduced no valuation evidence for the relevant period.
(b)The valuations also ceased to be of any particular significance once Colliers had marketed the property and received the various offers. Those offers were the best evidence of the “best price reasonably obtainable” as at 26 July 2011.
(c) Westpac’s forced sale at a time of its choice did not constitute breach of its duty of reasonable care. Marketing the property as a
“mortgagee sale” did not constitute a breach of a mortgagee’s duty of
reasonable care.
(d) Colliers did not in fact fail to advertise Kelly Park as a film studio.
Colliers’ advertisements and marketing material referred to both Kelly
Park’s special zoning and the film facility.
(e) Colliers did not in fact fail to advertise Kelly Park internationally.
(f) The affidavit evidence of Mr Binning of Jones Lang LaSalle did not establish that there was any prospective purchaser of Kelly Park on
26 July 2011 who was prepared to pay more than the $4,550,000 that
Rahopara offered for the property.
(g)Westpac had no obligation to delay the sale of the property to Rahopara and to accept the conditional offers from Mr Milward or Mr Arakatara.
(h)Westpac also had no obligation to accept offers of $7,500,000 from Ibanez at the commencement of Colliers’ marketing campaign when Ibanez’s indebtedness was in excess of $14,000,000, and there was no evidence who the “parties” were that were providing the funds or their ability to settle.
[87] For these reasons I have concluded that Ibanez has not established a serious question to be tried in respect of its first cause of action.
Balance of convenience
[88] If, contrary to my conclusion, there was a serious question to be tried in respect of the first cause of action in this case, I would in any event conclude that the balance of convenience weighed heavily in favour of Westpac rather than Ibanez. Whereas damages would be an adequate remedy for Ibanez, there is little doubt that Ibanez would be unable to meet any claim for damages by Westpac.
[89] In reaching the conclusion that damages would be an adequate remedy for Ibanez, I accept that there is no question that Westpac would be able to meet any award of damages in this case. I also reject the submission for Ibanez that it would be impossible for the Court to determine the value of the property as at 26 July 2011, taking into account, if necessary, the property’s zoning and potential as a film studio.
[90] My reasons for rejecting this submission for Ibanez are:
(a) Valuers are not infrequently called upon to provide market valuations for unique properties for which there are no comparable sales, but that does not mean that such properties are not able to be valued.[15]
[15] cf Valuer General v Electricity Corporation of New Zealand CA 158/97, 6 October 1995; and Alan A Hyman The Law Affecting Valuation of Land in Australia (4th ed, The Federation Press, New South Wales, 2009) at 124-126.
(b)Ibanez itself was able to obtain valuations from Mr Dunckley that took into account Kelly Park’s zoning and potential as a film studio. There is no reason why Mr Dunckley could not be asked to provide a valuation of the property as at 26 July 2011. He would then be able to be cross-examined on his valuation at the trial.
(c) Courts are frequently required to resolve disputes between valuers as to the fair market value of properties.[16]
[16] eg Tawharanui Farms Ltd v Auckland Regional Authority [1976] 2 NZLR 230; Miller v Flora Properties HC Christchurch CIV-2010-409-000799, 11 June 2010; and Carlin Enterprises Ltd v Fright Aubrey Ltd (In Liq) HC Christchurch CIV-2007-409-002030, 16 June 2011.
(d) Such disputes have arisen in the context of the predecessor to s 176.[17]
There was no suggestion in Apple Fields Ltd v Damesh Holdings Ltd that the High Court had erred in resolving the valuation issue where the Privy Council described the range of divergence of valuations as
“remarkable”.
[17] eg Apple Fields Ltd v Damesh Holdings Ltd (PC) at [6].
[91] I accept that it is doubtful whether the plaintiffs could pay damages because:
(a) Ibanez currently owes Westpac in excess of $14,000,000 and also owes further amounts to subsequent mortgagees.
(b)The only asset the plaintiffs have identified that could be put forward to satisfy any damages award is a large structure commonly referred to as the Louis Vuitton building. This structure is apparently owned by a separate company, LVP Limited, which is in turn owned by Mr Matthew Barker. Following the hearing, Ibanez provided an affidavit from Mr Clarke of Auckland, chartered accountant, who deposed that, while LVP Limited had been struck off, it was subject to a “pending” application for reinstatement.
(c) The plaintiffs provided no evidence to substantiate the Louis Vuitton building’s value. Mr Lichtenstein of Colliers’ evidence was that the structure was in poor condition. There was no real suggestion that the building, if available, would be sufficient to meet Ibanez’s debt to Westpac.
(d)Following the hearing, Ibanez also provided an affidavit from Mr Tom Braegelmann of San Jose, California, financier, who undertook to the Court that should an injunction be granted he would “provide funds to enable the issue of titles prior to the expiry of the resource consent in March next year”. The fact that it was necessary for Ibanez to go off- shore to obtain this limited undertaking confirms the real doubts about Ibanez’s ability to meet any damages claim.
Overall justice
[92] Standing back and viewing the overall justice of the case, I am not satisfied that the interlocutory injunction sought by Ibanez should be granted. This is a case where the mortgagee, Westpac, has sold a property, Kelly Park, for $4,550,000 when the mortgagor’s total indebtedness exceeds $14,000,000. Westpac’s incentive was to achieve a much higher price for the property, but, as the eight offers that were received established, Westpac was forced to negotiate and accept a much lower
price in complying with its duty under s 176. There was and is no evidence before the Court that any genuine unconditional offer for a higher price had or would have been made. In particular, there was and is no evidence of any such offer from any overseas interests.
[93] Furthermore, if at trial Ibanez were able to establish a breach of s 176, then damages would be an adequate remedy.
A serious question to be tried in second cause of action?
[94] Ibanez’s second cause of action is based on the Illegal Contracts Act 1970.
The relevant provisions of that Act are:
3 “Illegal contract” defined
Subject to section 5 of this Act, for the purposes of this Act the term illegal contract means any contract governed by New Zealand law that is illegal at law or in equity, whether the illegality arises from the creation or performance of the contract; and includes a contract which contains an illegal provision, whether that provision is severable or not.
...
5 Breach of enactment
A contract lawfully entered into shall not become illegal or unenforceable by any party by reason of the fact that its performance is in breach of any enactment, unless the enactment expressly so provides or its object clearly so requires.
6 Illegal contracts to be of no effect
(1) Notwithstanding any rule of law or equity to the contrary, but subject to the provisions of this Act and of any other enactment, every illegal contract shall be of no effect and no person shall become entitled to any property under a disposition made by or pursuant to any such contract:
Provided that nothing in this section shall invalidate—
(a) Any disposition of property by a party to an illegal contract for valuable consideration; or
(b) Any disposition of property made by or through a person who became entitled to the property under a disposition to which paragraph (a) of this proviso applies—
if the person to whom the disposition was made was not a party to the illegal contract and had not at the time of the disposition notice that the property was the subject of, or the whole or part of the consideration for, an illegal contract and otherwise acts in good faith.
(2) In this section, disposition means—
(a) any conveyance, transfer, assignment, settlement, delivery, payment, or other alienation of property, whether at law or in equity:
(b) the creation of a trust:
(c) the grant or creation of any lease, mortgage, charge, servitude, licence, power, or other right, estate, or interest in or over any property, whether at law or in equity:
(d) the release, discharge, surrender, forfeiture, or abandonment, at law or in equity, of any debt, contract, or thing in action, or of any right, power, estate, or interest in or over any property; and for this purpose a debt, or any other right, estate, or interest, shall be deemed to have been released or surrendered when it has become irrecoverable or unenforceable by action through the lapse of time:
(e) the exercise of a general power of appointment in favour of any person other than the donee of the power:
(f) any transaction entered into by any person with intent thereby to diminish, directly or indirectly, the value of that person's own estate and to increase the value of the estate of any other person.
[95] It is clear from these statutory provisions that a contract will only be of “no effect” under s 6 if it is an “illegal contract” at law or in equity or an enactment
“expressly so provides or its object clearly so requires”.
[96] As pointed out in John Burrows, Jeremy Finn and Stephen Todd, Law of Contract in New Zealand, the following heads of common law illegality are well- established: [18]
[18] John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed, LexisNexis
NZ Limited, Wellington, 2007) at [13.4].
(a) contracts to commit a crime, a tort or a fraud on a third party;
(b) contracts prejudicial to the public safety;
(c) contracts interfering with the course of justice; (d) contracts injurious to good government; and
(e) contracts to defraud the revenue.
[97] Notwithstanding the submissions for Ibanez, the contract for the sale of Kelly Park by Westpac to Rahopara does not fall within any of these heads of common law illegality. Fraud has not been pleaded or suggested. Nor does the contract interfere with the course of justice.
[98] The particulars that Ibanez pleads in support of its “illegal contract” allegation do not substantiate its claim. Furthermore, as Westpac pointed out in its submissions, the evidence established that:
(a) Rahopara was not a Westpac customer; and
(b) the sale price was the result of arms’ length negotiations.
[99] In these circumstances, any past relationship between Mr Jeremy Dillon, a shareholder and director of Rahopara, and Ms Thompson, did not convert the contract for the sale of Kelly Park into an illegal contract. No authority was cited to support such a proposition. As Rahopara pointed out in its submissions, the fact that Mr Dillon acted for Ms Thompson in private practice 11 years ago in respect of dealings unrelated to Kelly Park cannot demonstrate vulnerability of a kind justifying the Court’s intervention on public policy grounds.
[100] The next question is whether the contract for the sale of Kelly Park was an illegal contract because Westpac was in breach of its duty of reasonable care under s 176 of the Property Law Act. There are four reasons why the answer to this question is “no”:
(a) I have already concluded that there is no serious question to be tried
as to Westpac’s alleged breach of s 176.
(b)Section 176 does not expressly provide that when a mortgagee is in breach the resulting contract is illegal or unenforceable.
(c) The object of s 176 does not clearly require the resulting contract to be illegal or unenforceable. The object or purpose of s 176 is to protect those to whom the duty is owed in the absence of any other incentive for a mortgagee selling the property to obtain the full economic value over and above the sum which will clear the
mortgage.[19] The remedy for breach of s 176 is an injunction or
[19] Apple Fields Ltd v Damesh Holdings Ltd (CA) at [1].
damages, not a declaration of illegality in respect of the resulting conduct.
(d) Ibanez cited no authority in support of its submission to the contrary.
[101] For these reasons I have concluded that Ibanez has not established a serious question to be tried in respect of its second cause of action based on the Illegal Contracts Act 1970.
Prejudice to Rahopara?
[102] I do not accept the submission for Ibanez that in negotiating the purchase of Kelly Park Rahopara was essentially “taking a punt” and attempting to take advantage of the situation. Once it is accepted that Westpac was entitled to sell the property by way of mortgagee sale and that the sale to Rahopara was negotiated at arms’ length, there is no basis for Ibanez’s complaint.
[103] The fact that the contract for sale specifically enables Westpac to cancel the agreement if injunction proceedings are brought does not mean that in the absence of any serious question to be tried Rahopara should be prejudiced by the grant of an injunction.
[104] I accept Rahopara’s submission that, if the injunction were granted, Rahopara would be likely to be prejudiced because the favourable planning consents that are
presently in place in respect of Kelly Park are likely to lapse and it is unlikely that they would be reissued on such favourable terms. Rahopara would then be likely to suffer irreparable harm due to being unable to use the property in the manner contemplated at the time of purchase.
[105] As already noted, following the hearing, Ibanez provided the affidavit from Mr Braegelmann, who undertook to the Court that should an injunction be granted he would “provide funds to enable the issue of titles prior to the expiry of the resource consent in March next year”.
[106] Counsel for Rahopara filed a memorandum in response confirming its concern at the significant prejudice to its position if it is unable to complete an application to the Auckland Council in time to secure an amendment and completion of a subdivision consent and the lodgement of a plan of subdivision in a timely manner to avoid the loss of an opportunity to do so because the existing consent has lapsed. It was also pointed out in the memorandum that, while Rahopara has been able to complete preliminary site survey work, it cannot commence negotiations with the Auckland Council until it settles the purchase of the land with Westpac and gains control of the resource consent which, in terms of s 134 of the Resource Management Act 1992, attaches to the land.
[107] Counsel for Westpac also filed a memorandum in response to the affidavit
from Mr Braegelmann. Westpac supported Rahopara’s position and submitted that:
(a) there was uncertainty as to the quantum of the costs which
Mr Braegelmann intended to fund;
(b)Mr Braegelmann’s undertaking was unenforceable by both Westpac and Rahopara; and
(c) even if the undertaking was enforceable, Westpac’s position was that
it still wished to settle the current sale to Rahopara.
[108] In the final memorandum for the plaintiffs, it was submitted that:
(a) Mr Braegelmann’s undertaking related to the costs of approximately
$45,000 required to complete the subdivision;
(b)New Zealand judgments for money are enforceable in California under the Uniform Foreign-Country Money Judgment Recognition Act which was chartered on 11 September 2007;
(c) any concern as to enforceability of Mr Braegelmann’s undertaking could be addressed by a requirement that the funds be lodged in a trust account in New Zealand within a specified time; and
(d)the matters raised in the memorandum for Rahopara were in the nature of additional submissions which should be disregarded for that reason.
[109] In considering this application for an interlocutory injunction, I am prepared to take into account the further evidence filed for the plaintiffs and the submissions for the parties in their respective memoranda.
[110] I do not consider, however, that the “undertaking” provided by Mr Braegelmann is sufficient to alter my view that if the injunction were granted Rahopara would be likely to be prejudiced. There is no certainty that the off-shore undertaking would be met or would be enforceable. I also accept that Rahopara needs to own the land in order to be able to take steps to protect its position in respect of the resource consent.
Result
[111] For the reasons I have given, the application by Ibanez for an interlocutory injunction is declined. The interim injunction granted by Keane J on 29 August 2011 is rescinded.
[112] This means that Westpac and Rahopara may now proceed to settle the sale of Kelly Park in accordance with their agreement for sale and purchase. I assume that the parties will be able to reach agreement on a new date for settlement.
[113] I note that Rahopara has requested that the Court should exercise its discretion under r 7.44 of the High Court Rules to make an order that Rahopara be granted immediate access to, and exclusive possession of, Kelly Park. In the absence of hearing submissions from the parties on this request and in light of the need for settlement to occur first, as well as the possibility of agreement being reach on the issue of access and exclusive possession, I am not prepared to make the order sought at this stage. I reserve leave, however, to Rahopara to apply on notice for such an order if it becomes necessary to do so.
[114] As Westpac and Rahopara have been successful in opposing the interlocutory injunction, I see no reason why they should not be entitled to orders for costs against the plaintiffs on a category 2 basis with disbursements to be fixed by the Registrar. If, however, the parties are unable to reach agreement on costs, then Westpac and Rahopara should file and serve memoranda within 14 days and the plaintiffs should
respond within a further 14 days.
D J White J
Banking Corp (2003) 4 NZ ConvC 193,794 (HC); Ko v TEA Custodians (Equitable) Ltd (2006) 7
NZCPR 108 (HC); Wallace v Bank of New Zealand HC Auckland, CIV-2009-404-3534, 1 July 2009;
and Bennion, New Zealand Land Law at [9.16.04(1)].
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