Ikon Building Co-Operation Limited v Dumasia

[2021] NZHC 2624

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-986

[2021] NZHC 2624

BETWEEN

IKON BUILDING CO-OPERATION LIMITED
Plaintiff

AND

POURUSHASP ROHINTON DUMASIA

First defendant

DAVID HILLIAM

Second defendant

Remote hearing:

30 September 2021

Appearances:

MJW Lenihan for the plaintiff

D W Grove for the first and second defendants

Judgment:

4 October 2021

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 4 October 2021 at 11.30am.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Counsel/Solicitors:

MJW Lenihan, Barrister, Auckland D W Grove, Barrister, Auckland

Doug Cowan Barristers & Solicitors, Auckland

IKON BUILDING CO-OPERATION LTD v DUMASIA [2021] NZHC 2624 [4 October 2021]

[1]    On the present application, the plaintiff (“Ikon”) seeks a charging order against the second defendant’s (“Mr Hilliam”) property — specifically, against his land in Auckland’s Papakura. The order is sought in anticipation of judgment in Ikon’s favour in this proceeding, brought against Mr Hilliam and his co-defendant as guarantors of a loan advanced to SKKY Holdings 2015 Ltd (“SKKY”).

Background

[2]The background facts recently were summarised by the Court of Appeal:1

… The dispute arose out of a loan facility obtained by SKKY from a company called New Zealand Mortgages and Securities Ltd (NZMS). The purpose of the facility was to enable SKKY to meet the cost of developing residential units on a property in Stanmore Bay.

The loan arrangements were set out in a term loan agreement (the loan agreement) dated 21 September 2016, which provided that SKKY was entitled to draw down a maximum sum of $4.473 million. The loan was to be repaid on demand, but in the absence of demand on 23 September 2017, 12 months after the date of the first advance.

The appellants signed the loan agreement as directors of SKKY and as guarantors of SKKY’s obligations under the agreement. Contemporaneously, the appellants executed two separate deeds of guarantee and indemnity with NZMS under which they guaranteed SKKY’s obligations under the loan agreement. The loan was also secured by a mortgage registered against the Stanmore Bay land.

On 9 June 2017 NZMS entered into a sale and purchase agreement with Bolter Management Group Ltd (Bolter) under which NZMS agreed to sell Bolter its contractual rights under the loan agreement and the guarantees executed by the appellants. Pursuant to this agreement NZMS assigned its rights to Bolter. Settlement occurred on 13 June 2017. However, one week earlier, on 6 June 2017, Bolter and Ikon executed a deed under which Bolter agreed to hold the rights and obligations it was to purchase from NZMS as a bare trustee for Ikon.

Bolter called up the loan shortly after settlement. It subsequently sold the property in February 2018, exercising its power of sale as mortgagee. It applied the sale proceeds in reduction of the amount then owing under the loan agreement. On 13 March 2019, Bolter formally assigned its rights under the loan agreement and guarantees to Ikon. This enabled Ikon to enforce its rights against the appellants as guarantors of SKKY’s obligations under the loan agreement.

Ikon then commenced a proceeding seeking summary judgment against the appellants for the sum of $1,131,629.48 (exclusive of GST), the balance outstanding under the loan agreement, plus costs and interest.

1      Dumasia v Ikon Building Co-operation Ltd [2021] NZCA 292 at [2]–[7].

[3]    Summary judgment was entered by Lang J.2 A charging order subsequently was issued to Ikon against Mr Hilliam’s Papakura property. However, the Court of Appeal considered “it was not appropriate to grant summary judgment”,3 and set aside Lang J’s judgment.4 Accordingly, whether anew or to sustain the original charging order, the present application is brought.

[4]    Mr Hilliam now has entered into a conditional agreement to sell the land, for settlement in December 2021. The terms of that sale are not disputed by Ikon. On settlement, after payment of secured creditors, discharge of a mortgage and retention for legal expenses, Mr Hilliam will have some further $3.5 million cash in hand. He says it is likely he will invest that in further property, to be acquired in his own name. But he undertakes to the Court “if I do intend to dispose of in excess of $100,000 in one transaction that [is] not in my own name, I will advise the plaintiff[’]s lawyers.”.

The law

[5]    Part 17, subp 5 of the High Court Rules 2016 makes provision for charging orders:

17.40Effect of charging order

(1) A charging order charges the estate, right, title, or interest of the liable party in the property described in the order with payment of the amount for which the entitled party may obtain or has obtained judgment.

…

17.41Leave to issue charging order

Leave to issue a charging order before judgment may be granted only on proof that the liable party, with intent to defeat either his or her creditors or the entitled party or both,—

(a)is removing, concealing, or disposing of the liable party’s property; or

(b)is absent from or about to leave New Zealand.

17.42Issue of charging order without leave after judgment

After judgment is sealed, the entitled party may issue a charging order without leave.

2      Ikon Building Co-operation Ltd v Dumasia [2020] NZHC 223.

3      Dumasia v Ikon Building Co-operation Ltd, above n 1, at [56].

4 At [60].

[6]    Rule 17.41 applies only to charging orders before judgment. There is divergence in this Court’s approach to qualification for such grant, if an ‘arguable case’ threshold also requires to be crossed.5 It may be a divergence without a difference, as the absence of an arguable case should resound in exercise of the discretion if to grant.

Discussion

[7]    So far as the current charging order is concerned, as issued after judgment, it cannot survive the judgment’s setting-aside. For a charging order before judgment, as now must be sought, r 17.41 relevantly here requires proof both Mr Hilliam “is removing, concealing, or disposing of [his] property”, and with intent to defeat Ikon. ‘Defeat’ necessarily means of “payment of the amount for which the entitled party may obtain”.6

[8]    For Ikon, Michael Lenihan says ‘disposition’ is inarguable, given the land’s conditional sale. Similarly, the greater liquidity of the sale’s proceeds is to Ikon’s risk. In so arguing, Mr Lenihan relies on the Supreme Court’s construction of the former Property Law Act’s “intent to defraud” in Regal Castings Ltd v Lightbody:7

Whenever the circumstances are such that the debtor must have known that in alienating property, and thereby hindering, delaying or defeating creditors’ recourse to that property, he or she was exposing them to a significantly enhanced risk of not recovering the amounts owing to them, then the debtor must be taken to have intended this consequence, even if it was not actually the debtor’s wish to cause them loss.

Thus, says Mr Lenihan, Mr Hilliam is to be taken to have intended the land’s disposition to defeat Ikon.

[9]    As I raised with Mr Lenihan at the hearing, there are at least two difficulties with those contentions. First, disposition of the land for value is not disposition of

5      Compare Lennox-King v Johnson (1997) 10 PRNZ 664 (HC) at 665 and McKay v 314 Maunganui Road Ltd HC Auckland CIV-2007-404-7434, 30 April 2008 at [24]. The former was favoured in ASI Global Investments Inc v Al Yousef [2021] NZHC 288 at [40], as “it would obviously be wrong to make a pre-judgment charging order where the applicant's case against the respondent is plainly without merit”; the authors of McGechan on Procedure at HR17.41.01 observe “[t]he plain meaning of the rule favours the [McKay v 313 Maungaunui Road Ltd] interpretation.”

6      High Court Rules 2016, r 17.40, and see Maree Finance Ltd v Wood (1992) 6 PRNZ 297 (HC) at 298-299.

7      Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 at [54].

Mr Hilliam’s property, but only its conversion from one form of his property to another. And second, greater liquidity alone cannot enhance risk of non-recovery. If anything, having substantial cash on hand arguably enhances or at least simplifies recovery. On the former, Mr Lenihan protested, if true, charging orders against land almost never would be successful, yet plainly they were not uncommonly made. As  I observed at the hearing, that may well be the case for charging orders issued after judgment. But the ‘disposition’ qualification for leave to issue a charging order only applies before judgment.

[10]   Those points are  hinted  at  in  the  Supreme  Court  extract  relied  on  by  Mr Lenihan: the Court refers to “alienation” — that is, alienated from Mr Hilliam — “thereby” risking non-recovery. The wider judgment reinforces the reference:8

[I]f property is disposed of by the debtor at full value at the time of the disposition, the creditors will have … “an undepleted fund” against which to prove their debts.

In the statutory context of ‘intent to defraud’, not ‘disposition’, the Supreme Court goes on to observe “[s]uch a transaction could not be characterised as involving       a dishonest intent”,9 and “the crucial question in all cases is one of intent, and … a debtor may have that intent even though he receives adequate consideration”.10

[11]   But only Mr Hilliam’s receipt of (adequate) consideration is relied on here for the requisite intent. As I have said, such receipt alone does not risk non-recovery. And r 17.41’s “defeat” may not  in any event  be met by only ‘hindrance’ or ‘delay’.     Mr Hilliam’s undertaking is to give notice of any significant depletion of his property.

[12]For those reasons, Ikon has not proved either the requisite disposition or intent.

Result

[13]The present charging order is discharged, and the application is dismissed.

8      At [57], citing Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557 at 567.

9 At [57].

10     At [58], citing RJ Sutton The Law of Creditors’ Remedies in New Zealand (Butterworths, Wellington, 1978), at [5.20] (citing Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 (CA)).

Costs

[14]   In my preliminary view, from what I presently know — as the unsuccessful party in this averagely complex proceeding requiring counsel of average skill and experience, and in which a normal amount of time is considered reasonable for each step on the application — Ikon should pay 2B costs to Mr Hilliam on each step.

[15]   If my  view is  not  accepted by the parties, or they cannot  otherwise agree,   I reserve costs for determination on short memoranda of no more than five pages — annexing a single-page table setting out any contended allowable steps, time allocation, and daily recovery rate — to be filed and served by Mr Hilliam within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.

Postscript

[16]   After concluding my decision above, I received from Daniel Grove for the defendants a memorandum seeking leave to file proffered supplementary submissions. Mr Lenihan does not oppose leave being granted. Nonetheless, given my decision,    I have not had regard to the supplementary submissions and decline leave accordingly.

—Jagose J