Jan Bain Holdings Limited v Marko Properties Limited HC Auckland CIV-2011-404-003203

[2011] NZHC 1172

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-003203

BETWEEN  JAN BAIN HOLDINGS LIMITED Plaintiff

ANDMARKO PROPERTIES LIMITED First Defendant

ANDPAIHIA TRUST LIMITED Second Defendant

ANDBRETT EVAN CRAN Third Defendant

ANDKNIGHT COLDICUTT Fourth Defendant

Hearing:         22 September 2011

Appearances: I M Hutcheson for Plaintiff

P F Dalkie for Defendants

Judgment:      30 September 2011

JUDGMENT OF WHATA J

This judgment was delivered by Justice Whata on

30 September 2011 at 12.00 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Cockroft D’Young Moorhouse, PO Box 32018, North Shore City 0624

Davenports City Law, PO Box 47500, Auckland

Copy to:
I M Hutcheson, PO Box 105 006, Auckland Central

P F Dalkie, PO Box 392, Auckland 1140

JAN BAIN HOLDINGS LIMITED V MARKO PROPERTIES LIMITED HC AK CIV-2011-404-003203 30

September 2011

[1]      This is an application by the first and second defendants for the following orders:

(a)       Pending the determination of this application by the first and second defendants to set aside summary judgment entered against them on

21 July 2011, that the plaintiff by its servants and duly authorised agents be restrained from exercising all or any of its rights in and consequent upon a notice delivered under s 119 of the Property Law Act 2007 by it to the first defendant dated 18 August 2011;

(b)Summary judgment entered in favour of the plaintiff on 31 July 2011, against the first and second defendants on a mortgage in the sums of

$900,000 plus interest in the sums of $157,709.58 and $130,767.53 respectively with costs to be set aside;

(c)       Judgment in default of pleading entered by the plaintiff on 21 July

2011 against the first defendant in the sum of $68,559 and against the second defendant in the sum of $297,782.50 to be set aside;

(d)Consequent  upon  judgment  being  set  aside,  the  first  and  second defendant have liberty to file a defence.

[2]      There are other incidental orders sought.

[3]      The judgment sums drive off a claim by the plaintiff that pursuant to a sale and purchase agreement in respect of 6 Tohitapu Road, Paihia, the plaintiff lent the sum of $900,000 to the second defendant.  The plaintiff says the second defendant has failed to repay that principal sum, and has not paid any interest in relation to that sum.  The loan agreement was described by the plaintiff as “informal”, there being no written record of the agreement according to the plaintiff.   While not strictly relevant to these proceedings, the plaintiff also complains that the third and fourth defendants in this matter failed to execute or draft the appropriate agreement.  There were separate causes of action in relation to certain chattels at 6 Tohitapu Road, which apparently have been used by the second defendant without payment.  Finally,

there was a cause of action relating to another property and incomplete works on that property.

Grounds for application

[4]      The applicant/first and second defendants say that they have a defence to all

of the plaintiff’s claims and want to ventilate them.  In particular they say:

(a)      Repayment of the loan sum was conditional on the sale of the real property over which it was granted and that real property has not been sold;

(b)There was no oral agreement in relation to the chattels.  Rather, there was a written agreement with a Mr Kells on 28 January 2010 stating that  the  second  defendant  would  buy  the  chattels  for  $187,695, payable on certain conditions which have not yet been satisfied.

(c)      In terms of any claim for damages arising out of the sale and purchase of 17, 19 and 21 Rue d’Amarres, the plaintiff knew and impliedly waived  the  requirement  for  certain  works  to  be  done  prior  to settlement and therefore the plaintiff has no claim for damages or otherwise.

[5]      It transpires only the application for injunction is before me today.

Opposition

[6]      The plaintiff opposes the making of any order on the following basis. (a)      The sum owing of $900,000 plus interest is not disputed;

(b)      The failure of the defendants to make any payment is not disputed;

(c)       The plaintiff rejects the allegation that repayment of the mortgage was due upon the sale of the property;

(d)      The property has been poorly managed;

(e)       The plaintiff has suffered prejudice from lack of proper mortgage documentation and resultant significant delays;

(f)       There are ongoing risks to the plaintiff and this affects its ability to recover the principal and interest that is due and owing;

(g)      There is no adequate explanation for the defendants’ default.

(h)      The undertaking as to damages is not adequate.

Jurisdiction

[7]      The jurisdiction to grant injunctive relief is well settled: (a)    There must be a seriously arguable case;

(b)      The balance of convenience favours the grant of the injunction;

(c)       It is in the overall interests of justice that the injunction be granted.

[8]      I am of the view that in this case I should also address whether the failure to grant relief will render the first and second defendants’ other applications nugatory.

The evidence of the defendants

[9]      Mr Paul David Hudson for the first defendant refers to the following:

5.Sometime in late 2009 it became apparent the plaintiff would have to leave in vendor finance, as it was the only way Marlin Group could then make the deal work.  Negotiations started out with the plaintiff leaving in $900,000 with interest payable and the loan to be repaid by  the  end  of  March  2010.    This  is  shown  in  the  emails  of

December 4,  2009.     However,  as  the  proposed  first  date  for settlement loomed it was readily apparent that there was no chance at all the $900,000.00 loan could be repaid as early as March 31,

2010 (ie in two months from settlement).

[10]     Mr Hudson then also refers to his understanding of the fact that there was then no specific time by which the mortgage had to be repaid.  Rather, he says that “we agreed the loan would be repaid as specific individual units on the property were sold down”.  He attaches his notes of a meeting with Mr Taylor on 28 January

2010 and an e-mail from his solicitor recording as much as evidence of this. The e- mail records:

Our understanding is that the mortgage has no term & no interest.

Ie[sic] when the units are sold is when the 900k is paid back at 0 interest.

[11]     Mr Campbell Kells has also filed evidence in support of the application to set aside judgment.   He records that when they received copies of the pleadings they sent them on to Brett Cran, who had previously acted on behalf of the defendants. Apparently it was Mr Kells’ understanding that Mr Cran would act on their behalf and attend to the filing of any papers.  It further appears that Mr Kell first found out about the entry of judgment on 5 August 2011.  It then took some time to bring this application to Court as they did not have the full details of the judgment entered or the papers from his then solicitors, Knight Coldicutt.

[12]     Mr Kells also describes the nature of the property deal.  He says that it was essentially a real property swap which also involved a reduction of debt exposure of the defendants to a lender called Crusader Ltd.   He summarised the details of the deal as follows:

(a)       The plaintiff as vendor sold a resort at 6 Tohitapu Road Paihia to the first   defendant   for   $2,500,000.00   plus   GST   under   a   written agreement  for  sale  and  purchase  dated  May  28,  2009.     The agreement included chattels in a list attached to it.

(b)       The plaintiff was going to buy three vacant blocks of land (sections) and a house being units 17, 19 and 21 and the house at 25 Rue D Amarres at Gulf Harbor [sic].   Each agreement was subject to the other.

(c)       The purchase price of $2,500,000.00 was reduced to $1,487,500 plus

GST by variation dated October 8, 2009.

[13]   Mr Kells further avers to the fact that the agreements were somewhat changeable, and the loan agreement was a good example of this.

[14]     He goes on to state that on 28 January 2010 he signed an authority to lodge documents, including a mortgage of a $900,000 with interest in respect of the property and a deed of priority which refers to a $900,000 loan having an interest period of 24 months.

[15]     In terms of those documents, he notes that there was no term for repayment of the mortgage.  He says repayments depended entirely upon selling off the units at the resort and many of these were and are in a state of disrepair, such that there was significant work that was needed on them.

[16]     Settlement  occurred  on  16 February 2010  and  the  authority to  lodge  the mortgage was filed with the Titles Office that day as well.  No loan agreement was ever executed for the $900,000 because it was their understanding that the plaintiff did not want one.  He says further that they have never received any demands for repayment on or after the date alleged for payment to be made.   It then became apparent in about May 2010 that it was impossible to sell the relevant units in their present state and they would require renovation.  There were then problems with the security over all of the units in favour of the plaintiff for the $900,000 vendor loan. They needed the security to be moved to specific units so that they could renovate the units that had no security over them.  Ultimately no agreement was reached over the release of certain units.

[17]     In relation to the chattels claims, Mr Kells appears to be somewhat perplexed by the notion of an oral agreement.  He says that there was a written agreement about the chattels.  The relevant items are listed in that agreement and there is a price for those chattels.  The agreement has a handwritten note on it giving a chattel price of

$187,695.

[18]     Finally, Mr Kells refers to the agreement regarding the real property at Gulf Harbour.  He says he was surprised, to say the least, that the plaintiff sued on this. He says that Mr Taylor settled the Gulf Harbour contracts at the same time as the

resort in February 2010 and, as he well knew,  the items were not referred to as still outstanding.

[19]     The first and second defendants also filed an affidavit by Jon Andre Varoy. He produces copies of the contracts for the Gulf Harbour properties.  The contracts refer to possession within seven days of the completion of works on marina berths and sea walls.  He says that despite those words, both contracts settled in February

2010 when the relevant work had not been done.  He makes the point that Mr Taylor never mentioned the fact that the work had not been completed.  He also says that Mr Taylor well knew it was ongoing.   He says that Mr Taylor never complained previously about the fact the works had not been done.

[20]     He also says that from the first and second defendants the mortgage monies payable would be payable on the sale of the resort.

Plaintiff ’s evidence

[21]     It is unnecessary for me to dwell on the evidence of the plaintiff.  It simply points to:

(a)       Correspondence from the first and second defendants’ then solicitor recording:

Your client is also to grant our client a registered first vendor mortgage for 900k at an interest rate equal to your client’s cost of funds (9.95%pa) repayable 31 March 2010.  Can you please prepare this for our review.   There will need to be a deed of priority with Cressida  who  will  hold  the  second  mortgage  over  the  Paihia property.

(b)      The  registered  memorandum  of  mortgage  (all  obligations),  clause

3(a)(i):

(a)  Pay and comply: The party giving this mortgage must:

(i) pay the secured moneys at the times and in the manner provided by any secured agreement and, to the extent that there is no such agreement, then upon demand;

…

(b) Pay interest:    If  there is no  agreement  between the  relevant parties as to the liability for payment of interest, the party giving the mortgage will pay to the mortgagee interest on the secured moneys (whether or not demand has been made) on the last day of each month at the prescribed interest rate, calculated with daily rates from the date on which the moneys become owing.

Seriously arguable case?

[22]     The nub of the first and second defendants’ case is that there is a clear factual dispute between the parties as to the basis of the loan arrangements.  The first and second defendants assert that the mortgage was only payable on the on sale of the units subject to the initial sale and purchase agreement.   They point to the understandings of Messrs Hudson and Kells in support.   By contrast, the plaintiff says that the correspondence from the first and second defendants’ own solicitors confirmed that the loan was repayable as at 31 March 2010, or failing that, on demand as per the memorandum of mortgage.

[23]     I have examined carefully the evidence on behalf of the first and second defendants in this case.  I consider that it provides only a tenuous basis for a defence. As the plaintiff argues, there is in fact no independent evidence confirming that there was an agreement on the terms suggested by the first and second defendants.  At most,   the   first   and   second   defendants   can   only   refer   to   internal   e-mail correspondence between Mr Hudson and Mr Cran to support their argument that the loan  agreement  had  somehow  morphed  from  the  clear  terms  expressed  in  the

4 December e-mail to a rather open-ended loan to be repaid on sale of the units, with no  interest.   Accordingly,  while  the  first  and  second  defendants  raise  a  factual dispute, they do not provide a particularly compelling evidential basis for it.  Even if I were to accept Mr Hudson’s evidence that this was his understanding, that is well short of demonstrating agreement reached with the plaintiff that the loan did not have to be repaid until the units were sold and then without interest.   While there may be some commercial sense in deferring the payment of the mortgage until the units are sold, there is no commercial sense whatsoever in the plaintiff doing so without any interest.   It is also contradicted by the terms of the all obligations mortgage.   I accept that this is a proforma document.   It is nevertheless the best independent evidence that we have of the intentions of the parties.  It provides that

where there is no specific agreement on repayment, the mortgagee may require repayment on demand.  When I overlay this documentation with the facts, namely that  payment  was  not  made  on  31 March  2010,  contrary  to  the  expectations expressed in the 4 December e-mail of Mr Cran, the mortgagee was then entitled to repayment on demand.

[24]     The second defendant has made much of the fact that there was some delay in making a demand.  I think that is adequately met by the evidence that the mortgagee was plainly dissatisfied with arrangements, including a threat in May 2010 to sue his previous  lawyer  as  well  as  Mr Cran  for  a  sloppy  approach  to  the  mortgage documentation.    In  addition,  there  is  evidence  of  correspondence  between  the lawyers that shows they sought to resolve the dispute.  When it was not resolved, summary judgment proceedings were issued.  On that basis I really see no merit in the  defendants’ argument  that  delay points  somehow  to  the  conclusion  that  the mortgagee had accepted that the loan was repayable on the sale of the units.

[25]     All in all, therefore, I am firmly of the view that while a factual dispute is raised, it is not at the level of being a seriously arguable case or a more than tenable case.  This has little to do with credibility findings.  Rather, it is more about the lack of probative evidence and documentary evidence to the contrary.

[26]     On that basis, the defendants fail to cross the first threshold for injunctive relief.

[27]     Having said that, I propose to analyse this within the framework of an appeal and a stay of judgment.  I consider it appropriate in this particular context to resolve the matter by reference to whether the defendants’ associated proceedings, that is the setting aside of the summary judgment, would be rendered nugatory if I do not grant injunctive relief.

[28]     In my view, whatever the defendants’ claims are, they can still be ventilated within the context of their application to set aside the summary judgment and then if they are successful on that, within the summary judgment proceedings themselves. If they are successful, they will be able to seek damages for any loss arising from the

preemptive strike by the plaintiff in relation to a calling upon the mortgage.  In this regard it needs to be remembered that essentially this is a commercial transaction, where both parties are seeking a commercial return.  This is not a case where there is an asset of particular importance to the respective parties.  I appreciate that the first and second defendants would rather retain the proprietary rights so that they could exercise those rights in the manner they think most appropriate.  But their ultimate claim will be one of damages in any event.

[29]     On that basis, while the injunctive relief may be beneficial to them I do not consider that refusal to grant it renders nugatory the application to set aside summary judgment and any defence of that summary judgment.

Balance of convenience/overall interests of justice

[30]     While it is not strictly necessary for me to inquire further into these threshold tests, I do so for completeness.

[31]     I consider that rejecting any injunctive relief is the proper course for the following reasons:

(a)      The defendants do not deny that they owe the plaintiff $900,000.   I understand that they also no longer dispute the fact that interest needs to be paid on that sum;

(b)The  loan  moneys  have  remained  unpaid,  without  interest  for  a subsantial period, and the plaintiff is plainly out of pocket with no immediate relief in sight;

(c)      The plaintiff raises legitimate concerns about the management of the properties which are not strongly refuted by the defendants.  There is a genuine concern about the implications of poor management on the security held by the mortgagee;

(d)Any loss suffered by the defendants is recoverable in the ordinary way, should there be a legitimate basis for claiming damages.  While no doubt the defendants would rather retain their proprietary rights and exercise them as they think fit, in reality, as I have said, their claim is really one in damages should they ultimately succeed with any related proceeding.

[32]     I note for completeness that the defendants are largely responsible for finding themselves in this position.   In addition to not repaying the loan, they did not act prudently in defending their position when they received the pleadings.  There is in fact evidence that the defendants simply sent the pleadings on to Mr Cran without instructing him to act, and indeed, Mr Cran’s response to them was simply to note that he was a defendant as well.

[33]     In these circumstances, and against the backdrop set out above, I see no merit in granting the injunction.

Costs

[34]     There should be costs in favour of the plaintiff on a 1B basis, together with the usual disbursements.

Whata J