King v PFL Finance Limited
[2012] NZCA 385
•28 August 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA270/2012 [2012] NZCA 385 |
| BETWEEN THOMAS FREDERICK MAZLIN KING AND JUDITH RUTH KING AS PARTNERS OF THE T F M AND J R KING PARTNERSHIP |
| AND HAVELOCK FARMS LIMITED AS TRUSTEE OF THE FOREBANK FARM TRUST |
| AND PFL FINANCE LIMITED |
| AND CRAIG BEECROFT |
| Hearing: 25 July 2012 |
| Court: Stevens, Rodney Hansen and Simon France JJ |
| Counsel: B O'Callahan and A J Woodhouse for Appellants |
| Judgment: 28 August 2012 at 3.00 pm |
JUDGMENT OF THE COURT
AThe applications to adduce fresh evidence are allowed in part, as described in [16] of the judgment.
BThe appeal is dismissed and the interim orders made in the High Court are discharged.
CNo order as to costs.
____________________________________________________________________
REASONS OF THE COURT
(Given by Simon France J)
Introduction
This is an appeal from a decision of Keane J declining the appellants interim relief from the exercise of mortgagee sale powers by the first respondent, PFL Finance Ltd (PFL).[1] The second respondent is a receiver appointed by PFL.
Background events
[1] King v PFL Finance Ltd [2012] NZHC 882.
The property in question is a farm block of just under 650 hectares which has been in Mr King’s family since 1873. At the time when the financing arrangement that gives rise to these proceedings was put in place, the farm was owned by the second appellant, Havelock Farms Ltd, a family controlled company. Mr and Mrs King (the first appellants) farmed the property under a leasing arrangement.
PFL’s involvement came about in mid-2011 when it provided funds to allow the Kings to settle a dispute they had with the ASB bank. ASB had been the lender on a separate failed farming venture in which the Kings were involved, and the family farm was exposed as a consequence of the failure.
To enable settlement, PFL advanced $3.385 million on an interest only basis. That amount included three months of capitalised interest payments. The lending was secured by a first mortgage over the farm (Havelock Farm Ltd therefore being the mortgagor) and a general security over plant and livestock. Mr and Mrs King also provided personal guarantees. The date of advance was agreed to be 15 July 2011, so the first interest payment was due four months later on 15 November 2011.
It seems that there had been a concentration of effort on the failed venture, and as a consequence the family farm was in need of some maintenance. In particular, fertiliser and early season supplements were required. Further, the pattern of calving, and then returning the cows to milking duties, was later than usual. Although the farm had about 320 milking cows, that number was well down in November 2011, and full milk production would not be achieved until mid to late February 2012. The borrowings of July 2011 had all been fully utilised in settling the ASB claim, and accordingly the farm operation continued to lack working funds.
The Kings, therefore, approached PFL for further funds. On 25 October, PFL offered a further $150,000. The offer had not been taken up by the time two PFL directors visited the farm on 31 October 2011 to discuss matters with Mr King.
It is from this point in time that matters of factual dispute arise. However, for now the narrative can be advanced to 15 November 2011. This was the date when, pursuant to the documentation, a first interest instalment of $33,708.96 was due. No payment was made. Again there are disputes as to why that was so. The basic position advanced by the appellants is that they believed that PFL had agreed to waive any interest payments until after Christmas to enable that money to be spent on farm maintenance.
Obviously that was not PFL’s understanding, because on 29 November it issued a Property Law Act Notice (the Notice) demanding payment by 4 January 2012. The Notice was served on the solicitor for Havelock Farms Ltd. This was a permissible service option under the loan agreement and there is no contest as to service being properly effected on the mortgagor. There is, however, an issue as to whether service was properly effected on Mr and Mrs King as guarantors. This matters because the Kings say that they never knew of the Notice, and therefore never knew they had to remedy the default. It is said they were in a position to make the payment had they known it was required, and all that followed could have been avoided.
A curiosity to which we will return is that, notwithstanding this alleged belief of an interest instalment waiver, the appellants did make a payment of $20,000 on 23 December 2011. This amount was insufficient to meet the demand for $33,708.96 made under the Property Law Act 2007.
There are disputes as to what contact took place between the parties from the initial due date of 15 November, through 29 November when the Notice was issued, to 24 January when PFL appointed the second respondent, Mr Beecroft, as receiver. From PFL’s viewpoint, the default not having been remedied, the acceleration clause of the loan agreement was triggered and the full advance was payable, together with outstanding interest (including penalty rates).
Mr Beecroft took possession of the farm and seemingly quickly decided that it should not continue as a going concern. The appellants were evicted and livestock was moved off the property. Some of the stock was sold and others placed on a different property. Mr Beecroft then moved to sell the farm. Tenders were called for, with a closing date of 30 March 2012. However, on that day the appellants sought and obtained ex parte interim orders preventing the sale of the farm, and of any further stock and plant.
Interim relief, fresh evidence and the appeal proceeding
An interim orders hearing took place on 17 April 2012 before Keane J. At that time the appellants were seeking interim orders which:
(a)maintained the existing ex parte orders;
(b)directed the return of stock;
(c)allowed the appellants to return to the farm and resume farming it; and
(d)required net income to be held on trust, that income being the farm returns, less costs of running the farm and a weekly salary for the Kings.
For reasons to be discussed Keane J declined the orders, holding that there was no serious question to be tried.
An appeal was filed on 8 May 2012. A fixture was allocated for 25 July under the fast track procedure. Since the notice of appeal, the Court has received:
(a)An application to adduce further evidence, being oral evidence from a witness who would appear under sub‑poena. This was dealt with by agreement and by minute of the Court.
(b)Appellants’ submissions dated 9 July.
(c)An application by the appellants to file further evidence, being affidavits from Mr King, and a neighbouring farmer, Mr Keen. The application is opposed.
(d)An amended application to file further evidence with a further affidavit from a Mr Premathilaka is tendered. Its sole purpose is to produce a letter written by counsel for the respondent to the legal aid authorities detailing the second respondent’s inability to meet any award of damages. Its admission is not opposed.
(e)A second amended statement of claim, the reason for which is to add two causes of action which this Court is asked to take into account on the appeal.
(f)A further affidavit from Mr King, appending a refinancing offer made by a financial institution based in Singapore. It is opposed.
(g)A document purporting to be an affidavit, being a document with the word affidavit appearing on top, and being a statement by a person describing himself as a Singaporean businessman. This person was apparently the Singaporean point of contact for the Kings and was the one who put them in contact with the financial institution offering the refinancing. The purpose of the affidavit is for the “deponent” to attest to the lending institution’s reputation. It is opposed.
Neither of the last two documents were the subject of written applications for leave to file them.[2] At the hearing Stevens J pointed out to the appellants’ counsel the unsatisfactory nature of these processes. It is unacceptable for the Court to be subjected to this avalanche of allegedly fresh material. This complaint is given further strength by the fact that much of the material is irrelevant to the issues the Court must deal with on the appeal.
[2]They are now, there having been further applications to file evidence subsequent to the appeal hearing. The new evidence seeks to correct form defects in the last two documents referred to.
We allow the evidence from Mr Premathilaka, there being no objection to it. Over objection we allow an affidavit, filed after the hearing, which appends a signed copy of the refinancing offer. The offer is relevant to a balance of convenience inquiry and is genuinely fresh. We reject the “affidavit” of Mr Panjwani for want of form, it also being unclear whether it has been properly attested. We do not allow the further application, subsequent to the appeal hearing, to resubmit this affidavit in a proper form. It is too late. Further, we consider the contents merit little weight, there being no basis for us to assess the reliability and standing of the deponent. We reject both affidavits of Mr King. The first is rejected for relevance; the second is now unnecessary given the exhibit is otherwise produced by the affidavit we allowed to be tendered at the hearing. We reject the affidavit of Mr Keen because it lacks relevance.
Turning now to the pleadings, the second amended statement of claim pleads:
(a)Oppression in the manner in which the receivership has been exercised, justifying an order under s 127 of the Credit Contracts and Consumer Finance Act 2003 to reopen the lending facility arrangement. If successful in getting the transaction reopened, the appellants seek orders setting aside the appointment of a receiver, preventing the sale of land and assets, suspending the obligation to pay interest, reinstating the farm lease, directing return of livestock, directing an accounting for profits and an inquiry into damages.
(b)Invalid appointment of the receiver as there was no default as alleged in the Notice. It is said the first respondent waived the obligation of the appellants to make interest payments, and was therefore estopped from acting on non‑payment.
(c)Breaches by the receiver of his duties to act in good faith and for a proper purpose.
(d)That the receiver has acted recklessly. The Court is requested to order his removal, and undo any remuneration he has received.
(e)A breach of receivers duties in relation to the sale of assets (one of the two new causes of action).
(f)That PFL is “responsible for” the actions of the receiver because it instructed or directed the receiver, or knowing of the receiver’s reckless acts, failed to intervene (the other of the two new causes of action).
Consistent with this Court’s experience of the conduct of this proceeding, notwithstanding that the second amended statement of claim was filed only on 19 July 2012, at the appeal hearing on 25 July the appellants changed again and abandoned the cause of action based on waiver and estoppel. This was therefore to accept for the first time that the Notice was valid, and had not been complied with. At the hearing before Keane J the alleged invalidity of the Notice had been a major plank in the appellants’ case.
The appellants’ case for interim orders
By the time of the appeal the appellants were seeking only to maintain the existing interim orders which prevent sale of the farm and of any further assets. The receiver had made arrangements for a farmer to farm the land and the appellants were not pursuing options in the interim which involved them returning to the farm.
As noted, evidence was filed disclosing that the appellants now had an alternative financing offer. The purpose of this evidence was to remedy a concern at the High Court that at the end of the day the appellants were not going to be in a position to repay the loan and therefore interim orders would serve no purpose.
The first respondent says that the amount owing is at least $5.1 million (and obviously increasing). Yet the offer is only for a sum of $3.7 million.[3] However, the appellants advance their case for interim orders on the basis that $3.7 million will be ample to redeem the mortgage if they otherwise succeed on all their claims. In other words, if they succeed in re‑opening the loan, succeed in denying any liability for the receiver’s costs, succeed in preventing the first respondent from claiming penalty interest, receive compensation for the alleged undervalue sale of assets and are awarded some general damages in due course, the offer of refinance will be enough to allow them to redeem the mortgage. Therefore, the Court should prevent the sale to preserve that option.
[3]We do not comment at this stage on whether the offer is something the Court should place weight on. The respondents dispute its probative value.
It is argued that damages are an inadequate remedy because of the intrinsic value of the farm to the family, and because there is undisputed evidence that Mr Beecroft is unable to meet any damages claim. We were informed at the hearing, however, that the first respondent has indemnified him. The appellants also challenge the ability of PFL to meet any damages claim.
Addressing why the existing interim relief should be maintained, the appellants primarily advance two bases:
(a)The strength of the oppression claim. Although this would only sound in damages, it is submitted the damages will be sufficient to allow the mortgage to be redeemed once the refinance offer is taken up.
(b)The fact that Mr and Mrs King were not appraised of the Notice. It is said that they were thereby wrongly deprived of the ability to meet the demand, and should now have a chance to present their case in Court before the family farm is put beyond their reach. It is acknowledged that s 121 of the Property Law Act appears to say that a failure to serve guarantors does not prevent the mortgagee from exercising its power of sale, and that the remedy is only in damages. However, the appellants argue that it is still open to the Court to issue an injunction preventing the sale.
The factual disputes
Both the bases advanced by the appellants as establishing a ground for continuing interim relief are dependent on the appellants showing there is an arguable case that several key factual issues might be resolved their way. They were unable to do this in the High Court, and the Judge’s conclusions in this regard are the main focus of the appeal. Before turning to that judgment, it is necessary to expand on the evidence in several areas.
Waiver
We start with the question of waiver. The appellants now concede that the waiver Mr King believed he had been given was not effective to prevent the first respondent acting on its rights under the loan arrangements. However, it remains a key plank of their narrative that the waiver was given.
The occasion of the alleged waiver was the meeting at the farm with PFL directors on 31 October 2011. It will be recalled that the background was that the farm needed some maintenance, particularly fertiliser; there was no working capital; and there was an offer on the table from PFL to advance a further $150,000. The appellants say that Mr King was worried about taking up the loan offer of $150,000. It was late in the season to arrange a bulk supply of fertiliser and $150,000 was more than was needed. He believed that a lesser injection of fertiliser would increase production sufficiently. So it is said that Mr King suggested instead that PFL provide a period of grace on the interest payments. Mr King says that the suggestion was taken up by one of the directors, Mr Blair Kirk. It was orally agreed that the payments could be deferred to allow fertiliser to be applied, and that the Kings could “catch up on any payments after Christmas”.
The respondents’ evidence is very different. Mr Kirk says that two matters were discussed – the date of the month on which the interest payments fell due, and the need for fertiliser.
Concerning the date of the month, the problem was that Fonterra routinely pays farmers on the 20th of each month. It was therefore unhelpful for the current interest payment date to be the 15th of the month. Mr Kirk says he saw the sense in that and agreed to make a change. He said he told Mr King that he would instruct PFL lawyers to draft a variation. This was done and the variation was sent to Mr King in early November 2011. However it was never signed or returned. Mr King says he never received it. The terms of the offer reflect the version of events advanced by Mr Kirk, and also touch on the waiver issue in the sense that the date the first interest payment is said to be due is still November:
The next interest payment shall be due on 23rd November 2011 and will be for an amount of $42,698.01 in order to account for the period of 15 – 23 November 2011. The interest payment due on 23 December 2011 and monthly thereafter shall resume at $33,708.96.
Concerning the question of deferring interest payments until after Christmas, Mr Kirk says Mr King never raised the topic with him. He states that he would never change anything like that without written documentation. Mr Kirk says what did happen is that PFL offered to fund the purchase of fertiliser by setting up an account of $65,000 with the fertiliser supplier. Again, just as with the date variation, the documentary evidence is consistent. The day following the meeting, at PFL’s instruction, a loan offer of $65,000 was prepared.
Service of the Notice on Mr and Mrs King
The appellants’ position is that they never knew of the formal demand for payment of the interest until sometime in mid January.
It is common ground that the Notice was sent to the lawyer for Havelock Farms Ltd, as first mortgagee, on 29 November 2011. Mr Ellis is also the lawyer for Mr and Mrs King. On that day Mr Ellis immediately forwarded the Notice on to the Kings, sending it to their email address. The appellants say they never received it. This could mean it was not received at the address or they just never saw it, but the preponderance of the appellants’ evidence suggest their position is that it was never received. Mrs King says Mr King never checks emails, and that she does so only when specifically told to. Otherwise it is only her sons who check the inbox. In this regard, Mr King’s son says he was not aware of the lawyer’s email of 29 November. Further, he has again checked the computer, without success, in an effort to locate it.
The email from the lawyer, Mr Ellis, on 29 November 2011 merits setting out in full:
How did you get on with UDC today?
Notwithstanding a request to PFL regarding the interest payment, it all fell on deaf ears. Please see enclosed a Property Law Act Notice just received.
As you will see you are required to pay the interest at $33,708.96 and costs of $1,100.00 within 20 working days otherwise PFL will have the right to take matters further including calling for a mortgagee sale. Even though you have 20 working days to make the payment you would be well advised to pay it as soon as possible.
I will shortly send to you a stroppy email from the solicitors for PGG Wrightsons. They want payment in full within the next few days otherwise …!
Consistent with the proposition that the email was never received, its very authenticity was challenged by the appellants, and reply evidence was filed from an expert saying it looked suspicious. However, when the High Court suggested that the issue could be resolved by calling Mr Ellis, the authenticity challenge was abandoned.
Evidence about whether Mr and Mrs King knew of the default?
This question involves whether Mr and Mrs King were aware that PFL wanted the interest paid. As noted, Mr King’s position is that he did not think he had to pay because of the oral waiver given by Mr Kirk. Obviously they were aware the November payment had not actually been made.
There are three relevant witnesses for PFL on this topic. The first is Mr Purchase who is one of the two directors who visited the farm. His evidence is that, on behalf of PFL, he was chasing up the interest payment from shortly after the time of the default. Mr Purchase says he called the King household on 25 November. There was no reply but he left a message referring to the unpaid interest, and asking for a return call. None was received. Mr Purchase was particularly concerned about the non‑payment because at the on‑site meeting of 31 October, Mr King had expressed his general displeasure with banks, and had apparently talked about being friends with the Crafars. It is alleged he had said that if there were issues with PFL, the stock and equipment would disappear.
Unsuccessful in contacting the Kings, Mr Purchase therefore contacted Mr Brough, who is the finance broker who arranged the loan. He told Mr Brough of the default and asked him to contact the Kings. He also says he told Mr Brough of an intention to issue a notice under the Property Law Act if the default was not remedied.
On 28 November Mr Purchase again tried to contact Mr King. He says he instead got hold of, and talked to, Mrs King. Mr Purchase says Mrs King immediately apologised about the missing interest payment and promised it would be paid that day by online banking. He says Mrs King said to him that they check their emails at night. Mr Purchase annexes a consistent contemporaneous file note of the conversation. He asked Mrs King to have Mr King call him, but that did not occur.
Mr Brough confirms Mr Purchase contacted him about the default. As a result, Mr Brough says he called Mr King three times on 28 November 2011 in order to discuss the default. He says he succeeded in getting hold of Mr King. They discussed the missed payment, and the fact that Mr Purchase was talking of issuing a notice under the Property Law Act. Mr Brough says that Mr King replied that the appellants could not pay because they were being threatened with bankruptcy over unpaid legal bills, and had to focus on that.
Telecom records provide some corroboration of this evidence in that they show three calls on that day from Mr Brough to Mr King, one lasting for over four minutes.
Finally, we refer to the evidence of Mr Campbell, who has been the Kings’ accountant since 2005. At the time of the PFL financing arrangements in 2011, he had also agreed to become a director of Havelock Farms Ltd. Concerning the non-payment of the interest, Mr Campbell agrees that on 1 December he had a call from Mr Purchase about it. Mr Campbell said to Mr Purchase that he understood that farm production would pick up, and he was sure the December cheque would be paid. Mr Purchase replied that as long as the December payment was made, and things brought into line, that would be all right.
In reply, Mr King says he tried unsuccessfully to call Mr Purchase back. He has no recollection of the alleged conversations with Mr Brough. Rather, he says it was he who called Mr Brough in late January challenging him why he had not told Mr King about the Notice. He says Mr Brough replied that he had been in India.
Mrs King denies making a comment about online banking, saying she does not do it and does not know how to. An affidavit from her daughter‑in‑law confirms this.
Challenges to judgment under appeal
Against that factual background, we turn to the judgment of Keane J, and the challenges made to it. We begin by noting there is no submission that his Honour erred in stating the legal principles. Both parties acknowledge that the general principles are settled, and that a particularly relevant authority is Eng Mee Yong v Letchumanan.[4] In that case Lord Diplock discussed what is involved in the concept of a serious question to be tried. The parties referred us to a passage from His Lordship’s judgment:[5]
In the face of these vague, self‑contradictory and implausible assertions on the part of the caveator, the judge accepted the sworn denial of the caveatees that they had ever agreed to any extension of the time of payment beyond September 28, 1974. Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be. In making such order on the application as he “may think just” the judge is vested with a discretion which he must exercise judicially. It is for him to determine in the first instance whether statements contained in affidavits that are relied upon as raising a conflict of evidence upon a relevant fact have sufficient prima facie plausibility to merit further investigation as to their truth. Since this is a matter upon which the opinions of individual judges may reasonably differ, an appellate court ought not to interfere with the judge’s exercise of his discretion under section 327 of the National Land Code unless the way in which he exercised it is shown to have been manifestly wrong.
[4] Eng Mee Yong v Letchumanan [1980] AC 331 (PC).
[5] At 341.
Applying this passage, Keane J determined that, on the key facts, the appellants’ evidence did not have sufficient prima facie plausibility to support the granting of interim relief. We turn to the factual conclusions that are challenged on appeal.
Issue one: the non-payment of the interest and knowledge of Notice
The first factual dispute addressed in the judgment under appeal is the contention that Mr Kirk orally waived the requirement to make interest payments. The Judge noted that the contemporary documentation was consistent with the first respondent’s evidence regarding the variation proposal and proposal for further funds. Keane J continued:
[59] Yet Mr King asserts an undocumented agreement, inconsistent with those two documented proposals, under which he and his family would have obtained a very significant advantage; deferral for two months of their November interest liability and, conceivably also, deferral until the end of January 2012 of interest for those ensuing two months, in all $101,127.
[60] That assertion, I regret to say, does not begin to withstand scrutiny, more especially given that Mr King contends that PFL made that concession completely gratuitously. In the absence of any record, Mr King’s evidence is inherently improbable.
As with many of the findings, Mr O’Callahan seeks to persuade us to a different conclusion, at least to the extent of saying the evidence of the appellants cannot be rejected at the interlocutory stage. However, we do not consider the Judge has been shown to be wrong. The practice of the PFL directors is to document. The documents that were prepared reflect the discussions of 31 October and are consistent with their account. Nor, in response to these documents, is there any evidence of a contemporaneous reply from the appellants indicating error on the part of PFL, or seeking written confirmation of the waiver. The letter varying the date of the month on which payments were to be made (see [28] above) plainly says the next payment is due on 23 November. It is difficult to conceive that Mr King would not seek clarification if there had been a wholly different arrangement reached as he contends.
In response to this, Mr O’Callahan submits that weight should be given to Mr King’s denial that he ever received the variation letter. On its own that might be so, but the appellants’ case is dependent upon several events like this all having unexpectedly occurred. Phone calls verified by Telecom records are not recalled and efforts to contact a director anxious to discuss the default are apparently made but are unsuccessful.
Regarding email and receipt of documents, the variation amending the date of the month on which interest was to be paid was sent to Mr Ellis, the Kings’ lawyer. Mr Ellis acknowledged receipt, and advised PFL’s lawyers that he had both emailed and faxed it to Mr and Mrs King. Yet apparently it was not received by them by either method. Likewise, Mr Ellis emailed the Notice, but that also was apparently not received.
The appellants’ response to this is to say that Mr King does not use emails, but even at this interlocutory stage that answer is insufficient. First, the email address was provided by Mr and Mrs King, in June 2011, as an address for correspondence on the loan documentation. Second, it is perfectly clear from the exhibits that several people communicate with Mr King this way. It is an irresistible inference from the email sent by his lawyer on 29 November (see [32] above) that his lawyer considered email to be an effective means of communication, and used it regularly. As Keane J points out, the lawyer’s email:
(a)Begins with a question about how Mr King got on today with UDC. That in itself envisages the email will be received and read.
(b)Then it speaks of a plea regarding the interest payment with PFL having fallen on deaf ears (an inference is available of prior discussions about the default), and the email says that accordingly the Properly Law Act Notice is attached.
(c)Then concludes by saying Mr Ellis is shortly to send, again by email, a further stroppy email from PGG Wrightson.
We do not detail all the other examples available in the documentation but note that on another occasion Mr Ellis forwarded documents by email to Mr King for him to to “print, sign and return”. Then in another email of 20 June 2011, Mr Ellis suggests to Mr and Mrs King that they scan and email documents back to him. And, in January 2012 Mr Campbell, the Kings’ accountant, also emailed them.
The appellants’ evidence about the non-use of email is wholly inconsistent with the available documentary evidence, including them providing it as an address for correspondence.
This discussion of the documentary evidence leads to the second challenged finding of Keane J, namely that:
[69] … Mr King had been, and continued to be, in contact with Mr Ellis on these issues and that Mr King was well aware of the Property Law notice and its effect but was then unable to remedy the default that had led to its being issued.
Matters Keane J relied upon in reaching this conclusion were his earlier finding that Mr King’s claim of an interest payment waiver was implausible; Mr Brough’s evidence that he had told Mr King of the impending Notice; the inferences to be drawn from Mr Ellis’ email that this was an effective means of communication; and the failure of the appellant to call Mr Ellis to contradict this inference, and indeed to instead abandon a claim that the email was not authentic.[6]
[6]Reply evidence had been tendered from the CEO of an internet company to suggest it was a fraudulent email.
Mr O’Callahan submits that these findings ignore other evidence. He submits that it is plain the Notice could have been remedied (by selling stock to raise funds), and the fact that it was not supports the claim of the Kings of not having received it. Further, it is said that the fact that Mr Campbell did not know of the Notice supports the claim Mr King did not know of it, since he would surely have told Mr Campbell. The first point about having the ability to meet the payment is highly contestable given Mr Brough’s evidence about Mr King saying he owed money to a lawyer, the lack of any further funds being injected, the low Fonterra cheques,[7] and the need to sell stock to meet the first monthly payment. The second point about Mr Campbell is one that can be made but it does not assist much.
[7]The appellant argues these were to increase. That may be so, but it was clear that at that point the payout was low, and had only reached $40,000 in December.
Mr O’Callahan next submits that the partial payment of $20,000 on 23 December is supportive of Mr King not knowing of the offer because otherwise it would have been for the whole sum. We have commented on the contestable nature of this proposition. Further, it remains implausible that this payment is explained, as the appellant contends, by Mr King voluntarily starting to catch up on the overdue November interest. On his view of events Mr King had been given until after Christmas, and on any view of events the finances were not good. The payment of $20,000 is far more consistent with trying to partially meet the Notice than with making a payment which the appellants were not, on their version of events, required to make, and where to do so would divert much needed funds.
Other matters can be mentioned. As the Judge observes, independent evidence shows Mr Brough did make calls to the King household on the day when he says he told Mr King of the impending Notice. The timing of those calls coincides exactly with the evidence of both Mr Purchase and Mr Brough that Mr Purchase, unable to get hold of Mr King, had contacted Mr Brough. Next, the evidence from Mr Campbell is that, when on 2 December, he discussed the November default with Mr King, Mr King “was not too perturbed”. It is implausible that Mr King, if indeed the beneficiary of an interest payment holiday, would not say as much to his fellow director in response to an inquiry about a “default”.
We have carefully reviewed the evidence, focussing on the matters Mr O’Callahan highlights. However, we are left in the same position as the Judge. We do not consider it has been shown he erred, and we are left with the same viewpoint. It is a preliminary stage of the proceedings only, and the appellants may fare better at trial. But at this point the appellants’ evidence as to their not being aware of the Notice is not plausible.
The consequence is that Mr Ellis’ email of 29 November, together with the conclusion, on the evidence as it stands, that Mr King was aware of it, means service was made on the guarantors in terms of s 360(c) of the Property Law Act. The appellant therefore has failed to show Keane J was wrong in his conclusion that there was no serious case to be tried on this point.
That conclusion means it is unnecessary to resolve two other obstacles faced by the appellants on this part of the case, namely:
(a)Whether the evidence discloses a tenable argument that the appellants could have made the payment had they known of the Notice. We have expressed doubts but do not need to comment further.
(b)Whether, in law, an injunction is available as a remedy for failure to serve the guarantors. In that regard, s 121 would appear to present formidable obstacles but we need not determine the point.
Conduct of the receivership
The second basis for interim relief is the allegedly oppressive nature of the receivership. We will briefly address some of the submissions made on the factual disputes. But we say at the outset we do not accept that this aspect of the claim supports a remedy of injunctive relief against mortgagee sale. Damages are an adequate remedy and the obstacles to the appellants being able to meet all the money owing are formidable. All the while the first respondent is receiving no interest, and has lost the use of its money. And this is in relation to what the appellants now accept is a default on their part.
The appellants’ case for interim relief is speculative. We turn first to the refinancing offer received just before the appeal hearing. It is from an overseas institution which may or may not be sound, but is plainly not a recognised bank. Indeed, the appellants thought it necessary to tender an “affidavit” from an unknown Singaporean businessman to vouch for the institution. It is a conditional offer dependent on the appellants being able to give clear title, and assets being worth what are claimed.
Second, the offer is helpful only if the appellants win on everything. That means they need to succeed in having a contract re‑opened not because of oppression in its terms or in the way it was entered, but because of alleged oppression in a receivership. If re-opened, they need to succeed in not having to pay the costs of receivership (although they accept a receiver was validly appointed), not paying penalty interest (although they accept they were in breach of the contract), obtaining compensation for undervalue sales, and obtaining general damages. The proposition is then advanced that if the appellants win on everything, and succeed in obtaining the full measure of relief and damages they seek, and then if the refinancing offer comes through, and if the trial proceeds in October,[8] they will be in a position to redeem the mortgage. If, of course, the victory is not so comprehensive, they would still not be in a position to resist sale, despite having had months to obtain better refinancing options.
[8] We are advised that subsequent to the appeal hearing, an October fixture has been allocated.
It is for these reasons that we would not consider it correct to continue an interim injunction preventing the respondent from exercising powers that have undoubtedly been triggered by the default of the appellants.
Briefly turning to the factual issues in dispute on the receivership, and generally on the topic of oppression, there is again no argument advanced that Keane J erred in law or applied the wrong test. Keane J noted that s 18 of the Receiverships Act 1993 sets out the general duties of a receiver, which are to exercise the powers in good faith, for a proper purpose, and in a manner reasonably believed to be in the best interests of the person in whose interests he or she was appointed. Then, to the extent consistent with these duties, to also have reasonable regard to the interests of, here, the mortgagor and guarantor.
The first argument advanced before Keane J was premised on the appellants not knowing about the Notice. This has been addressed.
Next, it was contended that there was no need for PFL to appoint a receiver or to take possession of the farm. We do not consider there is any merit in this point, given the acknowledged default. We also note that the reply evidence has not disputed the first respondent’s evidence that Mr King had made the Crafar Farm comment and had said he would remove all stock and equipment from the farm if there were any issues with the funding. In terms of authorities on appointing receivers, we do not accept the appellants’ submission that Robinson v United Building Society assists.[9] It was a wholly different situation where at the time of appointing the receiver, the default had been remedied. We have not found it helpful for the present case.
[9] Robinson v United Building Society HC Dunedin CP 35/87, 7 May 1987.
The real issue is the third argument advanced, namely that the exercise of the receivership has been negligent and oppressive. As to the claim that the receiver is liable to the borrower in negligence, Mr O’Callahan accepts there is a significant legal hurdle, but says it is arguable that s 18(3) of the Receiverships Act modifies Downsview Nominees Ltd v First City Corporation Ltd and allows a claim in negligence.[10] As with the earlier submission that, notwithstanding the words of the statute, an injunction could be issued for non service of guarantors, we observe this aspect of the case faces legal obstacles. That is not to say at this stage the argument will fail, but again it heightens the optimistic basis being advanced for interim relief.
[10] Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513 (PC).
The main point of complaint relates to the decision by the receiver, made on the first or second day of the receivership, to cease farming the property. It is disputed that Mr Beecroft took advice before doing this, and if he did, it is submitted that it was totally flawed advice. It is contended that the receiver should have consulted the appellants. The decision to cease farming cost the enterprise the milking income and devalued the assets.
Keane J concluded, after reviewing the evidence, that the decision to cease farming was contestable. He noted that the advice Mr Beecroft said he received has been assailed in every detail by reply evidence. However, Keane J observed that the key issue is not whether the advice was correct. The issues were whether advice was taken, whether it was apparently sound advice, and whether the receiver acted on it intelligibly and in good faith. In this regard Keane J did not see an evidential basis for an allegation of bad faith.
Finally, his Honour concluded that there was an issue about whether the sale of assets had occurred at correct value, but considered it was something that could only sound in damages.
There is no doubt that proving an absence of good faith is a difficult task. Whilst there is a serious question to be tried on whether the advice was sound, that is a different issue from bad faith, or recklessness. In terms of a serious case to be tried, we consider the conduct of the receivership to be more finely balanced than the other issues. However, for reasons already explored we consider the appellants fail by some margin to establish a basis for the granting of interim relief. Given the matter is to go to trial, we do not consider it appropriate to comment further.
Conclusion
We have not been satisfied that the Judge was wrong. Forming our own view of the facts we likewise agree that the appellants’ case on the key matters at this stage is not plausible. We also have not been persuaded at all that anything other than damages is an appropriate remedy, and there is no proper basis to prevent the respondents from exercising their powers under the contract. Despite an attempt by the appellants to introduce considerable further evidence for the appeal, the truly significant development since the High Court hearing is that the appellants have abandoned any challenge to the validity of the Notice, and now accept that the default to which the Notice relates existed, and was not remedied.
The appeal is dismissed. The interim orders of 30 March 2012 are discharged. We are advised the appellants are legally aided, so make no order as to costs.
Solicitors:
Carter & Partners, Auckland for Appellants
Heimsath Alexander, Auckland for Respondents
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