Kiwi Freeholds Queen Street Limited v Shanti Holdings Limited HC Auckland CIV 2006-404-3340
[2007] NZHC 1913
•25 June 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-3340
BETWEEN KIWI FREEHOLDS QUEEN STREET LIMITED
First Plaintiff
ANDKIWI INTERNATIONAL HOTEL QUEEN STREET LIMITED Second Plaintiff
ANDR T SCHOFIELD Third Plaintiff
ANDSHANTI HOLDINGS LIMITED First Defendant
ANDAHIMSA DEVELOPMENTS LIMITED Second Defendant
ANDD M V GIBBS AND H DROEGE Third Defendants
Hearing: 18 June 2007
Appearances: Mr Krebs for plaintiffs
Mr Walker and Mr Patterson for defendants
Judgment: 25 June 2007 at 4.30 p.m.
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
Counsel:
Mr J Krebs, Barrister, P O Box 754, Napier
Gilbert Walker, Auckland (Mr Walker)
KIWI FREEHOLDS QUEEN STREET LTD AND ORS V SHANTI HOLDINGS LTD AND ORS HC AK CIV
2006-404-3340 25 June 2007
Introduction and chronology
[1] In February 2004 parties to these proceedings entered into two agreements for sale and purchase. Kiwi Freeholds and Kiwi International (“Kiwi”) (in which Mr Raymond Schofield held interests) agreed to sell the Kiwi International Hotel land and business at Queen Street, Auckland, to Shanti Holdings and Shanti Trading (“Shanti”). A Mr Dhansuk Amarsee was an interested party in these two companies. Another of Mr Dhansuk’s companies, Ahimsa Developments, agreed to sell Mr Schofield land at Whitford.
[2] Kiwi’s price to sell its properties in Queen Street was $9,500,000. Shanti was to pay Kiwi $5,500,000 in cash. Mr Schofield was to purchase the Whitford property for $4,000,000. That $4,000,000 would be offset against the price for the Kiwi International Hotel property and business. Settlement of all transactions was to occur 24 November 2004.
[3] The contracts became unconditional on 25 March 2004 but did not settle. On
25 November Mr Schofield’s solicitors issued settlement notices requiring the purchaser to settle the purchase of the Queen Street properties. Mr Amarsee’s solicitors issued a settlement notice on 15 December 2004 on behalf of Ahimsa calling on Mr Schofield to complete the Whitford purchase by payment – that is, by cash payment or equivalent. On 1 February 2005, after Mr Schofield chose not to respond, Ahimsa cancelled the Whitford agreement.
[4] In December 2004 Mr Schofield and his interests issued proceedings against
Shanti and Ahimsa seeking specific performance of the various contracts. In June
2004 Mr Schofield lodged a caveat against the title to Ahimsa’s Whitford property.
[5] Ahimsa now says it no longer has any equitable interest in the Whitford property. It says that another company, Rhada, which is the fifth defendant, became mortgagee of the property by assignment to it of a third mortgage over the property. Ahimsa says Rhada has exercised the power the sale contained in the mortgage to sell the property to the sixth defendant Radhika. Ahimsa says it only remains on the
tile because Mr Schofield has lodged a caveat. It says that the mortgagee is unable to settle its sale to Rhadika because of the caveat.
[6] The lapsing mechanism under section 145 of the Land Transfer Act 1952 was triggered with respect to the caveat over the Whitford property. That came about with the presentation of documents seeking to give effect to the alleged arrangement whereby the existing mortgagee assigned the third mortgage over the property to Rhada, which sold to Rhadika. One of the documents presented for registration is a transfer to the purchaser, Radhika, pursuant to the power of sale that Rhada says it has exercised.
[7] Both Rhada and Radhika are associated with Mr Amarsee. The plaintiffs say that the alleged assignment of the mortgagee’s interest to Rhada, the exercise of the power of sale, and the subsequent acquisition of the property pursuant to the exercise of the power of sale by Radhika, are all part of a fraudulent contrivance designed to defeat Mr Schofield’s claim in respect of the Whitford property.
[8] On 16 June 2006 the plaintiffs issued fresh proceedings and also filed an application for an order that the Whitford caveat not lapse. An interim order was made by consent on 3 July 2006 that the caveat not lapse until further order of the Court. The matter is now back before the Court because of the notices to lapse that have been given following Rhada and Radhika’s attempts to register documents to give effect to the alleged mortgagee sale. The position, though, has been held ever since by means of the consent order that the caveat not lapse until further order of the Court.
[9] In November 2006, Keane J tried the question of whether or not the agreements which underlay the dispute, that is the agreements of November 2004, were still in force and effect. Shanti alleged that it was entitled to avoid the agreements to buy the Queen Street properties, Ahimsa likewise asserted that it was entitled to cancel the Whitford contract, while Mr Schofield sought to enforce both contracts. The judgment of Keane J dealt with claims that the contracts had been validly cancelled because of failure to comply with settlement notices. But there was an additional arguament that Ahimsa was entitled to cancel the agreement over the
Whitford properties because the default of Shanti Holdings in the Queen Street transaction prevented interdependent and simultaneous settlement of the Queen Street and Whitford transactions.
[10] Keane J’s judgment was issued 27 April 2007. The plaintiffs, that is Mr Schofield’s interests, filed an appeal against that judgment on 25 May 2007. Not date has yet been allocated for the hearing of that appeal. The plaintiffs seek orders that the caveats remain in force until the Court of Appeal has determined the appeal.
Principles
[11] The defendants did not dispute that there was jurisdiction to make an order extending the caveat pending the hearing of an appeal. The New Zealand Courts have accepted that there is jurisdiction to make orders pending appeal.
[12] The defendants referred to the earlier authority of Howe v Waimiha Timber Company Limited [1921] NZLR 110 where Sim J dealt with an application for removal of caveat under s 152 of Land Transfer Act 1915. The Supreme Court in an earlier judgment had determined that Howe had been entitled to terminate the contract which Waimiha Timber Company Limited relied upon as the basis for its caveat. The company wished to appeal against that decision and sought that its caveat not be removed until its appeal had been disposed of.
[13] Sim J held that prima facie the successful party in the Supreme Court was entitled to the fruits of his judgment and that he had the right, therefore, to have the caveat removed unless Waimiha Timber Company Limited could bring forward some good reason for allowing it to stand. That reason, the Judge said, was that the company was appealing from the decision of the Supreme Court. It had also given notice that it intended to appeal against an earlier decision given against it by the Court of Appeal concerning other aspects of the dispute between the two parties.
[14] Sim J said at pages 113 - 114:
At the same sitting of the Court of Appeal it is proposed to apply for leave to appeal to the Privy Council from the judgment of the 27th July last. That is
what the company is doing, and the suggestion of counsel is, in effect, that the caveat should be allowed to stand until the company either gets a decision in its favour or reaches a stage when it is impossible to carry the litigation any further. That means that Howe may have to wait for some years before he can deal with his land, for a decision in the company’s favour on the question of relief against forfeiture would not dispose of the case.
[15] Sim J concluded that if Howe was further prevented from dealing with his lands he would be caused serious financial difficulties. He also said he was not satisfied that the company was acting bona fide in the matter of the appeals.
[16] There were three factors that influenced the Court not to extend the caveats:
a) Howe being entitled prima facie to the fruits of the judgment;
b) The resulting financial difficulties for Howe if the orders were made;
c) The company had not satisfied Sim J that it was bona fide in the matter.
[17] Also relevant is the later decision of Attorney-General for Hong Kong v Reid (No 2) [1992] 2 NZLR 394. That case involved an application for orders sustaining caveat. The proceeding was dealt with initially in the High Court and then came before the Court of Appeal. The Court of Appeal affirmed the decision at first instance and refused to extend the caveats. The application in that case was made under s 145, as here. The unsuccessful appellant in the Court of Appeal, the Attorney-General for Hong Kong, sought and obtained leave to appeal to the Privy Council. He also sought orders that the caveats not lapse pending determination of his appeal. The Court of Appeal granted the application. The Court accepted that it had inherent jurisdiction to make such orders where appropriate to preserve the subject matter of the litigation pending determination of the appeal.
[18] In his judgment at page 396, Richardson J said:
The second application invokes the inherent jurisdiction of the Court to make such orders as are appropriate to preserve the subject-matter of the litigation pending determination of the appeal. Rule 6 of the Privy Council (Judicial Committee) Rules does not apply where, as here, the judgment
under appeal does not require the appellant to pay money or perform a duty. What is sought is not a stay of execution in that sense. But is is well [sic] settled that the Court has jurisdiction on dismissal of an appeal to make an order preserving the rights claimed by the unsuccessful appellant pending an appeal to the Privy Council (Staples & Co v Corby and District Land Registrar (No 2) (1900) 19 NZLR 539; Ex parte Frethey (1902) 22 NZLR
517). In this regard Cotton LJ, speaking of an appeal from the Court of
Appeal to the House of Lords in Wilson v Church (No 2) (1879) 12 Ch D
454 said at p 458:
". . . when a party is appealing, exercising his undoubted right of appeal, this
Court ought to see that the appeal, if successful, is not nugatory;".
(See also Erinford Properties Ltd v Cheshire County Council [1974] Ch 261 and Paringa Mining & Exploration Co Plc v North Flinders Mines Ltd (1988) 81 ALR 501). The principles governing the grant of a stay of execution are equally applicable to the exercise of the jurisdiction. Accordingly considerations of the overall justice of the case will have regard to the ordinary entitlement of a successful party to the immediate benefit of the judgment in his or her favour, to the appellant’s need for such a protective order, to any injurious effects on the respondent of the granting of the order and to any other considerations relevant in the particular case.
[19] Then at page 397:
The inherent jurisdiction on which the appellant relies is exercised with a view to ensuring that if the appeal is successful it will not have been in vain.
[20] The Court concluded that orders should be made that the caveat not lapse pending determination of the appeal by the appellant to the Privy Council. Conditions were attached to the grant of leave.
[21] The judgment in Attorney-General for Hong Kong assimilated the jurisdiction in cases where a protective order is sought to applications for stay of execution.
[22] It will be helpful, therefore, to make brief reference to Dymocks Franchise Systems (Nsw) Pty Ltd V Bilgola Enterprises Ltd 13 PRNZ 48 where Hammond J set out the principles that affect applications for stay of execution as follows:
[8] I begin with a brief discussion of principle. It is routinely said that, at the end of the day, the test for a stay of execution is one of the justice of the given case. In the broadest sense, that must be so. But a formula which, with respect, more accurately indicates the essential nature of the balancing approach which must be adopted, is set out in the decision of Gault J in Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85. His Honour said (at p
87):
“In applications of this kind it is necessary carefully to weigh all of the factors in the balance between the right of a successful litigant to have the fruits of a judgment and the need to preserve the position in case the appeal is successful. Often it is possible to secure an intermediate position by conditions or undertakings and each case must be determined on its own circumstances.”
[9] The factors to which Courts conventionally address themselves to find this balance include the following:
(1)If no stay is granted will the applicants' right of appeal be rendered nugatory?
(2) The bona fides of the applicants as to the prosecution of the
appeal.
(3) Will the successful party be injuriously affected by the stay ? (4) The effect on third parties.
(5) The novelty and importance of the question involved.
(6) The public interest in the proceedings. (7) The overall balance of convenience.
[10] I add, that these factors are not comprehensive. A review of them serves merely to show the breadth of the matters which, in any given case, may have to be addressed by a Court to balance the overall interests of justice.
[11] Because of its importance to the instant application, I specifically mention also the decision of the Court of Appeal in Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257. There, the Court of Appeal had to consider an application for a stay of execution, pending an appeal to the Privy Council. Savill sought a stay to allow caveats to remain in force pending determination of the appeal, by the Privy Council. The Court of Appeal noted that the removal of the caveats would prevent an order for specific performance over the three properties, which were the subject of the litigation. The Court of Appeal also referred to prejudice that Chase (or its subsidiary, Concept Investments) would suffer including losses which would be incurred until the caveat was removed. Nevertheless, the Court of Appeal concluded (at p 318):
“In the result we are of the view that the balancing of the various factors mentioned must result in the application for stay of execution being declined. The dismissal of the application does not put an end to the appellant's right of appeal to the Privy Council. It does not make their appeal nugatory. What it may do is require them to substitute a claim for damages for the claim for specific performance in the event that in the interim a sale of the three properties or any one of them is effected. The application for stay of execution is therefore dismissed.” (p 318)
[12] The case, for present purposes, is authority for the proposition that the fact that one remedy — specific performance — may not be available as a result of the refusal of a stay, does not make a case nugatory. Other relief — such as damages — may still be available.
Appeal rendered nugatory unless relief granted
[23] The first issue, then, is whether or not the appeal rights of the appellant will be rendered nugatory if a stay is not granted. If it is assumed that a successful outcome to the appeal would involve the plaintiff being able to compel the vendor Ahimsa to settle the transaction, then the loss of the caveat will very materially change the circumstances. If the caveat is not sustained, no doubt the sixth defendant will present its transfer and become the registered proprietor of the property. Specific performance proceedings, from that point, will be pointless.
[24] The plaintiff asserts that the property has gone up in value since the time of the contract. If that is so, it would open the way to a damages claim. There is no evidence as to the extent of any increase in value of the property and there is no evidence as to Ahimsa’s ability to meet an award of damages. If there was proof that the damages were likely to be in the region of hundreds of thousands of dollars, I would not normally be prepared to infer that one incorporated company is as good as another to meet such an award of damages and therefore conclude that there was no risk that Ahimsa would fall short of any damages award. However, I cannot tell what the position is because of lack of evidence.
Is the appeal bona fide?
[25] The plaintiff’s notice of appeal, so far as relevant, reads:
c)His Honour’s conclusion at paragraph 49 in finding that clause 18 “is a condition in the sense that the agreement was contingent on its fulfillment,” was wrong. Clause 18 included a condition as to the timing and mechanism of settlement only and was not a condition of the contract entitling cancellation.
d)Arising from that incorrect finding His Honour’s conclusion at paragraph 52 was wrong. Ahimsa was not entitled to invoke clause
8.7 of the contract as a result of Shanti Holding’s default because it was not the agreement that was expressed by clause 18 to be subject to [the condition] but the timing of settlement.
[26] I accept that the appellant has a bona fide appeal on the matter of the interpretation of clause 18 of the Agreement for Sale and Purchase. That is, there is substance to the appeal. The arguments which Keane J heard were reasonably complex. The answer is not, with respect, straight-forward.
[27] Further, there has not been any delay in prosecuting the appeal – given that the appeal was apparently filed within time, and given that the date of filing the appeal was only a month ago.
Will the successful parties be injuriously affected?
[28] On the issue of successful parties being adversely affected, I record that, as the defendants emphasised, it is now three years since the third plaintiff lodged the caveat over the Whitford property. That time lapse is significant in two ways. In the first place, the plaintiff has had more than adequate time to take steps to enforce its contract against Ahimsa. Conversely, the defendants have already been prevented dealing with their property for a like period. There is no assurance that an appeal will be determined before the end of this year. A fixture has not been allocated for the matter in the Court of Appeal and preparatory steps such as settling the case on appeal have not been completed. By the end of this year, it will be three and a half years since the caveat was lodged. I do not overlook that during part of the periods that I have mentioned, the plaintiff was in the hands of the Court while the judgment on the preliminary issue was reserved. Even allowing for that factor, it cannot be said that the plaintiffs have moved with urgency to get this matter resolved. Even though this delay does not specifically relate to how expeditiously the appellant is proceeding to bring the appeal to hearing, I consider it cannot be ignored because it contributes to the length of the period when the owner of the Whitford property has been prevented from dealing with its property.
[29] It is the mortgagee and the party purportedly purchasing from him who are the parties affected. The relevant delays are those which affect the ability of the mortgagee to enforce its mortgage. Steps were first taken by way of giving s 92
notices as long ago as March 2005. The Fifth Defendant has occupied the position of the original mortgagee since the assignment took place some two months after that. There have already been delays for two years. No evidence has been placed before the Court of hardship to the mortgagee or the party intending to purchase from it. Yet it seems likely that at some point, the demands of the original mortgagee will have had to have been satisfied. It seems likely that funds will have had to be raised to pay out the original mortgagee.
[30] And, on the other hand, the Fifth Defendant as assignee of the mortgage would be partially protected by an undertaking to pay damages.
Balance of convenience considerations
[31] Any claim that the appellant’s appeal rights will be rendered nugatory, is premised on the assumption that an appeal, if successful, will result in concrete advantages to the appellant. The situation as to that is unclear. That is because to get any advantage from the appeal, the appellant will not only have to succeed on appeal but also obtain relief in other proceedings against the fifth and sixth defendants which enables it to defeat the exercise of the power of sale under the assigned mortgage. Otherwise the exercise of the power of sale which is referable to a mortgage that was registered on the title prior to the Agreement for Sale And Purchase, must trump the Agreement for Sale and Purchase: Cantab Management Limited v Greagh Investments Limited - HC HAM N95/02 20 November 2002, Master Faire. Mr Krebs told me that the plaintiffs in extant proceedings have attacked the legitimacy of the mortgage and related exercise of power of sale.
[32] Mr Krebs told me, in effect, that the plaintiffs claim that the Fifth Defendant and Sixth Defendant have got involved as mortgagees in order to facilitate a fraudulent design which they attribute to all of the defendants. But, as Mr Walker says, these are allegations only. There was no evidence offered to support the plaintiffs’ suspicions. There is of course the circumstance that Mr Amarsee is to be found behind those two companies, as he is behind Shanti and Ahimsa but that, on its own, is not probative of an intention to defraud.
[33] It is difficult for me to properly assess whether there are grounds for the appellant’s claims. On the other hand, I cannot rule out the possibility that the plaintiff will obtain the relief that it seeks with respect to the assignment of the third mortgage, and the pending transfer of the property to the Sixth Defendant.
Conclusion
[34] This is not a case where the interests of justice clearly require one outcome rather than another.
[35] The fact that interests associated with Mr Amarsee have acquired the third mortgage and exercised the power of sale under it, causes me unease. While proof of a fraudulent enterprise is lacking, equally, there is no ready explanation why interests associated with the vendor should re-emerge in the saga: this time in the guise of mortgagees.
[36] A further influential factor in my judgment is that it seems likely that damages will not ultimately be a satisfactory remedy for the plaintiffs. This raises concerns that any appeal will be nugatory.
[37] Against those factors there is to be balanced an apparent lack of urgency on the part of the plaintiffs in bringing the proceedings to a head.
[38] By a narrow margin, I conclude that the interests of justice would best be served by extending the caveat until further order of the Court on conditions. Those conditions are;
a) The appellant complying with a timetable to ensure expeditious hearing of the appeal;
b)The appellant providing an undertaking as to damages. My impression at this point is that any undertaking would need to be provided to the fifth and sixth defendants only. I will consider that
issue and the content of any undertaking as to damages at a further hearing involving the parties;
c) The proceedings to be scheduled to come back before the Court later this year to review progress on the basis that if insufficient progress is being made, then the order for extension of the caveat would be discharged.
[39] In order to hear further from counsel, I allocate a further hearing for this matter at 10 am 26th June 2007. In the meantime the earlier order that I made
extending the caveat until further order of the Court stands.
J.P. Doogue
Associate Judge
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