Kwok v HND Holding Limited

[2023] NZHC 3881

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1504

[2023] NZHC 3881

BETWEEN

DANIEL SHING CHUNG KWOK

First Plaintiff

DANIEL KWOK PROPERTIES LIMITED
Second Plaintiff

DASP PROPERTIES LIMITED
Third Plaintiff

DKBY PROPERTY LIMITED

Fourth Plaintiff

AND

HND HOLDING LIMITED

Defendant

Hearing:	21 December 2023
Appearances:	R E Harrison KC for Plaintiffs R O Parmenter for Defendant
Judgment:	22 December 2023

JUDGMENT OF ANDERSON J

(Reasons following Results Ruling of 21 December 2023)

This judgment was delivered by me on 22 December 2023 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules 2016.

………………………………

Registrar/Deputy Registrar

Solicitors:Chen Sandhu Lawyers, Auckland Ganda & Associates, Auckland

KWOK v HND HOLDING LTD [2023] NZHC 3881 [22 December 2023]

[1]        I heard yesterday an application for “interim interim” relief by the plaintiffs in advance of a scheduled hearing on 8 February 2024 to prevent ongoing mortgagee sales being conducted by the defendant, HND. I issued a Results Ruling in which I granted interim relief in the following terms:

(a)The defendant, HND Holding Limited, is prohibited from completing the sale of any of the properties set out below before the hearing of the plaintiffs’ further amended application on notice for interim injunctive relief dated 15 December 2023 scheduled for 8 February 2024.

(b)The properties the subject of the order are:

(i)Hudsons Road, Lincoln, Canterbury (RT 268603), Canterbury Registry);

(ii)111 Waitakere Road, Henderson, Auckland (RT NA87D/983, North Auckland Registry);

(iii)419 Bremner Road, Drury, Auckland (RT 909429, North Auckland Registry); and

(iv)205 Sutton Road,    Drury, Auckland (RT NA82B/163 North Auckland Registry.

[2]        This is the same terms as were made on an interim basis by Lang J when the matter come before him on Monday, 18 December 2023. I set out my reasons for granting this relief below.

Properties within the orders

[3]        I first explain what properties are subject to the order. One of the properties that was subject to the original application, the Haseler Crescent property, has not only sold, but the purchaser is now registered on the title. It is no longer the subject of the application.

[4]        The defendant is prepared to undertake that another mortgaged property (Hudson’s Road, Lincoln, Canterbury, also known as 58 Green Park Road) will not be the subject of any steps to sell by way of mortgagee sale until after the resolution of the 8 February 2024 hearing. Nonetheless, I have included that in the orders made.

[5]        That leaves three further properties (Hudsons Road, Waitakere Road and Suttons Road properties) as the focus of this application. These are all subject to sale and purchase agreements entered into between HND and Joe Holdings Limited, a company incorporated on 31 October 2023.

[6]        Two of the agreements were entered into in November 2023. The other is undated but can be inferred to have been entered into after 31 October 2023. The settlement date in the contracts is to take place a certain number of days after caveats were removed from the respective properties, that having now occurred.

[7]        Information relating to those sales comes from affidavits filed in the various caveat proceedings. Mr Harrison KC for the plaintiff does not object to the use of the affidavits for limited purposes for this application (such as for the various sales, and sale agreements) but records his objection to their use in the 8 February hearing.

A serious question to be tried

[8]        Mr Harrison has recently been instructed for the plaintiff and has filed a second amended statement of claim dated 8 December 2023 with several causes of action. In this application, he emphasises the following causes of action as showing a serious question to be tried:

(a)That the loan agreement and provision of securities under it were entered into with the defendant acting unlawfully and in knowing breach of s 11(1) and/or s 48 of the Financial Services Providers (Registration and Dispute Resolution) Act 2008, the effect of which, the plaintiff contends, means that the contract is an illegal contract and subject to the provisions of the Contract and Commercial Law Act 2017. Relief is sought under s 76(1) of that Act. I am told that the application of these provisions in this context is a novel issue.

Mr Harrison   notes   that   the   outstanding   loan   principal   is about

$11 million being approximately the same amount as the aggregate sale prices of the three properties subject to contracts to Joe Holdings. Penalty interest accrues at 26 per cent, which Mr Parmenter for HNL advises is $7,835 a day with the total present debt at $19,598 million.1

(b)Breach of the loan agreement – in substance it is said that HND failed to provide advances it said it would provide leading to one of the plaintiff’s inability to settle a sale and cancellation of that contract. This is said to have led in turn to loss of the deposit and to serious consequences for the plaintiffs’ development plans. It is said that this also amounts to oppressive conduct.

(c)Breach of the mortgagee’s duty of care to obtain the best price reasonably obtainable under s 176 of the Property Law Act 2007 and to act in good faith and for the purpose of obtaining repayment of the debt.2

[9]        Mr Parmenter for the defendant was largely content to concede the “serious question” issue. To the extent I need to address this, given that concession, I am satisfied that there is a serious question to be tried. On the third of the above issues, if the sales proceed to Joe Holdings, the sale prices are at 30 per cent, 33 per cent and 48 per cent of current market value based on the evidence of Mr Kwok. Joe Holdings was only incorporated at the end of October. Its only director is a Mr Zhang, which admittedly, is a common name, but which is the same name as HND’s director. There is at least “something to look at here” on these sales.

Balance of convenience/adequacy of damages

[10]      Mr Parmenter wanted me to determine the February injunction issue today which he also accepts would in any event be the practical outcome if I did not grant

11     I acknowledge Mr Parmenter’s submission that I have no evidence on whether 26 per cent penalty interest is higher than market/excessive for this type of borrowing.

2      Coltart v Lepionka & Co Investments Ltd [2016] 3 NZLR 36 (CA).

relief. He proposed that I consider fully the balance of convenience and adequacy of damages issues, rather than approaching this on a limited “interim interim” basis.

[11]      In my view, the appropriate “interim interim” course is to grant a holding injunction until the February hearing. On the discretionary factors I come to this conclusion for the following reasons:

(a)Mr Parmenter emphasised the consequences should HND have to wait until a substantive hearing. The proper primary question for me is not to look ahead to that hearing but to consider the difference between making holding orders now, and the position in February when Mr Parmenter will be able to argue against interim relief.

(b)Prima facie, these sales appear to be at an undervalue. If the sales are permitted to proceed that loss crystallises. I do not have information from which I am prepared to infer that HND could meet a damages award. Of course, that information will be available in February with the defendant’s affidavits due in mid-January.

(c)Mr Parmenter says HND has not been in a position to, nor should it need to, put in any evidence on this “interim interim” application However, I would have expected at least something very brief in the way of affidavit evidence on behalf of the defendant or even by way of submission on the facts, if holding the position now until February will in fact risk losing the contracts with Joe Holdings Limited. I would also  have  expected  something  more  than   the   mere   inference  Mr Parmenter invited me to draw on HND’s wherewithal to meet a damages award. If I had had real concern that the contracts would be cancelled this would have supported refusing the relief (although would not have been determinative). But I have nothing to go on, accompanied by a sense of ill-ease at the legitimacy of the sales and the counterparty.

(d)It is correct that the fact that third parties may be detrimentally affected may be a factor given considerable weight against granting interim

relief sought. But I have no concrete context from HND in which to assess that.

(e)While I acknowledge that the plaintiff is not able to meet a damages award, if the sales are lost there will still be the security (the properties) available.

(f)The sale agreements were all entered into some time after the application for interim injunction had been set down for hearing in February. While I accept Mr Parmenter’s point that the defendant ought to only be required to address the claim in front of it (which at that stage was a poorly drafted statement of claim and associated injunction with little chance of success) the defendant was on notice that a further improved proceeding was to be filed.

(g)Mr Parmenter fairly refers to the delay by the plaintiffs after expiry of Property Law Act notices in March 2023 (proceedings not brought until July 2023) and delay in filing a claim that was not, like the previous (in Venning J’s words) “vexatious and incomprehensible.” Nonetheless, this does not sufficiently persuade me to effectively decline substantive interim relief now.

(h)In short, I am persuaded by Mr Harrison’s submissions that the time to look at the overall position is in February rather than rendering that hearing nugatory today.

[12]      The “interim interim” relief granted is limited to precluding the completion of sales. That continues the present “interim interim” relief. As Mr Harrison submitted, the step of registration can be restrained by injunctive relief.3 It provides the least intrusive relief until the hearing of the interim injunction application.

Anderson J

3      Hinde McMorland & Sim, Land Law in New Zealand, Lexis Nexis, paras 15.131-15.135.