LDC Finance Limited (in rec) v FM Custodians Limited HC Nelson CIV 2010-442-168

[2011] NZHC 9

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV 2010-442-168

BETWEEN  LDC FINANCE LIMITED (IN RECEIVERSHIP)

Plaintiff

ANDFM CUSTODIANS LIMITED Defendant

Hearing:         2 February 2011 (Heard at Wellington)

Counsel:         P J Bellamy for Plaintiff

R J Gordon for Defendant

Judgment:      2 February 2011

ORAL JUDGMENT OF MILLER J

[1]      FM Custodians Ltd and LDC Finance Ltd (in receivership) were respectively the  first  and  second  mortgagees  of  a  property  at  Riwaka  owned  by  Kenneth Raymond Valentine and Brown & Associates Trustees Ltd.

[2]      The mortgagees are in dispute about the amount to which FM Custodians is entitled  in  priority to  LDC  Finance.   The question  is  which  of  two  conflicting priority deeds, both of which they executed, governs their relationship.  One would limit the priority of FM Custodians to $285,000 in total.  The other would limit it to

$245,000 with 24 months interest and all costs and expenses, including legal fees.

[3]      The mortgagors having defaulted, FM Custodians sold the property in March

2010 by mortgagee’s sale.   The sale price was $385,000 plus GST and the net proceeds after rates, agent’s commission and GST on the sale were $380,734.25. FM Custodians claims that its debt with interest and costs recoverable under the second priority deed was $413,053.16 at the date of settlement.  That would leave

nothing for LDC Finance.

LDC FINANCE LIMITED (IN RECEIVERSHIP) V FM CUSTODIANS LIMITED HC NEL CIV 2010-442-168

2 February 2011

[4]      LDC Finance claims that the first priority deed is in effect.   It sues for

$148,125 which it claims is the amount left over after deduction of that to which FM Custodians is limited by the first deed of priority.  FM Custodians says that even if the first deed is effective the amount to which LDC Finance is entitled is only

$95,734.25.  But its main point is that the second deed replaced the first.  Relying on it, FM Custodians has moved for summary judgment and increased costs.

[5]      Neither  FM  Custodians  nor  LDC  Finance  was  a  mortgagee  when  the mortgages were granted.   Both acquired their interests by assignment, which may explain the absence of any evidence about how the two deeds came to be executed and how the first one came to be registered.   The first mortgagee was Fletcher Vautier Moore Nominees Ltd and the second Halifax Finance Ltd.  The latter is now in liquidation.  The mortgages were executed on 20 June 2003 and 5 January 2005 respectively.

[6]      The priority deeds were executed in June 2006.  The sequence is significant. The first deed, which limited priority to $285,000, was dated 6 June 2006.  It appears that the first mortgagee and the mortgagors executed it on that date.   The deed specified that it took effect on 2 June.  Halifax Finance did not execute it at that time. The deed took the form of a standard form variation of mortgage.  It provided simply that:

The Priority Sum is hereby as from 2 June 2006, increased to $285,000.

[7]      The second deed was dated 14 June 2006 and apparently executed by all parties on that date.  It was a bespoke document, drafted for the purpose.  It included the following clause:

5.1The relationship between the Mortgages in respect of the priorities of the Mortgages shall be regulated in all respects by this deed. Any provision in either Mortgage (including any clause relating to section

80A(2) of the Property Law Act 1952) or in any other agreement or arrangement  entered  into  before  the  date  of  this  deed  which  is

inconsistent  with  this  deed  shall  be  deemed  to  be  suspended  or

varied to the extent necessary to give full effect to this deed.

[8]      And cl 3 provided that the priority scheme would have effect despite:

Any other fact or circumstance whatsoever which might otherwise alter or postpone that priority.

[9]      On 26 June 2006 Halifax Finance executed the first deed.  FM Custodian’s solicitors registered it, on 24 July 2006, FM Custodians by then having acquired the first mortgage by assignment. The second deed was never registered.

[10]     Rule  12.2(2)  provides  that  the  Court  may  grant  a  defendant  summary judgment if it satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.   In this case there is but one cause of action, in contract.

[11]     The parties agree that the question before me is one of interpretation.   Of course interpretation does not happen in a vacuum;   the factual context is always relevant and admissible, particularly when not merely the meaning but also the status of an agreement is in dispute.  The issue here may be framed as whether the status and  meaning  of  the  documents  is  so  clear  that  the  Court  can  grant  summary judgment without evidence of the factual setting.

[12]     For FM Custodians, Mr Gordon considers the case open and shut.  The 14

June deed expressly brought an end to any prior agreements, including that of 6

June.   The 6 June agreement had already taken effect, as of 2 June.   Thereafter Halifax Finance could not unilaterally revive the 6 June deed merely by signing it. The subsequent registration is of no consequence, since priority as between the mortgagees has nothing to do with the registration.

[13]     There are two difficulties with this submission.  First, the 6 June deed was not “entered into before” 14 June.  On the face of the document it had not been executed by Halifax Finance at that date, and the Court ordinarily presumes that a party is not bound by a deed or written contract until it is executed.[1]   The effective date of 2 June is an indication that a prior agreement had been reached, I accept, but there is no extrinsic evidence of that.  I could not possibly conclude, as presently informed, that

[1] Carruthers v Whitaker and Another [1975] 2 NZLR 667 (CA).

this is one of those cases in which the parties had already agreed to be bound and

were merely documenting their agreement in the deed.  That being so, clause 5 did not necessarily bring the 6 June deed to an end, as a matter of construction.

[14]     Second and far more importantly for present purposes, it is possible that Halifax Finance signed the first deed on 26 June because the parties had agreed to revert to that arrangement.   The record is not wholly devoid of evidence to that effect.    Not  only  was  the  first  deed  registered,  but  it  was  registered  by  FM Custodians’ lawyers.   Accordingly, both parties did something consistent with reversion to the first agreement.

[15]     In the circumstances I cannot be satisfied without evidence of the factual context that the plaintiff’s claim is incapable of success.   It is necessary that the parties answer the questions why Halifax signed the first deed on 26 June and why it was registered. The application for summary judgment is dismissed.

Costs

[16]     Mr Gordon asks that costs be reserved.  Not without hesitation I am going to accede to that submission, recognising that his client may succeed at the end of the day.  I indicate that costs of this application would appropriately be fixed on a 2B basis.

Miller J

Solicitors:

Duncan Cotterill, Wellington for Plaintiff

Buddle Findlay, Wellington for Defendant