McDonald v Toko aka Ngatai

[2020] NZHC 2104

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2020-406-25

[2020] NZHC 2104

IN THE MATTER OF

an intended proceeding

IN THE MATTER OF

an application for an interim injunction

BETWEEN

LEAH MARCIA McDONALD

Applicant

AND

JERRY TOKO (also known as JERRY NGATAI)

First Respondent

SECURE FUNDING LIMITED

Second Respondent

Hearing:

19 August 2020 (via telephone)

Counsel:

P J Radich for applicant

No appearance for first respondent W D Hofer for second respondent

Judgment:

19 August 2020

JUDGMENT OF DOBSON J

[1]                 This proceeding was filed this morning in circumstances of extreme urgency, seeking an interim injunction to prevent a mortgagee sale of a residential property in Kaikoura, which was scheduled to proceed tomorrow.

[2]                 Given the urgency, the application was filed on a without notice basis, but on behalf of the applicant (Ms McDonald) Mr Radich served solicitors he was aware were acting for the  second  respondent  (the  mortgagee).  I was  very  grateful  to Mr Hofer for both filing a preliminary memorandum setting out the grounds on which

McDONALD v TOKO [2020] NZHC 2104 [19 August 2020]

the mortgagee opposed any order, and also appearing at the telephone conference I convened, on a Pickwick basis.

[3]                 After hearing counsel, I indicated I would make orders, the effect of which is to prevent the proposed auction sale proceeding for one month. I now provide inevitably cursory reasons for doing so, and formally confirm the terms of the orders that are to apply.

The factual background

[4]                 Ms McDonald  and  her  mother  are  living  in  a  residential  property   at   23 Ludstone Road, Kaikoura (the property), which she has believed is legally, as well as beneficially, hers. In a sequence of events over the last three or so years, she put her faith in the first respondent (Mr Toko), with whom she appears for some time to have had an on-again, off-again relationship, to deal with the sale of an earlier Kaikoura property, and the acquisition of the property. Unbeknown to Ms McDonald, Mr Toko did not arrange for her to be registered either as a sole or joint legal owner of the property. Instead, he procured its registration in his own name and arranged substantial borrowings from the mortgagee, some part of which Ms McDonald suspects was not committed to the purchase of the property at all.

[5]                 Ms McDonald has not seen or heard from Mr Toko for some period of time. Mr Radich has referred Mr Toko’s allegedly fraudulent conduct to the Police, and it is hoped that he will be located in the reasonably near future. No steps have been taken to serve him with the proceeding.

[6]                 It appears the rates have not been paid, nor have payments been made on the mortgage. The mortgagee has moved to exercise its powers of sale, instructed a local real estate agent and proceeded with marketing the property in anticipation of the auction scheduled to occur tomorrow.

[7]                 There has been no local advertising and no sign at the property advising that it is for sale. However, Ms McDonald has had contact with an agent who advised her that the property was being marketed. She and her mother have accepted the agent’s

invitation to be vacant from the property on a couple of occasions, presumably when the agent was showing prospective buyers through it.

The application for interim injunction

[8]                 Belatedly, late last week Ms McDonald sought advice which led support services on her behalf to ask Mr Radich to intervene. It is apparent that she and her mother have very modest means and Mr Radich has done so as a matter of extreme urgency and on a pro bono basis. However, the proposals he has made are on the basis of the availability of support for Ms McDonald from others in the community and her whanau, justifying his initiative to attempt to buy time to defer the auction against the prospect that Ms McDonald’s legal ownership of the property might be regularised, and sufficient funds raised for her to repay the mortgage.

[9]                 The initial response from the mortgagee, not unreasonably, was that it would not deal with anyone other than the registered proprietor so, thus far, no details have been disclosed to Mr Radich or Ms McDonald as to the amounts sought to be recovered by the mortgagee from the sale.

[10]              Some of the narrative I have just recorded is taken from Mr Radich’s advice to me. Mr Hofer did not object, given the urgency of the situation. Other aspects of the narrative I have taken from an affidavit completed by Ms McDonald, obviously in some haste on 18 August 2020, explaining her position.

[11]              In addition to the without notice interlocutory application for an injunction, Mr Radich filed an undertaking as to damages from Ms McDonald, and a draft statement of claim. At the outset of the telephone conference, Mr Radich realistically acknowledged that if the respective rights and interests of Ms McDonald and the mortgagee were regulated strictly by legal principles, then the mortgagee’s position was strong. What he proposed was that the sale be deferred for one month because of the life-altering injustice that would be suffered by Ms McDonald and her mother, and the very real loss of equity likely to arise if a mortgagee sale, which will inevitably be perceived as a fire sale, has to be subject to whatever rights the current occupants of the property have to be there.

[12]              Accordingly, Mr Radich sought an interlocutory injunction preventing sale for one month. If that breathing space is provided, he undertook to exhaust all realistic efforts for Ms McDonald to refinance so as to be in a position to redeem the mortgage. If, once the amounts involved are known and the efforts he contemplates have been exhausted, that is not possible, then the proceeding would be discontinued against the mortgagee and Ms McDonald would not take any further action to obstruct the sale.

The mortgagee’s opposition

[13]              Mr Hofer opposed the application. From the mortgagee’s perspective, its title cannot be challenged and it has exercised the lawful powers under the mortgage on grounds that are not open to criticism. Mr Hofer sought time to file fuller grounds of opposition, including affidavits explaining the mortgagee’s conduct. From the mortgagee’s perspective, it need not be concerned about the merits of any dispute between Mr Toko and Ms McDonald, as the mortgagee was legally entitled to deal only with the registered proprietor. Mr Hofer submitted that Ms McDonald could not raise a tenable cause of action against the mortgagee and in any event, given the sequence of events, the balance of convenience was against any order restraining the mortgagee’s conduct of the sale.

The balance of convenience

[14]              I discussed with counsel the opposing views on the balance of convenience. My concern is that a mortgagee sale of a residential property in Kaikoura that is inevitably sold subject to the undefined occupancy rights of the present occupant will more likely than not occur on “fire sale” terms. Given the hurdle Ms Donald faces in establishing her entitlement to legal title, the prejudice to her from that eventuality is very significant. In addition, it is clear that she and her mother need the property to live in and appear to have nowhere else available to them in the short term to which they could relocate. Sale at what might be a significant under-value is likely to torpedo the value of any rights she has against Mr Toko when resort to the property is likely to be the only realistic avenue of a recovery.

[15]              From the mortgagee’s perspective, it appears to have acted entirely in accordance with its legal rights. If it proceeded with the sale being on notice of the

circumstances of the claim and sale at a substantial under-value occurred, then it may trigger liabilities in equity to Ms McDonald. I readily accept that Mr Hofer did not have any reasonable opportunity to rebut concerns of this type. It is to be expected that the mortgagee will suffer some measure of additional costs with its agent in having to postpone the sale, and it is kept out of its money for at least a further month.     Mr Hofer raised the concern that whilst current COVID-19 restrictions allow an auction to occur in Kaikoura tomorrow, there can be no guarantee that it would similarly be feasible in a month’s time.

Outcome and orders

[16]              In balancing these competing interests, I am well-satisfied that the balance of convenience favours an injunction on the limited terms Mr Radich has proposed.

[17]              I accordingly issue the injunction as sought, directing that the mortgagee is not to conduct an auction or other form of sale of the property until 22 September 2020, or further order of the Court. That order is subject to Ms McDonald’s acknowledgement that, if her attempts to repay the mortgage are not able to be confirmed unconditionally by 22 September 2020, then no further steps to disrupt a sale by the mortgagee will be pursued.

[18]              In the meantime, I direct that  the  mortgagee  is  to  co-operate  fully  with Mr Radich as Ms McDonald’s agent in advising the breakdown of amounts outstanding under the mortgage, and on other details in relation to possible repayment of it by those acting on her behalf.

[19]              In the event that the injunction lapses and the mortgagee proceeds to sale, I direct that the balance of net proceeds of sale after all reasonable claims by the mortgagee are satisfied is to be held by solicitors acting for the mortgagee, pending resolution of issues as between Ms McDonald and Mr Toko. Such amounts are to be released only with the concurrence of Mr Radich, or by further order of the Court.

[20]              Mr Hofer foreshadowed filing further documents in opposition to the application. I direct that no such papers are required to be filed on behalf of the

mortgagee in the next month. The proceeding will effectively be in abeyance pending the outcome of the initiatives for Ms McDonald to repay the mortgage.

[21]I defer any consideration of issues as to costs.

Dobson J

Solicitors:

Radich Law, Blenheim for applicant

Tompkins Wake, Hamilton for second respondent