MFT Properties Limited v Country Club Apartments Limited

[2012] NZHC 1116

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-5913 [2012] NZHC 1116

UNDER  the High Court Rules 2008, Rules 17.44 and 17.45

IN THE MATTER OF     an application to discharge Charging Order

No.8952031

BETWEEN  MFT PROPERTIES LIMITED Applicant

ANDCOUNTRY CLUB APARTMENTS LIMITED

Respondent

Hearing:         22 May 2012

Appearances: R S Pidgeon for Applicant

L J Turner for Respondent

Judgment:      22 May 2012

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

Pidgeon Law (Richard Pidgeon), P O Box 6535 Auckland 1141, for Plaintiff

Email:     [email protected]

Whaley & Garnett, P O Box 17-181 Greenlane, Auckland 1546 for Defendant

Email:     [email protected]

Copy for:

Lewis j Turner, P O Box 775 Auckland 1140, for Defendant

Email:     [email protected]

MFT PROPERTIES LIMITED V COUNTRY CLUB APARTMENTS LIMITED HC AK CIV-2010-404-5913 [22 May 2012]

[1]      This  is  an  application under r 17.44  to  remove a charging order lodged against the certificate of title to the property owned by MFT Properties Ltd.   The charging order follows a judgment of the Court of Appeal last year.   The amount which is payable under the charging order is $66,094.77.  It was registered against the certificate of title on 22 December 2011 (No.8952031.1).

[2]      The property concerned is a unit title (3E) in a building at 13-17 Mount Street, Central Auckland.  It is the property in Identifier 567092.  MFT Properties Ltd is the registered proprietor.  The certificate of title shows that the property is also subject to a mortgage to the Public Trust (No.6027816.1) which was registered on 13

April 2006.

[3]      MFT Properties Ltd applies for the removal of the charging order because it says that it has entered into an agreement for the sale and purchase of the unit and the entire proceeds of sale are required to be applied to the mortgage in favour of the Public Trust.   In effect, it says that it has no equity in the property and that the charging order in fact charges nothing.

[4]      There is evidence that MFT Properties Ltd has entered into an agreement to sell the unit to one Rong-Yu Chang.  The property is to be sold for $195,000.  The settlement date was originally 10 May 2012 but was brought forward to 3 May 2012. The  settlement  date  has  gone  and  passed.      The  purchaser  has  now  issued  a settlement notice.  The settlement notice has not yet expired.  I gave directions for this application to be heard at short notice so that I could determine whether the charging order should be lifted ahead of the expiry at the settlement notice.

[5]      The  Public  Trust  Office  says  that  the  amount  remaining  due  under  the mortgage   is $471,802.57.   It expects to receive from the proceeds of sale approximately $177,000.  It therefore says that it will face a shortfall, even though the sale goes ahead.

[6]      The Public Trust held mortgages over other properties in the building at 13-

17 Mount Street.   Country Club Apartments Ltd lodged its charging order against

those titles as well, but co-operated with MFT Properties Ltd by allowing the charging order to be lifted to allow sales of those units to settle.    By co-operating in that manner, I do not understand that it was giving away its right to say that it ought not to have to agree to a discharge of its charging order over unit 3E.

[7]      County  Club  Apartments  Ltd  is  facing  a  galling  situation.    There  was litigation surrounding the lease of these units in Mount Street.   Country Club Apartments Ltd was the operator of Quest on Mount, and MFT Properties Ltd is one of  the  lessors.    In  a  proceeding  in  this  court  about  the  lease,  Country  Club Apartments Ltd was unsuccessful, particularly in contending that there had been an agreement as to the amount of rent it ought to pay.   It appealed to the Court of Appeal.   It applied for a stay of execution.   The terms of the stay of execution required it to pay ongoing rent pending the hearing of the appeal.   The Court of Appeal heard the appeal and Country Club Apartments Ltd was successful.   As a result,  MFT  Properties  Ltd  has  been  required  to  repay  the  surplus  rent,  plus additional costs and interest.

[8]      Ordinarily, when a  judgment creditor insists on having the fruits of judgment pending an appeal, he is allowed to enforce a judgment on the understanding that he will  refund  those  fruits  to  the  other  party  if  the  appellant  is  not  successful. Sometimes the courts take steps to see that securities are put in place to ensure that the obligation to repay is made good.   It appears that no such arrangements were made in this case.  Country Club Apartments Ltd has found that MFT Properties Ltd cannot refund the payments made between the hearing in the High Court and the delivery of the Court of Appeal’s judgment.

[9]      Country  Club  Apartments  Ltd  appreciates  that  even  as  the  holder  of  a charging order, it is subordinate to the Public Trust.   It appreciates that it cannot stand in the way of the Public Trust exercising its powers to have unit 3E sold. However, it advances an argument that it may have the benefit of a marshalling of other securities that the Public Trust holds.   While unit 3E appears to be the last property  owned  by  MFT  Properties  Ltd  over  which  the  Public  Trust  holds  a mortgage, there is a related company, Syndicate Equities Ltd.  The documentation put in evidence shows that Syndicate Equities Ltd is a joint debtor and has given

cross-guarantees with MFT Properties Ltd for advances made by the Public Trust. Mr Turner says that because they are joint debtors, then a marshalling argument is available, whereby Country Club Apartments Ltd can invoke the rule so as to step into the shoes of the Public Trust in respect of the other security that the Public Trust holds.

[10]     The other security that the Public Trust holds is over a property of Syndicate Equities Ltd in Gisborne.  This property is one of the “Marina View” apartments in Reads Quay, Gisborne.

[11]     There is differing evidence as to the value of the Gisborne apartment.  There is a reference to a valuation by the firm Telfer Young, a well-known valuation practice, valuing the apartment at $350,000.  There is also evidence from the Public Trust suggesting that the apartment is worth much less than that, particularly because of weather-tightness issues.  There is not enough evidence before the court today to make a finding one way or the other whether there is any equity available.  The best case for Country Club Apartments Ltd is that the Gisborne apartment might be worth

$350,000, so that after the Public Trust has been paid from the sale to Rong-Yu Chang, and the Gisborne apartment has been sold, there might be a surplus available which can be applied towards its judgment.

[12]     Under the marshalling rules, the subordinate creditor cannot stand in the way of the sale of the property by the superior creditor.

[13]     Mr Turner advances the argument that the marshalling rule applies when the superior creditor exercises its powers of sale, but not when the debtor sells the property.   In this case there is no evidence that the Public Trust is exercising its powers of sale under the mortgage.   There is no evidence that notices have been given under the Property Law Act, although there is no doubt that MFT Properties Ltd is in default under the mortgage.

[14]     I am satisfied from the evidence that the Public Trust has required MFT Properties Ltd to sell the properties in an orderly fashion so as to maximise the return.   The Public Trust realistically expects that if it were to sell the properties

under its powers under the mortgage then the appearance of a forced sale is unlikely to achieve as good a return as a voluntary sale managed by MFT Properties Ltd.

[15]     I find as a matter of fact that while it has not formally exercised its powers of sale under its mortgage, the Public Trust is dictating the sale and is effectively

‘calling the shots’.   The situation is tantamount to the Public Trust forcing a sale because of the security it holds over the properties.

[16]     Whether that will take Mr Turner as far as he wants, I am not sure.   A marshalling argument does not stand in the way of unit 3E being sold, with the entire proceeds of sale to be applied towards the Public Trust.   It may be that there is a marshalling argument available to Country Club Apartments Ltd.  I cannot make a formal determination of that at the moment.  If I need to give any decision about a marshalling argument  I would also need to hear from the Public Trust.  Although the Public Trust has been invited to attend today, it has not.

[17]     I  simply  note  that  there  might  be  a  hope  of  a  marshalling  argument  to Country Club Apartments Ltd.   I cannot put it any higher than that.  Even though there may be a marshalling argument, that cannot stand in the way of the sale to Rong-Yu Chang going ahead.

[18]     The circumstances before the court today are similar to that of a caveator who alleges an interest in land.  When a sale has been held to allow the proceeds of sale to be paid entirely to a prior mortgagee, the court makes an order that the caveat is to be removed upon the transfer being lodged with LINZ.  In this situation, the same approach is to be taken.

[19]     I make an order that charging order 8952031.1 is to be removed upon there being lodged with LINZ a transfer by e-dealing of the property in Identifier 567092 from MFT Properties Ltd to Rong-Yu Chang.  I also reserve leave to the parties to come back to the court at short notice if there are other directions required.

[20]     I have heard counsel as to costs.   Mr Turner submits that costs should lie where they fall.   Mr Pidgeon asks for costs on a 2B basis.   He withdraws his

application for increased costs which he had earlier made.  This is a case where costs ought to follow the event.  I appreciate that Country Club Apartments Ltd will find it galling to have to pay costs consequential on their charging order being removed.  I can understand why it advanced the arguments that it did but I have noted those arguments have been unsuccessful.  The normal rule that costs will follow the event will apply.

[21]     Mr Pidgeon has also reminded me that the application sought orders that Country Club Apartment Ltd should pay a sum to represent the added interest that MFT Properties Ltd has had to pay on its mortgage to the Public Trust.

[22]     It seems to me that to make such an order would require Country Club Apartments Ltd to pay damages to MFT Properties Ltd for some wrong that it has done.  The only kind of wrong that I can think of which might be applicable is the tort of abuse of process.  That is not a tort which has a great success rate.  I have not had any submissions from counsel as to how it could apply here.

[23]   If MFT Properties Ltd wishes to pursue a claim against Country Club Apartments Ltd for the alleged wrongful refusal to lift the charging order, then that is a matter which should be the subject of separate proceedings.  I refrain from making any comments as to the merits of that claim beyond what I have already stated.  That

will be a matter for another judge, at another time.

R M Bell

Associate Judge