Mockingbird Properties Ltd v Jhim Homes Ltd
[2022] NZHC 3247
•6 December 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-002242
[2022] NZHC 3247
BETWEEN MOCKINGBIRD PROPERTIES LIMITED
Plaintiff
AND
JHIM HOMES LIMITED
First Defendant
LASHMAN RAM JHIM
Second Defendant
Hearing: 2 December 2022 Counsel:
P Muir for the Plaintiff
Lashman Jhim for the First Defendant and in Person
Judgment:
6 December 2022
JUDGMENT OF HARVEY J
This judgment is delivered by me on 6 December 2022 at 2 pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors:
Steindle Williams Legal, Auckland
Copy to:
The Second Defendant
MOCKINGBIRD PROPERTIES LTD v JHIM HOMES LTD [2022] NZHC 3247 [6 December 2022]
Introduction
[1] Mockingbird Properties Limited (MPL) has filed a without notice interlocutory application on 28 November 2022 for freezing orders over two properties located in Manurewa and owned by the defendants, Jhim Homes Limited (JHL) and Lashman Jhim. Contemporaneously, MPL filed an application for summary judgment on the basis that there is no viable defence to its claim concerning the default by the first defendant on a property purchase of 32 Heathdale Crescent, Papakura and claims damages of $412,109.1
[2] Regarding the application for freezing orders, to ensure that any prospective judgment arising out of a claim against the defendants may be satisfied, the plaintiff argues that freezing orders are necessary because there is a danger the Manurewa Properties may be disposed of before the summary judgment proceedings had concluded.
[3] By a minute dated 1 December 2022, I directed that an urgent teleconference be arranged with notice on a Pickwick basis.2 That occurred on Friday 2 December 2022 at 10.00 am. Mr Muir was present along with the second defendant, Lashman Jhim representing himself.
[4] Mr Jhim submitted that the Heathdale Crescent property dispute occurred because of the unwillingness of the plaintiff to negotiate in difficult and deteriorating market conditions. He pointed out that neither of the Manurewa properties had been sold, because the mortgages over them exceeded sale offers by a significant margin. Mr Muir noted that this was the first time he had heard of the financial arrangements of the defendants and that, in any event, these assertions from Mr Jhim did not alter the situation regarding the plaintiff’s application for freezing orders.
[5] Following that, I gave Mr Jhim until 2 pm Friday 2 December 2022 to file evidence of his current liabilities regarding the properties in question. Soon after Mr
1 The property has been erroneously described as “Heathcote” in paragraph 32 the affidavit of Megan Lattie sworn 25 November 2022 in support of the summary judgment application.
2 Mockingbird Properties Limited v Jhim HC Auckland CIV-2022-404-002242, 1 December 2022 (Minute of Harvey J).
Jhim filed copies of statements and loans outlining the extent of both defendants’ indebtedness.
[6]The issue for determination is whether the freezing orders should be issued.
The freezing orders sought
[7]MPL applies for a freezing order on the following terms:
(a)JHL is to direct their solicitor to hold the proceeds of any sale of the following properties (“the Properties”):
(i) 46 Friendlanders Road, Manurewa, Auckland (identifier NA4D/814): and
(ii) 85 Beeston Crescent, Manurewa, Auckland (Identifier NA16C/75). (together the Manurewa Properties)
following deduction of expenses associated with the sale of up to the sum of
$450,000.00 in its trust account pending further order of the Court on the following terms:
(b)The order and a copy of the proceedings are to be served on JHL; and
(c)JHL has leave to apply to vary or discharge the order on 24 hours’ notice.
[8]MPL has provided an undertaking as to damages and evidence of its means.
Background
[9] In evidence are two affidavits of Megan Lattie, the director of MPL, sworn 25 November 2022. The first, in support of the application for summary judgment, sets out the evidential basis for MPL’s claim for breach of contract against JHL. The second, in support of the application for freezing orders, sets out the evidential basis for why MPL believes that a freezing order over JHL’s assets is required to protect MPL’s prospects of recovery.
[10] Ms Lattie confirmed that MPL was the owner of a residential property at 32 Heathdale Crescent, Papakura (the Property). She also says that JHL has its registered office at 20 Carousel Crescent, East Tamaki Hights in Auckland and that its sole director is Mr Jhim, the second defendant. JHL owns 46 Friedlanders Road and 85 Beeston Crescent, both in Manurewa (ie the Manurewa Properties) and their capital values are $870,00 and $820,000 respectively.
[11] Mr Lattie recounts how the Property was listed for sale by auction on 9 November 2021. On the day of the auction, JHL gave the winning bid for $1,108,000. The sale and purchase agreement, on the standard ADLS/REINZ “particular conditions of sale of real estate by auction” with further terms added in the appendix (the ASP), was duly signed on 9 November 2021, and JHL paid a deposit of $55,400 on or around that same day. The ASP provided for, inter alia, a purchase price of
$1,108,000, a deposit of $55,400, interest rate for late settlement and/or failure to settle at 18 per cent per annum, and for the settlement date to be 9 May 2022.
[12] Soon after, on 23 November 2021, JHL and Mr Jhim sought to vary the terms of the ASP to enable access by the defendants’ agents for the purpose of resale after settlement. As Auckland was subject to ‘Step 2, Level 3’ of the Covid-19 restrictions then in place, and with tenants in the property, MPL did not wish to breach those restrictions and so refused but agreed that the purchaser could use the photographs of the property for marketing purposes.
[13] Then on 3 March 2022, Ms Lattie says that the defendants sought a reduction in purchase price by $100,000 and that the settlement date be extended to 9 November 2022. Both proposals were rejected, as were further requests for extensions. In particular, MPL wrote to the defendants on 25 March 2022 advising that it was relying on the ASP and would be looking to settle on the settlement date, 9 May 2022.
[14]JHL then failed to settle the purchase on the settlement date.
[15] Accordingly, a settlement notice was served by MPL on 10 May 2022, pursuant to cl 12 of the ASP, but the first defendant failed to settle within the 12 working days of the settlement notice as required. Accordingly, with the first defendant in breach of
cl 12 of the ASP, Mockingbird cancelled the ASP under cl 12.4(1)(b). Eventually, due to the defendants’ failure to settle, MPL’s lawyer emailed the defendants’ lawyer on 4 July 2022 cancelling the ASP.
[16] Following that, according to Ms Lattie, MPL then had to remarket the property. The eventual outcome was a sale at $730,000 to a third party, with settlement on 20 September 2022. Accordingly, MPL seeks $378,000 from the defendants, being the difference between the contract price under the ASP of $1,108,000 and the eventual sale price of $730,000.
[17] On the issue of lost rental and related expenses, in short, MPL contacted the defendants on 12 November 2021 asking whether they would require vacant possession at settlement. The defendants failed to reply. MPL was then effectively forced to give notice to the tenants of the Property as, if vacant possession was required, MPL was obliged to give the tenants 90 days’ notice of termination. By the time the defendants’ lawyer gave notice that they would not require vacant possession, it was too late, and the tenants vacated on or about 1 May 2022. Because of JHL failing to settle, the Property was unnecessarily vacant for 20 weeks (from 1 May 2022 until 20 September 2022). Consequently, MPL lost some $9,600 in rental.
[18] Ms Lattie’s affidavits are supported by copies of correspondence between the defendants, their solicitors and MPL’s solicitors during the relevant periods. The email exchange between Mr Jhim and Mr Muir dated 31 October is particularly relevant. The ASP and all other relevant documentation is also provided. A further affidavit of Harrison Sutcliffe dated 28 November 2022 has been provided, which confirms that a search on the Personal Property Securities Register discloses that JHL has no security interests registered against it.
[19] As a consequence of the sequence of events above, MPL now claims damages (as set out in the statement of claim) comprising:
(a)Loss on resale price, $378,000;
(b)Resale expenses, $1,539 for marketing and $3,089.75 for legal fees;
(c)Loss of rental $9,600;
(d)Outgoings and maintenance expenses of $1,485.54 ($648.52 for rates, $371.52 for property maintenance, $465.50 for water) incurred between the original settlement date and the settlement of the resale;
(e)Legal expenses associated with failure to settle, $3,089.75;
(f)Interest of $69,039.02.
[20]Less the deposit paid of $55,400, this results in damages claimed of $407,353.3
[21] As to the viability of the defendants to pay any judgment that might be awarded against them as a result of the plaintiff’s summary judgment claim, Ms Lattie says that the defendants have been involved in a “very risky investment strategy for a long time.”4 She sets out at paragraphs 12-17 of her affidavit the reasons for her concerns
– that the defendants have bought and sold three other properties in recent years “in quick succession”.
[22] In fact, as early as November 2021, the defendants were advising MPL that they wished to resell the Papakura Property shortly after settlement and sought access for that purpose. Mr Jhim is a director of another company, L & A Homes NZ Limited, which has also engaged in property sale and purchase over a short period of time. For the above reasons, MPL states that there are reasonable grounds to believe that the defendant is continuing to engage in highly risk short-term property purchases and sales, with a real risk of dissipation of the remaining assets (the Manurewa Properties).
Should the freezing orders be granted?
Plaintiff ’s submissions
3 I note that that figures provided by Mr Muir in his memorandum in support of the interlocutory application for freezing orders, and in the statement of claim, when calculated, in fact reach a total of $407,353 rather than $412,109. For the purposes of this particular application, the point is immaterial.
4 Affidavit of Megan Lattie in support of without notice application for freezing order sworn 25 November 2022.
[23] Relying on the background set out above, Mr Muir submits that the plaintiff has a good arguable case; that the defendants have properties or potentially the proceeds of sale of those properties; and that there is a real risk of disposal based on the defendants’ previous conduct as set out in the affidavits of Ms Lattie. In fact, MPL does not see how the first defendant has a reasonably arguable defence to the breach of contract and so has filed its contemporaneous application for summary judgment.
[24] In addition, counsel contends that there are no innocent third parties who will be irrevocably damaged by the orders sought. As foreshadowed, the plaintiff has also provided an undertaking as to damages, along with MPL’s latest accounts and emphasised that it is a stable and viable company.
[25] Finally, Mr Muir argues that the balance of convenience favours the plaintiff. Accordingly, the plaintiff seeks a freezing order requiring the first defendant to direct that the proceeds of any sale of the properties, less sale expenses, are to be held in the trust account of the first defendant’s solicitors, pending further order of the Court. This is also on condition that the order be served on the first defendant who has leave to discharge or vary the order on 24 hours’ notice. As the defendants are now on notice then this aspect of the proposed orders becomes redundant.
[26] During the telephone conference, Mr Muir underscored that the written submission he filed still remained relevant. He also submitted that it was the first time he heard any detail of the defendants’ position, given the lack of meaningful response to date. Even so, Mr Muir contended that, despite what Mr Jhim had stated, there was no evidence to support his assertions and that, even if there was, that did not change the position in any material way regarding the plaintiff’s application for a freezing order.
Defendants’ submissions
[27] Mr Jhim, given his lack of access to legal advice, instead of filing legal submissions provided email correspondence directly to the Court setting out his version of events. In summary, he recounted how he came to New Zealand in 1977 as a child with his parents. After completing school, he found employment with the New Zealand Dairy Company and eventually purchased a dairy with his brother. Mr Jhim pointed out that a list of companies cited by the plaintiff in its evidence were previously jointly owned with his brother, but that those entities were eventually struck off the Companies Register after his brother passed away.
[28] In addition, Mr Jhim noted that Skar Pictures Ltd is his transport company. He had one driver but he says that employee had to be made redundant due to the worsening local economic conditions with the result that Mr Jhim now drives the truck himself. He does so to try and maintain his household and his current liabilities. With interest rates increasing, Mr Jhim emphasised that this was simply adding to the difficult conditions he was facing. Further, Mr Jhim mentioned that his wife works in a factory.
[29] Mr Jhim then outlined how he had decided to invest in property several years ago with his savings, in the hope that he could secure a mortgage free home on retirement, out of the profits, if any, from the investment. Due to market fluctuations, Mr Jhim pointed out that, effectively, making a profit or a loss was an uncertain process. Some investments would be profitable, others less so if at all.
[30] Regarding 32 Heathdale Crescent, Mr Jhim says that he tried everything and anything to settle but that due to the market and changes in banks strict lending conditions, he could not raise the finance necessary to complete the purchase. He also suggests that, had the plaintiff demonstrated some flexibility on price or by extending the date for settlement, a resolution might have been possible. Mr Jhim asserts that, had the plaintiff reduced the purchase price by $100,000, then he might have been able to settle. Mr Jhim says that plaintiff’s refusal to be cooperative has simply meant both parties have lost out.
[31] Turning to the Properties currently held by JHL, Mr Jhim stated that the Friedlander Road property was not sold because the last bid at auction was $750,000
which he says was insufficient to pay the outstanding mortgage over that property. The eventual outcome he claims was that the property was withdrawn from the market. Mr Jhim then stated that he had both properties on the market to reduce debt, that the total loans outstanding for JHL is $2,008,591.97 and that both properties are in negative equity.
[32] Finally, Mr Jhim says that he is close to 60 years of age with few realistic options available to him to meet the plaintiff’s claim. He says that “if and when both of these properties sell”, at the current market value, he would be left with a debt of at least $600,000. If a “caveat” or freezing order is issued, according to Mr Jhim, this will “devalue” the properties further, as well as causing real complications persuading real estate agents to market them at all. The result will be further losses. Mr Jhim then makes the frank admission that he has no proposal or plan to deal with the plaintiff’s demand and application for a freezing order.
Legal principles
[33] Under r 32.2 of the High Court Rules 2016, the Court may make a freezing order restraining a respondent from removing any assets located in or outside New Zealand or from disposing of, dealing with, or diminishing the value of, those assets.5 The Court’s jurisdiction is flexible. Under r 32.3, it may also make an order ancillary to a freezing order or prospective freezing order, including for the purpose of eliciting information relating to the assets.6
[34] However, r 32.5 places limits on the jurisdiction where a freezing order is sought against a protective judgment debtor:
32.5 Order against judgment debtor or prospective judgment debtor or third party
…
(4)The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a
5 High Court Rules 2016, r 32.2(2).
6 High Court Rules 2016, r 32.3(2)(a).
danger that a judgment or prospective judgment will be wholly or partly unsatisfied because—
(a) the judgment debtor, prospective judgment debtor, or another person might abscond; or
(b) the assets of the judgment debtor, prospective judgment debtor, or another person might be—
(i) removed from New Zealand or from a place inside or outside New Zealand; or
(ii) disposed of, dealt with, or diminished in value (whether the assets are in or outside New Zealand).
[35] The test for a freezing order is well settled. A plaintiff must demonstrate a good arguable case in the substantive claim; assets to which the order can apply; and a real risk of dissipation.7 The Court must also consider where the overall justice of the case lies. The heart of the jurisdiction is where there is a real risk that the order may go unsatisfied.8
[36] The Court of Appeal in Shaw v Narain confirmed the three requirements that must be met before a Court makes a freezing order.9 As foreshadowed, first, the applicant must have a good arguable case in their substantive claim against the respondent.10 This requirement will be satisfied where the allegations in the applicant’s proposed claim are capable of tenable argument and supported by evidence, taking into account the early stage of the proceeding.11 Moreover, this is not a high threshold. While an applicant’s case should be more than barely arguable, it does not need to have a greater than a 50 per cent chance of success.12
7 Shaw v Narain [1992] 2 NZLR 544 (CA). Freezing orders, or Mareva injunctions, were developed by the English Court of Appeal where the court process would be effectively defeated if the freezing order were not made: Mareva Compania Naviera SA v International Bulkcarriers SA (“The Mareva”) [1980] 1 All ER 213 (CA).
8 See Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [18].
9 Shaw v Narain, above n 87, at 548. McGechan on Procedure provides a useful summary on the three elements, Robert Osborne and others McGechan on Procedure (online ed, Brookers) at [HR32.2.03].
10 Dotcom v Twentieth Century Fox Film Corp [2014] NZCA 509 at [18] and [31].
11 Wing Hung Printing Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754.
12 Wilsons (NZ) Portland Cement Ltd v Gatx-Fuller Australasia Pty Ltd [1985] 2 NZLR 11 at 21-22. See also Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH “The Niedersachsen” [1983] 1 WLR 1412 (CA) at 1417.
[37] Secondly, the respondent must have assets to which the order can apply. These must be described sufficiently clearly in the application to enable identification of the assets by the party tasked with complying with any freezing order. Invariably, wasting assets will not be suitable for a freezing order, especially where the value cannot be maintained.13
[38] Thirdly, there must also be a real risk that the respondent will dissipate or dispose of those assets. Where there has been only partial disclosure of a defendant’s financial circumstances, and limited responses to specific instances, this may heighten a sense of risk of dissipation.14 Rather than merely asserting a belief that the respondent will dissipate the assets, the applicant must provide evidence to justify that belief.
[39] In any case, as foreshadowed, when determining an application for freezing orders, the Court must finally consider the overall justice of the case. This involves weighing the need to protect the applicant to ensure that they are not deprived of the benefit of any judgment against any prejudice or hardship that may be caused to the respondent if the freezing orders are issued.
Discussion
[40] As a general observation, it would appear that the parties have been caught between a significant negative shift in the Auckland property market over the last 12 months and the general economic stresses wrought by both internal and external factors. As Mr Jhim has noted, this has included continuing interest rate rises, as well as declining property values and increased loan restrictions, particularly for investors. So much so that he claims the two properties owned by JHL have negative equity. In addition, the sale price of the Heathdale Crescent property, as well as the price indications purportedly received by the defendants for the two Manurewa properties,
13 Hannay v Mount [2011] NZCA 530 at [20].
14 Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851, above, n 9, at [18], [19] and [22]. The applicant must point to circumstances from which “a prudent, sensible commercial [person] can properly infer a danger of default”, a test which is “not unduly exacting”: Raukura Moana Fisheries Ltd v The Ship Irina Zharkikh [2001] 2 NZLR 801, [2001] 2 Lloyd's Rep 319 (HC) at [122].
are also illustrative of that reality, along with the speed by which that decline in values appears to have occurred.
[41] Hypothetically, if the Heathdale Crescent property really had a market value of $1.1 million, and I do not suggest otherwise, it would not be unreasonable to expect that a comparable offer might have been received soon after. The contract was cancelled in July 2022 after it had been signed some eight months earlier in November 2021. However, according to Ms Lattie’s evidence, even with an auction reserve value set at $780,000, eventually, after being passed in, and following further negotiations, the final sale price achieved was $730,000 and settled in September 2022. This was more than a 30 percent drop in value from the sale price agreed with the defendants – a significant change by any standards.15
[42] In any event, turning to the elements necessary for a freezing order, does the plaintiff have a good arguable case? On the face of the evidence before the Court, the defendants have defaulted on settlement of the Heathdale Crescent property with MPL. They have offered no substantive defence to date for that breach of the ASP. Indeed, Mr Jhim’s email of 2 December 2022 candidly reveals that the defendants have no proposal to resolve the plaintiff’s claim. Once they are in receipt of legal advice that may change but for the meantime, I accept that the plaintiff has a good arguable case.
[43] The second limb is whether the defendants have assets over which a freezing order might apply. Again, the answer must be in the affirmative. That said, if Mr Jhim’s evidence is accurate, and I note that the Westpac loan and related documents he filed were not up to date, then while it can be said that the first defendant has assets, it may be that the mortgages secured against them will exceed their current market value. This may result in a potentially illusory remedy for the plaintiff as against the Manurewa properties should they be sold, given that the mortgagees will have priority. That the plaintiff’s summary judgment application may yet prove successful will be a necessary pre-condition for appropriate recovery actions against the first defendant
15 Curiously, I also note for completeness references in the public domain to the property being either “sold” or on sold in September 2022 for $890,000, which is significantly higher than the $730,000 paid to MPL. It may simply be an error but doubtless by the time the summary judgment application is considered, it might be useful for this point to be disposed as to value.
and the second defendant personally. Even so, the short point at this juncture is that the defendants do possess assets over which a freezing order in favour of the plaintiff could apply.
[44] Finally, is there a real risk of dissipation of those assets? Mr Jhim has made it plain that he intends to sell JHL’s two properties when the price is acceptable to him and has already attempted to do so. Otherwise, he says that he will not only have to face the plaintiff’s claim but will also be saddled with the balance of the $2 million he claims is owing on those properties. As I mentioned, the statements provided by Mr Jhim were not up to date. In addition, and not unsurprisingly at this early stage of the proceedings, the defendants have not disclosed their financial positions in any detail and so it is understandably difficult for the plaintiff to assess whether proceeding against the defendants will be worth anything.
[45] While there is a risk of dissipation, if the loan details are accurate then there may be little left to satisfy any claim that the plaintiff might bring let alone prevail on against the defendants. That said, on a strict approach, taking account of the defendants’ past property investment activities and the pace of their sales and purchases, along with the submissions of counsel, I accept that there is a danger of dissipation so that the judgment may go unsatisfied.
[46] On balance, the interests of justice support the orders being granted. Moreover, the freezing orders will not, contrary to Mr Jhim’s submissions, act like a caveat over the titles. Instead, based on the draft proposed by Mr Muir, the freezing orders will simply require the defendants’ solicitors to hold the proceeds of any sale of JHL’s two properties until further order of the Court, pending resolution of the plaintiff’s claim. Any dealings in the properties or either of them in terms of a proposed future sale can still proceed despite the existence of any freezing orders.
[47] I note that the plaintiff seeks to secure the sum of $450,000 on the basis that the plaintiff’s claim “could be up to $412,109.93” and taking into account provision for interests and costs. As recorded above, the sum claimed in damages appears to have some discrepancies in calculation. However, these discrepancies are not particularly significant in the context of this application, and, as noted, MPL has
provided an undertaking for payment of damages for any damage sustained through the freezing order.
Decision
[48] The plaintiff’s application for freezing orders over the defendants’ Manurewa Properties is granted on the terms as sought.
[49]Counsel may file a memorandum of up to five pages on costs.
[50]The defendants will have a month to reply, taking into account the holidays.
Harvey J
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