Morrison Short Term Investments Limited (in liq) v Coakle HC Auckland CIV 2009-404-6528

[2010] NZHC 140

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV2009-404-6528

BETWEEN  MORRISON SHORT TERM

INVESTMENTS LIMITED (IN LIQUIDATION)

Plaintiff

ANDMORGAN COAKLE First Defendant

ANDMICHAEL JOHN MORRISON THE TRUSTEE OF THE MORRISON FAMILY TRUST

Second Defendant

ANDYULIYA MORRISON Third Defendant

ANDMICHAEL JOHN MORRISON Fourth Defendant

Hearing:         11 February 2010

Counsel:         G Bogiatto for Plaintiff

C Foot for Third Defendant
No appearances for other Defendants

Judgment:      19 February 2010 at 11 am

RESERVED JUDGEMENT OF ASSOCIATE JUDGE H SARGISSON

(Application for summary judgment)

This judgment was delivered by me on 19 February 2010 at 11 am  pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

George Bogiatto, PO Box 106-120, Auckland
Morgan Coakle, PO Box 114, Shortland Street, Auckland

Kendall Sturm & Foote, PO Box 659 Shortland Street, Auckland

MORRISON SHORT TERM INVESTMENTS LTD (IN LIQUIDATION) V MORGAN COAKLE AND ORS

HC AK CIV2009-404-6528  19 February 2010

Introduction

[1]      The plaintiff is a company in liquidation.  The liquidator, Mr Buchanan, was appointed by shareholders’ resolution on 31 August 2009.   He has commenced this proceeding in the name of the company and is seeking the following order by way of summary judgment:

An  order  that  the  first  defendant  be  directed  to  pay  to  the  plaintiff  the proceeds of sale received by it on or about 26 September 2008 and held in its trust  account  either  to  the  credit  of  the  plaintiff  or  the  second  defendant together with all accrued interest.

[2]      The  order  sought  is  best  understood  against  a  brief  description  of  the background.  For that purpose, it is sufficient to note that:

a)        The sole director and shareholder of the plaintiff company was at all times Mr Morrison, the fourth defendant;

b)        The plaintiff company was the registered proprietor of bare land at 7

Aitkenhead Court, Parakai;

c)        The  plaintiff  company  sold  Aitkenhead  Court  in  July  2008  with settlement in late September 2008;

d)Mr Morrison and Mrs Morrison, the third defendant, were separated at the date of sale and are engaged in relationship property proceedings

in the Family Court;

e)        It was agreed between the solicitors for the plaintiff company and Mrs Morrison that the net proceeds of sale  of  Aitkenhead  Court  be deposited in the trust account of the first defendant, Morgan Coakle,

as an independent stakeholder pending determination of the Morrisons’ relationship property disputes;

f)        The sum of $100,357.08 was paid accordingly to the trust account of Morgan Coakle in late September 2008 to the credit of the Morrison Family Trust, the second defendant;

g)        It  is  the  liquidator’s  position  that  this sum  is  plainly an  asset  of  the plaintiff company and that it should be released to him for application to the company’s debts.  He says that as at the date of liquidation the plaintiff  company  owed  GST  of  $268,382  to  the  Inland  Revenue Department in respect of various property sales.

[3]      Mr Morrison agrees with   the   liquidator’s   assessment   of   the   plaintiff company’s indebtedness.   Together with the second defendant he has given consent

to the order that the liquidator seeks and has filed an affidavit for that purpose.

[4]      Morgan  Coakle  has  agreed  to  abide  by  the  decision  of  the  Court   by memorandum  of  13  November  2009,  which  counsel  for  the  liquidator  has  placed before the Court.

[5]      Mrs Morrison is the only party who has taken any steps in the proceeding to oppose the application for summary judgment. She contends this is plainly a case that is not suitable for summary judgment and that the status of the proceeds of sale,

to which she claims an interest, should be dealt with in the Family Court.

The issues and relevant legal principles

[6]      It  became  clear  at  today’s  hearing  that  there  was  no  real  dispute  as  to  the liquidator’s having demonstrated his entitlement to the order sought on a prima facie basis, and that for Mrs Morrison to successfully resist summary judgment she must show sufficient cause.

[7]      There  was  no  dispute  as  to  the  legal  principles  that  apply  in  respect  of summary judgment applications.   The principles are well settled and the following summary of Miller J in the recent Court of Appeal decision of Krukziener v Hanover Finance Limited [2008] NZCA 187 was accepted by the parties as sufficient:

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where

its evidence is sufficient to show there is no defence, the defendant will have

to respond if the application is to be defeated: MacLean v Stewart (1997) 11

PRNZ 66 (CA).   The Court will not normally resolve material conflicts of evidence  or  assess  the  credibility  of  deponents. But it need  not  accept

uncritically evidence that is inherently lacking in credibility, as for example

where the evidence is inconsistent with undisputed contemporary documents

or other statements by the same deponent, or is inherently improbable: Eng

Mee  Yong  v  Letchumanan  [1980] AC 331 at 341 (PC). In the end the

Court’s assessment of the evidence is a matter of judgment.  The Court may take  a  robust  and  realistic  approach  where  the  facts  warrant  it:  Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[8]      There was no dispute that it is for the defendant to provide some evidential foundation based on credible evidence for any defence raised: Australian Guarantee Corporation (New Zealand) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 59.

[9]      Mrs Morrison raised a number of grounds of defence in her documents filed

in opposition to the application for summary judgment.   However, it became clear that her opposition was advanced on one essential ground.   The remaining grounds were  subsidiary  or  incidental  and,  for  reasons  that  I  will  come  to,  need  not  be considered further.

The essential ground of defence

[10]     The essential ground of defence asserts that by operation of the principle of subrogation the proceeds of sale of Aitkenhead Court are not the asset of the plaintiff company but rather the asset of Mr Morrison.  Further, that these proceeds comprise relationship property against which Mrs Morrison has a claim.

[11]     I am satisfied on the  evidence  as it presently stands that Mrs Morrison has made out an arguable case on the above  ground.   The statement of account of the plaintiff company’s solicitor for the sale of Aitkenhead Court discloses that none of the sale proceeds were applied to any mortgage.   The property had, however, been mortgaged  in  favour  of  Westpac  and  cross-collateralised  against  other  properties including one registered in Mr Morrison’s name at 39 Joy Street.  When the plaintiff company defaulted on its mortgage, the bank demanded a controlled sell-down of the other  properties,  including  Joy  Street,  and,  it  appears,  required  the  mortgage  over Aitkenhead Court to be paid out of the proceeds of sale of Joy Street.

[12]     The  net  result,  it  seems,  is  that  Westpac’s  security  over  Aitkenhead  Court was satisfied by Mr  Morrison  personally,  and  that  the  plaintiff  company  has  been enriched  in  the  amount  that  it  owed  under  the  Westpac  security. That  amount exceeded the proceeds of sale as held by Morgan Coakle.

[13]     Sections 84 and 85 of the Judicature Act 1908 accord statutory recognition to the equitable principles of subrogation to the effect that where the surety for the debt

of another satisfies that debt, the surety is entitled to any security held by the creditor

in respect of that debt and may stand in the place of that creditor in order to obtain from the debtor indemnification for any advances made.

[14]     I have concluded that, on the facts of this case, it is reasonably arguable that

Mr Morrison would be entitled to stand in Westpac’s place so as to take the benefit

of its security in order to claim indemnification from the plaintiff company for the payment  to  Westpac.  There  was  no  real  dispute  about  the  point  at  the  hearing. Certainly,  there  was  nothing  counsel  for  the  liquidator  could  raise  to  establish  the contrary  when  I  extended  an  invitation  for  him  to  do  so  at  the  hearing.  While reluctant to make any concessions, counsel for the liquidator recognised, fairly and responsibly,  that  if  the  argument  holds  good,  then  there  would  seem  no  reason  in principle  why  Mr  Morrison’s  right  of  indemnity  would  not  take  priority  over  the liquidator’s claim to the proceeds.

[15]     It   is,   in   the   circumstances,   unnecessary   to   discuss   the   principles   of subrogation  at  further  length,  suffice  it  to  note  that  I was  referred  to  a  number  of authorities  that  both  sides  agreed  contained  correct  statements  of  principle.   They included:

a)        A Butler (ed) Equity and  Trusts  in  New  Zealand  (2nd  ed,  Thomson

Reuters, Wellington, 2009);

b)        McDougall v Windsor Pharmacy Ltd (1985) 3 DCR 167;

c)        Banque Financière de la Cité  v  Parc  (Battersea)  Ltd  [1999]  1  AC

221; [1998] 2 WLR 475 (HL);

d)       Harwood and Staveley v  Dome  Construction  Ltd  (1984)  2  NZCLC

99,256; and

e)        Bayley v Gibsons Ltd [(1992-1993) 1 Tas R 385].

[16]     The net result is that Mr Morrison arguably has a property right in the nature

of  an  entitlement  to  the  sale  proceeds  that  may  well  have  existed  at  the  date  of separation and therefore be relationship property.

[17]     Given this result, it is appropriate that Morgan Coakle continue to hold the remaining   proceeds   as   stakeholder   until   the   argument   as   to   their   status   as matrimonial property is determined by a Court having jurisdiction.  Plainly, it is not appropriate  that  such  a  determination  be  made  in  the  context  of  this  summary judgment application.

[18]     At  the  hearing  having  indicated  my  view  that  subrogation  is  reasonably arguable,  I  discussed  with  both  counsel  whether  the  issue  of  the  status  of  the proceeds should be determined in the liquidator’s proceeding or in Mrs Morrison’s proceeding   in   the   Family   Court. The   common   position   was   to   accept   the appropriateness  of  the  matter  being  determined  in  the  Family  Court  as  there  is  a mediation  scheduled  in  that  Court  in  early March.   In  those  circumstances,  it  was agreed that Mrs Morrison will take prompt steps to seek leave to join as a party to her  Family  Court  proceeding  the  liquidator  on  behalf  of  the  plaintiff  company pursuant to s 37 of the Property (Relationships) Act 1976, and that she will consent

to the liquidator’s attendance at the mediation.

Result

[19]     I decline the application for summary judgment.

[20]     I reserve costs in accordance with the principle in NZI Bank Ltd v Philpott

[1990] 2 NZLR 403.

[21]     I also make directions as follows:

a)        The proceeding is adjourned pending the outcome of mediation in the Family Court to the chambers list on 21 April 2010 at 2.15 pm.   If necessary further directions will be made at that time.

b)However, appearances will be excused if the matter has settled before that day and there are no outstanding costs issues.

Associate Judge Sargisson