Property Ventures Limited v Tuam Ventures Limited HC CHCH CIV 2009-409-002129

[2010] NZHC 22

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2009-409-002129

BETWEEN  PROPERTY VENTURES LIMITED

Applicant

ANDTUAM VENTURES LIMITED Respondent

Hearing:         9 February 2010

Counsel:         A J Forbes QC for Applicant

G Carter for Respondent

Judgment:      9 February 2010

JUDGMENT OF FOGARTY J

[1]      The applicant, Property Ventures Limited  (PVL)  seeks  a  stay  of  execution

from  the  judgment  of  Harrison  J  dated  29  October  2009  and  orders   dated

23 December 2009 pending the determination of its appeal to the Court of Appeal.

[2]      In the judgment, Harrison J granted PVL’s application as a lessee under the Property  Law  Act  2007  for  relief  against  cancellation  of  its  lease  from  Tuam Ventures Limited (TVL) as lessor on condition that by 20 November 2009 PVL pay the  arrears  of  rental.         If  not,  TVL  was  entitled  to  judgment  against  PVL  for possession of the premises and for the amount of the arrears then owing.

[3]      PVL did not pay the arrears  and  as  a  result  of  which  judgment  for  rental arrears in the sum of $446,321.08 as at 20 November 2009, together with costs of

$8,680 was sealed.  On 27 November PVL filed a notice of appeal with the Court of

Appeal.  That appeal is against the whole of the judgment.

[4]      At this stage, as one would expect, no fixture date is available from the Court

of Appeal but the Court can anticipate that the Court of Appeal will hear and dispose

PROPERTY VENTURES LIMITED  V TUAM VENTURES LIMITED  HC CHCH CIV 2009-409-002129  9

February 2010

of this appeal within this calendar year although it may be by the end of the calendar year before a judgment will be available.

[5]      The  landlord,  TVL,  is  in  receivership.   The  premises  in  which  PVL  is  the tenant  are  secured  by  BNZ  as  first  mortgagee  with  a  second  mortgage  to  South Canterbury  Finance.  TVL  is  currently  indebted  to  BNZ  for  approximately  $7.8 million  and  South  Canterbury Finance  Limited  for  approximately $3.46  million,  a total of something over $11 million.

[6]      TVL was placed in receivership on 27 July by the BNZ.  TVL is a wholly owned subsidiary of PVL, its tenant. The group accounts show that PVL is owed something over $2 million by TVL, its landlord. The argument that failed before Harrison J was that notwithstanding the terms of the lease PVL is entitled to take a

set off from the debt due to it by its subsidiary, TVL, against its liability as a lessee

to TVL.

[7]      As I have mentioned, the rent arrears are in the order of $400,000.  What is at stake in this litigation is PVL’s ability to stay in possession of valuable commercial premises as a tenant and in lieu of paying rent to the receivers of TVL to the ultimate benefit  of  the  creditors  of  TVL  and  principally,  in  the  first  instance,  to  the  first charge  holder,  BNZ,  that  PVL can  simply set  off  the  arrears  of  rent  progressively against the debt owed to it by TVL.   On a very rough calculation that will give it a cash free occupancy for another five years.

[8]      That seems to me to be the context within which I have to consider the merits

of the stay, although I should mention the other side of the story.  The receivers for TVL, appointed by the bank, have two goals:   to recover the rent from the tenants, but  in  the  long  term,  to  achieve  repayment  of  the  total  debt  owed  by TVL  to  the bank. To recover the total debt it is obvious that BNZ will want to sell the commercial premises. But right now it is not realistic to put the  commercial premises on the market while this tenancy issue alone remains unresolved, let alone, other tenancy issues. There are other non-performing tenants as well as PVL.   But

for the purposes of this analysis I am assuming that PVL is the only non-performing tenant.  PVL is a substantial tenant.  It occupies two floors of the building.  It has an

annual  rental  liability  in  the  order  of  $269,500  plus  GST  and  by  itself  PVL  is  a significant problem, as a non-paying tenant in occupation, to a successful mortgagee sale.

[9]      The principal argument in favour of a stay is the proposition that in the case

of a money judgment appeal the general rule is that the proceeding is typically stayed only on payment by the defendant to the plaintiff of the judgment sum, the plaintiff giving  security  for  the  repayment  if  the  appeal  succeeds.  In support of  this proposition  Mr  Carter cited the decision of Associate Judge Faire in  Contributory Mortgage Nominees  Ltd v Harris  Road No 10  Ltd  HC AK CIV  2005-404-003078 31 January 2006. That  was  a  case  in  which  judgment  was  in  respect  of  a  sum  of money.   That principle is well established but not easy to apply on this set of facts when there are really two issues at stake:   the recovery of the arrears of rent, and, ultimately, from the point of view of the receivers, recovery of possession, and, from the point of PVL, the value of remaining in possession with the right of set off.

[10]     In April 2008, prior to going into receivership, TVL obtained a valuation of these premises for mortgage purposes from Ford Baker in Christchurch, who valued the building at $15.6 million.   At this point in time this value is uncertain.   This is both in terms of the current commercial property market in the recession cycle and the  uncertain  status  of  various  non-performing  tenancies,  including  this  one,  as  I have already had occasion to mention.

[11]     Mr  Carter  submits  it  cannot  therefore  be  assumed  that  TVL’s  secured creditors will ultimate get out whole if the property is eventually sold.  I do not have the Ford Baker valuation in front of me but I am informed by counsel that it contains a substantive analysis of all the factors that valuers normally take into account when putting a value on a property.

[12]     Taking into account, as this Court can do, in a general sense, the prevailing economic conditions, it does seem to me more likely than not that this property, with good quality tenants, so that there is a reliable future income stream, is likely to have

a market value significantly in advance of the current and total secured indebtedness

of a little over $11 million, in other  words  a  value,  even  if  below  $15.6  million,

which is still above what is  currently owed  to  the  secured  creditors,  the  BNZ and

South Canterbury Finance.

[13]     This  is  no  more  than  a  judgment  of  likelihood. The  receivers  have  not proffered a current valuation of the property.  The reason they have given is that you could not value the property at present given the status of the tenancies.  I agree with that.   Any current valuation of the property for the purposes of this analysis would have  to  be  hypothetical,  based  on  good  quality  tenants.   But  Judges  dealing  with applications for stay have to make do with what they have.  I am satisfied that on the likelihoods there is still a period of time that can elapse before total recovery of the secured  creditors’  debts  is  threatened. The  period  of  time  I  am  considering  is  a period of 12 months.

[14]     I am also taking account of the fact that it would appear we are moving out of the recessionary cycle and we have not had the forecast possibility of a double-dip. That has brought me to the judgment that balancing the interests of the parties, the approach summarised by Gault J in Duncan v Osborne Building Ltd (1992) 6 PRNZ

85, indicates that justice will be better secured by granting a stay at the present time than by refusing a stay.

[15]     If a stay is refused PVL may well have its long term benefit as a tenant in possession lost completely so that that part of its appeal would become nugatory.  If

a stay is granted TVL secured creditors are kept out of the benefit of their rights as secured creditors for a period of time and TVL and secured creditors will effectively assume continued holding costs.   But my judgment is that it is more likely than not that these extra costs incurred over the next 12 months can be recoverable.

[16]     For these reasons I am going to grant a stay but on conditions which reflect,

so far  as possible, the circumstances in  which  I have been persuaded that the stay should be given.

[17]     The period of stay shall be to the earlier of the following three events:

1.        A judgment by the Court of Appeal;

2.        Twelve months from today; and

3.In  the  event  of  a  sudden  deterioration  in  the  economic  condition, which  I  have  loosely  referred  to  as  the  prospect  of  a  “double-dip”, leave is reserved to the receivers to apply to this Court or the Court of Appeal for an order bringing the stay to an end;

And with the following conditions:

4.PVL  to  provide  such  covenants  of  securities  as  are  commercially possible  to  secure  for  the  advantage  of  TVL  the  fit-out  of  PVL. I understand from the bar that counsel expect the terms of such security can   be   relatively  easily  settled   between   the   parties   without   the assistance of the Court.   Leave is reserved, however, to apply to the Court to settle those terms if an agreement cannot be reached.

5.That PVL pay the current rents against a personal undertaking to be given by one of the receivers to hold the monies paid and refund them

if the appeal is successful.

6.PVL is to take all steps to expedite the hearing of its appeal including the filing of the case on appeal and including drawing to the attention

of  the  Court  of  Appeal  the  time  limits  of  the  stay,  reflecting  a judgment   of   this   Court   that   a   delay   of   12   months   can   be accommodated  without  long  term  injustice  to  the  secured  creditors. But  by  corollary  this  Court  has  no  greater  confidence  beyond  the period of 12 months.

[18]     Costs are reserved.  I note that for good reasons Mr Forbes did not oppose the reserving of costs.

Solicitors:
Cousins & Associates, Christchurch, for Applicant
Chapman Tripp, Christchurch, for Respondent