PVG Securities Trustee Ltd v 100 Investments Ltd
[2019] NZHC 1847
•31 July 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-002838
[2019] NZHC 1847
BETWEEN PVG SECURITIES TRUSTEE LIMITED
Plaintiff
AND
100 INVESTMENTS LIMITED
Defendant
Hearing: 19 March 2019 Appearances:
K Francis and K M Moon for the Plaintiff P Michalik for the Defendant
Judgment:
31 July 2019
JUDGMENT OF HINTON J
This judgment was delivered by me on 31 July 2019 at 4.45 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
Meredith Connell, Auckland
Paul Michalik, Barrister, Wellington
PVG SECURITIES TRUSTEE LTD v 100 INVESTMENTS LTD [2019] NZHC 1847 [31 July 2019]
Introduction
[1] A building at 110 Lichfield St in Christchurch was severely damaged in the 2010 and 2011 Christchurch earthquakes. It was owned by a company called Lichfield Ventures Ltd (LVL), and was insured with IAG New Zealand Ltd. It was subject to two mortgages. The first was to a company called Property Finance Securities Ltd (PFSL), which had priority for $3.33 million. The second mortgage eventually came to be assigned to the plaintiff, PVG Securities Trustees Ltd.
[2] PFSL sold the property (and assigned the right to the insurance proceeds) at mortgagee sale to the defendant (100 Investments). PFSL received less than its priority sum of $3.33 million in that transaction, and its debt exceeded that figure. IAG later made an insurance settlement payment to 100 Investments. PVG claims it should have received most of that money.
[3] IAG paid the insurance proceeds to 100 Investments following a settlement agreement between them and following an unopposed proceeding between those two parties. The amount paid was $2,947,197. The Court proceeding was necessary because IAG required a ruling that 100 Investments Ltd was entitled to the funds. The liquidator of LVL intervened and was heard in opposition, although on short notice. Thomas J ruled that 100 Investments was the party entitled to the settlement payment.1
[4] PVG and the liquidator of LVL have the same interests, and are in substance one and the same, which I explain below at [23]-[24].
[5] PVG says that since it was not a party to the proceeding, it is not bound by the ruling of Thomas J and it wishes to make arguments that the liquidator did not have an opportunity to make before Thomas J.
[6] PVG seeks a declaration that it is entitled to a substantial part of the IAG settlement payment. Specifically, it seeks declarations that it has an equitable charge over the settlement payment to secure sums owed to it by LVL, and that it is entitled
1 100 Investments Ltd v IAG New Zealand Ltd [2018] NZHC 3244.
to receive the settlement payment to the extent it (together with other realisations under the first mortgage) exceeds PFSL’s priority amount under the mortgage.
[7] 100 Investments accepts the Court has jurisdiction, despite the ruling of Thomas J. PVG is represented by the solicitor who represented the LVL liquidator and similar, though not identical, arguments are advanced as before Thomas J.
[8] I rather reluctantly proceed on the basis that Thomas J’s judgment does not bind PVG, and that I must decide the matter afresh.
Background
[9]Lichfield St was owned by LVL from 2003 until 23 December 2015.
[10]LVL granted two mortgages over the property:
(a)a first mortgage to PFSL with a priority sum of $3.33 million; and
(b)a second mortgage to Hanover Finance Ltd, which was assigned to various parties and ultimately to PVG on 17 August 2018.
[11]The property was insured by IAG for $2,715,920.
[12] LVL was placed in liquidation on 16 December 2010. The (then) liquidator disclaimed the property on 22 December 2010 (LVL’s having no equity in it), and it vested in the Crown bona vacantia, subject to the two registered mortgages.
[13] The building was demolished by order of the Canterbury Earthquake Recovery Authority in March 2012.
[14] There was a longstanding dispute over an insurance claim made by LVL under the IAG policy.
[15] In December 2015, IAG paid $789,929.92 to PFSL, as first mortgagee, on account of the insurance claim, on a without prejudice basis.
[16] On 17 December 2015, PFSL exercised its right as first mortgagee to sell Lichfield St to 100 Investments for $1,320,500. As part of this transaction PFSL assigned the benefit of any residual insurance claim to 100 Investments.
[17] On 23 December 2015 the mortgagee sale settled and 100 Investments took possession of the property.
[18] On 27 January 2016, but with an effective date of 23 December 2015, PFSL and 100 Investments entered into a separate deed assigning to 100 Investments all of LVL’s debt to PFSL, for a consideration of $660.01.2
[19] In 2016, 100 Investments, in its own name and on behalf of LVL, commenced proceedings against IAG for the residual insurance rights. LVL was by this time in liquidation. (100 Investments did not obtain the consent of the liquidator to bring the action on LVL’s behalf or inform them of the proceeding. It also did not serve the proceeding on the second mortgagee. Nothing turns on these points.)
[20] 100 Investments and IAG reached the settlement referred to earlier, on 5 November 2018. It was conditional on a declaration from the High Court in terms that 100 Investments:
(a)was entitled to bring the proceeding in its own name and/or on behalf of LVL;
(b)was entitled to enter into an agreement for discharge of the insurance claim and settlement of proceedings between IAG, 100 Investments and LVL;
(c)was entitled to receive any further proceeds that may have been payable by IAG in respect of LVL’s insurance policy; and
2 This document is not in evidence, but not much seems to turn on it. Both parties are agreed the insurance rights/proceeds were assigned, either in the mortgagee sale or through this document.
(d)IAG should pay 100 Investments the sum of $2,947,197 inclusive of GST (if any), interest and costs.
[21] Thomas J granted the application and made a declaration (albeit not exactly on the terms sought) that 100 Investments has the right to the outstanding insurance proceeds in respect of the property and had the ability to settle any insurance claims. She held that 100 Investments did not require recourse to a general security agreement or its right as mortgagee in possession. She specifically noted that it was irrelevant that 100 Investments did not seek the consent of the liquidator, given it was entitled to the insurance proceeds in its own name.3
[22] The funds are currently held in 100 Investments’ solicitor’s trust account pending determination of this proceeding.
[23] The liquidation of LVL and this proceeding is one of many similar situations that have arisen from the collapse of another company, Property Ventures Ltd (PVL), which is also in liquidation. PVL had a number of subsidiaries, including LVL, which PVL wholly owned. The PVL group was under the control of Mr David Henderson, prior to his bankruptcy in 2010.
[24] PVG is a company set up by the liquidator of PVL (and LVL) to take an assignment of securities held over entities in the PVL group, which are held on trust for the creditors of PVL. As I have said, the second mortgage was ultimately assigned to PVG. The defendant disputes the validity of the assignment to PVG, because it occurred after Lichfield St was sold in the mortgagee sale, but I have not found it necessary to consider that point.
The plaintiff’s case
[25] Although the plaintiff’s submissions are lengthy, they boil down to two propositions. First, it says it has an equitable charge over the insurance proceeds, and, second, that this charge survived the mortgagee sale and assignment of the insurance proceeds.
3 100 Investments Ltd v IAG New Zealand Ltd [2018] NZHC 3244 at [46].
[26]PVG’s argument in support of the first point is advanced as follows:
(a)Because of PFSL’s priority amount, PFSL was only able to recover up to $3.33 million from the sale of Lichfield St and the insurance proceeds combined. It had to account to PVG for any amount in excess of this.
(b)Where there is a covenant to insure in a mortgage, the mortgagee’s interest in the insurance proceeds is protected by way of an equitable charge. For this, the plaintiff cites the Privy Council’s decision in Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand) Ltd.4
(c)Therefore, because PFSL’s interest in the insurance proceeds was limited by its priority amount, any amounts recovered above that priority were subject to PVG’s equitable charge. The plaintiff refers to the following passage from Colonial Mutual in support of this proposition:5
If the policy is effected in the name of the mortgagee, he is entitled in law to payment of the proceeds. But his interest remains by way of charge to secure the mortgage debt, and he will be accountable to subsequent mortgagees or the mortgagor for any surplus.
[27] So, says the plaintiff, when PFSL assigned the insurance proceeds to 100 Investments, the proceeds were encumbered by PVG’s charge. The plaintiff submits that the mortgagee sale and the assignment did not remove PVG’s charge. The plaintiff cites Colonial Mutual for this proposition as well.
[28] Repeated throughout its argument, the plaintiff says PFSL could not assign to 100 Investments any greater rights than PFSL itself had.
4 Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand) Ltd [1995] 3 NZLR 1 (PC).
5 At 4–5.
[29]PFSL recovered $789,929.92 from the initial insurance pay-out, and
$1,320,500 from the sale to 100 Investments, being $2,110,429.92 in total. So PFSL itself only had a right to recover a further $1,219,570.08 from the insurance proceeds. 100 Investments recovered $2,947,197 from IAG. Therefore, says the plaintiff, 100 Investments must account to PVG for the excess, because the excess is subject to PVG’s charge.6
Analysis
[30] The defendant raises a number of arguments as to why the plaintiff’s claim should fail. They include that PVG is not a valid assignee of the second mortgage, that priority amounts do not operate as a charge over the land (and insurance proceeds), but are only operative as between mortgagees, and that even if there was a charge, it did not survive the assignment to 100 Investments.
[31] I consider the last point is the simplest, and that it is determinative of this case. The relevant provision is s 183 of the Property Law Act 2007 (the Act). It is in these terms:
183 Mortgagee may transfer or assign mortgaged property to purchaser
(1) On the sale of mortgaged property by a mortgagee,—
(a) the mortgagee’s written receipt is a sufficient discharge to the purchaser for payment of the purchase money or other consideration; and
(b) the mortgagee may execute all assurances and do all other things necessary to transfer or assign the property to the purchaser.
(2) The mortgagee’s powers under subsection (1)(b) include, in the case of a mortgage over land under the Land Transfer Act 2017, the power to do either or both of the following:
(a) execute a transfer instrument that may be registered under section 103 of that Act:
(b) register a transfer instrument under that Act.
(3) However, if the mortgagee is the purchaser, the transfer or assignment must be executed or registered by the Registrar under section 196 or in accordance with an order of a court made under section 200.
6 These are the plaintiff’s figures. The defendant disputes what the exact excess is, but there is no question that, on the plaintiff’s argument, there is a reasonably significant excess.
(4) A transfer instrument or other instrument executed or registered by the mortgagee under subsection (1) or (2) transfers or assigns the property to which it relates to the transferee or assignee—
(a) free from all liability on account of—
(i) the mortgage under which the power of sale was exercised; and
(ii) any subsequent mortgage or other subsequent encumbrance over the property; but
(b) subject to—
(i) any mortgage or other encumbrance, estate, or interest over or in the property that has priority over the mortgagee’s mortgage and has not been discharged or otherwise terminated; and
(ii) any other estate or interest in the property that is binding on the mortgagee.
(5) Subsection (4) is, in the case of an executed transfer instrument or other instrument, subject to the need for its registration under any enactment.
(emphasis added)
[32] The effect of s 183(4) is that mortgaged property assigned under a mortgagee sale is taken by the purchaser free from all liability on account of any subsequent mortgage. “Property” is defined in the Act as follows:7
property— (a) means everything that is capable of being owned, whether it is real or personal property, and whether it is tangible or intangible property; and (b) includes any estate or interest in property; and (c) in subpart 6 of Part 6, has the extended meaning given to that term in section 345(2).
[33] The right to receive insurance proceeds is a thing (or a chose) in action. A thing in action has always been considered property.8 In fact, the Law Commission in their report, A New Property Law Act, which was the genesis of the Act, expressly noted their view that the definition of “property” included a thing in action.9
7 Property Law Act 2007, s 4 definition of “property”.
8 In Re Bank of Credit & Commerce International S.A. [1998] AC 214 (HL) at 226.
9 Law Commission A New Property Law Act (NZLC R29, 1994) at 258. The definition of “property” which appeared in that report is identical to that which appears in the Act.
[34] “Mortgage” is defined as any charge over property.10 So the Act applies whether the relevant charge was legal or equitable.
[35] Therefore, it is fundamentally incorrect to say, as PVG does, that an assignee of rights on a mortgagee sale cannot acquire any greater rights than the mortgagee had itself. The purchaser/assignee does acquire greater rights than the mortgagee. The purchaser does not acquire a mere mortgage interest. They acquire the secured assets being assigned, clear of any mortgages and charges. That is what happened here. Any charge or interest the plaintiff may have had in the insurance rights was extinguished when the rights were assigned.
[36] PFSL as first mortgagee was entitled to sell the property and assign the insurance proceeds under the standard terms of its mortgage, but it was clearly not selling as the owner of both items of property. It was selling as a first mortgagee/charge-holder. It had to get the best price reasonably obtainable and it had to account to subsequent mortgagees and to the owner of the secured property to the extent that its recovery from all of the secured assets exceeded its debt, or the priority sum, whichever is lower.11
[37] PVG therefore had the standard recourse available to a second mortgagee to protect its interest, in that it could stop the mortgagee sale and/or sue PFSL if the assets were undervalued and it could similarly hold PFSL to account for any sum realised by it, over and above the priority figure.
[38] PVG did not make any claims against PFSL on either of these bases. Clearly it had no claim to any of the proceeds of sale received by PFSL because they fell well short of the priority sum. That is not in dispute. It would seem further that PVG did not take the view that the assets were under-sold by PFSL and of course PVG had the standard opportunity as second mortgagee to bid on those assets.
[39] Colonial Mutual does not assist the plaintiff here either. That case involved a dispute over who was entitled to the proceeds of insurance arising from the destruction
10 Property Law Act 2007, s 4 definition of “mortgage”.
11 Property Law Act 2007, s 185.
of a house in Tauranga, which belonged to a Mr W. Mr W had given two mortgages over the property. The mortgages both charged the property and any insurance proceeds (just as here). The property was insured by Colonial Mutual. The first mortgage was to Mr W’s solicitors. The second was to the ANZ Bank. After the property was destroyed, the first mortgagee exercised their power of sale to sell the property. However, they did not purport to, and did not need to, assign the right to the insurance proceeds, because the realisation from the house mortgagee sale was enough to satisfy the loan owing under the first mortgage, with a balance left over, for which the first mortgagee accounted to ANZ. ANZ still faced a shortfall. It sought to recover that, via its charge over the insurance proceeds, but Mr W had somehow convinced Colonial Mutual to pay him the proceeds. ANZ sued Colonial Mutual, seeking a declaration that it had a charge over the insurance proceeds, and that the proceeds should have been paid to ANZ rather than to Mr W.
[40] The issues were whether the insurance policy had been validly assigned to ANZ by Mr W, and whether the fact Mr W had changed insurers defeated ANZ’s interest. The High Court, affirmed by the Court of Appeal and Privy Council, held that ANZ had a valid charge over the insurance proceeds.
[41] The case does not stand for the proposition that a charge over an insurance claim survives an assignment of that claim in a mortgagee sale. At best, it may stand for the proposition that a second mortgagee’s charge over insurance rights is not extinguished by the sale of the mortgaged land only. But this was not a focus of the case. On the particular facts of Colonial Mutual, the charge did survive because the first mortgagee did not assign the insurance rights to realise its security, because it did not need to. The second mortgagee therefore still had a charge over the insurance rights after the discharge of the first mortgage.
[42] In this case, on the other hand, the first mortgagee realised and assigned to 100 Investments all of the secured assets that were the subject of the mortgage and the second mortgagee’s charge on those assets ended as set out above.
Conclusion
[43] For the above reasons, I decline to make the declarations sought by the plaintiff.
Costs
[44] The defendant is entitled to costs. If they cannot be agreed, the defendant is to file a memorandum by Monday, 19 August 2019 and the plaintiff by Monday, 2 September 2019.
Hinton J
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