Remarkable Hotel Limited v Pearlfisher Trustee Limited

[2020] NZHC 3146

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2262

[2020] NZHC 3146

IN THE MATTER

of Mortgage 11406538.2

BETWEEN

REMARKABLES HOTEL LIMITED

Plaintiff

AND

PEARLFISHER TRUSTEE LIMITED

First defendant

PEARLFISHER CAPITAL LIMITED

Second defendant

Date of hearing:	26 November 2020
Appearances:	M J Tingey and C W Gambrill for the plaintiff SVA East and M A Powell for the defendants
Date of judgment:	27 November 2020

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 27 November 2020 at 4.30pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Counsel/Solicitors:

M J Tingey, Barrister, Auckland Martelli McKegg, Auckland

Bell Gully, Auckland

REMARKABLES HOTEL LTD v PEARLFISHER TRUSTEE LTD [2020] NZHC 3146 [27 November 2020]

[1]    This judgment  addresses  an  urgent  interim  injunction  sought  to  prevent  a mortgagee’s exercise of powers under s 119 of the Property Law Act 2007 (the “PLA”) in relation to mortgaged land after the mortgagor’s failure to pay on the due date amounts secured by the mortgage.

Background

[2]    By agreement dated 17 October 2019, the plaintiff (“Remarkables”) borrowed some $8.450 million at an annual interest rate of 10.95 per cent from the defendants (“Pearlfisher”), to develop bare property in Queenstown for use as a hotel and residential apartments. The loan was secured on terms of a registered first-ranking general security deed and mortgage over the property in Pearlfisher’s favour, to be repaid by 14 July 2020. Pearlfisher obtained an exclusive mandate to April 2020 to arrange construction funding for Remarkables’ proposed development.

[3]    The loan was not repaid by 14 July 2020 (or since). Pearlfisher issued a notice dated 17 July 2020 to Remarkables under s 119, requiring Remarkables to remedy its default by 11 September 2020. The default, then amounting to some $9.470 million, was not remedied. After a period of discussion between the parties, Pearlfisher advised, without confirmation by 18 November 2020 of alternative funding to repay the loan, it would move to sell the property.

[4]    Late on 20 November 2020, Remarkables applied for interim orders restraining Pearlfisher from exercising any power of sale of the property, or marketing or advertising its proposed sale, or negotiating or agreeing the property’s sale, except under a “valid and effective” PLA notice having expired unremedied. Remarkables disputes Pearlfisher’s 17 July 2020 notice is valid or effective.

[5]    Remarkables’ application initially was brought without notice. To get the matter to urgent hearing on notice, as transpired before me, van Bohemen J restrained Pearlfisher from (and directed it use best endeavours to withdraw any current or imminent) marketing or advertising of the property pending determination of the

application.1 Pearlfisher complied with those orders, with the result any marketing and advertising is withdrawn.

Applicable legal principle

[6]    Interim injunction applications are determined on the basis of if the plaintiff has a serious question for trial, and the balance of convenience and overall interests of justice favour granting the injunction.2

[7]    By ‘serious question’ is meant one not vexatious or frivolous, on which the plaintiff has a real prospect of succeeding at trial.3 On the remaining consideration(s), the question is if refusing the injunction would be harder on a plaintiff who was successful at trial, than granting it would be on the successful defendant.4 This assessment is undertaken by reference to the adequacy of damages, preservation of the status quo, the uncompensable disadvantages to either party, and the relative strengths of their cases.5 The merits of the cases (in so far as they can be ascertained at the interim injunction stage) can be relevant to the balance of convenience and to the overall justice of the case.6

[8]    But more than inconvenience is required:7 interlocutory injunctions lie to protect a plaintiff against “irreparable damage” for which they cannot adequately be compensated.8

1      Remarkables Hotel Ltd v Pearlfisher Trustee Ltd [2020] NZHC 3090.

2      American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); and Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA). See also NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12], citing Roseneath Holdings Ltd v Grieve [2004] 2 NZLR 168 (CA) at [35]–[37].

3      Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344 at [24] and [27].

4      Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV 2007-485-1756, 30 July 2008 at [4] citing [Cayne] v Global Natural Resources Plc [1984] 1 All ER 225 (CA) at 237.

5      At [6]–[14].

6      See, for example, Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 2, at 142, and

Roseneath Holdings Ltd v Grieve [2004] 2 NZLR 168 (CA) at [41]–[42].

7      Pollen-Plus Ltd v Znel Ltd HC Tauranga CIV 2010-470-0848, 20 October 2010 at [40].

8      Finnigan v New Zealand Rugby Football Union Inc (No 2) [1985] 2 NZLR 181 (HC) at 183; and

American Cyanamid Co v Ethicon Ltd, above n 2, at 406.

Discussion

—serious question(s) for trial

[9]    Although Remarkables’ substantive claim may be wider, the fundamental question is if Pearlfisher’s PLA notice is valid.

[10]Sections 119 and 120 relevantly provide:

119 Notice must be given to current mortgagor of mortgaged land of exercise of powers, etc

(1)    No … mortgagee or receiver may exercise a power specified in subsection (2), by reason of a default, unless—

(a)a notice complying with section 120 has been served (whether by the mortgagee or receiver) on the person who, at the date of the service of the notice, is the current mortgagor; and

(b)on the expiry of the period specified in the notice, the default has not been remedied.

(2)    The powers are—

(a)the mortgagee’s power to enter into possession of mortgaged land:

(b)the receiver’s power to manage mortgaged land or demand and recover income from mortgaged land:

(c)the mortgagee’s or receiver’s power to sell mortgaged land.

…

120 Form of notice under section 119

(1)    The notice required by section 119 must be in the prescribed form and must adequately inform the current mortgagor of—

(a)the nature and extent of the default; and

(b)the action required to remedy the default (if it can be remedied); and

(c)the period within which the current mortgagor must remedy the default or cause it to be remedied, being not shorter than 20 working days after the date of service of the notice, or any longer period for the remedying of the default specified by any term that is expressed or implied in any instrument; and

(d)the consequence that if, at the expiry of the period specified under paragraph (c), the default has not been, or cannot be, remedied,—

(i)     the amounts secured by the mortgage and specified in the notice will become payable; or

(ii)   the amounts secured by the mortgage and specified in the notice may be called up as becoming payable; or

(iii) the powers of the mortgagee or receiver specified in the notice will become exercisable; or

(iv)  more than 1 of those things will occur.

(2)    A notice required by section 119 may specify that the action required to remedy the default includes the payment (whether to the mortgagee or receiver) of a specified amount, being the reasonable costs and disbursements (whether of the mortgagee or receiver) in preparing and serving the notice.

Regulation 4 of the Property Law (Mortgagees’ Sales Forms) Regulations 2007 provides every notice required by s 119 must be in form 1, set out in the regulations’ schedule.

[11]   Remarkables is the ‘current mortgagor’ for the purposes of s 119(1)(a). Section 352 then provides s 353 applies to any s 119 notice. Section 353 relevantly provides:

353 How documents in section 352 to be given or served

(1)    A document to which this section applies (see section 352) is not adequately given or served unless it is given to, or served on,—

…

(b) a company under the Companies Act 1993 in a manner provided for in section 387(1) (other than paragraph (e)) or section 388 of that Act:

…

(2)    This section is subject to sections 355 to 357, but applies despite anything to the contrary in—

(a)any other enactment; or

(b)any instrument or agreement.

[12]Sections 387 and 388 of the Companies Act 1993 in turn provide:

387 Service of documents on companies in legal proceedings

(1)    A document, including a writ, summons, notice, or order, in any legal proceedings may be served on a company as follows:

(a)by delivery to a person named as a director of the company on the New Zealand register; or

(b)by delivery to an employee of the company at the company’s head office or principal place of business; or

(c)by leaving it at the company’s registered office or address for service; or

(d)by serving it in accordance with any directions as to service given by the court having jurisdiction in the proceedings; or

(e)in accordance with an agreement made with the company; or

(f)by serving it at an address for service given in accordance with the rules of the court having jurisdiction in the proceedings or by such means as a solicitor has, in accordance with those rules, stated that the solicitor will accept service.

(2)    The methods of service specified in subsection (1) are the only methods by which a document in legal proceedings may be served on a company in New Zealand.

388 Service of other documents on companies

(1)    A document, other than a document in any legal proceedings, may be served on a company as follows:

(a)by any of the methods set out in paragraph (a) or paragraph (b) or paragraph (c) or paragraph (e) of subsection (1) of section 387; or

(b)by posting it to the company’s registered office or address for service or delivering it to a box at a document exchange which the company is using at the time; or

(c)by sending it by facsimile machine to a telephone number used for the transmission of documents by facsimile at the company’s registered office or address for service or its head office or principal place of business; or

(d)by emailing it to the company at an email address that is used by the company.

(2)    Subsection (1) is subject to section 391(3A) to (3C).

1. Thus Pearlfisher’s PLA notice only is adequately served if:

(a)delivered to a person named as a Remarkables director;

(b)delivered to a Remarkables employee at its head office or principal place of business or address for service;

(c)left at Remarkables’ registered office;

(d)in accordance with an agreement with Remarkables;

(e)posted to Remarkables’ registered office or address for  service  or DX address;

(f)faxed to Remarkables’ office facsimile machine telephone number; or

(g)emailed to Remarkables at an email address used by it.

[14]Pearlfisher served its notice to Remarkables:

(a)by email to [email protected] and [email protected];

(b)by facsimile to [phone]; and

(c)by delivery to Liping Zhu.

[15]   Remarkables’ director is Anthony Charles Tosswill, to whom Ms Zhu is married. He uses the email addresses [email protected] and tony@net- managers.com, and (in connection with the execution of the loan documentation, although the executed documentation was left blank in those respects) advised Pearlfisher of the former as among Remarkables’ contact details. [phone] is understood to be the telephone number for a facsimile machine in the office of a solicitors’ firm. There is no suggestion the solicitors’ firm is Remarkables’ address for service or place of business.

[16]   Additionally,  Pearlfisher’s  17  July  2020  notice  specifies  the  period  to  11 September 2020 as the period for remedy in terms of s 120(1)(c). That is one day shorter than the stipulated 20 working days after the date of service of the notice (notice by email being calculated from the first working day after service).9

[17]   For Remarkables, Murray Tingey sought to convince me Pearlfisher thus has no prospect of being able to rely on its notice to Remarkables. For Pearlfisher, Sophie East sought to convince me Remarkables has no prospect of being able to invalidate the notice. That dispute alone satisfies me Remarkables has a serious question for trial.

[18]   The dispute is based on the precision with which notice is required to be given, and the degree to which variances may be excused. For example, there is a factual question if “[email protected]” is an email address used by Remarkables for the purposes of s 388(1)(d). There is a question of law if Pearlfisher’s short notice is cured by s 26 of the Interpretation Act 1999, which provides “[a] form is not invalid just because it contains minor differences from a prescribed form as long as the form still has the same effect and is not misleading”. The questions are better addressed at trial.

9      Companies Act 1993, s 392(1)(ca).

[19]   All the same, I do not think a great deal of them. In circumstances of Remarkables’ lack of substantive presence, nascent business, and provision of an email contact address to Pearlfisher, the provided email address probably can reasonably be characterised as “used by the company”. The prescribed form only identifies a need to “specify action required to remedy the default”; nothing in the prescribed form identifies the period for remedy.10 Thus Pearlfisher’s misstatement may not be a minor difference from the prescribed form, and may fail adequately to inform Remarkables of at least the minimum statutory period for remedy. Prior considerations of “material prejudice” from such shortfall under s 92(1A) of the PLA’s 1952 predecessor may not have substance if the absence of such provision in the current PLA is to be taken as legislative intention to establish a brightline. But I cannot determine those issues now.

[20]   Remarkables also raises issues about oppression in Pearlfisher’s exercise of its power to sell. But that draws much of its weight from the earlier proposition Pearlfisher’s notice is invalid. So too for any argument as to Pearlfisher’s s 176 duty of care, to the extent it may have application in advance of the time of sale. Nonetheless they are claims open to be argued in circumstances of a mortgagee’s power to sell. There also are allegations running in both directions as to if either party constructively exercised their contractual rights and obligations, for example, to arrange substitute funding in the course of the loan’s duration. Stripped of the impugned PLA notice overlay, they all barely cross the serious question threshold, even if reasonably arguable so as to survive strike out.

—balance of convenience

[21]   Regrettably, counsel spent the bulk of their limited time arguing if there were serious questions for trial. But, as with most interim injunction applications, the real issue here is how one or other party may be affected by the grant or withholding of relief pending trial. The contest essentially is between Remarkables remaining in breach of its repayment obligations to Pearlfisher, with still further opportunity to conclude its joint venture negotiations for longer-term funding to construct and operate the intended hotel and residential apartment complex, and Pearlfisher selling the

10     Compare Burgess v TSB Bank Ltd [2015] NZCA 361 at [45], referring to the form’s requirement to specify “payment of the sum of $[amount]”.

property to recover its money due four months ago (but earning Pearlfisher penalty interest in the meantime) instead of being held up until after trial.

[22]   Mr Tosswill expects imminent conclusion and, if not, voluntary sale is the obvious alternative. He is concerned Pearlfisher’s marketing of the property as for mortgagee sale artificially will depress the sale price, and observes Pearlfisher’s October 2020 indicated sale realisation range is substantially less than the property’s July 2020 valuation. (Both valuation and sale realisation range expressly hedge their assessments by reference to the uncertainty engendered by COVID-19’s management in the community, leaving scope for potential common ground.)

[23]   Pearlfisher responds it seeks the best price obtainable for the property, which its agent recommends is more likely under mortgagee sale if the joint venture does not conclude. From Pearlfisher’s perspective, being in the business of lending money, it wishes to recover its capital to lend to other customers. But it is continuing to accrue Remarkables’ default interest and recoup monthly late repayment fees. Ms East could not advise if any new lending may recover at such rates. There is no suggestion Remarkables may not continue to meet its contractual obligations on late repayment.

[24]   Assessed from the perspectives of their respective success at trial, the balance of convenience thus favours Pearlfisher being held out of reliance on its impugned notice in the interim rather than the property ultimately being lost to Remarkables. The imponderability of opportunity to establish future arrangements for the property makes damages at trial an inadequate remedy for Remarkables.

—overall justice

[25]   That balance of convenience is not to say Remarkables’ failure to repay may be disregarded, as Pearlfisher retains ability to issue notice of indisputably sufficient duration. Standing back, the limited delay involved in securing Pearlfisher’s position, notwithstanding the impending Christmas/New Year period, justly addresses the cause for Remarkables’ resistance.

Relief

[26]   The point of interim injunctions generally is to restore the status quo: “the last peaceable state between the parties”;11 if required to enable determination and any remedy of the parties’ contested rights at trial: “to enable substantial justice to be done between the parties”.12 (Hence, where damages provide adequate compensation, “no interim injunction should normally be granted”.13) Thus interim injunctions are to prevent specified actions alleged irremediably to change the status quo in reliance on one party’s contention as to those rights. They are not intended in themselves to require compliance with the other party’s contention as to those rights. Injunctions to ‘obey the law’ – here, sought in terms not to do anything unless under “a valid and effective notice” – are empty.

[27]   I consider the relief sought is too broad. It effectively would be an injunction to obey the law. Interim relief should be no more than prevents Pearlfisher from relying on the validity of the impugned notice.

Result

[28]I order:

(a)this Court’s order dated 20 November 2020 is discharged; and

(b)pending further order of the Court, the defendants may not take any step reliant on the validity of their notice of default to the plaintiff dated 17 July 2020.

Costs

[29]   In my preliminary view, as the successful party, Remarkables is entitled to 2B costs and disbursements on steps taken in the application. That is because, so far as I can tell, no step in this averagely complex application required other than a normal amount of time.

11     Wellington International Airport Ltd v Air New Zealand Ltd, above n 4, at [10], citing R & M Wright Ltd v Ellerslie Gateway Motels Ltd HC Auckland CP188/90, 11 July 1990, at 8.

12     Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [81].

13     Wellington International Airport Ltd v Air New Zealand Ltd, above n 4, at [6].

[30]   If that is not accepted by the parties, or they cannot otherwise agree, I reserve costs for determination on short memoranda of no more than five pages – annexing a single-page table setting out any contended allowable steps, time allocation, and daily recovery rate – to be filed and served by Remarkables within ten working days of the date of this judgment, with any response and reply to be filed within five working day intervals after service.

—Jagose J