Remarkables Hotel Limited v PearlFisher Trustee Limited
[2020] NZHC 3090
•21 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-002262
[2020] NZHC 3090
BETWEEN REMARKABLES HOTEL LIMITED
Plaintiff
AND
PEARLFISHER TRUSTEE LIMITED
First Defendant
AND
PEARLFISHER CAPITAL LIMITED
Second Defendant
Hearing: 20 November 2020 Appearances:
M J Tingey & C W Gambrill for the Plaintiff
S V A East and M A Powell for the Defendants
Judgment:
21 November 2020
Reissued:
03 December 2020
JUDGMENT OF VAN BOHEMEN J
[reasons for decision on application for interim interim injunction]
This judgment was delivered by me on 21 November 2020 at 8.00am and
re-delivered by me on 03 December 2020 in accordance with High Court Rules 2016, r 11.10
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Martelli McKegg, AucklandM J Tingey, Barrister, Auckland Bell Gully, Auckland
REMARKABLES HOTEL LIMITED v PEARLFISHER TRUSTEE LIMITED [2020] NZHC 3090 [21
November 2020]
Introduction
[1] In the afternoon of Friday, 20 November 2020, the applicants, Remarkables Hotel Ltd (Remarkables), applied without notice for orders restraining the defendants, Pearlfisher Trustee Ltd and Pearlfisher Capital Ltd (together, Pearlfisher) from:
(a)Exercising any power of sale over a property owned by Remarkables at 20 Red Oaks Drive, Frankton, Queenstown (the property);
(b)Marketing and advertising the proposed sale of the property;
(c)Negotiating or entering into an agreement as mortgagee for the sale of the property by tender on 14 December 2020.
[2] The application also sought further orders but Mr Tingey, counsel for Remarkables, said those other orders could await the hearing of the application itself.
[3]Filed with the application were:
(a)A notice of proceeding dated 20 November 2020;
(b)A statement of claim dated 20 November 2020 in which Remarkables pleads various causes of action against the Pearlfisher companies, together and individually, including in relation to a Property Law Act Notice (PLA Notice) purportedly issued by Pearlfisher Trustee under s 119 of the Property Law Act 2007 (PLA) but which Remarkables alleges is defective;
(c)An affidavit in support of the application for interim orders sworn by Anthony Charles Tosswill, the sole director of Remarkables;
(d)An undertaking as to damages signed by Mr Tosswill that Remarkables will abide by any order the Court may make in respect of damages sustained by Pearlfisher that in the opinion of the Court Remarkables ought to pay; and
(e)A memorandum of counsel for Remarkables, Mr Tingey.
[4] In his memorandum, Mr Tingey advised that Remarkables were seeking orders on a Pickwick hearing basis in the Duty Judge List at the first available opportunity. However, shortly after the documents had been filed, the High Court Registry was advised that Remarkables was seeking orders on an interim interim basis that evening.
[5]Accordingly, an urgent hearing was held at 4pm on 20 November 2020.
[6]Counsel for Pearlfisher had been served and were able to attend.
[7] After hearing from Mr Tingey and counsel for Pearlfisher, Ms East, I made interim interim orders restraining Pearlfisher from marketing and advertising the proposed sale of the property and directed that they exercise their best endeavours to withdraw any marketing and advertising of the property that has already been published or may about to be published, as set out at the end of this judgment.
[8] I said I would issue my judgment later that evening. In the event, it was issued on the morning of Saturday, 21 November 2021.
Relevant background
[9] The following summary is drawn from the affidavit of Mr Tosswill as explained by Mr Tingey. As the hearing was convened at short notice and no evidence has yet been filed by Pearlfisher, the Court may not have a complete and balanced understanding of relevant events at this stage.
[10] Remarkables, as its name and its ownership of the property suggests, has interests in Queenstown. Its registered office, however, is at the offices of Kean and Associates, Chartered Accountants, 312 Neilson Street, Onehunga, Auckland.
[11] Pearlfisher Trustee holds a mortgage over the property securing funding that Pearfisher advanced to Remarkables to fund a hotel development in Queenstown. Although there is a dispute over the exact sum owed by Remarkables, it is of the order of $10.5 million.
[12] The debt was due for repayment on 17 July 2020. Remarkables did not pay the sum due. It says it has claims against Pearlfisher for failing to perform financing obligations Pearlfisher owed to Remarkables.
PLA Notice
[13] On 17 July 2020, Pearlfisher issued various default notices including a PLA notice under ss 119 and 120 of the PLA. The PLA Notice was sent by email under a message to Mr Tosswill to two email accounts.
[14] The PLA Notice itself was addressed to Remarkables Hotel Limited but the addresses given were 1 Hamilton Drive, Lake Tekapo, 7999, New Zealand and PO Box 33, Tekapo, 7999, the above email addresses, and Fax (09) 622 2555. The PLA Notice stated that it was copied to Mr Tosswill, Remarkables Suite Apartments Limited and NZ Horizon Hospitality Group Limited, all at all of the same addresses given for Remarkables.
[15]1 Hamilton Drive, Lake Tekapo, 7999 is Mr Tosswill’s residential address.
[16]The PLA Notice required Pearlisher to remedy its default by the payment of
$9,469,188.72 on or before 11 September 2020, failing which the powers of Pearlfisher Trustee as mortgagee would become exercisable, including the mortgagee’s right to sell the mortgaged land.
[17] Mr Tosswill says that following receipt of the PLA Notice, Remarkables had a number of communications with Pearlfisher regarding repayment of the loan facility. He does not elaborate further on the content and purpose of those communications.
Letter of 7 October 2020
[18] By letter dated 7 October 2020, Martelli McKegg, the solicitors for Remarkables, wrote to Bell Gully, the solicitors for Pearlfisher. Among other things, the letter said:
(a)Remarkables was actively taking steps to sell the property subject to Pearlfisher’s mortgage and that Remarkables would ensure that Pearlfisher’s legitimate interests were protected in any sale process;
(b)Remarkables had entered into a joint venture agreement for the development of the property; that agreement was subject to due diligence, but the due diligence period would expire on 14 October 2020, by which date it would be apparent whether the joint venture agreement would proceed;
(c)Remarkables would be entering into binding arrangements to market the property if the joint venture should not proceed; and
(d)Either of those sale processes would ensure the property was sold at the best price and without the discount that inevitably occurs at a mortgagee sale.
[19] The final paragraph of the letter asked for confirmation that Pearlfisher would not take any action to sell the property pending completion of the sales processes described above. It then concluded, “[Remarkables] does not accept that [Pearlfisher] has any right to enforce the mortgage. If Pearlfisher does not confirm that it will not take any steps to enforce [its] mortgage, [Remarkables] may need to take appropriate steps.”
[20]No explanation was given for the final two sentences.
[21] Mr Tosswill says that since that letter there were ongoing communications between Remarkables and Pearlfisher, some on a “without prejudice” basis, but neither had taken any substantive action to enforce any rights under the mortgage.
Negotiations with Masters
[22] Mr Tosswill says that during that time, Remarkables was engaged in negotiations with two potential joint venture partners, including Masters Empire Boxhill Holdings Ltd (Masters) and that on 12 October 2020 Remarkables and Masters
entered into an agreement that was subject to due diligence. Although Mr Tosswill says that due diligence has been completed, he also says that negotiations with Masters are ongoing and that the joint venture arrangements are still being documented. He says that “if” the Masters joint venture proceeds, Masters will provide A$30 million within 21 days which will be used to repay all amounts owing to Pearlfisher.
[23] Mr Tosswill says a Mr Bruce of Pearlfisher was aware of the discussions with Masters and wanted to know when due diligence would be completed. According to Mr Tosswill, Mr Bruce was not satisfied with progress despite being told by Martelli McKegg that due diligence was complete and that Martelli McKegg were waiting for documents from Masters. Mr Tosswill says that, on 18 November 2020, Mr Bruce advised that Pearlfisher were not satisfied with progress and that unless Bell Gully received confirmation that day that the transaction could be completed within two weeks, Pearlfisher would proceed to sell the property.
Letter of 18 November 2020
[24] By letter dated 18 November 2020, Martelli McKegg wrote to Bell Gully. Among other things, the letter stated that:
(a)Remarkables expected to conclude negotiations and the transaction with Masters which would realise sufficient funds to repay Pearlfisher and had also committed to process for sale of the properties by public tender which would close on 24 January 2021;
(b)Nonetheless, Pearlfisher had indicated it was proposing to enforce the mortgage by way of mortgagee sale;
(c)As noted in their letter of 7 October 2020, Remarkables considered Pearlfisher was not able to sell the properties as mortgagee;
(d)Pearlfisher had not served an effective default notice in the manner prescribed in s 119 of the PLA and referred to s 120(1)(c) of the PLA in the light of s 120B;
(e)Absent a valid and effective notice, Pearlfisher had no power to exercise of sale; and
(f)Remarkables understood that Pearlfisher was about to take steps to commence the sale of the properties and requested that Pearlfisher confirm by 3 pm that day that it would not take any steps to enforce its securities pending completion of the tender process on 24 January 2021.
[25] Pearlfisher gave no such undertaking and advertising of the mortgagee sale of the property began on 19 November 2020.
Asserted impact of mortgagee sale and advertising for sale
[26] Mr Tosswill says Remarkables has a valuation of the property as at June 2020 that puts its value at $18.2 million under current market conditions, which is considerably more than Pearlfisher’s claim of $10.5 million. However, if there were to be a mortgagee sale, Mr Tosswill believes that the sale price could be up to 35 per cent lower than the price Remarkables could realise if it were the seller. Mr Tosswill also says that if Pearlfisher continues to market the property as mortgagee before it has issued a valid PLA notice, there is a real risk Remarkables would not be able to conclude its negotiations with Masters.
[27] Mr Tosswill also refers to marketing of the property that Pearlfisher has already commenced on 19 November 2020, that he has been contacted by Radisson Australia, who are to operate the proposed hotels, about that advertising, and that a mortgagee sale could cause Radisson to cancel its agreements with Remarkables.
Remarkables’ application for interim interim injunction
[28] At the hearing on 20 November 2020, Mr Tingey said that at the time he had filed the application, he had understood that the only marketing that had taken place to that point had been advertising on Colliers International’s website and some social media. He had since learned that the proposed mortgagee sale had been advertised that day in Mountain Scene, the local Queenstown Lakes newspaper, and that full
campaigns would be running from this weekend and beyond in the New Zealand Sunday Star Times, the New Zealand Herald, and other media. The message of the campaign was that the property was being sold by mortgagee sale by way of tender closing on 14 December 2020.
[29] Mr Tingey said this would be very damaging to Remarkables because it would signal to the market that the property could be bought for a much lower price than would be obtained in the open market and could jeopardise the arrangements Remarkables has been negotiating with Masters and others. He had sought undertakings from Pearlfisher that they would refrain from advertising until the Court had had the opportunity to hear Remarkables’ application the following week but that had not been forthcoming. For that reason, he asked the Court to make the interim interim orders restraining sale and advertising of the property that evening, rather than the following week as indicated in his memorandum.
[30] I did not consider it realistic to try to decide that night whether to retrain the sale process, particularly when the Court and counsel for Pearlfisher had only just received the documents and said I would focus on the narrow issue of whether to restrain the marketing of the property pending further orders of the Court. The wider issues could be addressed the following week.
[31] Mr Tingey and Ms East, counsel for Pearlfisher, agreed to proceed on that basis.
Questions for consideration
[32]It was common ground that the questions for consideration are:
(a)Is there was a serious issue to be tried?
(b)Where does the balance of convenience lie and, in that context, what is the relative prejudice to the parties of the Court restraining or not restraining Pearlfisher’s marketing campaign for a few days? and
(c)Would damages be an adequate remedy?
Is there a serious issue to be tried?
[33] Mr Tingey said the serious issue to be tried was whether the PLA Notice purportedly issued by Pearlfisher on 17 July 2020 was legally valid and effective. If it was not, Pearlfisher had no legal right to sell the property. Mr Tingey acknowledged that it was arguable whether Pearlfisher had the right to market the property without a valid PLA Notice but it was misleading to the market and destructive of Remarkables’ equity in the property for Pearlfisher to represent to the market that it could deliver title to the property on 14 December 2020 when it could not.
[34]Mr Tingey said the PLA Notice was defective in two respects:
(a)It was addressed to Mr Tosswill’s private residential address and not to the registered office of Remarkables;
(b)It stated that the default had to be remedied by 11 September 2020, which was 39 clear working days from the date of the notice when, in accordance with ss 120(1)(c) and 120B(2), the minimum period for remedying default was 40 days.
[35] Mr Tingey submitted that these defects raised a question as to the validity of the notice that was not frivolous or vexatious and he referred to authorities where there had been some discussion of the consequences of similar defects.
[36] Ms East submitted that the authorities to which Mr Tingey referred fell short of establishing that technical defects rendered a notice invalid and said that consideration should be had to the principles in the Interpretation Act 1999 when considering such questions. Ms East also noted that it was clear from s 124(1) of the PLA that a mortgagee does not exercise the power of sale under s 119 of the Act by entering into a contract to sell. If that was so, there could be no inconsistency with s 119 by advertising a property for sale before a PLA Notice was in effect.
[37] While not attracted to the technical nature of the Remarkables’ objection or the way it had been disclosed to Pearlfisher, for the reasons already given I did not reach a view on the merits of whether the claimed defects gave rise to a serious question to
be tried as to the validity of the notice. I accepted that there was a serious, that is non- frivolous, issue to be considered at a fuller hearing the following week.
The balance of convenience
[38] The issue here was the relative prejudice to the parties of restraining Pearlfisher from marketing the property for sale pending a fuller hearing the following week.
[39] Mr Tingey said the balance was heavily in favour of Remarkables. It risked losing its joint venture agreement with Masters and, potentially, its management agreement with Radisson. It also risked losing significant value if it became common knowledge in the market that the property would be available by way of mortgagee sale. Inevitably that would depress the market for that property. That would not hurt Pearlfisher which would recover its $10.5 million even if the price dropped by 35 per cent from the $18.2 million for which the property had been valued in June 2020. But that would be destructive of Remarkables’ residual equity. Mr Tingey insisted that these consequences could follow even if, in a few days’ time, the Court held that the PLA Notice was ineffective and the sale could not proceed.
[40] By contrast, Mr Tingey contended that the only loss to Pearlfisher was the costs of the advertising to which it had already committed.
[41] Ms East said the potential losses to Pearlfisher were more than the costs of a few days of advertising. If the advertising had to be pulled for a few days, that might mean the whole campaign had to be pulled so that Pearlfisher would have to start again. That could mean losing the ability to complete the sale and recover their funds before the Christmas shutdown.
[42] Ms East also took issue with the potential losses asserted by Remarkables. The history to date indicated that there could be no confidence the agreement with Masters would be concluded, regardless of any action by Pearlfisher. Pearlfisher had taken action because it lost confidence in Remarkables. There was no valid reason why Pearlfisher should be restrained from exercising their rights to recover a debt that had been owing for a number of months.
[43] I considered there were elements of conjecture in both asserted losses. I accepted that a mortgagee sale gives rise to expectations that a property will sell for less than it would realise if sold otherwise. It might also have consequences for the negotiations in which Remarkables is engaged. I was doubtful, however, as to whether those expectations and consequences would crystallise if Remarkables was successful in its application to restrain the sale in a few days’ time and the marketing campaign was pulled at that point. I was also doubtful that a few days’ delay in a marketing campaign that had yet to get fully under way would lead to the campaign being pulled and the sale delayed significantly.
[44] On balance, and notwithstanding these doubts, I accepted that the potential losses for Remarkables of the marketing campaign going ahead were considerably more serious than the potential losses to Pearlfisher of the costs of a few days’ marketing and, perhaps, some delay in effecting the sale. That was a practical reality despite the force of Ms East’s submission that Pearlfisher, as lender, have the right to take steps to recover the money owing to them.
[45] For these reasons I accepted that balance of convenience favoured Remarkables.
Are damages an adequate remedy?
[46] Ultimately, the potential losses on both sides are costs and losses in value. In that respect, damages should be an adequate remedy for Remarkables. Its claimed potential losses, however, include the loss of commercial relationships with others as well as the loss in value of the property. Those losses are more difficult to quantify. For that reason, I was not persuaded that damages would be an adequate remedy, particularly when the balance of convenience favoured Remarkables.
Result
[47] For all the above reasons, I decided I should make an interim interim order restraining Pearlfisher from marketing the property pending a decision on Remarkables’ application to retrain the sale of the property. If Remarkables succeeds
in that application, the marketing campaign will be redundant. If Remarkables is unsuccessful, the marketing campaign should be allowed to proceed.
Orders
[48]I made the following orders:
Pending further order of this Court, the First and Second Defendants are:
(a)Restrained from marketing and advertising (whether directly or by agent) the proposed sale of the land owned by the Plaintiff at 20 Red Oaks Drive, Frankton, Queenstown, as described and recorded in Records of Title 924560, 924561 and 924562 (Otago) (the Property); and
(b)Directed to exercise their best endeavours to withdraw any marketing and advertising of the property that has already been published or may be about to be published.
Next steps
[49] The application for interim interim orders will be called in the Duty List 25 November 2020. In the meantime, counsel are to liaise with the Registrar to set a hearing date for that application.
G J van Bohemen J
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