Roseneath Holdings Ltd v Grieve
[2003] NZCA 302
•16 December 2003
IN THE COURT OF APPEAL OF NEW ZEALAND
CA222/03
BETWEENROSENEATH HOLDINGS LIMITED
Appellant
ANDGRAEME STEPHEN GRIEVE AND TANYA MARIA GRIEVE
Respondent
Hearing:4 December 2003
Coram:Blanchard J
McGrath J
Glazebrook JAppearances: S A Barker and J K McGrath for Appellant
W M Wilson QC and D J S Parker for Respondents
Judgment:16 December 2003
JUDGMENT OF THE COURT DELIVERED BY McGRATH J
Introduction
[1] This is an appeal by a registered mortgagee against an interim injunction granted by the High Court restraining it from exercising its power of sale over the mortgaged land. The respondents are purchasers under an agreement for sale and purchase of part of the land secured by the appellant’s mortgage. At the time the respondents entered into the agreement the mortgage was to a bank which was advancing finance for the development of the mortgaged property. It has since assigned the mortgage to the appellant by registered memorandum of transfer.
[2] The respondents are currently seeking specific performance of the agreement in proceedings they have brought against the registered proprietor in the High Court. They have brought the present proceedings because of their concern that steps taken by the mortgagee to sell the secured land will preclude them from getting specific performance, if the rights they claim under the agreement are upheld. The respondents say that the probable circumstances are such that the appellant’s conduct in relation to the respondents disqualifies it from the protection of its title and rights as mortgagee that is given by the Land Transfer Act 1952. Further discovery is being sought by the respondents to confirm that their concerns are justified.
[3] The respondents sought interim relief in the High Court against both the mortgagee and registered proprietor. In the High Court France J held that there was a serious issue to be tried against the registered proprietor which, in view of its connections with the mortgagee, could also satisfy the threshold for interim relief against the appellant mortgagee. The balance of convenience and the overall justice of the case indicated that orders for interim relief should be made against both parties. The appellant was restrained from exercising its power of sale but was given leave by the Judge to bring the matter back to the High Court on short notice. The mortgagee, but not the registered proprietor, has appealed against the interim injunction.
The facts
[4] The respondents, Mr and Mrs Grieve, entered into an agreement for sale and purchase of a residential property at 12 Palliser Road, Roseneath, Wellington, for $690,000 on 24 July 2000. The vendor under the agreement, and registered proprietor of the land of which the residential property forms part, is City Developments Palliser Ltd (City Developments), a company owned by Mr Aharoni who is its sole director. At the relevant time Mrs Grieve was working as a real estate agent for the company retained to sell the existing residential property and two town houses to be developed on the land by City Developments. The agreement the Grieves entered into with City Developments provided for the approval by the Grieves of a subdivisional plan within five days of its receipt. Settlement was to take place on issue of a separate title to the residential property, and in the meantime the Grieves were able to enter into possession at a weekly rental of $400. The Grieves paid the deposit of $15,000 provided for under the agreement and took possession on 18 July 2000, in accordance with the agreement.
[5] A dispute arose between the Grieves and City Developments over the circumstances in which the agreement was signed by Mr Aharoni, the boundaries of the property they agreed to purchase and a provision in the agreement whereby the Grieves were permitted in certain circumstances to lodge a caveat against the title to the property. They have refused to approve subdivisional plans submitted to them by City Developments. They have also refused to settle the purchase without prejudice to the dispute over boundaries of the property, so as to gain legal title to the property. They remain in possession paying rent. On 9 May 2001 they caveated the title to the property to protect their interest under the purchase agreement. City Developments has purported to cancel the agreement on several occasions, but the Grieves have disputed its entitlement to do so. On 7 February 2003, the Grieves commenced an action against City Developments for specific performance of the agreement.
[6] On 10 February 2003 the Grieves obtained from the High Court an interlocutory injunction preventing City Developments from undertaking any further building or excavation work at the property, pending further order of the Court, taking steps to evict or remove the Grieves or otherwise interfering with their right to occupy the property, and from taking any steps that would otherwise interfere with the status quo pending resolution of the claim. The High Court confirmed these orders with some variation of terms on 10 March 2003. The trial of this proceeding is expected to take place in either March or May 2004.
[7] At the time that it entered into the agreement with the Grieves, City Developments had arranged finance for its development of the land with Westpac Banking Corporation, secured by a registered mortgage over the property. The mortgage to Westpac was a draw down facility which was initially to expire on 30 April 2001. At the beginning of 2003 City Developments was under pressure from Westpac to refinance the development facility for the property. Westpac, having been made aware of the dispute concerning the property, had refused to advance further funds under the facility since mid-2000. It had granted a final extension of the term of the facility until 31 July 2003 but under rigorous terms.
[8] City Developments was not able to sell the development property because of Grieves’ caveat on the certificate of title. It was also not in a position itself to repay the loan, and its parent company did not wish to do so. Westpac, on the other hand, wanted to be quit of its advance but was unwilling to enforce its security to obtain repayment. In those circumstances City Developments sought to refinance through a directed assignment of Westpac’s mortgage security using the procedure of ss82 and 83 of the Property Law Act. On 1 May 2003 Mr Aharoni emailed Westpac indicating he had arranged sufficient funds to acquire the mortgage, but this did not eventuate. He continued to look around for a lender who would be acceptable to City Developments. Mr Aharoni spoke to a business associate, Mr Duncan, who advised him that a company called Roseneath Holdings Limited (Roseneath Holdings) was prepared to buy the mortgage from Westpac. The principal of Roseneath Holdings is Ms Venables, who is Mr Duncan’s domestic partner. The transaction proceeded, apparently under a s82 direction, and on 25 September 2003 the mortgage was transferred to Roseneath Holdings by Westpac. Notably the consideration for the transfer was the full amount owing to Westpac.
[9] Once the mortgage had been assigned City Developments ceased to pay the penalty component of interest on the now overdue facility. In an affidavit filed in support of its opposition to interim relief in the present proceeding Mr Aharoni said that he knew that Roseneath Holdings could enforce a sale of the property as a result, adding:
…but given the morass that the dispute had become, with no prospect of resolution, we came to the view that it was time to stop throwing good money after bad, and that we were better off to spend money in completing the development than paying default interest.
[10] Roseneath Holdings elected to pursue its rights immediately, and on 2 October - only a week after the assignment - served on City Developments a default notice under s92(1) of the Property Law Act 1952. City Developments was required to remedy the default under the mortgage by repaying the balance of the principal sum $747,758.75 due on 31 July 2003, together with interest to the date of repayment, and the costs of the notice, by 4 November 2003.
[11] The s92 notice was not served on the Grieves but on 20 and 22 October the solicitor for Roseneath Holdings wrote to them, advising that it had purchased the indebtedness and taken an assignment of the mortgage. He advised that there had been a default and that a default notice had been served on City Developments. A form of withdrawal of caveat was included with the letter (which the Grieves were asked to sign and return).
[12] The solicitor acting for the Grieves responded on 23 October 2003 seeking to be satisfied that there was no relationship or connection between Roseneath Holdings and City Developments, and that Roseneath Holdings’ interest in the mortgage was one entirely at arms length. He sought full details of any relationship, connection or arrangement between the companies, and threatened interim injunction proceedings against Roseneath Holdings. The Grieves’ solicitor also indicated that his clients were interested in purchasing the mortgage from Roseneath Holdings. A copy of his letter was sent to the solicitor acting for City Developments in the litigation over specific performance of the agreement.
[13] On 29 October the solicitor for Roseneath Holdings replied, saying that:
Your client is attempting to confuse an alleged “arrangement” between a mortgagor and a mortgagee, with the clear indefeasible rights of a mortgagee to exercise a power of sale in accordance with lawful obligations free of…the interest of your client as proposed purchaser under a contract with the mortgagor for part of the mortgaged property.
[14] He went on to say that as the Grieves had not obtained the consent of the mortgagee to their interest pursuant to the purchase contract they were unable to complain if the mortgagee sale proceeded, following default by the mortgagor. There was no response to the request for details of any arrangements between the two companies nor to the expression of interest on behalf of the Grieves in purchasing the interest of Roseneath Holdings in the mortgage.
[15] On 30 October the solicitors for City Developments also replied. They did address the Grieves’ concerns about the connection between that company and Roseneath Holdings, saying they were instructed that:
(a)our client group had no involvement whatsoever in the funding of the acquisition of the mortgage by RHL;
(b) there is no relevant connection between our client group and RHL in respect of the Notice or exercise of rights, in that RHL is not our client’s agent and is not acting on instructions from our client; and
(c) our client has no reason to think that RHL as the validly registered mortgagee of a distressed development project, is acting on anything other than a commercially self-interested basis.
They added that City Developments would take no steps to prevent the mortgagee exercising its rights under the mortgage for a number of reasons including that:
the development project has become totally frustrated to the significant detriment of our client as the developer. Our client is therefore content for the property to be sold by the mortgagee as a means of cutting both its losses and the Gordian knot.
[16] Finally their solicitor denied that City Developments was in breach of the interim orders made by the High Court in the specific performance proceeding. Like Roseneath Holdings, City Developments did not respond to the Grieves’ expression of interest in acquiring the mortgage.
Further discovery
[17] The Grieves have recently sought further discovery from City Developments, and non party discovery from Roseneath Holdings, in the specific performance proceedings. They say that their purpose is to obtain documentary material concerning the connections between the two companies, and any arrangement or alliance between them which has the purpose of bringing about a mortgagee sale, in order to deprive the Grieves of their interest in the property, if they are otherwise successful in the specific performance proceeding. The Grieves have also sought orders for non party discovery against Westpac. We were informed by counsel for the Grieves, at the hearing of the appeal, that these applications are presently before the High Court.
The current proceeding
[18] To further protect their position the Grieves on 31 October 2003 issued a separate proceeding against City Developments and Roseneath Holdings directed to the prospective mortgagee sale.
[19] The statement of claim in this proceeding pleads two causes of action. The first seeks prohibitory relief against both City Developments and Roseneath Holdings to restrain each of them from evicting the Grieves, or otherwise interfering with their occupancy of 12 Palliser Road, or the status quo generally. Relief is further specifically sought against Roseneath Holdings to restrain it from exercise of its power of sale as mortgagee pending further orders of the Court. Mandatory relief was also sought against City Developments requiring it to remedy the defaults.
[20] The only specific allegation against Roseneath Holdings in the first cause of action concerns its alleged failure to serve the default notice under s92(4A) of the Property Law Act. There is, however, a pleading concerning the further discovery that is being sought, which is said to be necessary to determine the true nature of the relationship between the two companies and whether there is an arrangement or alliance between them with the intent to remove the plaintiffs from their ownership of the property.
[21] The second cause of action seeks a pre-judgment charging order under Rule 567 of the High Court Rules as a foundation for a further order, under s83 of the Property Law Act, requiring Roseneath Holdings to assign the mortgage debt to the Grieves or another third party mortgagee.
[22] The Grieves immediately sought orders in this proceeding for interim relief against both companies. The applications were determined by France J on 14 November 2003: Grieve v City Developments Palliser Ltd and another: High Court, Wellington, CIV‑2003-485-176.
The High Court judgment
[23] France J observed that the causes of action in the proceeding relating to the mortgagee sale were unclear, and was concerned that no specific cause of action was alleged against Roseneath Holdings. It followed that relief against that company could only flow from the position of City Developments. The earlier interim orders in the specific performance proceeding, however, did provide a basis for the Court, on the material before it, to find there was a serious question to be tried against City Developments in the mortgagee sale proceeding. The serious issue threshold for interim relief against City Developments in that proceeding had accordingly been met. Relief against Roseneath Holdings, however, could only flow from City Developments’ position.
[24] The Judge referred to Millard v Oliphant and Bell Investments Limited & Another (High Court, Auckland, CP1249/91, 27 September 1991 pp 6 to 9) and Sprott v Harman & Co (1997) 3 NZ ConvC 192, 554, 12,558, as authorities indicating that the Court was able in the circumstances to grant relief against Roseneath Holdings as a connected person if a serious issue was established against City Developments, and the balance of convenience and overall justice of the case warranted relief against that party.
[25] France J decided that it was inappropriate to grant any mandatory interim relief which required City Developments to remedy its default by a set time. There was also no basis to issue a pre-judgment charging order under Rule 567 in circumstances where the caveat already protected the Grieves against any “making away with property”. Nor was there a basis for an order under s83 of the Property Law Act as the Grieves did not appear to be an “encumbrancer” under that statute. The Judge also decided that it was inappropriate to make interim orders requiring assignment of a mortgage to another person. The Judge concluded that the sole basis on which interim relief was available against, particularly, Roseneath Holdings, was in relation to the exercise of the mortgagee power of sale.
[26] The Judge saw the convenience of the parties as evenly balanced. The Grieves faced the potential loss of an opportunity to obtain orders for specific performance at the trial against City Developments, in a situation in which they said material before the Court indicated that the mortgage was a device contrived to defeat that claim and to bypass associated interim orders protecting the Grieves. They questioned the genuineness of a mortgagee sale in the circumstances. Roseneath Holdings had connections with City Developments, through Mr Aharoni and Mr Duncan, the owner of Roseneath Holdings being the latter’s partner who had formed the company to purchase the mortgage. There was also a very short interval between assignment of the mortgage, the cessation of payment of default interest by City Developments, and the issue of a default notice by Roseneath Holdings, which had acknowledged it was pursuing a business opportunity. Further and better discovery as to the connection and a possible arrangement between the two companies was currently being sought.
[27] On the other hand the Grieves had refused the opportunity to take title under a preferred subdivision plan reserving the right to sue for damages to the extent of the proved deficiency. The strongest argument for the defendant companies however was that Roseneath Holdings had a registered title as mortgagee, which was protected by indefeasability provisions of the Land Transfer Act, although that protection might be affected by an argument that the original mortgagee in its dealings with City Developments had consented to the agreement to sell to the Grieves.
[28] In the end the Judge’s decision turned on the existence of the interim orders in the specific performance proceedings and the knowledge both defendants had of them at the relevant times. Interim relief was granted against both defendants, including an order restraining Roseneath Holdings from exercising its power of sale as mortgagee. They were given leave to bring the matter back before the High Court on short notice. Roseneath Holdings appeals against that judgment.
Submissions on appeal
[29] Counsel for Roseneath Holdings, Mr Barker, submits that having acknowledged the lack of a cause of action against Roseneath Holdings in the statement of claim, the Judge should not have granted interim relief against that party irrespective of her view of the balance of convenience. The Judge had been wrong to rely on the existence of a serious question to be tried against City Developments in the specific performance proceeding as providing the threshold for relief against Roseneath Holdings. Mr Barker argued that in the absence of any pleading or evidence of fraud the company’s indefeasible title as mortgagee was not seriously under attack.
[30] Nor according to Mr Barker was there a serious issue either as to the original mortgagee’s consent to the agreement by the Grieves to purchase the residential property or as to there being any effect on the power of sale arising from failure to serve a copy of the default notice on the Grieves. The assignment of the mortgage to Roseneath Holdings had not altered the mortgagee’s rights.
[31] Counsel also took issue with the Judge’s findings as to the balance of convenience. He argued that there was no evidence that Roseneath Holdings would not conduct a genuine sale. He contended also that the Judge was wrong to fix Roseneath Holdings with knowledge of the interim orders and the Grieves’ position at the time that the mortgage was assigned. He said that the overall justice of the situation required that the registered mortgagee be able to proceed.
[32] Mr Wilson QC pointed out that the interim orders made in the specific performance proceeding on 10 February 2003 had prohibited both City Developments and its agents from any interference with the Grieves’ right to occupy 12 Palliser Road or from taking other steps that would interfere with the status quo pending resolution of that proceeding. He argued that the purpose underlying the transfer of the mortgage to a party who would initiate a mortgagee sale of the land was to circumvent the High Court’s orders and to preclude the Court from granting the remedy of specific performance contrary to the protective intent of the orders.
[33] Mr Wilson was critical of the absence of affidavit evidence from Roseneath Holdings to support its opposition to the Grieves’ application for interim relief. On the evidential material that was before the Court Mr Wilson said that there was a strong inference that Roseneath Holdings was knowingly participating in an attempt to circumvent the High Court’s orders. He developed this argument by reference to the immediate sequence of events from late September 2002 after City Developments directed Westpac to assign the mortgage, including the creation of a default and issue of a default notice on 3 October. He pointed also to the delay by the solicitor for Roseneath Holdings until 20 October in informing the Grieves of the position and thereafter the mortgagee’s refusal to entertain assigning the mortgage to the Grieves for the value of the outstanding debt.
[34] Mr Wilson submitted that there was a potential in this case for further information concerning the established link between City Developments and Roseneath Holdings to become available following additional discovery which might demonstrate fraud in terms of the Land Transfer Act. He said that the position was not fully apparent on the pleadings because of concerns by those drafting them not to allege fraud against the defendants without a sound basis for doing so. He also argued that there was a serious issue that Westpac had consented to the transaction with the Grieves to the knowledge of Roseneath. On the balance of convenience he argued that it strongly favoured the grant of relief sought in that the Grieves would have lost their home and their ability to obtain specific performance if successful in that proceeding.
Decision
[35] The object of an interim injunction is to protect the plaintiff from harm occasioned by any breach of rights, that is the subject of current litigation, for which the plaintiff might not be adequately compensated by an award of damages by the court, if successful at the trial. Against that object it is necessary to weigh the consequences to defendants of preventing them from acting in ways which the trial may determine are in accordance with their rights. The well established two stage approach to addressing applications for interim injunctions involves first, ascertaining whether there is a serious question to be tried and secondly, considering the balance of convenience if the relief sought is granted. It is basic that:
..before any question of balance of convenience can arise the party seeking the injunction must satisfy the Court that his claim is neither frivolous nor vexatious; in other words that the evidence before the Court discloses that there is a serious question to be tried:
Eng Mee Yong v Letchumanan [1980] AC 331, 337 per Lord Diplock.
[36] In delivering the judgment of this Court in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129, 142 Cooke P observed of the argument of counsel for an appellant who was challenging interim relief granted in a passing off cause of action:
In substance he said that an over-mechanical following in the High Court of New Zealand of the two-stage approach enunciated in American Cyanamid Co v Ethicon Ltd [1975] AC 396 has resulted in plaintiffs in passing off and other actions obtaining too easily injunctions which, although nominally interim, have had the effect of putting an end to the litigation. We accept that this is at least a danger against which it is necessary to guard. The American Cyanamid approach has been qualified in the House of Lords itself in NWL Ltd v Woods [1979] 3 All ER 614. In this Court we have drawn attention from time to time to the importance of not seeking the answer to an interlocutory injunction application in the rigid application of a formula:
Whether there is a serious question to be tried and the balance of convenience are two broad questions providing an accepted framework for approaching these applications. As the NWL speeches bring out, the balance of convenience can have a very wide ambit. In any event the two heads are not exhaustive. Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question.
[37] The Court’s indication in Klisser that the ultimate question is where the overall justice lies, has had a particular impact on judicial decisions on applications for interim injunctions where a link has been demonstrated between two defendants, but the evidence shows a serious question to be tried against only one of them. In such cases the High Court has on occasion applied the criterion of overall justice to determine whether the threshold has been reached for it to consider the balance of convenience in relation to granting interim relief against both parties. This approach was followed by the High Court in the present case.
[38] France J cited two decisions which involved applications for interim injunctions against law firms, and their nominee companies, through which monies had been advanced on mortgage to the plaintiff. In each case it was accepted, or established, that there was a serious question to be tried against the law firm but not the nominee company. In Millard v Oliphant & Bell Investments Ltd, a case involving alleged negligent misappropriation of funds of the plaintiff, Thomas J said:
I do not apprehend that the fact there is no cause of action and, therefore, no issue to be resolved as against the nominee company would preclude me from making an interlocutory injunction against it if the justice of the case so required. In granting an interlocutory injunction, the Court is exercising its equitable jurisdiction and the overall interests of justice are paramount.
The question remains, however, whether it is just to restrain a third party against whom no impropriety or misconduct is alleged from exercising rights to which it is legally entitled.
[39] Thomas J accepted that, in the particular case, the connection between the firm and the nominee company was close, but was not satisfied that of itself justified restraining the latter from proceeding to a mortgagee sale on behalf of contributors. He considered the balance of convenience and then, standing back, the overall interests of justice in the case. He concluded that they favoured refusal of interim relief against the mortgagee.
[40] Similarly, Sprott & Anor v Harman and Co was a case concerning allegedly negligent advice, in which there was a close connection between the nominee company and the solicitors’ alleged negligence. Chisholm J referred to “the unique relationship” between solicitors’ firms and their nominee companies and adopted the above citation from Millard, concluding:
I am satisfied that in the circumstances of this case I should proceed on the basis that there is an arguable case for imposition of an interim injunction against the nominee company, notwithstanding that an arguable cause of action has only been established against the law firm.
Having assessed the balance of convenience, Chisholm J held that the interest of contributories decisively favoured refusal of the injunction.
[41] Nothing we say in this judgment is intended to diminish the importance of Judges ultimately standing back and considering where the overall justice of a particular application lies, before deciding whether to grant interim relief. In the great majority of cases, however, showing that there is a serious question to be tried on the material before the Court will remain a threshold requirement. If the plaintiff cannot meet that standard in relation to a particular defendant, it will be rare that the overall justice of the case requires interim restraint of that person. In most cases it will not be enough that the respondent is connected with others against whom there is a serious question to be tried. There must be a serious question to be tried against that party also. This follows from the fact that interim relief is triggered by the potential unfairness of an alleged wrongdoer enhancing its position by dealing with the subject of litigation prior to its determination. The law will not, in general, intervene to prevent a person exercising rights unless it is claimed that they have personally acted wrongly and are liable. This indicates the importance of the clear pleading of causes of action against individual defendants in all cases where interim relief is sought.
[42] We accept, however, that it will be open to a Court to grant interim relief against a party to preserve the present situation on the basis of the overall justice of the case, although not yet persuaded that there is a serious issue to be tried against that party, if it seems likely that further critical information will shortly be available. This of course is subject to consideration of the balance of convenience. Such cases will be exceptional, and the Court should where practicable review the position at the request of the party restrained on short notice if the evidential position thereafter changes. France J recognised that need in the orders she made in her judgment in this case.
[43] In the present case the general nature of the pleadings presented difficulties for the Judge, particularly in relation to the interim relief sought against Roseneath Holdings. Mr Wilson explained the sparseness by reference to the limited factual information presently available to verify strong concerns of the Grieves that Roseneath Holdings was acting in concert with City Developments, in seeking to defeat their claim to title to the property. He referred to the professional duty of the Grieves’ solicitor not to plead fraud without a sound factual basis. The Grieves’ case was however argued in both Courts on the basis that they had a potential cause of action against Roseneath Holdings based on its involvement in a scheme to defeat the interest of the Grieves’ which amounted to fraud under the Land Transfer Act. We consider that in light of this explanation for the pleading the appeal should be considered on the basis that the case was argued. It is anticipated that receipt of further material following discovery will clarify the nature of the involvement of Roseneath Holdings in the scheme which is said to have been devised by City Developments.
[44] The cause of action thus signalled against Roseneath Holdings is fraud under the Land Transfer Act. Fraud in this context requires actual dishonesty: Assets Co Ltd v Mere Roihi [1905] AC 176. In Waimiha Sawmilling Co Ltd (In Liquidation) v Waione Timber Co Ltd [1926] AC 101, 106 Lord Buckmaster stated its essence:
If the designed object of a transfer be to cheat a man of a known existing right that is fraudulent.
[45] For the cause of action to lie in the present case there must be a dishonest intention to defeat an unregistered interest by procuring registration. Mr Wilson says this would occur if there were a mortgagee sale of the property by Roseneath Holdings in circumstances in which it would be at least wilfully blind to the effect of registration on the Grieves, that being the purpose and effect of City Development’s scheme.
[46] It is necessary on our approach first to consider whether the evidence before the High Court established a serious question to be tried that Roseneath Holdings is party to a dishonest scheme to deprive the Grieves of an unregistered interest in the residential property. There is evidence that there is such a scheme, starting with the promotion by City Developments of an assignment of the mortgage from a mortgagor which wanted repayment, but was reluctant to sell the property. City Developments directed that the mortgage be assigned to Roseneath Holdings, with whose principal Mr Aharoni had connections. Roseneath paid or agreed to pay the face value of the mortgage in circumstances where the mortgagor was obviously in trouble in relation to its development and litigation about the property was ongoing. On completion of the assignment City Developments engineered a default, by refusing to pay penalty interest that was payable under the mortgage. A default notice was immediately issued by the mortgagee. City Developments was open in its affidavit evidence about its desire that the property should be sold by the mortgagee, with the result that the Grieves would not be able to obtain specific performance. The circumstances, including the speed of what happened, suggest that the parties may have been following an agreed course. At this time City Developments had been restrained by the Court from interfering with the Grieves’ occupancy of 12 Palliser Road.
[47] Mr Aharoni’s evidence was that he was better off spending money completing the development than paying default interest. The inference is that he did not consider that City Developments was at risk of losing the benefit of its continuing investment in the property as a result of the mortgagee sale. At the same time its solicitor was asserting that City Developments was content for the property to be sold by the mortgagee as a means of cutting its losses. This is sufficient to show that there is a serious question as to whether City Developments had set up a fraudulent scheme to defeat the Grieves’ claim for specific performance relief it were successful in establishing its contractual claim in that proceeding.
[48] We turn to the question of whether the evidence available indicates that there is a serious question that Roseneath Holdings is complicit in the scheme to deprive the Grieves of any interest in the land which they may acquire.
[49] The principal of Roseneath Holdings is the partner of Mr Duncan, a business associate of Mr Aharoni who drew his attention to the availability of the mortgage. Soon after the assignment Roseneath Holdings issued a default notice. Its solicitor waited for over 2 weeks before drawing the notice of default to the attention of the Grieves, whose interest was notified by caveat on the title. When asked for details of the connection or any arrangement between the companies the solicitor responded with references to the legal entitlements of Roseneath Holdings. He did not respond in his correspondence to an expression of interest on behalf of the Grieves in acquiring the mortgage.
[50] The only evidence or other material before the Court concerning the links between Roseneath Holdings, City Developments, and their principals, is that provided by City Developments. Its solicitor says that his client had no involvement in funding the acquisition of the mortgage and has no reason to believe Roseneath Holdings is acting other than on a commercially self-interested basis. We accept that the solicitor also asserts that there is “no relevant connection” between the companies in respect of the default notice or Roseneath Holdings’ exercise of its rights but no-one from that company has made an affidavit to advise the Court of events concerning the approach from City Developments including whether, as is likely, there are understandings concerning the basis on which it will enforce the security, sell the property and possibly buy in. In the absence of any direct contradictory evidence from the principal of Roseneath Holdings, or other person involved in discussions with City Developments, the material that is before the Court gives rise to an inference that Roseneath Holdings is participating in a scheme devised by City Developments which has the purpose of depriving the Grieves of title to the property should they establish their contractual entitlement. We reiterate that the circumstances and the speed with which Roseneath Holdings proceeded to enforce the mortgage, coupled with its acknowledged interest in acquiring the property and Mr Aharoni’s willingness to continue to apply money to it despite its distressed situation indicate there may be an arrangement that has not been revealed to the Court.
[51] We acknowledge that it may be that the events concerned are capable of innocent explanation following completion of any further discovery and perhaps additional evidence, but on what is before the Court we are satisfied, for the reasons indicated, that there is a serious question to be tried against Roseneath Holdings that it is a party to a fraudulent scheme under the Land Transfer Act which may deprive the Grieves of their interest in the property.
[52] It is unnecessary for us in the present proceeding to decide whether or not the earlier orders have been breached and if so by whom. It is sufficient that, for the present, we are satisfied that a serious question of fraud is made out on the basis that at the time when Roseneath Holdings took the assignment it was aware of the Grieves’ position and intended to assist City Developments in defeating their interests.
[53] It follows that as there is sufficient evidence to meet the threshold of a serious question to be tried against Roseneath Holdings, there is no need to apply the approach we have indicated is available in cases where further discovery may well produce sufficient evidence to meet that standard.
[54] Nor is there any need in those circumstances for us to consider whether, as Mr Wilson argued, there is also a serious question arising from the alleged consent of Westpac to the agreement to sell the property to the Grieves.
[55] Turning to the balance of convenience, nothing said to us by Mr Barker persuades us that the Judge was wrong in the conclusion she reached that this favoured the grant of the injunction she ordered. Importantly, we agree that on the material presently before us Roseneath Holdings has acted with its eyes wide open. We reject the submission that we should infer that Roseneath Holdings was unaware of the interim orders that had been made in the specific performance proceedings.
[56] A firm fixture for the hearing of the specific performance proceeding has been made for 24 May 2004, with the possibility of an earlier stand-by fixture in March, at which the crucial contractual issues will be finally resolved between the Grieves and City Developments, subject only to appeals. That is not a lengthy further delay in the context of this dispute. The delay in realising its security that the injunction imposes on City Developments will not in our view create for it any serious or unfair disadvantage.
[57] We agree with France J that the balance of convenience, and the overall justice of the case favour interim relief to preserve the present situation subject to the right of Roseneath Holdings to apply on two days notice.
[58] The appeal is accordingly dismissed. The Grieves are entitled to costs of $6,000 together with reasonable disbursements to be agreed by the parties or failing agreement fixed by the Registrar.
Solicitors:
Buddle Findlay, Wellington, for Appellant
D J S Parker, Wellington, for Respondents
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