S.H. Lock (NZ) Limited v Verschaffelt

[2018] NZHC 566

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

I TE KŌTI MATUA O AOTEAROA TE ROTORUA-NUI-A-KAHU

CIV-2017-463-000001

[2018] NZHC 566

BETWEEN

S.H. LOCK (NZ) LIMITED Plaintiff

AND

DAVID PETER VERSCHAFFELT

First Respondent

AND

JAN ALEXANDRA VERSCHAFFELT

Second Respondent

Hearing:

1 August 2017

Appearances:

P Cogswell for the Plaintiff

T Mounsey for the Respondents

Judgment:

28 March 2018

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 28 March 2018 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Cogswell Law, Auckland
Malcolm Mounsey Clarke, Auckland

S.H. LOCK (NZ) LTD v VERSCHAFFELT & Anor [2018] NZHC 566 [28 March 2018]

[1]    This is a decision on a costs application made by David and Jan Verschaffelt against SH Lock (NZ) Limited. They seek scale costs with an uplift for increased or indemnity costs consequential upon SH Lock’s withdrawal of an application to sustain a caveat.

[2]    Under the statutory costs regime, the presumption is that unless the court orders otherwise, a party that discontinues a proceeding must pay costs of and incidental to the proceeding up to and including the discontinuance or withdrawal.1 At issue is whether SH Lock has established good reason why the court should not apply the presumption and should instead order that costs simply lie where they fall, leaving each side to bear its own costs; or whether the Verschaffelts are not only entitled to the benefit of the presumption but to an uplift on scale costs or indeed to indemnity costs.

Background

[3]    SH  Lock  filed  an  originating  application  against  the  Verschaffelts   on    5 January 2017 for an order to sustain a caveat. On 12 June 2017 SH Lock sought leave to withdraw the application and the fixture allocated for a defended hearing on 20 June 2017 was vacated by consent. But that was not before the Verschaffelts had incurred the cost of having their lawyers file documents in opposition.

[4]    SH Lock had lodged the caveat in mid-September 2016 against the title to the Verschaffelts’ property at 2/76 Ngaurahoe Street, Taupo.2 (The title for the property  is CTSA42D/772). The caveat relied upon Mr Verschaffelt’s guarantee of a loan advance to a company called Atmospheric Limited.

[5]    SH Lock says it had the right under the loan facility documents and cl 18.1 of the guarantee to require a mortgage security for the loan; a proposition that is not in dispute. It is also not in dispute that as prospective borrower Mr Verschaffelt had been obliged to submit a statement  of  assets  in  support  of  the  application  for  the  loan to identify his assets for security purposes. SH Lock contends that as

1      High Court Rules 2016, r 15.23. See also r 14.2.

2      The relevant title is CT SA42D/772. Mr Verschaffelt is noted on the title as the registered proprietor. He and his wife applied to the Registrar General of Land to lapse the caveat and the Registrar General notified SHL of that on 23 December.

Mr Verschaffelt listed the Ngaurahoe Street property in the statement of assets submitted for the purpose, it was entitled to caveat the property. This is an altogether different proposition in Mr Verschaffelt’s view. It is one he does not accept. He agrees that when making application for the loan facility in 2013, he provided a statement of his assets in support of the application and the guarantee and that the property was included in his listed assets. But he says he noted on the statement that he held the property as trustee. He says he also gave oral advice of that fact when applying for the loan; and argues that it should have been clear therefore that he could not offer the property as security for his own borrowing.

[6]    SH Lock accepts now that Mr Verschaffelt’s interest in the property is merely that of trustee. But it contends:

(a)Mr Verschaffelt’s statement of assets deliberately misrepresented the property as his personal asset to support the loan application;

(b)it was not until well after the loan was approved that it was informed that Mr Verschaffelt held the property solely as trustee; indeed, it was only in late 2016 that he claimed that the interest was solely as trustee;

(c)It was not until Mr Verschaffelt’s affidavit was filed on 2 February 2018 that he produced a copy of the relevant trust deed.

[7]    Mr Verschaffelt counters that on 20 January 2017 his lawyer wrote and explained why the agreement to mortgage was given in his personal capacity and why he held his interest in the property solely as trustee and had no vested beneficial interest in it. He says had SH Lock accepted this, there would have been no need to file documents in opposition on 2 February. Further, despite this advice (confirmed in his affidavit evidence), several months went by before SH Lock withdrew its application. All of this, he argues, entitles himself and Ms Verschaffelt to a significant order to compensate them for their legal costs.

Assessment

[8]    In terms of the statutory presumption in r 15.23, the Verschaffelts are entitled to expect an order for costs in their favour unless there is good reason why the court should in its discretion order otherwise.

[9]    There are discretionary factors that weigh against the presumption. They are twofold. First, I accept that Mr Verschaffelt’s statement of assets was misleading. It  is implausible that he would list the property in his statement of assets in support of the loan application, while at one and the same time putting the lender on notice that it should ignore a key listed asset and not take it into account because he did not or might not have a beneficial interest in it. In effect:

(a)Mr Verschaffelt is asking the court to accept that he advised the lender “I have listed this asset in my statement of assets, but don’t rely on the asset as being mine”.

(b)There are two positions here that are simply not consistent and they would require that the Court believe that he listed in his statement of his own assets trust property which he never intended to represent his assets.

(c)An obvious unanswered question is why, if that was the case, he bothered to list the property. Any reasonably intelligent borrower would know that the purpose of providing a statement of assets is to identify for the lender what the worth of the borrower is and whether the borrower is a person of sufficient substance to justify the lender’s risk. I am unable to accept Mr Verschaffelt’s claim that he gave such advice he contends he did.

(d)Moreover, whatever was in Mr Verschaffelt’s mind, he cannot reasonably suggest that SH Lock ought not to have treated the statement of assets as a statement of his own assets. It is simply not plausible to say that assets listed in a borrower’s statement of assets were not to be taken as a true representation of the borrower’s assets.

[10]   The second factor is that it was not until 2 February 2017 that the trust deed relied upon by the Verschaffelts was produced in evidence; and it was not unreasonable, given the misleading statement of assets, that SH Lock should expect a sworn deposition with the deed.

[11]    As against these two factors is the delay after 2 February on SH Lock’s part in withdrawing the caveat. Maintaining a caveat against property once armed with the necessary information that it cannot be sustained is a serious matter. SH Lock has no satisfactory explanation for why it delayed from that point in conveying its agreement to withdraw its application. The delay had the result of leaving undisturbed the Court’s interim order to maintain the caveat. Had the caveat been allowed to lapse at that point I may have been persuaded that there was sufficient to justify an order that costs should lie where they fall; but when I balance this last factor with the two other discretionary factors I have discussed, I am satisfied that the Verschaffelts should have some measure of compensation for their costs. I am far from satisfied, however, that there should be any uplift on scale costs.

Result

[12]   There will be an order for costs against SH Lock Ltd in favour of the Verschaffelts on a 2B basis in the amount of $4,460 (2 days x $2,230), plus disbursements of $112.

[13]Payment is to be made within 15 working days of the date of this judgment.

Associate Judge Sargisson