Sage Securities Limited v Rood HC Wellington CIV 2009-485-1150

[2010] NZHC 1646

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2009-485-1150

BETWEEN  SAGE SECURITIES LIMITED Applicant

ANDHENDRICUS MARIA ROOD, WILHELMINA FRANCISCA MARIA ROOD, MARIA JULIANA ROOD AND ADVISORY TRUSTEES LIMITED Respondents

Hearing:         25 August 2010

Appearances: M. Taylor - Counsel for Applicant

P. Withnall - Counsel for Respondents

Judgment:      30 August 2010 at 11.45 am

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 30 August 2010 at

11.45 am pursuant to r 11.5 of the High Court Rules.

Solicitors:           Paul Cheng & Co, Solicitors, PO Box 27088, Wellington

Michael Chung Law Office, Solicitors, PO Box 85, Wellington

SAGE SECURITIES LIMITED V HM ROOD, WFM ROOD, MJ ROOD AND ADVISORY TRUSTEES LIMITED HC WN CIV-2009-485-1150  30 August 2010

[1]      In a judgment I issued in this proceeding on 9 March 2010 I set-aside a statutory demand the respondents had served on the applicant and provided at para [52] that this was to be:

on condition that:

(a)       Sage Securities and its director/s promptly disclose to the respondents the names and addresses of the actual borrowers of the $600,000.00 loans, any guarantors, and the security/securities held by Sage Securities Limited for such loans; and

(b)       Sage Securities as trustee forthwith takes all reasonable steps first to call up the  loans  from the  borrowers and  secondly, to  properly and  promptly realise all securities held for such loans.

[2]      At para [54] of that judgment I went on to note that the statutory demand in question was set-aside strictly on those conditions noted above which were specified in para [52](a) and (b).

[3]      Issues have now  arisen  over compliance with  these para [52](a)  and  (b) conditions and effectively the parties have placed before the Court an “application” to determine whether or not those conditions have been satisfied.

[4]      I now turn to address this question with regard to each of the two conditions noted above:

Para [52](a)      Prompt Disclosure of Names and Addresses of Borrowers, Guarantors and

Securities

[5]      Counsel  for  the  respondents,  Mr  Withnall,  before  me  complained  that although disclosure in terms of this condition may have been largely attended to by now, it has been anything but prompt.   On this Mr Withnall notes that the respondents’ solicitors wrote to the applicant’s solicitors on 16 March 2010 after hearing nothing following my 9 March 2010 judgment.  The response on 23 March

2010 according to Mr Withnall was inadequate and this required further correspondence from the respondents’ solicitors on 26 April 2010 and 27 May 2010. It was not until the applicant’s solicitors letter of 25 June 2010 over 3 months after

my judgment that, according to Mr Withnall, anything like an adequate response to this disclosure requirement was provided.

[6]      Mr Withnall now contends that this would seem to be quite at odds with the professed position by the applicant that it is a Trustee for the respondents and other contributors and, as such, is acting in the best interests of those contributors as beneficiaries.

[7]      And, although the position is somewhat unclear on the submissions made to me, it may be that despite requests for these made by the respondents, the applicant has not as yet provided copies of loan agreements between it and Working Concepts Limited, it and Concepts 128 Limited, the respective cross-guarantees by Working Concepts Limited and Concepts 128 Limited of the debts of the other, or a guarantee by Mr Cummins’ presumably of the debt of Working Concepts Limited.  These are required, according to Mr Withnall, to fully inform the respondents of all securities and  guarantees  which  may  exist.    These  documents  should  be  made  available without delay if this has not already occurred.

[8]      In addition, it seems here that the respondents also requested copies of the actual securities held by the applicant for the $600,000.00 loans and it was not until several requests were made that the majority of these were finally provided on 25

June 2010.  On this Mr Withnall for the respondents also raises serious concerns and submits that the taking and registration of certain mortgage securities over a number of properties to secure the interests of the contributors has not occurred.  I will turn to address this aspect below at para [19] and following.

[9]      Nevertheless, it does on balance, appear that although there may have been some delay in providing names and addresses  of borrowers and  guarantors and copies of the bulk of the securities to the respondents this has now been largely attended to.

Para [52](b) Sage Securities are forthwith to take all reasonable steps to call up the loans and properly and promptly realise all securities held for such loans.

[10]     As  a  preliminary  matter,  Mr  Taylor,  counsel  for  the  applicant,  in  his submissions before me appeared to mount a collateral attack on this second condition as he contended it simply used the threat of the statutory demand to require positive steps to be taken by the applicant with regard to recovery of money from third parties and as such, it was inappropriate.  On this I need to note at the outset that at no time was an appeal lodged by the applicants against my 9 March 2010 judgment or indeed this condition.  The issue is raised now for the first time.

[11]     And, it is clear from s 290(7) Companies Act 1993 that the Court may in its discretion impose conditions when making an order to set aside a statutory demand. Mr Taylor for the applicant endeavoured to draw a distinction between, on the one hand, the many cases where a payment of money into Court as a condition for setting-aside a statutory demand has provided an incentive for applicants in those cases to take steps to resolve a dispute between the parties, and on the other hand, the present  situation  where  he  argues  the  second  condition  inappropriately  uses  a “Sword of Damocles” approach with this threat of a statutory demand.

[12]     With respect, I do not accept there is a significant distinction here.   In my view,  the  conditions  imposed  when  the  statutory  demand  was  set  aside  are appropriate under the circumstances prevailing in this case.   I say this bearing in mind also that the applicant has maintained throughout that it is a bare trustee of the substantial advances made by the respondents and other contributors here and as such will take appropriate steps upon behalf of all contributors to enforce the securities and recover the loans made.

[13]     Turning now to the substance of this condition, again here Mr Withnall for the respondents submits that the applicant has “dragged its feet”.   He notes that demand for repayment of the loans advanced was not made on Working Concepts Limited until 3 May 2010 almost two months after my 9 March 2010 judgment.

[14]     In addition, Mr Withnall contends that apparently only one Property Law Act Notice has been issued by the applicant and further, the applicant has failed to make demand on Working Concepts Limited, Concepts 128 Limited or Mr Robert James Cummins (“Mr Cummins”) under their respective guarantees.

[15]     Mr Withnall goes on to contend that the applicant has achieved nothing like the security by way of registered first mortgage over land that was to have been provided for the contributors according to the Declarations of Trust it had signed earlier nor, in his words, “as could be expected in a true contributory mortgage scheme”.   He maintains that by various transactions the applicant has entered into over time with a number of companies in Mr Cummins group, the security held for the respondents has been progressively eroded and subordinated to other interests. Whether or not this may be the position is another matter.  What is required under para [52](b) of my 9 March 2010 judgment is that the applicant was to take all reasonable steps to call up the loans from the borrowers and then to properly and promptly realise all securities which might have been held for those loans.

[16]     It is clear here that some securities have been realised with a payment made to the respondents of $67,740.00 on 15 July 2010. In addition, a further payment of

$179,625.00 was apparently made to the respondents on 9 April 2010 from the proceeds of litigation in which the applicant was involved.  This payment from the fruits of litigation (apparently underway prior to 9 March 2010) however, may well be seen technically as not constituting a realisation of the securities held by the applicant for the loans it has made.

[17]     In response to the respondent’s complaints, the applicant as I understand the position notes, in my view, properly that the matter currently before the Court is not an  assessment  of  the  nature  and  quality of  the  securities  provided  nor  is  it  an assessment of whether those securities are taken in compliance with the terms of the trust upon which the applicant maintains it manages the contributory funds. Essentially the applicant here explains the process of realising securities as what it describes as a “managed recovery policy”.   Issues may well arise regarding this approach given that the applicant has maintained throughout that it is a bare trustee

holding the loans in trust for the absolute benefit and disposal of the contributor beneficiaries.

[18]     On this, Mr Withnall for the respondents contends that there has been no consultation with the respondents concerning the various dealings which have taken place with the loan securities.  He notes that the applicant has entered into various transactions with other parties to modify change and arguably reduce security arrangements in November 2009 and even as recently as July 2010.  He states that the applicant has even chosen to itself purchase the debt of one of the beneficiaries (Ray J Watts Limited) for around $1 million, with no discussion or approval by the respondents as one of the beneficiaries in whose best interests the applicant is required to act.  This must raise questions first, over even-handedness in the dealings between the applicant and its contributors and secondly, over a possible mixing of the applicant’s role as bare trustee with its commercial dealings.

[19]     One other matter of particular concern was raised before me.  This relates to a security which the applicant says it holds over 6 Flatbush residential apartments and one development site.   This security is said to be held jointly with a third party Manchester   Securities   Limited   (a   company   associated   with   Mr   Cummins). Apparently this security at some point was assigned to the applicant and Manchester Securities Limited by Working Concepts Limited, although the background to this is unclear.

[20]     What  is  clear  is  that  before  me,  Mr  Taylor,  counsel  for  the  applicant, indicated that, because this particular mortgage security is held jointly by the applicant and Manchester Securities Limited and that latter party through Mr Cummins “has refused registration of the mortgages and any onerous or directive attempts to force the issue of sale with the property owners” in question, this has stymied the applicant in having these mortgages registered and enforcement action taken.

[21]     Without wishing to delve into the reasons for all of this, it is immediately obvious that steps must be taken without delay to perfect this mortgage security held by the applicant by registration against the titles to the properties in question or, at

the very least, by registration of appropriate caveats.  For the applicant to maintain that it is unable to do this is simply unacceptable.   The potential vulnerability of these securities which are presently unregistered goes without saying.   This alone must be seen as a matter of considerable concern.

[22]     Returning now to the condition at para 52(b) of my 9 March 2010 judgment, I am satisfied that it is too early to say at this point that the applicant has taken all reasonable steps to comply with the condition.  Certainly at the very least the matters referred to in the preceding paragraphs of this judgment raise considerable concerns and require immediate attention.

[23]     Further, the evidence provided by the applicant for the present matter before the  Court  itself  acknowledges  that  the  “managed recovery programme”  is  itself ongoing.

[24]     Weighing up all these matters, I am satisfied that the applicant here has been quite unable to satisfy the Court that at this point it has fully complied with the condition contained at para 52(b) of my 9 March 2010 judgment.   Additional reporting to this Court and the respondents is required.

[25]     On this the following directions are now made:

(a)       This matter is to be the subject of a directions telephone conference at

9.30  am  on  15  October  2010  to  review  the  position  regarding satisfaction of these conditions.

(b)Three (3) working days prior to that telephone conference counsel for the applicant is to file and serve a memorandum providing a full update of the position with regard to perfecting the securities in question, calling up the loans and realising those securities.

(c)If it has not already occurred, the applicant by 10 September 2010 is to provide to the respondents copies of those documents specified at para [7] above.

(d)Leave is reserved for either party to approach the Court on 48 hours notice if additional directions may be required in the mean time.

[26]     Costs are reserved.

‘Associate Judge D.I. Gendall’