Senior Trust Capital Ltd v Holmes - [2023] NZHC 3108

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-952

[2023] NZHC 3108

BETWEEN
SENIOR TRUST CAPITAL LIMITED

Plaintiff

AND

CHRISTOPHER ALAN HOLMES

First Defendant

ANTHONY CHARLES RUSSELL HANNON

Second Defendant

Hearing: 10 October 2023

Appearances:

M Tingey and C S Morrison for Plaintiff

D A C Bullock and A W McDonald for First and Second Defendants

Judgment:

3 November 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 2 November 2023 at 2.30pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar
………………………………

SENIOR TRUST CAPITAL LIMITED v HOLMES [2023] NZHC 3108 [3 November 2023]

[1] Senior Trust Capital Limited (Senior Trust) is a property development financier including in respect of retirement villages. It provided finance to Roy’s Bay Estate Limited (RBEL) for a substantial multi-unit property development in Wānaka. Mr Holmes, the first defendant, was director of RBEL, Mr Hannon was an indirect shareholder in RBEL and both Messes Holmes and Hannon provided a guarantee in respect of RBEL’s debt. RBEL is now in liquidation.

[2] The development did not prosper. RBEL was forced to request and obtain extensions of the repayment date of its facility and ultimately defaulted.

[3] The facility, on its third extension, was due for payment on 30 September 2021. RBEL, conscious that it was under pressure in respect of its debt to Senior Trust, sought to explore selling its land as it was conscious that it would achieve a better result than a mortgagee sale.

[4] In October 2021, RBEL obtained a conditional contract to sell the Wānaka site to S5 Consulting Group Limited (S5) at a price of $24,000,000.00. This contract became unconditional on 3 December 2021. However, that contract was replaced with a new sale and purchase agreement also with S5 in February 2022 at a price of
$22,000,000.00; the reduction of purchase price relating to consenting and works issues raised by S5. The February 2022 sale to S5 was due to settle on 31 March 2022.

[5] In the meantime, Senior Trust had commenced the mortgagee sale process in respect of the Wānaka land. By the end of February 2022, Senior Trust had instructed real estate agents to conduct a mortgagee sale of RBEL’s property. By a contract dated 20 May 2022, Senior Trust as mortgagee, sold the Wānaka land to a company called Roy’s Bay GCO Limited, a subsidiary of S5.

[6] The mortgagee sale resulted in a shortfall for which Senior Trust seeks summary judgment. Messrs Holmes and Hannon, as guarantors, resist summary judgment saying Senior Trust breached its duty under s 176 of the Property Law Act 2007 (the Act) to take reasonable care to obtain the best price reasonably obtainable at the time of sale. Messrs Holmes and Hannon point to the contract

between RBEL and S5 at $22,000,000.00 and complain that Senior Trust sold to a subsidiary of S5 for $4,000,000.00 less.

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] NZHC 3108
Decision Date: 3 November 2023

CaseChat Overview and Summary

Senior Trust Capital Limited (Senior Trust), a property development financier, provided finance to Roy’s Bay Estate Limited (RBEL) for a property development in Wānaka. Mr Holmes and Mr Hannon, directors and shareholders of RBEL, guaranteed the debt. After RBEL defaulted on its facility, Senior Trust conducted a mortgagee sale of the Wānaka land to a subsidiary of S5, the company RBEL had sold the land to, for $4,000,000.00 less than the agreed sale price. Senior Trust claims a shortfall of $3,429,259.52, plus interest, from Messrs Holmes and Hannon as guarantors. The defendants resist the claim, arguing Senior Trust breached its duty under the Property Law Act 2007 to obtain the best price reasonably obtainable at the time of sale and its duty of good faith.

The court found that the mortgagee sale process was proper and unchallenged. The court dismissed the argument that Senior Trust could not exercise its power of sale because RBEL had an existing contract to sell the land. The court found the sale process properly tested the market and resulted in a sale price of $18,000,000.00, after negotiation with the purchaser. The court held that Senior Trust was not required to refrain from exercising its right as mortgagee because of the pre-existing contract, especially when Senior Trust was not called upon to stay its hand. The court also found that Senior Trust did not breach its obligation of good faith. The court held that Senior Trust was not required to refuse to sell to the S5 subsidiary simply because that buyer was unwilling to match the $22,000,000.00 which S5 had previously offered.

The court further found that the defendants do not have a reasonably arguable defence in relation to the question of quantum. The court held that the certificate issued by Senior Trust is conclusive as between the covenantors and the lender, save for manifest error. The court held that the defendants have not demonstrated any manifest error in the certificate. The court granted summary judgment in favour of Senior Trust for the principal amount claimed, plus interest, and ordered the defendants to pay Senior Trust’s indemnity costs.

Orders