SKKY Holdings 2015 Ltd v Bolter Management Group Ltd
[2017] NZHC 2641
•27 October 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-1983 [2017] NZHC 2641
BETWEEN SKKY HOLDINGS 2015 LIMITED
First Plaintiff
PORUSHASP ROHINTON DUMANSIA Second Plaintiff
DAVID NORMAN HILLIAM Third Plaintiff
AND
BOLTER MANAGEMENT GROUP LIMITED
Defendant
Hearing: 12 October 2017 Appearances:
D Grove for the Plaintiffs
J L Foster for the DefendantJudgment:
27 October 2017
JUDGMENT OF GORDON J
This judgment was delivered by me
on 27 October 2017 at 4 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Foy & Halse, Auckland
Jesse & Associates, Auckland
SKKY HOLDINGS 2015 LTD v BOLTER MANAGEMENT GROUP LTD [2017] NZHC 2641 [27 October
2017]
Counsel: D Grove, Auckland
J L Foster, Auckland
Introduction
[1] Skky Holdings 2015 Ltd is the owner and mortgagor of a property located at
43 David Sidwell Place, Stanmore Bay, Auckland (the property). The mortgagee, Bolter Management Group Ltd, has issued a notice under s 119 of the Property Law Act 2007 (PLA) demanding repayment of various sums owing under the loan agreement. Skky says it is unable to comply with the terms of the notice and seeks to restrain Bolter from taking any steps to enforce its rights under the loan agreement.
[2] This is the second time this Court has been asked to determine the matter of interim relief in this proceeding. On 4 September 2017, Muir J ordered interim relief on an urgent basis, without hearing argument from Bolter. The Judge reserved rights for Bolter to apply on notice to set aside the order. In a later minute Muir J recorded that any application to rescind or vary the order would proceed as a hearing de novo of the original application.1
[3] On 11 September 2017, Bolter filed an application to set aside the decision of Muir J granting interim relief. That application was the subject of a hearing before me on 12 October 2017.
Background
[4] On 21 September 2016, Skky entered into a loan agreement with New Zealand Mortgages and Securities Limited (NZMS) for the amount of $4,473,000 (the principal). The main purpose of the borrowing was to finance the development of the property. The terms of the loan provided that the principal was to be repaid 12 months after the date of the first advance, being 23 September 2016.
[5] In addition to the loan agreement, the parties also entered into a general security deed together with deeds of guarantee and indemnity provided by the second
1 Skky Holdings 2015 Ltd v Bolter Management Group Ltd HC Auckland CIV-2017-404-1983, 7
September 2017 (Minute of Muir J) at [4].
and third plaintiffs, Mr Porushasp Dumansia and Mr David Hilliam. A mortgage was registered on the title to the property on 23 September 2016.
[6] In order to facilitate development of the property, Skky had entered into a construction contract with Broadvision Earthwork and Construction Ltd dated 16 June
2016. However in April 2017, Broadvision cancelled the contract due to financial difficulties. It agreed to repay a bond of $150,000 to Skky and to repay another sum, described as “payment claim 8”, that had been paid by Skky under the contract. But it left significant defective works on the site that required remediation.
[7] On 1 May 2017, Mr Dumansia met with Mr James Kellow, a director of NZMS, to discuss the situation. The plaintiffs say it was agreed at that meeting that Skky would repay the bond and payment claim 8 to NZMS. Thereafter, NZMS would fund the remediation work (the alleged variation). The plaintiffs say that in reliance on the alleged variation, Skky paid the sum of $257,159.552 to Bolter and made arrangements to have the remediation works completed so that development works could be completed by 23 September 2017.
[8] On 14 June 2017, NZMS advised Skky that it had assigned the mortgage agreement to Bolter. The transfer was registered on 15 June 2017. Following transfer of the mortgage, Bolter refused to fund the remediation work, causing the development project to stall.
[9] On 19 June 2017, Bolter served a notice of default on Skky. On 23 August
2017, Bolter served a notice dated 14 August 2017 pursuant to s 119 of the Property Law Act 2007 calling up the outstanding sum of $2,334,298.70 plus costs of $1,450.00 to be paid on or before 11 September 2017. Contrary to the requirements of s 119, there were only 13 working days from the date of service until the date for remedying the default. Bolter accepted that the notice was defective and accordingly served a further notice on Skky on 29 September 2017. That notice requires payment of the same amounts on or before 31 October 2017.
Approach to interim relief
[10] The principles around the grant of an interim relief are well-settled.3 To succeed in their application for interim relief, the plaintiffs must establish that:
(a) there is a serious question to be tried;
(b) the balance of convenience favours the granting of the injunction; and
(c) the overall justice favours the plaintiffs.
Is there a serious question to be tried?
[11] A plaintiff seeking interlocutory relief must establish, on the basis of the available evidence, that it has a real prospect of succeeding in its claim for a permanent injunction at trial.4
[12] The plaintiffs plead two causes of action in estoppel and breach of contract. In each case, the plaintiffs rely upon the alleged variation of the loan agreement, as agreed between Mr Dumansia and Mr Kellow during their meeting on 1 May 2017. Although the plaintiffs acknowledge that the alleged variation was never reduced to writing, they say that the payment of the $150,000 bond and of payment claim 8 to NZMS constituted an act of part performance, so that the alleged variation can now be enforced. The plaintiffs accept that they cannot at this stage establish whether Bolter had notice of the alleged variation when it took assignment of the mortgage, but say that in the absence of discovery, it is impossible to know whether Bolter had knowledge of the alleged variation.
[13] The difficulties which the plaintiffs face in respect of these submissions are twofold.
3 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12]; American Cyanamid Co v
Ethicon Ltd [1975] AC 396 (HL).
4 Andrew Beck and others (eds) McGechan on Procedure (Thomson Reuters, online looseleaf edition) at [HR7.53.05(1)].
Evidence of an agreement regarding the alleged variation
[14] First, I am not satisfied on the basis of the evidence available that Mr Dumansia and Mr Kellow agreed during the course of their meeting on 1 May 2017 to the alleged variation. Mr Dumansia’s evidence on this point was as follows:5
13I met with Mr Kellow on site on 1 May 2017. Also present were David Hilliam, his wife Wendy, Tony Scragg, the quantity surveyor and Carl Eckhart of Kensway Property Limited, the Project Manager.
14I explained that there would be further costs to complete the remedial works and additional costs and possible delay due to the need to obtain a new constractor. Mr Kellow said that they would fund the remedial works on the condition that the bond was returned to them together with the retention and payment claims. He specifically said that given there were three blocks of the development being two blocks of two units and one block of six units, settle these separately to obtain repayment of the borrowings when they settled. There were no concerns raised at all about the potential delay. It was Mr Kellow who raised the staged development. There was no suggestion that penalty interest would be incurred. There was no suggestion that the continued funding would not be available to complete the development.
…
17We discussed the difficulties arising from the defects and the termination of the contract by the contractor. It was acknowledged that this unforeseen event would cause delays. I explained there would be further costs to complete the remedial works. Mr Kellow said that NZMS would fund the remedial works and ongoing funding on the basis that:
a. The bond was paid to NZMS, and it was.
b.The retention and repayment of earlier claims were refunded to NZMS and they were.
[15] Mr Dumansia attached a number of emails to his affidavit which, in his view, showed that Mr Kellow had agreed to the alleged variation. I have considered each of these emails. In my view, only one of the emails is capable of supporting Mr Dumansia’s version of events regarding the alleged variation. On 4 May 2017, Mr Dumansia sent an email to Mr Kellow in the following terms:
Hi James.
Just wanted to advise that we have received the quote from the contractor to start the remedials for the cracked grade on slab floors for Units 4 to 7 which are in the critical path.
Should Tony approve (currently reviewing the quote) the same are we able to start the work or wait till we get the insurance outcome.
The contractor is able to start the work from 9th May and will be done by the
18th of May subject to weather. The main materials for these works are on site already.
Kindly advise us if we are able to start these works. Kind Regards,
Porus
[16] The following day, Mr Kellow replied:
Sorry for delay. Just back in office now. Start remedials as can fund from
Bond when gets back.
[17] Mr Kellow’s reply on its face suggests that NZMS was willing, at that time, to provide funding for the remedial works from the bond that was to be refunded by Broadvision. However, Mr Kellow’s email must be viewed in the context of other evidence which tends to contradict Mr Dumansia’s account of events.
[18] Mr Kellow filed an affidavit in these proceedings setting out his memory of the meeting on 1 May 2017 and the subsequent discussions:6
6.The cancellation of the building contract was an event of default under the Loan. At the meeting on 1 May 2017 the borrowers discussed their intention to undertake some remediation work. I do not accept that I made any commitment to pay for it but I would have accepted that it was possible that NZMS would consider funding it – no commitment was given. The Plaintiffs had insurance that it was anticipated would cover the remedial work. This is referred to in the email of 5 May 2017 which is Dumansia Affidavit exhibit ‘O’.
[19] I interpolate that the reference in Mr Kellow’s affidavit to “the email of 5 May
2017” is a reference to the email set out at [16] above.
[20] Mr Kellow’s affidavit continues:
9.The meeting on 1 May 2017 was a ‘big picture’ discussion. I was gathering information and do not accept that I made any representations, agreements or commitments. Mr Dumansia said that the cost to complete would be unchanged with a new builder. He said that there would be no cost overruns. I was aware that Skky was obliged to pay any cost overruns in any event. However we did not discuss the obligations of clients to meet cost over-runs because at this time clients advised cost to complete was intact.
10.During the meeting Mr Dumansia undertook to provide documentation from the Quantity Surveyor confirming cost to complete was intact and project could still be completed within sunset date period of the presales. We discussed delay and thought a staged
council completion would speed up settlements/debt repayment to mitigate any delays on last few units. I accept that I suggested a staged development but this was to speed up the project not delay it. Some of the units were more complete than others.
[21] Mr Kellow’s evidence that the cost of remediation was to be met by Skky’s insurer is supported to some extent by various emails attached to Mr Dumansia’s affidavit, which demonstrate that the possibility of an insurance payout was a matter of regular discussion between the parties. In an email dated 3 May 2017, Mr Dumansia referred to chasing Skky’s insurer and noted that he intended to follow up the next day. Then, in Mr Dumansia’s email of 4 May 2017, set out at [15] above, Mr Dumansia asked whether Skky should “wait till we get the insurance outcome” before proceeding. Lastly, in a follow-up email dated 5 May 2017, Mr Dumansia wrote:
Hi James.
Just to advise we are awaiting your confirmation to start the remedial works (pending insurance claim) as per my email yesterday and our phone conversation.
We have not yet had confirmation from the insurers, the last we were advised to Carl (Kensway) that the assessor has sent all the paperwork to AMP for a decision.
Tony advised that since this was not in the budget where would the funds come from, I advised we should use the contingency funds or DD 8 funds to get this very critical work underway without any further delays.
The contractors [sic] ready to go and has organized all the necessary resources to start from 9th May 17.
We await your confirmation. Kind regards
Porus
[22] Mr Kellow then instructed Mr Dumansia to proceed in the email set out at [16]
above.
[23] Mr Dumansia’s account of the alleged variation is also inconsistent with the terms of the security agreement. Clause 3.1 of the security agreement provides:
3.1 Security interest
To secure to the Secured Creditor payment of the Secured Money and performance of the Secured Obligations the Debtor grants to the Secured Creditor a fixed charge in and over, and assigns to the Secured Creditor by way of security, all of the Debtor’s right, title, benefit and interest in the Secured Property.
(emphasis added)
[24] The construction contract with Broadvision formed part of the Secured Property. Under the terms of the security agreement, Skky assigned its rights and interests in the construction contract to NZMS. It follows that Skky was not entitled to the bond or any other monies refunded by Broadvision following termination of the contract. Under those circumstances, it is difficult to understand why Mr Kellow would agree to the terms of the alleged variation, namely that Skky would repay those amounts to NZMS and thereafter, NZMS would fund the remediation work. NZMS was already entitled to receive those amounts, without making any further concessions to Skky.
[25] None of these matters is necessarily fatal to the plaintiffs’ case. The plaintiffs may be able to adduce further evidence at trial, particularly following discovery, which supports Mr Dumansia’s account of events. However, on the basis of the evidence which is presently before the Court, I am not satisfied that the plaintiffs have a real prospect of proving that Mr Dumansia and Mr Kellow agreed during the course of their meeting on 1 May 2017 to the alleged variation.
Indefeasibility of registered mortgage
[26] Even if the plaintiffs are able to prove the existence of an oral agreement regarding the alleged variation (and the part performance thereof), the plaintiffs face another significant obstacle to their claim for interim relief. This second difficulty is that, by their own acknowledgement, the plaintiffs are unable to demonstrate that
Bolter has acted fraudulently in refusing to recognise the existence of the alleged variation.
[27] This issue arises because the alleged variation was not recorded as a variation to the registered mortgage instrument.7 In the absence of fraud, the assignee of a registered mortgage gains the protection of the indefeasibility provisions of the Land Transfer Act 1952.8 It follows that unless the plaintiffs can demonstrate that Bolter has acted fraudulently in refusing to recognise the existence of the alleged variation, the plaintiffs’ claim must fail. It is not sufficient to show that Bolter had notice of the alleged variation; something more is required.
[28] I acknowledge the submission by Mr Grove that at this early stage of proceedings, before discovery has been completed, it may be difficult for the plaintiffs to provide evidence of fraudulent conduct by Bolter. However, that is the nature of an application for interim relief. The plaintiffs bear the burden of demonstrating that there is some kind of factual basis for the intended claim. They are unable to do so.
Conclusion
[29] The plaintiffs are unable to show that there is a serious question to be tried in this proceeding.
[30] Given my finding above, it is unnecessary to consider where the balance of convenience might lie. For completeness, however, I note my agreement with the submission by Ms Foster that on the evidence before the Court, it seems unlikely the plaintiffs will be able to fund the completion of the development. That being the case, the further delays caused by the imposition of an interim injunction could reduce the value of the partially completed development, to the detriment of both parties.
Result
[31] The interim injunction against Bolter is set aside.
7 Compare s 102 of the Land Transfer Act 1952 and s 85 of the Property Law Act 2007.
8 See s 182 of the Land Transfer Act.
Costs
[32] Costs are reserved. If agreement cannot be reached then Bolter may file a memorandum in support of costs within 10 working days of receipt of this judgment. A memorandum in response may be filed within 10 working days thereafter.
Memoranda should not exceed four pages.
Gordon J
3