Snedden Solicitors Nominee Company Limited v Finlay

[2014] NZHC 87

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-004000 [2014] NZHC 87

UNDER  the Insolvency Act 2006

IN THE MATTER             of the bankruptcy of Peter Ronald Finlay

BETWEEN  SNEDDEN SOLICITORS NOMINEE COMPANY LIMITED

Judgment Creditor

ANDPETER RONALD FINLAY Judgment Debtor

Hearing:                   25 November 2013

Appearances:           J M Keating for Judgment Creditor

A M E Parlane for Judgment Debtor

Judgment:                7 February 2014

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 7 February 2014 at 3.00 pm

pursuant to R 11.5 of the High Court Rules

Registar / Deputy Registrar

Date………………………

SNEDDEN SOLICITORS NOMINEE CO LTD v FINLAY [2014] NZHC 87 [7 February 2014]

Introduction

[1]      Snedden Solicitors Nominee Company Limited (SSN) has a judgment against Peter Ronald Finlay for $739,695.06.   Mr Finlay was a guarantor of Northcorp Developments Limited which borrowed money from SSN to develop a subdivision from two pieces of land near Kaitaia.  The loan fell due for repayment in August

2008.  Efforts by Mr Finlay and his co-guarantor, Mr Ghaleh, to sell property were unsuccessful.   Ongoing negotiations between Mr Finlay and SSN have been unsuccessful.  SSN has now served a bankruptcy notice on Mr Finlay and Mr Finlay has applied to set that notice aside.

[2]      Mr Finlay’s application is brought on the grounds that:

(a)      He has a claim against third parties in relation to a failed sale and purchase agreement for the land.  This ground is asserted under either s 17(1)(d) of the Insolvency Act 2006 or the Court’s inherent jurisdiction;

(b)The bankruptcy notice is defective because it attaches a document that wrongly purports to be a certified copy of the sealed judgment;

(c)      SSN has security for the debt that is worth at least $1,000 more than the debt.

Claim against a third party

[3]      Under s 17(1)(d)(ii) a debtor commits an act of bankruptcy if he or she does not, within the specified time limit, satisfy the Court that “he or she has a cross-claim against the creditor”. The expression “cross-claim” is defined in s 17(7) as:

(a)       A counterclaim set off, or cross demand that is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and

(b)       The debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.

[4]      The third party claim that Mr Finlay relies on arises under an unconditional sale and purchase agreement between Northcorp and Zhong Li.  In 2010 Northcorp sold the properties to Zhong Li for $900,000 with settlement on 28 January 2011. The agreement was entered into by Zhong Li’s then attorney, York Yu.    Zhong Li failed to settle the purchase and Mr Finlay applied for summary judgment against him in October 2011.  Zhong Li took no steps.  In November 2011 the parties varied the agreement; the settlement date was moved to 31 March 2012 and York Yu was be named as a joint purchaser and personal guarantor.  Zhong Li and York Yu failed to settle on the agreed date.   The parties varied the contract again.   The new terms included a revised settlement date of 14 September 2012.   That date, too, passed without the purchase being settled.   In June 2013 Northcorp’s solicitors served a settlement statement for $699,580.77.

[5]      Ms Parlane submitted that the claim Northcorp has against SSN should be viewed as a cross-claim for the purposes of s 17(1)(d). However, it clearly lacks the necessary mutuality or relationship with the debt owed by Mr Finlay to SSN.1

[6]      In any event, there is nothing in the evidence that could give either the Court or  the  judgment  creditor  any  confidence  that  further  time  will  result  in  this agreement being settled and money being made available to Northcorp to extinguish its debt to SSN.  Three settlement dates have come and gone.  Zhong Li, according to Mr Finlay, is resident in China.  There is no information provided about either Zhong  Li  or York Yu to suggest that, having  failed to honour their contractual obligations thus far, they are likely to meet any judgment obtained from them in the future.

Is the bankruptcy notice defective?

[7]      Lang J entered judgment against Mr Finlay on 8 November 2011.  However, because of the possibility that Mr Ghaleh would be able to obtain funds to meet the judgment debt, he directed that the orders he made were to lie in court and not be

sealed until 2 December 2011.

1 Re Elvin ex parte Sandilands [1990] 3 NZLR 124.

[8]      Mr Ghaleh did not obtain the necessary funds and the judgment debt was not paid.  However, nor did SSN move to seal the judgment until 2013.  This was partly because of ongoing negotiations with Northcorp and Mr Finlay and partly because SSN was, itself, engaged in litigation brought against it and Mr Snedden personally by the contributors to the SSN mortgage.2

[9]      When SSN resolved to commence bankruptcy proceedings against Mr Finlay it moved to seal the judgment and filed a draft judgment in the form then required by the High Court Rules which required the document to show “both the date on which [the order] was made and the date on which it was sealed”.  The document that was filed was draft orders submitted for filing on 28 June 2013 which showed on the waistband “Sealed: June 2013” leaving the date to be inserted by the Registry.

[10]     However, the High Court Rules were amended as of 1 July 2013, substituting the words “the date on which [the order] was made” for “both the date on which it was made and the date on which it was sealed”.  The order came to be dealt with by the Court staff after 1 July 2013 and court staff altered the words on the waistband so as simply to read “judgment of the Court 8 November 2011”.

[11]     Ms  Parlane  argued  that  because  the  judgment  had  not  been  sealed  on

8 November 2011 the document attached to the bankruptcy notice could not be a certified true copy as was asserted in the notice, thereby making the notice defective.

[12]     I am satisfied that there is no defect in the document.   The handwritten changes to the document were properly made by the Court staff so as to comply with the High Court Rules as they stood when the order came to be sealed.  Under the new rules the date of sealing is not relevant.  The date as it is now shown on the sealed judgment does not purport to be the date of sealing but only the date on which the order was made and it is correct.

[13]     Nor do I accept, as was suggested, that there was any prejudice to Mr Finlay as a result of the defect.  There was no obligation on SSN to seal the judgment any

2      That litigation resulted in judgment against SSN and Mr Snedden personally; Hole and Boys v

Snedden and SSNCL [2012] NZHC 1907.

earlier than it did.  It forwarded a copy of the judgment to Mr Finlay under cover of a letter to his solicitor dated 12 July 2013, to which letter Mr Finlay’s then solicitors responded with a further proposal to resolve matters.

The security position

[14]     Under s 14 of the Insolvency Act 2006:

The Court must not make an order of adjudication on the application of a secured creditor unless the creditor has established that the amount of the debt exceeds the value of the charge by at least $1,000.

[15]     The bankruptcy notice makes demand for $631,895.06 and claims costs of

$748.  Ms Parlane argued that the property that secures the mortgage is worth at least

$1,000 more than the amount owing and, as a result, no order for adjudication could be made.  She therefore sought to have me exercise the inherent jurisdiction to set aside the bankruptcy notice.   This argument turned on the value of the property, which Mr Finlay asserts is worth $650,000 and SSN maintains is worth no more than about $130,000.

[16]     On the day of the application Ms Parlane sought to tender an affidavit from Mr  Finlay  attaching  a  Prendos  valuation  dated  18  November  2013.    This  was opposed by Ms Keating, for SSN, on the ground that it was too late and was not a fair  reflection  of  the  value  of  the  property  because  it  was  undertaken  on  a hypothetical  basis  that  assumed  the  property  would  be  subdivided,  whereas  the reality was that subdivision was highly unlikely.

[17]     In the absence of the Prendos valuation the evidence as to valuation was very unsatisfactory.  There was a Prendos valuation dating back to 2010 which could only be of limited value to me.  SSN’s evidence as to valuation came solely from a market appraisal undertaken by a real estate agent.  It is advanced on a forced sale basis and contains  a  number  of  questions,  indicating  that  the  agent  who  undertook  the appraisal was uncertain of some relevant aspects.  In these circumstances I felt that I could  not  do  justice  to  the  parties  on  the  valuation  issue.    I accordingly  gave Ms Parlane leave to adduce the current Prendos valuation and Ms Keating leave to

adduce a further valuation by 2 December 2013.   The parties agreed that I would proceed to determine the matter on the information I had at that point.

[18]     SSN filed a further affidavit annexing a valuation by registered valuer, Moir McBain.   Mr Finlay responded with a further affidavit which commented on the difference between  the  Prendos  and  Moir McBain  valuations  and  also  provided further detail regarding the background to the sale and purchase agreement between Northcorp and Zhong Li.  Having considered this further information I am satisfied that the value of the property does not exceed the amount of the debt by at least

$1,000.

[19]     The  main  issue  on  valuation  is  whether  this  property  is  best  valued  by reference to its potential for subdivision or by its market value “as is”.  The Prendos valuation is based on the assumption that the two lots will be consolidated and subdivided.    On that  basis  Prendos  assessed  the value  at  $650,000.   The Moir McBain valuation considered both a hypothetical subdivision and the market value.

[20]     On a hypothetical subdivision basis Prendos valued the land at $650,000 including GST.  This valuation was based on $60,000 per lot and deducting 30 per cent for a developer’s profit and risk, six per cent for five years’ worth of interest,

$21,212 for subdivisional costs and $118,000 for development contributions.

[21]     In it is valuation based on a hypothetical subdivision, Moir McBain started from an estimated per lot value of $50,000 including GST and allowed for a $35,000 profit and risk factor, eight per cent interest, $34,733 in subdivisional costs and

$347,648 for development contributions.  On that basis it assessed the land as having no value.   Mr Finlay pointed out that that the Moir McBain valuation included expensive upgrading along the main road which had been the subject of a successful objection by Northcorp and that if Moir McBain adopted the Prendos percentages and values then the value would be $957,000.

[22]     The difficulty with accepting either of the valuations based on a hypothetical subdivision approach is that both valuers acknowledge the difficulties in selling this land to a developer.  It currently has a resource consent which is due to expire in July

2015. The Prendos valuation notes that there has been little demand for development sites, with no development site sales over the past several years.  The Moir McBain valuation notes that there have been no subdivisions of residential sites in recent times  due to  the low  cost  of the end  product  and  high  cost  of completing the subdivision to title stage.  It concludes that, for this reason, “the property has average saleability with there being virtually no value attached to the resource consent for subdivision with the highest and best use as a lifestyle block”. On this evidence I am not prepared to accept a based on the hypothetical value of the land.   The more realistic approach is clearly the marke value of the sites as lifestyle blocks.   Moir McBain’s  valuation  of  the  two  sites  is  of  $100,000  and  $220,000  respectively, making a total of $326,000 which is well short of the judgment debt.  Prendos did not attempt a valuation on this basis and Mr Finlay has not requested leave to adduce evidence in reply to this aspect of the Moir McBain valuation.

Result

[23]     Mr Finlay’s application to set aside the bankruptcy notice is dismissed.

[24]     There are to be costs to SSN on a 2B basis.

P Courtney J