Sparks v Olliver Trustee Company Limited (in liquidation)
[2019] NZHC 2877
•5 November 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1507
[2019] NZHC 2877
UNDER the Property (Relationships) Act 1976 IN THE MATTER OF
An application to commence proceedings against company in liquidation and an application for second notice of claim to be registered
BETWEEN
SARAH PATRICIA SPARKS
Applicant
AND
OLLIVER TRUSTEE COMPANY LIMITED (IN LIQUIDATION)
Respondent
BANK OF NEW ZEALAND
Intended Intervenor
Hearing: 30 October 2019 Appearances:
S Sparks, Applicant in Person
No appearance for or on behalf of the Respondent
J Cowan for Bank of New Zealand Limited, a party seeking leave to intervene
Judgment:
5 November 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment is delivered by me on 5 November 2019 at 4:45 pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors: Anderson Lloyd, Dunedin And to: Applicant
SPARKS v OLLIVER TRUSTEE CO LTD (IN LIQ) [2019] NZHC 2877 [5 November 2019]
[1] Ms Sparks is engaged in proceedings under the Property (Relationships) Act 1976 (the PRA) with her former husband, Mr Gregory Olliver. Mr Olliver was the sole director of the respondent company, which is now in liquidation.
[2] The respondent was a property developer, and it is the registered proprietor of two substantial blocks of land, together comprising approximately 28 hectares, in Kapiti Road, Paraparaumu (the Kapiti land). This application is concerned with one of the two blocks of land, which I will refer to as No 109. I will refer to the second of the two blocks of land as No 77.
[3] For some years Bank of New Zealand (the bank) has funded the development activities of Mr Olliver and entities associated with him, including the respondent. In July 2013 it lent the respondent $9,550,000 to acquire No 109. The lending was secured by first registered mortgage over No 109 and certain other properties. Subsequently, the bank lent the respondent further sums totalling $8,170,000 to develop the Kapiti land. This lending is also secured by the first mortgage over No 109.
[4] The bank has lent further money to a company called St Heliers Capital Limited (SHC), a company associated with Mr Olliver, which owns No 77. There are interlocking guarantees in favour of the bank among a number of parties, and the lending to SHC is secured over both No 77 and No 109. In addition to its first mortgage security, the bank holds general security agreements executed by the respondent and SHC.
[5] Following the separation of Ms Sparks and Mr Olliver, Ms Sparks registered a notice of claim (the first Notice) against the title to No 109. She contends that she has an interest in No 109, whether under the PRA or under a constructive trust arising from direct or indirect contributions she says she has made to No 109.
[6] The respondent applied to the District Land Registrar to lapse the first Notice late in 2019. Through inadvertence, Ms Sparks failed to make application to the Court within the prescribed time, and the first Notice lapsed. Ms Sparks says that she became
aware of the lapse of the first Notice on 18 February 2019, when it was referred to in a memorandum filed by counsel for Mr Olliver in a related proceeding.
[7] On 24 July 2019 Ms Sparks filed an application for an order permitting the registration of a second notice of claim under the PRA (the second Notice) on the title to No 109. As the respondent had by then gone into liquidation, she also applied for an order under s 248(1)(c) of the Companies Act 1993 (the Act), granting her leave to proceed with an application against a company in liquidation.
[8] Neither of Ms Sparks’ applications is opposed by the respondent. The respondent’s liquidator has advised through counsel that the liquidator is content to abide the decision of the Court on the two applications.
[9] When the bank became aware of Ms Sparks’ applications, and learned that they would not be opposed by the respondent’s liquidator, the bank filed its application to intervene in, and to oppose, Ms Sparks’ application for leave to register the second Notice on the title to No 109. The bank does not oppose the granting of leave to Ms Sparks under s 248(1)(c) of the Act.
[10] I now give judgment on Ms Sparks’ application for leave under s 248(1)(c) of the Act, and on the bank’s application for leave to intervene and oppose the second Notice application.
Ms Sparks’ application under s 248(1)(c) of the Companies Act for leave to proceed against the respondent
[11]Section 248(1) of the Act materially provides:
248 Effect of commencement of liquidation
(1)With effect from the commencement of the liquidation of a company,—
…
(c)unless the liquidator agrees or the court orders otherwise, a person must not—
(i)commence or continue legal proceedings against the company or in relation to its property.
…
[12] As the respondent’s liquidator has not consented to the commencement of this proceeding, Ms Sparks was required to seek leave under s 248(1)(c)(i).
[13] The learned authors of Brookers’ Company and Securities Law note that factors relevant to the exercise of the Court’s discretion under s 248(1)(c) include:1
·whether circumstances exist which render it necessary that the legal proceeding should continue; or
·whether the plaintiff’s claim is one that cannot easily be dealt with in the liquidation.
[14] Leave will generally be declined if the proceeding would, even if successful, be likely to be fruitless,2 but the Court should not examine the merits of the case: it needs only to be satisfied that the proposed claim is not clearly unsustainable.3 Excessive delay by a plaintiff in making the application for leave may weigh against the applicant.4
[15] Ultimately, it is a matter for the Court’s discretion whether leave should be granted, and the considerations mentioned above are not exhaustive.
[16] Ms Sparks’ application for leave is not opposed by either the respondent or the party seeking leave to intervene, and the relief she seeks in her substantive application is not a claim to relief that could be dealt with by the liquidator. If Ms Sparks wishes to register the second Notice she has no option but to come to the Court for leave to do so.
1 Brookers’, Company and Securities Law (looseleaf edition, Thompson Reuters) at [(A248.03C27)]
2 Johnston v CBD Real Estate Limited (In Liq) (2000) 14PRNZ 320 at 322.
3 Fisher v Isbey (1999) 13 PRNZ 182.
4 McPhail v Durbridge Developments Ltd (In Liq) (1998) 8 NZCLC 261610.
[17] On the very limited information available at this stage, I do not think it can be said that Ms Sparks’ application to register the second Notice is clearly unsustainable. And in circumstances where no party has raised the issue, and there is no apparent prejudice to any other person, I do not consider that her delay of approximately five months between learning of the lapse of the first Notice and filing the application should have significant weight in the exercise of my discretion.
[18] There is an argument, which the bank wishes to run, that Ms Sparks has no interest in No 109 because there is no equity in No 109: it says that the amount secured over No 109 under the bank’s first mortgage will considerably exceed the value of No 109. But valuing the Kapiti land, including No 109, does not appear to be a simple exercise, as will be seen from the next section of this judgment, and I do not think it can be said at this stage that Ms Sparks’ claim to an interest in No 109 is “clearly unsustainable” on the basis put forward by the bank.
[19] There is no other basis on which I could find Ms Sparks’ claim to an interest in No 109 as unsustainable. Whether she has such an interest and if so the extent of it, is apparently one of the matters to be determined in the PRA proceeding, which is scheduled to be heard in this Court in June of next year. Mr Olliver has not sought to intervene in this proceeding on the basis that Ms Sparks has no interest in No 109 (under the PRA or otherwise), and nor has the liquidator challenged her claim to an interest.
[20] In those circumstances I do not think it can be said at this stage that Ms Sparks’ claims to an interest in the property are clearly unsustainable, although detailed argument on the merits of her claims, and further evidence, or reference to any existing relevant evidence in the PRA proceeding, is likely to be required at the hearing of her application for leave to lodge the second Notice. The bar is not set that high on an application for leave under the Act, however, and I am satisfied that leave should be granted. I make an order under s 248(1)(c) of the Act granting leave to Ms Sparks to commence this proceeding against the respondent.
The bank’s application for leave to intervene
The bank’s evidence in support
[21] Two affidavits were filed for the bank in support, both by Mr Craig Dungey, the bank’s officer who has had responsibility for the administration of its lending to the respondent and other entities associated with Mr Olliver.
[22] Mr Dungey confirmed that the respondent is wholly owned by Mr Olliver, and that he has had a long history with the bank. The bank has financed various property developments for him, and there have been ups and downs in the relationship over the years: sometimes there have been defaults, and sometimes there have been mortgagee sales and/or readjustment of loans.
[23] Both SHC and the respondent have defaulted on their loans from the bank. As at 21 August 2019, the amount owed by the respondent on the loans from the bank was approximately $21,000,000.
[24] Mr Dungey said that the bank has considered its options regarding its debt secured over the Kapiti land. The extent of the debt, and the valuation advice the bank has obtained, mean that there are no commercially attractive options. If the bank were now to proceed with a mortgagee sale of the Kapiti land, there would likely be a shortfall in the region of $25,000,000 . For that reason, the bank has been considering other options to minimise its loss.
[25] The bank has not been able to identify any assets of SHC or the respondent of any value, beyond the Kapiti land.
[26] Mr Dungey described No 109 as being largely undeveloped bare land, comprising approximately 10.4 hectares. The bank lent the respondent the $9,550,000 acquisition cost under a revolving credit facility on 17 July 2013, and a further
$8,710,000 has been advanced under a revolving credit facility agreed on 2 February 2016.
[27] In July 2018, the bank obtained a valuation report on the Kapiti land from Colliers International (Colliers). Mr Dungey produced a copy of the Colliers’ report. The Colliers’ report assessed the market value of the Kapiti land, in an “as is” state, as:
No 77 - $7,900,000 plus GST (if any) No 109 - $4,950,000 plus GST (if any)
[28] If the titles to No 77 and No 109 were amalgamated, Colliers considered that the value of the Kapiti land would be $10,900,000 plus GST (if any).
[29] Those valuation figures valued the Kapiti land in an undeveloped state. The bank has since looked at possible scenarios in which the property might be developed before it was sold. If a 100 per cent yield was achieved on a development, the development costs were relatively low, and the development period did not exceed two years, the bank reckoned that its debt could be reduced to $2,000,000. The second scenario considered by the bank assumed a more realistic 85 per cent yield and slightly higher development costs. In this scenario, the bank estimated the shortfall at about
$12,000,000.
[30] Mr Dungey said that the bank has not identified any possible scenarios where there would be any surplus on a sale of the Kapiti land after the bank’s loans had been repaid and sale costs met. Based on the current valuation evidence and current loan balances, the shortfall for the bank will be somewhere between $2,000,000 (best case) and $16,000,000 (worst case).
[31] Mr Dungey expressed the view that if Ms Sparks is permitted to lodge the second Notice on the title to No 109, there would be significant detriment to the bank. Having a notice of claim on the title would limit the bank’s recovery options, one of which is to procure finance to allow the Kapiti land to be developed and sold for a far better return. Mr Dungey’s understanding was that any refinancing would require conditional agreements to purchase at least part of the Kapiti land post-development, and that would be much harder to achieve if there were a notice of claim on the title.
Prospective purchasers would have concerns that the existence of such a Notice could result in difficulties and/or delays in subdividing or providing clear title to purchasers.
[32] The bank’s principal concern is to achieve the best possible realisation of the Kapiti land, and thus minimise its losses. It has no interest in Ms Sparks’ dispute with Mr Olliver under the PRA. However, it cannot see how Ms Sparks’ interests could be prejudiced if she did not have a notice of claim registered on the title to No 109. It believes there will be no money for Ms Sparks from a sale of No 109, regardless of the merits of her claim to an interest in No 109.
[33] Mr Dungey said that the bank has offered a potential solution to Ms Sparks which it believes would protect any interest she might have in the Kapiti land, while allowing the bank to realise the Kapiti land at maximum value. Briefly, the solution would have involved Ms Sparks abandoning her application to register the second Notice on the title to No 109 and agreeing to remove a similar Notice presently registered on the title to No 77. She would give broad powers to the bank as her attorney, to enable the bank to complete the development and sale of the Kapiti land, and she would consent to the registration of a further mortgage in favour of an independent third party who would fund the development of the Kapiti land. On any sale or sales of the Kapiti land, the bank would hold any surplus (after the discharge of its debt and payment of outstanding costs) pending resolution of Ms Sparks’ claims in the proceeding under the PRA.
Ms Sparks’ opposition
[34] In her notice of opposition Ms Sparks said that she has an arguable case that the bank is meddling in the PRA proceeding. She referred to the respondent having previously been funded 100 per cent by the bank, and the fact that the respondent is controlled by her ex-husband, Mr Olliver. She contended that the fact that the liquidator has stood back passively on this application, while the bank has sought to intervene, demonstrates a collusive agenda.
[35] Ms Sparks referred to what she described as a successful collaboration with the bank in the past, in respect of the sale of a property in St Heliers over which the bank had held a mortgage. She described the sale has having been conducted with oversight
from this Court, because of concerns about what she described as the bank’s “historical partisan backing of Mr Olliver”.
[36] In a supporting affidavit, Ms Sparks referred to the bank opposing requests she has made for a non-party discovery in the PRA proceeding, and to the bank’s allegedly partisan support of Mr Olliver. She accused Mr Olliver of acting in bad faith and “self- dealing” ever since the marriage broke down. She referred to previous judgments in proceedings between the parties where allegedly incorrect financial information was put before the Court, and she expressed concern that history might be repeating itself in the current situation. Ms Sparks suspects that there might be more value in the Kapiti land than the bank is currently suggesting.
[37] She noted that the value of the Kapiti land has not been tested on the open market, and the bank has never marketed the Kapiti land for sale. She compared the present case with the situation that arose with the St Heliers property, where a contention was made by Mr Olliver that the debt secured exceeded the property’s value. When the St Heliers property was finally sold by tender on the open market, the bank was fully repaid, and there was a multimillion-dollar surplus.
[38] Ms Sparks asserted that Mr Olliver has personally received $1,950,000 from the bank, notwithstanding the defaults by the respondent under the bank’s mortgage. She contended that notwithstanding those defaults, no expense or effort has been spared in the pursuit of the development strategy for the Kapiti land – all paid for by the bank.
[39] Ms Sparks drew attention to a proposed zoning change that, if it is made, will affect the Kapiti land. An application has recently been made by SHC to have the Kapiti land included in the “Town Centre Model”. She said that her inquiries of the Kapiti District Council have elicited the information that the Kapiti land is presently zoned “Precinct C”, which covers commercial and residential development but not retail use. Should the rezoning take place and more space be provided for retail operations, the value of the Kapiti land would increase substantially. SHC’s solicitors have made several substantial submissions in relation to the amendment, all funded by the bank.
Mr Dungey’s evidence in reply
[40] Mr Dungey denied that the bank had any interest in or concern with the PRA proceeding between Ms Sparks and Mr Olliver: the bank’s only interest is in relation to the loans it has given to entities associated with Mr Olliver, and in preserving and advancing its own interest as mortgagee of the Kapiti land.
[41] Mr Dungey also denied Ms Sparks’ contention that the bank has been colluding with Mr Olliver. He confirmed that the bank did not fund the application made by the liquidator to lapse the first Notice.
[42] On the development of the Kapiti land, Mr Dungey said that he understood Mr Olliver was pursuing various options in relation to the possible development of No 109 and No 77. He said that the bank is currently unwilling to advance further funds to Mr Olliver for development purposes, but it would consider consenting to a further mortgage in favour of an independent third party financier if Mr Olliver could locate a further source of finance.
[43] In response to Ms Sparks’ references to a Kapiti District Plan change, and the rezoning process currently under way in the Kapiti District, Mr Dungey acknowledged that he was aware of those matters. However his understanding was that the process has not been completed, and no changes have yet been made.
Applications to intervene – legal principles
[44] The Court has jurisdiction under rr 7.43A(1)(d) and (e) of the High Court Rules 2016 to make orders or directions as to how a hearing is to be conducted, and it has inherent jurisdiction to grant leave to a non-party to intervene in a proceeding.5
[45] In Capital and Merchant Finance Ltd (In Receivership and Liquidation) v Perpetual Trust Ltd, Thomas J considered the authorities on the joinder of intervenors or interested parties, concluding that the Court’s approach will depend largely on the
5 Seales v Attorney-General [2015] NZHC 828 at [41].
facts and nature of the particular case.6 Her Honour distilled the following propositions that should direct the Court in the exercise of its discretion:7
…
(a)An applicant must show that its legal rights against or liabilities in relation to the subject matter will be directly affected. Commercial, financial, or reputational interests in the outcome will be sufficient only in exceptional circumstances.
(b)If the intending intervener’s presence before the court will not improve the quality of information before the court, that will count heavily against its addition to the proceeding.
(c)A relevant consideration is the extent to which the proposed intervener can rely on one of the parties to protect its rights and obligations.
(d)If either party would be prejudiced by the intervention, or if the intervention would create an impression of partiality, the application will not be granted.
(e)In cases where development of the law is likely, the application is more likely to be granted if the proposed intervener has special expertise to assist the court on wider public policy issues.
(f)The underlying issue is whether it would be unjust to adjudicate on the matter in dispute without the intervener being heard. Several of the factors mentioned above tie into this issue.
(g)Where intervention is justified, the degree of participation granted to the intervener should be the minimum necessary to protect the intervener’s interest.
…
Discussion and conclusions on the bank’s application
[46] For the reasons set out below, I am satisfied that it is appropriate to give leave to the bank to intervene in the proceeding.
[47] I will address the matter by considering each of the criteria adopted by Thomas J in Capital and Merchant Finance Ltd (as set out at para [45] above).
6 Capital and Merchant Finance Limited (in rec and liq) v Perpetual Trust Limited [2014] NZHC 3205, [2015] NZAR 228 at [25].
7 At [41].
[48] The first of the propositions from Capital and Merchant Finance Ltd is that an applicant must show that his or her legal rights or liabilities in relation to the subject matter will be directly affected. Commercial, financial, or reputational interests in the outcome will be sufficient only in exceptional circumstances.
[49] I doubt that it can be said that the existence of a second Notice would negate or detract from the existence of any rights or liabilities the bank has as mortgagee, but I accept that the existence of the second Notice, if Ms Sparks is permitted to register it, may well limit the bank’s options for the exercise of its rights as mortgagee. At least some prospective purchasers are likely to be put off by the existence of any notice of claim on the title, and as Mr Dungey said in his first affidavit, the presence of such a notice may well make refinancing difficult. That is because a refinancing would probably require at least some pre-completion conditional sales, and if prospective purchasers suspected that a notice of claim on the title would cause days in completion of the subdivision and the issue of new titles, they would probably not be prepared to commit to a purchase. To that extent, I think this factor favours allowing the bank to intervene.
[50] The second consideration identified by Thomas J in Capital and Merchant Finance Ltd, related to the quality of information before the Court at the substantive hearing, and whether the intervenor’s presence would be likely to improve the quality of that information.
[51] I am satisfied that the bank is likely to be able to provide information at the hearing of the application that will be helpful. A principal issue at the hearing will be whether or not Ms Sparks arguably has an interest in the property, and Mr Cowan referred to authority supporting the proposition that there will normally be no point in permitting the registration of a caveat (or by analogy a notice under the PRA) if there is no equity in the property.8 It is the bank who will have up-to-date information on the full extent of the debt secured by the mortgage, and it is the bank who has obtained the Colliers’ valuation report. Mr Cowan told me at the hearing that he expects that
8 200 Victoria Street Ltd v Henderson HC Auckland CIV-2010-404-3894, 30 June 2010 at [5] and [8], referring to Pacific Homes Ltd (In Rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 at 656.
the bank will commission an updated report from Colliers, which will take account of any planning or resource consent changes or applications that might affect the value of the Kapiti land, and that seems likely to be essential for the Court to deal with the “no equity” issue. Against that, Ms Sparks told me that she does not have the resources to commission a valuation report. She referred to the events that unfolded with the St Heliers land, where it was also suggested that the secured debt would exceed the value of the property but the reality proved to be very different.
[52] The Court is more likely to derive far greater assistance from updated valuation evidence relating specifically to the Kapiti land than from evidence about events several years ago relating to an entirely different piece of land in Auckland. For that reason, and having regard to the fact that the bank will be best placed to advise the Court on the extent of the debt, I accept Mr Cowan’s submission that participation by the bank in this proceeding is likely to enhance the quality of information that will be before the Court.
[53] The next Capital and Merchant Finance Ltd factor is the extent to which the bank can rely on one of the parties to protect its rights and obligations. This factor clearly favours the bank. The liquidator has advised that the respondent does not intend to participate, and if the issues relating to the value of the Kapiti land and the extent of the bank debt are not advanced by the bank, they may not be advanced at all (or at least not adequately advanced). This factor strongly favours allowing the bank to intervene.
[54] The next consideration is whether allowing the bank to intervene would cause any prejudice to Ms Sparks or the respondent, or whether the intervention would create an impression of partiality. In my view Ms Sparks has not pointed to any prejudice in allowing the bank to participate, and indeed in her oral submissions she acknowledged that it might be helpful for the bank to participate by way of providing updated valuation details for the Kapiti land and updated debt figures.
[55] Subject to that limited participation, Ms Sparks argued that the bank is not impartial, and has been colluding with Mr Olliver, to her detriment in the PRA proceeding. I am not satisfied that there is any evidence establishing collusion of that sort, or that allowing the bank to participate in the hearing would prejudice Ms Sparks
in any other way. Whatever the bank’s relationship may have been with Mr Olliver over the years, the present reality is that the bank is looking at a very substantial loss, and its obvious interest in this proceeding is to minimise that loss. That can only be achieved by maximising the amount to be realised from the Kapiti land, something that is obviously also in Ms Sparks’ best interests. This factor is either neutral or favours allowing the bank to participate.
[56] The next Capital and Merchant Finance Ltd factor related to cases where some development in the law was a possibility. In such a case, allowing the non-party to participate might be favoured if the non-party had some special expertise which might assist the Court on wider public policy issues. The bank does not rely on this factor in support of its application, and I do not see how it could apply in this case.
[57] The last two factors identified by Thomas J in Capital and Merchant Finance Ltd relate to the justice of the situation, and the degree of participation that should be permitted if intervention is allowed.
[58] Mr Cowan submitted that it would be unjust for the substantive application to proceed without the bank being heard. He submitted that the bank’s presence before the Court may be necessary to adjudicate and settle all questions involved in the proceeding, and it is the bank who is best-placed to provide relevant evidence on the substantive issues of valuation and extent of bank debt.
[59] On the issue of the degree of any participation by the bank, Mr Cowan advised that the bank wishes to participate fully, by filing a Notice of Opposition and evidence in opposition, and by making submissions in opposition at the hearing. However, he acknowledged that the Court must consider whether the joinder should be only for a limited purpose or purposes, as the level of participation should be only what is necessary to protect the interests of the party being added.9
[60] I canvassed with Mr Cowan at the hearing the question of whether it might be sufficient if the bank’s participation were limited to the filing of updating affidavits putting before the Court a further valuation report on the Kapiti land (taking account of any relevant District Plan changes or proposed changes, or other relevant Resource
9 Wilson v Attorney-General (Judicial Conduct) (No 2) (2010) 19 PRNZ 943 at [20].
Management Act matters potentially affecting the value of the Kapiti land), and updating the Court on debt figures. Mr Cowan resisted any limitation of that sort, and on reflection I think he was right to do so. The situation is one where changes might occur affecting the Kapiti land or the options for its development and sale, at any time, and I think it would be better to have the bank continue to participate at the hearing so that all relevant matters affecting No 109 can be considered without the need for possible further reference back to the bank.
[61] A further factor which I think supports full participation by the bank is that, if the bank’s application is refused and Ms Sparks is permitted to register the second Notice, the bank will simply apply to have the second Notice removed. I accept that a mortgagee does have standing to apply to the Court to remove a caveat or notice of claim under the PRA, and Mr Cowan indicated that the bank would be likely to exercise that right if it is not permitted to intervene. It would be a waste of both parties’ time and resources, and of the Court’s time, to have two hearings when the relevant issues can be dealt with in one hearing.
[62] In the circumstances described above I am satisfied that the bank should be permitted to intervene by filing a notice of opposition and affidavits in opposition, and by making written and oral submissions in opposition to the application. The Notice of Opposition is to be in the form annexed to the memorandum of the bank’s counsel dated 22 August 2019, and it is to be filed by 17 November 2019. I make orders accordingly.
[63] The case is to be listed for mention in the next available Caveat List, for consideration of the issue of whether Ms Sparks’ application for leave to register the second Notice should be heard with the defended caveat application which I understand is pending between the same parties in a proceeding relating to No 77.
[64] The costs of both applications are reserved, to be dealt with at the conclusion of this proceeding.
Associate Judge Smith
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