Summit Capital Limited v Eleven Hillary Accommodation Limited

[2021] NZHC 2868

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-483

[2021] NZHC 2868

UNDER

the Land Transfer Act 2017

IN THE MATTER

of caveat against dealings, instrument no. 12182628.1

BETWEEN

SUMMIT CAPITAL LIMITED

Applicant

AND

ELEVEN HILLARY ACCOMMODATION LIMITED

Respondent

Hearing:	26 October 2021
Appearances:	G Dewar for applicant R Pinny for respondent
Judgment:	27 October 2021

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1]This matter was called in the Associate Judges’ list on 26 October 2021.

[2]                 Summit Capital Ltd has lodged a caveat against the title to property registered in the name of Eleven Hillary Accommodation Ltd and applied for an order sustaining the same.

[3]                 On  12  December  2018  Summit  and  a  company  by   the   name   of  Peach Developments Ltd entered into agreement whereby Summit agreed to lend Peach approximately $1.2m to facilitate a property development at 125 Ruataniwha Street in Waipukurau. The loan was made on certain terms as to security and the like.

SUMMIT CAPITAL LIMITED v ELEVEN HILLARY ACCOMMODATION LIMITED [2021] NZHC 2868

[27 October 2021]

[4]                 The amount of the loan was subsequently increased by further advances and the capitalisation of interest so that by early 2020 Peach’s indebtedness to Summit was approximately $3.2m.

[5]                 It is unnecessary to describe the terms of the loan in any detail, but it is important to record that the parties agreed that on the sale of 125 Ruataniwha Street the net proceeds were to be applied in repayment of the loan, thereby, Summit would no doubt contend imposing something akin to a Quistclose trust on the proceeds.

[6]On 19 December 2019 Peach entered into a conditional contract for the sale of

125 Ruataniwha Street  for  $4,000,050.  The  contract  became  unconditional  on  21 January 2020 by which date a deposit of $250,000 had been paid to Peaches real estate agents.

[7]                 The real estate agents deducted their fee and paid the balance of the deposit ($181,308.50) to Peach.

[8]                 I understand it to be common ground that upon receipt of these monies Peach can be demonstrated to have dissipated them other than to Summit in reduction of the debt in accordance with the agreement. At least some of the funds can be demonstrated as having been paid to Peach’s directors Mr James Nash and Mr Jackson Farron.

[9]Summit says that it has subsequently ascertained and can establish that

$150,000 of the funds in question were used to purchase a property at 11–12 Hillary Court in Naenae which property, as a result of a series of other transactions, is now owned by the respondent, Eleven Hillary Accommodation Ltd, another company associated with Mr Farron and Mr Nash.

[10]              The factual background is more complicated than that summary would suggest, but it is unnecessary to go into more detail here.

[11]              The short point is that Summit says that it can trace at least $150,000 — and possibly more — into the property owned by Eleven Hillary Accommodation, and that is the basis upon it asserts an equitable interest in the property.

[12]              Summit’s application was originally listed for call on 14 September 2021. However, at that point, counsel were attempting to resolve the matter. The first call was therefore adjourned to 16 November 2021. For some reason it was listed for call on 26 October 2021.

[13]              Considerable progress appears to have been made. As I understand it the parties are more or less agreed that Summit’s caveat can be removed from the title to enable the property to be sold pursuant to a recent agreement for its sale, which     Ms Pinny tells me is due to settle “towards the end of the year”, provided that Summit’s position is properly protected by an alternative arrangement whereby funds are held in a trust account in escrow pending the resolution of the substantive dispute.

[14]              Ms Pinny emphasised, quite correctly in my view, that the Courts have sanctioned such arrangements in the past.

[15]              The real question between the parties at this point is the level of protection that Summit is entitled to expect.

[16]              Clearly, it can only claim protection up to the value of the interest that it says it has in the property.

[17]              Ms Pinny invites the Court to make an order at this stage discharging the caveat, or more properly declining to make an order sustaining the caveat, on the condition that Eleven Hillary Accommodation lodges the amount of $200,000 with its solicitors as security on agreed terms. For its part, Summit does not resist such an arrangement, but contends that the monies should be held by independent solicitors and that the amount of security should be $350,000.

[18]              The basis for Ms Pinny’s invitation to the Court to determine the maximum amount of Summit’s interest at this early stage is an amended statement of claim in the substantive proceeding in which Summit is suing Mr Farron and Mr Nash, and has recently signalled an intention to join Eleven Hillary Accommodation and pleaded a claim against that company that concludes with a prayer for relief in which its says that the principal amount of its interest in the property in question is $150,000.

Ms Pinny says that even if one adds interest and costs to that figure, on her analysis, it is impossible to get above $200,000.

[19]              On behalf of Summit Mr Dewar’s response is that Summit’s claim to an equitable interest in 11–12 Hillary Court, may well be greater than $150,000, and it is intended to amend the pleaded claim to reflect that. He submitted for example that if Summit’s claim against Messrs Farron and Nash was properly regarded as a claim for breach of equitable obligations and Eleven Hillary Accommodation received whatever funds it did from the sale of 125 Ruataniwha Street with knowledge that the payment was in breach of the agreement between Summit and Peach, then it may turn out that Summit has a claim for any increase in value in the property owned by Eleven Hillary Accommodation since its $150,000 was invested.

[20]              The view I take is that it would be pre-emptive for the Court to make any assessment of the value of Summit’s claim on the basis of the evidence currently before it, and summarily to exercise its discretion to decline an order sustaining the caveat on the condition that Eleven Hillary Accommodation put up any particular amount of security.

[21]              As matters stand, Summit is not in a position to determine what its claim might be, especially as Eleven Hillary Accommodation has not filed a notice of opposition or a substantive affidavit in opposition, which Ms Pinny has indicated it intends to do. Certainly, in my view, the Court is not in a position to make any judgement about that which might foreclose the possibility of Summit increasing its claim.

[22]              In the end, the best course, in my view, is to leave it to the parties to determine the quantum of security that is necessary and come back to the Court effectively to seek a consent order for the removal of the caveat at that stage on whatever conditions they ultimately agree.

[23]For those reasons, I decline to make any order at this stage.

[24]Costs are reserved.

[25]              The case is to be listed in the next Associate Judge’s Chambers List for monitoring.

Associate Judge Johnston

Solicitors:

Thomas Dewar Sziranyi Letts, Lower Hutt for applicant MBC Law Ltd, Auckland for respondent