The Stark Trustees Limited v Alliance Diversified Holdings NZ Limited Partnership
[2020] NZHC 3087
•20 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-2186
[2020] NZHC 3087
BETWEEN THE STARK TRUSTEES LIMITED
Plaintiff
AND
ALLIANCE DIVERSIFIED HOLDINGS NZ LIMITED PARTNERSHIP
First Defendant
BRIDGEWEST FINANCE (NEW ZEALAND)
Second Defendant
Hearing: 19 November 2020 Counsel:
DW Grove for plaintiff
JS Cooper QC, AN Birkinshaw and C Ottow for defendants GAD Neil for Official Assignee
Judgment:
20 November 2020
JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 20 November 2020 at 4:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Foy & Halse, Auckland
Buddle Findlay, Auckland Meredith Connell, Auckland
The Stark Trustees Limited v Alliance Diversified Holdings NZ Limited Partnership [2020] NZHC 3087 [20 November 2020]
Introduction
[1] The plaintiff (Stark Trustees) is the registered owner of a property in Rawene Avenue, Westmere in Auckland (the Rawene Property). Ms Stephanie Winitana is the sole director of Stark Trustees. She is also the sole director of the Fishbowl Trustee Stanley Limited, which is the registered owner of a commercial property in Stanley Street, Auckland (the Stanley Property).
[2] Each of the Rawene Property and Stanley Property is subject to a second mortgage in favour of the second defendant (Bridgewest).1 Bridgewest is an unlimited liability finance company. The mortgages secure sums lent by Bridgewest to a Mr Mark Ensom (and trusts associated with him) in 2018 and 2019. Mr Ensom is Ms Winitana’s partner. Mr Ensom was adjudicated bankrupt in February 2020.
[3] In addition to the two mortgages, there is a third security securing the Bridgewest lending, namely a security interest over Mr Ensom’s rights and entitlements under a profit sharing agreement (PSA) between him and the first defendant (Alliance) (the PSA Security).
[4] Bridgewest and Alliance are associated companies, forming part of a group of companies known as the Bridgewest Group.
[5] The borrowers have been in default under the Bridgewest loans for some time. In September 2019, Bridgewest served formal demand for unpaid interest, but no payments were forthcoming. Further formal demand was made in March 2020 but again this did not result in repayment. On 23 March 2020, Bridgewest served notice pursuant to s 119 the Property Law Act 2007 (the PLA) in relation to the Rawene Property (the PLA Notice).
[6] Since that time, Bridgewest has taken steps to enforce the Rawene Mortgage. Difficulties have arisen, however, leading to Bridgewest commencing separate proceedings in this Court to secure vacant possession of the Rawene Property (the Vacant Possession Proceedings). In further proceedings, Stark Trustees sought
1 First ranking mortgages are held by BNZ. I will refer to the Bridgewest mortgages as the “Rawene Mortgage” and the “Stanley Mortgage” respectively.
injunctive relief preventing Bridgewest from progressing a mortgagee sale (the Mortgagee Sale Proceedings). In a judgment delivered on 18 September 2020, Walker J declined to grant the interim relief sought.2 And in the last set of proceedings related to the present proceedings, Mr Ensom has appealed against the Official Assignee’s decision not to disclaim or assign his rights under the PSA (the PSA Proceedings). Pending the further call of that matter on 24 November 2020, on 29 October 2020 (and by consent), Muir J made an order that the Assignee shall not enter into a settlement of Mr Ensom’s rights under the PSA.3
[7] In the present proceedings, Stark Trustees originally sought an order restraining Alliance and Bridgewest from:
Entering into any settlement, contract, compromise, assignment or in any way dealing with the rights of [Mr Ensom] arising out of [the PSA] vested with [the Assignee] and the securities provided to the second defendant pursuant to a loan agreement dated 22 May 2019, including but not limited to the [Rawene Mortgage] and the [Stanley Mortgage] and a general security agreement over payments due to [Mr Ensom] pursuant to [the PSA], pending agreement between the parties or Court order.
[8] While the above relief is sought in “open ended” terms, Stark Trustees also sought an order that:
The [above order] is to expire on 2 February 2021, or upon payment in full of the amount demanded by the second defendant, whichever is earlier.
[9] The relief sought at the hearing before me yesterday was described as “interim interim” relief, given the parties agreed that Stark Trustees’ application for interim relief would be heard on 7 December 2020 (being the date upon which applications in the related proceedings are being heard). During the course of the hearing before me, however, Stark Trustees confirmed that the relief was sought only until 1 December 2020. Given this precedes the hearing on 7 December, the relief sought is now “interim” relief.
2 Stark Trustees Ltd v Bridgewest Finance (New Zealand) [2020] NZHC 2443.
3 Mark Robert Ensom v The Official Assignee CIV-2020-404-1770, minute dated 29 October 2020 (Muir J). Mr Ensom’s substantive appeal against the Official Assignee’s decision not to disclaim his rights under the PSA is to be heard on 23 November 2020.
[10] In addition, while the relief sought extends to the Rawene and Stanley Mortgages, the focus of counsel’s written and oral submissions was the preservation of the PSA Security.
[11]Two additional points arise by way of introduction:
(a)First, upon review of the file shortly prior to the hearing, it became apparent to me that the Official Assignee had not been served or otherwise made aware of Stark Trustees’ present application. Given the relief sought, if granted, would directly affect the Assignee (in effect, amounting to an indirect extension of Muir J’s order of 29 October 2020), I considered it appropriate the Assignee be given an opportunity to be heard. The hearing yesterday was therefore adjourned at its conclusion (at 1.20 pm) and reconvened at 3 pm, to enable counsel for the Assignee to appear. Mr Neil appeared on the Assignee’s behalf. The Court is grateful to Mr Neil for being available at such short notice, and for his helpful and comprehensive submissions.
(b)Second, in the time constraints in which this judgment must be delivered, it is necessarily brief and does not seek to traverse the lengthy and somewhat complex history of dealings between Mr Ensom, Alliance and Bridgewest. A detailed discussion of that history is set out in Walker J’s recent judgment in the Mortgagee Sale Proceedings.4
[12]The balance of this judgment is structured as follows:
(a)First, I summarise the key facts relevant to Stark Trustees’ present application.
(b)Second, I summarise the parties’ respective positions on the application.
4 Stark Trustees Ltd v Bridgewest Finance (New Zealand), above n 2.
(c)Third, I summarise the legal principles applicable to an application for interim relief (which are not in dispute).
(d)Fourth, I set out my decision on Stark Trustees’ application and my reasons for it.
Relevant factual background
[13] As noted at [10] above, the focus of the parties’ submissions before me was the PSA Security. For a comprehensive discussion of the PSA’s provisions and their effect, I refer to Walker J’s judgment at [18]–[26].5
[14] In short, there are two potential profit streams available to Alliance and Mr Ensom (on a 50/50) basis under the PSA:
(a)first, a share in what is referred to a “tenancy fee” (essentially the net profits arising from periodic tenancy payments in relation to the properties the subject of the PSA, calculated by reference to a prescriptive “waterfall”); and
(b)second, a share in a “sale fee” (essentially the net profits arising from the sale of the properties, again calculated by a prescriptive “waterfall”).
[15] The timing of any sale of the properties is at Alliance’s discretion; in other words, there is no mechanism for Mr Ensom (or now the Official Assignee) to force a sale by Alliance.
[16] What sums, if any, might be due to Mr Ensom under the PSA is unclear. Alliance’s position is that there are presently no sums due and owing to him. Mr Ensom and the Official Assignee’s position, however, is that there is presently some $178,000 due to Mr Ensom (pursuant to the tenancy fee profit share), and that
5 Stark Trustees Ltd v Bridgewest Finance (New Zealand), above n 2.
expert evidence suggests that on the sale of the properties, as much as $4,000,000 might be due to Mr Ensom.
[17] The figures are in dispute, however, and no evidence of the value arising under the PSA was put before me on Stark Trustees’ present application. I nevertheless proceed on the basis that there may well be some, and potentially reasonably significant, value accruing to Mr Ensom’s estate in bankruptcy from the PSA.6
[18] In recent times (the precise dates are not apparent on the evidence before me) there has been some engagement between the Assignee, Alliance and Bridgewest in relation to a possible settlement of Mr Ensom’s rights under the PSA. As discussed further below, the Assignee’s objective is to secure value now from the PSA, which will then be available for the benefit of Mr Ensom’s unsecured creditors. Given the PSA Security, however, any settlement between the Assignee and Alliance of Mr Ensom’s rights under the PSA will need Bridgewest’s agreement, and ultimately Bridgewest’s release of the PSA Security.
[19] Muir J’s order of 29 October 2020 presently restrains the Official Assignee from concluding any such arrangement with Alliance and/or Bridgewest. That order will be reviewed, however, on 24 November 2020 (the day following the hearing of Mr Ensom’s substantive appeal in the PSA Proceedings). It is therefore presently unknown whether Muir J’s order will lapse on 24 November 2020 or be extended (and if so, until when).
[20] In separate developments, on 29 October 2020, Stark Trustees gave notice pursuant to s 99 of the PLA (the Redemption Notice) that it wished to redeem “the Mortgages and General Security Agreement in not less than sixty days” from the date of the notice.7 The Redemption Notice stated, however, that “it is anticipated that the redemption will be made well before the sixty working days expire”. The Redemption Notice further stated that:
6 The Assignee’s present view is that Mr Ensom’s rights under the PSA are likely to be the only asset of real value in his estate.
7 Being to 2 February 2021, hence the original “end date” of the interim relief sought.
[Stark Trustees] will advise closer to the time of payment, the entity to which the securities must be transferred as required by s 103 of the Property Law Act 2007.
[21] To interpolate briefly, s 102 of the PLA (set out in full at [60] below) provides that any person entitled to redeem the mortgaged property may request the mortgagee to transfer the mortgage to a nominated person. Section 103 of the PLA (set out in full at [62] below) provides that the mortgagee must effect such a transfer upon payment in full of those amounts that would have been necessary to have discharged the mortgage.
[22] Turning back to the events in question, at least prior to the filing of its written submissions on the present application, Bridgewest had not confirmed that upon payment of the debt due to it, it would transfer the securities to the entity to be nominated by Stark Trustees. Rather, Bridgewest’s solicitors queried whether Stark Trustees was a person entitled to redeem anything other than the Rawene Mortgage, not having any extant interest in the PSA or the Stanley Property. Bridgewest was also unwilling to provide an undertaking sought by Stark Trustees to the effect that, pending payment of the amounts due, Bridgewest would not “deal with, dispose of, or take steps to in any way prejudice the enforceability of the mortgages and the GSA.”
[23] Further correspondence ensued in which Stark Trustees continued to press for the undertaking. It also referred to information given to the Court in the PSA Proceedings about the discussions between the Assignee, Alliance and Bridgewest in relation to the PSA Security. Counsel for Stark Trustees stated:
Given the advice by the Official Assignee, and indeed your clients, that they are actively pursuing negotiations, that if they lead to a settlement will prejudice my client, if the undertaking sought above is not provided I have been instructed to apply for injunctive relief. The application for injunctive relief is on a very different basis from the earlier injunction.
[24] Bridgewest in turn maintained its position, stating that there was no information or clarity as to precisely how or when Stark Trustees intended to repay the outstanding amounts. Bridgewest noted that despite other “vague” repayment proposals having been made by Stark Trustees, none had come to fruition. Bridgewest also noted that the mere service of the Redemption Notice did not prevent it from proceeding with a mortgagee sale, unless or until full redemption occurred. It stated
that it would therefore “restart the mortgagee sale process when it determines in its sole discretion.”
[25] Given the impasse, Stark Trustees commenced these proceedings on 6 November 2020.
[26] The day before the hearing of Stark Trustees’ application, Ms Winitana swore a reply affidavit, which for the first time provided details of Stark Trustees’ source of funds to effect repayment of the amounts due to Bridgewest. Ms Winitana explained that:
Unconditional finance has been obtained by Stark Trustees Ltd and Shortland Trustees (Wallingford) Limited to repay the amount demanded by Bridgewest…
The unconditional finance obtained from the lender, Premier Legal Finance LP, is for a facility of $3,250,000.
The amount claimed by Bridgewest will be paid on or before 1 December 2020.
…
It is one condition of the finance however that the securities provided under the loan agreement, including the two mortgages over the properties located at Rawene Street and Stanley Street together with the security over the profits due to Mark under the Profit Share Agreement, be transferred to Premier Legal Finance Limited Partnership. If Bridgewest refuses to do so the finance cannot be completed.
[27] Ms Winitana also noted that Stark Trustees did not accept Bridgewest’s statement of the total amount outstanding (which includes, for example, legal costs incurred in the mortgagee sale process), being of the view that some costs and expenses were “grossly excessive and unjustified”. She stated, however, that the amounts would be paid in full “on a without prejudice basis”, with any disputes to be resolved at a later date.
[28] Ms Winitana also expressed the (ultimately inadmissible) opinion that Bridgewest and Alliance were acting in bad faith in pressing on with enforcement, given the Redemption Notice had been given on 29 October 2020 and would not have been given unless repayment was in fact going to be made. She also confirmed that if the amounts were not paid by 2 February 2021, Stark Trustees would cooperate
thereafter to allow the Rawene Property to be marketed and sold. Ms Winitana also considered any arrangements with the Official Assignee concerning the PSA Security would be for the sole benefit of Alliance, resulting in that entity securing a very significant “windfall” if Mr Ensom’s PSA rights were to be compromised.
[29] Attached to Ms Winitana’s reply affidavit was a letter from the director of Premier Legal Finance LP (Premier), a Mr Graeme Halse. Mr Halse is a solicitor and is in fact Stark Trustees’ solicitor in these proceedings (and instructing solicitor to its counsel, Mr Grove). Mr Halse’s letter stated the following:
We confirm that an unconditional finance offer has been provided to the following entities to pay the sums claimed by [Bridgewest].
The finance agreement is with [Stark Trustees and Shortland Trustees].
We confirm that this finance will be available to be used to repay [Bridgewest] on or before 1 December 2020.
We also confirm that it is a condition of the finance that the securities granted to [Bridgewest] be transferred to [Premier] and that the securities specifically include the second mortgages over the properties located at Rawene Street and Stanley Street together with the securities contained in the 22 May 2019 General Security Deed, and including security over the profits due to Mr Mark Ensom under the profit sharing agreement.
[30] Two further relevant developments occurred just prior to or during the hearing itself.
[31] First, in its written submissions filed on the morning of the hearing, Bridgewest stated:
In the present case, neither the plaintiff nor any other party has tendered payment. Were full repayment made, Bridgewest Finance would accede to the transfer [of the securities] request, regardless of the standing issue discussed above. However, not only has payment not been made, but there is no credible evidence that the necessary funds are available.
In this regard, while Ms Winitana has produced a letter from a lender, of which her solicitor is a director, that letter is not accompanied by a loan agreement (signed or unsigned) or any evidence that the lender has the requisite funds or access to them.
(emphasis added)
[32] Bridgewest’s confirmation that it would transfer the various securities upon full repayment was reiterated to the Court by its counsel, Ms Cooper QC, in her oral submissions.
[33] Second, during the course of the hearing, Mr Grove obtained and produced a further letter from Mr Halse, addressed to the Court, in which further details are provided about the funding available to repay the Bridgewest debt. Mr Halse’s letter states:
This letter is to confirm that the sum of $3.25 million is presently in my trust account and has been allocated to repay [Bridgewest] indebtedness. The funds will be paid as soon as formal documentation has been executed, which will include the transfer of the existing [Bridgewest] securities. It is anticipated that this will occur before the end of business next week.
The parties’ respective positions
Stark Trustees’ position
[34] As noted at the outset of this judgment, the focus of Stark Trustees’ submissions was the protection of the PSA Security.
[35] Stark Trustees’ central concern is that the evidence suggests a tripartite agreement will be entered into between the Official Assignee, Alliance and Bridgewest which will have the effect of compromising and ultimately releasing the PSA Security. Mr Grove submits that in addition to Ms Winitana’s evidence, Mr Neil’s submissions on behalf of the Official Assignee confirm that the Assignee is indeed seeking to broker such an arrangement.
[36] Mr Grove notes that it would be in Alliance’s interests to enter into a settlement of Mr Ensom’s rights under the PSA, given it would mean Alliance would then be the sole beneficiary of any capital gain in the properties the subject of the PSA. And as far as Bridgewest is concerned, Mr Grove emphasised that it has “nothing to lose” from going along with such an arrangement, given there will still be “plenty of security” available to it in the form of the Rawene and Stanley Mortgages. Mr Grove emphasises the relationship between Bridgewest and Alliance, and that Bridgewest must not permit interests external to its function as mortgagee to prevail.
[37] Mr Grove submits that any agreement with the Official Assignee would seriously prejudice Stark Trustees’ interests. First, having fully repaid the debt due to Bridgewest, it would not be in a position to call for all securities to be transferred to the nominated new lender pursuant to s 103 of the PLA. Further and in any event, irrespective of whether Stark Trustees has direct rights to require a transfer under s 103, Mr Grove notes that any release of the PSA Security would mean that security was no longer available to Stark Trustees to subrogate into upon full repayment of the debt.
[38] In these circumstances, Mr Grove says that this would leave only the Rawene and Stanley Mortgages available to the new lender as security, the former of obvious concern to Stark Trustees (as registered owner of the Rawene Property). Mr Grove further submits that in reality, however, and given the conditions attaching to Premier’s offer of funding, unless all securities are available to be transferred to Premier, Premier will simply not advance the funds to enable Stark Trustees to repay Bridgewest. Mr Grove states that this will again leave Bridgewest free to progress a mortgagee sale of the Rawene Property.
[39] In these circumstances, and given Stark Trustees will be able to redeem the mortgage in the very short term, coupled with no discernible prejudice to Bridgewest were it to be prohibited from entering into an arrangement with the Official Assignee and Alliance prior to 1 December 2020, Mr Grove submits that the interests of justice favour the interim relief being granted.
Bridgewest’s position
[40] Bridgewest first questions whether Stark Trustees has any right to redeem the mortgages/securities at issue in these proceedings, other than, of course, the Rawene Mortgage. Ms Cooper submits that at this time, Stark Trustees has no interest in the securities other than the Rawene Mortgage. She therefore submits Stark Trustees is not a “person entitled to redeem” anything other than the Rawene Mortgage, and the consequent right under s 103 of the PLA to call for the transfer of anything other than the Rawene Mortgage.
[41] But Ms Cooper submits that the position on standing is not determinative in any event. As noted, Bridgewest has made it clear in its written and oral submissions that irrespective of any formal position on standing, if Stark Trustees repays the debt in full, Bridgewest will transfer the securities to the nominated entity. Ms Cooper submits that the determinative point is that Stark Trustees simply does not have a seriously arguable cause of action against Bridgewest which would justify the Court restricting the mortgagee’s exercise of commercial judgment as to what steps it takes going forward. Ms Cooper emphasises that service of a redemption notice does not itself prevent a mortgagee from taking steps to exercise its power of sale. Rather, Ms Cooper submits that the mortgagee’s powers are only affected by a formal tender of funds sufficient to extinguish the underlying debt.
[42] In this context, Bridgewest questions the credibility of Ms Winitana’s reply evidence as to Stark Trustees’ readiness to repay the debt. It says the evidence simply comprises a letter from Mr Halse, and the letter is not accompanied by a loan agreement (signed or unsigned) or any evidence the lender has the requisite funds or access to them. And in relation to Mr Halse’s further letter provided to the Court and referred to at [33] above, Ms Cooper submits that while it now appears that the sum of $3.25 million is presently in Mr Halse’s trust account, Mr Halse’s letter is couched in somewhat equivocal terms, stating the funds will be paid “as soon as formal documentation has been executed”. Ms Cooper reiterates that Bridgewest has effectively been in this position before, with various offers and assurances from Stark Trustees that the debt will be repaid, none of which have come to fruition. Ms Cooper quite properly accepted, however, that in light of Mr Halse’s most recent correspondence, the position appears to be somewhat more advanced than it has been to date.
[43] Ms Cooper acknowledged that she could not point to any particular or actual prejudice to Bridgewest should the interim relief be granted through to 1 December 2020. She reiterates, however, that there is no legal basis, arguable or otherwise, upon which the Court should restrict Bridgewest in its decision-making going forward. She notes that the matter ultimately rests in Stark Trustees’ hands, namely to get on and repay the debt without further delay.
[44] In relation to the proposed tripartite arrangement concerning the PSA, Ms Cooper highlights that there has been only one meeting to date with the Official Assignee and that no agreement has been reached. She notes that as matters currently stand, and if Stark Trustees is indeed going to repay the debt in the very short term, there may be no reason for it to engage in further steps in the short term in relation to the various securities it holds. Ms Cooper reiterated that Bridgewest simply wants to be repaid without delay, and that has been and remains its sole objective.
[45] In relation to the suggestion that Bridgewest be enjoined from progressing a mortgagee sale of the Rawene Property, Ms Cooper highlights that this has already been argued before Walker J who declined to grant relief. While Ms Cooper accepted that the legal causes of action (and thus issues) before Walker J were different to those arising on the present application, the fact Stark Trustees is having “yet another go” at preventing Bridgewest from enforcing the Rawene Mortgage reinforces there is no seriously arguable legal basis for it to do so.
The Official Assignee’s position
[46] As noted, Mr Neil confirmed the Official Assignee is at the “elementary stages” of investigating a tripartite agreement between the Assignee, Alliance and Bridgewest. Mr Neil highlighted the Assignee’s discretion under s 245 of the Insolvency Act 2006 to deal with secured property. He also noted that Mr Ensom would have a right of review pursuant to s 266 of the Insolvency Act of any agreements or arrangements entered into in relation to his rights under the PSA.
[47] Mr Neil explained that there are likely to be some $2.2 million in claims admitted in Mr Ensom’s bankruptcy. He referred to evidence in the PSA Proceedings of the potential profits due or potentially available to Mr Ensom under the PSA, which, depending on the precise terms of any arrangement entered into with Alliance (and Bridgewest), would enable Mr Ensom’s unsecured creditors’ claims to be met with a surplus potentially available.
[48] In this context, Mr Neil accepted that under the terms of the loan agreement as it presently stands, any amounts paid by Alliance to Mr Ensom under the PSA must be directed to Bridgewest in repayment of the debt. Mr Neil noted, however, that this
contractual term could be the subject of variation in the context of a tripartite agreement.
[49] Mr Neil posed the rhetorical question of why Mr Ensom’s unsecured creditors ought to be left “high and dry”, when Stark Trustees or any nominated lender will not be left “high and dry” (even if a tripartite agreement is entered into), given the presence of the other securities. Mr Neil highlighted that the Rawene and Stanley Mortgages would be available for Stark Trustees/its lender to subrogate into, which provide ample security for the amounts in question.
[50] Mr Neil also directed my attention to various provisions in the underlying Composite General Security Deed and Cross Guarantee (Security Deed) between Bridgewest and the original borrowers, to the effect that Bridgewest may, in its absolute discretion, deal with any one of the original debtors and the associated securities to the exclusion of the others.8 The combination of these provisions mean, in Mr Neil’s submission, that Bridgewest is contractually entitled to take steps to enter into an agreement with the Official Assignee in relation to the PSA Security. In this context, Mr Neil noted that the Rawene Property had been transferred from its original registered owner to Stark Trustees without the consent of BNZ and Bridgewest, and thus in breach of cl 6.1 of the Security Deed. This was also done at a time after Mr Ensom’s bankruptcy and when the Rawene Mortgage was in default. Mr Neil therefore submitted Stark Trustees must have been fully aware, or at the very least ought to have been aware, of Bridgewest’s rights under the Security Deed, including its discretion to deal with the debtors and securities as it sees fit.9
[51] Ultimately, Mr Neil said that what Stark Trustees is really trying to do is have this Court to injunct Bridgewest from enforcing contractual rights available to it under the Security Deed, with resulting and significant prejudice to the Assignee and Mr Ensom’s unsecured creditors.
8 Including cl 17.6 of that Deed.
9 Walker J accepted a similar point made in the Mortgagee Proceedings, noting in her judgment (above n 2, at [123]) that Stark Trustees had acted with their “eyes wide open”, though caveated this observation that this factor alone would not have disqualified the grant of relief.
Legal principles applicable to an application for interim relief
[52]The principles are not in dispute and can be briefly stated.
[53] There are three stages to the consideration of an application for an interlocutory or interim injunction:10
(a)first, the applicant must establish there is a serious question to be tried, or that its claim is not vexatious or frivolous;
(b)second, the balance of convenience must be considered; and
(c)finally, an assessment of the overall justice of the position is required as a check.
[54] When assessing whether there is a serious question to be tried, the Court must consider:11
(a)what each of the parties claims the facts to be;
(b)what the issues are between the parties on these facts;
(c)the law applicable to those issues; and
(d)whether there is a tenable resolution of the issues of fact and law on which the plaintiff may be able to succeed at trial.
Should the interim relief be granted – discussion
[55] I am not persuaded it is in the overall interests of justice to grant the interim relief sought. I say this for the following reasons.
10 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12].
11 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 133.
Serious question to be tried
[56] First, Stark Trustees’ pleaded claim does not articulate any clear cause of action advanced against Bridgewest. Rather, it recites the essential factual background and then pleads that Stark Trustees will be permanently prejudiced should any compromise or dealing be entered into in relation to the PSA Security. The relief sought is declarations that:
(a)the repayment/redemption notice has been validly served and is legally enforceable; and
(b)the plaintiff is entitled to pay the sums claimed by the second defendant and obtain a transfer of the mortgages/securities to an entity nominated by it prior to repayment being made.
[57] Putting aside the niceties of the detailed pleadings, and recognising that Stark Trustees could amend its pleading in due course, I am not persuaded it is seriously arguable that Stark Trustees has standing pursuant to s 102 of the PLA to give a notice of redemption in relation to the securities (other than the Rawene Mortgage), or the right to require a transfer of those securities to a nominated entity (again, other than the Rawene Mortgage).
[58] I accept Mr Grove’s submission that having repaid the Bridgewest debt in full, it makes commercial sense that the full suite of securities is available to Premier (or any other nominated new lender). But that in my view blurs the distinction between the right of transfer pursuant to s 103 of the PLA and the right of subrogation which Stark Trustees/a new lender would enjoy upon full repayment.
[59] Mr Grove pointed to s 33 of the Interpretation Act 1999, which provides that words in the singular include the plural and words in the plural include the singular. I do not consider that this assists, however, in giving Stark Trustees the right to redeem the securities (other than the Rawene Mortgage), and the consequent right to require a transfer pursuant to s 103. Even adopting the plural rather than the singular, the relevant provisions of the PLA would read as follows:
[60]Section 102 of the PLA relevantly provides as follows:
102Request to mortgagee to transfer mortgages
(1)The current mortgagor or any other person who is entitled to redeem the mortgaged propert ies may, at any time (except a time when the mortgagee is in possession of the propert ies), request the mortgagee to transfer the mortgage s to a nominated person (except the current mortgagor).
[61]Section 4 of the PLA provides as follows:
…
person entitled to redeem, in relation to mortgaged properties,—
(a)means a person with an interest in the mortgaged properties and entitled to redeem them; and
(b)includes the current mortgagor, any former mortgagor, and any covenantor.
[62]Section 103 of the PLA states:
103Mortgagee must transfer mortgages after receiving request
The mortgagee must, after receiving a request made under section 102, transfer the mortgages to the nominated person on—
(a)payment to the mortgagee of all amounts that would have been payable if the discharge of the mortgage s had been sought under sections 97 to 101; and
(b)the performance of all other obligations secured by the mortgages.
[63] As ss 102 and 103 of the PLA make clear, the rights arising from those sections accrue to the “current mortgagor or any other person who is entitled to redeem the mortgaged property”. The definition of a person entitled to redeem in relation to mortgaged property makes it clear that it is a person with an interest “in the mortgaged property” (or to adopt the plural, in the mortgaged propert ies). Stark Trustees does not presently have an extant interest in any of the mortgaged properties, other than the Rawene Property.
[64] I also do not accept Mr Grove’s submission that the fact Stark Trustees will, upon full repayment, enjoy a right of subrogation gives Stark Trustees a present right or interest in the mortgaged properties. Again, this blurs the distinction between having an extant interest in mortgaged property (and therefore benefiting from the
various rights under the PLA and at common law attaching to a person entitled to redeem a mortgage), and having a right of subrogation to securities securing a debt upon full repayment of that debt.
[65] Ultimately, however, and as Ms Cooper submitted, the standing point is not determinative. I accept Ms Cooper’s submission that the more fundamental barrier to Stark Trustees’ application is that it does not have a seriously arguable legal cause of action against Bridgewest at this time.
[66] As Mr Grove ultimately accepted, the mere delivery of a notice of redemption does not itself prevent a mortgagee from exercising its powers, including the right of sale. Although I was not referred to any authority directly on point, Ms Cooper characterised it as being so obvious it goes without saying. She referred to Randerson J’s observations in Davison v Westpac Banking Corporation that:12
It is fundamental to the exercise of the right of redemption that the mortgag[or] is obliged to tender the amount required to satisfy the mortgage, including any interest and costs payable unless there has been an unequivocal waiver of the need for tender. The reason for this rule is obvious. Unless the mortgagor has the necessary funds and tenders them, then the mortgagee would ordinarily have no way of knowing whether it may rely on the mortgagor’s mere promise to redeem. The tender of the funds in cash demonstrates to the mortgagee in an unequivocal fashion that the mortgagor does indeed have the funds necessary to complete the repayment.
[67]Randerson J went on to state that:13
A mortgagee is not obliged to undertake inquiries as to the capacity of a mortgagor to repay the amount due but is entitled to expect the mortgagor to prove his or her capacity by formal tender. The capacity of the mortgagor is then plain to see.
[68] I appreciate that in the present circumstances, there is now some evidence that Stark Trustees may be in a position to formally tender the amount necessary to repay the Bridgewest debt in the relatively short term. But short of any formal tender, or any other legal cause of action justifying the Court’s involvement, I do not consider it appropriate for the Court to intervene in what is ultimately the not uncommon situation
12 Davison v Westpac Banking Corporation, High Court, Auckland, CP 490/98, 5 November 1998 at 15.
13 At 18.
of a mortgagor stating that it is in a position to redeem the mortgage, but not yet taking any formal steps to do so.
[69] As noted, Stark Trustees’ position (albeit not pleaded) is that there is prima facie evidence of Bridgewest exercising its rights as mortgagee for an improper purpose (in effect, prioritising Alliance’s interests over its own rights and duties as mortgagee). But as matters presently stand, there is no visibility of what may or may not eventuate from any further discussions between the Assignee, Alliance and Bridgewest. And there was no suggestion on Stark Trustees’ behalf that Bridgewest would not be contractually entitled to enter into an agreement with the Assignee in relation to the PSA Security. Further, and as Ms Cooper noted, Bridgewest’s position is simply that it wants to be repaid in full and as soon as possible. Stark Trustees’ best and most appropriate protection is therefore to ensure that occurs without further delay. To put the point another way, if Stark Trustees is able to provide appropriate comfort to Bridgewest that it is indeed going to repay the debt in the very short term, this will presumably be the most attractive outcome from Bridgewest’s position, who, as Ms Cooper confirmed, has no interest in what becomes of the securities once it has been repaid in full.
[70] Moreover, and as discussed with Ms Cooper at the hearing, Bridgewest is alive to its duties as mortgagee, and that it is required to exercise its powers for the purpose of obtaining repayment of the secured amount and, while entitled to give priority to its own interests, to act fairly and equitably to those having an interest in the equity of redemption.14 In this context, while “purity” of purpose is not required, when exercising its power of sale, a purpose flowing from interests outside the functions of a mortgagee must not prevail.15
Balance of convenience and overall interests of justice
[71] I am also unpersuaded that the balance of convenience or overall interests of justice warrant intervention.
14 Downsview Nominees Ltd v First City Corp Ltd [1993] 1 NZLR 513 (PC) at 522; Coltart v Lepionka & Co Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36 at [32]–[33].
15 Coltart v Lepionka & Company Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36 at [63].
[72] Stark Trustees’ position is that it now has funds available to repay the debt in short order. If that is so, then the ball is firmly in Stark Trustees’ court, so to speak. It also has confirmation from Bridgewest that upon repayment, the security transfer request will be acceded to. The balance of convenience does not tip in Stark Trustees’ favour simply because it is close to repaying the debt but is not yet able to do so.
[73] I acknowledge that Bridgewest does not point to any specific or imminent prejudice that will be suffered by it were the interim relief to be granted (at least to 1 December 2020). Nevertheless, the point remains that the Court should not lightly interfere with a mortgagee’s rights and powers in the absence of a proper and clear basis to do so. I reiterate that the timing of repayment of the Bridgewest debt rests in Stark Trustees’ hands.
[74] In this context, and while the material before the Court expresses the view that that repayment ought to be able to be made by the end of next week, this is subject to “formal documentation” being executed. What that involves is unknown. Further, I am cognisant of the fact that up until the middle of the hearing, Stark Trustees proposed injunctive relief that would have potentially remained in place until 2 February 2021. It also seems clear that that there have been a number of earlier promises of repayment which have not come to pass. In this context, I concur with Walker J’s observation that “Bridgewest’s commercial judgment is not to be lightly interfered with”.16
[75] I am mindful of Mr Neil’s submissions on the significant prejudice to Mr Ensom’s unsecured creditors were the Assignee prevented from entering into an arrangement to secure value now from Mr Ensom’s PSA rights. While prejudice to Mr Ensom’s unsecured creditors is a further factor to be added to the overall picture, I do not consider it to be determinative. Ultimately, unsecured creditors will always be prejudiced in a sense vis-a-vis secured creditors. Accordingly, the mere fact the benefit of the PSA Security may ultimately sit with Premier (effectively standing in Bridgewest’s shoes as a secured creditor) does not alter the analysis.
16 Stark Trustees Ltd v Bridgewest Finance (New Zealand), above n 2, at [124].
[76] Ultimately, rather than the protection offered by wide-ranging injunctive relief, Stark Trustees’ appropriate protection, particularly when there is no clearly arguable legal cause of action against Bridgewest at this time, is to ensure the Bridgewest debt is repaid without delay.
Result and costs
[77]The application for interim relief is accordingly declined.
[78] The parties are encouraged to seek to agree costs. If they cannot, any party seeking costs may file a memorandum within 10 working days of the date of this judgment, with any memorandum in response to be filed within a further 5 working days.
[79]I will thereafter determine costs on the papers.
Fitzgerald J
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