The Stark Trustees Limited v Bridgewest Finance (New Zealand)
[2020] NZHC 2443
•18 September 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-00938
[2020] NZHC 2443
UNDER the Property Law Act 2007 IN THE MATTER
of Mortgage Instrument 11441709.2 (North Auckland Land Registration District)
BETWEEN
THE STARK TRUSTEES LIMITED
First Applicant
AND
MJSW TRUSTEES LIMITED
Second Applicant
AND
STEFANIE WINITANA
Third Applicant
AND
BRIDGEWEST FINANCE (NEW ZEALAND)
Respondent
Hearing: 24 July 2020 Appearances:
B Stewart QC and P Sills for Applicants
J Cooper QC and AN Birkinshaw for Respondent
Judgment:
18 September 2020
JUDGMENT OF WALKER J
This judgment was delivered by me on 18 September 2020 at 4.00 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
THE STARK TRUSTEES LIMITED v BRIDGEWEST FINANCE (NEW ZEALAND) [2020] NZHC 2443
[18 September 2020]
Introduction
[1] The first and second applicants are corporate trustees of the Stark Trust. They are the registered proprietors of a residential property at 34 Rawene Avenue, Westmere (the Rawene Property). Stefanie Winitana is the director of the first applicant. She has lived in the Rawene Property with her partner, Mark Ensom, and their young child for about two years.
[2] The respondent, Bridgewest Finance (New Zealand) (Bridgewest) is an unlimited liability finance company that advanced funds to Mr Ensom and certain entities, including trusts, associated with Mr Ensom in 2018 and 2019.1 Mr Ensom was formerly the director of the corporate trustees of the trust entities. The advances were secured in multiple ways, including by way of a second ranking mortgage over the Rawene Property granted at a time when it was owned by the trustees of the Rawene Trust. The trustees transferred the Rawene Property to the trustees of the Stark Trust on 2 March 2020.
[3]The first ranking security is held by BNZ. It has a mortgage in respect of
$6.4 million (approximately) over the Rawene Property and approximately
$10.6 million secured in total in respect of lending to entities associated with Mr Ensom.2
[4] Bridgewest has taken steps to realise its security because of default under the relevant loan agreements. There is no challenge to the fact of default. The applicants now seek to restrain the respondent from taking steps to sell the Rawene Property to realise its security before the substantive issues in this proceeding are determined.
[5] Pending determination of this application to restrain realisation, Bridgewest Finance has agreed not to enter into a binding contract of sale for the Rawene Property.
[6]The applicants plead three grounds:3
1 The defendant was formerly Bridgewest Finance (New Zealand) Limited. It changed its name to Bridgewest Finance (New Zealand) on 15 September 2015 according to the extract from the Companies Office.
2 As at 30 June 2020.
3 Amended Statement of Claim dated 6 July 2020.
(a)The amount owed is overstated and the respondent has failed or refused to provide a break-down of the asserted amount or accurately and correctly calculate it (Account for payments);
(b)Assurances made by a representative of the respondent and relied on by the applicants mean it would be unconscionable and inequitable for the defendant to ‘go back’ on the assurances (Estoppel); and
(c)The various lending arrangements are together or separately a credit contract and the respondent’s conduct in purporting to exercise certain rights is oppressive under the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
[7] At the hearing, Mr Stewart QC sought to introduce a further cause of action under s 9 of the Fair Trading Act 1986 (the FTA). No advance notice had been given. Ms Cooper QC challenged the applicants’ ability to introduce an unpleaded cause of action at the eleventh hour.
[8] In my judgment, the arguments as to cause of action broadly give rise to three issues:
(a)First, whether the applicants have standing under the CCCFA to seek relief;
(b)Second, whether the conduct of the respondent in exercising its contractual right to conduct a mortgagee sale is oppressive; and
(c)Third, whether Bridgewest is estopped from exercising its rights because of representations on its behalf or has engaged in misleading and deceptive conduct under the FTA.
Approach to interim relief
[9]The parties agree on the legal principles applicable to interim relief:
(a)the applicants must establish that there is a serious question to be tried;
(b)the Court must weigh the balance of convenience, that is, the impact on the parties of the grant of or refusal to grant interim orders; and
(c)the Court must assess the overall justice of the situation.4
Background
[10] Mr Ensom is a property developer. The wider context for this case concerns a business relationship with Massod Tayebi. Dr Tayebi is a founding partner, board member and CEO of the Bridgewest Group, a privately held investment company based in California, United States of America. He is also a director of Bridgewest and a director and shareholder of Alliance Diversified Holdings NZ Limited Partnership, a limited partnership in New Zealand (Alliance).5
[11]These entities are all part of the Bridgewest Group in one way or another.
[12] Mr Ensom and Dr Tayebi agreed to work together. Their first project was a development in Takapuna. In April 2017, Mr Ensom approached Dr Tayebi to propose the purchase of two commercial properties in Auckland.
[13] The commercial properties were in Hobson Street and Karangahape Road (K’Road), (together, the Investment Properties). Mr Ensom negotiated the purchase and nominated Alliance as purchaser. It was agreed that Dr Tayebi and Mr Ensom would enter into a business partnership where Mr Ensom was to receive a portion of the upside on returns on the Investment Properties in return for adding value to the assets. Mr Ensom contends this is what he did by, for example, negotiating with the tenants at the Hobson Street property and organising fit-outs and compliance consents, among other things.
[14] At this stage, the business arrangements were not formally recorded. They can fairly be characterised as loose and relationship based.
4 NZ Tax Refunds Limited v Brooks Homes Limited [2013] NZCA 90.
5 Alliance’s general partner is Bridgewest NZ Holdings Limited.
[15] Mr Ensom deposes that in February 2018, he received an unconditional offer of $12M for the Hobson Street property. Mr Ensom wanted to sell, but Dr Tayebi/Alliance did not. This led to Dr Tayebi arranging interim liquidity to Mr Ensom, to be secured by Mr Ensom’s interest in the Investment Properties.
[16] Mr Ensom and Dr Tayebi’s evidence differs in respect of the early arrangements but these particular differences are largely matters of degree and emphasis. Their evidence in respect of the later events diverges more acutely. Dr Tayebi’s perspective is that Mr Ensom approached Bridgewest for a loan, which it was prepared to provide subject to formal terms at the same time as formalising the relationship in respect of the Investment Properties.
[17] Mr Ensom, Bridgewest and Alliance formalised the arrangements on 6 March 2018. This followed a period of negotiation in which both parties were represented by solicitors. Two agreements were executed:
(a)A loan agreement between Bridgewest as lender, Mr Ensom as borrower and guarantor and Mr Ensom’s company, MR8, as guarantor (2018 Loan Agreement); and
(b)A profit-sharing agreement between Alliance and Mr Ensom in respect of the Investment Properties (PSA).6
[18] Mr Ensom’s view is that the PSA does not accurately reflect the business arrangements which he believed were more in the nature of a joint venture partnership. In particular, he expected that he would have an equal say in any decision to hold onto or sell the Investment Properties.
[19] It is correct that the terms of the PSA do not marry with this understanding in a number of respects. In broad terms, the PSA records that, in consideration for MR8 nominating Alliance as purchaser of the Investment Properties and the opportunity to purchase them, Alliance agreed to pay Mr Ensom a percentage share of net proceeds
6 The copy of the PSA produced by Mr Ensom is undated and not signed by Alliance however Dr Tayebi confirms in his affidavit both the date and form of the PSA.
(if any) as defined in the PSA. The percentage share is the aggregate amount of Mr Ensom’s share of the net tenancy fee and net sale fee, both of which are calculated by reference to a prescriptive ‘waterfall’.
[20]Clause 3.2 of the PSA reads:
3.2Commercial Lease:
3.2.1Alliance agrees to apply the Tenancy Fee received by Alliance for each Year during the term of this Agreement in the following priority of payments:
(a)First, Alliance will pay from the Tenancy Fee any GST, Income tax, other taxes and the Costs;
(b)Second, Alliance will retain from the Tenancy Fee an amount equal to an 8% return on the Capital Amount as at the final day of the relevant Year; and
(c)Third, the balance of the Tenancy Fee (if any) after the payments under clauses 3.2.1(a) and 3.2.1(b) above have been paid, will be allocated within three months of the end of the relevant Year as follows:
(i)50% will be retained by Alliance; and
(ii)50% will be paid by Mark to Alliance within three (3) months of the end of the relevant Year by remitting it to a bank account nominated by Mark.
[21] Clause 3.3 similarly sets out the manner in which any sale fee received from an arm’s length sale of the Investment Properties is to be applied to ascertain the profit share available for a fifty/fifty division as follows:
3.3Sale of Properties by Alliance to a Third Party:
3.3.1If one or both of the Properties are sold by Alliance to a third party then Alliance agrees to apply any Sale Fee received in the following priority of payments:
(a)First, Alliance will pay from the Sale Fee:
(i)any GST, income tax and other taxes;
(ii)any amounts owing to any bank in respect of any borrowings for the relevant property including without limitation principal and interest amounts; and
(iii)the Costs.
(b)Second, Alliance will retain from the Sale Fee:
(i)an amount equal to the Capital Amount for repayment of the Capital Amount to Alliance or a related party; plus
(ii)an amount equal to 10% of the Capital Amount as at the settlement date of the sale of the relevant property; and
(c)Third, the balance of the Sale Fee (if any) after the payments under clauses 3.3.1(a) and 3.3.1(b), will be allocated within three months of the settlement date under the agreement for sale and purchase in relation to the relevant Property as follows:
50% will be retained by Alliance; and
(ii)50% will be paid to Mark by Alliance by remitting it to a bank account nominated by Mark.
3.3.2The parties agree that upon payment by Alliance to Mark of the Percentage Share in relation to the property being sold and this amount being accepted by Mark as the correct amount in accordance with this Agreement, that this Agreement will terminate in respect of the property being sold and that each party will have no further liability to the other in respect of that property or the Properties as the case may be.
3.4The parties agree that if the Net Tenancy Fee or the Net Sale Fee is $0 or is a negative amount, then neither party has liability to the other to make any payments or contributions.
[22] Clause 3.4 provides that if the net tenancy fee or the net sale fee is either zero or a negative amount, neither party has liability to the other.
[23] Clause 3.5.2 stipulates that Alliance has discretion to enter into any agreement to sell the Investment Properties to a third party on an arms-length commercial basis.
[24] Clause 3.6 states that other than the express right to the percentage share, Mr Ensom does not have any interest or ownership rights in the properties.
[25] Clause 6.1 states that nothing in the PSA creates the relationship of partnership, principal or agent, employer or employee or joint venture, nor creates a trust or fiduciary duty of any kind. There is also a boiler plate entire agreement clause.
[26] Finally, clause 3.7 provides that Alliance will keep and maintain at all times full and accurate books of accounts and records from which the percentage share can be ascertained. Alliance will make them available to Mr Ensom on request for inspection within 3 months of the end of each year or on the settlement date of the sale of the Investment Properties.
[27] Bridgewest would not release the loan funds to Mr Ensom under the 2018 Loan Agreement until the PSA was executed. It may have been in an advantageous bargaining position vis-a vis the PSA, but this was not part of the argued application before me.
[28] Bridgewest advanced the $1M to provide liquidity to Mr Ensom under the 2018 Loan Agreement, secured by his interests in the Investment Properties under the terms of the PSA. Materially, the 2018 Loan Agreement required Mr Ensom to apply any proceeds received under the PSA in repayment of the loan from Bridgewest. Mr Ensom deposed that Dr Tayebi’s own ‘workings’ showed that he would be receiving sufficient annual income under the PSA to meet the required interest payments. He had hoped (or expected) to offset the interest obligation each month from the anticipated income stream.
[29] Bridgewest and Alliance had different expectations. A representative of a member of the Bridgewest Group, which carried out the accounting and related functions for Alliance, emailed Mr Ensom on 3 May 2018. They explained that Bridgewest was the lending entity of the Bridgewest Group and was a different corporate entity to Alliance with different ownership. Therefore, it was kept separate for accounting and taxation purposes. A further reason given was that receipts from Alliance would fluctuate depending on performance and were an “annual affair’ while the loan servicing was a monthly obligation.
[30] The second key figure in the business relationship between Mr Ensom and Bridgewest, Melanie Boudet Hearn, came into the picture in early 2019. She took up the reins as CEO of Bridgewest. Ms Boudet Hearn has considerable experience in bank loan restructuring and a chartered accountancy background. She assumed the management of Bridgewest’s lending business in New Zealand.
[31] In or about May 2019, Bridgewest learned that Mr Ensom, or his associated trusts, had borrowed funds from a third-party lender, Gumdigger Limited. That entity had registered a General Security Agreement (GSA) over Mr Ensom’s assets.
[32] Motivated to enhance its security position which had been prejudiced by the GSA, Bridgewest agreed to a further advance of $1.275M (approximately) to Mr Ensom to enable repayment of Gumdigger Limited. The terms and conditions are recorded in a loan agreement and security deed dated 22 May 2019 which superseded the 2018 Loan Agreement. This had the desired effect of “taking out” the Gumdigger loan to obtain a first ranking GSA.
[33]At this time, Mr Ensom and Bridgewest entered into three agreements:
(a)A term loan facility agreement in the maximum aggregate amount of
$2.275M (Restated Loan Agreement) between Bridgewest as lender and Mr Ensom, the Fishbowl Trustee Limited as trustee of the Fishbowl Trust, Shortland Trustees (Wallingford) Limited as trustee of the Rawene Trust, and MR8 Limited as borrowers and security providers;
(b)A deed of amendment and accession relating to term loan; and
(c)A composite general security deed and cross guarantee.
[34] The restructuring terms included second mortgages over commercial properties owned by the various trusts at 2 Stanley Street, Parnell, 6 Crummer Road, Ponsonby and 43 Richmond Road, Grey Lynn (together the Commercial Properties) as well as the Rawene Property. The first priority holder was again BNZ.
[35]The key terms of the Restated Loan Agreement were in summary:
(a)All unpaid interest accrued on the first advance is capitalised;
(b)Interest is payable monthly in cash on the interest payment date;
(c)Any payment received under the PSA shall be paid to the lender and Mr Ensom unconditionally. Alliance is irrevocably directed to pay any such amount directly to the lender;
(d)The borrowers must prepay a sufficient, partial amount on 28 February 2020 to reduce the balance of the outstanding amount to $1.2 million or less;
(e)All and any net proceeds of any sale or disposal of the Fitzroy Hotel7 property must be applied first to such prepayment to the lender subject only to prior repayment to BNZ of such amount as required to enable a discharge of the BNZ registered mortgage;
(f)On prepayment to the lender, the lender must promptly provide a discharge of its registered second ranking mortgage in respect of the Fitzroy Hotel property, the Swan Hotel property, the Rawene Property and withdraw its caveat in respect of Crummer Road;
(g)The borrowers will not without prior written consent of the lender dispose of any secured property except as permitted by the general security deed;
(h)All outstanding monies are repayable at the expiry date of 8 March 2020.
[36] It is clear from the express terms of the Restated Loan Agreement that there is an obligation to pay monthly interest regardless of whether the PSA delivered profit. This was also clearly explained to Mr Ensom by Ms Boudet Hearn by email on 12 April 2019 before the agreements were executed. She set out the proposed terms, to which Mr Ensom responded, “Yes all agreed”. Her explanation included the following statement:
Interest to 30 June 2019 will also be capitalised with all further interest (from 1 July 2019 onwards) being payable on a monthly basis. Once assets under
7 The Richmond Road Property
the Profit Share Agreement are profit making (as per the waterfall split), funds can be retained and applied to interest owing on a forward looking basis only. We want you to keep current with your interest going forward.
[37] No payments from the PSA have been made by Alliance to Bridgewest and Mr Ensom has received only one payment of $37,809 under the PSA.
[38] Mr Ensom and his various trusts were under severe financial stress. He attributes this to the insolvency of a key tenant in one of the Commercial Properties but it is also apparent that he was in default of his interest payment obligations from an early stage. He defaulted on the BNZ loan. The BNZ accordingly served Property Law Act 2007 notices, and Mr Ensom started a sell-down programme. Another lender obtained judgment for just over $1M. There were other debts outstanding and trade creditors.
[39] Throughout this period, Bridgeway continued to invoice Mr Ensom on a monthly basis for interest. On 11 September 2019, Bridgeway served a notice of demand for unpaid interest. There was no formal response and no payment.
[40] Around this time, Mr Ensom attempted to persuade Dr Tayebi to sell both the K’ Road and Hobson Street properties. He deposes that Dr Tayebi agreed. He suggests he expected that agreement would clear the loan to Bridgewest. Dr Tayebi denies any agreement. Rather, he says he was prepared to consider sale. This is borne out by his email to Mr Ensom on 24 September 2019:
With regards to K Road and Hubson (sic), I am keen to sell them.
…
Even though contractually we are not obligated to sell these to settle any profit share early, I still want to get this done as it is a constant pain. However I will not do it unless we are going to get the right sales proceeds/valuation”. (emphasis added)
[41] There followed a period of active marketing of those properties by Bridgewest Group representatives based in New Zealand. Contemporaneously, Mr Ensom, via his solicitors, proposed an unwinding of the PSA in return for Alliance/Bridgewest buying out his interest, to be offset against all indebtedness and allowing discharge of all
mortgages and caveats. Dr Tayebi’s response was less than enthusiastic. On 4 October 2019 he emailed Mr Ensom:
From our perspective there are two different things here;
1-a secured loan from Bridgewest Finance which we really did not want as you recall. We were forced to it only a few months ago due to putting Gum Digger above our loan as a preference
2-upside on two properties
These two are unrelated departments
[42]BNZ placed the Fishbowl Trust in receivership on 10 October 2019.
[43] On 11 November 2019, an offer was received for the Hobson Street Property. Dr Tayebi rejected it. On 24 December 2019, an improved offer was received. Mr Ensom urged Dr Tayebi to accept, saying that this was a good offer from a genuine and well-known entity. Dr Tayebi said that he had concerns around meeting the due diligence conditions. In particular, he considered that the current rental income from the property was less than represented so he expected that the negotiated price would significantly drop by the end of the due diligence phase. The full extent to which Bridgewest engaged on the offer or negotiated is not clear on the evidence before me.
[44]On 3 February 2020, Dr Tayebi advised Mr Ensom by email that an offer of
$5.075M had been received on the K’Road property, subject to due diligence. Mr Ensom again considered this to be a good offer. There is independent expert evidence from David Wigmore, an experienced valuer, that the offer exceeds the indicative market value range, itself tagged as conservative because of lack of detail around the seismic rating. The respondent does not fully explain why this offer was not pursued.
[45] Mr Ensom’s evidence is that a sale of these two properties at or around the prices offered would have yielded to him around $2,825,000 (less agents fees and costs). At that time, he contends that this would have cleared the arrears and accrued interest under the Restated Loan Agreement.8 Dr Tayebi challenges this assessment.
8 It is unclear how Mr Ensom has calculated the inputs in accordance with the waterfall in the PSA.
[46] Mr Ensom was adjudicated bankrupt on 27 February 2020 on the application of another lender. A new corporate trustee was appointed to the Fishbowl Trust. The trustees of the Rawene Trust transferred the Rawene Property to the Stark Trust.
[47] On 7 March 2020, Mathew Blomfield, as trustee of the Stark Trust contacted Ms Boudet Hearn. Bridgewest was until then unaware of the transfer of the Rawene Property and removal of Mr Ensom as trustee from the various trusts. The term of the loan agreement expired on 8 March 2020.
[48] On 13 March 2020, Bridgewest made demand for payment.9 The demand required payment by 3.00 pm on 16 March 2020, being the next business day.
[49] On Sunday 15 March 2020, Ms Winitana, Mr Ensom’s partner and a director of Stark Trustees, emailed Dr Tayebi. From Dr Tayebi’s perspective, this is the first occasion that Ms Winitana became involved in the finance dealings. It is these communications between Dr Tayebi and Ms Winitana which are relied on to allege that Bridgewest made misrepresentations which led the applicants to believe it was not necessary to comply with Bridgewest’s formal demands to protect the Rawene Property.
[50] Ms Winitana and Dr Tayebi spoke the next day over the phone. This is the crucial discussion. Ms Winitana deposes that Dr Tayebi told her:
(a)Bridgewest was concerned that payments due to Mr Ensom under the PSA would need to be paid to the Official Assignee because of the bankruptcy, to which she responded that she had a half share in Mr Ensom’s interest in the PSA;10
(b)They had to serve the demand to “stack legally” by which she understood him to mean that it was necessary to protect the position in relation to other creditors;
9 The demand was an omnibus demand to the trustees of the Rawene Trust, MJSW Trustees Limited, the trustees of the Fishbowl Trust and Mr Ensom (in bankruptcy) among others.
10 As Bridgewest had a general security agreement in respect of Mr Ensom’s interest in proceeds from the PSA, this cannot have been correct.
(c)There was no expectation of any imminent payment to pay down the loan as “Bridgewest Finance knows there is no money and they just want to be stacked so they are not forgotten”;
(d)They should try and work with them and list the properties at the “highest price,” rather than through a stress sale.
[51] Her evidence is that this discussion reassured her because it led her to understand that the demand was merely a legal placeholder to make sure that other creditors did not get ahead of Bridgewest.
[52] Ms Winitana emailed Dr Tayebi after that discussion to thank him for speaking with her. Consistent with her statement that she felt reassured, she wrote “[the discussion] put me at ease & I’m feeling more comfort around things.” She deposes that, but for the assurances from Dr Tayebi, she would have insisted on details of the debt calculation and how income due to Mr Ensom under the PSA had been applied to reduce the debt.
[53] Dr Tayebi challenges Ms Winitana’s recollection of the discussion. He states that he had the impression she was more at ease by the end of the call, but denies providing any assurances and says he was in no position to give assurances. Instead, his recollection is that he told her that she needed to deal with Ms Boudet Hearn, that Alliance was not obliged to sell the Investment Properties, and that at this stage was not willing to sell them as the right price had not been offered. Most importantly, his evidence is that he told her that Bridgewest was entitled to repayment and to enforce its rights.
[54] Ms Boudet Hearn spoke with Dr Tayebi after this call. Her file note of what she understood had been conveyed to Ms Winitana reads:
-told Steph: don’t want to sell pt’es + loan needs to be repaid
[55] On 23 March 2020, Bridgewest served a Notice under the Property Law Act 2007 (the PLA Notice).11 The PLA Notice was to expire on 8 May 2020. It recorded the arrears and accrued interest as at 13 March 2020 as $2,638,207.52, with a sum also owing to Auckland Council for rate arrears. The PLA Notice recorded that interest was continuing to accrue at the rate of 16% per annum.
[56] The next day, Ms Winitana met with Ms Boudet Hearn. Ms Boudet Hearn says that she was willing in principle to consider any repayment proposal but did not give any assurances. Ms Boudet Hearn produced a handwritten file note of that meeting. Her evidence is that Ms Winitana told her there was an unconditional sale and purchase agreement in place for the Fitzroy Hotel but that a conditional agreement on the Stanley Street property had fallen through. There was no discussion about a possible sale of the Investment Properties or any suggestion that Bridgewest would await their sale before enforcing its right over the Rawene Property.
[57] On April 27 2020, Ms Winitana reached out to Dr Tayebi again by email to try to set up a call. A day later, she emailed, this time recording her new understanding that Bridgewest was set to start the process of selling “the properties” in 2 weeks. She wrote that she “[is] completely shell shocked as my last conversation with you was that you were just protecting your position with the OA & didn’t expect the loan to be paid back immediately.”
[58] Dr Tayebi responded on 29 April 2020, writing that he could “no longer get involved in this as it was out of [his] hands.” He reiterated this message on 30 April 2020 and that Ms Winitana needed to work with Ms Boudet Hearn as he was not in charge of lending in New Zealand.
[59] Ms Winitana emailed Ms Boudet Hearn on 1 May 2020 asserting that the PLA Notice was invalid. She suggested a meeting on 15 May 2020 to work out a sensible plan to avoid destruction of property values by fire sale.
11 This was the same date that the Prime Minister announced that New Zealand would go into Alert Level 4 Lockdown in 48 hours.
[60] Ms Boudet Hearn rejected the challenge to the PLA Notice, but the meeting took place over Zoom on 15 May 2020. Ms Winitana, her solicitor Dermott Ross, Ms Boudet Hearn and Rees Ward, COO of Bridgewest Group (New Zealand) attended. A few days later, Ms Boudet Hearn emailed Ms Winitana information about the PSA.
[61] Ms Winitana’s accountant reviewed that information and identified areas of concern, which were then forwarded to Ms Boudet Hearn. Further correspondence between the parties culminated in Ms Boudet Hearn advising that the spreadsheet calculations would be updated, and some costs removed. No update was received. The accountant, Lance Morrison, calculated that at least $231,987 ought to have been payable to Mr Ensom under the PSA and applied interest payments due on the loan.
[62] The Crummer Road property and Richmond Road property were both sold in May 2020, reducing the debt to the BNZ but not clearing it.
[63] On 12 June 2020, Bridgewest’s solicitors wrote advising that they would not engage further over the PSA workings.
[64] On 22 June 2020, Bridgewest’s solicitors gave notice that they were instructed to commence a mortgagee sale process. On 25 June 2020, the applicants filed this application for interim orders. The application to restrain marketing the Rawene Property was briefly heard on 9 July 2020. The Court declined to restrain advertising.12
Issues
[65] The fact Mr Ensom and related parties defaulted is not contested. There are various defaults, the most obvious being the failure to repay the balance owing and interest. Other defaults include the failure to make the debt reduction payment; the receivership of the Fishbowl Trust, liquidation of MR8 and bankruptcy of Mr Ensom,
12 The Stark Trustees Limited v Bridgewest Finance (New Zealand) [2020] NZHC 1775. Moore J held there was a serious issue to be tried but that the balance of convenience fell in the respondent’s favour. The hearing was brief and conducted on an urgent basis. The arguments before me were further developed and further evidence was filed by both parties. There is no question of any issue estoppel. Croser v Focus Genetics Ltd Partnership (2548500)[2020] NZCA 367 at [73].
being insolvency events; and the transfer of the Rawene Property in breach of covenant.
[66] The applicants need only satisfy the Court that there is a serious issue to be tried before the balance of convenience and the overall justice questions are engaged.
Standing under Credit Contracts and Consumer Finance Act 2003
[67] Part 5 of the CCCFA allows for the reopening of credit contracts, consumer leases and buy-back transactions. The credit contract need not be a consumer credit contract. Section 120(b) provides that a court may reopen a credit contract if it considers a party has exercised, or intends to exercise, a right or power conferred by the contract in an oppressive manner.
[68] Section 118 of the CCCFA defines oppressive as “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice". In determining whether to reopen a credit contract, a court must, to the extent applicable, have regard to the guideline factors set out in s 124 of the CCCFA.
[69] Bridgewest does not dispute that the Restated Loan Agreement, PSA security and/or Rawene mortgage are credit contracts within the meaning of the CCCFA. Rather, Bridgewest’s challenge is two-pronged. First, it disputes that the applicants have any standing to seek relief under the CCCFA since they are not parties to the credit contracts. Secondly, it denies that it is exercising its powers as mortgagee oppressively.
[70] I turn first to the threshold issue of standing. There is no express provision in the CCCFA dealing with standing but in my judgment, it is clear that only parties to a credit contract (or consumer lease or buy-back transaction), the Commerce Commission and guarantors have standing to seek to re-open a credit contract. There are three reasons.
[71]First, the terms of 125 provide the clearest indication. Section 125 says:
125 When reopening proceedings may be commenced
(1)Proceedings seeking the reopening of a credit contract, consumer lease, or buy-back transaction may be commenced in the Court by the Commission, any party to the contract, lease, or transaction, or any guarantor under a guarantee relating to the credit contract, at any time earlier than,—
(a)in the case of a buy-back transaction, 3 years after the due date for the performance of the last obligation required to be performed under the transaction; or
(b)in the case of a contract or lease that is terminated by either party, 1 year after the date on which the contract or lease is terminated; or
(c)in any other case, 1 year after the due date for the performance of the last obligation required to be performed under the contract or lease.
(2)However, subsection (3) applies if,—
(a)with the knowledge of the creditor under a credit contract,—
(i)the credit provided under the contract is used (in whole or in part) to pay amounts owing under another credit contract or other credit contracts; or
(ii)amounts owing under the contract were paid from credit provided under another credit contract or other credit contracts; and
(b)the creditors under the credit contracts are either the same person or related companies.
(3)Proceedings seeking the reopening of all or any of the credit contracts referred to in subsection (2) may be commenced at any time earlier than 1 year after the due date for the performance of the last obligation required to be performed under any of those contracts.
(4)Proceedings seeking the reopening of a credit contract, consumer lease, or buy-back transaction may not be commenced at any other time.
(5)The Commission may commence proceedings on behalf of a person or a class of persons.
(6)This section applies despite any other enactment or rule of law.
[72] This is principally a limitation provision. But I accept Ms Cooper’s submission that Parliament cannot have intended limitation periods to apply only to a subset of
potential parties seeking to reopen credit contracts under the Act. Under the applicants’ construction, the limitation provisions would only apply to the parties stated in subsection (1), while others could commence proceedings at any stage and bypass the limitation provisions.
[73] Second, the Court of Appeal’s approval of the decision in Marr v Parkin authoritatively determines this point.13 There, the Court held that a credit contract did not exist between the parties, and therefore the CCCFA did not apply. I note too that Part 5 of the CCCFA reflects the oppression provisions in the repealed Credit Contracts Act 1981. Thus, case law under the former Act is still relevant.14
[74] Third, I consider that Ms Cooper is right when she submits that although a court may reopen a credit contract of its own motion under s 120 in any proceedings, whether or not it is brought under the CCCF, the section does not entitle a court to exercise this power in favour of a person who is not a party to the credit contract, lease, or transaction. Section 120 expresses a wide power which is not subject to s 125, but this is because the time limits only apply to the commencement of proceedings to reopen and not to recourse to oppression as a defence. The court is entitled by s 120 to act on its own initiative, for example in proceedings seeking judgment for a debt the time limits in s 125 are no barrier. As was stated in Real Finance Limited v Setefano:15
There is no reason why a debtor should not be able to resist judgment for the debt if it arises under an oppressive contract. Otherwise the creditor under an oppressive contract could wait to commence its proceeding for the debt until one year after the due date for performance of the last obligation under the credit contract has elapsed.
[75] Mr Sills, recognising the applicants’ difficulty on the standing point, sought to raise a novel and previously unheralded argument on standing. He referred to s 203 of the Property Law Act 2007 (PLA) which reads:
13 Marr v Parkin [2015] NZCA 371 at [56], upholding the decision of Faire J in Marr v Parkin [2014] NZHC 3269.
14 See for example National Bank of New Zealand v Caldesia Promotions Ltd [1996] 3 NZLR 467 (HC) at 8.
15 Real Finance Limited v Setefano [2016] NZHC 2293 at [48].
203 Person who accepts transfer, assignment, or transmission of land personally liable to mortgagee
(1)If a person accepts, subject to a mortgage, a transfer, assignment, or transmission of mortgaged land,—
(a)the person becomes personally liable to the mortgagee—
(i)for the payment of all amounts and the performance of all obligations secured by the mortgage; and
(ii)for the observance and performance of all other covenants expressed or implied in the mortgage; and
(b)the mortgagee has all remedies under or in connection with the mortgage directly against that person as if that person were the person who gave the mortgage.
(2)Subsection (1) applies whether or not the person who accepts the transfer, assignment, or transmission has signed the instrument of transfer, assignment, or transmission.
(3)Subsection (1) is subject to anything to the contrary expressed or implied in the mortgage or any other instrument.
(4)For the purposes of subsection (1), amounts secured by a mortgage do not include advances made by the mortgagee to a former mortgagor at any time after the mortgagee had actual notice of the transfer, assignment, or transmission of the land to the current mortgagor, or any intermediate former mortgagor, as the case may be, unless the mortgagee was under an obligation to make the advance—
(a)when the mortgagee received actual notice of the transfer, assignment, or transmission; and
(b)when the advance was made.
[76] Mr Sills submitted that this provides a jurisdictional pathway to standing. As I apprehend his argument, it is that the ability to reopen an oppressive credit contract is a “remedy” which passes to a transferee of land along with the obligations under the mortgage. In short, by stepping into the shoes of the mortgagor, so far as the obligations are concerned, they also step into the shoes of a “party” for the purposes of relief under the CCCFA.16
[77] Mr Sills referred to the decision of the Court of Appeal in Bowden v Rutherford.17 This was an appeal from a refusal to grant summary judgment for
16 Novation was not argued.
17 Bowden v Rutherford CA 261/92, 30 November 1992.
amounts due and secured by a mortgage. In a brief judgment, the Court refers obliquely to counsel’s acknowledgement that liability arising under s 104 of the Property Law Act 1954 (being the predecessor to s 203 of the PLA) also gave rise to the benefit of any agreement or arrangement for repayment of the debt as between the original mortgagor and mortgagee.
[78] I do not accept that this decision provides any such support Mr Sills seeks. No clear conclusion is expressed to the effect relied on by Mr Sills. The benefit referred to in that case was an economic benefit in the sense of a reduction in the amount of the mortgagor’s obligations under the mortgage. No other authority has been located by counsel and the language of s 203 does not invite such a construction. There is nothing in the language of s 203 which purports to make a transferee of land a party to the contract by which the mortgage was given and taken.
[79] I note for the sake of completeness that the CCCFA specifically deals with instances of assignment of credit contracts, consumer leases or buy-back transactions. Section 132 (1) provides:
132 Provisions relating to assignment of credit contracts, consumer leases, or buy-back transactions
(1) An assignee of a credit contract, a consumer lease, or a buy-back transaction from a creditor, a lessor, or a transferee takes the contract, lease, or transaction subject to all equities and to all rights and remedies under this Act that the debtor, the lessee, or the occupier has or would have against the original creditor, the original lessor, the original transferee, or any subsequent creditor, lessor, or transferee.
[80] This is intended to deal with the common situation where creditors or lessors enter into credit contracts or consumer leases and then assign their interest to a third- party financer as part of their own financing arrangements. It is concerned with ensuring that the ‘consumer’ is not prejudiced by the assignment of such contracts and is not wide enough to encompass a debtor assigning his or her obligations under a credit contract, even if that were permissible.
[81] It is also worth noting that the applicants are transferees who must have had knowledge of the defaults under the terms of the mortgage when they acquired their interest in the Rawene Property.
[82] Accordingly, I conclude that there is no arguable case of standing under the CCCFA.
Oppressiveness
[83] My conclusion on standing dispenses with the argument under the CCCFA. It follows that I do not strictly need to address the question of oppression. Nonetheless, I turn to the respective arguments in the context of the guideline factors in s 124 of the CCCFA and the principles gleaned from the authorities.
[84] There are three main strands to the applicants’ case that oppression is made out.18 The first is an assertion that Bridgewest is acting uncommercially and unreasonably. The applicants point to four factors in support.
[85] They argue that the incorrect calculation of Mr Ensom’s profit entitlement under the PSA means that the sum owed (and recorded in the PLA notice) is overstated.
[86] I accept there is some merit in the criticisms levelled against Bridgewest’s calculation, although it denies any error. There appears to have been a deduction or allowance for tax at the rate of 33%, reflecting the underlying partners’ rate of tax. In addition, there is a factual dispute about the correct rate of “preferred return” for Bridgewest and whether payment of US capital gains tax can be deducted from any sale fee. These factors raise questions about the proper interpretation of the PSA.
[87] These issues cannot be explored on an interim application with limited evidence. This is particularly so when the applicants are disadvantaged by the information asymmetry. I take this into account in reaching my view that the dispute over the PSA entitlement crosses the serious issue threshold subject, however, to the discussion below.
[88] On the current evidence, the high-water mark of any under-calculation is only approximately $232,000 (plus the impact on accruing interest). It may yet be more
18 Although the miscalculation of Mr Ensom’s profit share under the PSA is argued as a separate head of claim, it was not seriously relied on to challenge the validity of the PLA Notice. Rather, it falls to be assessed as an element of oppression.
significant. I am prepared to give the benefit of the doubt to the applicants. But even on the most generous approach, there is no suggestion that any under-calculation subsumes the debt or even materially reduces it.
[89] I also do not consider that the over-statement of debt means the PLA Notice was defective (and which was not in any event seriously argued by the applicants). A lender must comply with the applicable statutory requirements for any such notice and the PLA Notice accurately reflected what was unpaid under the Loan Agreement. The crux of the dispute relating to the PSA is whether Alliance ought to have paid any profit entitlement to Bridgewest. This does not impugn the accuracy of the PLA Notice. In any event, it does not necessarily follow that the PLA Notice is invalid, even if the amount owed was overstated.19
[90] The second factor is the assertion that a mortgagee sale is unreasonable when Bridgewest has adequate security and other options. The applicants point to the conditional sale of the property at Stanley Street, which on settlement and after discharge of the first ranked security may release approximately $700,000 to Bridgewest. They also point to the profit potential of the PSA which they maintain was always intended to be the primary security for the lending, and the potential sale of the Investment Properties, with “good” offers having been made but rejected by Alliance.20
[91] This overlooks the fact that a lender is contractually entitled to enforce its security without exhausting other forms of security first. As was stated by the Court of Appeal in Taylor v Westpac Banking Corporation Ltd in respect of a contention that the combination of the adequacy of the security and refusal to delay was oppressive:21
It is for the bank to assess both the adequacy of the security and any further risk to it…the fact that it is proceeding does not make its conduct oppressive. It is, after all, simply exercising its power of sale in the manner contemplated by the parties to the contract.
19 Burgess v TSB Bank Limited [2015] NZCA 361 at [40].
20 Bridgewest has a registered security interest in Mr Ensom’s share of profits under the PSA.
21 Taylor v Westpac Banking Corp (1996) 7 TCLR 177 (CA) at 183.
[92] In a similar vein, the Court of Appeal made it clear that they were not prepared to second-guess the commercial wisdom or prudence of the decision made by the bank and its advisor.
[93] The conditional sale of the Stanley Street property, which it seems the BNZ is prepared to wait for, is not sufficiently certain enough to have much weight in the assessment.22 Neither the lease of that property nor the agreement for sale and purchase were entered into by the receivers of the Fishbowl Trust. While the receivers may adopt the agreements, they are not required to do so. Moreover, the named vendor is not the owner of the property. More materially, the balance of the purchase price after payment of the deposit is ten working days after issue of a code compliance for a 25-room extension which the vendor is obliged to finance. There is no evidence of how this is to be achieved. The agreement is also conditional on Auckland Council approving construction of the proposed extension by 30 October 2020. These factors collectively mean that the sale of Stanley Street is insufficiently certain.
[94] The potential for earnings under the PSA to be realised to reduce the debt is also not indicative of a factual matrix establishing an arguable case of oppression. Though the PSA has a link with the Restated Loan Agreement, the latter specifically records that Mr Ensom’s obligation to apply any receipts under the PSA to reduce the loan is inserted for the benefit of Bridgewest and Alliance.
[95] I am not sympathetic to the argument that the fact that Alliance is a different corporate entity answers the submission that refusal to sell the Investment Properties amounts to oppressive conduct. Rather, this is just another manifestation of the principle that a lender is entitled to exercise its own commercial judgment. Under the PSA, Alliance has a discretion to sell the Investment Properties as and when it sees fit.
[96] The third factor is a faint suggestion that Bridgewest’s conduct is unreasonable and uncommercial since it will not receive anything from the sale of the Rawene Property. This assumes that any purchase settles before the Stanley Street settlement. On the other hand, a sale will increase the debt to Bridgewest because of the costs of sale.
22 At 183.
[97] While not conceding that Bridgewest’s decision-making is relevant to the issue of oppression, Ms Cooper counters that the sale of the Rawene Property essentially stops the clock on interest so far as the priority interest of BNZ is concerned and protects Bridgewest from the risk the property market will significantly decline. To that extent alone, she submits that a mortgagee sale is a rational commercial decision with a benefit to Bridgewest to which it is contractually entitled.
[98] It is not enough to point to BNZ’s apparent willingness to wait out the sale of Stanley Street as evidence of “acceptable commercial practice”. Cogent evidence of the commercial practice is required save in the plainest of cases.23
[99]The fourth factor is the separate estoppel ground which I deal with below.
[100] Taken individually and as a whole, the factors relied on by the applicants are not circumstances which go above and beyond the usual hardship of a mortgagee sale.24 Mr Ensom, the key protagonist, is not an individual suffering any disadvantage
- he is an experienced businessman. The lending was not a consumer transaction (although it contributed to the purchase of a residential property) but was part of complex commercial dealings in respect which Mr Ensom was legally advised. The lender in this instance has given the borrower more than adequate time to remedy the defaults, even taking into account the impact of New Zealand’s Covid-19 response. The first demand for payment of interest was given on 11 September 2019 and the PLA Notice was served on 23 March 2020.
[101] I conclude that even if there was standing on the part of the applicants, I am not persuaded there is a serious issue to be tried. On the evidence presented, Bridgewest’s conduct is not arguably oppressive. Bridgewest’s strategy is obviously disadvantageous to the applicants who, perhaps not surprisingly, also regard it as unfair even from the standpoint of commercial dealings, but this is not an instance where commercial certainty should be undermined by judicial intervention.
23 Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd [1984] 2 NZLR 1 (HC) at 15-16.
24 A mortgagee sale is not oppressive of itself.
Estoppel and the Fair Trading Act
[102] The broad rationale of estoppel is to prevent a party from going back on its word when it would be unconscionable to do so.25
[103]The parties agree that the relevant estoppel principles are those set out in
Krukziener v Hanover Finance Limited.26
[104]In summary, those principles are:27
(a)Promissory estoppel was traditionally concerned with promises to refrain from exercising pre-existing contractual rights (but now extends beyond pre-existing rights).
(b)The promise had to be clear and unequivocal.
(c)Legal rights were suspended, and might be resumed on giving notice, so long as the promisee could resume its former position.
(d)Departure from a voluntary promise is not unconscionable in itself, even if detriment results. Rather, equity responds to the defendant creating or encouraging an assumption in the plaintiff, and its knowledge that the plaintiff will rely on the assumption to its detriment.
(e)The plaintiff must have been led to believe that the promise would affect or result in legal relations.
[105] Ms Cooper also responsibly brought to the Court’s attention the more recent Court of Appeal decision of Wilson Parking NZ Limited v Fanshaw which arguably adopts a more liberal approach by including the creation or encouragement by words or conduct of a belief or expectation as one of the elements.28
25 National Westminster Finance NZ Ltd v National Bank of New Zealand Ltd [1996] 1 NZLR 548 (CA) at 549.
26 Krukziener v Hanover Finance Limited [2008] NZCA 187/
27 At [37] and [38].
28 Wilson Parking NZ Limited v Fanshaw [2014] 3 NZLR 567 at [44].
[106] The applicants plead that Dr Tayebi made certain representations in the conversation with Ms Winitana in March 2020. They say these led them to believe that the Rawene Property was not at risk and it was not necessary to take any steps to pay the demanded sum or comply with the PLA notice to protect the Rawene Property. In reliance on the assurances, they contend that they did not take immediate steps to ascertain Bridgewest’s obligations under the PSA, determine the amounts which had been and/or should have been paid pursuant to the PSA, or comply with the PLA Notice.
[107]The pleaded representations are that:
(a)The respondent was concerned that payments due to the defendant under the PSA would need to be paid to the Official Assignee and end up in third party creditors’ hands;
(b)The respondent was only taking formal legal steps in order to maintain its position as against Mr Ensom’s other creditors, who may have potential claims to payments due to Mr Ensom under the PSA;
(c)The respondent did not expect payment to be made as demanded in the Notice of Demand;
(d)The defendant did not expect the demanded amount to be paid until the Investment Properties were sold and payments made under the PSA;
(e)The respondent did not require the Investment Properties to be sold urgently and it was more important to get the best price possible for those properties;
(f)The Rawene Property was not at risk.
[108] There is a conflict of evidence between Ms Winitana and Dr Tayebi which cannot be resolved on an interim application. The applicants place much store on Dr Tayebi’s failure to ‘correct’ Ms Winitana when she stated in an email on 28 April 2020 that she was “…shell-shocked as my last conversation with you was
that you were just protecting your position with the OA [and] didn’t expect the loan to be paid back immediately.” Instead, Dr Tayebi on 29 April 2020 merely stated that he could no longer get involved as it was out of his hands.
[109] Even on Ms Winitana’s own evidence, there was no clear and unequivocal representation on March 16 2020 that Bridgewest was not going to exercise its legal rights. In its context, Dr Tayebi’s failure to challenge Ms Winitana’s view of this conversation does not take the issue any further.
[110] The obstacles to an estoppel claim are clearly illustrated by reproducing Ms Winitana’s evidence:
On Monday, 16 March 2020, at approximately 10.50 am, I called Masood from my mobile phone and we had a 32 minute discussion about the situation. Masood told me that his big issue was that he was surprised when Mark was declared bankrupt and he was concerned that payments due to Mark under the Profit Sharing Agreement (PSA) would need to be paid to the Official Assignee and then end up in third-party creditors’ hands. I told him that I had at least a half share in Mark’s interest in the PSA and that was “under the laws in New Zealand”.
Masood said several times that “we have to serve” and Bridgewest needed to “stack legally”. He also said, “the issue is not the expectation that it is going to be paid down tomorrow” and “Bridgewest Finance knows there is no money and they just want to be stacked so they are not forgotten.”
Masood and I discussed the property market. Masood said that he thought it would “start slowly in June coming back, so I think by this summer will start bouncing back but it will probably take a year to get the full effects out”. He also said that he absolutely had “zero intention of ever short changing anyone” and in relation to the sale of the various properties that we should “just try and work with them and list the properties at the highest price, don’t let it go through a stress sale get the best price you can get out of it, that is the most important.”
After talking to Masood, I understood that Bridgewest Finance had issued the Notice of Demand as a kind of legal placeholder to make sure that other creditors did not get ahead of it, but it did not expect us to pay the amount demanded immediately.”
[111] Even if there were the alleged representations (which cannot be resolved on affidavit evidence), the subsequent issue by Bridgewest of the PLA Notice and various discussions with Ms Boudet Hearn must have disabused Ms Winitana (and therefore the applicants) of any idea that Bridgewest was content to wait it out. Ms Boudet Hearn deposes that there was no mention of any assurance not to sell the Rawene Property
in any of her meetings or discussions with Ms Winitana, a point which Ms Winitana does not dispute in her evidence.
[112] Similarly, the communications between Mr Ensom and Dr Tayebi made clear that Alliance would not be pressed into a sale of the Investment Properties unless the right price was offered. There is no cogent evidence of detrimental reliance nor any reliable suggestion that the applicants could have acted differently. On the contrary, their inability to repay the outstanding amount is clear on the evidence.
[113] The proposed new cause of action based on an allegation of misleading and deceptive conduct was not developed in any real detail by Mr Stewart QC. It is fair to describe it as a claim in gestation. There was an early suggestion (later withdrawn) that it is in substitution for the oppression claim. I proceed on the basis the applicants rely on it as an alternative cause of action based on the same alleged facts as the estoppel claim. I observe that conduct described as misleading or deceptive could inform an assessment of oppression.
[114] In the circumstances of this case, however, it adds nothing to the analysis and faces the same hurdle as the estoppel cause of action. There needs to be a misrepresentation of an existing fact. An indication of current intention (if it is found that occurred) does not prevent a change in intention. Even if Bridgewest had represented that it did not intend to exercise the power of sale, it is entitled to change its mind unless reliance on the representation means it would be unconscionable to do so. Resort to a vague notion of “unfairness”, as I apprehend the applicants seek to do, is not a principled basis to obstruct Bridgewest’s entitlement to realise its security.
[115] In conclusion, I am not persuaded that there is a serious issue to be tried in respect of the estoppel cause of action, nor any cause of action founded on misleading and deceptive conduct.
Balance of convenience
[116] As the threshold test for injunctive relief is not met, I deal only briefly with the second stage analysis, the balance of convenience and overall justice.
[117] The balance of convenience is best described as the “the balance of the risk of doing an injustice”.29
[118] The Rawene Property is a family home so monetary compensation in the event the applicants succeed at a substantive trial is not likely to be an adequate remedy. A mortgagee sale is undoubtedly a stress, compounded by the fact that Ms Winitana is shortly expecting her second child. I have sympathy for her position. But this is not unique. It is also plain that the position Ms Winitana now finds herself in is attributable to the intricacies of Mr Ensom’s inter-connected lending arrangements rather than any conduct of Bridgewest. It is also possible that any sale would not settle for some months given that this is a high-end property with an estimated appraised value in June 2020 of between $8 and $10 million according to a real estate agent.30 There is likely to be a narrow pool of buyers.
[119] While the status quo is, in practical terms, only maintained by delaying the intended mortgagee sale, neither this factor nor the adequacy of damages would be determinative of the balance of convenience.
[120] From Bridgewest’s perspective, the risk of a significant decline in the Auckland real estate market means it is no longer willing to wait. It has no obligation to defer the sale. There is evidence from Duncan Ross, a real estate agent with Bayleys, who deposes that while activity in the local market remains strong, it is a good time to begin marketing. Further, with the full economic impact of Covid-19 yet to materialise, he cannot say with any certainty whether this will still be the case in a month or longer. Any deleterious impact on house prices has the potential to affect Bridgewest, but also the first mortgagee, any other security holders, and the applicants.
[121] Although the applicants have provided undertakings as to damages, their own evidence of a current inability to refinance suggests they would not be in a position to pay damages at present. However, Bridgewest has also not provided evidence of its ability to pay damages; it merely asserts that it could. Thus, I put this issue to one side.
29 McLaughlin v McLaughlin [2019] NZHC 2597 at [37].
30 The Rawene Property is described in the evidence of Mr Ross as an architecturally designed waterfront residence with a swimming pool and private boat ramp.
[122] Ms Cooper referred me to the line of authority holding that where the application challenges the way a mortgagee’s power of sale is exercised, rather than impeaching the validity of the mortgagee’s powers, a mortgagor is required to pay the full amount secured into Court before an injunction is granted.31 The application of this principle where the crux of the application is deferral rather than challenging the validity is difficult, but ultimately, the overriding requirement must be to do what is fair. In circumstances where the mortgagee has multiple layers of security, I consider it would be unnecessary to add yet further security by requiring such a condition.32
[123] The conduct of the parties can be relevant to the overall balancing exercise. An injunction may be refused if an applicant does not come to Court with clean hands. The test is whether the applicant’s conduct would make the grant of an injunction unconscionable.33 Bridgewest points to the fact that the applicants took title to the Rawene Property without the consent of Bridgewest and BNZ and in breach of clause
6.1 of the Security Deed after Mr Ensom’s bankruptcy in March 2020. In my view, the applicants have acted with their “eyes wide open”. This factor can properly be taken into account in the round but does not operate to disqualify the grant of relief.
[124] The applicants describe Bridgewest’s approach as “notably uncommercial”. They also criticise Alliance’s failure to accept offers for the Investment Properties. However, Alliance is contractually entitled to choose how and when it disposes of the Investment Properties and Bridgewest’s commercial judgement is not to be lightly interfered with unless it crosses the threshold of oppressive conduct.
[125] Taking these factors into account, along with the size of the debt, the growing interest burden and the length of time the debt has been outstanding, I conclude that the balance of convenience falls clearly against the grant of injunctive relief.
31 Relying on Parry v Grace [1981] 2 NZLR 273. See also Development Consultants v Lion Breweries [1981] 2 NZLR 258 where Thorp J adopts the analysis by Sugarman J in Harvey v M Watters (1948) 49 (NSW) 173.
32 AC Beck and others (eds) McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at [r 7.53.11(2)].
33 Water Babies International Limited v Williams [2020] NZHC 1289 at [66].
Overall justice
[126] The balance of convenience can be determinative of the question of whether the Court should grant an injunction however, the final stage requires the Court to stand back and consider where the overall justice of the case lies. No additional factors are relied on by the parties. I record only that refusing the injunction now will still require Bridgewest to arrange a mortgagee sale and so leaves some time for the applicants to refinance its obligations.34
[127] Standing back, I am therefore satisfied that the interests of justice support my conclusion.
Conclusion
[128]For the reasons set out, I decline the application for an interim injunction.
[129] Costs are reserved. If the parties cannot agree on costs, then they may file memoranda of no more than 5 pages (plus any schedules).
.......................................................
Walker J
34 When a mortgagee decides to sell, it must take reasonable care to obtain the best price reasonably obtainable for the property. As Wylie described it in Wallace v BNZ Auckland CIV 2009-404- 003534, 25 June 2009 at [50] “generally a mortgagee must take all reasonable steps to ensure that a sale by the chosen method is as successful as possible.”
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