TSB Bank Ltd v Dollimore

[2015] NZHC 3175

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-1779 [2015] NZHC 3175

IN THE MATTER

of section 348 of the Property Law Act

2007

BETWEEN

TSB BANK LTD Applicant

AND

DARRYLE DENISE DOLLIMORE First Respondent

DARRYLE DENISE DOLLIMORE and

TRISHUL TRUSTEES LTD Second Respondent

Hearing:	26 November 2015
Counsel:	J Anderson for Applicant M J Utting for First Respondent T Juneja for Second Respondent
Judgment:	11 December 2015

JUDGMENT OF PALMER J

This judgment was delivered by me on 11 December 2015 at 4.00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Clendons (Auckland) for Applicant

Utting Law (Auckland) for Respondents

TSB BANK LTD v DOLLIMORE [2015] NZHC 3175 [11 December 2015]

Summary

[1]      TSB Bank Limited (TSB) applies under s 348(2) of the Property Law Act

2007 (the Act) for an order setting aside a disposition of property or, alternatively, that the respondents pay reasonable compensation.  It is concerned that the sale of a property by a Mr Wheldale to his ex-wife Ms Dollimore, just before TSB obtained summary judgment against him and before he was adjudged bankrupt, intentionally prejudiced  TSB.    I  decline  the  application  because  the  preference  of  secured creditors  over  TSB,  an  unsecured  creditor,  does  not  constitute  an  intention  to prejudice TSB under the Act.  My reasons follow.

Facts

[2]      In 2009 Mr Wheldale borrowed $483,000 from TSB as mortgage finance for the purchase of two properties.   He defaulted and the properties were sold at mortgagee sales in 2012 but a substantial shortfall remained.  On 30 June 2013 TSB issued proceedings against Mr Wheldale which were heard on 24 October 2013 when summary judgment was entered for TSB for $254,570.86.1

[3]      Mr Wheldale and Ms Dollimore, the first respondent, married in 1995.  They separated during 2013 though Mr Wheldale continued to live at 27 Taipari Rd Te Atatu, with Ms Dollimore, until September 2013.  Ms Dollimore continued to live at that property.

[4]      On 9 October 2013 Mr Wheldale sold 27 Taipari Rd Te Atatu,  his only remaining  substantial  asset,  to  Ms  Dollimore  for  $590,000.     Settlement  was originally scheduled for 23 October, the day before the summary judgment hearing, but was delayed until 12 November 2013.  On settlement Ms Dollimore transferred ownership to the Piwakawaka Family Trust in which Trishul Trustees Ltd, the second

respondent, acted as professional trustee.

1      TSB Bank Ltd v Wheldale [2013] NZHC 2799.

[5]      Mr Wheldale was adjudicated bankrupt on 26 June 2014.  There are no funds in Mr Wheldale’s estate.  TSB is an unsecured creditor.  The property is subject to an interim freezing order pending the determination of these proceedings.

Law

[6]      Subpart 6 of Part 6 of the Act enables a court to order that property acquired under certain  prejudicial  dispositions  by a debtor  be restored  for the benefit  of creditors (s 344).  In particular, relevant to the present application:

(a)      The subpart applies to a debtor who “was insolvent at the time, or became insolvent as a result, of making the disposition” (s 346(1)(a), and (2)(a)).

(b)The subpart only applies if a disposition of property is made with intent  to   prejudice  a  creditor  or  without   receiving  reasonably equivalent value in exchange (s 346(1(b)).

(c)      A court is entitled to set aside a disposition of property “if satisfied that the applicant for the order has been prejudiced by a disposition of property to which this subpart applies” (s 348(1)(b)).

(d)A disposition of property “prejudices a creditor if it hinders, delays, or defeats the creditor in the exercise of any right of recourse of the creditor in respect of the property” (s 345(1)(a)).

(e)      A disposition  of  property  is  not  made  with  intent  to  prejudice  a creditor  “if  it  is  made  with  the  intention  only  of  preferring  one creditor over another” (s 345(1)(b)).

(f)      The court must not make an order against a person who proves that they “acquired the property for valuable consideration and in good faith without knowledge of the fact that it had been the subject of a disposition to which this subpart applies” (s 349(1)(a)).

(g)The court must also not make an order against a person who proves that they acquired the property through a person who acquired it in the circumstances referred to immediately above (s 349(1)(b)).

(h)The order may either vest the property disposed of in the applicant or “require a person who has acquired or received property through the disposition to pay, in respect of that property, reasonable compensation” (s 348(2)).

Application of Law to Facts

[7]      It is common ground between the parties that there was a disposition when

Mr Wheldale was insolvent. The issues in dispute are:

(a)       whether TSB was prejudiced by the disposition (s 345(1)(a));

(b)whether  any  prejudice  to  TSB  was  not  intentional  because  the disposition  was  made  with  the  intention  only  of  preferring  one creditor over another (s 345(1)(b));

(c)      whether  Ms  Dollimore  (and  through  her  Trishul  Trustees  Ltd) acquired the property for valuable consideration and in good faith without knowledge of the disposition (ss 349(1)(a) and (b));

Was TSB Prejudiced?

[8]      TSB submits that it was prejudiced since the disposition of the property hindered and defeated it from exercising its rights as creditor – either prior to Mr Wheldale’s bankruptcy or afterwards as a creditor claiming in his estate.  TSB point to unusual features of the transaction, such as the timing and the whole of the deposit of $125,000 being paid in cash, to suggest that it was not an arm’s length transaction. TSB suggests the price obtained was not necessarily a market value and that it lost the opportunity to test the market.

[9]      Ms Dollimore does not accept that TSB has necessarily been affected by the disposition because, when the secured interests of third parties over the property are taken into account, TSB would not have received anything anyway.  She says that the Official Assignee’s “drive by” valuation of $600,000 to $700,000, which did not take into account fire damage, was close to the price of $590,000 and that price is consistent with other market data that she has put in evidence.  So, she says, there is no reason to think TSB would necessarily have obtained greater value itself.

[10]     I agree with TSB that the disposition prejudiced its interests.  Whether or not TSB would have recovered its money if another course was followed it was at least “hindered”, by the disposition, in its exercise of rights of recourse.  That meets the test of s 345(1)(a).

Was one creditor intended to be preferred over another?

[11]     TSB argues that the disposition must be taken to have been made with the intention to prejudice its interests.  That is because Ms Dollimore knew about TSB’s loans to Mr Wheldale, knew that the disposition would have allowed other (secured) creditors to be repaid and therefore must have known that the disposition would expose TSB to a significantly enhanced risk of not recovering its money.   This satisfies the test of intention articulated by a plurality of the Supreme Court in Regal

Castings Ltd v Lightbody.2

[12]    Ms Dollimore accepts TSB’s argument.   However, she submits that the exception contained in s 345(1)(b) applies: there is no intention to prejudice if the disposition was made “with the intention only of preferring one creditor over another”.  In response, TSB relies on Stanley v McDonald in emphasising the word “only”.   TSB says  that  the conduct  here was  so  blatant  a preference  for other creditors as to take it out of the routine preference of one creditor over another that

the exception protects.3

2      Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 at [54] (Blanchard and

Wilson JJ) and [86] (Tipping J).

3      Stanley v McDonald [2012] NZHC 597 at [17].

[13]     In Stanley v McDonald, Mr McDonald sold shares to his wife 10 days before an appeal against a decision of the Weathertight Homes Tribunal was to be heard.4

The proceeds were used to pay creditors other than the Stanleys.  Rodney Hansen J characterised  it  as  “a  deliberate  decision  to  benefit  all  creditors  except  the applicants” and “a carefully contrived scheme which had the intention of putting Mr McDonald’s sole asset out of the reach of the applicants” so that “the inference of an intent to prejudice them is unavoidable”.5

[14]     Rodney Hansen J determined that this “blatant preference” constituted the “[s]omething more” required by s 345(1)(b) above a simple intention to prefer other creditors.6      I agree  that  the  exception  in  s  345(1)(b)  is  intended  to  protect  the preference of one creditor over another that is inherent in the routine payment of some but not all creditors. That, “only”, will attract protection.

[15]     There are echoes of the situation in Stanley here:

(a)      Before the loan was in default, Ms Dollimore had been involved in topping up payments.  So she knew about the original existence of the loan though she says she did not know about TSB’s subsequent proceedings against her ex-partner.

(b)At the time of the transaction the following interests were secured over the property and repaid with the proceeds of the sale:

(i)       a secured mortgage to ANZ of $459,001.93;

(ii)      a charging order registered in favour of BNZ of $15,000; and

(iii)     a  secured  second  mortgage  to  a  Mr  Wynn  of  $150,000,

$115,00 of which was repaid, apparently discharging the debt.7

4      At [12]-[13].

5      At [13] and [20].

6 At [17].

7      Evidence of the repayment is contained in an affidavit which Ms Dollimore sought leave to adduce into evidence at the hearing. TSB did not object. Leave is granted.

(c)       The total repaid by Mr Wheldale to these creditors was $589,001.93.

The sale price he received was $590,000.

[16]     However, the echoes from Stanley do not carry far enough.  It is certainly the case that these other creditors were preferred by Mr Wheldale to the exclusion of TSB.  But they were the secured creditors. Their interests were registered on the title of the property.  They would have had priority over unsecured creditors such as TSB. I consider it is reasonable, and routine, to prefer secured to unsecured creditors in prioritising repayments. That, “only”, must attract the protection of s 345(1)(b).

[17]     The circumstances here do not disclose a contrived scheme that goes further than favouring secured over unsecured creditors.  Because of that, I conclude that the disposition here was not made with the intention of prejudicing TSB under the Act. That means TSB’s case against Ms Dollimore and Trishul Trustees Ltd fails.

Did Ms Dollimore acquire the property for valuable consideration and in good faith?

[18]     Ms Dollimore also submits that she qualifies for the protection of s 349(1)(a) and Trishul Trustees Ltd submits it similarly qualifies under s 349(1)(b).  To qualify for this  protection  Ms  Dollimore and  the trustees are require to  prove  that  Ms Dollimore  acquired  the  property  for  valuable  consideration,  and  in  good  faith without knowledge of the prejudicial nature of the disposition.

[19]     Ms Dollimore clearly did acquire the property for valuable consideration.  I consider  that  TSB  does  not  have  a  sound  evidential  basis  to  contradict  Ms Dollimore’s good faith, even as that concept is understood in bankruptcy law, when she considered the secured creditors were being paid.   Nor can TSB effectively counter the evidence that neither Ms Dollimore nor the trustees were aware of TSB’s proceedings against her ex-partner.  I do not consider that her knowledge of the loans prior to TSB’s proceedings put Ms Dollimore on notice to inquire further into the financial affairs of her ex-partner regarding unsecured creditors.  So, even if the s

345(1)(b) protection did not apply, the s 349 protections would.

Result

[20]     I  decline TSB’s  application  for  an  order  setting  aside  the  disposition  of property in 27 Taipari Rd Te Atatu, or for compensation.  Accordingly the interim freezing orders expire.  If the parties cannot agree on costs I reserve leave for the applicant to file a memorandum by 5 February 2016 and any memorandum in reply from the respondents to be filed within 10 working days of the applicant’s memorandum.

..................................................................

Palmer J