Western Park Village Limited v Baho

[2014] NZHC 1671

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-002727 [2014] NZHC 1671

BETWEEN

WESTERN PARK VILLAGE LIMITED

Plaintiff

AND

SINAN ABED BAHO Defendant

AND

DARRYLL LAWRENCE HEAVEN First Counterclaim Defendant

AND

ANNE EVELYN HEAVEN Second Counterclaim Defendant

AND

TRUSTEE MANAGEMENT LIMITED Third Counterclaim Defendant

Hearing:	9 July 2014
Appearances:	D Chesterman for Plaintiff and Counterclaim Defendants J E M Lethbridge for Defendant
Judgment:	16 July 2014

JUDGMENT OF WOOLFORD J

This judgment was delivered by me on Wednesday, 16 July 2014 at 5.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

WESTERN PARK VILLAGE LIMITED v BAHO & Ors [2014] NZHC 1671 [16 July 2014]

Introduction

[1]      This is an application to stay execution of a judgment made by Heath J dated

10 February 2014.

[2]      In the proceedings before Health J Western Park Limited  (Western Park) sought relief against Mr Baho for alleged breaches of an agreement for sale and purchase entered into in May 2007 for purchase of a residential unit at 4/30 Augustus Terrace, Parnell.   In essence the alleged breach was that Mr Baho failed to tell Western Park about a rock-fall issue that affected the property, and in doing so breached the agreement or otherwise made a false pre-contractual representation.

[3]      Mr  Baho  counterclaimed  against  Western  Park  (as  mortgagor),  Mr  and Mrs Heaven, and Trustee Management Ltd (as covenantors), to recover moneys said to be owing under a mortgage given in his favour as part of the financing arrangements made for Western Park to acquire the property.

[4]      On  18  February  2014,  Heath  J  gave  reasons  for  his  judgment  dated

10 February 2014 in which:1

(a)       judgment was entered in favour of Mr Baho on all of Western Park’s

claims against him;

(b)judgment was entered against Western Park and three counter-claim defendants in the sum of $301,698.87 together with interest of 19% from 21 December 2011 to 10 February 2014.  The interest has been calculated  at  $122,962.32,  making  the  total  sum  outstanding  as

$424,661.19;

(c)      leave  to  amend  the  statement  of  claim  to  include  a  claim  for possession   of  the  property  at   4/30  Augustus  Terrace,   Parnell,

Auckland was granted; and

1      Western Park Village Ltd v Baho & Ors [2014] NZHC 102 (result judgment) and Western Park

Village Ltd v Baho & Ors [2014] NZHC 198 (reasons judgment).

[5]      On 24 February 2014 Mr Baho sealed the judgment and obtained charging orders over land and personal property to secure the judgment without notice to Western Park.  Western Park lodged an appeal against the judgment of Heath J on

10 March 2014.

[6]      Western Park and the counterclaim defendants now apply to stay execution of the judgment, to include:

(a)       a stay of the Property Law Act notice dated 6 June 2013 issued by

Mr Baho; and

(b)a stay of any steps taken by Mr Baho to enforce the damages award and to rescind the charging orders.

[7]      An interim stay of execution of the judgment was granted on 14 March 2014.

Western Park submissions

[8]      The  primary  ground  for  both  the  application  to  stay  execution  of  the judgment and to rescind the charging orders is that the balance of convenience and justice lies with the orders being granted.  Western Park submits it is unfairly prejudicial to have the property at 4/30 Augustus Terrace, Parnell, Auckland (the property) sold.  Western Park submits there are significant and uncontentious facts which support this proposition:

(a)      Mr Baho has a second mortgage over the property.  The property is valued at $1,225,000.  There is a first mortgage of $850,000 secured against it, which leaves equity available to Mr Baho of $375,000.  In addition, Western  Park  has  paid  $101,000  into  its  solicitor’s  trust account towards costs and damages.  Mr Baho, therefore, enjoys total security of $476,000 in respect of the judgment sum of $424,661.19.

(b)Western Park is illiquid in that it does not have cash on hand to pay the judgment now, but does have equity in a number of properties and businesses in excess of $7 million.  In order to pay the judgment debt, Western Park would need to either sell income producing assets or borrow  against  those   assets.     Both  scenarios  would  result  in transaction costs to Western Park, which would not be recoverable if it was successful on appeal.

(c)      Mr Baho lives overseas and does not have an address or bank account in New Zealand.  If the judgment is reversed on appeal, it would be difficult and expensive to enforce it overseas.

[9]     Western Park also submits that the effect of the charging orders over approximately $13 million of land and personal property is disproportionate to the judgment sum.

[10]     It cites Keung v GBR Investment Ltd for the proposition that New Zealand Courts take a number of specific factors into account in the balancing exercise of determining whether or not to exercise the Court’s discretion to grant a stay of execution of a judgment, and if a stay is granted, to determine what if any condition

should be imposed.2  These factors (as stated in Keung) include:3

(a)       Whether the appeal may be rendered nugatory by the lack of a stay; (b)        The bona fides of the applicant as to the prosecution of the appeal; (c)   Whether the successful party will be injuriously affected by the stay; (d)     The effect on third parties;

(e)       The novelty and importance of the questions raised;

2      Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17.

3      At [11], citing Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999)

13 PRNZ 48 (HC) at [9] and Body Corporate No 188529 v North Shore City Council (No 6)
HC Auckland CIV-2004-404-3230, 11 February 2009.

(g)      The overall balance of convenience; and

(h)      The strength of the appeal.

[11]     Looking at each of these factors in turn, Western Park submits that it is a significant factor in the application that Mr Baho is resident overseas in either the United Kingdom or Spain and is not a New Zealand citizen or resident and has no assets in New Zealand.   If Western Park was successful on appeal, it would be difficult and expensive for it to enforce the appeal judgment.

[12]     Western Park also submits that it has prosecuted the appeal diligently and although it has not applied for urgency, Mr Baho has never requested it to do so.  In any event, Mr Baho has himself caused considerable delay in the appeal process.

[13]     Western Park further submits Mr Baho will not be injuriously affected by the stay because he has security over the property at issue and benefits from an interest rate of 19% on a judgment sum.   Western Park also continues to pay the first mortgage, which reduces the principal owing each month.  The ordering of a stay would also be in the interests of the tenants of the property, while its sale would be against their interests.

[14]     As to the novelty and importance of the questions involved, Western Park submits that an important issue in the appeal is the scope of the warranty provisions under a standard residential sale and purchase agreement and the interaction of the warranty with the principle of caveat emptor.  Mr Baho warranted at cl 6.1(1) of the sale and purchase agreement that he had not “received any notice or demand and has no knowledge of any requisition or outstanding requirement…from any other party”. However, Mr Baho had received a letter from the solicitors from the neighbouring body corporate requesting a rock fall nuisance be eliminated and advising that they were  in  receipt  of instructions  to  issue legal  proceedings  if  agreement  was  not reached by a certain date.

[15]     A further important  point  on  appeal  is  said  to be the issue of damages. Western Park submits that Heath J gave no consideration in the judgment to the pleaded remedy of rescission or to the special damages, being money spent on the rock fall issue since the purchase date.

[16]     Western Park therefore submits that the scope of the warranty clause is an issue of public importance, given a large number of residential property transactions which occur annually in New Zealand.

[17]     Western Park also submits that the appeal has good prospects of success in a number of areas including the warranty clause, misrepresentation, damages, the quantum of damages, errors in the Property Law Act Notice and evidential errors.  A further factor is that Western Park submits that the Property Law Act Notice is invalid in that the amounts claimed by Mr Baho are wrong, to his knowledge. Western Park submits that the errors in the notice can only be resolved on appeal and it would improper to allow Mr Baho to act on the notice in its current form.

[18]     As to the charging orders, Western Park submits that the charging orders are prejudicial and out of all proportion to the judgment sum.  The equity they charge is in excess of $7 million, while the judgment is sealed at $424,661.19.  Western Park also submits that the orders are excessive and unnecessary in light of the existing security of $476,000, which exceeds the judgment sum.  It is further submitted that the charging orders were wrongly obtained because Mr Baho failed to make full disclosure of all relevant circumstances in the application.  The most significant non- disclosure was the failure to inform the Court that Mr Baho already had substantial security by way of a second mortgage over the property.

[19]     In conclusion, Western Park submits that it has sufficient assets to pay the judgment debt, but it would be prejudiced in a number of significant respects if it was required to sell assets to do so.

Mr Baho’s submissions

[20]     Mr Baho submits that if Western Park believes that the fruits of any judgment it may obtain on appeal would be worthless on account of lack of enforceability

against him, logically, it would not be appealing the judgment.  Its submissions then that  the  appeal  would  be  rendered  nugatory  if  a  stay  was  declined  cannot  be accepted.

[21]     Mr Baho also submits that the appeal is nothing but a cynical attempt by Western Park and the counterclaim defendants to further delay and/or avoid liability under the mortgage (and now judgment).  Mr Baho points to comments of Heath J in the judgment that he was satisfied that the late raising of the rock fall issue was a cynical attempt by Mr Heaven to avoid payment of monies owing to Mr Baho.4

Mr Baho submits that Western Park’s application is just a continuation of the same

and, in the circumstances, the Court should be slow to allow its processes to be so deliberately manipulated.

[22]     Mr Baho further submits that the continued delay in his ability to enjoy the fruits of his judgment based on the mortgage injuriously affects him.  He submits it makes a mockery of the principle of certainty that the Courts try to achieve when interpreting and enforcing contracts, especially those relating to mortgages if a defaulting mortgagor can bring about the delays that have occurred in the present case.    Mr  Baho  submits  that  Mr  Heaven’s  evidence  on  the  issue  of  prejudice resulting from the sale of the property is also questionable.

[23]     As to the effect on third parties, Mr Baho submits there is absolutely no evidence before the Court upon which a submission could properly be made that the tenants of the property will be prejudiced if a stay is not granted.

[24]     As to the novelty and importance of the question to be tried and the public interest in the appeal, Mr Baho submits that it is noteworthy that Western Park has not requested a full bench of the Court of Appeal to determine the appeal.   The interpretation of the sale and purchase agreement turns on a discrete factual analysis and Heath J has properly interpreted the clause objectively.  Mr Baho submits there

is no public interest in this case or the points arising from it.

4      The results judgment at [69](d).

[25]     As to the strength of the appeal, Mr Baho submits it is important to bear in mind that on a proper analysis the claim required an assessment of credibility.  In his judgment, Heath J extensively set out the factual matrix and noted that the central issue of misrepresentation required an assessment of the credibility and reliability of three relevant witnesses.   Having had the benefit of listening to the evidence in cross-examination of both Mr Baho and Mr Heaven, the Judge made clear findings that Mr Heaven was not a credible witness.

[26]     The Court of Appeal will seldom, if ever, make alternative inferences of fact where a determination of those primary facts rests on credibility.   Moreover, Mr Baho submits that there are no new arguments advanced for why factual findings made by Heath J were not open to him.  Heath J was right to articulate the central issue as being one about whether a misrepresentation had been made.

[27]     As to errors in the Property Law Act Notice, Mr Baho submits that Heath J specifically turned his mind to the argument that is repeated in this application and the appeal, namely that Mr Baho had agreed under cross-examination that the conversion rate was US$0.732 – NZ$1 and therefore this inflated the amount due and it meant that the outstanding amount was void.  Heath J, however, found that the issue of interpreting cl 15 should be determined on the basis of the terms of the agreement for sale and purchase and the mortgage themselves.  The interpretation he adopted was open to him on a plain reading of the clause.  In any event, even if this was an error, which is denied, it would not invalidate the notice.

[28]   As to the charging orders, Mr Baho submits that there are only three circumstances in which a final charging order on land can be discharged and submits that all of them are predicated on the amounts secured by the order having being paid. There is no evidence from anyone other than Mr Heaven that Western Park and counterclaim defendants do not intend to dispose of or conceal assets to defeat creditors.    Mr  Heaven  confirms  that  the  major  asset  of  the  plaintiffs  is  being marketed for sale.   Furthermore, the only evidence about the financial position of Western Park is the affidavit evidence of Mr Heaven.   There is no independent verification of this claim and, in any event, there are internal inconsistencies in this evidence.

Discussion

[29]     I am advised that the case on appeal has now been filed together with an application for a hearing date, but that the appeal is unlikely to be heard before next year.  It is not a case to which urgency would be given by the Court of Appeal.

[30]     The merits of the appeal were well rehearsed in front me.   Heath J made certain credibility findings against Mr Heaven, which no doubt will be difficult to overcome on appeal.   Nonetheless, I have formed the view that the appeal is not without merit on at least two issues – the proper interpretation of the agreement for sale and  purchase and  the mortgage,  and  the  date at  which  damages  are to  be assessed.

[31]     The agreement for sale and purchase provides:

6.1The  vendor  warrants  and  undertakes  that  at  the  date  of  this agreement the vendor has not:

(1)      received any notice or demand and has no knowledge of any

requisition or outstanding requirement:

(a)       from  any  local  or  government  authority  or  other statutory body; or

(b)      under the Resource Management Act 1991; or
(c)       from any tenant of the property; or

(d)      from any other party; or

…

7.0      Unit Titles

7.1If the property is a unit title the vendor warrants and undertakes as follows:

(1)       Apart from regular periodic contributions, no contributions have been levied or proposed by the body corporate that

have not been disclosed in writing to the purchaser.

(2)       Not less than five working days before the settlement date the vendor will provide:

(a)       a copy of all insurance policies or certificates

effected by the body corporate under the provisions

of section 15 of the Unit Titles Act 1972 (“the

Act”); and

(b)       a certificate from the body corporate under section

36 of the Act. Any periodic contributions shown in that certificate (not being amounts referred in

section 36(d)) shall be apportioned.

(3)       There are no amounts owing by the vendor under sections

14, 33 or 34 of the Act.

(4)       There are no unsatisfied judgments against the body

corporate and no proceedings have been instituted against or by the body corporate.

(5)       No order or declaration has been made by any Court under sections 28, 37, 40, 42, 43, 46 or 51 of the Act.

(6)       The vendor has no knowledge or notice of any fact which might give rise to or indicate the possibility of:

(a)       the vendor or the purchaser incurring any liability

under sections 14, 33 or 34 of the Act; or

(b)       any proceedings being instituted by or against the body corporate; or

(c)       any order or declaration being sought under

sections 28, 37, 40, 42, 43, 48 or 51 of the Act.

…

[32]     Western Park complains that it was not advised by Mr Baho that he had received a letter dated 6 October 2006 from the solicitors acting for the neighbouring body corporate threatening legal proceedings if agreement could not be reached on measures to be taken to prevent further rock falls from the property.  It is arguable, in my view, whether Mr Baho was in breach of the agreement for sale and purchase, in particular, clause 7.1(6), which provides that he warranted and undertook that he had no  knowledge  or  notice  of  any  fact  which  might  give  rise  to  or  indicate  the possibility of any proceedings being instituted by or against the body corporate. Heath J referred to clause 7.1(4), but not clause 7.1(6) when he held that Mr Baho was not liable to Western Park.

[33]     In  addition,  the agreement  provided for a  second  mortgage in  favour  of Mr Baho in the sum of US$219,000 (being the sum of NZ$300,000 at an exchange rate of US$0.73 per NZ$1) with repayments of US$91,250 and US$127,750 to be made after one and two years respectively.   The mortgage document was also expressed in US dollars.  There was no mention of New Zealand dollars or a conversion rate in the mortgage document.

[34]     Western Park repaid US$91,250 on the first anniversary of the settlement of the sale, but refused to pay US$127,750 on the second anniversary because of the dispute with Mr Baho over the rock fall issue.   It is arguable, in my view, that Western Park’s liability to make the second payment to Mr Baho should have been assessed by Heath J in US dollars, rather than converted to New Zealand dollars. As noted by Mr Baho’s solicitors in their letter of 14 June 2007:

We are instructed that the sum of US$219,000 is the priority sum to be repaid.   The sum is fixed at US.73 cents per NZ$1.00 at the time of the agreement and will be repaid in US dollars in terms of the agreement no matter what the exchange rate is at the time of payment.

[35]     As to the dates at which damages are to be assessed, Heath J found that, if there had been a breach, there was no loss because there was no decrease in market value  of  the  property  following  the  purchase.    Western  Park  submits  that  the evidence of Mr Heaven and his experts that Western Park would have paid $300,000 less for the property had it known of the rock fall issue was not rejected and that damages should therefore have been determined as at the date of any breach.  It is therefore arguable, in my view, that evidence of market value of the property at any time subsequent to a breach should not be a primary consideration in assessing loss.

[36]     Judgment  was  given  to  Mr  Baho  in  the  sum  of  $424,661.19,  being US$127,500 converted to NZ$204,073.48 at a conversion rate of US$0.626 to NZ$1.00.  The remainder of the judgment sum is interest calculated in NZ dollars at

19% on the sum of NZ$204,073.48 from the date the second repayment was due until the date of judgment.

[37]     On the other hand, if the judgment sum should have been assessed in US dollars, the total sum outstanding, including interest at 19%, is US$240,800, being US$127,500 and interest calculated at 19% on that sum of US$113,050.  Applying the conversion rate as at 8 July 2014 of US$0.877 to NZ$1.00, that is the equivalent of NZ$274,701.46. This is NZ$149,959.73 less that the judgment sum.

[38]     Western Park also submits that Mr Baho, who still holds a second mortgage, has sufficient equity in the property to meet the judgment sum.  Heath J referred to the valuation evidence called at trial to find that there had been no diminution in the value of the property since it was purchased by Western Park.   Western Park had purchased the property from Mr Baho for $1,225,000 in 2007.

[39]     As at the date of Heath J’s judgment, the total sum of $850,743.70 was owing under the first mortgage to TSB Bank Limited.  By letter to Western Park’s solicitors dated 2 July 2014, the solicitors acting for Mr Baho calculated that if the property was sold for $1,225,000 then, after sale and other costs, $241,950 would be available

to Mr Baho.  It is clear therefore that Mr Baho does have a measure of security in that he still retains a second mortgage over the property, which can be exercised in due course if Western Park is unsuccessful on the appeal.

[40]     Mr Baho accepts that the relevant factors that a Court should consider in an application for a stay are those set out in Keung.  I accept the bona fides of Western Park as to the prosecution of the appeal.  I acknowledge that there have been delays to date, but these have been occasioned in part by the fact that Mr Baho resides in an overseas jurisdiction.  While Mr Baho is not able to enforce the judgment just yet, no compelling reasons have been advanced why he would be injuriously affected by a further short delay. The appeal is not without merit.

[41]     Weighing all these factors, and without traversing them all in detail, I am of the view that there should be a stay of the judgment so long as Mr Baho has adequate security for the judgment sum.   Adequate security does not mean that Mr Baho should have security not only over the property itself but also over three substantial properties also owned by Western Park or the guarantors, which have a combined equity in excess of $7 million, as Mr Baho now has through an application for charging orders made without notice.

[42]     Accepting that there is still substantial security in the property itself, I direct as a condition of the stay that Western Park deposit the sum of US$127,750 into Court, which is to be held by the registry in an interest bearing US dollar account until further order of the Court.   This sum represents the minimum  liability of Western Park without interest or costs should it be unsuccessful in the Court of Appeal.   Combined with the minimum equity in the property, estimated by the solicitors for Mr Baho to be $241,950, there should be sufficient security for interest and costs.

[43]     I therefore stay the execution of the judgment of Heath J dated 10 February

2014 to include a stay of the Property Law Act notice dated 6 June 2013 and any steps taken by Mr Baho to enforce the damages award on the condition that Western Park deposit the sum of US$127,750 into Court, which is to be held by the registry in an interest bearing US dollar account until further order of the Court.  I also set

aside the various charging orders obtained by Mr Baho after the judgment was sealed.  I also dismiss the application for a possession order by Mr Baho.

[44]     I note that immediately prior to the hearing of this application, the solicitors for Western Park did offer the sum of US$127,750 as security.   The solicitors for Mr Baho rejected the offer, submitting that the full amount of the judgment debt should be paid into Court.  My preliminary view, therefore, is that Mr Baho should pay the costs of this application.  If counsel are unable to agree on liability and/or quantum, I will receive memoranda.

……………………………….

Woolford J