Fisk v Turvey [2022] NZHC 2462 (27 September 2022)

Last Updated: 11 October 2022

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2022-485-136 [2022] NZHC 2462

UNDER	the Companies Act 1993, the Receiverships Act 1993, the Property Law Act 2007, the Land Transfer Act 2017 and Part 19 of the High Court Rules 2016
BETWEEN	JOHN HOWARD ROSS FISK and RICHARD JOHN NACEY as liquidators of Vey Group Limited (in receivership and liquidation) First Applicants VEY GROUP LIMITED (in receivership and liquidation) Second Applicant Continued...

Hearing:	5 September 2022
Appearances:	R L Pinny and J A Laing for the First and Second Applicants J K Mahuta-Coyle for the Second Respondent and the Third Interested Party R L Roff for the Trustees of the Orana Trust, First Interested Parties J I Taylor for Receiver of Aokautere Land Holdings Limited, Third Interested Party
Judgment:	27 September 2022
Reissued:	7 October 2022

JUDGMENT OF GWYN J

(Application for sale of mortgaged property under ss 107 & 108 Property Law Act 2007)

FISK v TURVEY [2022] NZHC 2462 [27 September 2022]

...Continued

AND	DARYN TURVEY First Respondent AOKAUTERE LAND HOLDINGS LIMITED Second Respondent
AND	DAVID VANCE and IAN MILLARD as Trustees of the Orana Trust First Interested Parties LESLIE WILLIAM FUGLE Second Interested Party GREGORY JOHN SHERRIFF Third Interested Party

TABLE OF CONTENTS

Introduction [1]

Preliminary matters [3]

Background [7]

The Property [16]

Related litigation [27]

CIV-2018-485-505 [28]

CIV-2018-454-121 [32]

CIV-2022-485-109 [37]

Summary [42]

Orders sought [43]

Issues for the Court [49]

Sections 107 & 108 Property Law Act 2007 [50]

Submissions [53]

Discussion [61]

Factors relevant to the exercise of the Court’s discretion [78]

Submissions for the Applicants [79]

Delays in administration of the liquidation [83]

Deterioration of the Property [89]

Prejudice to unsecured creditors [93]

Submissions for trustees of the Orana Trust [99]

Submissions for the ALHL Receiver [108]

Discussion [113]

Result [128]

Orders [130]

Costs [139]

SCHEDULE ONE: ORDERS [140]

Introduction

• [1] This is an application by Vey Group Limited (in liquidation and receivership) (the Company) and the liquidators of the Company, John Fisk and Richard Nacey (the Liquidators).

• [2] The applicants seek an order to enable a mortgaged property (the major asset of the Company) to be sold, together with ancillary orders.

Preliminary matters

• [3] The Liquidators sought leave to commence the proceeding by way of originating application. That was opposed by Aokautere Land Holdings Limited (ALHL) and Leslie Fugle, the director and shareholder of both ALHL and the Company. Justice Mallon granted leave for the proceeding to be commenced by originating application.¹

• [4] Justice Mallon also directed that the originating application be served on David Vance and Ian Millard, as trustees of the Orana Trust, and the Commissioner of Inland Revenue.

• [5] Leave was also granted for a report prepared by the Court-appointed receivers dated 14 August 2020 (filed in related proceeding CIV-2021-485-505); and affidavit evidence and a report by the liquidators under s 250(3) of the Companies Act 1993 (filed in CIV-2012-485-505), to be relied on as evidence in this proceeding.

• [6] Mr Sherriff, the receiver of ALHL, filed a notice of appearance, asking to be heard on any issue relating to the validity of his appointment and the conduct of the receivership and reserving Mr Sherriff’s rights in the proceeding. In the minute of 29 April 2022 Mallon J made directions accordingly.

Background

• [7] The Company was placed into liquidation by the Court on 9 December 2020.²

¹ Vance v Vey CIV-2018-485-505, Minute of Mallon J, 29 April 2022.

² Vance (as trustees of Orana Trust) v Vey Group Ltd [2020] NZHC 2592 at [24].

• [8] Prior to the liquidation, Mr Fisk and Mr Nacey were appointed receivers to the Company by the Court of Appeal, on 12 June 2020.³

• [9] The appointment was made in the context of a proceeding brought by the trustees of the Orana Trust (then a shareholder of the Company) against the Company and Mr Fugle, under s 174 of the Companies Act 1993. The Trustees alleged that the Company, through Mr Fugle, was being conducted in a manner that was oppressive, unfairly discriminatory and unfairly prejudicial to Orana as minority shareholder. There were a range of issues in the conduct of the Company of concern to Orana. One of those was a dispute between Orana and Mr Fugle over a debt claimed by Orana against the Company.

• [10] The terms of Mr Fisk and Mr Nacey’s appointment as receivers required them to:

(a) take control of and ascertain the assets of the Company;

(b) effect insurance of the major asset of the Company (a tenanted apartment building, in Webb Street, Wellington (the Property), which at that time was not insured;

(c) ascertain the true liabilities of the Company (including the debt due to the Orana Trust by the Company); and

(d) report to the High Court on the best means of realising the assets of the Company and distributing the net assets among the shareholders.

• [11] In accordance with those orders, the receivers produced a report dated 14 August 2020 (the Receivers’ Report). The Receivers assessed the liabilities of the Company to include a debt of $1,041,000 owed to Orana. The Receivers’ Report recommended:

³ Vey Group Ltd v Vance [2020] NZCA 232, [2021] 2 NZLR 541 at [71].

(a) The parties be given a period of time for the shareholders to agree next steps while the Company remains in receivership, which could include the sale of shares by the Orana Trust to the majority shareholder group, carrying out necessary weathertightness remedial works to the Property and then selling the “remedied” Property, or selling the Property on an “as is” basis.

(b) If no such agreement were reached, that a liquidator be appointed to the Company to complete a sale of the Property on an “as is” basis.

• [12] Mr Fugle continued to maintain that it was not established that the Company owed Orana the sum claimed. Orana then applied to the High Court for the Company to be placed into liquidation.

• [13] On 2 October 2020 the High Court ordered that the receivers be appointed liquidators to the Company, but that the order would lie in Court and would not take effect until midday on 9 December 2020, to give the parties a final opportunity to agree alternative orders.⁴

• [14] No agreement was reached and the receivers were accordingly appointed liquidators of the Company on 9 December 2020.

• [15] Shortly after, on 23 December 2020, ALHL appointed a receiver to the Company, Greg Sherriff of Waterstone Insolvency (the ALHL Receiver). ALHL is controlled by Mr Fugle and is the second ranking registered mortgagee in relation to the Property.

The Property

• [16] The Property is a three-level apartment building in Webb Street, Wellington. It contains eight residential apartments, a management office and basement carparking. It was constructed by Daryn Turvey between approximately 2009 and 2011.

⁴ Vance (as trustees of Orana Trust) v Vey Group Ltd, above n 2, at [21]-[22].

• [17] The Property is tenanted and earns approximately $290,000 per year in gross rental income, before operating expenses.

• [18] There are two mortgages registered against the Property:

(a) A first registered mortgage in favour of Mr Turvey. At the time of the Liquidators’ appointment as Court-appointed receivers, the Company owed BNZ $70,591 and BNZ held a first-ranking registered mortgage over the Property and a first-ranking general security agreement. In September 2020, Mr Turvey, as guarantor, paid BNZ the amount owing under the Company’s loan (the Assigned Loan) and BNZ assigned all rights it had under the first-ranking registered mortgage and first- ranking general security agreement, to Mr Turvey (the Assigned Securities).

(b) A second registered mortgage in favour of ALHL.

• [19] Mr Turvey has lodged a claim in the liquidation of the Company, asserting that he is a secured creditor for $449,348. Mr Turvey claims two interests in the Property, as first ranking registered mortgagee and as caveator on the basis of an institutional constructive trust. Mr Turvey has recently confirmed that he accepts that his first ranking registered mortgage now secures only his legal costs associated with the mortgage (the claimed legal costs are less than $5,000), but there is still a live issue as to whether Mr Turvey has an interest in the Property pursuant to an institutional constructive trust, the extent of any such interest and whether it should take priority to ALHL’s interest as a registered mortgagee, or any other stakeholder’s interest.

• [20] The Wellington City Council has registered a statutory land charge against the Property relating to unpaid development contributions.

• [21] The Property does not have a Wellington City Council Code of Compliance Certificate. As part of the requirements, as Court-appointed receivers, to investigate and report on the Company’s financial position, the Liquidators instructed Maynard Marks to prepare a report of the likely extent and costs of any remediation works which

would be required to obtain a Code of Compliance Certificate for the Property and also instructed Truebridge Property to value the Property, taking into account Maynard Marks’ advice on the extent of the defects.

• [22] The Maynard Marks Report was included in the Receivers’ Report.

• [23] Maynard Marks gave an estimate of costs of the remedial works required (as at August 2020).

• [24] Truebridge Property’s most recent valuation of the Property, was on an “as is” basis, as at 2 June 2021 (and taking into account the issues identified by Maynard Marks).

• [25] The Property Manager of the Property obtained assessments for each of the apartments against the Healthy Homes Standards in November 2020 to ascertain whether the apartments complied with the Healthy Homes Standards. The assessments identified a range of heating, ventilation and weathertightness issues. The apartments did not comply with the Healthy Homes Standards.

• [26] While the ALHL Receiver has installed heat pumps in the apartments since those reports were issued, the Liquidators understand that the significant weathertightness issues identified in those assessments, and the report by Maynard Marks, have not been remedied. They are therefore concerned that:

(a) the condition of the Property will continue to deteriorate, if the weathertightness issues remain unremedied; and

(b) the Company may not be able to enter into any new or renewed tenancies until the weathertightness issues are sufficiently fixed, so as to comply with the Healthy Homes Standards.

Related litigation

• [27] There are other, related court proceedings involving the Company and the Liquidators, each of which involve in some form the question how the Company’s assets should ultimately be distributed. These are summarised below.

CIV-2018-485-505

• [28] On 12 January 2021, Mr Fugle applied to terminate the liquidation of the Company, pursuant to s 250 of the Companies Act 1993 (the s 250 application). The application was made in the same proceedings as that in which the Liquidators were appointed (the 505 proceeding).

• [29] The Liquidators were required to provide a report to the Court on matters relevant to the application, pursuant to s 250(3) of the Companies Act (the s 250 Report). In the s 250 Report the Liquidators concluded that the Company was insolvent on a balance sheet basis and insolvent on a cashflow basis. The Liquidators also commented in the Report:

Based on the information currently available, the liquidators consider the total amount owing to Orana Trust to be $1,225,698.

Mr Fugle continues to dispute the existence of Orana Trust’s claim, but has not provided documentation supporting his position when requested by the liquidators. In the absence of such evidence the liquidators expect to admit the full Orana Trust claim.

• [30] Subsequently, Mr Fugle filed an application for leave under s 284 of the Companies Act to review the Liquidators’ decision to admit the claim lodged by Orana Trust in the liquidation (the s 284 application). The s 250 application and the s 284 application were heard together and Mallon J dismissed the s 284 application on 2 February 2022 (the s 284 Decision).⁵ The s 250 application, to terminate the liquidation of the Company, was treated as being discontinued, as Mr Fugle had advised the Court that he would only pursue that application if his s 284 application was successful.

⁵ Vance v Vey Group Ltd (In Liq and Recs) [2022] NZHC 75.

• [31] In March 2022 Mr Fugle sought leave to appeal the s 284 Decision. That application for leave to appeal was heard on 21 July 2022 and Mallon J declined leave to appeal, finding that the Liquidators’ duty to act in a reasonable and efficient manner when distributing funds to creditors would be frustrated if such an unmeritorious appeal of a liquidators’ decision was permitted to proceed.⁶ Mr Fugle has sought leave from the Court of Appeal to appeal the s 284 Decision.

CIV-2018-454-121

• [32] The 121 proceeding is between Mr Turvey (the former director of the Company) and the Company. Mr Turvey seeks damages of $1 million, 51 per cent of the shares in the Company and ownership of the ground floor of the Property or ownership of two apartments within the Property, of his choice.

• [33] It appears that Mr Turvey is seeking compensation for his efforts in building the Property. The Liquidators understand this claim was the basis for the caveat lodged by Mr Turvey against the Property.

• [34] Under s 248 of the Companies Act, from the commencement of the liquidation, a person must not commence or continue legal proceedings against the company or in relation to its property unless the liquidator agrees or the Court orders otherwise. The Liquidators did not agree to this proceeding continuing. On 17 February 2021, Mr Turvey sought orders to continue the proceedings against the Company. ALHL applied to intervene in the application to continue the proceeding and, if successful, the proceeding itself. That application to intervene was opposed by Mr Turvey.

• [35] The Liquidators sought and obtained a stay of the 121 proceeding until after the s 250 application had been determined (if that application was successful, the 121 proceeding could continue without leave of the Court).

• [36] The application to continue the 121 proceeding against the Company and the application by ALHL to intervene in the application (and the proceeding itself, if the leave application was successful) remain on foot.

⁶ David Vance and Ian Millard (as trustees of Orana Trust) v Vey Group Ltd (in recs and in liq)

[2022] NZHC 1861 (Leave to Appeal Decision) at [5].

CIV-2022-485-109

• [37] As noted, Mr Turvey is the first ranking registered mortgagee and ALHL is the second ranking registered mortgagee.

• [38] In March 2022 ALHL filed the 109 proceedings against Mr Turvey seeking:

(a) A declaration as to the extent of Mr Turvey’s first ranking registered mortgage against the Property; and

(b) An interim injunction preventing Mr Turvey from selling the Property as mortgagee or appointing a receiver in reliance on his first ranking registered mortgage.

• [39] The Liquidators are a party to the 109 proceedings.

• [40] The matter was called before the Court urgently on 7 March 2022 and the interim injunction granted by consent.⁷

• [41] Subsequently Mr Turvey has advised the Court that he now considers that his first ranking registered mortgage only secures his legal costs relating to the mortgage. In light of that clarification and since the quantum now involved is less than $5,000, the parties have obtained directions by consent that this remaining issue would be resolved on the papers.

Summary

• [42] In summary, the applications which remain on foot, still to be determined as at the date of hearing, are:

(a) The application by Mr Turvey to continue the 121 proceeding against the Company, under s 248 of the Companies Act.

⁷ Aokautere Land Holdings Ltd v Turvey [2022] NZHC 375.

(b) The associated application by ALHL to intervene in that application and the 121 proceeding if it continues.

(c) The application by ALHL for declaratory orders in respect of the extent of Mr Turvey’s first ranking registered mortgage in the 109 proceeding (to be determined on the papers).

(d) ALHL’s application to the Court of Appeal in the 505 proceeding for leave to appeal the s 284 application.

Orders sought

• [43] The application for sale orders is brought by the Company, as mortgagor.⁸ The application for procedural orders is brought by the Liquidators.

• [44] The applicants propose a two-stage approach.

• [45] At stage one the Liquidators would sell the Property and upon settlement the receivership of the Company would come to an end. The ALHL Receiver would apply any funds he held in trust to meet his fees and would pay any surplus funds to the Liquidators to be held on the same terms as the sale proceeds of the Property. The proceeds of sale of the Property, together with any funds received by the Liquidators from the ALHL Receiver, would then be applied in a prescribed manner.

• [46] The applicants propose two alternative scenarios for the disbursement of the proceeds at Stage One, depending on the sale price of the Property. That is because of the issue as to the extent of Mr Turvey’s interest (if any) in the Property and whether that interest takes priority to ALHL’s interest as second ranking registered mortgagee. The applicants estimate that Mr Turvey’s residual claim against the Company, which the caveat seeks to protect, is between $378,000 and $440,000.

8. Property Law Act 2007, s 107(2): an application must be brought by the current or former mortgagor, a covenantor or any other person entitled to redeem the mortgaged property.

• [47] At stage two of the process, following sale and any initial distribution as outlined above, the Liquidators would apply for directions as to how the remaining proceeds of sale ought to be distributed to the creditors of the Company.

• [48] There would then be a single hearing at which all creditors of the Company could appear to resolve all outstanding issues as to distribution of the Company’s assets. This would enable the issues underpinning the various Court applications to be dealt with in a single hearing and provide finality for the parties, in the most efficient and cost-effective manner.

Issues for the Court

• [49] The applications raise the following issues:

(a) What is the extent of the Court’s discretion under ss 107 and 108 of the Property Law 2007?

(b) What are the factors relevant to the exercise of the discretion in this case?

(c) If the order for sale is granted, what consequential orders are necessary?

Sections 107 & 108 Property Law Act 2007

• [50] The Company seeks orders under ss 107 and 108 of the Property Law Act 2007 (PLA).

• [51] Section 107 provides:

107. Application for order of court directing sale of mortgaged property

(1) A person specified in subsection (2) may apply to a court for an order directing the sale of mortgaged property in any proceeding—

(a) concerning the mortgage or the mortgaged property; or

(b) brought for the purpose of obtaining the order.

(2) The persons are—

(a) the current mortgagor:

(b) a former mortgagor:

(c) a covenantor:

(d) another person entitled to redeem the mortgaged property.

...

• [52] Section 108 provides:

108. Court may make order directing sale of mortgaged property

(1) A court may, on an application under section 107, make an order directing the sale of the mortgaged property.

(2) An order may be made under this section—

(a) without allowing time for the redemption of the property in accordance with sections 97 to 101; and

(b) without first determining the priority of any mortgages or other encumbrances over the property; and

(c) even if a person who has an interest in the property or in the mortgage—

(i) is not before the court; or

(ii) opposes the making of the order.

(3) The court may make an order under this section on any conditions the court thinks fit, including the deposit in court of a reasonable sum fixed by the court to meet the expenses of the sale or to secure the performance of any other condition of the order.

(4) The court may order that the sale be conducted by any party to the proceeding or by the Registrar.

Submissions

• [53] Ms Pinny for the applicant says that the intention of Parliament in enacting s 108 is clear from the Law Commission’s Report A New Property Law Act, which led to the amendment of the PLA.⁹ The Law Commission report explained the purpose of the provision in the following terms:¹⁰

This section replaces s 86 of the 1952 Act. It applies to all kinds of mortgaged property and entitles the current mortgagor or anyone else who is entitled to redeem the mortgage (including a former mortgagor or a covenantor) to apply to the court for an order directing the sale of the property. This can be done either in existing proceedings concerning the mortgage or the property, or in a proceeding brought for the purpose. The section enables a mortgagor or a subsequent mortgagee, who is unable to redeem but is concerned that the mortgagee is delaying sale of the property, to cause the court to order an immediate sale: see Palk v Mortgage Services Funding PLC [1993] Ch 330. It provides a balancing factor against the mortgagee’s right to delay the sale: see China and South Sea Bank Limited v Tan Soon Gin [1989] UKPC 38; [1990] 1 AC 536. The

⁹ Law Commission A New Property Law Act (NZLC R29, 1994).

¹⁰ At 314-315.

court can assist by ordering the sale of the property and imposing conditions necessary for the conduct and completion of a sale.

• [54] In Palk v Mortgage Services Funding plc,¹¹ the English Court of Appeal considered s 91(2) of the Law of Property Act 1925, which is in substantially similar terms to ss 107 and 108 of the PLA. There, the mortgagor wished to sell her property. The negotiated sale price was not sufficient to discharge the mortgaged debt. The mortgagee refused to consent to the sale, proposing instead that the house be rented while the parties waited for the property market to improve. The rental income was likely to be well below the amount of interest saved by the mortgagor if the property was sold. The issue for the Court was whether it could direct the sale of a mortgaged property against a mortgagee’s wishes, when the proceeds of sale would not pay in full the mortgaged debt.

• [55] The Court found it was not precluded from making an order for sale simply because the mortgagee objected to it; nor was a breach of duty by the mortgagee a precondition to making the order.¹²

• [56] The Court said:¹³

Section 91(2) of the 1925 Act gives the court a discretion in wide terms. The discretion is unfettered. It can be exercised at any time. Self-evidently, in exercising that power the court will have due regard to the interests of all concerned. The court will act judicially. But it cannot be right that the court should decline to exercise the power if the consequence will be manifest unfairness.

• [57] The Law Commission’s specific reference to Palk and to the intended purpose of the amendment was repeated in the Explanatory Note to the Property Law Bill 2006. Sections 107 and 108 are in substantially similar terms to the statutory provision considered by the Court of Appeal in Palk. The applicants say that Parliament must therefore have intended the same approach to be taken to ss 107 and 108.

¹¹ Palk v Mortgage Services Funding plc [1993] Ch 330, [1993] 2 All ER 481 (CA).

¹² At 487-488 and 490-491.

¹³ At 488.

• [58] It appears that there have been no decisions considering the application of ss 107 and 108.¹⁴ However the applicants refer to a case involving the grant of analogous orders. In Official Assignee v Mathiesen,¹⁵ the Official Assignee, in respect of a bankruptcy of Mrs Mathiesen, was seeking an order to sell a property owned by the trustees of a trust. The trust was indebted to Mrs Mathiesen and the Official Assignee had a court order entitling it to be subrogated to the position of the trustee and indemnified from the assets of the trust. The trustees were refusing to voluntarily sell the property to enable the debt to be paid. The property was not mortgaged, so ss 107 and 108 did not apply. The Court granted the sale orders sought pursuant to its inherent jurisdiction and s 12 of the Senior Courts Act 2006, with a further hearing to follow, to address the distribution of the sale proceedings. The applicants say that is the two-stage approach sought here.

• [59] Mr Mahuta-Coyle in response says that the primary relevant provision is s 176 of the PLA, which sets out the scope of a mortgagee’s duties when exercising a power to sell the mortgaged property. The courts have repeatedly stated that the mortgagee is generally entitled to prefer its own interests and the mortgagee has a right to choose the timing of any mortgagee sale.¹⁶ The use of the sale power against a mortgagee under ss 107 and 108 must be exercised consistently with s 176 and the authorities on that provision. In light of that, ss 107 and 108 must be reserved for truly “exceptional cases”.¹⁷ The facts of this case do not justify the discretion being exercised.

• [60] Counsel for the respondents also says that, in any event, doubt has been cast on the applicability of Palk in New Zealand. In Mitchell v Trustees Executors Limited,¹⁸ the Court rejected an argument (for which Palk was cited in support) that a mortgagee’s actions in declining to sell a property and instead rent it on terms that yielded a net rent below the interest accruing on the debt, at the expense of the

¹⁴ Counsel for the applicants identified one decision in relation to the predecessor provision, s 86 of the Property Law Act 1952: Faumui v AFS (New Zealand) Limited HC Auckland CP500/93, 20 August 1993. However, in that case the Court was not required to decide whether s 86 could be relied upon.

¹⁵ Official Assignee v Mathiesen [2017] NZHC 2349.

¹⁶ Public Trust v Ottow [2009] NZHC 2904; (2009) 10 NZCPR 879 (HC).

¹⁷ Hinde, McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [15.049].

¹⁸ Mitchell v Trustees Executors Ltd [2011] NZCA 519.

mortgagor, amounted to a breach of a duty of good faith owed to the mortgagor or a breach of some broader equitable duty.

Discussion

• [61] Sections 107 and 108 of the PLA are framed in broad terms. As the Court said in Palk: “The discretion given to the court by s 91(2) of the 1925 Act is not hedged about with preconditions”.¹⁹ Rather, the discretion is “unfettered” and can be exercised at any time.²⁰ In his concurring judgment, Sir Michael Kerr also noted that the power of the Court under s 91(2) is expressed in “remarkably wide terms” and applied expressly even when any other person dissents or where the mortgagee does not appear.²¹

• [62] That description is equally applicable to ss 107 and 108. An order directing sale of mortgaged property may be made under s 108(2):

(a) without allowing time for the redemption of the property, in accordance with ss 97-101;²²

(b) without first determining the priority of any mortgages or other encumbrances over the property;²³ and

(c) even if a person who has an interest in the property or in the mortgage is not before the Court or opposes the making of the order.²⁴

• [63] The Court may make an order on any conditions the Court thinks fit.²⁵

• [64] In Palk, the Court of Appeal observed that in all previous cases in which the Court had directed a sale at the request of a mortgagor against opposition by a mortgagee, the Court was able to protect the latter against the loss of its right to

¹⁹ Palk v Mortgage Services Funding plc, above n 11, at 488.

²⁰ At 488.

²¹ At 489.

²² PLA, s 108(2)(a).

²³ Section 108(2)(b).

²⁴ Section 108(2)(c).

²⁵ Section 108(3).

repayment of the loan with interest, either by ordering the mortgagor to put up sufficient security to ensure full repayment of the mortgaged debt, or by imposing a sufficiently high reserve price on the property so as to preclude a sale unless it achieved this result.²⁶ The Court considered whether as a question of principle the Court may never exercise its power to order a sale against a mortgagee’s wishes when it is clear that the effect will be not only to deprive the mortgagee of their security but also to leave a substantial part of the loan outstanding. The Court did not accept that proposition, noting that the Court is given an express power to override dissent and this power is unrestricted.²⁷

• [65] As Sir Donald Nicholls V-C notes, the predecessor of s 91(2) of the Law of Property Act 1925 was a “remedial” Act. It has also been described as an “enabling and remedial statute”.²⁸ One writer on the UK provision has observed that s 91(2) is available to a mortgagor when faced with action by the mortgagee which would then otherwise prevent a mortgagor sale, usually by bringing possession proceedings.²⁹ When used by a mortgagor, s 91(2) is protective and permissive legislation. It protects the mortgagor from destructive action by the mortgagee by authorising the mortgagor to exercise his or her rights as ultimate estate owner in defiance of the mortgagee’s prior claim to pursue such rights as exist.

• [66] As Martin Dixon notes:³⁰

... the function of s 91(2) is to resolve a conflict between the possessory or other rights of the mortgagee and the sale rights of the mortgagor - that is, when a sale will not pay off the entire sum owed and the mortgagee is opposing sale or pursuing possession... In short, s 91(2)... is needed precisely because the security is deficient. It is submitted, therefore, that the essence of the court’s unfettered discretion under s 91(2) is a discretion to determine whose rights shall prevail, even if the security will not thereby be discharged in its entirety.

²⁶ Palk v Mortgage Services Funding plc, above n 11, at 490 (judgment of Sir Michael Kerr).

²⁷ At 491.

²⁸ At 484 citing Brett LJ in Union Bank of London v Ingram [1882] UKLawRpCh 24; (1882) 20 Ch D 463.

29. Martin Dixon “Combating the mortgagee’s right to possession: new hope for the mortgagor in chains?” (1998) 18(3) Legal Studies 279 at 290-291.

³⁰ At 291.

• [67] That analysis is consistent with the Court of Appeal’s emphasis in Palk.³¹ The mortgagee in Palk, relying on China and South Sea Bank Limited v Tan Soon Gin,³² argued that the Court should not intervene, but if it does so against the wishes of the mortgagee who has not misconducted itself, the sale should be on terms that provide for repayment of the whole of the mortgagee’s indebtedness. However, the Court concluded it can exercise its statutory power to direct a sale against the wishes of the mortgagee without there first having been a breach of duty by the mortgagee.

• [68] The respondents in this case argue that the mortgagee may choose which remedy it wishes to pursue and when, so long as it acts in good faith and not for some collateral purpose. The Court of Appeal in Palk rejected that argument:³³

In the exercise of his rights over his security the mortgagee must act fairly towards the mortgagor. His interest in the property has priority over the interest of the mortgagor, and he is entitled to proceed on that footing. He can protect his own interest, but he is not entitled to conduct himself in a way which unfairly prejudices the mortgagor.

• [69] The Court of Appeal also addressed the question of whether, by directing a sale against the mortgagee’s wishes and in a situation where the mortgagee was not in breach of its duties to the mortgagor, the Court was thereby interfering without justification in the statutory and contractual relationship agreed between the mortgagor and mortgagee. This is essentially the argument the respondents make in this case.³⁴ It was rejected by Sir Donald Nicholls V-C who said:³⁵

[The mortgagee’s] statutory powers are contained in the same Act as the provision enabling the Court to direct a sale of the mortgaged property. That power is ‘superimposed’ on the statutory powers conferred on mortgagees.

• [70] In the context of the New Zealand legislation, the same answer applies: Parliament has given a power to the Court to direct a sale notwithstanding the dissent of any person and notwithstanding s 176 which sets out the mortgagee’s duties. It is an overriding statutory power.

³¹ Palk v Mortgage Services Funding plc, above n 11, at 487.

³² China and South Sea Bank Limited v Tan Soon Gin [1989] UKPC 38; [1990] 1 AC 536.

³³ Palk v Mortgage Services Funding plc, above n 11, at 486.

³⁴ See above at [60].

³⁵ Palk v Mortgage Services Funding plc, above n 11, at 489.

• [71] However, the Court in Palk accepted that it must be only in exceptional circumstances that the power of sale will be exercised against the mortgagee’s wishes when a substantial part of the mortgage debt will nevertheless remain outstanding.³⁶

• [72] The Court’s discretion must be exercised having regard to fairness to both sides but, there is, ultimately, a need to give preference to the commercial interests of one or the other.³⁷ Here, as in Palk, equality in giving effect to the parties’ wishes is manifestly impossible and the Court must decide between them on the basis of what is just in all the circumstances. That does mean giving preference to the commercial interests of one over the other.

• [73] While an order to sell the property would deprive the mortgagee of at least two relevant contractual rights (the negative right not to sell at the present time; the right to take possession of the property to lease it), those are consequences inherent in s 91(2) of the UK legislation and s 108 of the PLA.

• [74] As in Palk, the exercise of the discretion is available for this Court, under ss 107 and 108. In my view, exercise of the discretion in this case does not require “exceptional circumstances”. In Palk, the “exceptional circumstances” caveat applied when the mortgagee objected to the sale and part of the mortgagee’s debt would remain outstanding.³⁸ That is not the position here. There is no dispute here that ALHL will recover its debt.

• [75] The respondents rely on Mitchell³⁹ to doubt the applicability of Palk in the New Zealand context. However, Mitchell did not involve an application under ss 107 and 108 of the PLA. The Court found that it was not arguable that there was a breach of s 176 of the PLA⁴⁰ and went on to consider an allegation that the mortgagee had breached its equitable duty of good faith to the mortgagor. It was in that context that the Court of Appeal rejected the mortgagor’s argument that Palk created a new duty,

³⁶ At 491. See also at 488: “... this is a case in which a sale should be directed even though there will be a deficiency. It is just and equitable to order a sale because otherwise unfairness and injustice will follow.”

³⁷ As Sir Donald Nicholls VC noted in Palk v Mortgage Services Funding plc, above n 11, at 485, “the interests of the mortgagor and the mortgagee do not march hand in hand in all respects”.

³⁸ At 491.

³⁹ Mitchell v Trustees Executors Ltd, above n 18.

⁴⁰ At [72].

or expanded the existing duty, not to act in bad faith, “outside of its particular statutory context”.⁴¹ The relevant passage in Palk is headed “A duty to be fair”.⁴² Sir Donald Nicholls V-C sets out two examples where the law imposes a duty on a mortgagee exercising its powers and then said, “I confess I have difficulty in seeing why a mortgagee’s duties in and about the exercise of his powers of letting and sale should be regarded as narrowly confined to these two duties”,⁴³ but went on to say “[t]hat is a question which may call for careful examination on another occasion.”⁴⁴ The separate discussion by the Court of the discretion under s 91(2) of the Act followed later in the judgment.

• [76] Similarly, Public Trust v Ottow was not an application under ss 107 and 108 of the PLA but concerned an argument by a guarantor that the mortgagee had breached its obligation to take reasonable care to obtain the best price.⁴⁵ As the applicants submit, in this case the Court is being asked to exercise a specific statutory power, not to expand the mortgagor’s equitable duty of good faith.

• [77] I conclude that the Court can exercise its discretion under ss 107 and 108 to direct a sale of mortgaged property in a case such as this where the mortgagee opposes a sale.

Factors relevant to the exercise of the Court’s discretion

• [78] I turn then to the factors relevant to the exercise of the s 108 discretion.

Submissions for the applicants

• [79] The applicants’ overarching submission is that the liquidators are unable to fulfil their principal duty to take possession of, protect, realise and distribute the assets of the Company or the proceeds of the realisation of the assets of the Company to its creditors, in accordance with the Companies Act, in a reasonable and efficient manner.⁴⁶

⁴¹ At [85].

⁴² Palk v Mortgage Services Funding plc, above n 11, at 486-487.

⁴³ At 487.

⁴⁴ At 487.

⁴⁵ Public Trust v Ottow, above n 16, at [9].

⁴⁶ Companies Act 1993, s 253.

• [80] It is for that reason that they have sought directions from the Court.

• [81] The applicants advance three broad grounds which they say make it appropriate for the Court to exercise the discretion.

• [82] First, that multiple, unmeritorious proceedings initiated by Mr Fugle are delaying or obstructing the administration of the liquidation. Second, the Company’s sole major asset, the Property, is deteriorating in the meantime. And third, the ongoing delay in the administration of the liquidation prejudices the Company’s unsecured creditors and benefits ALHL and Mr Fugle.

Delays in administration of the liquidation

• [83] The first concern articulated by the Liquidators is that the administration of the liquidation has been largely stalled since the first of the court applications (referred to at [28] above) were filed, only a month after the Company was placed into liquidation. In Ms Pinny’s submission, the likely pathway, absent the Court’s intervention, will be that each of these applications, together with an application to remove Mr Turvey’s caveat, will need to be heard and determined separately. That will invariably take months or potentially a year. In the meantime, the Liquidators and the Company continue to incur time and cost (including legal costs) associated with responding to the various court proceedings.

• [84] The applicants say that the ALHL Receiver appears likely to defer any steps to sell the Property until all court applications involving Mr Fugle or ALHL are exhausted, but continues to receive all net rent income from the Property, which is applied to the ALHL Receiver’s costs and to the ALHL loan.

• [85] ALHL itself cannot realistically achieve a prompt sale of the Property, even if it were minded to do so, because it would need to seek Mr Turvey’s consent or obtain a court order removing his caveat, pursuant to s 142 of the Land Transfer Act 2017.

• [86] The applicants also say it seems likely that no steps will be taken to remediate the weathertightness issues or address the Property’s non-compliance with the Healthy

Homes Standards, until all litigation involving the Company is resolved or the Property is sold.

• [87] In relation to the other, ongoing litigation, the respondents say that Mr Fugle is entitled to test his rights in the courts in relation to the Orana Trust creditor claim. His challenge to the Liquidators’ decision in relation to the Trust debt was brought promptly. He was unsuccessful and had no automatic right to a first appeal. He therefore applied for leave to appeal from the High Court which was declined. He is now seeking leave from the Court of Appeal and anticipates the leave application will likely be heard in November 2022. Mr Fugle says he is not seeking to delay the administration of the liquidation indefinitely; all he is seeking is a further three to four months to pursue his appeal rights before any sale of the Property occurs. Counsel says if the Court of Appeal grants leave, Mr Fugle will promptly apply for a hearing of the substantive appeal. Mr Fugle accepts that if leave is declined, then he has exhausted his rights. He says that at that point he will instruct a mortgagee sale of the Property.

• [88] Mr Fugle has at an earlier stage put before the Court a “rescue plan” whereby he put on trust a substantial sum, sufficient he says to meet all creditor claims. Mr Mahuta-Coyle submits that none of the parties/shareholders would be prejudiced if the Court did not grant the application now sought, the appeal in the 505 proceeding took its course and the “rescue plan” was resuscitated.

Deterioration of the Property

• [89] As to the second issue, the applicants say the Property, which is the only readily realisable asset of the Company, will continue to deteriorate, with a detrimental impact on its value and ultimate sale price. The nature of the weathertightness issues means that the longer they remain unremediated, the more the Property will deteriorate.⁴⁷

• [90] Unless and until the weathertightness issues are addressed, rental income from the Property will be affected. Non-compliance with the Healthy Homes Standards

⁴⁷ See, for example, the Leave to Appeal Decision, above n 6, at [24].

mean that new tenancies cannot be entered into and current tenancies cannot be renewed.⁴⁸

• [91] The submission for the respondents on this issue is that the substantive loss in value of the Property has already occurred – the authorities are clear that in respect of weathertightness issues, the loss in value occurs at the time the defects arise and/or are discovered. The market will price the Property on a land value minus demolition costs basis.

• [92] In any event, the respondents say the appraisal produced by Tommy’s Real Estate Limited (Tommy’s) at Mr Fugle’s request indicates the current sale price for the Property at a lower figure than the Truebridge valuation of June 2021. Mr Fugle also refers to the Quotable Value (QV) House Price Index for July 2022, showing a seven to nine per cent decline in residential property values in the Wellington and Porirua area for the preceding three months.

Prejudice to unsecured creditors

• [93] As to the third argument – prejudice to the Company’s unsecured creditors – at March 2022 the Liquidators assessed that there would be a shortfall of funds available to meet the Company’s liabilities.

• [94] That shortfall is likely to increase because:

(a) the Liquidators continue to incur fees and costs associated with the litigation. These have substantially increased over the last 12 months, reflecting the time and cost associated with the various court proceedings. However the rental income earned on the Property is being paid to the ALHL Receiver for the benefit of ALHL, with the effect that the Liquidators do not presently have any assets available to pay their fees and legal costs.

48. Residential Tenancies Act 1986, s 45(1A); Residential Tenancies (Healthy Homes Standards) Regulations 2019, s 2 and sch 1, cl 2.

(b) The ALHL Receiver’s fees will continue to accrue while the Company remains in receivership. In the six-month period to 28 February 2022, the ALHL Receivers’ fees were $16,820.

(c) Interest continues to be payable to ALHL on the ALHL Loan.

• [95] The Liquidators say that, on the current trajectory, the Liquidators will continue to be unable to pay a distribution to the unsecured creditors. Those debts have been outstanding for a number of years: the debt owing to Orana Trust has been outstanding since 2018 and the debt to the Inland Revenue Department (IRD) dates to the financial year ended 2016.

• [96] In contrast, the delays in selling the Property and applying the proceeds to pay the amounts owing to ALHL, and secured by its mortgage, has a significant impact on the extent of ALHL’s claim as a secured creditor. Since the Receivers’ Report in August 2020, ALHL’s loan balance increased by over $100,000, due to the accrual of interest. Interest continues to accrue on the loan at a rate of at least 6.4 per cent per annum, in priority to the claims of unsecured creditors. ALHL – and in turn, Mr Fugle – benefit from a protracted liquidation, through this ongoing income stream.

• [97] The applicants say the basis for the respondents’ opposition does not come from ALHL’s interests as mortgagee. Rather, Mr Fugle is using ALHL as a vehicle to block a sale of the Property for his own personal reasons, unrelated to the ALHL Loan.

• [98] The submissions for the respondents do not directly address the applicants’ assertion that ongoing delay in the administration of the liquidation prejudices the Company’s unsecured creditors and benefits ALHL and Mr Fugle. They say that it is Mr Fugle who is most prejudiced by the application – the economic interests of Mr Fugle and ALHL are one and the same, as Mr Fugle is the 100 per cent shareholder and sole director of the company. The application, if granted, would abrogate Mr Fugle’s right to test the validity of the major unsecured creditor’s position. Mr Fugle says that, by admitting a large claim into the liquidation by the trustees of the Orana Trust, the Liquidators have left him in a position where there is little or no prospect of him recovering any value from the Company’s liquidation as its

shareholder, notwithstanding the $680,000 in valuable consideration he has paid to acquire that position.

Submissions for trustees of the Orana Trust

• [99] David Vance and Ian Millard QC, in their capacity as trustees of the Orana Trust, are unsecured creditors in the liquidation of the Company.

• [100] The trustees support the granting of the orders sought by the applicants to enable the Property to be sold by the Liquidators and for directions in the liquidation, on the basis that any further delay to the final distribution of the Company’s assets will continue to cause prejudice to the Trustees; and the applicants’ proposal will resolve the administration of the Company in a just, speedy and cost-effective way.

• [101] Ms Roff for the Trustees notes that the validity of the Orana debt has already been tested four times: by the Deloitte accountant in 2018, by the Court-appointed Receivers, by the Court-appointed Liquidators and by the High Court. In addition, at least $800,000 of the debt cannot be seriously challenged by Mr Fugle, being subject to two deeds of acknowledgment signed by the Company (dated 30 September 2005 in respect of a debt of $620,000 and 9 March 2015 for $200,000).

• [102] In response to the proposal that Mr Fugle’s “rescue package” be put on the table again, Ms Roff observes that the plan did not include sufficient funds to discharge the Orana debt in full. Orana would thus be left having to take further action to recover the whole of its debt.

• [103] The Trustees say it is now over four years since they made demand for the Orana debt and over 18 months since the Company was placed into liquidation. In that time no distribution has been made to the Trustees in respect of the Orana debt.

• [104] As an unsecured creditor of the Company any ongoing delay to the final distribution of the Company’s assets will continue to prejudice the Trustees. The Property is the principal asset of the Company and any deterioration in its value will flow through to the realisation of the debt that is ultimately available to unsecured creditors, including the Orana Trust.
• [105] In addition to the Trustees’ concern about the Property, they note that delay in the administration of the Company has increased the costs in the liquidation by requiring the involvement of a number of professionals to resolve ongoing disputes. Ms Roff says all the delays in the administration of the liquidation have been at the instigation of Mr Fugle. All steps taken or issues raised by him have caused substantial delay and all have failed to find support from other parties and the Courts. The Trustees’ concern is that the increase in costs and the liquidation are further eroding the realisations that are available to the Trust and unsecured creditors.

• [106] The Trustees also note that the ALHL Receiver has been in a position to seek to sell the Property for 20 months but has taken no steps to do so. It appears that ALHL (through Mr Fugle) has instructed the ALHL Receiver not to sell the Property. Ms Roff says that it can be assumed the only persons benefiting from the ongoing delay are the ALHL Receiver, who continues to charge his fees, and Mr Fugle, through ALHL, who will continue to receive interest on the ALHL loan at a rate that is now above market rates. Mr Fugle and/or ALHL are not disadvantaged by delay and the extra costs that flow from the delay. ALHL is secured and will receive all the loans, interest and recovery costs from the sale of the Property.

• [107] The Trustees also submit that it is not desirable that the ALHL Receiver manage any sale of the Property, given Mr Fugle’s influence over the Receiver. Their submission is that this increases the likelihood that the unsecured creditors of the Company, including the Trust, will not be paid.

Submissions for the ALHL Receiver

• [108] The ALHL Receiver was one of the parties directed to be served.⁴⁹ Mr Taylor, counsel for the ALHL Receiver, acknowledges that he has taken no steps to sell the Property. In correspondence, with Mr Nacey in June 2022, the Receiver said that in his view the Property should have been sold over a year ago.

• [109] The ALHL Receiver accepts that he took into account the views of his appointer but says that was appropriate, as he is under a duty to act in good faith and

⁴⁹ Vance and Vey Group Ltd HC Wellington CIV 2018-485-505, 29 April 2022 (Minute).

for a proper purpose for the primary benefit of the appointer. He acknowledges a secondary duty to other shareholders, if their rights can be observed consistently with those of the appointer.

• [110] Mr Taylor noted that the Liquidators had not advised the Receiver that they intended to make this application.

• [111] In relation to the question of delay, the ALHL Receiver says if he had tried to sell the Property, his receivership may well have been terminated and the Liquidators would have found themselves in the same position in any event.

• [112] The ALHL Receiver abides the decision of the Court on this application while noting that he would be well-placed to carry out a sale of the Property, would apply the proceeds to the respective mortgagees and account to the Liquidators for the surplus. He rejects the submission made for the Trustees that he would be compromised in doing so.

Discussion

• [113] Ultimately the question is what is just and equitable, having regard to the interests of all parties.

• [114] In Palk the Court found that the sale should be directed even though there would be a deficiency in meeting the mortgagee’s debt, because otherwise unfairness and prejudice would follow. That conclusion was based on a number of factors:

(a) The substantial income shortfall (rent compared to interest).

(b) The only hope of recoupment of the shortfall being a substantial rise in house prices generally.

(c) The high likelihood of the mortgagee suffering increased loss which would be oppressive. Her liability was open-ended and would increase indefinitely. That far outweighed the prospect of a general increase in house markets.

(d) Directing a sale would not preclude the mortgagee from itself buying the property at the court-directed sale.

• [115] Relevant factors in this case are:

(a) The Company was placed into liquidation on 9 December 2020. The administration of the liquidation has been largely stymied since that date by litigation brought by Mr Fugle and his interests. The Liquidators have been unable to fulfil their statutory duties, in particular their obligation to realise the assets of the Company in a reasonable and efficient manner.⁵⁰

(b) The creditors of the Company remain unpaid. Some of the debts – in particular to Orana and the IRD – are longstanding.

(c) The evidence before the Court suggests that, in the absence of any remediation work which is not being undertaken and is not planned, there will be further deterioration to the Property.

(d) That will likely impact on the value of the Property at any eventual sale.

(e) Against that, there are mounting costs: the Liquidators’ fees, the fees of the ALHL Receiver and the legal costs associated with the various streams of litigation.

(f) The benefits of not selling now accrue only to ALHL and/or Mr Fugle.

• [116] As to the delays in the administration of the liquidation, Mr Fugle wishes to prevent a sale of the Property while his legal challenge to the Liquidators’ decision to admit the Orana debt in the liquidation is finally dealt with by the courts. Mr Fugle argues that his interest in doing so outweighs the interests of the other parties.

⁵⁰ Companies Act, s 253.

• [117] I accept the submission for the applicants and the Trustees that the prospects of a successful challenge are low, if not very low. As the applicants’ submissions note, Mr Fugle must establish that the Liquidators acted unreasonably.⁵¹ That means that he must show that the Liquidators were “act[ing] in a way in which no reasonable liquidator would have acted” or “the liquidators’ decision in the circumstances was so absurd that no reasonable man could arrive at it”.⁵²

• [118] The application to review the Liquidators’ decision was dismissed by Mallon J in the s 284 Decision. That decision makes plain that Mr Fugle did not get anywhere close to the necessary high threshold. The Judge commented “Mr Fugle is merely raising matters, as he has done all along, without putting forward anything to support it.”⁵³

• [119] Subsequently, Mr Fugle’s application for leave to appeal the s 284 Decision was dismissed, with the High Court describing the proposed appeal as “unmeritorious”, “delaying the inevitable” and not in the interests of justice.⁵⁴ As Ms Roff observed, the validity of the Orana Trust debt has already been looked at on four separate occasions.

• [120] I also accept that, even if Mr Fugle were successful in obtaining leave to appeal the s 284 Decision and was subsequently successful in the substantive appeal, a sale of the Property remains inevitable. That is so because:

(a) The Company owes at least $2,083,000. Mr Fugle’s challenge to the s 284 Decision does not impact on that amount. Those debts are:

(i) ALHL Loan of $1,130,000;

(ii) IRD debt of $381,000;

⁵¹ Noyce v Parnell Property Investments Ltd [2015] NZHC 2037 at [43].

⁵² Commissioner of Inland Revenue v Hulst (2009) 19 NZTC 15693 (HC), cited with approval in

Young & Associated Ltd v Ruscoe [2012] NZHC 1438 at [7].

⁵³ Vance v Vey Group Ltd (In liq and Recs) [2022] NZHC 75, at [44].

⁵⁴ Leave to Appeal Decision, above n 6, at [24].

(iii) Liquidators’ unpaid fees and disbursements ($340,662 as at 31 July 2022, including GST); and

(iv) the debt of $232,000 to Orana, arising from the term loan. As noted, the Orana Debt has two elements – a shareholder current account debt and a term loan. Mr Fugle’s challenge relates only to the shareholder current account debt. He does not raise any dispute in relation to the term loan.

(b) The Company cannot pay these undisputed debts without selling its only asset, the Property.

• [121] The applicants say that even if the Property were sold and Mr Fugle obtained leave to appeal the s 284 Decision and was ultimately successful on that appeal, any detriment to him is mitigated in two ways. First, it is open to him to purchase the Property on any sale by the Liquidators, as part of an open sale process. Second, if Mr Fugle’s appeal was successful and meant that the Company’s debts were reduced to a level where all creditor claims were paid in full from the proceeds of sale of the Property, some of the sale proceeds would then be returned to Mr Fugle as a shareholder, after the Company’s creditors were paid.

• [122] This too supports the submission that Mr Fugle’s pursuit of litigation should not trump the interests of the Company’s creditors.

• [123] The second broad submission in support of the application relates to the deterioration of the Property and its consequent decrease in value.

• [124] There was no substantive evidence from the respondents on either of these two aspects. There is no challenge to the evidence that in the absence of remedial steps the Property will continue to deteriorate.

• [125] The respondents’ submission appears to be that the market already values the Property without reference to the building’s weathertightness state but, rather, on a land value minus demolition basis. However, that submission is based solely on the

Tommy’s appraisal. It is not apparent on what basis Tommy’s was instructed to carry out that appraisal and it is clear that Tommy’s was not informed that their appraisal was sought for the purpose of this litigation. The QV House Price Index is too generic to be of any value for evidential purposes.

• [126] I accept the applicants’ submission that, while for the purpose of claims of weathertightness defects, the cause of action will accrue when the weathertightness defects arise and/or are discovered, that is not relevant to this case.

• [127] I also accept Ms Pinny’s submission that the case for the respondents on this point is internally inconsistent. On the one hand, they say the loss in value in the Property is already fixed and therefore is not a relevant factor for the Court. On the other hand, Mr Fugle’s evidence appears to be directed at showing that the value of the Property continues to decline. It may well be, as the applicants submit, that this is related to Mr Fugle’s desire to buy the Property himself.

Result

• [128] Having regard to all three of the broad grounds advanced, I am satisfied that on the particular facts of this case it is appropriate for the Court to exercise its discretion to direct a sale of the Property pursuant to s 108 of the PLA. This is not a situation where the proceeds of sale would not meet the mortgagee’s debt – the Liquidators note that even at a sale price less than anticipated the debt will be fully repaid. In addition, it would be open to ALHL and/or Mr Fugle to purchase the Property on a court-directed sale.

• [129] I conclude that it is just and equitable that the orders for sale sought by the applicants be made.

Orders

• [130] The application before the Court seeks an order directing the sale of the Property and consequential orders.
• [131] Some discussion of the terms of the orders is necessary. First, the applicants seek a period of six months from the date of this judgment to act on the order directing sale and that within that period neither ALHL, nor any receiver appointed by ALHL, may exercise any power, or purported power, of sale over the Property. The applicants say such an order is necessary because ALHL and/or Mr Fugle have indicated an intention to sell the Property, “off market” and possibly at significantly below the last market valuation, and Mr Fugle has stated his intention to buy the Property himself. Both Mr Fugle and ALHL have refused to provide an undertaking that, in the event the Court grants the application sought, the Liquidators could sell the Property in accordance with the Court order and Mr Fugle and ALHL would not seek to sell it first.

• [132] I agree such an order is necessary. The Liquidators can be expected to follow a proper sale process. That process should not be hindered or usurped by ALHL/Mr Fugle themselves attempting to sell the Property.

• [133] The Liquidators have sought ancillary orders relating to the sale. The ancillary orders are directed, first, at removing certain interests registered against the title to the Property, on the basis that the sale proceeds of the Property will be treated as being subject to these registered interests. The relevant interests are held by Daryn Turvey (first ranking registered mortgage and a caveat), the Wellington City Council (WCC) (a statutory land charge) and ALHL (second ranked registered mortgage).

• [134] Both Mr Turvey and the WCC were served with this application. The applicants advise that Mr Turvey has agreed to his caveat being removed to facilitate the sale process on the basis that his claim to priority is not prejudiced. The WCC advised counsel for the applicants that it did not intend to take any active part in the proceedings.

• [135] I accept it is necessary and appropriate to grant the ancillary orders sought.

• [136] The applicants also seek orders relating to the receivership of the Company. The orders sought would terminate the receivership of the Company upon settlement

of the Property and would prescribe how the ALHL Receiver is to apply the funds upon settlement.

• [137] I agree that those orders too are necessary and appropriate.

• [138] I make orders in the terms set out at Schedule One to this judgment. Leave is granted to apply to the Court for further directions or to vary the orders if required.

Costs

• [139] I expect that the parties ought to be able to agree costs. If they are unable to do so they should file submissions (not exceeding 10 pages) within 10 working days of receipt of this judgment.

Gwyn J

Solicitors:

Bell Gully, Wellington Dewhirst Law, Whanganui JAG Legal, Lower Hutt Wynn Williams, Christchurch

SCHEDULE ONE: ORDERS

• [140] The Liquidators are to sell the property owned by Vey Group Limited (in liquidation and receivership) located at 72 Webb Street, Wellington and more particularly described in Record of Title WN 441/14 (Wellington Land Registry) (the Property).

• [141] For a period of six months after the date of judgment, neither Aokautere Land Holdings Limited nor any receiver appointed by Aokautere Land Holdings Limited is to exercise any power or purported power of sale of the Property.

• [142] Mr Greg Sherriff (the ALHL Receiver) will cease to act as receiver of the Company upon settlement of the Property.

• [143] The following interests registered against the record of title for the Property be removed upon the Liquidators lodging a transfer instrument for registration:

(a) the first ranking registered mortgage to Mr Daryn Turvey (Instrument Number 6642248.3);

(b) the second ranking registered mortgage to Aokautere Land Holdings Limited (ALHL) (Instrument Number 10649527.1);

(c) the caveat lodged by Mr Daryn Turvey (Instrument Number 11895542.1); and

(d) the statutory land charge registered by Wellington City Council (Instrument Number 12126729.1).

• [144] Upon settlement of the Property, the ALHL Receiver is to:

(a) apply any funds held by him on behalf of the Company to his fees and disbursements reasonably incurred in the receivership; and

(b) pay any remaining funds after his reasonable fees and disbursements are paid to the Liquidators to be held in accordance with these orders.

• [145] Following sale of the Property, the Liquidators are to apply the proceeds of sale and any funds received from the ALHL Receiver as follows:

If the purchase price is more than the amount estimated by the liquidators:

(a) To pay any amounts the Court in proceeding CIV 2022-485-109 determines is owing in respect of legal costs secured by the first ranking registered mortgage.

(b) To pay to ALHL:

(i) $60,445.10, being the payment it made to Mr Daryn Turvey relating to the loan secured by the first registered mortgage; and

(ii) the amounts owing by the Company to ALHL pursuant to the loan agreement dated 9 December 2016.

(c) To hold the net proceeds of sale (less any amounts required to meet the Liquidators’ reasonable fees, costs and disbursements) pending further direction of the Court and on the basis that those funds are to be treated as being subject to any registered interests that were discharged on settlement by order of the Court.

If the purchase price is less than the amount estimated by the liquidators:

(d) To pay, in the following priority:

(i) first, the Liquidators’ reasonable costs and disbursements of selling the Property;

(ii) second, any amounts the Court in proceeding CIV 2022-485- 109 determines is owing in respect of legal costs secured by the first ranking registered mortgage;

(iii) third, to pay to ALHL:

(1) $60,445.10, being the payment it made to Mr Daryn Turvey relating to the loan secured by the first registered mortgage; and

(2) the amounts owing by the Company to ALHL pursuant to the loan agreement dated 9 December 2016.

(iv) fourth, the Liquidators’ fees and costs to date;

with such payments made only to the extent possible, so that the Liquidators would still be holding funds of at least $500,000 pending further direction of the Court and on the basis that those funds are to be treated as being subject to any registered interests that were discharged on settlement by order of the Court.

• [146] Following sale of the Property and application of the proceeds as set out in paragraph [145] above, the Liquidators are to:

(a) apply to the Court for further directions as to the distribution of the Company’s assets including as to the validity and priority of any registered interests that were discharged on settlement by order of the Court; and

(b) serve that application on all creditors of the Company.

• [147] That the interlocutory applications in proceeding CIV 2018- 454-121 be stayed pending further order of the Court.