PHILIP ARTHUR MCGAVESTON v NZPT LIMITED & ORS [1999] NZCA 214 (30 September 1999)

IN THE COURT OF APPEAL OF NEW ZEALAND

ca 226/99

	between	PHILIP ARTHUR McGAVESTON
		Appellant

	AND	NZPT LIMITED
		Respondent

ca 227/99

	between	NZPT LIMITED
		First Appellant

	AND	nzfm mORTGAGES LIMITED
		Second Appellant

	AND	PHILIP ARTHUR MCGAVESTON
		Respondent

Hearing:	30 September 1999
Coram:	Tipping J Heron J Goddard J
Appearances:	J Toebes and S Nightingale for Appellant (CA 226/99) and Respondent (CA 227/99) F Miller and J Snead for Respondent (CA 226/99) and First and Second Appellants (CA 227/99)
Judgment:	30 September 1999

Reasons for Judgment:

18 October 1999

reasons for the judgment of the court delivered by TIPPING j

[1] At the conclusion of the hearing of this appeal on 30 September 1999, we announced that the appeal would be allowed.As a consequence we made orders setting aside the interim injunction which Doogue J had granted to Mr McGaveston on 31 August 1999, and we ordered the removal of the various caveats he had lodged.These are our reasons for doing so.The related appeal by Mr McGaveston (CA226/99) which concerned the terms of the injunction became academic with the falling of the injunction and was dismissed.

[2] The appellants NZPT and NZFM are creditors of First Investments Limited (First) which is in receivership and liquidation.First owns properties in Hobson Street and Hinemoa Street, Auckland.The appellants and Mr McGaveston each hold securities over these properties.The order and nature of these securities, as asserted by the appellants, are as follows:

Hobson St NZPT:first registered (legal) mortgage

NZFM:second charge (equitable) by dint of debenture

McGaveston:third charge (equitable) unregistered mortgage

Hinemoa St NZPT:first charge (legal) registered mortgage

NZFM:second charge (legal) registered mortgage

McGaveston:third charge (equitable) unregistered mortgage

[3] In the case of each property there were competing requisitions under s83 of the Property Law Act 1952 issued by NZFM and Mr McGaveston seeking redemption of NZPT's first mortgage.In relation to Hinemoa Street NZFM undoubtedly holds a charge which is prior to that of Mr McGaveston.In relation to Hobson Street Mr McGaveston contends that his charge is prior to that of NZFM and thus his s83 notice should be regarded as prevailing over that of NZFM.Where requisitions under s83 from different chargeholders compete, the requisition of the party with the superior charge prevails.It is fundamental to Mr McGaveston's claim to restrain NZPT as first mortgagee from exercising its power of sale over Hobson Street that his s83 notice prevails over that of NZFM.If NZFM's notice prevails, Mr Toebes accepts that Mr McGaveston's notice is of no effect and thus his basis for seeking an injunction (ie. NZPT's failure to comply with that notice) must disappear.

[4] The injunction granted by Doogue J related to Hobson Street only, as Mr McGaveston accepted the priority of NZFM's charge in respect of Hinemoa Street.If NZFM is correct that its charge over Hobson Street is prior to that of Mr McGaveston the injunction cannot stand.It is fair to Doogue J to say that this aspect of the matter does not seem to have featured large in the argument before him.

[5] NZFM's charge over Hobson Street derives from a debenture which First executed in its favour on 29 March 1996.This charge is equitable as there is no collateral registered mortgage.Mr McGaveston 's charge is also equitable, deriving from an agreement to mortgage entered into on 7 October 1997.As NZFM's charge is first in time it prevails, there being no reason to displace the ordinary equitable rule.Mr McGaveston seeks to overcome this analysis by pointing to the terms of the debenture and suggesting that NZFM's charge over First's land was initially a floating charge only, which did not crystallise and become fixed until after the date of his charge, thus postponing it to his. The issue therefore turns on whether NZFM's charge was fixed from the start or only became fixed upon the happening of a crystallising event.The relevant provisions of the debenture are these:

Clause A

The charge created by this security as regards the Company's interests in land (whether freehold, leasehold, as mortgagee, or by way of licence), fixed plant and machinery (including vehicles), patents, trade names, unpaid and uncalled capital, and goodwill is a fixed, specific charge.

As regards its other charged property the charge is a floating security.

The company may not create any debenture, charge, or other security, in priority to, or passu with, this security, without the prior written consent of the Lender.

Conditions

17.1 The Company may not sell its business and undertaking, or any part of it, without the prior written consent of the Lender.

17.2 Subject to sub-clause 17.1 and to Clause A of the Particulars, the Company may (until crystallisation) deal with its capital and other money, its stock-in-trade (including items of stock in the course of manufacture or construction), and its other property and assets, for the purposes of (and in the ordinary course of) carrying on its business, without the need for any consent of the Lender.

[6] We do not consider the point admits of any doubt.The provisions of Condition 17.2 are expressly made subject to Clause A.Although First was a property owning and developing company its land cannot be regarded as stock in trade for the purposes of Condition 17.2 as Mr Toebes contended.Land is not within the ordinary meaning of stock in trade and Clause A, prevailing as it does over Condition 17.2, makes it quite clear that the charge over First's land was a fixed specific charge from the outset.It is only as regards First's other charged property that NZFM's charge was a floating charge. Mr McGaveston's contention that NZFM's charge was floating in relation to First's land, as well its "other" charged property is fundamentally at odds with the clear provisions of Clause A to which Condition 17.2 is expressly made subject.For these reasons NZFM's s83 notice prevailed over that of Mr McGaveston.Hence, on Mr Toebes' proper acceptance that in these circumstances Mr McGaveston's notice was of no effect, he had no foundation for the injunction which he obtained and we accordingly allowed the appeal and set the injunction aside.By parity of reasoning the caveats relevant to Hobson Street, to the extent they were supported by the s83 argument, had to go.

[7] The other basis on which Mr McGaveston sought to restrain the exercise of NZPT's power of sale over Hobson Street and to justify the caveats, was that it, NZPT had agreed to sell the secured property to him and its exercise of the power of sale was inconsistent with that agreement while it subsisted.A variety of legal and factual issues potentially arose on this argument.But NZPT contended that its most immediate and simple answer was that its agreement expressly reserved its rights as mortgagee.

[8] On 16 September 1997 Mr McGaveston's solicitor sent a written memo to NZPT. He asked for NZPT's consent as first mortgagee to a transaction whereby First sold the Hobson Street property to Mr McGaveston as trustee for a company to be formed.The contract was subject to various special conditions.Questions of non fulfilment and waiver arise but are of no relevance to the immediate point which is the basis upon which NZPT consented to the transaction.It did so on the basis that its consent was given:

... on the understanding that the Agreement is a back up offer to assist the position, in the interim, of the Vendor pending the completion of various projects and that it in no way detrimentally affects the Lenders position.

[9] In its clear terms, this consent was not intended to affect NZPT's position in any detrimental way.Mr McGaveston is now trying to use the agreement in a way which directly affects NZPT's position detrimentally, ie. in not being able to exercise its powers as mortgagee.We found Mr Toebes' valiant attempt to overcome the plain meaning of NZPT's consent unconvincing.The consent cannot constitute the basis for some form of estoppel or other conduct preventing NZPT from exercising its rights as first mortgage.Those rights must prevail over Mr McGaveston's rights whether as a subsidiary chargeholder or as a conditional purchaser.Accordingly this alternative basis put forward by Mr McGaveston for the injunction he had obtained cannot be supported.

[10] It was for these reasons that we allowed the appeal and directed the setting aside of the injunction and the removal of the caveats.They, the caveats could not be sustained because Mr McGaveston failed to show any interest in their subject matter, namely the land and the prior charges (the NZPT mortgages), either at all or having priority to the rights of NZPT and NZFM.As earlier mentioned the case in this Court took on a materially different shape from that presented in the High Court.Mr Toebes accepted, correctly, that if Mr McGaveston could not succeed on either the floating charge point or the consent point he could not maintain the injunction or the caveats.Thus no further aspect of the matter needed consideration.We prefer to say nothing about the interesting issues raised concerning other aspects of s83 of the Property Law Act.