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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2009-404-004035
BETWEEN HONG KONG AND SHANGHAI
BANKING CORPORATION
LIMITED
Plaintiff
AND IVAN VLADIMAR JOSEPH ERCEG
First Defendant
AND SENSATION YACHTS LIMITED
(IN
RECEIVERSHIP AND IN
LIQUIDATION)
Second Defendant
AND SENSATION NEW ZEALAND LIMITED
Third Defendant
Hearing: 12 October 2009
Counsel: MD Arthur and BJ Burt
for plaintiff
PG Revell for first and third defendants
Appearance: PR Jollands, one of the receivers appointed by
the first defendant in
respect of the second defendant
Judgment: 14 October 2009 at 4:30 pm
JUDGMENT
OF ASSOCIATE JUDGE FAIRE
[on application for summary judgment]
Solicitors: Chapman Tripp, PO Box 2206, Auckland
for plaintiff
Corban Revell, PO Box 21 180, Waitakere City for first and third defendants
And To: Jollands Callander,
PO Box 106 141, Auckland, receivers
HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED V ERCEG AND ORS HC AK CIV
2009-404-004035
14 October 2009
The application
[1] The plaintiff applies for summary judgment against the first and third
defendants. The
judgment sought seeks:
a) An order against the first and second defendants for possession of a
property
at 5-11 Selwood Road, Henderson, Auckland contained in
Certificates of Title NA49D/666 and NA124C/157; and
b) A declaration that the property is not subject to any lease to which the
plaintiff has given its consent.
This second order was refined in submissions to:
c) A declaration that the property is not subject to any lease given
by the
first defendant to the third defendant and which the plaintiff has
consented to.
[2] No
orders are sought against the second defendant. That company was put
into liquidation on 31 July 2009. At that time the Court appointed
Peri Finnigan and
Boris van Delden as liquidators. The liquidators have not consented to this
proceeding. Nor has the Court
ordered the continuation of this proceeding pursuant
to s 248(1)(c) of the Companies Act 1993. The plaintiff recognises that position
and,
for that reason, seeks no relief in this application against the second defendant.
The opposition
[3] The first and third
defendants oppose the orders in the application for
summary judgment. They plead:
a) The plaintiff is not entitled
to possession because of the possessory
rights to the property at 5-11 Selwood Road, Henderson, which are
enjoyed by the third defendant;
b) The third defendant is a lessee from the first defendant pursuant to a
deed of lease dated 3 April 2007; and
c) The plaintiff has consented to the lease.
[4] The first
and third defendants' opposition relies principally on ss 138 of the
Property Law Act 2007 and 119 of the Land Transfer Act 1952.
Section 138 of the
Property Law Act 2007, which in effect is substantially the same as its predecessor
provides, in subs 1 as follows:
138 Mortgagee may not enter into or take physical possession if
mortgagee has consented to lease
(1)
If a mortgagee has consented to a lease of all or part of the
mortgaged land or goods, the mortgagee may not, in
accordance
with section 137(1)(a), enter into or take physical possession of any
land or goods that are subject to the lease, except
in the exercise of a
power conferred by section 147.
[5] Section 119 of the Land Transfer Act 1952 provides:
119 Lease not binding on mortgagee without consent
No lease of mortgaged or encumbered land shall be binding upon
the
mortgagee except so far as the mortgagee has consented thereto.
The issue raised by this application
[6] The issue
raised by this application is whether the plaintiff has consented to a
lease. The lease concerned is that said to be granted by the
first defendant in favour
of the third defendant by a deed dated 3 April 2007.
[7] The defendants acknowledge that this lease
has not been the subject of any
express consent by the plaintiff.
[8] For the defendants Mr Revell submitted that the plaintiff
could not discharge
the onus on it to show that the defendants did not have a defence that there had been
a consent by implication
to the subject lease. That consent was said to arise from a
settlement deed which the plaintiff's Auckland credit manager says was
executed on
16 March 2009. That document was executed by the plaintiff, the first defendant,
the second defendant and the first
defendant's mother, Mrs Millie Martha Erceg. I
will examine the content of that settlement deed shortly.
The Court's approach to
an application for summary judgment by a plaintiff
[9] I set out a short summary of the general approach which the Court takes
in
relation to a summary judgment application by a plaintiff. Rule 12.2 requires the
plaintiff to satisfy the Court that the defendant
has no defence.
[10] The no defence position and the obligations that the Rules impose on the
parties have been examined in a
number of authorities. In Pemberton v Chappell
[1987] 1 NZLR 1 at 3 the Court of Appeal said as follows:
In this context the words "no defence" have reference to the absence of any
real question to be tried. That notion has been expressed in a variety of
ways, as for example, no bona fide defence,
no reasonable ground of
defence, no fairly arguable defence.
[11] The Court added at 4:
Satisfaction here indicates
that the Court is confident, sure, convinced, is
persuaded to the point of belief, is left without any real doubt or uncertainty.
...
[12] And further at 4:
Where the only arguable defence is a question of law which is clear cut and
does
not require findings of disputed facts or the ascertainment of further
facts, the Court should normally decide it on the application
of summary
judgment, just as it will do on an application to strike out a claim or defence
before trial on the ground
that it raises no cause of action or no defence.
[13] The Court also commented on the position where a defence is not evident
on
a plaintiff's pleading and said at 3:
If a defence is not evident on the plaintiff's pleading I am of opinion that if
the defendant wishes to resist summary judgment he must file an affidavit
raising an issue of fact or law and give
reasonable particulars of the matters
which he claims ought to be put in issue. In this way a fair and just balance
will be struck between a plaintiff's right to have his case proceed to judgment
without tendentious delay and a defendant's
right to put forward a real
defence.
[14] That position was further reinforced in Australian Guarantee Corporation
(NZ)
Ltd v McBeth [1992] 3 NZLR 54 at 59 where the Court said:
Although the onus is upon the plaintiff there is upon the defendant a need to
provide
some evidential foundation for the defences which are raised. If not,
the plaintiff's verification stands unchallenged and
ought to be accepted
unless it is patently wrong
[15] Hypothetical possibilities in vague terms, unsupported by any positive
assertion or corroborative documents advanced by defendants will not frustrate the
obligation on a plaintiff to discharge the onus
of proof: SH Lock (NZ) Ltd v
Oremland HC AK CP641/86 19 August 1986.
[16] The Court of Appeal in Tilialo v Contractors Bonding
Limited CA50/93
15 April 1994 at 6 raised a caution and said:
The Courts must of course be alert to the possibility of injustice
in cases in
which some material facts to establish a defence are not capable of proof
without interlocutory procedures
such as discovery and interrogatories. That
does not mean that defendants are to be allowed to speculate on possible
defences which might emerge but for which no realistic evidential basis is
put forward.
[17] A Court is not required
to accept uncritically any or every disputed fact: Eng
Mee Yong v Letchumanan [1980] AC 331 at 341. However, the Court will not reject
even dubious affidavit evidence, even though there must be suspicion as to the good
faith
of the deponent, if there is an essential core of complaint that supports a
defence. In essence, the inquiry is whether or not the
person's assertion passes the
threshold of credibility: Pemberton v Chappell; Orrell v Midas Interior Design
Group Ltd (1991) 4 PRNZ 608 (CA) at 613.
[18] In Tilialo v Contractors Bonding Limited the Court of Appeal at 6 observed:
Drawing the line between
mere assertions of possible defences and material
which sufficiently raises an arguable defence so that the defendant should
not be denied the opportunity to employ interlocutory procedures and have a
trial is a matter of judgment. Views
may well differ.
[19] The authorities have also referred to a residual discretion as to whether
judgment should be entered. Although,
as expressed by Casey J in Pemberton v
Chappell at 5:
It is very difficult indeed to conceive of circumstances where the
Court
should not give judgment for the plaintiff ... It can only be a discretion of
the most residual kind.
The discretion
was the subject of comment in Waipa District Council v Electricity
Corporation of New Zealand [1992] 3 NZLR 298 at 303.
[20] It is appropriate to comment on the position where there are disputed issues
of material fact. The matter was
the subject of comment in Westpac Banking
Corporation v MM Kembla (New Zealand) Ltd [2001] 2 NZLR 298. Although that
was a defendant's application for summary judgment, and a different test applies, the
Court's comments in relation
to disputed issues of material fact apply equally to a
plaintiff's application for summary judgment. The Court said:
[62]
Application for summary judgment will be inappropriate where there
are disputed issues of material fact or
where material facts need to be
ascertained by the Court and cannot confidently be concluded from
affidavits. It may also be inappropriate where ultimate determination
turns on a judgment only able to be properly
arrived at after a full
hearing of the evidence. Summary judgment is suitable for cases
where abbreviated
procedure and affidavit evidence will sufficiently
expose the facts and the legal issues. Although a legal point
may be
as well decided on summary judgment application as at trial if
sufficiently clear (Pemberton
v Chappell [1987] 1 NZLR 1), novel
or developing points of law may require the context provided by trial
to provide the Court
with sufficient perspective.
[63] Except in clear cases, such as a claim upon a simple debt where it is
reasonable to expect proof to be immediately available, it will not be
appropriate to decide by summary procedure
the sufficiency of the
proof of the plaintiff's claim.
[21] That statement of principle was endorsed by the Privy
Council in Jones v
Attorney-General [2003] UKPC 48; [2004] 1 NZLR 433.
Background
[22] There has been considerable background to the dispute between these parties.
It is not necessary for the purpose
of this judgment that I review all that has
occurred, including the various applications to the High Court. That is because the
relevant
facts that are required to be analysed in this application can be stated within
a short compass.
[23] The plaintiff Bank agreed
to make a loan to the first defendant in 2007.
Security was to be provided by a mortgage over a commercial property at 5-
11 Selwood
Road, Henderson, Auckland. The amount owing under the mortgage
was not at any time to exceed 60% of the value of the security. The
continued
availability of the loan was conditional upon the plaintiff receiving and being
satisfied in all respects within twelve
months from the drawdown date or other
period as agreed to by the plaintiff in its sole discretion, with a copy of a deed of
lease
between the first defendant (as the landlord) and Sensations Yachts Limited,
the tenant, in respect of the property.
[24] The
terms of the loan agreement were set out in a facility letter dated 3 May
2007 which was countersigned by the first defendant on
3 May 2007, together with
the plaintiff Bank's general conditions.
[25] The first defendant failed to provide the plaintiff with
a copy of the deed of
lease. In addition, the first defendant made defaults in his obligations under the loan.
Property Law Act notices
were served and expired without being remedied. Upon
expiry of the Property Law Act notices the plaintiff became entitled to possession
of
the property.
[26] In March 2009, as a result of negotiations, the first defendant, the first
defendant's mother, the second
defendant and the plaintiff entered into a deed of
settlement. Annexed to that deed is a sale and purchase agreement. Under that
agreement the first defendant's mother agreed to buy from the first defendant the
land in question. The deed of settlement provides
that the plaintiff will on settlement
of that sale discharge its mortgage over the subject property on payment to it of the
consideration.
In addition, the deed permits the plaintiff to literally step into the
shoes of the first defendant to enforce the agreement against
the defendant's mother.
The sale and purchase contract makes reference to a tenancy. The tenant is
described as Sensation
New Zealand Limited.
[27] There are two companies that must be distinguished. Sensation Yachts
Limited, the second
defendant, is the company that is currently in liquidation and in
receivership. Its sole shareholder and director is the first defendant.
A separate
company, Sensation New Zealand Limited is the third defendant. Its sole director
and shareholder is the first defendant.
[28] I now review the evidence concerning knowledge of and a possible consent
to a lease between the plaintiff and the third
defendant. The following matters arise
from the evidence placed before me:
a) No mention is made of a lease between
the first and third defendants
in the documents which make up the loan agreement in May 2007.
The only
reference to a tenant is to the second defendant;
b) The first defendant provided to his valuers, Seagar and Partners,
a
lease between himself and the second defendant dated 1 July 2007.
That exercise was required for
the purpose of valuing the subject
property with a view to the first defendant's trusts taking an interest in
it. The existence of a lease to the second defendant is inconsistent
with a lease to the third defendant;
c) The lease with the third defendant contradicts evidence which was
given on the first defendant's
behalf in a separate application to the
High Court where the first defendant's lawyers referred to the second
defendant as the lessee. Indeed, the lease with the third defendant is
inconsistent with the case advanced by the first defendant in
support
of his application for an injunction to restrain the plaintiff from selling
the property;
d) Despite the terms of the mortgage the first defendant entered into with
the plaintiff which require
consent to any leasing to be obtained, the
first defendant has sought no consent to the grant of a lease to the
third defendant;
e) The only evidence which the first defendant gives concerning the
plaintiff's
knowledge of the lease is that he alleges that the plaintiff
was aware of the existence of a lease when the settlement
deed was
signed in 2009. He does not say that a copy of that lease was sent to
the plaintiff. He gives
no evidence of any discussion with the plaintiff
about its terms and conditions; and
f) There is a bald
reference in the deed of settlement annexure, being the
sale and purchase contract, under the heading Tenancies, to
Sensation
New Zealand Limited. No further information about the tenancy is
contained in the contract.
Indeed, because particulars are not
provided the first defendant is required to give vacant possession on
settlement. That would indicate that there is no lease.
[29] I extract the following propositions from the authorities
dealing with consent:
a) Mere knowledge by a mortgagee of the existence of a lease is not
enough: Registered
Securities Ltd v Christensen Potato Company Ltd
CA 121-88 1 September 1989;
b) What is required is that
there must be some recognition by the
mortgagee of a right of occupation by the tenant. That may be by a
positive act, such as a written or oral acceptance, or implied
acceptance by conduct. Unless that can be shown
the mortgagee's
title will not be defeated: Cashmere Capital Ltd v Crossdale
Properties Limited (2009) NZCA 185; and
c) Mere acquiescence in a state of affairs is not enough to amount to
consent. In New Zealand Fisheries
Ltd v Napier City Council (1990)
1 NZConvC 190,342 the Court of Appeal described what is required
as follows at 190,344:
consent requires
a positive affirmative act such as written or
oral acceptance or even an implied acceptance by conduct.
[30]
The factual situation which I have summarised together with the fact that the
only acknowledgement of the existence of the lease
relied upon by the first and third
defendants, is the naming of the third defendant in the sale and purchase agreement,
draws attention
not to a state of affairs that exists before Mrs Erceg becomes the
registered proprietor but rather to that which occurs subsequent
to that time if she
settles. One can readily appreciate that the Bank's objective in signing the deed of
settlement was to be paid
a sum of money for which it was prepared to discharge its
mortgage. Once the mortgage was discharged it would have no interest in
whoever
the tenant was or what the covenants in the lease involving that tenant were. I
therefore can see no basis for implying a
consent to the granting of a lease to the
third defendant by the first defendant from any of the actions undertaken by the
plaintiff
in this case. In short, there is no foundation on the material that is available
for such a defence to be raised.
[31] The conclusion
expressed in the last paragraph answers the pleaded basis in
opposition advanced by the first and third defendants. Mr Revell, however,
referred
to s 179 of the Property Law Act 2007. That permits a mortgagee to adopt an
agreement for sale and purchase which is entered
into by a mortgagor at any time
during which the mortgagee is entitled to exercise a power of sale in respect of the
mortgaged property.
If the mortgagee serves notice on the purchaser to adopt the
agreement for sale, the mortgagee:
a) Has all rights and
powers in relation to the purchase that the current
mortgagor will have as vendor;
b) The mortgagee
may execute all assurances and all other things
necessary to effect the transfer or assignment of the property; and
c) The mortgagee must account for the proceeds of sale as though the
property had been sold by the mortgagee.
[32] Mr Revell did not spell out precisely what the effect of an adoption of the
sale and purchase agreement might be. The implication
from his submission is that
the mortgagee would be required in some way to execute a transfer of the interests of
the first defendant
in the lease as lessor in favour of the purchaser. I consider that, in
the circumstances of this case, I consider, is totally unrealistic.
The lease is between
the first defendant and his company. The purchaser is his mother. The sale and
purchase agreement makes no specific
provision regarding the tenancy. Clause 3.1
of the standard terms refers to the property being sold with vacant possession unless
particulars of a tenancy are included in the agreement. A reference back to the front
page of the agreement shows no particulars
of the tenancy.
[33] My preliminary view is that the plaintiff has not adopted the agreement. The
deed of settlement makes it
clear that the plaintiff may adopt the agreement, but is
not obliged to adopt the sale and purchase agreement. What I have seen of
the
correspondence indicates that the plaintiff was simply reserving its position.
[34] However, even if there had been an adoption
of the agreement, what
consequence does it have in the circumstances of this case? Mrs Erceg would only
have a right to possession
if she is prepared to perform the obligations of purchaser
under the sale and purchase contract. To do that she must be prepared
to pay the
contract price. The granting of an order for possession at this stage does not prevent
the plaintiff from agreeing to
sell to Mrs Erceg, if it should decide to do so. That
matter simply does not require a decision on the current application.
[35]
I see nothing in the argument concerning adoption of the agreement that
changes the view I reached and earlier expressed in this judgment.
I am satisfied that
there has been no consent to a lease between the first defendant and the third
defendant in terms of s 138 of
the Property Law Act 2007 or its predecessor that
prevents the plaintiff from taking possession of the mortgaged land. That finding
also means that, assuming there has been a lease granted by the first defendant to the
third defendant, it is not binding on the
plaintiff because of the plaintiff's lack of
consent to it by the operation of s 119 of the Land Transfer Act 1952.
Judgment
[36] I enter judgment for the plaintiff on the following terms:
a) I order in respect of the first defendant and
third defendant, that
possession of the property at 5-11 Selwood Road, Henderson,
Auckland be given
to the plaintiff; and
b) I declare the plaintiff has not given its consent to a lease of the
property
of 5-11 Selwood Road, Henderson, Auckland by the first
defendant to the third defendant.
Costs
[37] I reserve
costs. Mr Arthur confirmed my understanding that a specific order
is not required. If, however, it needs to be pursued and counsel
are unable to agree
memoranda in support, opposition and reply shall be filed and served at seven-day
intervals.
Continuing stay
of the proceeding
[38] The proceeding is stayed so far as the second defendant is concerned in terms
of s 248(1)(c) of the Companies
Act 1993.
_____________________
JA Faire
Associate
Judge
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URL: http://www.nzlii.org/nz/cases/NZHC/2009/1426.html