Allied Nationwide Finance Limited (in rec) v Southland Building Society HC Auckland CIV-2010-404-008228 [2011] NZHC 973 (19 August 2011)

Last Updated: 21 September 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2010-404-008228}

BETWEEN ALLIED NATIONWIDE FINANCE LIMITED (IN RECEIVERSHIP) Plaintiff

AND SOUTHLAND BUILDING SOCIETY First Defendant

AND PARKVIEW PROPERTY SECURITIES LIMITED

Second Defendant

AND ST ARNAUD PROPERTY HOLDINGS LIMITED

Third Defendant

AND TAURUS GROUP LIMITED Fourth Defendant

Hearing: 19 August 2011

Counsel: DJ Friar and AJ Smith for Plaintiff

AM Dollimore for First Defendant

Judgment: 19 August 2011

_{JUDGMENT OF ASHER J}

Solicitors/Counsel:

Bell Gully, DX CP20509, Auckland 1140. Email: [e-mail] [e-mail]

Cavell Leitch Pringle & Boyle, PO Box 799, Christchurch. Email: [e-mail] [e-mail]

MJ Wallace, Bridgeside Chambers, PO Box 13254, Christchurch 8141. Email: [e-mail]

Alexander Paull, PO Box 13522, Christchurch 8141. Email: [e-mail]

Duncan Cotterill, PO Box 5, Christchurch. Email: [e-mail]

ALLIED NATIONWIDE FINANCE LIMITED (IN RECEIVERSHIP) V SOUTHLAND BUILDING SOCIETY HC AK CIV-2010-404-008228 19 August 2011

Introduction

[1] The first defendant, Southland Building Society, applies for the removal of this proceeding from the commercial list under r 29.13 of the High Court Rules. The nature of the claim and the various causes of action are relevant to any such application and it is necessary to briefly set out the background.

[2] The plaintiff, Allied Nationwide Finance Ltd (in rec) (“Allied”), was a commercial lender until it was placed into receivership in August 2010. The first defendant, Southland Building Society (“Southland”) is also a commercial lender. They were both lenders to Beechnest Ventures Ltd (“Beechnest”). In May 2009

Beechnest was involved in a large property development at St Anaud near Nelson. Upon completion of the subdivision in May 2009, 53 new titles were issued.

[3] Southland was the first mortgagee. It had advanced in excess of $5 million and the priority amount was fixed at $5 million. On 27 July 2007 Beechnest had entered into a revolving credit facility agreement with Allied. As at 31 October 2010 it was indebted to Allied in the sum of $1,405,543.91. Allied had a second mortgage with a priority amount of $2 million.

[4] Allied and Southland entered into a deed of subordination and priority (“deed of priority”) in May 2008. Under that deed Allied had an option to take an assignment of Southland’s mortgage prior to Southland exercising any of its remedies under the mortgage. Southland agreed not to transfer any rights in its mortgage to any person unless that person agreed to be bound by the deed. I was informed in argument that there was an express clause in that deed referring to Allied exercising options following notice by Southland of its intention to exercise remedies. Allied also asserts that Southland gave a verbal assurance to Allied that Southland would not sell its first mortgage without Allied’s approval.

[5] The second defendant, Parkview Property Securities Ltd (“Parkview”), was incorporated on 9 December 2009. On 5 January 2010 Southland assigned its interest in the first mortgage to Parkview. On or about the same day Parkview, now the first mortgagee, sold the Beechnest subdivision to the third defendant St Arnaud

Property Holdings Ltd (“St Arnaud”), a commercial property developer. The assignment price from Southland to Parkview was approximately $3.5 million and this was the same price as the sale by Parkview to St Arnaud.

[6] St Arnaud’s purchase was funded by Southland. Allied asserts that the position now is that Southland still has its security as first mortgagee. However, it claims the effect of the transaction has been to remove the second mortgage from the title and take away Allied’s rights under its mortgage and the deed of priority. Allied claims that there was a failure to give notice under the clause in the deed of priority and a failure to observe the promise not to sell without seeking Allied’s approval. The amount of loss claimed by Allied is the mortgage amount of approximately $1.8 million.

[7] The causes of action include a claim for breach of the deed of priority, a claim that there was a breach by Parkview of its obligation to obtain the best price reasonably obtainable, and a claim of a conspiracy by all defendants to wrongfully remove Allied’s second mortgage and defeat Allied’s rights.

Approach

[8] Rule 29.13(1) provides:

29.13 Removal from list

(1) A commercial list Judge may, on the application of any party or on the Judge's own initiative, at any time remove any proceeding (including a proceeding to which section 24B(1) of the [Judicature Act 1908] applies) from the commercial list.

[9] The provision does not set out any guide as to how the discretion is to be exercised. The discretion is on its face unfettered. I respectfully adopt the approach of Rodney Hansen J in Cadbury Ltd v Effem Foods Ltd[1] where he observed that the enquiry requires “ultimately a balancing exercise which does not involve a burden

_{on either side”.}

[10] In approaching the exercise of a discretion it is relevant to consider the requirements of eligibility for entry on the commercial list set out in s 24B of the Judicature Act 1908. Section 24B(1) relevantly provides:

24B Proceedings eligible for commercial list

(1) The classes of proceedings eligible for entry on a commercial list are as follows:

(a) Any proceedings arising out of or otherwise relating to:

(i) The ordinary transactions of persons engaged in commerce or trade or of shippers:

(ii) The carriage of goods for the purpose of trade or commerce: (iii) The construction of commercial, shipping, or transport

documents:

(iv) The export or import of merchandise:

(v) Insurance, banking, finance, guarantee, commercial agency, or commercial usages:

(vi) Disputes arising out of intellectual property rights between parties engaged in commerce:

...

(f) The following proceedings in relation to companies registered under the Companies Act 1955 or the Companies Act 1993, as the case may be:

(i) Applications for directions by liquidators and receivers:

...

(g) Proceedings of a commercial nature required or permitted to be entered on a commercial list by or under any Act or by or under the High Court Rules or any rules made under section 51C of this Act.

[11] It is obvious from the discretion in r 29.13(1) that the fact that a proceeding is already on the commercial list does not mean that there is conferred upon it an absolute right to remain there. If a proceeding fails to come within one of the criteria for eligibility in s 24B it is likely that the r 29.13(1) discretion will be exercised in favour of an application to remove. However, the fact that a proceeding does fall within one of the eligibility criteria will not in itself ensure a continuing presence on the list. In addition to considering the statutory criteria, the Court should consider

whether the proceeding has a sufficient commercial flavour to warrant their retention.

[12] As Barker J said in Taspac Oysters Ltd v James Hardie & Co Pty Ltd:[2]

The test for eligibility in the List has been stated many times ..., ie does the proceeding have a sufficient “commercial flavour” to come within the general purpose and intendment of the legislation.

Mr Dollimore in his submissions for Southland in support of the application for removal relied on an observation in Insignia International Ltd v Gulf Star Products Ltd[3] indicating that cases should have a “superadded commercial flavour” if they are to stay on the list. This is not a phrase that is to be found in the very considerable number of cases dealing with the discretion, and with respect I do not find it helpful. Mr Dollimore also relied on another statement from that case that “ordinary commercial transactions do not qualify for inclusion in the List”.[4] Again, with great respect, that observation does not appear in any other of the relevant precedents and I do not propose to apply it. The phrase “sufficient commercial flavour” is deliberately broad and warrants no further adjectival refinement.

Section 24B criteria

[13] Mr Dollimore referred to the s 24B criteria and argued that they did not necessarily apply, indicating therefore that the proceeding did not have a sufficient commercial flavour. I first consider whether the s 24B criteria relied on by Allied apply.

[14] The first criterion relied on is that in s 24B(1)(a)(i) that this is an ordinary transaction of persons engaged in commerce. I have no doubt that is so. Both parties are commercial lenders who are arguing about significant loans to a borrower itself involved in a commercial development. In any parlance this was a commercial

_transaction.

[15] The second ground relied on is that in s 24B(1)(a)(iii), namely the construction of commercial documents. There will be arguments as to the meaning of the clause in the deed allegedly requiring notice, and as to implied terms that might arise. I accept that this proceeding involves the construction of commercial documents, in particular the deed of priority.

[16] The third ground relied on is that in s 24B(1)(a)(v), namely “... banking, ... or commercial usages”. Mr Friar initially suggested that the word “banking” was not qualified by the word “usages”, but then accepted in discussion that the two words were linked. I consider that this concession was correctly made. Although the word “usage” occurs directly after the word “commercial”, it appears to me to qualify all the preceding nouns. The section would not make sense if it was to read, for example, “any proceedings arising out of or otherwise relating to ... guarantee” but

does make sense if “usages” is added, to read “guarantee usages”.[5]

[17] I have not been informed of any banking usage that directly arises in the case, although it may well be that the practice of commercial lenders may be relevant. In particular, the implied term pleading may give rise to the adducing of evidence as to the practice of lenders. Thus, despite this interpretation of s 24B(1)(a)(v) I am prepared to accept that this criterion may also apply.

[18] I mention briefly two other possible criteria referred to, although not ultimately relied on by Allied. It was suggested that s 24B(1)(f)(i) applies. However, I do not accept that it can because there has been no application for directions by receivers. It was also initially suggested that s 24B(1)(g) was a general catch-all provision, that could be applied in the absence of other applicable criteria.

This was the position taken by Barker J in Taspac Oysters v James Hardie Ltd.[6] I do

not have to determine this issue but I do note that on its face the subsection applies to proceedings of a commercial nature where there is an Act or rule requiring or permitting them to be entered on the commercial list. It does not seem to be a catch- all for proceedings of a commercial nature not otherwise referred to in s 24B(1),

_{when there is no applicable provision made in an Act or rule.}

[19] What is clear is that two, and perhaps three, of the eligibility criteria apply. Further, this proceeding most definitely has a sufficient commercial flavour. It is an argument between parties who are significant commercial lenders and involves the dealings of persons expert in the commercial area of finance. It involves the construction of specialised commercial documents. Indeed, it qualifies by a considerable margin. Thus, I cannot accept Mr Dollimore’s argument that this proceeding does not have a sufficient commercial flavour to remain on the list.

Further specific reasons to remove

[20] Mr Dollimore put forward a number of particular reasons for removal.

[21] The first was his submission that cases involving matters of disputed fact are not generally appropriate for the commercial list. In this regard he relied on an aside in Insignia International Ltd that: “The second and third causes of action may well depend on evidence in the normal way as to who said what to whom.”[7] I do not interpret this statement as indicating that matters of disputed fact are not suited to the commercial list. It is my view that such a proposition is incorrect. Matters of

disputed fact may be entirely suited to the commercial list. The question is whether they have a sufficiently commercial flavour.

[22] Mr Dollimore also submitted that cases may be removed from the commercial list which are of a one-off nature. He submitted that the commercial list was better suited to cases involving a standard form of transaction, where the judgment may create a precedent. He relied on a statement in Waitemata Securities Ltd v Gaddis:[8]

It is not an ordinary transaction of persons engaged in commerce or trade; it is an extraordinary transaction whereby the plaintiff sold its whole business by means of share transfer.

[23] I do not take that statement as indicating that one-off transactions are not suited to the commercial list. The statement quoted was made in the context of a

_{transaction being one-off in the sense of being outside of those usually conducted by}

persons in commerce or trade. If a one-off transaction involves a sufficiently commercial flavour it may well be entirely suited to the commercial list, where the discipline and commercial orientation of the list provides a suitable environment for the speedy and effective determination of interlocutory issues. Whether or not the ultimate decision may create a precedent in the commercial arena is not, in my view, a relevant factor. The commercial list was set up to provide a procedure for the expeditious and cost-effective conduct of commercial proceedings prior to trial, not precedents.

[24] Mr Dollimore argued that the plaintiff had delayed determination of the dispute. I accept delay could be a relevant factor in the exercise of the Court’s discretion, although I note that lengthy periods of delay have been accepted in earlier decisions.[9] I am not persuaded that there has been any disentitling delay in this case. Allied clearly has been in financial difficulties and this proceeding was issued within four months of the receivership.

[25] Mr Dollimore pointed out that there were difficulties in relation to discovery. The premises of Southland’s law firm were damaged in the Christchurch earthquake and no access to the building has to this point been allowed. He submitted that this meant that the usual expediency associated with the commercial list would not be required or indeed fair, and that this was a reason to take it off the list.

[26] Every sympathy must be extended to parties and solicitors affected by the earthquake. However, far from this sort of complication being a disqualifying factor from the list it can be seen as another reason why the proceeding could stay on the list. If there are difficulties in relation to discovery and interlocutory orders are sought to accommodate those difficulties, the commercial list with its frequent calls and consequent ability to have interlocutory issues determined promptly provides an efficient procedure. If a stay application is made, that can be dealt with quickly.

[27] It was also suggested that there was no particular urgency about this proceeding. Urgency is not necessarily a qualifying factor to entry on the

commercial list. However, having said that I would also observe that there is a legitimate wish on the plaintiff’s part to have this proceeding determined quickly. Although many of Allied’s former bond holders have been paid out there are still a significant number who have not. They will undoubtedly wish to have this proceeding determined as quickly as possible.

[28] The further point was made that in addition to the problems with discovery, the proceeding could benefit from a slower pace as the plaintiff’s alleged loss was speculative. Mr Dollimore argued that it would be desirable to allow some of the properties in the Beechnest subdivision to be sold so that the best evidence of market value could be obtained.

[29] This is not a reason to remove the proceeding from the list. Commercial list proceedings, as with all proceedings, must be conducted to secure the just, speedy, and inexpensive determination of the proceeding.[10] Undirected procedural delay is not acceptable. As Mr Friar pointed out, if it is considered necessary for some time to go by to allow some sales before there is any hearing, then the first defendant’s proper remedy is a stay application.

Conclusion

[30] None of the specific arguments put forward in support of the application to remove the proceeding from the list are persuasive. On an overview it qualifies under s 24B(1) and has a sufficient commercial flavour. Indeed, it is a case entirely suited to the commercial list.

Result

_{[31] The application is dismissed.}

Costs

[32] The plaintiff is entitled to costs on a 2B basis plus reasonable disbursements to be paid by the first defendant.

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

Asher J

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[1] Cadbury Ltd v Effem Foods Ltd (2003) 16 PRNZ 991 (HC) AT [14].
[2] _{Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 442 (HC) at 445.}
[3] _{Insignia International Ltd v Gulf Star Products Ltd (2000) 14 PRNZ 357 (HC) at [13].}
[4] At [12].

[5] The assumption that “usage “ qualifies all the preceding nouns was made in Waterhouse v
_{Contractors Bonding Ltd HC Auckland CIV-2010-404-3074, 13 December 2010 at [48].}

[6] At 445.
[7] _{At [13].}
[8] Waitemata Securities Ltd v Gaddis (1987) 1 PRNZ 322 (HC) at 323.

[9] See Coca-Cola Bottlers Ltd v Lion Nathan Ltd (1991) 4 PRNZ 484 (HC) where there was a lapse of two years in bringing the proceedings.

[10] See r 1.2 of the High Court Rules.