King v PFL Finance Limited [2012] NZHC 2414 (18 September 2012)

Last Updated: 19 October 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-1734 [2012] NZHC 2414

BETWEEN THOMAS FREDERICK MAZLIN KING AND JUDITH RUTH KING AS TRUSTEES OF THE TFM AND JR KING PARTNERSHIP

First Plaintiff

AND HAVELOCK FARMS LIMITED Second Plaintiff

AND PFL FINANCE LIMITED First Defendant

AND CRAIG BEECROFT Second Defendant

Hearing: 14 September 2012

Appearances: A J Woodhouse and A C Poole for Plaintiffs

K M Quinn for Defendants

Judgment: 18 September 2012

_{REASONS JUDGMENT OF PETERS J}

This judgment was delivered by Justice Peters on 18 September 2012 at 4:30 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors: Carter & Partners, Auckland: [e-mail] / [e-mail]

_{Heimsath Alexander, Auckland: [e-mail]}

_{Counsel: K M Quinn, Auckland: [e-mail]}

KING V PFL FINANCE LIMITED HC AK CIV-2012-404-1734 [18 September 2012]

[1] The trial of this matter is due to commence on 1 October 2012. On

14 September 2012 I heard three interlocutory applications, being the Plaintiffs’ applications for leave to amend their statement of claim and for interim orders, and the Defendants’ application for security for costs against the Second Plaintiff (“HFL”). The First Plaintiffs (“Mr and Mrs King”) are legally aided.

[2] Each application is opposed, wholly or in part.

[3] On 17 September 2012 I issued a results judgment, allowing in part the application for leave to amend but declining the other applications. My reasons are as follows.

Background

[4] The First Defendant (“PFL”) advanced more than $3.3 million to HFL in July

2011, for a term of one year. Mr King is the sole director of HFL. Mr and Mrs King and three sons guaranteed HFL’s performance of its obligations. HFL is the registered proprietor of land referred to as Havelock Farm, and that land has been in the ownership of the King family for more than 130 years.

[5] In January 2012, PFL appointed a receiver of HFL, that receiver being the Second Defendant. PFL’s case is that that HFL had defaulted on payments of interest due in November and December 2011 and in January 2012, which defaults had not been remedied at the time PFL appointed the receiver.

[6] After his appointment the receiver ceased the farming operation and took steps to realise assets. The assets include the land of which HFL is the registered proprietor and which it had leased to the Plaintiffs. The receiver terminated the lease and called for tenders to purchase the land and other assets. More recently, the receiver has entered into an agreement for sale and purchase in respect of the “home block” and other assets, and is now in negotiations to sell the remainder of the farm, being the “run off block”.

[7] The Plaintiffs commenced proceedings at the end of March 2011. Broadly speaking, they take issue with two matters.

[8] The first is whether PFL was entitled to appoint a receiver when it did. The Plaintiffs’ case is that in late October 2011 HFL and PFL agreed that HFL could defer the interest payment due in November 2011 and that, as a result, the failure to make the payment did not constitute a default.

[9] The second complaint concerns the manner in which the receiver has conducted the receivership. The Plaintiffs’ case is that the receiver should have continued to trade, rather than taken steps to realise assets.

[10] The Defendants have counterclaimed against Mr and Mrs King. The Defendants’ case on the counterclaim is that equipment and machinery over which Mr and Mrs King granted security is missing and has not been returned, despite request. One of the missing items is a Hitachi excavator. Mr and Mrs King acknowledge that they have possession of this but decline to return it at present. Mr King was in Court when the applications were heard and he undertook that the excavator would not be sold or otherwise disposed of pending further order of the Court.

[11] At the outset of the proceedings the Plaintiffs applied for interim orders to restrain the Defendants from taking particular steps, including entering into any agreement for sale and purchase of the farm. The Court made some of the orders sought pending argument on the application. Having heard argument, in early

May 2011, his Honour Keane J declined the Plaintiffs’ application.1

[12] The Plaintiffs appealed to the Court of Appeal but the appeal was dismissed in a decision given on 28 August 2012.2

[13] The application for interim orders that I heard was a fresh application, filed after the Court of Appeal delivered its judgment.

[14] The proceeding was allocated a two week trial to commence on 6 August

2012 but was adjourned pending the outcome of the Kings’ application for legal aid. The matter is now to go to trial on 1 October 2012. The Plaintiffs have served their briefs of evidence and the Defendants are to do likewise by 26 September 2012.

Application for leave to amend

[15] The case has been set down so the Plaintiffs require leave to file and serve an amended statement of claim.3 The proposed pleading furnishes some particulars and also includes a fresh cause of action pursuant to s 9 Fair Trading Act 1986. The Defendants do not object to these amendments and I allow them accordingly.

[16] The contentious issue is that the proposed pleading continues to include a cause of action in waiver or for estoppel. This cause of action is based on the Plaintiffs’ allegation that at a meeting on 31 October 2011 the parties agreed that HFL could defer the interest payment due in November 2011. The Plaintiffs’ case is that, as a result, PFL is estopped from asserting the fact of a default, or has waived its right to do so.

[17] The reason this cause of action is contentious is because the Court of Appeal judgment records that the Plaintiffs abandoned it at the hearing in July 2012.4 The Defendants submit that the Plaintiffs must be held to their statement to the Court of Appeal.

[18] A party who abandons a cause of action before the Court is to be held to that abandonment, unless there is good reason to allow them to do otherwise. The Court and the other parties to the proceeding must be able to rely on such a statement from counsel.

[19] In this case, there would be inconvenience to the Defendants if the Plaintiffs were to be allowed to resile from the abandonment. The inconvenience might not be insurmountable, because it is likely to be necessary to traverse the discussion on

31 October 2011 regardless. Equally, however, the trial is imminent and I accept that, as from 25 July 2012, the Defendants would have considered that they did not have to address this cause of action at least.

[20] I am not satisfied the circumstances in the present case are such that the Plaintiffs should be allowed to change their position. The application for leave to amend sates that the “decision to reinstate the cause of action based on waiver and estoppel arose after discovery”. At the hearing, counsel for the Plaintiffs informed me that the Plaintiffs had abandoned the cause of action before the Court of Appeal because they accepted that the preponderance of evidence was against their allegation of an agreement to defer the November 2011 interest payment. Counsel advises, however, that since then evidence has come to hand which supports the Plaintiffs’ account. That evidence is a letter from the Defendants’ solicitors to the Plaintiffs’ solicitors dated 6 December 2011. The gist of the letter is that the Plaintiffs are in default; and that, without prejudice, PFL is willing to consider deferring payment of accrued penalty interest to the end of the term of the loan, provided the Plaintiffs pay the interest payment due in November and make subsequent interest payments as due. Lastly, it refers to the fact that the parties have been having discussions between themselves and that PFL wishes to reiterate that nothing should be considered agreed until PFL’s solicitors notify the same in writing.

[21] With respect, I do not see how this letter assists the Plaintiffs. I accept that the letter refers to discussions but there is no dispute that the parties had been in discussion. The dispute is as to what, if anything, was agreed. On its face, the remainder of the letter is consistent with PFL’s case.

[22] I allow the Plaintiffs’ application for leave to amend the statement of claim but order the Plaintiffs to omit the cause of action in waiver and estoppel. The Plaintiffs are to file and serve the amended pleading by 4pm, 19 September 2012 and the Defendants are to file and serve any further statement of defence by 4pm,

21 September 2012.

Application for interim orders

[23] The receiver has entered into an agreement for sale and purchase of what is known as the “home block”, and other assets including Fonterra shares and livestock, to Mr Greg Roberts or an entity associated with him. The agreement is conditional on these proceedings being resolved in a manner satisfactory to the receiver.

[24] In their earlier application for interim relief, the Plaintiffs sought to restrain the receiver from entering into any agreement to dispose of assets. In this application dated 10 September 2012, the Plaintiffs seek orders restraining settlement of the sale. The Plaintiffs contend that evidence now available shows an arguable case that the Defendants have acted in accordance with a pre-meditated plan to sell the farm or a substantial part of it to someone associated with the receiver and they point out that Mr Roberts has been involved in this matter from the outset.

[25] The Defendants oppose the application. They submit that there has been no change in circumstance which would justify the making of the orders sought and they also take issue with the undertaking in damages which has been proffered.

[26] Counsel for the Defendants submitted attention should be focused on the evidence that has now been adduced but which was not before the Court of Appeal. I accept that submission.

[27] The new evidence on which the Plaintiffs rely is as follows.

[28] First, there is an affidavit sworn by a person employed by the Plaintiffs’ solicitors. This affidavit exhibits emails and other documents which the Plaintiffs contend are consistent with their suspicions. With respect to them, the emails are consistent with PFL and the receiver briefing themselves on the state of the farm two or so days before they were appointed, and considering the steps they might be required to take. The documents also include a licence granted to Mr Roberts and an

application for resource consent to subdivide. I do not accept that these documents reveal anything sinister.

[29] Secondly, there are affidavits from a Mr Vosper and a Mr Whitfield. Mr Vosper annexes various photos on which Mr Whitfield comments. The effect of these affidavits is to challenge the evidence for the receiver that the farm was in a poor state when he was appointed. This evidence may be relevant at trial but it is not an adequate basis for granting the orders sought.

[30] Thirdly, there is an affidavit from Kelly Lopas, the partner of one of Mr and Mrs King’s sons. Ms Lopas states that she has been unable to locate PFL or related companies on the Financial Service Providers Register and that she has lodged a complaint with the Financial Markets Authority. Ms Lopas also states that Mr Brough, who assisted in arranging the loan from PFL to HFL, has a criminal conviction for fraud for which he was sentenced to a term of imprisonment. As counsel for the Defendants submits, however, Ms Lopas’ evidence, even if correct, would not justify granting the orders sought.

[31] Lastly there is an affidavit from Mr and Mrs King sworn on 10 September

2012. This affidavit refers to the evidence described in the previous paragraph and to the photographs attached to the Vosper affidavit. It also exhibits a newspaper article concerning an SFO prosecution of Mr Beecroft and Mr Kirk, one of PFL’s directors, in 2000. Mr Beecroft and Mr Kirk were acquitted of the charges against them.

[32] Having considered the fresh evidence, I am not satisfied that it provides any basis for granting the orders sought. Given that, it is unnecessary for me to address the undertaking in damages. I decline the application accordingly.

[33] Having succeeded, the Defendants are entitled to costs and disbursements. The Defendants seek an order that the Plaintiffs’ solicitors should pay those costs. There is no prospect of recovery from the Plaintiffs themselves.

[34] There is jurisdiction to make such an order. If the Plaintiffs wish to make a submission in response to that application as to costs, they may do so by filing and serving the same by 4 pm, 20 September 2012.

Application for security for costs

[35] The Defendants seek an order that HFL provide security for costs. They seek security of $65,000, which sum comprises costs and disbursements of not less than

$17,500, arising in respect of an order for costs that Keane J made on the interim injunction application. The balance of the sum sought represents scale costs for the Defendants’ costs in preparing for trial.

[36] There is jurisdiction to make an order for security as HFL is impecunious. Accordingly, the issue is purely one to be decided in the discretion of the Court.

[37] The following matters favour granting the application. On the face of it, the merits of the case, at least as to there being grounds for appointment of the receiver, favour PFL. This is apparent from the views expressed by Keane J and the Court of Appeal. Also, if the Defendants succeed at trial there is likely to be a shortfall in their recoveries under the loan, let alone in respect of their costs.

[38] In opposition to the application, counsel for HFL submitted that the Court must be careful not to close the door on a meritorious claim by ordering security which a party is unable to provide. He also submitted that the receiver has caused HFL’s impecuniosity by ceasing to trade. The receiver’s decision to cease trading, and the circumstances in which he made that decision, are matters in dispute.

[39] Although there are compelling reasons for an order, I do not propose to grant the application for the following reasons.

[40] Mr and Mrs King’s case is to go to trial on 1 October 2012, regardless of HFL’s position. The Defendants will incur significant cost in defending that case and if they succeed that cost is likely to be irrecoverable.

[41] If I were to order HFL to provide security and if it were unable to provide that security prior to trial, its case would be stayed. Counsel for the Defendants submitted that it would be open to me to impose an “unless” order on HFL, so that its claims would be struck out if security were not provided within a short period. However, a party subject to an order to provide security must be given a reasonable time in which to comply. HFL should not be placed under undue time pressure, particularly as the Defendants could have made this application well before now. I also take into account that the Court allocated an urgent two week trial to address all issues between the parties, and not just those between Mr and Mrs King and the Defendants.

[42] I decline the application accordingly.

[43] Subject to what is said in [33] and [34] above, costs are to lie where they fall.

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

M Peters J