Crisford v Bank of New Zealand [2012] NZHC 3290 (6 December 2012)

Last Updated: 12 December 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-005986 [2012] NZHC 3290

BETWEEN JOHN ANTHONY CRISFORD Plaintiff

AND BANK OF NEW ZEALAND Defendant

Hearing: 6 December 2012

Appearances: C R Pidgeon QC for Plaintiff

S Barker for Defendant

Judgment: 6 December 2012

_{ORAL JUDGMENT OF VENNING J}

Solicitors: Pidgeon Law, PO Box 6535, Wellesley Street Auckland 1141

Buddle Findlay, PO Box 2694, Wellington 6140

Copy to: C R Pidgeon QC, PO Box 105924, Auckland

CRISFORD V BNZ HC AK CIV-2012-404-005986 [6 December 2012]

[1] The plaintiff is a director of Crisford Trustee Limited. He is also the current trustee of the John Crisford Family Trust. He was appointed to that position on 2

October 2012.

[2] The plaintiff seeks an interim injunction preventing the Bank of New Zealand (the Bank) from settling the sale of a property at North Cove, Kawau Island (the property). The property is made up of a number of titles.

[3] At the outset of the hearing this morning Mr Pidgeon QC sought leave to file a further affidavit on behalf of the plaintiff. The affidavit annexes copies of offers for the purchase of the property. The application for leave is not opposed by Mr Barker for the Bank. I will return to the matters referred to in the updating affidavit later.

[4] Crisford Trustee Limited, which I shall refer to as Company A, is the registered proprietor and mortgagor of the property in its capacity of trustee of the John Crisford Family Trust. In 2006 Company A granted a mortgage to the Bank to secure borrowing by the John Crisford Family Trust. The mortgage was executed by Company A as the trustee of the John Crisford Family Trust. The mortgage and loan agreements were signed by Mr and Mrs Crisford as directors of Company A. The mortgage was then registered against the property.

[5] Company A was struck off the Companies Register on 21 January 2009 for failure to file company returns. Mr Crisford then arranged for the incorporation of another company with the same name, Crisford Trustee Limited to be incorporated on 5 June 2009. I shall refer to that company as Company B.

[6] The Bank was unaware that Company A had been struck off the Register and was not advised of that fact by Mr Crisford. Nor was it advised Company B had been incorporated.

[7] In December 2010 the Bank restructured the John Crisford Family Trust’s accounts and borrowing. It advanced $1,160,000 under a housing term loan and a further $48,000 under a rapid repayment loan.

[8] The loan agreement was signed by Mr Crisford and his wife on behalf of “Crisford Trustee Limited” as the trustees of the John Crisford Family Trust. Clearly that was to all intents and purposes a reference to Company A as Company A is the only company entity that has ever been a trustee of the John Crisford Family Trust. In fact at the time with Company A having been struck from the Register, there was no operating trustee.

[9] The loan agreement recorded the advances were to the John Crisford Family Trust. The security was noted as the existing mortgage and guarantee held by the Bank that had previously been provided by Company A.

[10] In executing the loan agreements Mr Crisford and his wife confirmed that the trust deed of the John Crisford Family Trust was unaltered and undertook not to amend or alter the deed, nor relinquish the trusteeship without prior notice to the Bank. Despite that, as noted the Bank was not advised that Company A had been struck from the Register.

[11] The housing loan fell due on 13 June 2011. It was not repaid. The Bank made demand in July 2011. On 4 August 2011 the Bank served a s 119 Property Law Act notice on Company A as trustee of the John Crisford Family Trust and a notice under s 122 of the Property Law Act on Company A, again as trustee of the trust in its capacity as guarantor.

[12] On 15 September 2011 the Bank agreed to defer exercising its power of sale for six months from the expiry of the notices. That period of grace expired in March

2012. The loans remained owing and unpaid.

[13] In August 2012 the bank engaged a real estate agent to market and sell the property. It had obtained a valuation of $2.15 million with a forced mortgagee sale value of $1.505 million as at September 2011. Further correspondence ensued between Mr Crisford and the Bank but no resolution was achieved.

[14] On 18 September 2012 the Bank agreed to sell the property for $1.65 million. The sale was an unconditional sale. On the basis of the contract the Bank withdrew

the property from the auction proposed for the property. The sale was due for settlement on 12 October 2012. It awaits the outcome of this hearing.

[15] The plaintiff commenced these proceedings on 4 October. As a result, and for the first time, the Bank became aware that Company A had been removed from the Register. The Bank applied to this Court to have Company A restored to the Register. That application was granted against the opposition of Mr and Mrs Crisford on 8 November 2012.

[16] As at November 2012 the trust remained indebted to the Bank for in excess of $1,260,000. Interest and penalties continue to accrue. There are apparently subsequent mortgages or charges at least registered against the property. On the information before the Court it appears to be in excess of $270,000.

[17] The plaintiff seeks the injunction on the following grounds: (a) the Bank is not a secured creditor;

(b) the Property Law Act notices were not validly served. The re- instatement of Company A did not validate service of the Property Law Act notices;

(c) the Bank is estopped from relying on the first Property Law Act notices because it has subsequently issued a second set of Property Law Act notices;

(d) the Bank has acted improperly in concealing the identity of the purchaser and has acted in breach of its obligations as mortgagee under s 176 of the Property Law Act.

[18] There was a related issue raised in Mr Pidgeon’s written submissions to the effect that if the loan was to the trust then Company A retained the right of redemption.

[19] The principles to apply on an application for an interim injunction are well settled. In American Cyanamid Co v Ethicon Ltd[1] the House of Lords formulated a

_{two-stage approach:}

first, whether there is a serious question to be tried; and

_{second, where the balance of convenience lies.}

[20] In Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd[2] the Court of Appeal confirmed that a two-stage approach, whilst helpful, was not exhaustive and the final stage of the analysis is to stand back and consider where the overall justice of the case lies.

[21] I turn to deal with the issues raised by the plaintiff. First, is the Bank a secured creditor? The mortgage registered against the property was granted by Company A. It was signed by Mr and Mrs Crisford as directors of Company A in

2006 and has not been discharged. The restructured facilities completed in 2010 and executed by Mr Crisford again and Mrs Crisford, state and confirm that the advances made to the trust at that time were secured against the existing mortgage over the property.

[22] I understood Mr Pidgeon to abandon the suggestion that in fact the advances had been made to Company B rather than the trust. It seems Mr Crisford has accepted that the trust is liable for the borrowings but he suggests that in some way the most recent borrowings are not secured by the mortgage. However, as Mr Barker submits, the trust itself is not a legal entity. It can only act through its trustee. The trustee at the time the advances were made in December 2010 was Company A, save for the issue that Company A had been removed from the Register. There was no other trustee appointed until 2 October 2012 when Mr Crisford was appointed.

[23] I accept Mr Barker’s submissions that Company B could never have been the

_{borrower under the restructured facilities because they were simply a restructuring of}

the existing borrowings by the trust. Company B has never been a trustee. Company B has never been a customer of the Bank.

[24] Further, Mr and Mrs Crisford signed the restructured facilities as directors of Crisford Trustee Limited which must have been Company A as Mrs Crisford is not and has never been a director of Company B. I do not overlook Mr Crisford’s explanation in his affidavit in reply for that but I consider his explanation that:

We knew that the original mortgagor had been struck-off. I had forgotten that my wife had been the director of company A with me but that I was the sole director of Company B. We thought that the loan was being made to Company B which would have been held in trust even although Company B had not been appointed and never had been appointed as trustee for The John Crisford Family Trust

as disingenuous at best. As noted, Mr and Mrs Crisford at no stage, despite their knowledge, notified the Bank that their Company A had been removed from the Register.

[25] Once Company A was restored to the Register then s 330(2) of the Companies Act 1993 was engaged. The result is, as the Court of Appeal held in Clark v Libra Developments,[3] that neither the company nor those dealing with it can challenge the validity of actions taken, including during the period of its removal, and the Court is given the power on restoration to adjust the rights and obligations of the company and those involved with it so as to place them as nearly as possible in the same position as if it had not been removed. The company is deemed to have continued in existence throughout the period of its absence from the Register. The

effect in the present case is that Company A is deemed to have continued in existence upon removal on 21 January 2009 through to its reinstatement on 8

November 2012 so that the documents executed in 2010 were effectively executed on behalf of and by Company A.

[26] The restructured facilities were entered into validly and are fully enforceable against the trust and Company A as trustee during the period that Company A remained the trustee, which was up until 2 October 2012 when the plaintiff deposes

_{that he was appointed trustee of the trust.}

[27] The next point raised by the plaintiff to support the injunction is a challenge to the service of the Property Law Act notices. The plaintiff takes the point, in reliance on a New Zealand Law Society seminar, that if a company has been removed from the Register, the document must be given to, or served on the Secretary to the Treasury. As a general proposition that is correct, provided of course that the company remains removed from the Register because the property of the company vests in the Crown. However, where, as here, the company has been restored to the Register then service on the company during the period of its removal or absence from the Register is still effective service. That is because of the deeming provision of s 330(2). That is confirmed by a decision of this Court in Commissioner

of Inland Revenue v Registrar of Companies.[4]

[28] I therefore do not accept the submission made on behalf of the plaintiff that the notices were not validly served for that reason.

[29] However, there is a further issue. The Bank relies on the service of the Property Law Act notices on Mr Macnicol, an agent of both Company A and the trust as proof of valid service.

[30] In August 2011 Mr Macnicol, a chartered accountant, acting for the trust and Company A, was asked if he was authorised to accept service of the notices on behalf of Company A as trustee of the John Crisford Family Trust and Company A. Mr Macnicol sought the instructions from Mr Crisford who authorised him to accept notice on “our behalf” which must be a reference to both on behalf of the trust and the company.

[31] As noted, however, as it has no independent legal status the trust can only operate and contract through the trustee, which was Company A. The Bank was required to validly serve the notices on Company A as trustee of the trust. The difficulty that arises is s 353 of the Property Law Act 2007 provides (as relevant):

353 How documents in section 352 to be given or served

(1) A document to which this section applies (see section 352) is not adequately given or served unless it is given to, or served on,—

...

(b) a company under the Companies Act 1993 in a manner provided for in section 387(1) (other than paragraph (e)) or section 388 of that Act:

[32] Section 353(1)(b) incorporates the provisions of the Companies Act for service on companies but expressly excludes service under s 387(1)(e) in accordance with an agreement made with the company. The Bank has to rely upon s 388(1)(a) which provides for the service of documents other than legal proceedings. Such documents may be served in accordance with the provisions of s 387(1)(a), (b), (c) or (e). By incorporating s 387(1)(e) it purports to allow service in accordance with an agreement.

[33] However, the difficulty I see with relying on s 388 is that the notice in question is a notice under the Property Law Act. I return to the provisions of the Property Law Act. Section 353 refers to notices or documents under s 352, which are all notices or documents under the Act. None are documents in legal proceedings. The drafters of the Property Law Act appear to have made it clear, by the express exclusion of paragraph (e) of s 387(1) in s 353, that service in accordance with an agreement was not intended to be adequate service of notices under the Property Law Act.

[34] I am driven to the conclusion that the inclusion of the reference to s 388 of the Companies Act in s 353 of the Property Law Act which in turn incorporates reference to paragraph (e) of s 387(1) in the Companies Act is a drafting error or oversight. It follows that I am equally driven to the conclusion that in this case the first set of Property Law Act notices, which were served by agreement, were not validly served on the company as trustee in this case.

[35] In the circumstances it is strictly unnecessary for me to consider the other grounds raised by the plaintiff. However, I am conscious that there is the second set of Property Law Act notices issued by the Bank, that the Bank intends to rely on.

[36] The estoppel point relied upon by the plaintiff must fall away. It is without any substantive merit. I am unable to accept that the plaintiff as trustee, can say in

any way the trust has relied on the issue of the second Property Law Act notices not to comply with its obligations under the first set of Property Law Act notices. The practical position is that the second Property Law Act notices were issued out of an abundance of caution when a challenge was taken to the first Property Law Act notices issued.

[37] Once the challenge was raised it is for the Court to rule on the validity of the first Property Law Act notices. If the Court had upheld the service of the first set of Property Law Act notices the Bank would have been entitled to rely on them. The second notices would have been otiose. However, where, as here, the Bank is not able to rely on the first set of Property Law Act notices there is no reason in principle why it cannot rely on the second set of Property Law Act notices that it issued.

[38] Next, the Bank has not acted improperly in declining to disclose the identity of the purchaser of the property. It has disclosed what is material, namely the sale price and conditions of sale. In any event, as discussed with counsel during the course of the hearing, the documentation before the Court discloses the identity (or at least a strong inference can be drawn as to who the purchaser may be from that documentation).

[39] That leaves the issue of whether the Bank can be said to have breached its obligations or duty under s 176 of the Property Law Act notice in accepting a sale at

$1.6 million.

[40] A number of points are raised by the plaintiff in relation to that. There is a suggestion that Mr Macnicol was interested at a purchase price of $2.3 million.

[41] However, a number of points can be made in relation to that. As Mr Barker pointed out, the documentation suggests that the sale at that price included the sale of a boat and other items in addition to the actual property. There was no written offer presented by Mr Macnicol before the Bank’s sale. During the sale process that the Bank engaged in the agent’s records disclose contact from and to Mr Macnicol and importantly advice to Mr Macnicol of the unconditional sale. Despite that there was no agreement forthcoming until the offer, which has been put before the Court this

morning in the additional affidavit. That is an offer by HV Trustee Co Limited which I understand is controlled by Mr Macnicol. I will return to that shortly.

[42] The Bank’s sale at $1.65 million is in excess of the valuation the Bank was advised some 12 months earlier that it might achieve at a mortgagee sale. I note that earlier valuation was also based on the property retaining certain consents in relation to duty and mooring. Those consents have, I understand, lapsed. On my review of the documentation and evidence it cannot be seriously arguable that the Bank is in breach of its obligations under s 167 in relation to its choice of agent, with the way it marketed the property, the fact it withdrew the property from auction and accepted an unconditional sale agreement and, more importantly, the price achieved.

[43] The offers that have currently been put before the Court for the property involve land swaps. If indeed the trust is able to achieve a sale which would enable it to meet its obligations to the Bank before the expiry of the second set of Property Law Act notices then it would seem it could redeem. The matter is in the trust’s hands. For present purposes, however, I do not consider on the information and evidence currently before the Court there is a seriously arguable question that the Bank has sold at an undervalue at $1.65 million or the agreement for sale was at an undervalue.

[44] If I am wrong in that then, in any event, in my consideration this is a case where damages would be an adequate remedy. I am conscious that Mr Pidgeon referred me to a decision of Soon Hee Kwon and Nam Guen Jo v Bank of New Zealand,[5] a decision of Panckhurst J but each case must turn on its own facts. The Bank is well able to pay any damages. I do not consider that the plaintiff’s loss would be difficult to assess in the circumstances. Further, given the financial

position of the trust, the length of time it had the property on the market and its inability to meet its obligations under its borrowings there must be real concern as to

_{the efficacy and validity of the undertaking as to damages provided.}

[45] The balance of convenience strongly favours the Bank being permitted to pursue the sale of the property and control the sale of the property. However, for the reasons that I have given above the Bank is not able to rely on the first set of Property Law Act notices.

[46] I therefore make the following orders in summary:

(a) the Bank is and remains a secured creditor of the trust;

(b) the loan advances made by the Bank in December 2010 are secured by the mortgage registered against the property;

(c) the Property Law Act notices issued on 4 August 2011 were not validly served in accordance with the provisions of s 353 of the Property Law Act.;

(d) the Bank is not entitled to rely on those Property Law Act notices issued on 4 August 2011 in exercising its powers as mortgagee.

[47] The plaintiff has succeeded on the application, in part. However, the plaintiff has succeeded on a technical point and on a point that was not raised by the plaintiff.

_{In the circumstances I make no order for costs. They are to lie where they fall.}

Venning J

---

[1] _{American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 (HL).}
[2] Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).

[3] Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA).

[4] Commissioner of Inland Revenue v Registrar of Companies [2007] BCL 347.

[5] Soon Hee Kwon and Nam Guen Jo v Bank of New Zealand HC Christchurch CIV-2009-409-

002562, 25 November 2009.