Nags Head Horse Hotel Limited v Forest Trustee Limited [2013] NZHC 981 (6 May 2013)

Last Updated: 12 June 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-1739 [2013] NZHC 981

BETWEEN NAGS HEAD HORSE HOTEL LIMITED Plaintiff

AND FOREST TRUSTEE LIMITED First Defendant

AND OTIUM TRUSTEE LIMITED Second Defendant

AND ZEBRA CROSSINGS TRADING LIMITED AND P ETER WILLIAM MAWHINNEY

Third Defendants

Hearing: 24 April 2013

Appearances: D Broadmore for Plaintiff

P Mawhinney, second named Third Defendant

Judgment: 6 May 2013

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Stay application)

This judgment was delivered by me on 6 May 2013 at 3 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Buddle Findlay, PO Box 1433, Auckland

Mr P W Mawhinney, PO Box 157 Swanson

NAGS HEAD HORSE HOTEL LIMITED V FOREST TRUSTEE LIMITED HC AK CIV-2012-404-1739 [6

May 2013]

[1] The application before me is an application for a stay pending the outcome of an appeal against summary judgment.

Introduction

[2] Mr Mawhinney’s application is a step in lengthy litigation that has been going on for some years and that has a complex procedural history. The present proceeding arises from the advance of $450,000 made by the plaintiff, Nag Head Horse Hotel Ltd, to a prior registered proprietor of the property, a Mr Vesey. The advance was pursuant to a mortgage and was on terms that afforded priority for the mortgage over other interests secured by mortgages. Agreement to such priority was recorded in a deed signed by the plaintiff, Mr Vesey and the holder of the other interests registered against the title. In terms of the deed, the plaintiff is entitled to a first registered mortgage. Despite this, the plaintiff’s mortgage is currently registered as a second mortgage. The litigation also pertains to the subsequent transfers of those other interests to Otium Trustee Limited, the second defendant in this proceeding and subsequently the transfer of Mr Vesey’s interest as registered proprietor to Forest Trustee Ltd. All of the parties involved in these transactions are said to have been controlled by Mr Mawhinney or his brother, Anthony Mawhinney or by Mr Anthony Mawhinney pursuant to a power of attorney held on behalf of Mr Vesey.

[3] In this court the plaintiff has sought to enforce the priority claimed for its mortgage so that it can proceed with a mortgagee sale in respect of the defaults under its mortgage. The plaintiff also injuncted Mr Mawhinney and others from transferring the interests held under its mortgage to others.

[4] On 6 December 2012 this court gave summary judgment for the plaintiff on its application for orders to enforce the deed of priority. In the findings giving rise to summary judgment the court held that the deed binds the defendants including Forest Trustee Ltd, the registered proprietor of the property, and Zebra Crossings Trading Ltd and Peter Mawhinney, the proprietors of the first registered mortgage. All involved were also held to have known of the existence of the plaintiff’s right to priority under the deed and to take their interest subject to such right.

[5] On 19 December 2012, Mr Mawhinney filed an appeal that purports to be on behalf of all of the defendants, seeking that the court set aside the summary judgment. On 18 February 2013 the appeal was entered on to the fast track and set down for hearing on 21 May 2013. Subsequently, all defendants save Mr Mawhinney abandoned their interest in the appeal.1

Present Application

[6] At much the same time that the appeal was lodged, Mr Mawhinney applied for a stay of enforcement of the summary judgment. The application states it is made “in reliance on the High Court Rules”. It is apparent that Mr Mawhinney relies on r 20.10 of the High Court Rules.

Legal Principles – Stay Application

[7] It is not in dispute that the principles the court must take into account in determining the stay application are these:2

In determining whether or not to grant a stay, the Court must weigh the balance between the successful litigant’s right to the fruits of a judgment and the need to preserve the position in case the appeal is successful. Factors to be taken into account in this balancing exercise include:

(a) Whether the appeal may be rendered nugatory by the lack of a stay.

(b) The bona fides of the applicant as to the prosecution of the appeal.

(c) Whether the successful party will be injuriously affected by the stay.

(d) The effect on third parties.

(e) The novelty and importance of the question involved. (f) The public interest in the proceedings, and

_{(g) The overall balance of convenience.}

1 The notice of abandonment, filed on 26 March 2013, was signed by Mr Anthony Mawhinney, as director for each of the corporate defendants.

2 Keung v GBR Investment Ltd [2010] NZCA 396.

[8] The strength of the appeal is also a factor to be considered.3

[9] It is not in dispute that Mr Mawhinney has the onus.

Mr Mawhinney’s Argument

[10] Mr Mawhinney did not file written submissions as directed and he was given leave to make his submissions orally. The essence of his submissions was that a stay should be ordered as:

(a) His appeal has good prospects of success.

(b) His appeal will be rendered nugatory if a stay is not granted. (c) The balance of convenience favours a stay.

Nag Head’s Argument

[11] Counsel for Nag Head submits that a stay should not be granted for the following reasons:

(a) The appeal is without substantial merit.

(b) Even if the appeal would be rendered nugatory, this is not determinative and alternatively Mr Mawhinney could be protected by other means.

(c) The balance of convenience does not favour a stay being granted.

(d) Mr Mawhinney not does have a genuine desire to prosecute his appeal.

(e) If the stay were granted Nags Head the delay would cause further costs and interest to accrue on its outstanding loan that might exceed the value of the mortgage security.

Decision

Status to bring appeal

[12] I begin with a preliminary matter. In response to questions I raised with Mr Mawhinney he acknowledged that the appeal is pursued only by himself and that he appears as the holder of a 1/1000 share in the first registered mortgage which he now claims he holds as trustee for Dilworth Trust. This share was previously held by him in a different capacity. He concedes that there is no evidence to support this change in position. However counsel for Nags Head takes no issue with Mr Mawhinney’s status to bring the appeal, and I proceed on that basis.

Are the grounds for a stay made out?

[13] I accept the submissions of counsel for Nags Head that grounds for a stay are not made out. I am satisfied that an order for stay would not meet the interests of justice. My reasons may be stated briefly.

The merit of the appeal

[14] The submission is that the appeal has good prospects of success. Mr Mawhinney explains that this is based on the argument that the High Court’s decision on summary judgment was flawed because the court made findings on factual matters that are the subject of genuine dispute and was therefore in excess of jurisdiction. I accept that where a defence raises question of fact that may determine

_{the outcome of the case it will not usually be appropriate to enter summary}

judgment.4

However the Court is able to take a robust approach to such disputes in a

summary judgment context where it is warranted.5 As stated by Lord Diplock in Eng

Mee Yong v Letchumanan it is not appropriate: 6

...to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable in itself it may be.

[15] Thus though there may have been a conflict of evidence, the Court was not necessarily wrong to take a robust and “realistic” approach to the evidential foundation of the defence, and did not necessarily exceed its jurisdiction under summary judgment. In his argument before me Mr Mawhinney did not point to any factual finding that was not open to the Court on a robust approach or to any reason why in the circumstances of this case the Court was wrong to take such an approach. As a result it is not apparent where the merit in his argument lies or that it has reasonable prospects of success.

Appeal will be rendered nugatory

[16] By the appeal Mr Mawhinney seeks to hold on to the priority attaching to mortgage in which he holds an interest. Mr Mawhinney focuses on the fact that in order to maximise the value of the property it must be subdivided and developed. He submits that property is worth $2 million if sold in its current state, and $10 million if subdivided. He argues that if Nags Head has priority as first mortgagee and proceeds to a mortgagee sale, the opportunity to subdivide will be lost. He points out that the mortgagees’ power to sell does not import an obligation to subdivide, only to obtain the best price reasonably obtainable at the time of sale. Thus if Nags Head exercised its power of sale prior to the property being subdivided the potential increase in value will be lost to the registered proprietor of the property, Forest Trustee Ltd, and the interest held by the Dilworth Trust will be lost similarly.

[17] This argument might have substance if it came from the registered proprietor, but the registered proprietor has withdrawn its appeal of summary judgment. It must

_{be assumed that it accepts summary judgment.}

5 _{Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ (CA) 84 at 85-86.}

6 Eng Mee Yong v Letchumanan [1980] AC 331 at 341E.

[18] As far as Mr Mawhinney’s interest is concerned, the interest claimed is minimal. It amounts to a 1/1000 share of $4.5 million which he agrees is $4,500.00. Even if a mortgagee sale were to occur, no issue is raised about the prospect of recovery. The minimal interest which Mr Mawhinney speaks on behalf of is hardly jeopardised.

[19] Furthermore, there is no real likelihood of a mortgagee sale occurring before the appeal. Mr Mawhinney’s appeal is to be heard on 21 May. He does not dispute that the prospects of a mortgagee sale taking place before that date are slim. He argues that the same point cuts both ways, but when all relevant matters are weighed there is little to persuade me that the point weights in his favour.

Balance of convenience

[20] I find this overwhelmingly favours Nags Head because:

(a) The merits are on Nags Head’s side in that it holds judgment in its favour and there is little to indicate any merit in the grounds of appeal. Nags Head is prima facie entitled to the fruits of the summary judgment.

(b) There is evidence of default on the part of the registered proprietor which is controlled by Mr Mawhinney.

(c) I have serious concerns that in changing the interest to himself as trustee of Dilworth Trust Mr Mawhinney appears to have effectively breached the injunction not to change the mortgagee’s interest.

(d) Mr Mawhinney has acted in ways that suggest he is not genuinely pursuing the appeal and is playing for time in the hope that subdivision will take place. He has been lax in complying with the directions pertaining to the appeal. To date he has not paid security for costs or the setting down fee. Furthermore, it is not so much the

interests of the mortgagee as the ultimate interests of the owner that he pursues.

(e) There is no realistic prospect of harm if the priorities are changed pending the outcome of the appeal. If the appeal is pursued diligently it will be resolved before any sale.

(f) The amount currently outstanding and secured by the mortgage is

$956,000, and interests and costs and continuing to accrue on that amount. If the application for a stay is successful this will delay Nags Head’s ability to exercise its power of sale which may mean that the amount owed exceeds the value of the property.

[21] I also have to take into account that prior to this application there have been a number of defended interlocutory hearings. It is unnecessary to list them. Nags Head says they all point to the real possibility that Mr Mawhinney is bent on depriving the plaintiff of the benefit of the deed of priority. Counsel submits Mr Mawhinney’s actions demonstrate ongoing non-complying conduct which does not support an indulgence by way of a stay. I accept there appears to be substance in its contention.

Conclusion

For the above reasons I am satisfied that in the balancing exercise I am required to undertake, Nags Head’s right to the fruits of the summary judgment considerably outweighs the need to preserve the position in case the appeal is successful. Nags Head is, as the judgment stands, entitled to the certainty and security of knowing it has a registered first mortgage.

Orders

[22] I decline Mr Mawhinney’s application for a stay of enforcement of the summary judgment.

[23] As costs follow the event under the statutory costs regime the plaintiff is entitled to costs. There will be an order for costs on a 2B basis together with

_{disbursements as fixed by the Registrar.}

Associate Judge