Harnish v Bruce [2014] NZHC 302 (26 February 2014)

Last Updated: 13 March 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-006723 [2014] NZHC 302

BETWEEN OWEN CECIL ERIC HARNISH Plaintiff

AND ROBERT IAN BRUCE Defendant

Hearing: 26 February 2014

Appearances: W Endean for the Plaintiff

A Gilchrist for the Defendant

Judgment: 26 February 2014

_{JUDGMENT OF GILBERT J}

This judgment is delivered by me on 26 February 2014 at 5:30pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

HARNISH v BRUCE [2014] NZHC 302 [26 February 2014]

Introduction

[1] The defendant, Mr Bruce, applies for a stay of enforcement of two judgments obtained by the plaintiff, Mr Harnish. The application was filed yesterday and must be dealt with immediately because a public auction of shares held by Mr Bruce in Whitford Properties Limited, a company of which he is a 50 per cent shareholder, is scheduled to take place tomorrow at 10am. The auction has been arranged by the Sheriff of this Court pursuant to a sale order made in this proceeding on 15 January

2014.

[2] Mr Bruce seeks a temporary stay of enforcement of the judgment until

10 April 2014 pursuant to r 17.29 of the High Court Rules on the grounds that a substantial miscarriage of justice would be likely to result if the judgments are enforced in the meantime. He contends that there is a real risk that, if the auction proceeds, the shares will be sold at a significant undervalue causing him to suffer a substantial capital loss. On the other hand, Mr Bruce argues that Mr Harnish will suffer little or no prejudice if the temporary stay is granted.

[3] Alternatively, Mr Bruce contends that Mr Harnish agreed not to pursue any enforcement process until the end of February 2014. In these circumstances he applies for an order setting aside the enforcement process in reliance on r 17.30.

Should the enforcement process be stayed?

[4] Rule 17.29 of the High Court Rules is concerned with the risk of a substantial miscarriage of justice resulting from enforcement of the judgment, not from the judgment itself. Relief may be granted under this rule whether or not there is any challenge to the underlying judgment. The rule provides:

A liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.

[5] Mr Bruce is a director and 50 per cent shareholder of Whitford Properties Limited which owns an 8.7 hectare block of land at Whitford. The current rating valuation of the property, which is in two titles and zoned Rural, is $2,585,000.

There is a proposed change to the zoning which, if it proceeds, will allow the land to be subdivided and used for residential purposes. Mr Bruce and the other 50 per cent shareholder, Mr Allen, have been pursuing the prospect of a multi-unit residential subdivision on this property for a number of years.

[6] Mr Bruce has produced a valuation indicating that if the land could be subdivided into 123 household units, the underlying land value could be as high as

$24,786,000 based on various assumptions including an average sale price for each lot of $426,000. Whitford Properties Limited granted a first mortgage to the ANZ Banking Group which secures an outstanding balance of approximately $8,700,000. On this basis, Mr Bruce assesses the value of his 50 per cent shareholding in the company as being in excess of $7,000,000.

[7] Mr Bruce believes that the only realistic buyer for his shareholding in the company is his partner, Mr Allen. Mr and Mrs Allen have pre-emptive rights in relation to any sale of Mr Bruce’s shares. Mr Bruce is concerned that Mr Allen will be able to buy his shares at a substantially discounted value, perhaps sufficient only to meet the amount payable under the judgments thereby destroying the value of his equity in the property through his shareholding.

[8] Murray Greer, a business consultant with considerable experience in the banking finance industry has been endeavouring to assist Mr Bruce to refinance the Whitford property since May 2013. This has proved problematic because of disputes between Mr Bruce and Mr Allen but Mr Greer managed to secure an offer from the Westpac Banking Corporation in November 2013 to refinance the ANZ debt and complete the development. That offer was subject to various conditions that were either not acceptable or could not be fulfilled.

[9] The most Mr Greer can now say in support of Mr Bruce’s stay application is that he has received an email from an Auckland based finance company offering to provide funding of up to $7,500,000 towards refinancing the ANZ debt. The finance company is not identified. The email has not been produced and I therefore do not know whether this is more than an indicative proposal or whether any conditions are likely to be able to be satisfied. Mr Greer says that he is “hopeful” that he will be

able to arrange the balance of the funding required to repay the ANZ debt by

10 April 2014. The significance of that date is that tenders close for the mortgagee sale currently being conducted by the ANZ Bank on that date.

[10] Mr Gilchrist, who appeared for Mr Bruce, submits that Mr Bruce is “almost at the point of raising finance” and will suffer “financial ruin” unless the stay of enforcement is granted. He argues that Mr Harnish will suffer minimal prejudice if the limited stay is granted and that balancing the competing interests of the parties strongly favours granting the application.

[11] I do not consider that a stay of enforcement should be granted in this case for the reasons which follow.

[12] Mr Harnish has been waiting for a number of years for repayment of the underlying debt giving rise to the judgments. The debt arose in the context of the sale by Mr Harnish in March 2007 of another property at Whitford to a trust associated with Mr Bruce. Mr Harnish provided vendor finance in excess of

$1,000,000 which was due for repayment on 24 September 2009. Mr Bruce personally guaranteed the amount due under this loan. Mr Harnish finally obtained a summary judgment in February 2013 in the sum of $942,963 being the principal sum outstanding under this loan. Summary judgment was entered in July 2013 for the additional sum of $722,822.00 in respect of interest and costs.

[13] I accept that Mr Bruce has made genuine attempts to pay the amount he owes Mr Harnish but has not been able to do so. In September 2013, he offered Mr Harnish an immediate payment of $200,000 with the balance payable following resource consent for subdivision of the Whitford property. That proposal did not proceed because Mr Bruce was unable to raise the money. Mr Bruce then offered to pay $300,000 with the balance payable following issue of resource consent. This did not proceed either because Mr Bruce could not raise the money. A later proposal to pay $500,000 immediately with the balance following resource consent did not proceed for the same reason.

[14] In late November 2013, Mr Harnish’s solicitor wrote to counsel for Mr Bruce setting out two practical hurdles that would need to be overcome to enable the ANZ debt to be refinanced and further funding obtained to repay the judgment debts. The first was that a caveat that had been placed on the property by another party would need to be withdrawn. Second, Mr Bruce would need to secure the co-operation of his co-director and shareholder, Mr Allen. These difficulties remain.

[15] In these circumstances, Mr Harnish took steps to enforce the judgments over Mr Bruce’s principal asset, being his shares in Whitford Properties Limited. Mr Harnish obtained charging orders in July 2013 and August 2013 respectively and a sale order in January 2014. The Sheriff has appointed an auctioneer to conduct the sale and has directed the advertising and other aspects of the sale process. As noted, the auction is scheduled to take place tomorrow at 10am.

[16] Mr Bruce’s application for stay is very late and this is a factor which should also be taken into account. Mr Bruce no doubt continues to believe that refinancing is imminent and that he will be able to pay the amount he owes Mr Harnish in the next few weeks. Despite Mr Bruce’s optimism, I am not persuaded on the evidence that he is likely to be able to refinance the ANZ debt as well as raise sufficient monies to repay Mr Bruce within this time frame. Mr Greer says only that he is “hopeful” that he can arrange funding to repay the ANZ debt. Mr Gilchrist advises that there are separate proceedings in train seeking to have the caveat removed. The issue of co-operation from Mr Allen in any refinancing has not been addressed.

[17] The valuation provides limited assistance in assessing the current value of the property in its present state. I note that the only inspection undertaken by the valuer was a “roadside” inspection on 30 August 2013. The valuation is based on a residential zoning but this has not yet been obtained. The valuation also assumes that adjacent Council land will be acquired and incorporated in the subdivision. It assumes that funding will be obtained to enable the large scale subdivision, development and sale process envisaged. Inevitably, the valuation makes numerous assumptions which may or may not eventuate.

[18] The ANZ debt is in default and it is conducting a forced sale as mortgagee with tenders closing on 10 April 2014. The bank is currently owed approximately

$8,700,000 and interest will be running on this debt at penalty rates. The bank is apparently not prepared to provide further funding to enable the development to proceed. I cannot discount the risk that if Mr Harnish is forced to wait until after the mortgagee sale process has concluded, he will recover nothing or at least face a shortfall. Any stay of enforcement at this stage could therefore cause Mr Harnish significant prejudice because the shares may have little or no value if the mortgagee sale is allowed to proceed before he can enforce the judgments.

[19] Mr Bruce has been in a difficult financial position for some considerable time. He has been in default of his obligations to Mr Harnish since September 2009. He has had ample time to arrange his affairs to meet these obligations. Although I do not doubt that he is genuine in his hope that he will somehow be able to secure funding in the next few weeks to pay Mr Harnish, I consider that there are limited prospects of this occurring. In my view, Mr Harnish should not be prevented from exercising his rights to enforce payment of this long outstanding debt. I am not persuaded that there is likely to be a substantial miscarriage of justice if the judgments are enforced. I therefore decline to make any order for stay under r 17.29.

Should an order be made setting aside the enforcement process?

[20] Mr Bruce says that on 25 November 2013 he met with Mr Harnish and agreed to pay him $500,000 on receipt of bank funding for the development, and

$500,000 ten working days after receipt of the resource consent. Mr Bruce says that shortly after this he and his legal adviser met with Mr Harnish and his legal adviser. It seems that this second meeting took place on 27 November 2013 because Mr Harnish’s solicitor wrote to counsel for Mr Bruce on 29 November 2013 in the following terms:

I write following our without prejudice meeting on the 27^th November 2013 at our offices.

I record that your client and his financial adviser put forward details of an indicative offer from Westpac Bank for funding. I noted that such funding was conditional upon the removal of the Caveat placed on the property by the Chinese joint venture interests.

I also noted that the development of the property was dependent on co- operation between your client and Wayne Allen and those investor interests.

Before any settlement can be negotiated, the hurdles referred to above must be overcome and in that regard, we request that a proposal be put in writing with progress on removal of the obstacles namely the Caveat and the co- operation of Wayne Allen.

We look forward to hearing from you.

[21] Mr Harnish’s solicitor wrote again on 6 December 2013 noting that there had been no response and stating:

Over the past few months your client has been making representations to Mr Harnish that funds would be forthcoming to effect a settlement of the judgments against your client. Despite these assurances nothing has eventuated. Mr Harnish has run out of patience and has instructed us to enforce judgment.

[22] Mr Bruce contends that Mr Harnish’s action in enforcing the judgments demonstrates bad faith on his part. I reject that contention. The terms of the suggested agreement are uncertain in that the time for the initial payment was not stipulated. Mr Bruce says that it was “anticipated” that payment would be made by the end of February 2014. There were undoubtedly discussions with a view to reaching agreement but by that time it seems clear that the parties were expecting their legal advisers to be involved in documenting any settlement.

[23] It is significant in my view that Mr Bruce has not suggested until now that a binding agreement was reached in November 2013 precluding Mr Harnish from enforcing the judgments. Had that been Mr Bruce’s understanding, I would have expected a response to that effect from his counsel to the 6 December 2013 letter from Mr Harnish’s solicitor.

[24] In any event, Mr Gilchrist concedes that Mr Bruce has no prospect of complying with the terms of any such agreement; there is no hope of the money being paid by the end of February 2014.

[25] For the reasons given I am not persuaded that the enforcement process is contrary to any agreement between Mr Harnish and Mr Bruce.

Result

[26] The application is dismissed.

_{[27] The plaintiff is entitled to costs assessed on a 2B basis.}

M A Gilbert J