100 Investments Ltd v IAG New Zealand Ltd
| Jurisdiction | New Zealand |
| Judge | Thomas J |
| Judgment Date | 11 December 2018 |
| Neutral Citation | [2018] NZHC 3244 |
| Docket Number | CIV-2016-409-888 |
| Court | High Court |
| Date | 11 December 2018 |
[2018] NZHC 3244
CIV-2016-409-888
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
Banking and Finance, Companies, Insurance — claim following Canterbury earthquakes — property owner went into liquidation during the earthquake sequence — plaintiff a company with common ownership — mortgagee sale — entitlement to receive the insurance proceeds
P W Michalik and H M Weston for Plaintiff
N A Till QC and K Welsford for Defendant
100 Investments Ltd has been engaged in a protracted battle with the Insurer, IAG New Zealand Ltd (IAG), in respect of an insurance claim relating to a property damaged by the 2010/2011 Canterbury earthquakes. They have now reached a settlement as to the sum payable under the insurance policy. This judgment relates to the outstanding issue between the parties and that is the entitlement of 100 Investments to receive the insurance proceeds. IAG does not oppose 100 Investments’ claim in this regard.
This decision follows what was effectively a formal proof hearing.
At the time of the Canterbury earthquake sequence of 2010 and 2011, 110 Lichfield Street, Christchurch (the Property) was owned by Lichfield Ventures Ltd. On the Property was a two-storey brick commercial building.
The Property was insured with NZI, a division of IAG, under a material damage policy. The sum insured was $2,715,920 excluding GST and the insurance was provided on the basis that replacement value conditions applied. Mortgagees of the Property were named on the policy as Interested Parties, including Propertyfinance Funding Nominees Ltd as first mortgagee. The material damage section of the insurance policies contained a clause specifically stating that cover was extended to any person or entity having an insurable interest in the Property.
Lichfield Ventures was in receivership during the earthquake period and placed into liquidation on 16 December 2010. The insurance was renewed for the period 1 June 2011 to 1 June 2012. Hanover Capital Ltd was noted as an Interested Party.
The Property was damaged in the earthquakes of 4 September 2010, 26 December 2010 and 22 February 2011. The estimated cumulative cost of repair was considerable. On 15 February 2012, the Chief Executive of the Canterbury Earthquake Recovery Authority issued a notice under s 38(4) of the Canterbury Earthquake Recovery Act 2012 requiring demolition of the building on the Property. In March 2012, the Canterbury Earthquake Recovery Authority, through its demolition contractors, carried out the demolition of the building on the Property.
Lichfield Ventures made claims under the insurance policies.
In October 2014, Property Finance Securities Ltd (PFSL) acquired by assignment the first registered mortgage over the Property.
In early December 2015, NZI paid $789,929.92 including GST to the receivers appointed by PFSL. This indemnity payment was neither paid nor received in full and final settlement of the insurance claims.
In October 2018, NZI accepted 100 Investments was entitled to receive a further payment in respect of the indemnity value of the unrepaired earthquake damage, plus interest. By the settlement agreement with 100 Investments, it has also accepted 100 Investments’ entitlement to a further sum to settle all claims under the insurance policies, subject to this decision.
In March 2005, Lichfield Ventures as debtor entered into a General Security Agreement with PFSL as the secured party (the GSA). The GSA is the first registered security agreement under the Personal Property Securities Register in respect of Lichfield Ventures’ personal property.
As noted above, Lichfield Ventures was placed into liquidation in December 2010. By September 2015, Lichfield Ventures owed PFSL at least $3.5 million.
On 4 September 2015, PFSL entered into an agreement to assign debt and security with Lichfield Securities Ltd (or nominee) (the Agreement to Assign). Lichfield Securities is a company in common ownership with 100 Investments. Pursuant to the Agreement to Assign, PFSL agreed to assign to Lichfield Securities:
(a) its rights in the debt Lichfield Ventures owed it;
(b) all loan documents between PFSL and Lichfield Ventures; and
(c) all securities given by Lichfield Ventures in favour of PFSL, including all guarantees, mortgages of land and security interests.
The consideration for the Agreement was $1.997 million. The assignment date was to be 25 September 2015, on which date Lichfield Securities was to pay the balance of the consideration and PFSL was to provide an executed deed of assignment of debt and security in an agreed form.
Lichfield Securities nominated 100 Investments to take the benefit of the Agreement to Assign. As subsequent events disclose, there was also some variation to the Agreement to Assign.
The parties to the Agreement to Assign clearly revised their approach to the assignment of debt and securities so far as the Property was concerned. Rather than the mortgage to PFSL being assigned to 100 Investments, the mortgagee sale route was followed. On 17 December 2015, PFSL, as first mortgagee of the Property, entered into an agreement to sell the Property to 100 Investments for the purchase price of $1,320,500 (the Sale and Purchase Agreement). The Sale and Purchase Agreement included the following clauses:
18. Vendor selling as mortgagee
18.1 The Vendor is selling as first mortgagee and in exercise of the power of sale vested in it as mortgagee under Mortgage number 7114247.15. The Purchaser shall assume without evidence that the events have happened and the required period has elapsed entitling the Vendor to exercise its power of sale.
…
28. Assignment of any residual Insurance Claim in relation to the Property
28.1 The Vendor will assign the benefit of any residual insurance claim in relation to material damage relating to the Christchurch earthquakes in respect of the Property to the Purchaser on settlement.
Between the date of the Agreement to Assign and the Sale and Purchase Agreement, NZI had made the December 2015 payment in respect of the insurance claim to PFSL. In light of the Agreement to Assign, PFSL gave 100 Investments credit for that indemnity payment and reduced the price in the Sale and Purchase Agreement for the Property by the amount of that indemnity payment.
Settlement of the sale and purchase of the Property took place on 23 December 2015.
100 Investments is now registered as proprietor of the Property pursuant to the exercise of PFSL's power of sale as mortgagee. The subsequent mortgages are extinguished by virtue of the power of sale having been exercised and are so recorded on the Land Transfer Act Register.
On 27 January 2016, PFSL executed a deed to assign debt and security (the Deed) in favour of 100 Investments. Although the Deed was dated 27 January 2016, it recorded the assignment date as 23 December 2015. Given the sale and purchase of the Property had settled, the assignment consideration was recorded as $660.01, reflecting the final balance required to settle the Agreement to Assign. Relevantly, and in contrast to the Agreement to Assign, the Deed did not include mortgages of land under the definition of Security (the Property having been sold to 100 Investments by PFSL as mortgagee).
Because NZI challenged 100 Investments’ right to the insurance proceeds, on 1 September 2016 100 Investments exercised its right under the GSA to enter into possession of Lichfield Ventures’ charged personal property pursuant to s 156 of the Property Law Act 2007.
100 Investments relies primarily on its right as assignee from PFSL of the insurance claim proceeds pursuant to its acquisition of the Property from PFSL, selling as mortgagee. In the alternative, 100 Investments relies on its rights under the GSA and/or its rights as mortgagee in possession, having given notice under the Property Law Act.
Following the formal proof hearing, counsel for the liquidator of Lichfield Ventures filed a memorandum with the Court. The liquidator claimed an interest in the proceedings for two reasons. First, because 100 Investments was purporting to sue in the name of Lichfield Ventures but had neither sought the liquidator's consent to do so, nor had a Court order been made permitting this. 1 Secondly, the liquidator, on behalf of Lichfield Ventures’ creditors, claimed an interest in potential recoveries under Lichfield Ventures’ insurance policies.
The liquidator sought the opportunity to provide brief submissions to the Court as to 100 Investments’ entitlement to the insurance proceeds.
Predictably, 100 Investments objected to this course, noting that the liquidator had known about the proceedings since at least September 2018, had been provided with copies of the pleadings and advised that the case would be heard commencing 5 November 2018. Mr Michalik, for 100 Investments, pointed out that it was notable the liquidator had not applied to be joined as a party, nor sought any other formal involvement in the proceedings. Furthermore, if the liquidator had a claim, then it was for the liquidator to take appropriate proceedings in due course.
While the liquidator claimed he may but was not obliged to exercise powers in relation to charged property, 2 a liquidator's powers do not affect a secured creditor's rights over secured property. Section 248 of the Companies Act provides:
248 Effect of commencement of liquidation
(1) With effect from the commencement of the...
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