Gibbston Downs Wines Ltd and Rfd Finance No 2 Ltd v Perpetual Trust Ltd and Others

• Jurisdiction: New Zealand
• Judge: Stevens J
• Judgment Date: 22 October 2013
• Neutral Citation: [2013] NZCA 506
• Docket Number: CA367/2012
• Court: Court of Appeal
• Date: 22 October 2013

Between

Gibbston Downs Wines Limited and Rfd Finance No 2 Limited

Appellants

and

Perpetual Trust Limited

First Respondent

and

John Morris Leonard and Paul Graham Sargison

Second Respondents

[2013] NZCA 506

Court:

Randerson, Stevens and Venning JJ

CA367/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court (“HC”) decision dismissing the appellants' application for a declaration that their security interest over the collateral of Anthem Holdings Ltd (in receivership) (Anthem) had priority over the security interest of the first respondent — the second respondents were the receivers of Anthem — finance company assigned its first ranked security interest to the first respondent — after Anthem was placed into receivership, a second finance company assigned its security interest to the appellant in July 2010 — finance companies had entered into a deed of subordination which expired in March 2010 — whether the term of the subordination agreement continued only until 31 March 2010 or continued until the advance was repaid or the security interest otherwise satisfied — whether the subordination was ineffective as assignees did not come within s70(2) Personal Property Securities Act 1999 (voluntary subordination of interests) as “persons for whose benefit the agreement is intended and did not have notice of the subordination” — whether the appropriate date for determining the priority of the respective security interests was the date of appointment of the receivers.

Counsel:

A J Forbes QC and K W Clay for Appellants

B A Vautier for First Respondent

S O McAnally for Second Respondents (abiding the decision of the Court)

JUDGMENT OF THE COURT

• A The appeal is dismissed.

• B The appellants must pay the first respondent costs for a standard appeal on a band A basis and usual disbursements.

REASONS OF THE COURT

(Given by Stevens J)

Table of Contents

	Para No
Introduction	[1]
Further background	[4]
Issues on appeal	[14]
Statutory provisions	[19]
High Court decision	[21]
Issue one: term of the subordination agreement	[27]
Submissions	[27]
Our analysis	[29]
Issue two: the effect of the assignments	[49]
The C+M assignment to Perpetual	[52]
The PFF assignment to the appellants	[59]
Issue three: What is the appropriate date for determining the priority of the respective security interests?	[66]
Result	[71]

Introduction

1 This is an appeal against a decision of Chisholm J dismissing the appellants' application for a declaration that their security interest over the collateral of Anthem Holdings Ltd (in receivership) (Anthem) has priority over the security interest of the first respondent, Perpetual Trust Ltd (Perpetual). 1 The second respondents are the receivers of Anthem. They took no part in the appeal and abide the decision of the Court.

2 Propertyfinance Securities Ltd (PFS) and Capital + Merchant Finance Ltd (C+M) each loaned money to Anthem pursuant to general security agreements. When C+M insisted on holding a first ranking security interest, the two parties entered into a subordination arrangement. PFS registered a financing change statement under the Personal Property Securities Act 1999 (the Act) confirming the subordination of its security. The subordination details included on the Personal Property Securities Register (the Register) showed an “expiry date” of 31 March 2010.

3 C+M's interest in the general security agreement was subsequently assigned to Perpetual. PFS's security agreement was assigned to Propertyfinance Funding Nominees Ltd and another party (together PFF). Following default on the Perpetual loan, Anthem was placed into receivership on 28 August 2008. After the receivership PFF assigned its interest in the security agreement to the appellants in July 2010. The appellants commenced the current proceedings on 5 August 2010, seeking a declaration that their security interest had priority.

Further background

4 In March 2005 PFS provided finance to Anthem. The parties entered into a loan agreement and a general security agreement. A financing statement was registered under the Act on 31 March 2005. The expiry date of this registration was 31 March 2010.

5 In April 2006 C+M provided additional finance to Anthem. A financing statement recording the interest of C+M under its general security agreement with Anthem was registered on 3 April 2006. In the loan documentation C+M had agreed to provide the additional finance on the basis that it would hold a first ranking security interest. Shortly after C+M's security interest was registered, its solicitor realised that there was already an existing registered security interest in favour of PFS. C+M contacted Anthem and alerted it to this problem. As a result, Anthem spoke to PFS about whether it would agree to give C+M priority. It took some time to secure such agreement.

6 The matter was eventually resolved via email in November 2006. On 14 November 2006 Mr Knowles, an accountant/financial intermediary connected with PFS, informed Anthem that PFS was “fine to move to 2nd GSA”. This advice was duly communicated to C+M and the solicitor for C+M was asked to forward the necessary documentation.

7 On 25 November 2006 the solicitor for C+M sent an email to the managing director of PFS:

I understand that Grant Smith of Cousins and Associates [Anthem's solicitor] has apprised you of the request of our client Capital + Merchant Finance Limited in respect of Anthem Holdings Limited, that Property Finance Securities Limited's existing GSA registered under financing statement FY34ME1YU0562699 be subordinated to Capital + Merchant Finance Limited's GSA registered under financing statement FM2AU7906XS91756. Grant has advised that Property Finance Securities Limited has no objection to that.

It seems to me that the simplest way to do this is by Property Finance Securities Limited registering a financing change statement on Anthem's PPSA register, subordinating its financing statement FY34ME1YU0562699 to Capital + Merchant Finance Limited's financing statement FM2AU7906XS91756. In a discussion with Grant, he was of the same view that this is the simplest way to do this, although you may wish to confirm that with him. …

8 Although the email referred to C+M's “request” that the PFS security interest be subordinated and to the fact that PFS has “no objection to that”, we note that (as described at [6] above) a subordination agreement had already been reached.

9 On 28 November 2006 a verification statement confirming the subordination of the PFS security in favour of the C+M security was registered by PFS (as the party which initially held priority). Following registration the “subordination details” on the Register stated:

Date of subordination	Subordination expiry date
28-Nov-2006	31-Mar-2010

10 The expiry date of the subordination agreement recorded on the Register coincided with the expiry date of the PFS security interest.

11 As noted, on 29 November 2006 C+M assigned its interest in the general security agreement to Perpetual. About a year later PFS assigned its security agreement to PFF.

12 Following default on the Perpetual advance Anthem was placed into receivership by Perpetual on 28 August 2008. On 28 January 2010 PFF renewed its security interest for another five years. The financing change statement continued to record the subordination agreement expiry date as 31 March 2010.

13 In July 2010 PFF assigned its interest in the general security agreement to the appellants. For ease of reference, the above transactions are outlined in the following diagram:

Issues on appeal

14 In the appellants' written submissions it was accepted that:

• (a) both PFS's and C+M's security interests attached to collateral belonging to Anthem in terms of s 40 of the Act; and

• (b) both security interests were perfected by the registration of financing statements in terms of s 41(1)(b)(i) of the Act; and

• (c) under s 66(b)(i) of the Act, PFS's security interest initially had priority over C+M's security interest because it had been registered first in time. 2

15 In the High Court, the existence of a subordination agreement was not in question. Importantly the appellants' statement of claim pleaded that “the general security interest of PFS Ltd was subordinated to the general security interest of C+M”. That pleading was not challenged in the High Court and the critical issue was described by Chisholm J as “the nature and effect of the subordination agreement between PFS and C+M, in particular the duration of the agreement”. 3

16 Despite this, the appellants' written submissions contended that there was in law no subordination agreement at all because “there was no consideration for the agreement to subordinate given to PFS by C+M”. In oral argument Mr Forbes QC for the appellants did not press the point. He was right not to do so. He accepted that at the very least there was an agreed arrangement to subordinate between C+M and PFS in November 2006 and that the latter party as the party with initial priority took steps, pursuant to the subordination arrangement, to disclose the deferral of its security interest to the previously inferior security interest of C+M on the Register.

17 Quite apart from these acknowledgements, the High Court pleading is decisive against the appellants on this point. 4 Moreover, we are satisfied that the appellants are estopped from contending otherwise. Either on the basis of their subsequent conduct, or on the basis of promissory estoppel, 5 the appellants cannot now be heard to resile from their promise to subordinate in November 2006 by seeking on appeal to claim priority over C+M's security interest on the basis of an absence of consideration for the subordination.

18 Accordingly the issues for determination on...