Jasani v Vincent Capital Ltd
| Jurisdiction | New Zealand |
| Judge | Jagose J |
| Judgment Date | 17 December 2018 |
| Neutral Citation | [2018] NZHC 3367 |
| Docket Number | CIV 2018-404-2731 |
| Court | High Court |
| Date | 17 December 2018 |
[2018] NZHC 3367
CIV 2018-404-2731
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
Banking and Finance, Property — injunction to prevent sales of properties — plaintiff and related entities had guaranteed loan — s176 Property Law Act 2007 (“PLA”) (duty of mortgagee exercising power of sale) — s120 Credit Contracts and Consumer Finance Act 2003 (“CCCFA”) (reopening of credit contracts, consumer leases, and buy-back transactions)
G K Holm-Hansen and A L Barnett for the plaintiff
M D Arthur and L C Bercovitch for the defendant
This judgment is delivered by me on 17 December 2018 at 4.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar /Deputy Registrar
By application dated 12 December 2018, Mr Jasani seeks urgent interim injunctions restraining Vincent Capital's sale at auction of properties at 280 and 282 Sunset Road in Sunnynook, and at 298 East Coast Road in Pinehill, all residential properties in Auckland North Shore suburbs. Vincent Capital's sale by tender of another residential property at 16 Saltburn Road in Milford no longer is the subject of interim injunctive relief. Mr Jasani also seeks a direction any forced sale of the properties be conducted under this Court's supervision.
Mr Jasani and associated Grow group entities (of each of which Mr Jasani is the sole director) guaranteed a $10.59m loan from Vincent Capital to a Grow group subsidiary, Grow Saltburn Limited. The loan —which was for a term of six months until 28 December 2018, but repayable on demand —was secured by registered mortgages over the above properties (and one other, at Prospect Terrace), and other securities. The loan's terms included a requirement for sale of at least one of the properties by the end of each September and October 2018. None by then was sold.
On 31 October 2018, Vincent Capital served notice of default on the guarantors, specifically for failing to sell the properties as required, and demanded repayment of the loan. On 12 November 2018, on continuing default, Vincent Capital put the property-owning Grow group entities into receivership.
Meanwhile, on 17 October 2018, Grow Saltburn agreed to sell the Prospect Terrace property to a third party, for settlement on 16 November 2018. Vincent Capital did not consent to the proposed sale. Instead, the other properties are now for mortgagee sales: of the Pinehill and Sunnynook properties by auction on 20 December 2018, and of the Milford property by tender, now closing 31 January 2019 (but previously also proposed for December 2018). Mr Jasani's counsel, Glen Holm—Hansen, explained he sought the injunction also only to extend to 31 January 2019.
The Milford property is to be sold by tender in combination with an adjoining property at 23 Frater Avenue, also one of the secured properties, for the pending sale and purchase of which Grow Saltburn had paid a $280,000 deposit. Mr Jasani says the scheme of the loan was to facilitate his development proposals for the properties, but particularly for Grow Saltburn to acquire the Frater Avenue property, for development and construction of the combined Milford site.
Interim injunction applications are determined on the basis of whether the plaintiff has a serious question for trial, and whether the balance of convenience and overall interests of justice favour granting the injunction. 1 On the latter consideration(s), the question is whether refusing the injunction would be harder on a plaintiff who was successful at trial, than would granting it be on the successful defendant. 2 This assessment is undertaken by reference to the adequacy of damages, preservation of the status quo, the uncompensable disadvantages to either party, and the relative strengths of their cases. 3
As is commonly understood, s 176(1) of the Property Law Act 2007 (the “PLA”) imposes “a duty of reasonable care … to obtain the best price reasonably obtainable as at the time of sale”. And s 120 of the Credit Contracts and Consumer Finance Act 2003 (the “CCCFA”) entitles the Court to reopen a credit contract if, among other things, “a party has exercised, or intends to exercise, a right or power conferred by the contract. in an oppressive manner”.
So far as the PLA is concerned, the duty is co-existent with a mortgagee's longstanding obligation to act in good faith, the statutory duty usually being the more onerous. 4 It is an exercise in subtraction to identify exactly where the less onerous good faith obligation transitions into the more onerous duty of care. It is not a duty to
… the duty to take reasonable precautions to obtain a proper price is a component of the overall duty to act in good faith, extending to all those interested in the equity of redemption such as a purchaser. A mortgagee must use its powers for that predominant purpose, and not act in a manner which unfairly prejudices or wilfully and recklessly sacrifices the interests of the mortgagor or a party claiming through it.
Critically, for present purposes, s 176's “as at the time of the sale” means the statutory duty does not extend to either the decision to sell, or the sale's timing, which the mortgagee is entitled to determine in its own interest. 7 The duty only arises once the decision to sell is made. 8
Section 118 of the CCCFA defines “oppressive” as “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice”. Section 124 sets out ‘guidelines’ for determining when such arises, and then whether it should give rise to the sought relief. The general enquiry is whether the lender knew, or ought to have known, “the transaction or some term of it is in contravention of reasonable standards of commercial practice”. 9
Although he also casts some doubt on the propriety of Vincent Capital's notices, the essence of Mr Jasani's substantive claim is Vincent Capital is not lawfully exercising its powers of mortgagee sale. He is optimistic for the prospects of some joint venture for his scheme's realisation.
Mr Jasani claims Vincent Capital's short-notice sales by auction —after less than three weeks’ marketing, in the run-up to the Christmas/New Year hiatus —is
Mr Jasani says the sales are not done in good faith to obtain repayment, and he points to Vincent Capital's appointment of receivers over the properties but continuing to exercise mortgagee sales, its withholding of consent to the sale of Prospect Terrace, and its marketing of the Frater Avenue property as a combined ‘mortgagee sale’ (when that property's sale is not). Mr Jasani also objects to acquisition of the Frater Avenue property by an entity associated with Vincent Capital, using a ‘or nominee’ provision in the sale and purchase agreement intended to be exercised for Grow Saltburn's benefit. And he says the shortness of time is to fetter his (and the requisite companies’) equitable rights of redemption, which Vincent Capital also has constrained by withholding sought information.
Vincent Capital, on the other hand, denies any breach of duty or oppressive conduct. Rather, it is contractually entitled to protect and realise secured assets in circumstances of default. It withheld its consent to Grow Saltburn's sale, because it considered the price was too low. That sale is not, in any event, the subject of any claim for relief here. The Pinehill and Sunnynook properties unsuccessfully had been offered for sale by two separate agencies during April to August and September to November this year. Any serious interest in the properties’ development potential has had sufficient opportunity to crystallise. At some point, the process must conclude, which the auctions are intended to achieve. Mr Wells’ opinion such should be deferred by two months is not informed by the properties’ history. And acquisition of the Frater Avenue property was necessary to avoid cancellation of the agreement, which Grow Saltburn could not perform; and to avoid loss of Grow Saltburn's deposit, which Vincent Capital's associated company repaid to Grow Saltburn. The combination of its sale with the Saltburn Road property is to the latter's benefit. Last, the sales follow ordinary Property Law Act notices, which afford all the time required to be proffered. Prior to sale, all properties remain available to be redeemed.
I am not prepared —on this urgent basis, and without opportunity for reply to or cross-examination of deponents —to hold against the prospect Mr Jasani has a...
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