ANZ NATIONAL BANK V WATSON AND ORS HC AK CIV 2007-404-005600

ANZ NATIONAL BANK V WATSON AND ORS HC AK CIV 2007-404-005600 27 September 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-005600BETWEEN ANZ NATIONAL BANK LIMITED Plaintiff AND TARA MICHELLE WATSON First Defendant AND MARGARET JEAN FRASER Second Defendant AND LATE INVESTMENTS LIMITED Third Defendant Hearing: 27 September 2007 Appearances: M G Colson for Plaintiff J B Samuel for Defendants Judgment: 27 September 2007JUDGMENT OF KEANE JSolicitors: Bell Gully, Auckland J G Connell, Greenwoods Corner, Auckland[1] On 10 September 2007 ANZ National Bank Limited obtained a Mareva injunction ex parte, the immediate effect of which was to freeze funds held by the Bank on behalf of three customers, Tara Watson, Late Investments Limited and Margaret Fraser, the principal shareholder and director of Late Investments. They now apply to have that injunction rescinded. Alternatively, Ms Watson applies to have it varied. [2] The foundation for the injunction lies in three property purchases made in June 2007 and advances obtained from ANZ National to enable that to happen. Ms Watson obtained a mortgage advance of $511,000 to purchase 28 Gatman Street for $638,750. Late Investments obtained an advance of $824,000 to purchase 19 Chelsea View Drive for $1,030,000 and $820,000 to purchase 71 Chelsea View Drive for $1,025,000. [3] ANZ National's case is that these three transactions are instances of what is called 'hydraulicing'. The essence of that stratagem is that a purchase is made at the market price and the purchaser on-sells immediately at an inflated price to attract a mortgage advance well in excess of the true value of the property, the intent being to secure the excess that would never have been advanced had the lender known what the value of the property was. That gain is then shared between the vendor and purchaser. [4] ANZ National's case is then that it was induced by misrepresentations and deceit to advance funds well in excess of the security afforded by the properties; that had it know their true value it would never have made advances of that order; that despite the conveyancing trail a significant part of the advances has, in all probability, come full circle and is now amongst the funds frozen; that without the orders in place those sums will be dissipated. Indeed, ANZ National contends, that has already happened. [5] In seeking to rescind the interim injunction Ms Watson, Late Investments and Ms Fraser contend that the transactions were at arms length and at explicable prices; that the funds obtained were fully committed to the purchases and that any in theirhands now are being deployed principally to improve the properties purchased; that there has not been and there is no prospect of dissipation. [6] Alternatively, Ms Watson seeks to have the order varied. It constrains her to drawings of $500 per week. She cannot, she says, begin to meet ordinary living expenses, or her business expenses, or assist her husband with his.Principles governing relief and review[7] The threshold that ANZ National had to pass, and has now to sustain, to obtain and to hold the injunctive relief given, has four aspects. ANZ National had to have initially, and has still to have, a good arguable case. It had and has to show that there are assets within the jurisdiction to which the injunction can apply. It had and has to show a real risk that those assets will dissipate and that the overall justice of the case called for, and calls still, for the interim relief given. [8] The orders made, given as they were ex parte, it is accepted also, are open to review under HCR 259 and may be rescinded if shown to be 'wrong' – in the remedial as opposed to any literal sense. As Henry J said of the purpose of the power of review in D B Baverstock Ltd v Haycock [1986] 1 NZLR 342, 344:The purpose is to enable a Judge to consider whether, on the basis of all the evidence and the arguments advanced, the interlocutory order[s] should stand.[9] Also, contending, as it effectively does, that it is the victim of fraud, ANZ National must establish the facts on which it relies to the balance of probabilities consistent with their gravity and consequences: Managh v Wallington [1998] 3 NZLR 546 CA. But subject to this. The relief ANZ National has obtained and seeks to hold is interim, not final, and the case is still evolving. The assessment I am to make must needs be provisional.Interim relief justified[10] Approaching the task in that way, I am satisfied that the interim relief granted was justifiable and remains so. And my first reason is this: in applying for the advances ANZ National made, Ms Watson and Late Investments must be assumed to have given the Bank this assurance – that the advances applied for would be secured against properties purchased in arm's length transactions at market prices. [11] That Ms Watson, and Ms Fraser on behalf of Late Investments, may merely have signed their applications, that these may have been filled out by an officer of the Bank, the same officer in all three cases, who has since resigned, is then incidental. So too that the Bank granted the applications without a supporting registered valuation. The assurance I have identified was both inherent and fundamental. [12] A market price, of course, can lie within a range. It is what a willing but not anxious buyer is prepared to offer and a willing but not anxious seller is prepared to accept, and as to that opinions can vary and sometimes widely. But it is a genuine expression of market value in that it is negotiated. That is the assurance on which the Bank lent. [13] Secondly, though there is reason not to take the valuation evidence too literally or as conclusive, the reasons for pause are evident enough, it remains highly suggestive. [14] In saying that I accept (i) ANZ National did not require valuations before granting the applications for finance. (ii) The contrast then between the prices to be paid and the then government valuations was and remains uninstructive. The valuations were historic and the market had moved on. (iii) When the Bank did seek retrospective valuations they were commissioned, it seems by the officer who has since resigned. The valuations he obtained ostensibly showed that the prices agreed reflected value. Those valuations are spurious. They were derived from real valuations that were much lower. (iv) Even those real valuations are not to be takentoo literally. They were retrospective after the market had flattened. They might well be conservative. [15] All those caveats entered, the valuation evidence does suggest that the purchase prices ostensibly agreed, on the faith of which the advances were made, were significantly inflated. [16] That is first evident in the 28 Gatman Street purchase, and perhaps least dramatically. It was purchased for $638,750 when the government valuation, given on 1 September 2005, was $440,000. The spurious valuation supported the purchase price. It was $645,000. The real retrospective valuation was for not greatly more than the government valuation and may be open to question. Values had appreciated since September 2005. However, it does throw into relief why the purchase price was as high as it was. [17] The contrast between price and value in the two Late Investments' transactions is more stark. Late Investments purchased 19 Chelsea View Drive for $1,030,000 when the government valuation, made on 1 September 2005, was $445,000. The fraudulent valuation was $10,000 in excess of the purchase price. The real retrospective valuation set the value at $636,000. The discrepancy is $394,000. 71 Chelsea View Drive was purchased for $1,025,000. The government valuation given on 1 July 2005 was $520,000. The fraudulent valuation again was in excess of the purchase price, this time by $5,000. The August registered valuation, again given soon after, was significantly lower. It was $730,000. The discrepancy is $295,000. [18] The order of discrepancy between value and price in these two latter transactions in particular is so great as to put into issue the reasons why Ms Watson and Ms Fraser purchased at the prices they agreed: in essence that they had secured for good prices properties that could be developed at a profit. The valuation evidence suggests they grossly overpaid. [19] Thirdly, their explanations become even more open to question when one takes into account that the vendors from whom they purchased had just purchasedthemselves. Certainly, in each case, the transfers were registered on the same day and within a short time of each other. That is the defining feature of 'hydraulicing'. And while only the figures for the 31 Gatland Street purchase are to hand, they are instructive. [20] Mei Fang, from whom Ms Watson purchased, purchased from a woman who had held the property since 2005. Mei Fang paid $460,000 and she sold to Ms Watson, apparently on the same day, or within a short time, for $638,750. The difference is $178,750. It may be that Ms Watson bought in good faith. More probable, on the evidence as it is, is that she was intent on access to that part of the advance made in excess of $440,000. [21] Fourthly, there are other features common to all three transactions that may or may not point consistently. I am conscious that others implicated are not before the Court; the vendors, who on ANZ National's case could be expected to be complicit, in particular, figure only as names. That said, each transaction involved vendor finance after the event, not disclosed when funding was applied for, the result of which was that the purchasers paid nothing. Each involved the same mortgage officer, who has since resigned. The same solicitor acted for all parties in all three transactions. [22] Fifthly, a linked factor is the path the advances have or may have taken since settlement. The settlement statements and statements of account to Ms Watson and Late Investments show, ostensibly, that they were fully deployed in the purchases. However, within a day or days of settlement Ms Watson received from the solicitors two significant sums, $26,312 and $108,096. Late Investments, or rather Ms Fraser, received $159,134. Each was required by the 10 September 2007 interim orders to explain those payments. Neither has done so. That the payments might be part of the advances made cannot be discounted. [23] Sixthly, the risk of dissipation does appear real. Ms Watson has not explained what happened to the funds she received beyond attributing some part to payments made to improve the property she purchased. Ms Fraser purported in that way also to account completely for what she received, a large part of which she drew down incash within days. But the payments she said she first made, totalling $40,000, pre- date the date the transfer of the property to her was registered. She may have had access to the property beforehand. But the sum thrown into question is large. Where the money has gone, and why, remains an open question. That in itself justifies the orders continuing.Living expenses[24] Ms Watson seeks then to have increased the sum she is allowed to draw from her accounts for living expenses, presently $500 per week. She cannot live on that, she says. Her expenses are greatly higher. Apart from anything else, I understand, she has three children. She also has liabilities in business. Also, apparently, she assists her husband to meet the liabilities of his company, Via Global, which deals in European cars, as to some of which that company is now in default. [25] On the information I have it is not easy to be more than provisional. I cannot see, however, that anything should be released to meet Via Global's liabilities and I am hesitant to accept at face value others of a business nature. I am sympathetic to Ms Watson's need to live and to contribute to the support of her family. I will vary the order by allowing her to draw down to the extent of $1,500 a week.Conclusion[26] For all these reasons I am satisfied that ANZ National was entitled to the injunctive relief it obtained ex parte and that there is no basis for rescinding the orders and directions then made. The orders will be varied to the extent I have just identified.[27] There remains the issue of costs. Apart from the variation I have just made, ANZ National has sustained its position and is entitled to costs. Scale 2B seems to me to apply and I imagine that costs can be resolved by agreement, to be furnished to the Registrar, who will also approve any disbursements. _____________ P.J. Keane J