HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED V IVAN VLADIMAR JOSEPH ERCEG AND ORS HC AK CIV-2010-404-002835

HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED V IVAN VLADIMAR JOSEPH ERCEG AND ORS HC AK CIV-2010-404-002835 1 November 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2010-404-002835BETWEEN HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED Plaintiff AND IVAN VLADIMAR JOSEPH ERCEG First Defendant AND SENSATION NEW ZEALAND LIMITED Second Defendant AND SENSATION YACHTS LIMITED (IN LIQUIDATION) Third Defendant AND CK & S LIMITED Fourth Defendant AND DORCHESTER FINANCE LIMITED Fifth Defendant AND BALENIA LIMITED Sixth Defendant AND TRI-FORCE MARINE LIMITED Seventh Defendant Hearing: 1 November 2010 Counsel: B J Burt and J A McMillan for the Plaintiff P J Dale for the Second Defendant G J Kohler and J Peng for the Sixth Defendant Judgment: 1 November 2010ORAL JUDGMENT OF ASHER JSolicitors/Counsel: B J Burt, Chapman Tripp, PO Box 2206, Shortland Street, Auckland 1140. DX CP24029. Email: james.burt@chapmantripp.com G J Kohler, PO Box 4338, Shortland Street, Auckland 1140. DX CX10258. Email: kohler@shortlandchambers.co.nzIntroduction[1] In these proceedings HongKong and Shanghai Banking Corporation Ltd ("HSBC"), the plaintiff, seeks orders in relation to the future dealing with chattels on a property at 5/11 Selwood Road, Henderson, which it occupies as mortgagee in possession. HSBC's purpose is to obtain Court orders which will enable it to, in an orderly and lawful way, divest the property of a significant quantity of chattels so that the property can then be presented in good order and condition for sale. HSBC has no interest in the chattels except to get them off the site. [2] This proceeding was set down for a two day hearing today. There has been one active defendant, Balenia Ltd the sixth defendant ("Balenia"). Issues between HSBC and Balenia have now been resolved by means of a settlement and the result is that both HSBC and Balenia seek certain consent directions to hold the position in the meantime and for the proceeding between them to be adjourned to enable the settlement to be implemented. They ask that the matter be listed for call in the Duty Judge list on Monday, 23 May 2011. [3] This settlement only resolves HSBC's problem with the chattels on site so far as it relates to chattels owned by Balenia. There is a significant quantity of other chattels on site belonging to other parties ("the non-Balenia chattels"). HSBC seeks orders today by formal proof in relation to the non-Balenia chattels against the other parties. These are the claims that arise in the second cause of action in the statement of claim. [4] In essence HSBC asserts that the second, third, fourth and seventh defendants were all entities associated with and effectively controlled by the first defendant, Ivan Erceg. It asserts that all chattels that are on the site that are not owned by Balenia were owned by those parties. It claims that the chattels now constitute a trespass on the property, and that the first to fourth and seventh defendants have abandoned them. It seeks orders relating to their removal.Background[5] The background to the proceedings was traversed in some detail in an earlier judgment of 23 July 2010.1 It is not necessary to recount all those facts. [6] The present proceedings arise out of the failure of Sensation Yachts Ltd (in liquidation) ("SYL") and the bankruptcy of Ivan Erceg and the apparent financial failure of entities associated with him. SYL had been the occupier of the property at 5/11 Selwood Road, Henderson ("the property"). Mr Erceg is the owner of the property. The company's business was the designing and building of yachts and super yachts. SYL had entered into an agreement to design and build five luxury super yachts for Balenia and building work commenced. There are now three hulls on the property constructed in accordance with that contract. It also was repairing a yacht owned by CK & S Ltd (Symphonia) for the fourth defendant, a company associated with Mr Erceg. The three Balenia hulls and 'Symphonia' are still on site. [7] In addition, on site there is a very large quantity of computers, tools, office equipment and all the other chattels that might be expected to be present for use in the conduct of a significant boatbuilding enterprise. [8] HSBC lent Mr Erceg $6.468 million on 4 May 2007. It was granted a mortgage over the Selwood Road property. That mortgage is now significantly in default. A Property Law Act notice was issued. By order of this Court on 14 October 2009, HSBC became mortgagee in possession of the property and it has occupied the property since 16 October 2009. It has endeavoured by correspondence to get the interested parties to remove the chattels from the site so the property can be presented in an attractive fashion to perspective purchasers. At the moment the property is unsaleable at any reasonable price because of the presence of a very large quantity of hulls and chattels which will deter most purchasers. Some of the hulls are so large that they pose a significant logistical problem to remove.1 At [3]–[13].[9] I will refer to HSBC's efforts to get rid of the chattels later in this judgment. However, I record for present purposes that HSBC as mortgagee in possession finds itself frustrated in its efforts to sell because of the presence of the chattels and its inability to get anyone, save for Balenia, to take any interest in their removal. [10] Tri-Force Marine Ltd was joined more recently, but it has been served and appears to be an entity associated with Mr Erceg. It has taken no steps.Appearances[11] The only party who has been represented in the usual way in this proceeding is Balenia which has effected a settlement with HSBC. Mr Kohler for Balenia appeared at the outset of this hearing. By consent there will be certain directions made to preserve Balenia's position. After those directions were agreed, Mr Kohler was given leave to withdraw for the purposes of the rest of today's hearing concerning the second cause of action against the other defendants. [12] Mr Dale appeared for the second defendant Sensation New Zealand Ltd. He had no instructions to oppose the making of the orders sought or to take active steps in the proceeding. I perceive his appearance as being a courtesy to the Court and I am grateful for it. He was able to indicate his consent on the part of Sensation New Zealand Ltd to the specific directions that Balenia seeks to protect its position. He was not able to speak for the other defendants. Mr Erceg of course is now bankrupt. However, Mr Dale was able to indicate that he was in contact with Mr Erceg and had some familiarity with his interests. He did not feel able to take any position on the orders sought by HSBC relating to the non-Balenia chattels, but expressed no opposition to them. There were no appearances for any other party. They all appear to have been properly served. [13] I will return to the specific directions sought by Balenia and agreed to by Mr Dale at the end of this judgment. I now turn to the issue of whether HSBC is entitled to formal proof against the other defendants.Orders sought against the other defendants[14] Mr Burt for HSBC seeks the following orders: a) A declaration that HSBC shall be under no liability to any of the first to fourth defendants, or anyone claiming through any party, for permitting the removal of the non-Balenia chattels (or any of them) by the first to fourth defendants (or any of them); b) A declaration that, if the non-Balenia chattels are not removed from the property within 20 working days of the date of this declaration: i) Those non-Balenia chattels not removed will be deemed to have been abandoned; ii) HSBC may dispose of, or deal with (however it sees fit) all of the non-Balenia chattels (or any of them) then remaining on the property; and iii) HSBC shall not be required to account to any party in respect of the non-Balenia chattels. I have some reservations about order (a) which I will return to. [15] Both orders are sought on the basis that the presence of the non-Balenia chattels on the property constitute a trespass and on the basis that the first to fourth and seventh defendants have abandoned those non-Balenia chattels.Discussion[16] HSBC with the benefit of a Court order that it was and is mortgagee in possession undoubtedly has the usual rights that emanate from possession in relation to the property at Selwood Road. After taking possession, the lawyers for HSBC, Chapman Tripp, commenced correspondence with the lawyers who it perceived asacting for Mr Erceg's interests asking for the chattels to be removed. They first wrote on 20 October 2009 making observations about the presence of the chattels on the property, noting that there could be competing claims and asking for the parties to agree to the removal of chattels. HSBC offered the necessary access to the property for that removal. [17] Chapman Tripp wrote again on 27 October 2009, this time to the lawyers and accountants for all parties who might have an interest stating that HSBC claimed no interest in the chattels and its preference that they be removed and invited the parties to liaise to try and settle their competing interests so that the chattels could be uplifted. It continued its efforts to motivate the parties associated with Mr Erceg's interests to remove the chattels, writing again on 1 December 2009. It wrote again on 17 March 2010 to Mr G Kazina, a person who it understood was now the sole director of Sensation New Zealand Ltd asking it to remove the chattels. Ultimately, it issued these proceedings on 29 April 2010 seeking orders relating to the removal of the chattels. As stated, the defendants have taken no steps. [18] The question for determination is whether HSBC is entitled as mortgagee in possession to the orders sought in relation to the chattels. Clearly these chattels were initially on the land by consent. Mr Erceg and the other defendants associated with him, whether as tenant, sub-tenant or some sort of licensee, brought the chattels on to the land for the purpose of conducting their businesses or advancing their affairs. Since the time when Mr Erceg got into financial difficulties following the receivership of SYL and his ultimate bankruptcy, the chattels have not been used. [19] Since October 2009 HSBC has been doing all it can to persuade the first to fourth and seventh defendants, or entities related to Mr Erceg, to remove the chattels or take some step which will enable them to be removed. There have been some responses from various parties, but nothing close to any of the defendants taking any step to remove the chattels or make any sensible proposition as to what should happen to them. [20] Any doubt about the revocation of any permission for the chattels to be on the land was removed by the original application in these proceedings dated 29 April2010, when orders for removal were sought. Despite this very clear step there has been no effort on the part of the first to fourth and seventh defendants to take any steps in relation to the chattels. [21] A party lawfully in possession of land is entitled to enjoy that land free from trespassing chattels. Any form of possession if it is clear and exclusive, and exercised with the intention to possess, is sufficient to support a claim. 2 Chattels or goods which remain on land after the party lawfully in possession has revoked any permission for them to be there, can constitute a trespass to the land: see Konskier v B Goodman Ltd3 and Jones v Gospel.4 This can be the case even when the chattel has been the subject of a bailment and the bailment has ceased. 5 Of course, goods lawfully on the property do not trespass overnight. Reasonable notice for their removal must be given. I am satisfied that such reasonable notice was given. [22] It is also arguable that the chattels are properly regarded as having been abandoned. Abandonment has been defined: 6Abandonment occurs where there is "a giving up, a total desertion, and absolute relinquishment" of private goods by the former owner. It may arise when the owner with a specific intent of desertion and relinquishment casts away or leaves behind his property "[23] For there to be abandonment, the owner of the chattel must effectively divest itself of ownership by its unequivocal actions and the title thereto may be acquired effectively by someone else who thereafter has title: 7[24] Here the neglect and inaction on the part of the first to fourth and seventh defendants appear to be sufficient to constitute abandonment. The consequence is that the title potentially rests in HSBC. HSBC does not seek orders to go that far. It2 Halsbury's Laws of England Vol 45(2) para 573.3 Konskier v B Goodman Ltd3 [1928] 1 KB 421 at 426 (CA).4 Jones v Gospel [1998] EWCA Civ 1095.5 Palmer on Bailment, 3 rd ed, 13-039.6 R A Brown The Law of Personal Property (1955) 2 nd ed p 9, quoted in Simpson v Gowers 32 OR (2d) 385 at 387.7 Lang v Le Boursicot (1993) 5 BPR 11,782 at 11,787; Moorhouse v Angus & Robertson (1986) Fleet Street Reports 231,238 reversed on the facts in Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700.is content to obtain orders expressly permitting it to allow the first to fourth and seventh defendants to remove the chattels but, if they are not removed within 20 working days of the date of the declaration, entitling it to dispose of the chattels. This gives the first to fourth and seventh defendants one last opportunity to take possession of the chattels. If they take no steps, they thereby confirm their abandonment of the chattels. [25] An affidavit has been filed for Sensation New Zealand Ltd by Brian James Gauld. Mr Dale did not seek to speak to that affidavit and I cannot discern anything in it that has any relevant to the matters at issue today. Mr Gauld did not appear today. I put that affidavit to one side.Conclusion[26] I am satisfied that in these unusual circumstances HSBC is entitled to the orders sought with one qualification. I do not consider it appropriate for there to be a declaration that HSBC shall be under no liability to any party, whether a party to the action or otherwise, for permitting the removal of the chattels to the first to fourth and seventh defendants. I do not consider that exonerating a plaintiff in advance of its actions, when all the possible contingencies are not known, is wise. I am, however, prepared to grant a modified declaration that will permit HSBC to allow the first to fourth and seventh defendants to remove the non-Balenia chattels. I am prepared to take this further step, given my conclusion that the chattels are trespassing on the property, and because after 20 working days they will be deemed to have been abandoned. This means that HSBC will not need to concern itself with whether it is allowing the right defendant to take the right chattel. It will mean that it can dispose of the chattels after 20 working days without concern about further repercussions. [27] I therefore make the following orders in relation to the non-Balenia chattels: a) A declaration that HSBC may allow the first to fourth and seventh defendants to remove the non-Balenia chattels.b) A declaration that, if the non-Balenia chattels are not removed from the property within 20 working days of the date of this declaration: i) those non-Balenia chattels not removed will be deemed to have been abandoned; ii) HSBC may dispose of, or deal with, (however it sees fit) all of the non-Balenia chattels (or any of them) then remaining on the property; and iii) HSBC shall not be required to account to any party in respect of the non-Balenia chattels.Balenia orders[28] Balenia claims entitlement not only to the hulls but to some intellectual property such as software or computer programmes that are held on site. It wishes to be protected against the possibility of any of the first to fourth and seventh defendants taking chattels that in fact belong to Balenia. HSBC, which is the party that has the rights to the non-Balenia chattels supports some precautionary order to ensure that Balenia is involved in any removal that might take place. [29] I therefore, with the consent of HSBC, and as I have noted earlier with the support of Mr Dale for Sensation New Zealand Ltd, make the following further order: Prior to any party attending on site to remove chattels, that party shall first give HSBC and Balenia 10 working days notice of its claim and intention to remove such chattels. Its notice shall list such chattels with precision to enable their precise identity to be established. In the event of there being an objection to the removal, leave is reserved to any party to seek further orders and/or directions in respect of the chattels.[30] Further, with the consent of HSBC and Balenia and at Mr Dale's request I make the following further direction: A representative of Sensation New Zealand Ltd may by prior arrangement with HSBC visit the site and inspect and list the chattels. [31] This order will facilitate the orderly removal of the non-Balenia chattels and enable effective notice to be given by the first to fourth and seventh defendants to Balenia. [32] The proceedings are to still continue in relation to the claim against Balenia, and are adjourned to the Duty Judge list for call on Monday, 23 May 2011.Costs[33] No costs arise in relation to the HSBC and Balenia first cause of action. However, the formal proof has taken the best part of half a day. The inaction of the first to fourth and seventh defendants has lead to the need for this hearing. I consider it appropriate that HSBC has costs on a half day hearing today against the first to fourth and seventh defendants. I award HSBC costs against the first to fourth and seventh defendants on a 2B basis plus reasonable disbursements... Asher J