ERCEG V THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED HC AK CIV-2008-404-006898

ERCEG V THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED HC AK CIV-2008- 404-006898 29 October 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2008-404-006898BETWEEN IVAN VLADIMAR JOSEPH ERCEG Plaintiff AND THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED Defendant Hearing: 29 October 2008 Appearances: L Ponniah for Plaintiff BJ Burt for Defendant Judgment: 29 October 2008JUDGMENT OF JOHN HANSEN JSolicitors: Corban Revell, PO Box 21-180, Waitakere City, Auckland Chapman Tripp, PO Box 2206, Auckland[1] The plaintiff applies for an interim injunction restraining the defendant from: a) pursuing a mortgagee sale of the plaintiff's property at Selwyn Road, Henderson, Auckland; b) restraining the defendant from acting on the Property Law Act notice dated 3 September 2008, and c) restraining the defendant from advertising or placing any signs on the premises. [2] The matter has a considerable history. Pursuant to a facility letter dated 3 May 2007, the defendant advanced funds to the plaintiff. They were in terms of the various documents annexed to the facility letter. Early on there were defaults. In February 2008 the defendant issued a notice of default in relation to a failure to pay interest in excess of $176,000.00. On 7 May 2008, the Bank issued a notice of demand in respect of failure to pay interest of just over $182,000.00. [3] As a consequence a meeting took place between the relevant parties, and after negotiation and consultation an amending deed was entered into. There were various requirements of that amending deed that are relevant for present purposes. Some of those required payments to the Bank as security for payment of interest and such like. More importantly, there were quarterly payments due of $75,000.00, commencing on 3 August 2008. [4] Also relevant, but in my view peripherally, was a requirement set out in clause 7 of the amending deed, where the plaintiff acknowledged an updated valuation of the property would be obtained from Seagar & Partners, and that value would be the value of the property nominated by Hong Kong Bank for the definition of security value of the agreement, and that it was necessary to be a loan to value ratio of no more than 60 percent in relation to that valuation. The Property Law Act notice that was issued also maintains that a payment is due under that facility.[5] Much of the focus of the argument has been around the valuation. Notwithstanding the clear breach relating to the instalment due. It is argued that under s 120 of the Credit Contracts and Consumer Finance Act 2003 there has been oppressive behaviour by the Bank. That does seem to overlook the background of the significant earlier defaults of the amending deed, and a default of the first quarterly payment due against principal. A Property Law Act Notice was issued on 3 September 2008 requiring a payment by 3 October 2008. No such payment has been received, although pursuant to a direction of myself it has now been paid. That was the basis upon which I extended the interim injunction made by Williams J until today, so the matter could be argued. It does not, of course, discharge the obligation under the Property Law Act notice. [6] As counsel for the Bank has submitted, there is no need to do more than refer to paragraph 166 of the Laws of New Zealand dealing with notices:166. Remedy of default after notice expires If the amount due under a valid notice of default that has been properly served on the mortgagor has not been paid by the stated date, so that all the money secured by the mortgage has become due and payable, the mortgagee may exercise any powers under the mortgage specified in the notice, even if the amount due under it is subsequently paid1. This is provided the mortgagee accepts the money without prejudice to his or her rights and is otherwise not considered to have waived the powers under the mortgage2. There is no justification or jurisdiction for the Court to intervene when it is clear that a notice of default has not been complied with 3.Footnotes 1, 2 and 3, set out the authorities for those three propositions. It is indisputable that the $75,000.00 was not paid by 3 October 2008. On that basis there is no justification for the Court to intervene. [7] However, I should go further. The complaint is that there was some kind of pre-condition to the amending deed by way of oral agreement between Mr Erceg and the Bank, that the valuers, when they attended for the valuation under clause 7 of the amending deed, would make arrangements to attend with Mr Erceg so that he could, in terms of the application for injunction, point out improvements to the property. That is mentioned in affidavits and letters and in submissions today, as the translation of chattels into fixtures that possibly form part of the security. It is said, if they are taken into account then the 60 percent ratio has not been breached. Eventhat is fraught with difficulties. The amending document is a deed. Mr Erceg was independently advised. Notwithstanding that there is nothing in the clause dealing with valuation to require such a course of action. [8] I have today at the hearing been handed an affidavit of Mr Travers who describes himself as a project manager. I am not quite sure who he is a project manager for but he maintains that there are a number of items at the property that are fixtures, having first been chattels and having at some stage been translated into fixtures. Mr Ponniah relies on the authorities he refers to in his written submissions, and submits that even if they were the tenant's chattels, if they are incorporated into the building and cannot be readily removed without damage they become fixtures and subject to charge to the Bank. The matter is not that straightforward. A number of the items referred to would appear to more naturally fall into the category of chattels. [9] There is a more fundamental problem. In the short time available to counsel for the Bank to deal with this matter, he has identified at least four items from the taxation depreciation schedule of Sensation Yachts Limited, that feature in the list of fixtures that is said to make up the value and have been incorporated into this building. Presumably Sensation Yachts Limited is the tenant of Mr Erceg. However, no lease document has been produced to the Court. Such a commercial lease would normally have a clause in it entitling the tenant to take with them chattels at the end of the lease term, with an obligation to make good for such removal. [10] I have not been satisfied that these are indeed fixtures on the evidence in front of me. There is simply a bald statement. That is contradicted by the matter I have just referred to and the fact that a number of items in the schedule would be more apparently chattels than fixtures. It is not described to me how they have become fixtures other than to say they have been fixed or incorporated into the property. How, I know not. In the absence of the lease and more detailed evidence I am not satisfied that there could be any possibility in that ground succeeding at this juncture.[11] I do not consider there is a serious issue to be tried. The first point, in my view, is an absolute answer to this application for an injunction. The application for an injunction is refused. [12] In terms of the facility letter the defendant is entitled to solicitor/client costs, and such costs will be awarded for this hearing, the hearing earlier and the hearing in front of Williams J, but subject to, if there is any dispute as to quantum, the approval of this Court. [13] There is an application by Mr Ponniah for a stay on the basis that he may be instructed to appeal. I can see no possible basis for granting a stay here. The borrower in this case has been in default virtually from the beginning of this loan. The defaults continue. There will be no stay. John Hansen J