SPARKS v OLLIVER TRUSTEE CO LTD (IN LIQ) [2019] NZHC 2877

SPARKS v OLLIVER TRUSTEE CO LTD (IN LIQ) [2019] NZHC 2877 [5 November 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-1507[2019] NZHC 2877UNDER the Property (Relationships) Act 1976IN THE MATTER OF An application to commence proceedingsagainst company in liquidation and anapplication for second notice of claim to beregisteredBETWEEN SARAH PATRICIA SPARKSApplicantAND OLLIVER TRUSTEE COMPANYLIMITED (IN LIQUIDATION)RespondentBANK OF NEW ZEALANDIntended IntervenorHearing: 30 October 2019Appearances: S Sparks, Applicant in PersonNo appearance for or on behalf of the RespondentJ Cowan for Bank of New Zealand Limited, a party seeking leaveto interveneJudgment: 5 November 2019JUDGMENT OF ASSOCIATE JUDGE SMITHThis judgment is delivered by me on 5 November 2019 at 4:45 pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarSolicitors: Anderson Lloyd, DunedinAnd to: Applicant[1] Ms Sparks is engaged in proceedings under the Property (Relationships) Act1976 (the PRA) with her former husband, Mr Gregory Olliver. Mr Olliver was thesole director of the respondent company, which is now in liquidation.[2] The respondent was a property developer, and it is the registered proprietor oftwo substantial blocks of land, together comprising approximately 28 hectares, inKapiti Road, Paraparaumu (the Kapiti land). This application is concerned with oneof the two blocks of land, which I will refer to as No 109. I will refer to the second ofthe two blocks of land as No 77.[3] For some years Bank of New Zealand (the bank) has funded the developmentactivities of Mr Olliver and entities associated with him, including the respondent. InJuly 2013 it lent the respondent $9,550,000 to acquire No 109. The lending wassecured by first registered mortgage over No 109 and certain other properties.Subsequently, the bank lent the respondent further sums totalling $8,170,000 todevelop the Kapiti land. This lending is also secured by the first mortgage overNo 109.[4] The bank has lent further money to a company called St Heliers CapitalLimited (SHC), a company associated with Mr Olliver, which owns No 77. There areinterlocking guarantees in favour of the bank among a number of parties, and thelending to SHC is secured over both No 77 and No 109. In addition to its firstmortgage security, the bank holds general security agreements executed by therespondent and SHC.[5] Following the separation of Ms Sparks and Mr Olliver, Ms Sparks registered anotice of claim (the first Notice) against the title to No 109. She contends that she hasan interest in No 109, whether under the PRA or under a constructive trust arising fromdirect or indirect contributions she says she has made to No 109.[6] The respondent applied to the District Land Registrar to lapse the first Noticelate in 2019. Through inadvertence, Ms Sparks failed to make application to the Courtwithin the prescribed time, and the first Notice lapsed. Ms Sparks says that she becameaware of the lapse of the first Notice on 18 February 2019, when it was referred to ina memorandum filed by counsel for Mr Olliver in a related proceeding.[7] On 24 July 2019 Ms Sparks filed an application for an order permitting theregistration of a second notice of claim under the PRA (the second Notice) on the titleto No 109. As the respondent had by then gone into liquidation, she also applied foran order under s 248(1)(c) of the Companies Act 1993 (the Act), granting her leave toproceed with an application against a company in liquidation.[8] Neither of Ms Sparks' applications is opposed by the respondent. Therespondent's liquidator has advised through counsel that the liquidator is content toabide the decision of the Court on the two applications.[9] When the bank became aware of Ms Sparks' applications, and learned that theywould not be opposed by the respondent's liquidator, the bank filed its application tointervene in, and to oppose, Ms Sparks' application for leave to register the secondNotice on the title to No 109. The bank does not oppose the granting of leave to MsSparks under s 248(1)(c) of the Act.[10] I now give judgment on Ms Sparks' application for leave under s 248(1)(c) ofthe Act, and on the bank's application for leave to intervene and oppose the secondNotice application.Ms Sparks' application under s 248(1)(c) of the Companies Act for leave toproceed against the respondent[11] Section 248(1) of the Act materially provides:248 Effect of commencement of liquidation(1) With effect from the commencement of the liquidation of a company,—(c) unless the liquidator agrees or the court orders otherwise, aperson must not—(i) commence or continue legal proceedings against thecompany or in relation to its property.[12] As the respondent's liquidator has not consented to the commencement of thisproceeding, Ms Sparks was required to seek leave under s 248(1)(c)(i).[13] The learned authors of Brookers' Company and Securities Law note thatfactors relevant to the exercise of the Court's discretion under s 248(1)(c) include:1• whether circumstances exist which render it necessary that the legalproceeding should continue; or• whether the plaintiff's claim is one that cannot easily be dealt with in theliquidation.[14] Leave will generally be declined if the proceeding would, even if successful,be likely to be fruitless,2 but the Court should not examine the merits of the case: itneeds only to be satisfied that the proposed claim is not clearly unsustainable.3Excessive delay by a plaintiff in making the application for leave may weigh againstthe applicant.4[15] Ultimately, it is a matter for the Court's discretion whether leave should begranted, and the considerations mentioned above are not exhaustive.[16] Ms Sparks' application for leave is not opposed by either the respondent or theparty seeking leave to intervene, and the relief she seeks in her substantive applicationis not a claim to relief that could be dealt with by the liquidator. If Ms Sparks wishesto register the second Notice she has no option but to come to the Court for leave todo so.1 Brookers', Company and Securities Law (looseleaf edition, Thompson Reuters) at[(A248.03C27)]2 Johnston v CBD Real Estate Limited (In Liq) (2000) 14PRNZ 320 at 322.3 Fisher v Isbey (1999) 13 PRNZ 182.4 McPhail v Durbridge Developments Ltd (In Liq) (1998) 8 NZCLC 261610.[17] On the very limited information available at this stage, I do not think it can besaid that Ms Sparks' application to register the second Notice is clearly unsustainable.And in circumstances where no party has raised the issue, and there is no apparentprejudice to any other person, I do not consider that her delay of approximately fivemonths between learning of the lapse of the first Notice and filing the applicationshould have significant weight in the exercise of my discretion.[18] There is an argument, which the bank wishes to run, that Ms Sparks has nointerest in No 109 because there is no equity in No 109: it says that the amount securedover No 109 under the bank's first mortgage will considerably exceed the value ofNo 109. But valuing the Kapiti land, including No 109, does not appear to be a simpleexercise, as will be seen from the next section of this judgment, and I do not think itcan be said at this stage that Ms Sparks' claim to an interest in No 109 is "clearlyunsustainable" on the basis put forward by the bank.[19] There is no other basis on which I could find Ms Sparks' claim to an interestin No 109 as unsustainable. Whether she has such an interest and if so the extent ofit, is apparently one of the matters to be determined in the PRA proceeding, which isscheduled to be heard in this Court in June of next year. Mr Olliver has not sought tointervene in this proceeding on the basis that Ms Sparks has no interest in No 109(under the PRA or otherwise), and nor has the liquidator challenged her claim to aninterest.[20] In those circumstances I do not think it can be said at this stage that Ms Sparks'claims to an interest in the property are clearly unsustainable, although detailedargument on the merits of her claims, and further evidence, or reference to any existingrelevant evidence in the PRA proceeding, is likely to be required at the hearing of herapplication for leave to lodge the second Notice. The bar is not set that high on anapplication for leave under the Act, however, and I am satisfied that leave should begranted. I make an order under s 248(1)(c) of the Act granting leave to Ms Sparks tocommence this proceeding against the respondent.The bank's application for leave to interveneThe bank's evidence in support[21] Two affidavits were filed for the bank in support, both by Mr Craig Dungey,the bank's officer who has had responsibility for the administration of its lending tothe respondent and other entities associated with Mr Olliver.[22] Mr Dungey confirmed that the respondent is wholly owned by Mr Olliver, andthat he has had a long history with the bank. The bank has financed various propertydevelopments for him, and there have been ups and downs in the relationship over theyears: sometimes there have been defaults, and sometimes there have been mortgageesales and/or readjustment of loans.[23] Both SHC and the respondent have defaulted on their loans from the bank. Asat 21 August 2019, the amount owed by the respondent on the loans from the bankwas approximately $21,000,000.[24] Mr Dungey said that the bank has considered its options regarding its debtsecured over the Kapiti land. The extent of the debt, and the valuation advice the bankhas obtained, mean that there are no commercially attractive options. If the bank werenow to proceed with a mortgagee sale of the Kapiti land, there would likely be ashortfall in the region of $25,000,000 . For that reason, the bank has been consideringother options to minimise its loss.[25] The bank has not been able to identify any assets of SHC or the respondent ofany value, beyond the Kapiti land.[26] Mr Dungey described No 109 as being largely undeveloped bare land,comprising approximately 10.4 hectares. The bank lent the respondent the $9,550,000acquisition cost under a revolving credit facility on 17 July 2013, and a further$8,710,000 has been advanced under a revolving credit facility agreed on 2 February2016.[27] In July 2018, the bank obtained a valuation report on the Kapiti land fromColliers International (Colliers). Mr Dungey produced a copy of the Colliers' report.The Colliers' report assessed the market value of the Kapiti land, in an "as is" state,as:No 77 - $7,900,000 plus GST (if any)No 109 - $4,950,000 plus GST (if any)[28] If the titles to No 77 and No 109 were amalgamated, Colliers considered thatthe value of the Kapiti land would be $10,900,000 plus GST (if any).[29] Those valuation figures valued the Kapiti land in an undeveloped state. Thebank has since looked at possible scenarios in which the property might be developedbefore it was sold. If a 100 per cent yield was achieved on a development, thedevelopment costs were relatively low, and the development period did not exceedtwo years, the bank reckoned that its debt could be reduced to $2,000,000. The secondscenario considered by the bank assumed a more realistic 85 per cent yield and slightlyhigher development costs. In this scenario, the bank estimated the shortfall at about$12,000,000.[30] Mr Dungey said that the bank has not identified any possible scenarios wherethere would be any surplus on a sale of the Kapiti land after the bank's loans had beenrepaid and sale costs met. Based on the current valuation evidence and current loanbalances, the shortfall for the bank will be somewhere between $2,000,000 (best case)and $16,000,000 (worst case).[31] Mr Dungey expressed the view that if Ms Sparks is permitted to lodge thesecond Notice on the title to No 109, there would be significant detriment to the bank.Having a notice of claim on the title would limit the bank's recovery options, one ofwhich is to procure finance to allow the Kapiti land to be developed and sold for a farbetter return. Mr Dungey's understanding was that any refinancing would requireconditional agreements to purchase at least part of the Kapiti land post-development,and that would be much harder to achieve if there were a notice of claim on the title.Prospective purchasers would have concerns that the existence of such a Notice couldresult in difficulties and/or delays in subdividing or providing clear title to purchasers.[32] The bank's principal concern is to achieve the best possible realisation of theKapiti land, and thus minimise its losses. It has no interest in Ms Sparks' dispute withMr Olliver under the PRA. However, it cannot see how Ms Sparks' interests could beprejudiced if she did not have a notice of claim registered on the title to No 109. Itbelieves there will be no money for Ms Sparks from a sale of No 109, regardless ofthe merits of her claim to an interest in No 109.[33] Mr Dungey said that the bank has offered a potential solution to Ms Sparkswhich it believes would protect any interest she might have in the Kapiti land, whileallowing the bank to realise the Kapiti land at maximum value. Briefly, the solutionwould have involved Ms Sparks abandoning her application to register the secondNotice on the title to No 109 and agreeing to remove a similar Notice presentlyregistered on the title to No 77. She would give broad powers to the bank as herattorney, to enable the bank to complete the development and sale of the Kapiti land,and she would consent to the registration of a further mortgage in favour of anindependent third party who would fund the development of the Kapiti land. On anysale or sales of the Kapiti land, the bank would hold any surplus (after the dischargeof its debt and payment of outstanding costs) pending resolution of Ms Sparks' claimsin the proceeding under the PRA.Ms Sparks' opposition[34] In her notice of opposition Ms Sparks said that she has an arguable case thatthe bank is meddling in the PRA proceeding. She referred to the respondent havingpreviously been funded 100 per cent by the bank, and the fact that the respondent iscontrolled by her ex-husband, Mr Olliver. She contended that the fact that theliquidator has stood back passively on this application, while the bank has sought tointervene, demonstrates a collusive agenda.[35] Ms Sparks referred to what she described as a successful collaboration with thebank in the past, in respect of the sale of a property in St Heliers over which the bankhad held a mortgage. She described the sale has having been conducted with oversightfrom this Court, because of concerns about what she described as the bank's "historicalpartisan backing of Mr Olliver".[36] In a supporting affidavit, Ms Sparks referred to the bank opposing requests shehas made for a non-party discovery in the PRA proceeding, and to the bank's allegedlypartisan support of Mr Olliver. She accused Mr Olliver of acting in bad faith and "self-dealing" ever since the marriage broke down. She referred to previous judgments inproceedings between the parties where allegedly incorrect financial information wasput before the Court, and she expressed concern that history might be repeating itselfin the current situation. Ms Sparks suspects that there might be more value in theKapiti land than the bank is currently suggesting.[37] She noted that the value of the Kapiti land has not been tested on the openmarket, and the bank has never marketed the Kapiti land for sale. She compared thepresent case with the situation that arose with the St Heliers property, where acontention was made by Mr Olliver that the debt secured exceeded the property'svalue. When the St Heliers property was finally sold by tender on the open market,the bank was fully repaid, and there was a multimillion-dollar surplus.[38] Ms Sparks asserted that Mr Olliver has personally received $1,950,000 fromthe bank, notwithstanding the defaults by the respondent under the bank's mortgage.She contended that notwithstanding those defaults, no expense or effort has beenspared in the pursuit of the development strategy for the Kapiti land – all paid for bythe bank.[39] Ms Sparks drew attention to a proposed zoning change that, if it is made, willaffect the Kapiti land. An application has recently been made by SHC to have theKapiti land included in the "Town Centre Model". She said that her inquiries of theKapiti District Council have elicited the information that the Kapiti land is presentlyzoned "Precinct C", which covers commercial and residential development but notretail use. Should the rezoning take place and more space be provided for retailoperations, the value of the Kapiti land would increase substantially. SHC's solicitorshave made several substantial submissions in relation to the amendment, all funded bythe bank.Mr Dungey's evidence in reply[40] Mr Dungey denied that the bank had any interest in or concern with the PRAproceeding between Ms Sparks and Mr Olliver: the bank's only interest is in relationto the loans it has given to entities associated with Mr Olliver, and in preserving andadvancing its own interest as mortgagee of the Kapiti land.[41] Mr Dungey also denied Ms Sparks' contention that the bank has beencolluding with Mr Olliver. He confirmed that the bank did not fund the applicationmade by the liquidator to lapse the first Notice.[42] On the development of the Kapiti land, Mr Dungey said that he understoodMr Olliver was pursuing various options in relation to the possible development ofNo 109 and No 77. He said that the bank is currently unwilling to advance furtherfunds to Mr Olliver for development purposes, but it would consider consenting to afurther mortgage in favour of an independent third party financier if Mr Olliver couldlocate a further source of finance.[43] In response to Ms Sparks' references to a Kapiti District Plan change, and therezoning process currently under way in the Kapiti District, Mr Dungey acknowledgedthat he was aware of those matters. However his understanding was that the processhas not been completed, and no changes have yet been made.Applications to intervene – legal principles[44] The Court has jurisdiction under rr 7.43A(1)(d) and (e) of the High Court Rules2016 to make orders or directions as to how a hearing is to be conducted, and it hasinherent jurisdiction to grant leave to a non-party to intervene in a proceeding.5[45] In Capital and Merchant Finance Ltd (In Receivership and Liquidation) vPerpetual Trust Ltd, Thomas J considered the authorities on the joinder of intervenorsor interested parties, concluding that the Court's approach will depend largely on the5 Seales v Attorney-General [2015] NZHC 828 at [41].facts and nature of the particular case.6 Her Honour distilled the followingpropositions that should direct the Court in the exercise of its discretion:7(a) An applicant must show that its legal rights against or liabilities inrelation to the subject matter will be directly affected. Commercial,financial, or reputational interests in the outcome will be sufficientonly in exceptional circumstances.(b) If the intending intervener's presence before the court will notimprove the quality of information before the court, that will countheavily against its addition to the proceeding.(c) A relevant consideration is the extent to which the proposed intervenercan rely on one of the parties to protect its rights and obligations.(d) If either party would be prejudiced by the intervention, or if theintervention would create an impression of partiality, the applicationwill not be granted.(e) In cases where development of the law is likely, the application ismore likely to be granted if the proposed intervener has specialexpertise to assist the court on wider public policy issues.(f) The underlying issue is whether it would be unjust to adjudicate onthe matter in dispute without the intervener being heard. Several ofthe factors mentioned above tie into this issue.(g) Where intervention is justified, the degree of participation granted tothe intervener should be the minimum necessary to protect theintervener's interest.Discussion and conclusions on the bank's application[46] For the reasons set out below, I am satisfied that it is appropriate to give leaveto the bank to intervene in the proceeding.[47] I will address the matter by considering each of the criteria adopted byThomas J in Capital and Merchant Finance Ltd (as set out at para [45] above).6 Capital and Merchant Finance Limited (in rec and liq) v Perpetual Trust Limited [2014] NZHC3205, [2015] NZAR 228 at [25].7 At [41].[48] The first of the propositions from Capital and Merchant Finance Ltd is that anapplicant must show that his or her legal rights or liabilities in relation to the subjectmatter will be directly affected. Commercial, financial, or reputational interests in theoutcome will be sufficient only in exceptional circumstances.[49] I doubt that it can be said that the existence of a second Notice would negateor detract from the existence of any rights or liabilities the bank has as mortgagee, butI accept that the existence of the second Notice, if Ms Sparks is permitted to registerit, may well limit the bank's options for the exercise of its rights as mortgagee. Atleast some prospective purchasers are likely to be put off by the existence of any noticeof claim on the title, and as Mr Dungey said in his first affidavit, the presence of sucha notice may well make refinancing difficult. That is because a refinancing wouldprobably require at least some pre-completion conditional sales, and if prospectivepurchasers suspected that a notice of claim on the title would cause days in completionof the subdivision and the issue of new titles, they would probably not be prepared tocommit to a purchase. To that extent, I think this factor favours allowing the bank tointervene.[50] The second consideration identified by Thomas J in Capital and MerchantFinance Ltd, related to the quality of information before the Court at the substantivehearing, and whether the intervenor's presence would be likely to improve the qualityof that information.[51] I am satisfied that the bank is likely to be able to provide information at thehearing of the application that will be helpful. A principal issue at the hearing will bewhether or not Ms Sparks arguably has an interest in the property, and Mr Cowanreferred to authority supporting the proposition that there will normally be no point inpermitting the registration of a caveat (or by analogy a notice under the PRA) if thereis no equity in the property.8 It is the bank who will have up-to-date information onthe full extent of the debt secured by the mortgage, and it is the bank who has obtainedthe Colliers' valuation report. Mr Cowan told me at the hearing that he expects that8 200 Victoria Street Ltd v Henderson HC Auckland CIV-2010-404-3894, 30 June 2010 at [5] and[8], referring to Pacific Homes Ltd (In Rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 at656.the bank will commission an updated report from Colliers, which will take account ofany planning or resource consent changes or applications that might affect the valueof the Kapiti land, and that seems likely to be essential for the Court to deal with the"no equity" issue. Against that, Ms Sparks told me that she does not have the resourcesto commission a valuation report. She referred to the events that unfolded with the StHeliers land, where it was also suggested that the secured debt would exceed the valueof the property but the reality proved to be very different.[52] The Court is more likely to derive far greater assistance from updated valuationevidence relating specifically to the Kapiti land than from evidence about eventsseveral years ago relating to an entirely different piece of land in Auckland. For thatreason, and having regard to the fact that the bank will be best placed to advise theCourt on the extent of the debt, I accept Mr Cowan's submission that participation bythe bank in this proceeding is likely to enhance the quality of information that will bebefore the Court.[53] The next Capital and Merchant Finance Ltd factor is the extent to which thebank can rely on one of the parties to protect its rights and obligations. This factorclearly favours the bank. The liquidator has advised that the respondent does notintend to participate, and if the issues relating to the value of the Kapiti land and theextent of the bank debt are not advanced by the bank, they may not be advanced at all(or at least not adequately advanced). This factor strongly favours allowing the bankto intervene.[54] The next consideration is whether allowing the bank to intervene would causeany prejudice to Ms Sparks or the respondent, or whether the intervention would createan impression of partiality. In my view Ms Sparks has not pointed to any prejudice inallowing the bank to participate, and indeed in her oral submissions she acknowledgedthat it might be helpful for the bank to participate by way of providing updatedvaluation details for the Kapiti land and updated debt figures.[55] Subject to that limited participation, Ms Sparks argued that the bank is notimpartial, and has been colluding with Mr Olliver, to her detriment in the PRAproceeding. I am not satisfied that there is any evidence establishing collusion of thatsort, or that allowing the bank to participate in the hearing would prejudice Ms Sparksin any other way. Whatever the bank's relationship may have been with Mr Olliverover the years, the present reality is that the bank is looking at a very substantial loss,and its obvious interest in this proceeding is to minimise that loss. That can only beachieved by maximising the amount to be realised from the Kapiti land, somethingthat is obviously also in Ms Sparks' best interests. This factor is either neutral orfavours allowing the bank to participate.[56] The next Capital and Merchant Finance Ltd factor related to cases where somedevelopment in the law was a possibility. In such a case, allowing the non-party toparticipate might be favoured if the non-party had some special expertise which mightassist the Court on wider public policy issues. The bank does not rely on this factorin support of its application, and I do not see how it could apply in this case.[57] The last two factors identified by Thomas J in Capital and Merchant FinanceLtd relate to the justice of the situation, and the degree of participation that should bepermitted if intervention is allowed.[58] Mr Cowan submitted that it would be unjust for the substantive application toproceed without the bank being heard. He submitted that the bank's presence beforethe Court may be necessary to adjudicate and settle all questions involved in theproceeding, and it is the bank who is best-placed to provide relevant evidence on thesubstantive issues of valuation and extent of bank debt.[59] On the issue of the degree of any participation by the bank, Mr Cowan advisedthat the bank wishes to participate fully, by filing a Notice of Opposition and evidencein opposition, and by making submissions in opposition at the hearing. However, heacknowledged that the Court must consider whether the joinder should be only for alimited purpose or purposes, as the level of participation should be only what isnecessary to protect the interests of the party being added.9[60] I canvassed with Mr Cowan at the hearing the question of whether it might besufficient if the bank's participation were limited to the filing of updating affidavitsputting before the Court a further valuation report on the Kapiti land (taking accountof any relevant District Plan changes or proposed changes, or other relevant Resource9 Wilson v Attorney-General (Judicial Conduct) (No 2) (2010) 19 PRNZ 943 at [20].Management Act matters potentially affecting the value of the Kapiti land), andupdating the Court on debt figures. Mr Cowan resisted any limitation of that sort, andon reflection I think he was right to do so. The situation is one where changes mightoccur affecting the Kapiti land or the options for its development and sale, at any time,and I think it would be better to have the bank continue to participate at the hearing sothat all relevant matters affecting No 109 can be considered without the need forpossible further reference back to the bank.[61] A further factor which I think supports full participation by the bank is that, ifthe bank's application is refused and Ms Sparks is permitted to register the secondNotice, the bank will simply apply to have the second Notice removed. I accept thata mortgagee does have standing to apply to the Court to remove a caveat or notice ofclaim under the PRA, and Mr Cowan indicated that the bank would be likely toexercise that right if it is not permitted to intervene. It would be a waste of both parties'time and resources, and of the Court's time, to have two hearings when the relevantissues can be dealt with in one hearing.[62] In the circumstances described above I am satisfied that the bank should bepermitted to intervene by filing a notice of opposition and affidavits in opposition, andby making written and oral submissions in opposition to the application. The Noticeof Opposition is to be in the form annexed to the memorandum of the bank's counseldated 22 August 2019, and it is to be filed by 17 November 2019. I make ordersaccordingly.[63] The case is to be listed for mention in the next available Caveat List, forconsideration of the issue of whether Ms Sparks' application for leave to register thesecond Notice should be heard with the defended caveat application which Iunderstand is pending between the same parties in a proceeding relating to No 77.[64] The costs of both applications are reserved, to be dealt with at the conclusionof this proceeding.Associate Judge Smith