JASANI v VINCENT CAPITAL LTD [2018] NZHC 3367

JASANI v VINCENT CAPITAL LTD [2018] NZHC 3367 [17 December 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2018-404-2731[2018] NZHC 3367BETWEEN SHAMEER JASANIPlaintiffAND VINCENT CAPITAL LIMITEDDefendantHearing: 17 December 2018Appearances: G K Holm-Hansen and A L Barnett for the plaintiffM D Arthur and L C Bercovitch for the defendantJudgment: 17 December 2018JUDGMENT OF JAGOSE JThis judgment is delivered by me on 17 December 2018 at 4.30 pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarSolicitors:Hesketh Henry, AucklandChapman Tripp, Auckland[1] By application dated 12 December 2018, Mr Jasani seeks urgent interiminjunctions restraining Vincent Capital's sale at auction of properties at 280 and 282Sunset Road in Sunnynook, and at 298 East Coast Road in Pinehill, all residentialproperties in Auckland North Shore suburbs. Vincent Capital's sale by tender ofanother residential property at 16 Saltburn Road in Milford no longer is the subject ofinterim injunctive relief. Mr Jasani also seeks a direction any forced sale of theproperties be conducted under this Court's supervision.Background[2] Mr Jasani and associated Grow group entities (of each of which Mr Jasani isthe sole director) guaranteed a $10.59m loan from Vincent Capital to a Grow groupsubsidiary, Grow Saltburn Limited. The loan – which was for a term of six monthsuntil 28 December 2018, but repayable on demand – was secured by registeredmortgages over the above properties (and one other, at Prospect Terrace), and othersecurities. The loan's terms included a requirement for sale of at least one of theproperties by the end of each September and October 2018. None by then was sold.[3] On 31 October 2018, Vincent Capital served notice of default on theguarantors, specifically for failing to sell the properties as required, and demandedrepayment of the loan. On 12 November 2018, on continuing default, Vincent Capitalput the property-owning Grow group entities into receivership.[4] Meanwhile, on 17 October 2018, Grow Saltburn agreed to sell the ProspectTerrace property to a third party, for settlement on 16 November 2018. Vincent Capitaldid not consent to the proposed sale. Instead, the other properties are now formortgagee sales: of the Pinehill and Sunnynook properties by auction on 20 December2018, and of the Milford property by tender, now closing 31 January 2019 (butpreviously 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.[5] The Milford property is to be sold by tender in combination with an adjoiningproperty at 23 Frater Avenue, also one of the secured properties, for the pending saleand purchase of which Grow Saltburn had paid a $280,000 deposit. Mr Jasani says thescheme of the loan was to facilitate his development proposals for the properties, butparticularly for Grow Saltburn to acquire the Frater Avenue property, for developmentand construction of the combined Milford site.Applicable legal principle—interim injunctions[6] Interim injunction applications are determined on the basis of whether theplaintiff has a serious question for trial, and whether the balance of convenience andoverall interests of justice favour granting the injunction.1 On the latterconsideration(s), the question is whether refusing the injunction would be harder on aplaintiff who was successful at trial, than would granting it be on the successfuldefendant.2 This assessment is undertaken by reference to the adequacy of damages,preservation of the status quo, the uncompensable disadvantages to either party, andthe relative strengths of their cases.3—mortgagee/lender obligations[7] 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 reasonablyobtainable as at the time of sale". And s 120 of the Credit Contracts and ConsumerFinance 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 powerconferred by the contract in an oppressive manner".[8] So far as the PLA is concerned, the duty is co-existent with a mortgagee'slongstanding obligation to act in good faith, the statutory duty usually being the moreonerous.4 It is an exercise in subtraction to identify exactly where the less onerousgood faith obligation transitions into the more onerous duty of care. It is not a duty to1 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); and Klissers Farmhouse Bakeries Ltd[1985] 2 NZLR 129 (CA).2 Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756,30 July 2008 at [4] citing Kane v Global Natural Resources Plc [1984] 1 All ER 225 (CA) at 237.3 Wellington International Airport Ltd v Air New Zealand, above n 2, at [6]-[14].4 Apple Fields Ltd v Damesh Holdings Ltd [2003] UKPC 54, [2004] 1 NZLR 721 at [22] endorsingApple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA) at [47].preserve the owners' equity in the property, or even to recover on sale what theproperty is worth.5 But:6 the duty to take reasonable precautions to obtain a proper price is acomponent of the overall duty to act in good faith, extending to all thoseinterested in the equity of redemption such as a purchaser. A mortgagee mustuse its powers for that predominant purpose, and not act in a manner whichunfairly prejudices or wilfully and recklessly sacrifices the interests of themortgagor or a party claiming through it.Critically, for present purposes, s 176's "as at the time of the sale" means the statutoryduty does not extend to either the decision to sell, or the sale's timing, which themortgagee is entitled to determine in its own interest.7 The duty only arises once thedecision to sell is made.8[9] Section 118 of the CCCFA defines "oppressive" as "oppressive, harsh, unjustlyburdensome, unconscionable, or in breach of reasonable standards of commercialpractice". Section 124 sets out 'guidelines' for determining when such arises, and thenwhether it should give rise to the sought relief. The general enquiry is whether thelender knew, or ought to have known, "the transaction or some term of it is incontravention of reasonable standards of commercial practice".9Discussion—serious question for trial[10] Although he also casts some doubt on the propriety of Vincent Capital'snotices, the essence of Mr Jasani's substantive claim is Vincent Capital is not lawfullyexercising its powers of mortgagee sale. He is optimistic for the prospects of somejoint venture for his scheme's realisation.[11] Mr Jasani claims Vincent Capital's short-notice sales by auction – after lessthan three weeks' marketing, in the run-up to the Christmas/New Year hiatus – is5 Ede v R [2010] NZCA 358, [2010] NZLR 557 at [39].6 Coltart v Lepionka & Company Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36 at [54](internal citations omitted).7 Apple Fields Ltd v Damesh Holdings Ltd (CA), above, n 4, at [49].8 Agio Trustees Company Ltd v Harts Contributory Mortgages Nominee Company Ltd (2001) 4 NZConvC 193,480 (HC) at [77].9 GE Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 31 at [46]-[47]."demonstrably unreasonable" for development properties, for which longer periods ofdue diligence are required. He is supported in those views by Glenn Wells, a real estateagent.[12] Mr Jasani says the sales are not done in good faith to obtain repayment, and hepoints to Vincent Capital's appointment of receivers over the properties but continuingto 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' (whenthat property's sale is not). Mr Jasani also objects to acquisition of the Frater Avenueproperty by an entity associated with Vincent Capital, using a 'or nominee' provisionin the sale and purchase agreement intended to be exercised for Grow Saltburn'sbenefit. 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 bywithholding sought information.[13] Vincent Capital, on the other hand, denies any breach of duty or oppressiveconduct. Rather, it is contractually entitled to protect and realise secured assets incircumstances of default. It withheld its consent to Grow Saltburn's sale, because itconsidered the price was too low. That sale is not, in any event, the subject of anyclaim for relief here. The Pinehill and Sunnynook properties unsuccessfully had beenoffered for sale by two separate agencies during April to August and September toNovember this year. Any serious interest in the properties' development potential hashad sufficient opportunity to crystallise. At some point, the process must conclude,which the auctions are intended to achieve. Mr Wells' opinion such should be deferredby two months is not informed by the properties' history. And acquisition of the FraterAvenue property was necessary to avoid cancellation of the agreement, which GrowSaltburn could not perform; and to avoid loss of Grow Saltburn's deposit, whichVincent Capital's associated company repaid to Grow Saltburn. The combination ofits sale with the Saltburn Road property is to the latter's benefit. Last, the sales followordinary Property Law Act notices, which afford all the time required to be proffered.Prior to sale, all properties remain available to be redeemed.[14] I am not prepared – on this urgent basis, and without opportunity for reply toor cross-examination of deponents – to hold against the prospect Mr Jasani has aserious case for trial. (I have some doubts whether he, not owning any of the subjectproperties, is the right plaintiff, but have no doubt such could be rectified withoutundue damage to the claim.)[15] Vincent Capital accepts it has obligations under the two statutes. Whether ithas met them is a matter for intensive factual determination, not easily discharged onaffidavit evidence alone. Given the timing constraints brought on by this urgentapplication, by which Vincent Capital's evidence in opposition was only availableminutely in advance of the application's hearing, Mr Jasani has had no opportunity toreply. In the absence of cross-examination, that may have been critical.[16] Additionally, under s 124 of the CCCFA, I am bound to come to a view on "allthe circumstances" of the loan's making and enforcement; "the relative bargainingpower of the parties"; "whether, before entering into the arrangement, the debtor obtained independent legal or other professional advice in relation to thatarrangement"; whether the loan imposed "significantly more onerous terms on thedebtor" than would otherwise have been the case; and "any other matters that the courtthinks fit." I do not have the necessary detail to do that justice in the presentcircumstances.[17] But I do not see Mr Jasani's case for substantive relief as strong. At least so faras the PLA relief is concerned, the claim seems to be addressing Vincent Capital'sdecision for, and timing of, the sale. That is not within the duty, as I have explained.10Neither do I find reference to longer periods for sale, in the cases relied on byMr Jasani, to be particularly informative of any lack of reasonableness in the presentcircumstances.11 And, so far as oppression is concerned, Mr Jasani contends for"flexible and indicative" loan arrangements with Vincent Capital, which is notconsistent with the documentation. His intimation to have been misled by VincentCapital's support is as consistent with Vincent Capital's pursuit of its own interests,and his complaints to have been "hamstrung" by exercise of those interests isundermined by their contractual entitlement on default. And there appears to be10 At [8] above.11 See, for example, Dean v Leadenhall Superannuation Nominees Ltd (1986) 2 NZCPR 411; andSeafarer Fishing Company Ltd v Broadlands Finance Ltd HC Timaru A35/77, 17 August 1984.substantial default: beyond that expressly relied on for the giving of notice, Mr Jasani'sfailures to apply GST refunds or credits (of at least some $355,000) in partialrepayment of the loan, and encumbrance of secured property.[18] What makes commercial sense in all those circumstances largely depends onthe view of the beholder, on which the mortgagee is not likely to be second-guessedby this Court. Mr Jasani's evidence is only lightly suggestive of any 'contravention ofreasonable standards of commercial practice' by Vincent Capital, and entirelyspeculative as to whether its mortgagee powers are exercised for collateral purpose.—the balance of convenience[19] That takes me to the balance of convenience.[20] Mr Jasani's optimism a joint venture could be established was founded, at itsvery best, on "very positive discussions with potential interested joint venture parties",including an unnamed New Zealand construction company and European equity fund.Those discussions, "while continuing, have not been able to progress to a conclusion".But Mr Jasani believed: a joint venture deal would be completed, and an offer would soon beforthcoming to Vincent prior to the Christmas break or soon after which wouldresult in a full refinance from Vincent and would take place early in the NewYear (by the end of January 2019).That was the position set out in Mr Jasani's affidavit, sworn 12 December 2018.[21] There thus are grounds to doubt the veracity of an Australian solicitor's 13December 2018 letter, written expressly on behalf of "the Joint Venture partner whichis to provide the funding for the refinancing", and contending for earlier anticipated$11m funding (having been delayed by "the new AML requirements") now to beavailable by 31 January 2019. Mr Jasani could have been expected to identify bothany such partner and the availability of the funding in his affidavit sworn only theprevious day. Mr Holm-Hansen could not explain the contended 'joint venture' natureof the 'partner': whether it was with Mr Jasani in relation to the properties, orindependent of them. There was no indication of the terms for such funding, whichalso should have been known to Mr Jasani if only delayed by 'AML requirements'. Idoubt the letter can carry much more weight than its own existence.[22] But, if the letter has substance, then it should be an adequate foundation forMr Jasani to achieve his scheme's objective of acquiring the Milford properties at theclose of their tenders. I do not put any great weight on the loss of his equity ofredemption over the other properties, at least two of which he had agreed to sell as aterm of the loan. That is all that is to occur at the impugned auctions. And the natureof the loan was precisely to enable short-term bridging finance, while longer-termfunding was secured.[23] I do not see any realistic prospect of loss not adequately compensable bydamages. Difficult assessments of more amorphous losses of opportunity and profit,as might be for calculation if established joint venture funding only was delayed, arenot to make such losses inadequately compensable. The need for such joint venturefunding illustrates Mr Jasani requires very material financial support, which presentlyis unavailable to him. Thus preservation of the status quo also is of no utility.[24] Meanwhile, Vincent Capital fears loss of momentum in the sale process mayaffect its recovery. There is no evidence one way or the other of the views of anypotential purchasers, although it appears some have maintained interest from theearlier campaigns. Mr Jasani's confirmation he has funds available to meet an awardof costs does nothing to comfort me about the adequacy of his undertaking to meetany losses Vincent Capital might sustain if the interim injunctions were granted. Giventhe sums at issue, the Pinehill and Sunnynook properties' failure to sell to date, andthe tightening of North Shore's residential property market, those losses may besubstantial.—overall justice[25] Standing back, I see nothing in the evidence to make me think any differentoutcome is warranted in the interests of justice. Even Mr Jasani's contentions ofperhaps 'sharp' conduct on Vincent Capital's part are muted. The reality is the funderof a property development venture has exercised its contractual entitlements. Thereappears a basis for it to do so. The claims of statutory breach are Mr Jasani's lastrefuge. He is entitled to pursue them, but not to risk Vincent Capital's prejudice now.Sale under Registrar's supervision[26] Mr Jasani also seeks orders requiring that any forced sale of the propertiestakes place under the Registrar's supervision. No submissions addressed thisalternative relief.[27] While the Registrar has power under the PLA to conduct the sale of mortgagedland by public auction, that is at the behest only of the mortgagee.12 There is no suchapplication here. The Registrar also has power to approve terms and conditions forsale by auction of property under a sale order, but that is under Part 17 of the HighCourt Rules' processes for enforcement of this Court's judgments or order.13Obviously, there is no relevant substantive judgment requiring such enforcement.[28] I do not understand the Registrar more generally to have a role in administeringprivate sales of property, and therefore do not make this order either.Result[29] The application is dismissed.Evidence objections[30] Mr Holm-Hansen objected to opinion evidence given for Vincent Capital atparagraphs 43 to 45 and 52 of Robert Hutchison's affidavit, affirmed yesterday. Whileperhaps explicable by the speed with which the evidence was compiled over theweekend, the opinion evidence is not expressed to be given in compliance with thedeponent's overriding duty to assist the court impartially on relevant matters withintheir area of expertise. I therefore disregard it.1412 Property Law Act 2007, s 188.13 HCR 17.74(1)(a).14 For clarity, my observation at [24] above of "the tightening of North Shore's residential propertymarket" is drawn from the Bayleys' agency publication given in evidence for Mr Jasani.Costs[31] I am grateful to counsel for the concise and comprehensive manner in whichthis urgent application has been addressed. In my preliminary view, as the successfulparty, Vincent Capital is entitled to category 2B costs and disbursements. That isbecause, from what I presently know of it, nothing in the steps Vincent Capital took inthis averagely complex proceeding required other than a normal amount of time.[32] If that is not accepted by either party, costs are reserved for determination onshort memoranda of no more than five pages – annexing a single-page table settingout any contended allowable steps, time allocation, and daily recovery rate – to befiled and served by:(a) Vincent Capital within ten working days of the date of this judgment;(b) Mr Jasani within five working days of service of Vincent Capital'smemorandum; and(c) Vincent Capital strictly in reply within five working days of service ofMr Jasani's memorandum.—Jagose J