S CROSBY V LEVIN MALL LIMITED HC PMN CIV-2011-454-301

S CROSBY V LEVIN MALL LIMITED HC PMN CIV-2011-454-301 [23 February 2012]IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYCIV-2011-454-301[2012] NZHC 254UNDER the Land Transfer Act 1952IN THE MATTER OF of an application that a caveat not lapseunder section 145A Land Transfer Act 1952BETWEEN SOPHIA CROSBYApplicantAND LEVIN MALL LIMITEDRespondentJudgment: 23 February 2012JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment of Associate Judge Gendall was delivered on 23 February 2012 at 3.00 pm under r 11.5 of the High Court Rules.Solicitors: GCA Lawyers, Solicitors, PO Box 3241, ChristchurchSainsbury Logan & Williams, Solicitors, PO Box 41, Napier[1] On 2 June 2011 I gave a decision in this proceeding on the plaintiff'sapplication for an order pursuant to s 145A Land Transfer Act 1952 that a caveat not lapse. In that decision I dismissed the application and ordered that the caveat was to lapse forthwith.[2] At [69](b), (c) and (d) of that 2 June 2011 judgment I made further orders (in addition to the order made at [69](a) lapsing the caveat) as follows:[69] That said, the following orders are now made in this proceeding, given that the application by the applicant to sustain the caveat has effectively failed:(a) An order is now made that Caveat 8724905 affecting certificates of title 26C/119, 26C/120, 8C/1236, 8C/1237, 8C/1238, 8C/1239, 8C1240, 8C1241 is to lapse forthwith.(b) A further order is made that following settlement of the sale of the Levin Mall property to Armagh Investments over which the caveat has been registered, the "net sale proceeds" as defined below areto be paid into this Court and are to be held undisbursed until further order of this Court is made.(c) As to the "net sale proceeds" referred to above, this is to representthe amount agreed between the applicant and the respondent as the true available net sale proceeds equity from the sale of the Levin Mall property following settlement with Armagh Investments after repayment of outstanding mortgages and proper charges secured against the property together with all reasonable costs and expenses on such sale and on properly preparing the property for sale. In the event that the parties are unable to reach agreementupon this "net sale proceeds" figure, then on 24 hours notice theyare to file (sequentially) memoranda in this Court on the issue and in the absence of either party indicating they wish to be heard onthe matter this Court will decide what is to represent the "net sale proceeds" figure to be retained.(d) A further order is made that, once the "net sale proceeds" figure ispaid into this Court, then the applicant is with all reasonable speed to take proceedings to establish what claim she may have withrespect to those "net sale proceeds". Leave is reserved to any partyto approach the Court further or on 48 hours notice if further directions on that aspect are required.[3] Issues have arisen over what represents here the "net sale proceeds" figurefor the Levin Mall property to be paid into this Court. It is clear that the parties havebeen unable to agree on this "net sale proceeds" figure and now turn to the Court todetermine this issue under para [69](c) of my 2 June 2011 judgment.[4] This matter was the subject of further directions I gave in this proceeding on 12 October 2011. In that 12 October 2011 decision at [16]-[19] I directed that certain information was to be provided to the Court and the other party in theproceeding to enable a proper consideration of what was truly the "net sale proceeds" figure to be paid into Court.[5] On 25 October 2011 the respondent filed its memorandum in this proceeding.[6] On 28 November 2011 the respondent filed a further memorandum and an affidavit of Terence Ian May (Mr May) sworn also on 28 November 2011.[7] The applicant in this proceeding Sophia Crosby (also known as Sophia Durney) is now bankrupt and the Official Assignee is administering her bankruptcy.[8] The Official Assignee in turn has filed memoranda dated 21 December 2011 and 14 February 2012. The position of the Official Assignee in those memoranda (as confirmed again following my 7 February 2012 Minute on this issue) is that theCourt can now address these issues as to what are the "net proceeds of sale" basedupon the information which is presently before the Court. This is to include the matters contained in the affidavit of Mr May referred to above.[9] The evidence of Mr May, who is a director of Levin Mall Limited, in his 28 November 2011 affidavit confirms that this company is a single asset company that was specifically set up to purchase the Levin Mall property from the Durney Land Company liquidator. He confirms that Levin Mall Limited has never owned any other asset or been involved in any other business apart from that of owning the Levin Mall.[10] Mr May goes on to depose that at the time of purchase by Levin Mall Limited, the mall was run down and with a number of vacant tenancies or tenants not paying rent. A significant amount of deferred maintenance plus additional capital expenditure was required he said to bring the mall up to an acceptable and normal commercial standard, taking into account its age and provincial location.[11] Mr May went on to confirm that the company's purchase of the mall was 100% debt funded by the existing first mortgagee New Zealand Guardian Trust in addition to a second mortgage facility with Central Mortgage Trust to provide working capital and to fund capital expenditure work anticipated at that time.[12] Mr May then indicated that, as the second mortgagee Central Mortgage Trust went into receivership during the middle part of 2010, only an initial $135,000.00 drawdown at settlement was forthcoming with the balance of the facility with this Trust not being able to be drawn down. He deposes that this placed Levin Mall Limited into a very difficult position in terms of funding the deferred maintenance and capital work required on the property.[13] Mr May goes on to indicate that during the second half of 2010 Levin Mall Limited negotiated a Lease Agreement with a major new tenant, Warehouse Stationery Limited to commence upon completion of a reconfiguration and refurbishment of the premises to meet the tenant's requirements. He states that thisincluded moving one existing tenant and constructing new premises for them elsewhere in the mall and creating one large retail store from a number of small existing tenancies, a number of which were vacant.[14] Mr May deposes that as it transpired, this work was far more extensive in terms of cost and scope than had been originally anticipated at the time of purchase of the mall.[15] In addition he says that during late 2010 the costs of the work required for the Warehouse Stationery Limited tenancy increased as a result of changing council requirements for the upgrade of the fire system plus other increased costs that were not anticipated at the original time of commitment.[16] Difficulties also arose with a shortfall in funding at this point apparently and Levin Mall Limited was not able to complete the work for the Warehouse Stationery Limited tenancy without securing additional funding. But, it was not possible for this to occur, according to Mr May. Finally, in late 2010 or early 2011, a conditional sale agreement for the property was negotiated with Armagh Investments Limitedwhereby they would purchase at an agreed fixed price on completion of the Warehouse Stationery Limited work. Critically Mr May noted that the Sale Agreement provided for access to the purchase deposit of $400,000.00 by Levin Mall Limited to cover shortfalls in funding completion of the work for the Warehouse Stationery Limited's tenancy.[17] Subsequently, Levin Mall Limited proceeded to complete the capital work required for the sale of the property to Armagh Investments Limited but unfortunately according to Mr May again costs continued to increase during the completion of that work.[18] Mr May has annexed to his 28 November 2011 affidavit, copies of the settlement documents with Armagh Investments Limited including a rental and outgoings adjustment statement as at 3 June 2011 (this document showing a rental adjustment in favour of the purchaser on settlement by way of a credit and reduction in the purchase price amounting to $119,901.74).[19] In addition, Mr May has annexed to his affidavit a copy of the draft financial accounts for Levin Mall Limited for the period from 9 April 2010 to 31 August 2011. Further, copies of the Levin Mall Limited Westpac Bank account statements for the period 8 March 2011 to 2 May 2011 are annexed. These show he says all funds which have flowed through that bank account for the relevant period.[20] From those statements including the Sainsbury Logan & Williams trust statement for the final sale of the property, two amounts appear to be received on behalf of Levin Mall Limited from the sale. The first was the $400,000.00 deposit and the second the final settlement payment being $4,753,607.97. The $400,000.00 deposit was paid into the Levin Mall Limited bank account in various payments. From the balance settlement figure of $4,753,607.97, repayment of the first mortgage to New Zealand Guardian Trust was made totalling $4,506,520.40, and repayment of the second mortgage to Central Mortgage Trust was made totalling $111,578.95. In addition, payment of Colliers Real Estate Agents commission on the sale totalling $106,734.37 was deducted and legal fees to Sainsbury Logan & Williams totalling $14,281.43 were paid. A payment was made to the HorowhenuaDistrict Counsel for rates and penalty and this left a balance available from the final sale proceeds of $3,673.90. I understand from the affidavit of Mr May that this amount has now been paid into Court.[21] I am satisfied that this effectively has disposed of the balance amount received on settlement of the sale amounting to approximately $4.75 million. I turn now to consider the $400,000.00 deposit originally paid to Levin Mall Limited as the deposit on the sale.[22] At [47] of the 28 November 2011 affidavit of Mr May, he deposes that during the period 22 March to 27 April 2011 a total of $479,854.44 including GST was paid out of the Levin Mall Limited bank account (from the $400,000.00 deposit and other monies made available) to building related contractors being Lord Construction, Chubb & Coast Air-Conditioning & Others. This was he deposes for capital work completed at the mall. Copies of the individual invoices for these payments wereattached to his affidavit marked "D".[23] Mr May confirms that this amount was for capital work that was required to be completed under both the Agreement to Lease with Warehouse Stationery Limited and the Agreement for Sale and Purchase with Armagh Investments Limited.[24] He deposes also that on 21 April 2011 additional funding of some $160,000.00 from the first mortgagee, Guardian Trust was advanced to assist with these payments.[25] He confirms that all of the funds in question were spent on costs directly related to Levin Mall and no funds were withdrawn by the shareholder of Levin Mall Limited.[26] The only fees paid to any party he deposes were agreed management fees paid to Tanglin Management Limited for running the tenancies in the mall and these would appear to be in order.[27] As to rental received for the mall from other tenants during this period, Mr May confirms at [58] of his affidavit that there was no positive net rental over and above interest and operating expenses paid for the property during the period of ownership by Levin Mall Limited. He notes in fact that there was actually an operating cash deficit of $336,457.00 as outlined in accounts prepared for this purpose by Colvert Cooper the Chartered Accountants for Levin Mall Limited which are annexed as Exhibit "E" to his affidavit.[28] At [61] of his affidavit Mr May goes on to confirm that the total cash deficit for the mall during the period in question was in fact $1,269,406.00. He notes also that Levin Mall Limited currently has $100.48 in its bank account and a copy of the bank account print out confirming this is annexed to his affidavit as Exhibit "F".[29] None of this evidence of Mr May is in any way questioned or disputed by the Official Assignee or in any real way by any other material before the Court.[30] On this basis, I am satisfied therefore that the answer to the question as to what may represent the "net sale proceeds" figure for the Levin Mall property whichwas to be paid into this Court pursuant to [69](b) of my 2 June 2011 judgment, the answer is $3,673.90. This is an amount which I understand has already been paid into Court for this purpose. It is confirmed at [28] of Mr May's affidavit sworn 28November 2011.[31] As I understand the position that effectively disposes of this matter. Leave is reserved however for any party to approach the Court further on 48 hours notice if additional directions or clarification may be required.'Associate Judge D.I. Gendall'