THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF CHRISTOPHER STEPHEN CUMINGS V NEIL AINSWORTH KIRK AND PETER JOHN MULHOLLAND AND ANOR HC AK CIV 2006-404-006754

THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF CHRISTOPHER STEPHEN CUMINGS V NEIL AINSWORTH KIRK AND PETER JOHN MULHOLLAND AND ANOR HC AK CIV 2006-404-006754 3 November 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-006754BETWEEN THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF CHRISTOPHER STEPHEN CUMINGS Plaintiff AND NEIL AINSWORTH KIRK AND PETER JOHN MULHOLLAND First Defendants AND EASY FACTORS LIMITED Second Defendant Hearing: 3 November 2006 Appearances: S R G Judd for Plaintiff D McGill for First Defendant B Gustafson/Mr Nolen for Second Defendant Judgment: 3 November 2006ORAL JUDGMENT OF VENNING JSolicitors: Phillips Solicitors, Auckland Duncan Cotterill, Auckland Kensington Swan, Auckland Copy to: S R G Judd, AucklandIntroduction[1] This is an application for interim injunction. It came before the Court at short notice this afternoon at about 4 o'clock. The defendants were served on a Pickwick basis as was entirely appropriate. It is now quarter past six in the evening. I have heard from all counsel, Mr Judd in support of the application for interim injunction, Mr McGill for the first defendant and Mr Gustafson and Mr Nolen for the second defendant. Given the lateness of the hour I am not going to express full reasons for the decision that I have come to. I am only going to summarise the reasons. [2] The application is directed at injuncting a mortgagee sale which is scheduled to take place tomorrow, 4 November, in relation to a property known as the Kaimai property and a further mortgagee sale scheduled for Monday in relation to the Te Kauwhata property. The sales are to be conducted at the request and direction of the first defendant mortgagee.Background[3] I take the summary background from the statement of claim. The plaintiff is the Official Assignee in the estate of Christopher Stephen Cumings. Although Mr Cumings is bankrupt an affidavit has been filed on behalf of the Official Assignee by Mr Currie, Official Assignee at Hamilton. It is Mr Currie's view that the estate is likely to be solvent. [4] The first defendants are the trustees of the Kirkwood Trust, the first mortgagee of both properties. The second defendant is a finance company and the second mortgagee. Mr Cumings is registered solely as the owner of the property at Te Kauwhata. He and his wife Suzanne Lesley Cumings are jointly registered as proprietors of the Kaimai property. The first defendants hold registered mortgages over both those properties. The second defendant also holds second mortgages registered against those properties.[5] The mortgages were granted to secure advances by the defendants to a trust, the Columbus Trust, of which Mr Cumings was a trustee. The money advanced by the defendants was in fact a refinancing carried out by the trustees of that trust. Although Mr Cumings is a trustee of the Columbus Trust, he is not in any way financially involved in the trust. The other trustee is a Mr Neumegen, a solicitor of Auckland. Mr Neumegen has, as a professional trustee, restricted his liability as trustee. Mr Cumings' liability is however unlimited. The sole beneficiary of the trustee is Mr Williams, who either was or still is in prison. The first and second defendants also hold registered mortgages over land owned by the Columbus Trust at Kereta. [6] In the principal affidavit in support of the application Mr Cumings has deposed that he and his wife agreed to provide guarantees to support the borrowing by the Columbus Trust at the request of his friend Mr Ross Williams. Mr Cumings has known Mr Williams for a number of years. Mr Cumings sought advice from his solicitor Mr Neumegen about the matter. Mr Neumegen was involved in drafting the documentation. Mr Cumings says he relied on Mr Neumegen's advice. Initially the borrowing was from North South Finance and Advanced Securities. The Kereta land is held in three titles. It is proposed to subdivide the properties. In September 2005 after being contacted by Mr Neumegen, Mr Cumings agreed to assist the refinancing of the properties by providing the guarantees in favour of the defendants who were to replace and repay the existing borrowing. [7] The mortgages are in default. As a consequence the defendants have issued Property Law Act notices. They have also taken summary judgment proceedings. The Property Law Act notices have expired unremedied. The first defendant has moved to the mortgagee sales. [8] In short, it is Mr Cumings' position that it is inequitable and unfair for the first defendant in particular to proceed to the mortgagee sales scheduled for tomorrow and Monday when he, Mr Cumings, has had no personal financial benefit out of the transaction and when the mortgagee holds security over the Kereta land and that land could be sold.Principles[9] As an application for interim injunction the onus is on the plaintiff to satisfy the Court there is a serious question to be tried. If the Court can be satisfied there is a serious question to be tried then the issue is whether on the balance of convenience an injunction ought to be granted. Finally the overriding consideration is that of the interests of justice. The authorities are Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) and American Cyanamid Co v Ethicon Ltd[1975] AC 396. [10] In relation to a serious question to be tried, it has also been said that the test is whether there is a tenable combination of arguments on the law and the facts on which the plaintiff could succeed: see Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309.The plaintiff's case for injunction[11] There are three causes of action raised by the plaintiff:• first, marshalling;• second, an allegation the first defendant has failed to act for proper purposes and in good faith; and• third, that the defendants were accessories to breach of fiduciary duty by Mr Neumegen. [12] As to the first Mr Judd submitted that the securities held by the defendant should be marshalled so as to enable the debt owed to the defendants to be discharged out of the properties of the principal debtor, the Columbus Trust, being the land at Kereta, before resort was had to the property of the guarantors. [13] Counsel referred to passages from Butler (ed) Equity and Trusts in New Zealand (2003) Thomson Brookers and the authority cited for the proposition,namely NZ Loan & Mercantile Agency Co Ltd v Loach & Ors (1912) 31 NZLR 292. He submitted it was not equitable for the defendant creditors to seek to enforce securities provided by the guarantor without first having resort to the Columbus Trust property. [14] For present purposes I accept the statement of principle that Mr Judd has referred to. However, it is a statement of principle. As was referred to in the text that Mr Gustafson cited: Dalpont & Chalmers Equity and Trusts in Australia under the heading:Circumstances where marshalling is not available 13.160 The Court will not marshall where the terms of the security document or the will (as the case may be) expressly or impliedly exclude its operation.[15] In the present case the Deeds of Guarantee completed by Mr Cumings and Mr and Mrs Cumings in favour of the first defendant contained a clause, cl 3.5, which provides:AND so far as is necessary to give effect to anything contained or implied in this guarantee and to ensure that the whole of the moneys and obligations hereby secured are paid or satisfied or performed in full, the guarantor hereby waives in favour of the lender all rights whatever against the Lender, the Debtor, any other guarantor of the Debtor, or any other person or their or its estate and assets including rights of subrogation, contribution and marshalling.[16] There was a similar clause in the guarantee documentation executed by Mr and Mrs Cumings in relation to the second defendant. Marshalling is excluded by the express wording of the guarantee documentation. [17] Mr Judd submitted that despite that documentation the equitable principle still applied and suggested that the clause in the first defendant's documents only applied in relation to the liquidation or bankruptcy of the debtor or any other guarantor of the debtor as the clause in question commenced with that wording. I am not able to accept Mr Judd's submissions. In my view the clause, cl 3.5, is quite clear. The waiver of marshalling applies in all circumstances. In any event, I note in this particular case the guarantor is himself bankrupt at the moment. Nor am I able to accept the suggestion that despite that clear wording in the guarantee documentthat equity requires the Court to set that wording aside or ignore it. The parties, Mr Cumings and Mr and Mrs Cumings entered the guarantee documentation after having advice and are bound by the documents they entered. They have waived the right to marshall.Not for proper purpose[18] The second cause of action alleges a failure by the defendants to act in good faith and for proper purpose in obtaining repayment of the monies due by Columbus Trust to the defendants. Primarily it is submitted that the first defendant has become "involved" in a subdivision of the Kereta land with a view to obtaining a share of the profits of the subdivision and has otherwise failed to take proper steps to obtain repayment from the Columbus Trust. When Mr Judd was asked to refer to the documentation or evidence supporting that he referred to Mr Cumings' affidavit. In his affidavit Mr Cumings says:39. it appears that the first mortgagee has taken an active role in advancing the subdivision and that there has been some kind of dispute between the mortgagees and Mr Williams/Mr Neumegen concerning who is at fault regarding progress. 40. I recall being told that part of the loan funds were retained by Duncan Cotterill to pay for the subdivision completion. My memory is that the amount was $123,000. I see in the letter from Duncan Cotterill to Peter Neumegen of 6 September 2006 that Mr McOmish refers to payments that his client has been making as requested by Mr Jim Glenn. Mr Glenn is the surveyor who is supervising the subdivision and responsible for depositing the subdivisional plan. 41. If, as Mr McOmish says at the bottom of page 1 of his letter, there is no problem with the right of way then I do not understand why the subdivision cannot be completed and the subdivided sections sold immediately. 42. Peter Neumegen continues to maintain that if this was to occur then there would be sufficient funds available from the sale of the Kereta Land to repay the debt in full. 43. I do not understand why the mortgagees are taking steps to sell my properties at Kaimai and Te Kauwhata when they have not taken any steps to obtain repayment from the borrower, Columbus Trust who is really Ross Williams, or by selling the property at Kereta which is owned by the borrower.[19] I went through the correspondence exhibited to Mr Cumings' affidavit and referred to by Mr Judd in support of this cause of action. The correspondence frankly discloses in my judgment that the first defendant was concerned to protect its interests in the security against the background that it knew a subdivision of the property was required. I see nothing untoward in the documentation that has been referred to by Mr Judd for the plaintiff. The high point of the plaintiff's case on this point is a reference in a letter from Mr Neumegen to Mr Cumings of 15 September 2006 when he set out the serious position facing Mr Cumings and the trust. Then in the course of that letter Mr Neumegen said:Kirkwood Trust, via Mr McOmish their solicitor, have advised that Kirkwood "is unwilling to drive or fund this further and we are instructed that our client is only willing to do so for a fee equating to 15% of gross sale proceeds". We think this threat is tantamount to blackmail.[20] I consider that there is force in Mr McGill's submission that that is frankly nothing more than the expression by a funder, frustrated at the position, and having reached the stage that it has funded a particular project far enough, that it takes the commercial view that if it was going to be involved in further funding in a situation where there was a substantial risk to it that it would only do so for a significant return. It is quite different to the submission made by Mr Judd for the plaintiff that the funder had previously been actively and improperly involved in the subdivision or had some other role in it. The earlier correspondence relating to such involvement, such as it was by the first defendant, is in my view entirely consistent with a lender protecting its security position. [21] There is simply nothing before the Court that provides evidence of bad faith on behalf of the first defendant in the way that it has dealt with the matter to date. The plaintiff's case on this claim is speculative.Accessory to breach of fiduciary duty[22] The last cause of action is the third cause of action, accessory to breach of fiduciary duty. It is alleged that by his various actions Mr Neumegen has put himself in a clear position of conflict between the interests of Mr Cumings and himself, Mr Neumegen as trustee, and also Mr Williams as beneficiary of the trust.[23] There may well be an issue between Mr Cumings and Mr Neumegen. However, I say no more about that as Mr Neumegen is not cited as a party to these proceedings and is not represented. The significance of the allegations for present purposes is that it is alleged the defendants ought to have known or were wilfully blind to the fact that Mr Neumegen was acting in breach of his fiduciary duties to Mr Cumings. In relation to that counsel cited Royal Brunei Airlines v Tan [1995] 2 AC 378 (PC). The case has been recently referred to by the Court of Appeal in US International Marketing Ltd v National Bank of New Zealand Ltd [2004] 1 NZLR 589. In the Royal Brunei case the Privy Council set out what was required to make out the cause of action alleged by the plaintiff in this case. For an accessory to be liable it must have acted dishonestly to assist the breach of trust or duty. Acting dishonestly is to be judged objectively and is to be equated with a lack of probity. It means not acting as an honest person would act in the circumstances. It can usually be equated with conscious impropriety as distinct from inadvertent or negligent conduct or carelessness, although a third party might be acting dishonestly if it recklessly disregarded the rights of others. The third party's conduct has to be assessed on the basis of actual knowledge at the time and not what a reasonable person would have known or appreciated. [24] In this case I consider there is considerable force in the submission for the defendants that there is simply no evidence the defendants were acting with that level of impropriety in this case. It is significant in my view that prior to Mr and Mrs Cumings completing the documentation in favour of the defendants they were apparently sent for and obtained independent legal advice from a Mr Ian MacDonald, a solicitor of Auckland. Certificates of that independent advice have been provided to the Court. [25] There is no evidence of the defendants acting dishonestly or with a lack of probity in this case in relation to their dealings with Mr Cumings. The defendants simply refinanced existing borrowings.Result[26] It follows that the plaintiff fails to satisfy the Court that there is a seriously arguable case on any of the three causes of action alleged against the defendants. For that reason the application for interim injunction must be dismissed. It is dismissed accordingly. [27] The defendants are to have costs on a 2B basis for the hearing today. __________________________ Venning J