WESTMINSTER FINANCE LIMITED V MARAC FINANCE LIMITED CA CA509/2009

WESTMINSTER FINANCE LIMITED V MARAC FINANCE LIMITED CA CA509/2009 9 September 2009IN THE COURT OF APPEAL OF NEW ZEALAND CA509/2009 [2009] NZCA 395BETWEEN WESTMINSTER FINANCE LIMITED Applicant AND MARAC FINANCE LIMITED Respondent Hearing: 4 September 2009 (by teleconference) Court: O'Regan, Arnold and Ellen France JJ Counsel: R B Hucker for Applicant D J Vizor for Respondent Judgment: 9 September 2009 at 10.30 amJUDGMENT OF THE COURT A The application for stay is dismissed. B Costs are reserved. REASONS OF THE COURT(Given by O'Regan J)Application for stay[1] This is an application by Westminster Finance Limited for a stay or interim relief pending the hearing and determination of its appeal against a decision of Associate Judge Christiansen: Westminster Finance Ltd v Marac Finance Ltd HC AK CIV 2009-404-3350, CIV 2009-404-4313 17 August 2009. In that decision the Associate Judge dismissed Westminster's application that its caveat over 26 properties owned by Merlot FX Management Limited not lapse.The procedural history[2] After Associate Judge Christiansen issued his decision, Westminster sought a stay in the High Court. On 21 August 2009, the Associate Judge dismissed the application, but granted a stay until 4 pm on 28 August 2009, to allow Westminster to seek a stay from this Court. Westminster did so. [3] By a minute dated 28 August 2009, O'Regan J made an order, with the consent of Marac, staying the execution of the High Court judgment and ordering that the caveats not lapse, on the basis that that order would expire at 4 pm on Friday 4 September 2009 unless a further order of this Court was made before then. Marac's consent was conditional on the stay application being dealt with promptly. [4] Given the urgency, we heard from counsel by way of telephone conference on the application for a stay pending the outcome of the appeal.Factual background[5] The background is summarised in the Associate Judge's decision of 17 August 2009 as follows:[2] There is no dispute that the interest secured by each of the caveats relates to an advance of funds by Westminster to the registered proprietor of the land, Merlot FX Management Limited (Merlot FX) pursuant to a loan agreement dated 19 May 2008. The advance was in the sum of $54,000. For present purposes it is not disputed by the respondent (Marac) thatWestminster's loan agreement supports Westminster's ability to lodge the caveats. [4] Marac is owed more than $6.7M in respect of advances to Merlot FX. Marac's advances are secured by registered first mortgage over all of Merlot FX's 26 properties. Westminster has registered its caveats against all 26 certificates of title. The current applications before this Court concern four properties only which are the subject of agreements for sale by Merlot FX. Those agreements were entered into well before Marac issued its Property Law Act notices. Merlot FX wishes to proceed with those sales which are at an average price of $500,000 each. As first security holder Marac will receive all of the net sales proceeds. Although Marac has issued Property Law Act notices it has not since acted upon those to effect mortgagee sales. Its position, supported it says by the undisputed evidence of Ms Herron, a director of Merlot FX is that "the sale price under the agreements is better than would likely be achieved if the agreements were cancelled and the properties had to be resold". That evidence is supported by Mr McMillan, Marac's commercial manager who stated "[i]t is unlikely that the Properties could be sold in the current market for prices at the same level, or higher than, the purchase price provided under the Agreements".The High Court decision[6] It is obvious that on the sale of the four properties a significant amount will remain owing to Marac, and Westminster has no prospect of receiving any of the proceeds of sale of these properties. Its case for the sustaining of its caveat was that the sale of the four properties is a sale by Merlot FX rather than by Marac as mortgagee, and Westminster will therefore not have legal protection against sale at an undervalue. Of course, that would be of concern only if there was some indication that the sale was, in fact, at an undervalue and that once all of the properties subject to Marac's security and over which Westminster's caveat was registered are sold, and it is established whether the overall proceeds leave anything for Westminster. [7] The Associate Judge took the view that there was no genuine benefit to Westminster in sustaining the caveats over the four properties and therefore did not uphold its application. However, the effect of the Associate Judge's decision was to provide that the caveats lapse in respect of all 26 properties, not just the four subject to sale agreements, and that could not be rectified because the judgment was immediately sealed by Marac. It also appears that the sealed judgment has anincorrect figure as to the costs award, resulting from a mistaken calculation of the costs awarded on a 2B basis in the High Court. The error overstates the award by about $2,700. [8] The Associate Judge was asked either to stay the execution of the judgment so that the caveats did not lapse or alternatively, to direct that Marac hold a sum of $60,000 in trust pending the outcome of its appeal. He declined to do either. He did however record that it was not his intention that his judgment would lead to the removal of the caveats from properties other than those that were the subject of sale agreements. He therefore directed that his judgment not be registered in relation to the other properties until such time as they were sold. This will prevent any dealing by Merlot which could adversely affect Westminster's interest, but will not prevent Marac as prior security holder from realising its security. Marac has now given an undertaking to the same effect to this Court.Our assessment[9] We first consider whether it would be appropriate to grant a stay of execution of the judgment, thereby maintaining the caveats over the four properties subject to sale agreements and preventing their sale until the appeal is disposed of. [10] There is a real potential for detriment to Marac if such a stay were granted because disruption of the sales may lead to those sales falling through. There appears to be a well founded risk that, if any of the sales did fall through, the terms of any replacement resale would be less favourable to Marac. [11] On the other hand, there appears to be little potential detriment to Westminster. Given the substantial shortfall after the sale of these properties, there is absolutely no prospect of Westminster deriving any return from their sale: that is the reality of having an unregistered security interest for a debt of less than $60,000 which ranks behind a registered first mortgage securing $6.7 million. [12] Westminster says the value to it in a stay (and a successful appeal) would be to force Marac to sell the four properties under mortgagee sales rather that allowingMerlot FX to sell them. It argues that this would ensure Marac had a duty to Westminster to obtain the best price reasonably obtainable. But that is a benefit of very dubious realistic value when: (a) There is nothing to show the planned sales will not achieve the best price reasonably obtainable, and it is obvious that Marac's own interests would not be served by a sale at an undervalue; (b) A failure to do so would affect Westminster only (i) if the proceeds of sale of all 26 properties does not exceed the sum owed to Marac and the small sum owed to Westminster; and (ii) the only reason that there are insufficient proceeds to pay Westminster is that Marac has allowed the sale of the four properties at an undervalue; (c) It appears on the evidence presented to us that there is a real chance not even Marac's debt will be repaid in full, in which case the issue will essentially be moot. [13] We are satisfied therefore that the balance of convenience strongly favours Marac. Westminster's actions smack of a very small tail trying to wag a very large dog. We are not prepared to grant a stay of execution of the judgment. [14] Nor are we persuaded that an order requiring Marac to hold funds in trust should be made. Given that Westminster has no right or claim to the proceeds of sale of the four properties subject to the sale agreements, there is no reason why Marac should be deprived of the benefit of the funds it realises from those sales immediately. [15] Our decision to decline a stay is made on the basis that: (a) Marac has undertaken (and the Associate Judge has ordered) that Marac is not to register the judgment against any title to any of the remaining properties (ie other than the four which are subject to the present sale agreements) unless and until that property is sold;(b) Marac will seek only the costs to which it is rightly entitled, and not seek to collect that amount of the order for costs recorded in the sealed judgment which was included in error; (c) Both parties will co-operate with the expeditious hearing of Westminster's appeal, if Westminster proceeds with it. The case on appeal has already been filed and the Court has hearing time available on 17 and 19 November 2009 in Auckland. The Registrar will liase with counsel but we make it clear that we expect that one of those dates will be taken by counsel for the argument of the appeal.Costs[16] We reserve the issue of costs in relation to this application: that should be dealt with at the same time as the substantive appeal. If the appeal is not proceeded with, Marac may apply for an award of costs in relation to this application.Solicitors: Hucker & Associates, Auckland for Applicant Bell Gully, Auckland for Respondent