Jasani v Vincent Capital Limited

[2018] NZHC 3367

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2018-404-2731

[2018] NZHC 3367

BETWEEN

SHAMEER JASANI

Plaintiff

AND

VINCENT CAPITAL LIMITED

Defendant

Hearing:	17 December 2018
Appearances:	G K Holm-Hansen and A L Barnett for the plaintiff M D Arthur and L C Bercovitch for the defendant
Judgment:	17 December 2018

JUDGMENT OF JAGOSE J

This judgment is delivered by me on 17 December 2018 at 4.30 pm pursuant to r 11.5 of the High Court Rules.

.....................................................

Registrar / Deputy Registrar

Solicitors:

Hesketh Henry, Auckland Chapman Tripp, Auckland

JASANI v VINCENT CAPITAL LTD [2018] NZHC 3367 [17 December 2018]

[1]    By application dated 12 December 2018, Mr Jasani seeks urgent interim injunctions restraining Vincent Capital’s sale at auction of properties at 280 and 282 Sunset Road in Sunnynook, and at 298 East Coast Road in Pinehill, all residential properties in Auckland North Shore suburbs. Vincent Capital’s sale by tender of another residential property at 16 Saltburn Road in Milford no longer is the subject of interim injunctive relief. Mr Jasani also seeks a direction any forced sale of the properties be conducted under this Court’s supervision.

Background

[2]    Mr Jasani and associated Grow group entities (of each of which Mr Jasani is the sole director) guaranteed a $10.59m loan from Vincent Capital to a Grow group subsidiary, Grow Saltburn Limited. The loan – which was for a term of six months until 28 December 2018, but repayable on demand – was secured by registered mortgages over the above properties (and one other, at Prospect Terrace), and other securities. The loan’s terms included a requirement for sale of at least one of the properties 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 the guarantors, specifically for failing to sell the properties as required, and demanded repayment of the loan. On 12 November 2018, on continuing default, Vincent Capital put the property-owning Grow group entities into receivership.

[4]    Meanwhile, on 17 October 2018, Grow Saltburn agreed to sell the Prospect Terrace property to a third party, for settlement on 16 November 2018. Vincent Capital did not consent to the proposed sale. Instead, the other properties are now for mortgagee sales: of the Pinehill and Sunnynook properties by auction on 20 December 2018, and of the Milford property by tender, now closing 31 January 2019 (but previously 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 adjoining property at 23 Frater Avenue, also one of the secured properties, for the pending sale and purchase of which Grow Saltburn had paid a $280,000 deposit. Mr Jasani says the

scheme of the loan was to facilitate his development proposals for the properties, but particularly for Grow Saltburn to acquire the Frater Avenue property, for development and construction of the combined Milford site.

Applicable legal principle

—interim injunctions

[6]    Interim injunction applications are determined on the basis of whether the plaintiff has a serious question for trial, and whether the balance of convenience and overall interests of justice favour granting the injunction.1 On the latter consideration(s), the question is whether refusing the injunction would be harder on a plaintiff who was successful at trial, than would granting it be on the successful defendant.2 This assessment is undertaken by reference to the adequacy of damages, preservation of the status quo, the uncompensable disadvantages to either party, and the 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 reasonably obtainable as at the time of sale”. And s 120 of the Credit Contracts and Consumer Finance 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 power conferred by the contract … in an oppressive manner”.

[8]    So far as the PLA is concerned, the duty is co-existent with a mortgagee’s longstanding obligation to act in good faith, the statutory duty usually being the more onerous.4 It is an exercise in subtraction to identify exactly where the less onerous good faith obligation transitions into the more onerous duty of care. It is not a duty to

1      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] endorsing

Apple 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 the property is worth.5 But:6

… the duty to take reasonable precautions to obtain a proper price is a component of the overall duty to act in good faith, extending to all those interested in the equity of redemption such as a purchaser. A mortgagee must use its powers for that predominant purpose, and not act in a manner which unfairly prejudices or wilfully and recklessly sacrifices the interests of the mortgagor or a party claiming through it.

Critically, for present purposes, s 176’s “as at the time of the sale” means the statutory duty does not extend to either the decision to sell, or the sale’s timing, which the mortgagee is entitled to determine in its own interest.7 The duty only arises once the decision to sell is made.8

[9]    Section 118 of the CCCFA defines “oppressive” as “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice”. Section 124 sets out ‘guidelines’ for determining when such arises, and then whether it should give rise to the sought relief. The general enquiry is whether the lender knew, or ought to have known, “the transaction or some term of it is in contravention of reasonable standards of commercial practice”.9

Discussion

—serious question for trial

[10]   Although he also casts some doubt on the propriety of Vincent Capital’s notices, the essence of Mr Jasani’s substantive claim is Vincent Capital is not lawfully exercising its powers of mortgagee sale. He is optimistic for the prospects of some joint venture for his scheme’s realisation.

[11]   Mr Jasani claims Vincent Capital’s short-notice sales by auction – after less than three weeks’ marketing, in the run-up to the Christmas/New Year hiatus – is

5      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 NZ ConvC 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 of due diligence are required. He is supported in those views by Glenn Wells, a real estate agent.

[12]   Mr Jasani says the sales are not done in good faith to obtain repayment, and he points to Vincent Capital’s appointment of receivers over the properties but continuing to 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’ (when that property’s sale is not). Mr Jasani also objects to acquisition of the Frater Avenue property by an entity associated with Vincent Capital, using a ‘or nominee’ provision in the sale and purchase agreement intended to be exercised for Grow Saltburn’s benefit. 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 by withholding sought information.

[13]   Vincent Capital, on the other hand, denies any breach of duty or oppressive conduct. Rather, it is contractually entitled to protect and realise secured assets in circumstances of default. It withheld its consent to Grow Saltburn’s sale, because it considered the price was too low. That sale is not, in any event, the subject of any claim for relief here. The Pinehill and Sunnynook properties unsuccessfully had been offered for sale by two separate agencies during April to August and September to November this year. Any serious interest in the properties’ development potential has had sufficient opportunity to crystallise. At some point, the process must conclude, which the auctions are intended to achieve. Mr Wells’ opinion such should be deferred by two months is not informed by the properties’ history. And acquisition of the Frater Avenue property was necessary to avoid cancellation of the agreement, which Grow Saltburn could not perform; and to avoid loss of Grow Saltburn’s deposit, which Vincent Capital’s associated company repaid to Grow Saltburn. The combination of its sale with the Saltburn Road property is to the latter’s benefit. Last, the sales follow ordinary 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 to or cross-examination of deponents – to hold against the prospect Mr Jasani has a

serious case for trial. (I have some doubts whether he, not owning any of the subject properties, is the right plaintiff, but have no doubt such could be rectified without undue damage to the claim.)

[15]   Vincent Capital accepts it has obligations under the two statutes. Whether it has met them is a matter for intensive factual determination, not easily discharged on affidavit evidence alone. Given the timing constraints brought on by this urgent application, by which Vincent Capital’s evidence in opposition was only available minutely in advance of the application’s hearing, Mr Jasani has had no opportunity to reply. 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 “all the circumstances” of the loan’s making and enforcement; “the relative bargaining power of the parties”; “whether, before entering into the arrangement, the debtor … obtained independent legal or other professional advice in relation to that arrangement”; whether the loan imposed “significantly more onerous terms on the debtor” than would otherwise have been the case; and “any other matters that the court thinks fit.” I do not have the necessary detail to do that justice in the present circumstances.

[17]   But I do not see Mr Jasani’s case for substantive relief as strong. At least so far as the PLA relief is concerned, the claim seems to be addressing Vincent Capital’s decision for, and timing of, the sale. That is not within the duty, as I have explained.10 Neither do I find reference to longer periods for sale, in the cases relied on by       Mr Jasani, to be particularly informative of any lack of reasonableness in the present circumstances.11 And, so far as oppression is concerned, Mr Jasani contends for “flexible and indicative” loan arrangements with Vincent Capital, which is not consistent with the documentation. His intimation to have been misled by Vincent Capital’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 is undermined by their contractual entitlement on default. And there appears to be

10     At [8] above.

11     See, for example, Dean v Leadenhall Superannuation Nominees Ltd (1986) 2 NZCPR 411; and

Seafarer 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’s failures to apply GST refunds or credits (of at least some $355,000) in partial repayment of the loan, and encumbrance of secured property.

[18]   What makes commercial sense in all those circumstances largely depends on the view of the beholder, on which the mortgagee is not likely to be second-guessed by this Court. Mr Jasani’s evidence is only lightly suggestive of any ‘contravention of reasonable standards of commercial practice’ by Vincent Capital, and entirely speculative 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 its very 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 be forthcoming to Vincent prior to the Christmas break or soon after which would result in a full refinance from Vincent and would take place early in the New Year (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 13 December 2018 letter, written expressly on behalf of “the Joint Venture partner which is to provide the funding for the refinancing”, and contending for earlier anticipated

$11m funding (having been delayed by “the new AML requirements”) now to be available by 31 January 2019. Mr Jasani could have been expected to identify both any such partner and the availability of the funding in his affidavit sworn only the previous day. Mr Holm-Hansen could not explain the contended ‘joint venture’ nature of the ‘partner’: whether it was with Mr Jasani in relation to the properties, or independent of them. There was no indication of the terms for such funding, which

also should have been known to Mr Jasani if only delayed by ‘AML requirements’. I doubt 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 for Mr Jasani to achieve his scheme’s objective of acquiring the Milford properties at the close of their tenders. I do not put any great weight on the loss of his equity of redemption over the other properties, at least two of which he had agreed to sell as a term of the loan. That is all that is to occur at the impugned auctions. And the nature of the loan was precisely to enable short-term bridging finance, while longer-term funding was secured.

[23]   I do not see any realistic prospect of loss not adequately compensable by damages. Difficult assessments of more amorphous losses of opportunity and profit, as might be for calculation if established joint venture funding only was delayed, are not to make such losses inadequately compensable. The need for such joint venture funding illustrates Mr Jasani requires very material financial support, which presently is 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 may affect its recovery. There is no evidence one way or the other of the views of any potential purchasers, although it appears some have maintained interest from the earlier campaigns. Mr Jasani’s confirmation he has funds available to meet an award of costs does nothing to comfort me about the adequacy of his undertaking to meet any losses Vincent Capital might sustain if the interim injunctions were granted. Given the sums at issue, the Pinehill and Sunnynook properties’ failure to sell to date, and the tightening of North Shore’s residential property market, those losses may be substantial.

—overall justice

[25]   Standing back, I see nothing in the evidence to make me think any different outcome is warranted in the interests of justice. Even Mr Jasani’s contentions of perhaps ‘sharp’ conduct on Vincent Capital’s part are muted. The reality is the funder of a property development venture has exercised its contractual entitlements. There

appears a basis for it to do so. The claims of statutory breach are Mr Jasani’s last refuge. 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 properties takes place under the Registrar’s supervision. No submissions addressed this alternative relief.

[27]   While the Registrar has power under the PLA to conduct the sale of mortgaged land by public auction, that is at the behest only of the mortgagee.12 There is no such application here. The Registrar also has power to approve terms and conditions for sale by auction of property under a sale order, but that is under Part 17 of the High Court Rules’ processes for enforcement of this Court’s judgments or order.13 Obviously, there is no relevant substantive judgment requiring such enforcement.

[28]   I do not understand the Registrar more generally to have a role in administering private 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 at paragraphs 43 to 45 and 52 of Robert Hutchison’s affidavit, affirmed yesterday. While perhaps explicable by the speed with which the evidence was compiled over the weekend, the opinion evidence is not expressed to be given in compliance with the deponent’s overriding duty to assist the court impartially on relevant matters within their area of expertise. I therefore disregard it.14

12     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 property market” 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 which this urgent application has been addressed. In my preliminary view, as the successful party, Vincent Capital is entitled to category 2B costs and disbursements. That is because, from what I presently know of it, nothing in the steps Vincent Capital took in this 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 on short memoranda of no more than five pages – annexing a single-page table setting out any contended allowable steps, time allocation, and daily recovery rate – to be filed 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’s memorandum; and

(c)Vincent Capital strictly in reply within five working days of service of Mr Jasani’s memorandum.

—Jagose J