In our October 2010 insolvency legal update, we reviewed the case of South Canterbury Finance Ltd v Nielsen, where the Court found in favour of second mortgagee, SCF, on the interpretation of a deed of priority. That case was appealed successfully to the Court of Appeal by the first mortgagee, ASB. This update provides a brief review of the Court of Appeal's reasoning.
The question for the Court was at what point in time the provisions of the deed of priority became operative. SCF argued that that the deed was intended to regulate the amount ASB and SCF were to receive from the sale of the land, whether the sale was a voluntary sale initiated by the mortgagor, or was a sale pursuant to the exercise of the power of sale by one of the mortgagees. ASB argued that the deed was intended to regulate priorities as between itself and SCF only where the sale has occurred in exercise of a contractual or statutory power of sale.
The Court of Appeal found in favour of ASB as first mortgagee. It noted, "The Deed must be read within its commercial and legal context. That is the context within which the parties understood and intended it should operate. Viewed in this context, we are satisfied that the Deed is to be construed as regulating payment of the proceeds of sale flowing from a forced sale."
We await news of whether the decision will be appealed.
See Court decision here.