ANZ NATIONAL BANK LIMITED V DEREK RICHARD MANTHORPE AND MAXINE LOUISE MANTHORPE HC WN CIV-2011-485-1223

ANZ NATIONAL BANK LIMITED V DEREK RICHARD MANTHORPE AND MAXINE LOUISE MANTHORPE HC WN CIV-2011-485-1223 6 October 2011IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2011-485-1223BETWEEN ANZ NATIONAL BANK LIMITEDPlaintiffAND DEREK RICHARD MANTHORPE ANDMAXINE LOUISE MANTHORPEDefendantsHearing: 5 October 2011Counsel: F B Q Collins for PlaintiffNo appearance for defendants but written submissions filedJudgment: 6 October 2011JUDGMENT OF WILLIAMS JIn accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 12:30pm on the 6th October 2011.Solicitors: Gibson Sheat, Lawyers, PO Box 2966, Wellington Glaister Ennor, Barristers Solicitors & Notary Public, PO Box 63, Auckland[1] In September 2005, the defendants purchased two apartments in Freemans Bay, Auckland. The apartments were bought off the plans. They are Unit B303: Apartment 3A/4 Fisher Point Drive and Unit D403: Apartment 403/22 Fisher Point Drive. They purchased the leasehold estate in stratum titles retaining ground rent obligations thereby. They paid $562,600 for Unit D403 and $445,900 for Unit B303.[2] The defendants sought funding for the units when they were completed. In June 2006, the defendants borrowed from the plaintiff $351,200 against Unit B303. In March 2007, the defendants borrowed $444,800 from the plaintiff against Unit D403. In both cases the loans were secured by mortgages over the leasehold titles. Repayment would be by 60 monthly payments over five years.[3] No repayments have been made against either loan from August 2009 until the service of Property Law Act notices on 25 March 2010. The defendants did not remedy their defaults and the plaintiff retook possession of the apartments in May 2010 selling them in September of that year. Unit B303 was sold for $93,000. Unit D403 was sold for $100,000. As can be seen, there was a significant shortfall.[4] The plaintiff now claims judgment for the remaining debt as follows:Unit B303:(a) Judgment for $199,540.57; and(b) Interest on that sum at the default rate of 9.24% from 29 September 2010 to the date of judgment; and(c) A declaration that the defendants are also liable to pay interest on the debt from the date of judgment to the date of payment; or(d) The plaintiff's expenses reasonably incurred enforcing or preservingits rights under the agreement or mortgage; or(e) Costs.Unit D403:(a) Judgment for the debt of $484,015.89; and(b) Interest on that sum at the default rate of 9.24% from 29 September 2010 up to the date of judgment; and(c) A declaration that the defendants are also liable to pay interest at the default rate from the date of judgment to the date of payment; or(d) The plaintiff's expenses reasonably incurred enforcing or preservingits rights under the agreement or mortgage; or(e) Costs.[5] The defendants filed submissions resisting summary judgment. They are resident in Sussex, England, and could not themselves appear. They have had the advantage of informal assistance from Paul McKendrick, solicitor, of Glaister Ennor in Auckland, who has been instructed to accept service. They have not however instructed counsel to appear for them, lacking the funds to do so, but have filed full written submissions and an affidavit from Derek Manthorpe on behalf of himself and Maxine Manthorpe.[6] The arguments are essentially that:(a) The difference between the price they paid for the properties in 2005 and the prices obtained on mortgagee auction in 2010 are so great as to raise a serious question about whether the plaintiff discharged its duty of care to the defendants in the mortgagee sale process; and(b) The same price differential entitles the defendants to argue that the Bank and property valuers advising the Bank when the lending decisions were made, also owed a duty to properly advise the defendants of the prudence of buying the properties and of borrowing the sums lent. No such advice was given.[7] On the last mentioned argument the defendants rely on the English High Court decision in JP Morgan Chase Bank v Springwell Navigation Corporation.1Late reply[8] Before dealing with the substantive issues, it is necessary to briefly traverse aprocedural point taken by the defendants. They argue that the plaintiff's affidavit inreply to their evidence was served out of time. Mr Collins accepts that this is so but argues that the point was purely technical. He advises that he and Mr McKendrick agreed that a reply affidavit could be served by 12 September 2011. An unsworn affidavit was indeed served on 12 September but it could not be sworn because the deponent was away on holiday. The affidavit was duly sworn without amendment on 26 September and served on 28 September.[9] I was handed an email from Mr McKendrick dated today's date confirmingthe agreement referred to by Mr Collins. In those circumstances, it cannot be said that this technical breach of the timetable should preclude a proper assessment of the merits of this case. Even if the defendants did not themselves consent to the extension of time for reply, and even if they could show prejudice to their defence, that would be grounds only for an adjournment and no adjournment is sought.[10] I put that matter to one side accordingly.The sale process[11] ANZ's duty under s 176 of the Property Law Act 2007 is to take reasonable steps to obtain the best price.[12] In Crown Money Corporation Ltd v Pink-Martin, Associate Judge Faire provided the following principles as relevant to that duty:2a) Section 176 of the Property Law Act 2007 and its predecessor s 103A of the Property Law Act 1952, codify the duty which, under1 [2008] EWHC 1186.2 HC Auckland CIV-2008-404-297, 5 September 2008 at [32].the general law, a mortgagee exercising a power of sale would be taken to owe to the persons mentioned in s 176 of the Property Law Act 2007: Apple Fields v Damesh Holdings Ltd [[2004] 1 NZLR 721] at 728 (PC). I have already mentioned that this now has been extended to cover guarantors.b) The duty of care is concerned with obtaining the best price reasonably obtainable as at the time of sale: Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd [(2001) 4 NZ ConvC 193,480 (HC)] at [70]. It is a duty to take reasonable care. It does not necessarily follow that the best price reasonably obtainable will be achieved.c) The duty has to be measured at the time of the sale: Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd at [75]. The duty arises at the time the decision to sell is made: Tse Kwong Lam v Wong Chit Sen and Others at [77]. There is thus a need to analyse the steps taken once the decision to sell is made, up to the time of sale.d) The duty of care does not qualify the mortgagee's right to decide ifand when to sell: Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd at [70]; Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513.e) When deciding for the purposes of s 176 whether reasonable steps have been taken by a mortgagee to obtain the best price, the steps taken by the mortgagee and those acting with it must be looked at in the round. The issue is a commercial one to be viewed in practical commercial terms: Apple Fields v Damesh Holdings Ltd at 729.f) Assistance in determining the issue mentioned in (e) above can be found by considering the steps endorsed by Fisher J in Harts Contributory Mortgages Nominee Co Ltd v Bryers HC AK CP 403im00 19 December 2001 at [43] where the following matters were mentioned: It is submitted that the following principles are relevant to the present application:[c] Where the security is substantial, or specialised property is involved, it will usually be necessary for the mortgagee to obtain and act upon specialised advice as to the method of sale: Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 (PC). Appointing a competent agent to sell does notdischarge the mortgagee's duties, but since its duty isultimately only one of reasonable care, putting the matter in the hands of a competent agent will usually go a long way towards discharging the mortgagee's duties.[d] In the normal course the proposed sale will need to beadvertised with an adequate description of the property'sattributes and, within reason, widely enough to attract all possible purchasers. In some cases this will need to extend to both general and specialist publications: See Kwong supra at p 61; Ansell v NZI Finance Ltd (unreported, Wellington Registry, A434/83, Quilliam J, 14 May 1984).[e] There is no obligation to postpone the sale in the hope of a better price later, or to break up the assets and sell in a piecemeal manner if this can only be carried out over a substantial period or at a risk of loss: Kwong supra at p 59.[f] When assets are sold by tender or auction, a reasonable period must usually be allowed for purchasers to inspect the property and arrange finance before submitting bids: seeFairer Fishing Co Ltd v Broadlands Finance Ltd(unreported, Timaru Registry, A35/77, 17 August 1984); discussed by Ross, supra, along with Ansell v NZI Finance Ltd.[g] For the breach of duty to be actionable there must be proof of damage: Apple Fields Ltd v Damesh Holdings Limited at 729 PC.[13] These principles have since been adopted in ANZ National Bank Ltd v Taylor,3 Public Trust v Kumar,4 Bank of New Zealand v Cannell,5 and Bank of New Zealand v Mahoney:6[14] In ANZ National Bank Ltd v Taylor, Associate Judge Sargisson added the following:7Fisher J's observation in Harts Contributory Mortgages Nominees Company Ltd v Bryers HC Auckland CP403-IM00, 19 December 2001 at [43](i) is also helpful: in evaluating judgments made by or on behalf of the mortgagee itshould not be forgotten that in the absence of bad faith, the mortgagee shares with the mortgagor and guarantor an incentive to maximise the price obtained. It is not lightly to be assumed that the mortgagee has acted in a way that was contrary to its own interests as well as the interests of others.[15] The reply affidavit from Mr Caylor of ANZ outlined the advice taken on the 2010 value of each unit and the process by which their sale was completed. Appraisals were obtained from Crockers Realty and Kellands Real Estate Limited. A valuation was also prepared by Patrick Foote, registered valuer of Gribble Churton Taylor Limited. The respective assessments were as follows:3 HC Auckland CIV02010-404-201, 17 December 2010.4 HC Auckland CIV-2009-404-4886, 13 October 2010.5 HC Auckland CIV-2010-404-3877, 2 May 2011.6 HC Wellington CIV-2010-485-2252, 29 June 2011.7 At [17].Unit B303 – 3A/4 Fisher Point DriveMarket Value Forced Sale Value Sale PriceCrockers Realty $ 85,000-$95,000 $ 65,000-$80,000Kellands $ 71,000-$91,000 $ 70,000-$80,000Gribble Churton Taylor Ltd $130,000 $105,000-$115,000$93,000Unit D403 – 403/22 Fisher Point DriveMarket Value Forced Sale Value Sale PriceCrockers Realty $ 95,000-$110,000 $ 70,000-$85,000Kellands $110,000-$130,000 $100,000-$120,000Gribble Churton Taylor Ltd $140,000 $115,000-$125,000$100,000[16] As can be seen the sale price for Unit B303 was slightly lower than the formal valuation but within the range of the appraisals. The price for Unit D403 wasagain slightly below the formal valuation but higher than the Crockers' appraisal andat the bottom end of the Kellands' appraisal.[17] The properties were marketed for four weeks by Crockers Realty. The programme included:(a) Three coloured advertisements in the New Zealand Herald; and(b) Advertisements on:(i) Open 2 View;(ii) www.crocker.co.nz;(iii) www.realestate.co.nz; and(iv) www.trademe.co.nz.[18] Unit B303 sold substantially above reserve. Unit D403 sold at reserve.[19] In light of the authorities, the process undertaken and the prices obtained cannot be said to have breached the s 176 standard. On the contrary, the evidence suggests a prudent approach was taken throughout.[20] The only evidence relied upon by the defendants was the disparity between what they paid and what the ANZ got at auction. But the defendants purchased six years ago and the valuations relied upon by the Bank at the time of lending are four and five years old. They pre-date the GFC. All may well have been based upon ground rents then applicable. It is unrealistic to point to a disparity in values given the intervening time and tectonic shifts in the Auckland apartment market. More would be needed to establish a real question to be tried here.[21] This ground must fail accordingly.Advice[22] The plaintiff says it has a policy of never giving advice on the advisability of purchasing a property. Mr Manthorpe in his evidence does not allege he was given definitive advice. Rather, he says there was an obligation to give good advice and it was not given. This argument relies on the JP Morgan Chase decision to which I have made earlier reference. Even applying that case I do not see that there is any tenable defence here. The reasons are:(a) The defendants were independently advised – presumably by a lawyer when the conveyancing was done, and certainly by a mortgage broker. As the plaintiff points out, independent advice, without something more, will usually negate a defence of the kind alleged here. As the Supreme Court made clear in GE Custodians v Bartle:8Even where a lender has knowledge of circumstances which might otherwise cause it to suspect something about the borrower or the borrowing which might make the borrowing highly improvident, it will be ordinarily excused from making8 [2010] NZSC at [48].inquiry if it is also aware that the borrower is being advised about the transaction by an independent lawyer. The lender is entitled to assume that a lawyer instructed by the borrower will not have accepted that instruction if any conflict of interest exists and so will give dispassionate advice on whether and on what terms the borrower should proceed with the transaction including the borrowing. The lender is also entitled to assume that the advice given to the borrower by the lawyer is competent advice and that the borrower has chosen to enter into the transaction on a fully informed basis, and so that all risks associated with it have been pointed out.(b) A careful assessment of the four indicators of responsibility set out in the JP Morgan Chase decision and discussed by Christopher Hare9, would indicate that they are simply not present in the defendants'favour in this case.(c) In any event, the defendants bought the apartments off the plans. They did this in September 2005, months before they signed loan agreements in July 2006 in respect of Unit B303 and March 2007 in respect of Unit D403. It is difficult to see how any advice at the time of borrowing could have made a difference. It came too late.Disposition[23] There will be judgment for the plaintiff for the judgment sum in respect of each unit, together with interest at 9.24% to the date of this judgment and costs anddisbursements in accordance with paragraph 29 of the plaintiff's submissions.___________________________Williams J9 "Banking Law" [2011] NZ Law Review 121 at 158.