ASB BANK LIMITED v ESTATES OF ALLEN AND BURNS [2016] NZHC 3375

ASB BANK LIMITED v ESTATES OF ALLEN AND BURNS [2016] NZHC 3375 [23 December 2015]IN THE HIGH COURT OF NEW ZEALANDWHANGAREI REGISTRYCIV-2015-488-46[2016] NZHC 3375UNDER the Insolvency Act 2006, Part 6IN THE MATTER OF the Estate of DONALD GLENN ALLENDeceasedBETWEEN ASB BANK LIMITEDPlaintiffAND ESTATE OF DONALD GLENN ALLENDefendantCIV-2015-404-1228UNDER the Insolvency Act 2006, Part 6IN THE MATTER OF the Estate of BRENDON JOSEPHBURNSBETWEEN ASB BANK LIMITEDPlaintiffAND ESTATE OF BRENDON JOSEPHBURNSDefendantHearing: 2 July 2015Appearances: C T Hames for Plaintiff in each proceedingG Caro for Official AssigneeJudgment: 23 December 2015JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 23 December 2015 at 4:30pmPursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy Registrar[1] In these cases, the ASB Bank Ltd applies for orders under Part 6 of the Insolvency Act 2006 that the estates of deceased mortgagors be administered under that part of the Insolvency Act.[2] In the case of Brendon Joseph Burns (deceased), the Official Assignee opposes. In the Official Assignee's eyes, the bank does not have standing to applyand there is no jurisdiction to make the orders sought. The Official Assignee says that the bank has an alternative remedy of applying for administration of the deceased estates under s 19 of the Administration Act 1969.[3] The bank's case is that there is jurisdiction and in the circumstances of thecase the court ought to make the orders sought. It is unwilling to apply for administration under the Administration Act 1969.[4] I do not decide between them in this decision. Instead, it appears to me that there may be a better way around the difficulties that the bank faces in enforcing its rights under its mortgages. I give my reasons for suggesting an alternative course.[5] In both cases the bank lent money with mortgage security over properties owned by the borrowers. They have died. No one has been appointed to administer their estates. The loans are in default. The bank wishes to enforce its powers of sale under its mortgages, but to do so it needs to serve a notice under s 119 of the Property Law Act 2007. There is no one to whom it can give those notices. It proposes that the Official Assignee administer the estates under Part 6 so as to provide a form of representation of the estates for the purpose of enforcing its security.Estate of Brendon Joseph Burns[6] The bank lent $101,760 to Brendon Burns under an agreement of 26 October 2012. As security for the loan, Mr Burns gave a mortgage over his property at 89 Coast Road, Warrington, Waikouaiti. Mr Burns died on 29 April 2014. In January 2015 the loan was in default by $6,990.19. Mr Burns left a will under whichhe appointed his son, Matthew, executor. So far, neither Matthew nor anyone else has applied for administration.[7] Other interests noted against the title to the Waikouaiti property, allregistered after the bank's mortgage, are a notice of claim of interest under s 42 of the Property (Relationships) Act 1976, lodged by Mr Burns' wife, and a caveat byCrown Asset Management Ltd securing a liability of $41,241.86 (as at 17 March 2015).[8] On 16 April 2015, the amount owing to the bank under the loan agreement was $106,204.51 (excluding costs of enforcement). The bank has approached the Public Trust with a view to the Public Trust being appointed administrator. The Public Trust is prepared to act as administrator only if the bank will pay its costs of administering the estate. The bank is unwilling to pay.[9] The bank has had the Waikouaiti property valued. It has an estimated market value of $150,000 but on a forced sale valuers consider that it would realise between $105,000 and $120,000. There is a reasonable possibility that the bank will suffer a shortfall on a sale. Even if the bank is paid in full, it seems unlikely that Crown Asset Management Ltd will be paid in full.Estate of Donald Glenn Allen[10] Mr Allen borrowed $156,000 from the bank under an agreement of June2013. The bank already had security by a first registered mortgage over Mr Allen'sproperty at Waipapakauri. Mr Allen died on 31 August 2014.[11] There is no evidence that Mr Allen left a will. The bank has made enquiries with social workers in the Kaitaia area, but has not been able to make contact withany members of Mr Allen's family. The family has no apparent interest in the matter.[12] The loan agreement is in default. There is an overdrawn amount of $11,186. The bank has now made demand for that sum. It wishes to serve a notice unders 119 of the Property Law Act 2007 with a view to accelerating and selling the property. It has had the property at Waipapakauri valued. The estimated market value is $105,000 with a forced sale value of $82,090. The bank is therefore facing a shortfall if it is able to sell the property.[13] I directed the bank to advertise this proceeding but no relatives of the deceased responded.The problem of unadministered estates of deceased mortgagors[14] Where a mortgagor defaults under a loan and the mortgagee wishes to accelerate the loan or to enter into possession or sell the mortgaged land or to appoint a receiver to manage the land, the mortgagee must give a notice under ss 119 and 120 of the Property Law Act. The notices must follow a prescribed form and must give the mortgagor the opportunity to remedy the default within 20 working days of service.1 Only if the mortgagor fails to remedy the default in time may the mortgagee accelerate the loan, sell the property and exercise the other powers. Notices under ss 119 are subject to the service rules in Part 7 of the Property Law Act.2 Section 352 provides how documents are to be served. Documents for individuals are to be served in a manner provided in s 359 or received under s 360.3If the person to be served has died, s 355(3) provides that the notice must be given to the administrator of the person's estate. There is however no provision for service inthe case of an estate without an administrator.[15] Section 357 provides for directions as to service:(1) In any case referred to in sections 353 to 355,—(a) a court may, on an application for the purpose, make an order—(i) dispensing with service; or1 For the full requirements, see Property Law Act, s 120.2 Property Law Act, s 352(c).3 Section 353(1)(a).(ii) directing that a notice, cross-notice, or other document is to be given or served in a manner other than that provided for in any of those sections or in any instrument; and(b) if the court makes an order under paragraph (a)(ii), the notice, cross- notice, or other document is adequately given or served if it is given or served in accordance with the order.(2) This section overrides sections 353 to 355 and all other provisions of this Act, and applies despite anything to the contrary in—(a) any other enactment; or(b) any instrument or agreement.[16] In applications by mortgagees seeking directions as to the manner of service of s 119 notices for estates of deceased mortgagors without administrators, I have taken the view that as the purpose of the notices is to give an opportunity for defaults under a mortgage to be remedied, they must be addressed to some person. The estate of a deceased is not a person. In the absence of an administrator for the estate, there is no person able to remedy the defaults in the notices and therefore no person who can be served. I have suggested that mortgagees consider seeking the appointment of an administrator for the estate under the Administration Act 1969. In the case of a deceased mortgagor who held the land as one of a number of trustees, I dispensed with service as the trusteeship ended on death.4 In other cases I have declined to give directions in the absence of an administrator for the estate of the mortgagor.An alternative approach[17] I have reconsidered that approach. It requires the mortgagee to arrange representation for the estate of the deceased mortgagor so that there is an available person to be served. The costs are likely to be disproportionate. I infer that from thebank's reluctance to arrange for a grant of administration under the Administration Act (at its expense) and from the Official Assignee's reluctance to administer theestate under Part 6 of the Insolvency Act. It is also a very cumbersome way to serve a s 119 notice.4 Westpac New Zealand Ltd v Drozdowski-Bevin HC Whangarei CIV-2013-488-450.[18] In circumstances somewhat similar to these cases Associate Judge Faire gave directions to serve a s 119 notice on the Solicitor-General.5 The basis for that was s 22 of the Administration Act, which provides that where a person dies without leaving a will that effectively appoints an executor, the estate vests in the Crown until administration is granted. Under s 22(2) notices relating to the estate are to be served in the same way as proceedings against the Crown under the Crown Proceedings Act 1950. On its terms the section does not apply when the deceased leaves a will appointing executors but they take no steps to obtain probate. Service on the Crown could not be directed in the case of the estate of the late Mr Burns and, in the absence of any evidence as to the existence of a will, it is not clear that it could be ordered in the case of the late Mr Allen. Where property has vested in the Crown by escheat, as under a disclaimer in bankruptcy or liquidation or the removal of a company from the register, it is standard practice to direct service on the Crown.6Even so, it is hard to see service of a s 119 notice on the Crown as anything more than a token gesture. It is wildly improbable that the government would promptlyremedy defaults under a mortgage or take other steps to ward off a mortgagee's sale.If it is only a token gesture, then the question arises: why bother?[19] The alternative is to dispense with service altogether. Section 357 allows it, although in the past I have used it only when I consider either that service is not required or that steps taken are tantamount to service. Applications under s 357 in these cases typically seek directions as to manner of service, rather than dispensing with service altogether. Because the power to dispense with service under s 357 overrides the requirement to give notice under s 119, a direction dispensing with service requires the court to be satisfied that it is proper to allow a mortgagee to exercise its remedies on default immediately without giving a mortgagor or his or her equivalent the normal protections required by Parliament.75 The Finance Shop Ltd v Estate of Paikea HC Hamilton CIV-2010-419-1442, 10 February 2011.6 For a disclaimer case, see Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee [1991] 2 NZlR 351 (HC) at 362. For a company restoration case, seeRe Durweston Properties Ltd (1992) 6 NZCLC 67,854, (1992) 6 PRNZ 95 (HC).7 Commodore Property Ltd v Perpetual Trustees Estate & Agency Co9 of New Zealand Ltd [1984] 1 NZLR 324 (CA) at 333-334: Over the years the New Zealand Parliament has shown continuing sensitivity to the interests of mortgagors and lessees by enacting various provisions for their relief or protection. Section 92(1) is a provision of this character in that, to adopt wordsused by Mr Barton, it provides for a short moratorium. [20] It would not be wise to try to set out comprehensively all the circumstances when the court would dispense with service altogether. But these proceedings suggest one possible class in cases of unadministered estates: where there has been a de facto disclaimer – those who might otherwise expect to take an interest in the property have abandoned it; and information from reliable sources reasonably suggests that there is no equity in the property. Inquiries would be required to identify those who might otherwise take an interest in the property or its proceeds; what steps if any have been taken to obtain a grant of administration and if not, why not; the value of the property; and whether reasonable time has passed in which those otherwise interested could have taken steps to obtain a grant of administration but have not done so. Evidence of advice by the mortgagee to the "otherwise interested" of its intention to exercise its remedies on default and the responses, ifany, may point to abandonment. If the circumstances point to abandonment of the property by those who might otherwise benefit, the court might in its discretion dispense with service of a s 119 notice as it will not serve any useful purpose. The court will need to consider alternatives to dispensing with service. For example, in the case of guarantors and former mortgagors, service of a s 119 notice may be required independently of the requirements of s 121. Where the deceased mortgagor is one of a number of mortgagors, service on the other mortgagors may be sufficient. Obviously each case will turn on its own circumstances.Outcome[21] In the light of these considerations, there appears to be an easier path for the bank than having the estates administered under Part 6 of the Insolvency Act or obtaining grants of administration under the Administration Act. It is therefore not necessary to rule on the Official Assignee's objections. I invite the bank to apply fororders dispensing with service of the s 119 notices.________________________Associate Judge R M BellSolicitors:MinterEllisonRuddWatts (M Lynch/C T Hames), Auckland, for PlaintiffOfficial Assignee (G Caro), Auckland