BANK OF NEW ZEALAND v NIKORA [2013] NZHC 2228

BANK OF NEW ZEALAND v NIKORA [2013] NZHC 2228 [30 August 2013]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYCIV-2013-419-10[2013] NZHC 2228IN THE MATTER of an application for summary judgmentBETWEEN BANK OF NEW ZEALANDPlaintiffAND KAMA LEAH NIKORADefendantHearing: 22 August 2013Counsel:Appearance:NJ Edwards and CK Climo for plaintiffKL Nikora, defendant in personJudgment: 30 August 2013JUDGMENT OF ASSOCIATE JUDGE FAIRE[on application for summary judgment]This judgment was delivered by me on 30 August 2013 at 9:00ampursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Sanderson Weir, AucklandAnd To: KL Nikora, HamiltonThe application[1] The plaintiff applies for summary judgment and seeks judgment against the defendant for $253,337, calculated to 22 August 2013, plus contract interest to the date of judgment, together with costs calculated on the basis of Category 2 Band B and disbursements as fixed by the Registrar. The amount of the actual claim is broken down as:(a) the amount allegedly lent and guaranteed by the defendant and unpaid - $236,849.85;(b) interest accrued at a default rate of 7.99 per cent from 27 October 2012 to 22 August 2013 – being $15,503.15;(c) an amount overdrawn in the specified account of the defendant of $293.60; and(d) additional recovery costs of $690.40.[2] The application arises from an alleged default by the defendant as principal borrower in respect of two loans which she obtained from the plaintiff, and as the guarantor in respect of a loan to a company in which she is a director, namely, Leah Holdings Ltd which was previously known as Makirangi Holdings Ltd.The defendant's position[3] The defendant has, at all material times since this proceeding was filed, been unrepresented.[4] The proceeding was first called before me on 18 March 2013. I adjourned the proceeding to 29 April 2013 and extended the time for the filing and service of notices of opposition and affidavits in opposition to 22 April 2013. The reason for the adjournment was to give the defendant further time to endeavour to instruct a lawyer.[5] The matter was next called before Associate Judge Osborne on 29 April 2013. His Honour extended the time for the filing of evidence in opposition to 17 June 2013. He ordered the removal of a document that had been filed that he considered inappropriate, being a document entitled Statement of defence – affidavit. He next adjourned the proceeding for a fixture on 24 July and gave directions for the preparation and exchange of submissions and a casebook for that fixture.[6] The defendant did not obtain legal representation.[7] The matter came before Associate Judge Sargisson on 24 July 2013. Her Honour issued a written minute of matters discussed. In that minute, she sought further information concerning the third loan and further particulars setting out the breakdown of the sum claimed of $236,849.85.[8] No doubt the amendment was allowed having regard to the fact that the Court of Appeal in Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd had confirmed that amendments to the proceedings were possible in the summary judgment procedure.1[9] The defendant's position therefore has been outlined in a notice of oppositionwhich she has prepared and in two affidavits, again which she has prepared and which are sworn by herself on 13 May and 17 July 2013.The amended proceeding[10] An amended statement of claim was filed and served as directed on 9 August 2013. It was accompanied by a further affidavit from the manager of the Loan Management Team at the plaintiff bank, Rajiv Shah. The amendment does not change the general basis for the case. The plaintiff did not file any further affidavit in opposition.1 Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd [1990] 2 NZLR 308.The loans[11] In May 2007, the plaintiff agreed to lend the defendant $100,000 subject to certain terms and condition that are contained in the documents produced. Those terms provided that the loan was to be secured by a first registered mortgage over a property owned by the defendant at 297 Mangapiko Street, Te Awamutu.[12] In May 2007, the plaintiff agreed to lend the company in respect of which the defendant was a director now known as Leah Holdings Ltd, the sum of $375,000 on terms and conditions that are contained in the documents produced. Those terms required the company to provide a first registered mortgage over a property at 1/632 Mahoe Street, Te Awamutu and a second property at 2/632 Mahoe Street, Te Awamutu. In addition, the defendant was required to execute a guarantee on theplaintiff's guarantee and indemnity form. The guarantee also made provision for security to be given over the property at 297 Mangapiko Street, Te Awamutu.[13] In February 2008, the plaintiff agreed to lend the defendant the sum of $20,000 on the terms and conditions contained in the documents produced to the court. It was a condition of that loan that the mortgage given over 297 Mangapiko Street, Te Awamutu would be security for it.[14] The plaintiff alleges that the defendant and her company first defaulted on loan obligations in August 2009. The plaintiff claims that attempts were made to"rehabilitate the loans," but they were unsuccessful. The defendant disputes this.[15] What is important for the purposes of the present judgment is that by May 2012 the plaintiff bank determined that it should take steps to recover the outstanding amounts because of defaults which existed at that time. It instructed First Mortgage Services Ltd to take action on its behalf. Notices were then served on the defendant pursuant to ss 119 and 122 of the Property Law Act 2007 on 22 June 2012. They remained unremedied as at 31 July 2012.The opposition[16] In her written submissions, Ms Edwards correctly summarised the specified allegations that are raised in the opposition documents as follows:a. The BNZ had no lawful right to action anything under any agreement.b. The BNZ unlawfully authorised mortgages over land and with parties other than Ms Nikora.c. The BNZ prejudiced independent advice Ms Nikora sought and she had no legal representation.d. The Security Properties were grossly undervalued and undersold.e. The BNZ did not take reasonable care to obtain the best price reasonably obtainable at the time of sale.f. The BNZ did not obtain a registered valuer's property appraisal forany of the Security Properties.g. The matters relate to wrongly executed warrants.h. The matters relate to proceedings issued in the Employment Court with AON/ACC.i. The BNZ wrongly used personal and business information.j. The BNZ misappropriated funds over accounts.k. The BNZ's employees, agents and parties involved in the provision of electronic banking services were involved in fraudulent and negligent conduct.l. The BNZ made unauthorised transactions.m. The Security Properties were evidence of diversion of power, harassment and vandalism.[17] Ms Edwards correctly observed in her written submissions, that the matters raised by way of opposition relate to five specific areas, namely:a. The process followed in entering into the loan and other agreements.b. The process followed in exercising the mortgagee power of sale and marketing the Security Properties for sale.c. Allegations about wrongly executed warrants and Employment Court proceedings.d. Allegations of fraud, misconduct and negligence.e. Allegations of diversion of power, harassment and vandalism.The Court's approach to a summary judgment application[18] Rule 12.2 of the High Court Rules requires that a plaintiff satisfy the court that a defendant has no defence. In Krukziener v Hanover Finance Ltd guidance was given as to how that position should be approached by the court when determining a summary judgment application.2 The court said:The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried:Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court'sassessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).The grounds of opposition analysed[19] The first three grounds in opposition all relate to the process followed in entering into the loan and other agreements. The documents that were executed were the loan agreements for the amounts advanced, the mortgages securing the loans against the appropriate properties and the guarantee and indemnity that were provided by the defendant in respect of the loan to the company. I have viewed the documents produced. They all appear to be in order.[20] The evidence discloses that the defendant was represented at the time by Mr Brdanovic of the firm of barristers and solicitors, Edmonds Judd, whose offices are in Te Awamutu. The bank sent a letter of instructions to Edmonds Judd, in what is a standard form. Following execution of the documents by the defendant, Mr Brdanovic provided a solicitor's certificate, again in what is the usual formwherein contained the advice that:2 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at 26.The documents have been explained to, duly executed and completed by all parties for whom we act as required by the instructions.[21] The documents that were executed included a deed of priority of mortgage. The purpose of the execution of that document was to give the plaintiff's mortgagepriority over an existing mortgage in favour of Provincial Finance Ltd. That document was signed by the defendant and witnessed by Mr Brdanovic.[22] The Supreme Court has given guidance on the position of an independent lawyer who receives instructions from a bank to complete the appropriate lending documents. The Court said:3Even when 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 ordinarily be excused from making 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.[23] The loan documents provide the plaintiff with a power of sale in the event of a default by the defendant or her company. The loan agreements specifically provide for the giving of security in the form of registered mortgages over security properties. They also provide for a guarantee and indemnity by the defendant in respect of the loan to her company. The evidence presented to the court discloses that a default in payment was made by the defendant. Although she is critical of some of the entries that she says were made in some of the statements, there is no clear denial by her of the default, particularly the default that was notified in the Property Law Act notices issued under ss 119 and 122 of the Property Law Act 2007.[24] Accordingly, I conclude that in respect of the first three grounds of opposition referred to in [16] hereof as follows:3 GE Custodians v Bartle [2010] NZSC 146 at 48, [2011] 2 NZLR 31.(a) The plaintiff had a lawful right under the loan agreements and mortgages to exercise the mortgagee power of sale when the default was made; and(b) There is no evidence that the bank unlawfully authorised mortgages over land and with parties other than the defendant. The only mortgages that the bank had security over properties were those that were executed by the defendant in the presence of her solicitor, Mr Brdanovic. The only other document executed was the memorandum of priority with respect to the Provincial Finance Ltd mortgage. There is no evidence in any of the material placed before me to suggest that any money was paid by the plaintiff to Provincial Finance Ltd;(c) There is simply no basis for the defendant's claim that she had nolegal representation in relation to the execution of the documents. Mr Brdanovic clearly acted for her, as the documents disclose. Thebank's instructions to Mr Brdanovic were in accordance with the usual arrangements limited to carrying out disclosure and arranging for loan and mortgage documents to be signed; and(d) The defendant guaranteed her company's obligations. She did have achoice to seek independent legal advice from a solicitor who did not act for the company. The guarantee and indemnity placed the obligation on her to do so. Her solicitor, Mr Brdanovic, certified that he had explained the nature and effect of the guarantee and indemnity, as is evident from the certificate that he executed.[25] I can find no basis that would provide the defendant with a defence based on the first three grounds, that were alleged in the notice of opposition.[26] I next refer to those matters raised in opposition that relate to the process followed in exercising the mortgagee power of sale and marketing the security properties for sale. What is involved here is a consideration of whether there issupport for the proposition that the plaintiff has failed to discharge its duty pursuant to s 176 of the Property Law Act 2007 in relation to the sale of the security properties.[27] The Property Law Act 2007, s 176 provides:176 Duty of mortgagee exercising power of sale(1) A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:(a) the current mortgagor:(b) any former mortgagor:(c) any covenantor:(d) any mortgagee under a subsequent mortgage:(e) any holder of any other subsequent encumbrance.(2) A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section 200.[28] A number of general propositions from the authorities were summarised inCrown Money Corporation Ltd v Pink-Martin & Anor4 as follows:(a) The Property Law Act 2007, s 176 and its predecessor of the Property Law Act 1952, s 103A codify the duty which, under the general law, a mortgagee exercising a power of sale would be taken to owe to thepersons mentioned in the Property Law Act 2007, s 176: Apple Fieldsv Damesh Holdings Ltd.5 I have already mentioned that this now hasbeen extended to cover guarantors.(b) The duty of care is concerned with obtaining the best price reasonablyobtainable as at the time of sale: Agio Trustees Co Ltd v Harts4 Crown Money Corporation Ltd v Pink-Martin & Anor HC Auckland CIV 2008-404-297, 5 September 2008.5 Apple Fields v Damesh Holdings Ltd [2004] 1 NZLR 721 (PC) at 728.Contributory Mortgages Nominee Co Ltd.6 It is a duty to takereasonable 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.7 The duty arises at the time the decision to sell is made: Tse Kwong Lam v Wong Chit Sen and Others.8 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;9 Downsview Nominees Ltd v First City Corporation Ltd.10(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 inthe round. The issue is a commercial one to be viewed in practicalcommercial terms: Apple Fields v Damesh Holdings Ltd.11(f) Assistance in determining the issue mentioned in (e) above can be found by considering the steps endorsed in Harts Contributory Mortgages Nominee Co Ltd v Bryers where the following matters were mentioned:126 Agio Trustees Co Ltd & Anor v Harts Contributory Mortgages Nominee Co Ltd & Anor (2001) 4 NZ ConvC 193,480 at [70].7 Ibid at [75].8 Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 (PC).9 Agio Trustees Co Ltd & Anor v Harts Contributory Mortgages Nominee Co Ltd & Anor, above n 4, at [70].10 Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513.11 Apple Fields v Damesh Holdings Ltd, above n 3, at 729.12 Harts Contributory Mortgages Nominee Co Ltd v Bryers HC Auckland CP 403/00, 19 December 2001, at 43 per Fisher J.[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 not discharge 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 waytowards 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 FinanceLtd.(g) For the breach of duty to be actionable there must be proof of damage:Apple Fields Ltd v Damesh Holdings Limited.13[29] Counsel for the plaintiff referred me to Associate Judge Bell's analysis wherehe established additional propositions from the authorities as follows:14[29]12) A mortgagee's sale for a price less than the current market value assessed by valuers does not of itself establish a breach of duty although a large discrepancy may indicate a failure to take reasonable care.13) A mortgagee does not have any general duty to maintain a property prior to sale.14) Following the service of the Property Law Act notice, there is no duty on a mortgagee to keep the guarantor informed of sales activities.13 Apple Fields v Damesh Holdings Ltd, above n 3, at 729.14 Southland Building Society v Austin [2012] NZHC 497.15) The mortgagee is not entitled to sell in a hasty way, at a knock-down price sufficient to pay the debt which because of the speed of sale, leaves a lower price than could otherwise be obtained.[30] Ms Edwards drew attention to the following from the evidence:(a) The plaintiff appointed a real estate agency firm and, in particular, a real estate agent who has had significant experience in selling properties on behalf of mortgagees;(b) That agent gave a guide as to what could be reasonably be expected for the security properties. He also gave an indication of the market value.[31] An aspect that may have caused some lack of purchaser interest was the refusal of the defendant to allow the real estate agent to access the properties at open homes. I raised a question with counsel as to whether it was appropriate in the circumstances of this case, for the plaintiff to seek, ahead of the mortgagee sale, an order for possession relying on the rights it has pursuant to s 137 of the Property Law Act 2007. The counter position here is that the problem has been created by the defendant herself. There is, however, no direct evidence to suggest that a potential buyer was lost because of the inability to gain access prior to the auction. There is a suggestion that it may have affected which potential buyers were prepared to offer. I do not consider that, in this case, the failure to obtain an order for possession forms a basis for a failure to comply with s 176 of the Property Law Act 2007. Thedefendant's actions are the only possible reason why more was not achieved at theauction.[32] The evidence discloses that the real estate agent marketed the property over a reasonable period of time. There was a four-week specific marketing campaign. That involved advertising in the Waikato Times and the Te Awamutu Courier, both newspapers with reasonable circulations in the area of the properties concerned. Signs were erected for onsite display. Brochures were distributed. A feature wasplaced on Ray White's website. The auction was held. There is no suggestion thatthe auction was not the appropriate method for the selling of these properties. There were a number of bidders at the auction.[33] A matter that did concern me was the fact that the real estate agent, Mr Edgar, revised his estimate of the forced sale value of the properties and indicated a lower reserve. As it happened, it did not affect the position in relation to the sale of the Mangapiko Street property. The sale of the Mahoe properties, however, were at a discount of approximately $35,000 less than the original forced sale figure supplied by the real estate agent.[34] Counsel referred to my judgment in Westpac New Zealand Ltd v Wiltshire.15In respect of one of the properties that was sold, there was evidence in that case of a potential buyer who indicated an interest in the property and not being followed up. I was concerned that the marketing undertaken may not have been sufficient to reach the potential market for available purchasers. There is nothing of that present in theinstant case. The defendant's principal allegation here is the sales are less thancapital values of the properties. She advances no evidence at all of any potential buyers who were not notified and therefore given an opportunity to participate in the auction process.[35] This leads me to the conclusion that there is, in this case, no proper foundation for a potentially arguable defence based on s 176 of the Property Law Act 2007.[36] The next general matters raised plead wrongly executing warrants and matters relating to proceedings issued in the Employment Court. It is difficult, in the material before me, to ascertain what these matters relate to or, for that matter, as to how they might provide a defence to the current summary judgment proceedings.The issues appear to relate to the defendant's former employer, although, on theaffidavit evidence before me, even that is not established. Accordingly, I find no basis upon which these matters can be said to found an arguable defence so that summary judgment should not be issued in this case.15 HC Hamilton CIV 2010-419-1675, 22 November 2011.[37] The next group of allegations alleging misappropriation, fraud and negligence and unauthorised transactions are now considered.[38] What I have seen in the material presented to the court is that the bank simply used information in its possession to instruct a real estate agent to take action against the security properties. I cannot find any evidence in the material before me that there was any improper use of personal or business information in this respect.[39] The accounts appear, on the material that was placed before the court, particularly with the further explanations provided in the further affidavit of Rajiv Shah, that the bank in fact has correctly applied the funds when received on behalf of the sale of the security properties and, in fact, made appropriate debits against theaccounts that were either in the defendant's name or her company's name. I cannotfind any specific evidence of any fraudulent or negligent conduct on behalf of thebank's employees that might justify a defence to the summary judgment application.I cannot find any evidence of any unauthorised transactions.[40] The final matter raised is an allegation that there was some form of diversion of power, harassment or vandalism associate with the security properties. There is no support for this allegation in the evidence that has been presented to me. The plaintiff simply exercised its rights of sale under the mortgages. There is no evidence of any actual forced entry, or vandalism, or stolen assets that might, in any way, be attributable to employees or agents of the bank.[41] Unfortunately for the defendant this is one of those cases where, as her own circumstances changed and she was unable to meet her obligations under the loans, defaults were left unremedied. It is further unfortunate that the defendant did not cooperate with the plaintiff in the sale process. As I have mentioned, there is no evidence before me that it necessarily would have made a great deal of difference in this case because there is no evidence that any potential purchaser was prevented from pursuing an interest in the properties. There is always, however, the perceptionand reluctance on any purchasers' behalf to commit to a purchase when thepurchaser has not been able to properly view the property. That state of affairs, however, appears to be entirely at the making of the defendant and, in this case, inmy view, would not provide the defendant a defence to the summary judgment claimed.[42] The result is that I am satisfied that the core debt of $236,849.85 was due and owing as at 27 October 2012 and that interest at the default rate of 7.99 percent to 22 August 2013 in the sum of $15,503.15 is due and payable. I am also satisfied that the two remaining sums claimed of $293.60 and the additional costs of $690.40 are appropriate.[43] The plaintiff is entitled to judgment for additional interest from 22 August 2013 the date of this judgment at the daily rate of $51.84 and the sum of $414.72.[44] The result is that the plaintiff is entitled to judgment for the sum of $253,751.72, plus costs based on Category 2 Band B, together with disbursements as fixed by the Registrar._____________________JA FaireAssociate Judge