COMMERCIAL RECEIVABLES LIMITED V JS THWAITES AND ORS HC WN CIV 2008-485-807

COMMERCIAL RECEIVABLES LIMITED V JS THWAITES AND ORS HC WN CIV 2008-485-807 7 October 2008IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2008-485-807BETWEEN COMMERCIAL RECEIVABLES LIMITED Plaintiff AND JAMES STEWART THWAITES First Defendant AND JAMES STEWART THWAITES AND JOHN RENWICK HARKNESS AS TRUSTEES OF THE THWAITES FAMILY TRUST Second Defendant AND STARLIGHT YACHTING LIMITED Third Defendant Hearing: 22 September 2008 Appearances: S.A. Barker - Counsel for Plaintiff J. L. Langford - Counsel for First and Second Defendants Judgment: 7 October 2008 at 4.00 pmJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by the Registrar on 7 October 2008 at 4.00 p.m. pursuant to r 540(4) of the High Court Rules 1985.Solicitors: Buddle Findlay, Barristers & Solicitors, PO Box 1433, Auckland Peter C Gilbert, Solicitor, PO Box 2420, WellingtonIntroduction[1] The plaintiff ("CRL") applies for summary judgment for monies said to be owing under several facilities entered into by the defendants and personal guarantees executed by the first defendant ("Mr Thwaites") and the second defendant ("the Trustees") to cover outstanding indebtedness by the third defendant company ("Starlight"). [2] Mr Thwaites and the Trustees oppose this application. [3] Starlight was placed into liquidation on 7 May 2008. CRL has discontinued proceedings against it.Background Facts[4] CRL is a finance company carrying on business in New Zealand. Starlight, which as I have noted is now in liquidation, was registered in New Zealand and operated as a holding company. Mr Thwaites was a director of Starlight at all relevant times. He is also one of the Trustees of the Thwaites Family Trust. The second trustee is Mr Harkness. [5] In August 2003, Starlight entered into a revolving credit facility agreement ("the RCA") with Nationwide Finance Limited ("Nationwide"). Under the RCA, Nationwide agreed to provide credit to Starlight, up to a facility limit of $2,300,000. [6] All of the monies payable under the RCA were secured by the following arrangements, all of which were entered into on or about 18 August 2003:• A registered statutory first ship's mortgage ("the mortgage") over all 64 shares in the 30m Super Maxi Racing Yacht known as "Zana" ("the yacht"), including all fixtures and fittings, present and future. - Nationwide and Starlight also entered into a deed of covenant ("the covenant") supplemental to the mortgage under which Starlight covenanted to pay to Nationwide the monies payable under the RCA and to fulfil all of its obligations under the RCA.- Under clause 8.2(a) and (e) of the covenant, upon default Nationwide was entitled to exercise its right to take possession of the yacht and, following repossession, to sell it. Nationwide was also empowered to manage, insure, maintain and repair the yacht and to employ or lay up or enter into arrangements for the same (clause 8.2(f) of the covenant). Nationwide was entitled to recover from Starlight on demand all expenses incurred or paid by Nationwide in exercising these powers (clause 8.2(g) of the covenant).• A registered first ranking general security agreement ("the GSA") over all the then present and after-acquired property of Starlight and all personal property in which Starlight had rights, whether then or in the future (clauses 1 and 2 of the GSA).• A registered second mortgage over a property in Wellington, given by Arnrite Properties Ltd (now in liquidation) – which mortgage was subsequently released in or about September 2005.• A deed of guarantee and indemnity ("the guarantee") given by Arnrite Properties Ltd, the Trustees and Mr Thwaites ("the guarantors"). - Under the guarantee, the guarantors, jointly and severally, irrevocably guaranteed to Nationwide the due payment by Starlight to Nationwide of all monies owing to Nationwide, arising out of any obligation given or undertaken by Starlight to Nationwide (including costs, charges and interest) (clause 1(a)). - Under clause 2(a) of the guarantee, the guarantors agreed that whenever Starlight was in default of payment and/or in default of performance of any of its obligations, the guarantors would, upon demand, pay all such monies to or perform all such obligations for Nationwide. The guarantors also agreed to pay to Nationwide all costs and expenses (including as between solicitor and client) incurred by Nationwide in obtaining or attempting to obtain payment or to enforce performance (clause 5). - The guarantors' liability was not to be affected by, inter alia, the liquidation of Starlight or of any guarantor (clause 2(b)(iv)). The guarantee was acontinuing one (clause 2(c)). Mr Harkness' liability as one of the Trustees however was to be limited to the extent of the value of the assets of the trust available from time to time. [7] Around 2 September 2005, Nationwide and Starlight agreed (subject to conditions) to roll over and restructure the RCA to a two-month revolving credit facility which commenced on 1 September 2005. The RCA would then be followed by a ten month term loan of $1.84 million. [8] Therefore, on or about 11 November 2005, Nationwide and Starlight entered into a loan agreement ("the loan agreement"), pursuant to which Nationwide agreed to lend to Starlight $1.84 million. This replaced the RCA. The term of the loan was ten months. Interest was payable at 12% pa, calculated from 1 December 2005, giving rise to a total amount to repay of $2,004,561.14 (clause 3 of the Schedule). Default interest was payable at 22% pa (clause 6 of the Schedule). Starlight also agreed, again, to pay all legal and filing fees (as between solicitor and client) incurred by Nationwide in connection with obtaining or attempting to obtain payment of all or any outstanding loan monies together with interest at 22% (clause 21 of the Conditions of the loan agreement). [9] The existing security agreements continued to secure Starlight's obligations under the loan agreement – ie. the guarantors guaranteed to Nationwide the punctual payment by Starlight of all monies payable under the loan agreement, save that Mr Harkness' liability was again limited to the value of the assets of the Thwaites Family Trust (clause 8 of the Conditions of the loan agreement). Nationwide could demand immediate payment in the event of a default by Starlight, and could claim interest at the default rate (clause 12 of the Conditions). [10] In accordance with the loan agreement, Nationwide loaned Starlight $1.84 million on or about 1 January 2006. On 1 June 2006 Starlight failed to pay the monthly instalment then due of $60,456.11. Subsequently, Starlight has failed to pay any further monthly instalment as well as the final instalment of $1,460,456.15 due on 1 October 2006. Therefore, under clause 12 of the Conditions of the loan agreement, the default interest rate became payable from 1 June 2006.[11] On or about 28 July 2006 Nationwide sent notices of demand to the guarantors, advising that Starlight was in default under the loan agreement and demanding payment of two overdue monthly instalments and one month of accrued default interest. No payments were made. [12] On 6 September 2006 the defendants (Starlight and the guarantors) agreed that Nationwide should take possession of the yacht, then moored in Valencia, and various spare parts and gear ("the parts"), and authorised Nationwide to take all actions necessary to sell it. Pursuant to the mortgage and s 48 of the Ship Registration Act 1992, Nationwide had the power to dispose of the yacht or shares in the yacht and to give receipts in respect of the disposal. [13] On or about 19 October 2006 Nationwide made a second demand on Starlight and the guarantors, this time for $1,733,344.77. Again no payment was received. [14] There is evidence before the Court that around that time the yacht was said to be worth approximately $US1.5-2.0 million. [15] Around 27 November 2006, Nationwide received an offer from a Mr Andrew Short to purchase the yacht for $AU1 million. CRL says that the offered price was not considered to constitute the best price reasonably obtainable and so Nationwide refused the offer. It made a counter-offer to sell the yacht at a price of $AU2.5 million. [16] Mr Short counter-offered again at $AU1.1 million, on condition that the yacht be delivered unencumbered with no outstanding fees. Nationwide declined this counter-offer, for reasons discussed below. [17] On or about 1 December 2006, Nationwide assigned the benefit of, inter alia, the RCA, the mortgage, the GSA, the guarantee and the loan agreement to CRL. The defendants were notified of this assignment on 30 April 2007. The transfer of the mortgage was registered on 30 May 2007. [18] On 11 June 2007 CRL issued a further repayment demand to Starlight, the liquidators of Arnrite Properties, Mr Thwaites and the Trustees. This demand was for $2,277,169.33 being instalments in default of $1,698,664.47, accrued defaultinterest of $314,915.67 and storage, maintenance, transport and legal costs to that date of $263,529.19. No payment was received. [19] CRL says that it has incurred costs and expenses in repairing and attempting to sell the yacht. From 6 September 2006 to 16 April 2008 CRL maintains that $760,823.85 was incurred in repossessing, relocating, repairing, insuring, marketing, maintaining and berthing the yacht. An extensive breakdown of these costs is outlined in the affidavit of Mr James Adam Davison dated 17 April 2008 filed in support of this application. CRL contends that when it took possession of the yacht it was informed by the yacht club in Valencia that there were outstanding berthage fees. Furthermore, it says that, at the time, the yacht was not in a saleable condition and in particular needed work on the shaft transmission. [20] By January 2007 the yacht was listed for sale with a reputable yacht sales company (recommended (through the original designer of the yacht) by Mr Thwaites), namely Berthon International Ltd ("Berthon"). Berthon is based in England but has contacts around the world. In February 2007, an exclusive marketing arrangement was entered into. Berthon was advised that a price of about€2.9 million was an appropriate target (see affidavit of Mr Robert Hill dated 27 June 2008 at [45]). [21] In January 2007 the yacht was still berthed in Valencia and needed repairs before it could be sailed back to England. It was agreed that Mr Thwaites would return to Valencia to facilitate the repairs. CRL says that Mr Thwaites organised for the wrong parts to be sent to Valencia and thus contributed to further cost and delay. [22] A yacht company was instructed to carry out the work. By the end of February 2007 CRL was informed that space difficulties had arisen and the yacht would need to be moved from Valencia. Thus, in March 2007 arrangements were made for the yacht to be moved to the Royal Clarence Marina in Hampshire, United Kingdom, necessarily involving further costs. [23] CRL submits that no other serious offers for the yacht have been received. It notes that an offer was made by the Italian Group in February 2008 for €400,000, which was significantly less than valuations obtained for the yacht.The Application[24] CRL now seeks summary judgment for monies it claims are owing to it. CRL's first cause of action is against Starlight. As I have noted, Starlight was placed into liquidation on 7 May 2008. The liquidators have not consented to the continuation of CRL's proceedings against Starlight and thus, pursuant to s 248(1) of the Companies Act 1993, CRL does not continue these proceedings against Starlight. [25] CRL's second and third causes of action are against Mr Thwaites and the Trustees under the guarantee. As against Mr Thwaites, CRL seeks judgment which its counsel in submissions said amounted to the sum of $3,557,885.01. This is said to be comprised of the amount outstanding at 7 March 2008, default interest (under clause 6 of the schedule of, and clause 3 of the conditions to, the loan agreement), legal fees incurred in relation to attempting to obtain payment under the loan agreement (payable under clause 27 of the GSA, clause 21 of the conditions to the loan agreement and clause 5 of the guarantee) and further costs incurred by CRL in storing and maintaining the yacht and the parts. [26] As against the Trustees, CRL seeks summary judgment for an enquiry into the value of the assets of the Thwaites Family Trust as at the date of judgment, and judgment in the sum submitted by counsel of $3,557,885.01 or the sum which is determined to be payable by the Trustees following the enquiry, whichever is the lesser. [27] Neither Mr Thwaites nor the Trustees sought to challenge the validity or enforceability of the guarantee. Instead they opposed the application for summary judgment solely on the grounds that CRL has breached or failed to discharge its duties first by failing to accept an offer made for the purchase of the yacht, by an independent third party, that would have substantially cleared the debt then owing, secondly by failing to market the yacht appropriately, and thirdly by failing to properly maintain and preserve the yacht for the purposes of maintaining its value.Summary Judgment[28] The Court's power to grant summary judgment is set out in r 136 (1) of the High Court Rules, which states:"(1) The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a claim in the statement of claim or to a particular part of any such claim."[29] Therefore, the onus is on CRL to satisfy this Court that Mr Thwaites and the Trustees have no defence to its claim. In the leading case of Pemberton v Chappell[1987] 1 NZLR 1 at 3, Somers J described the test as follows:"At the end of the day Rule 136 requires that the plaintiff "satisfies the Court that a defendant has no defence". In this context the words "no defence" have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example no bona fide defence, no reasonable ground of defence, no fairly arguable defence. On this the plaintiff is to satisfy the Court; he has the persuasive burden. Satisfaction here indicates that the Court is confident, sure, convinced, is persuaded to the point of belief, is left without any real doubt or uncertainty. ".[30] However, in situations where there appears to be no defence to the plaintiff's case on the face of it, the defendant has an evidential burden to raise a defence. This was explained by Somers J in Pemberton v Chappell (at 3):"If a defence is not evident on the plaintiff's pleading, I am of the opinion that if the defendant wishes to resist summary judgment, he must file an affidavit raising an issue of fact or law and give reasonable particulars of the matters which he claims ought to be put in issue. In this way a fair and just balance will be struck between a plaintiff's right to have his case proceed to judgment without tendentious delay and a defendant's right to put forward a real defence."[31] The Court on a summary judgment application will not normally "attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them": Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12, 14. Nor will the Court determine real issues of credibility because the determination of such issues requires examination and cross-examination of witnesses not possible under the summary judgment procedure: Busch v Dive &Marine Tours Ltd HC AK CP1587/86 19 February 1987; McGechan on Procedureat HR136.03. [32] Having said this a Judge will not be bound:"[t]o accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be:Eng Mee Young v Letchumanan [1980] AC 331 at 341. (See also McGechan on Procedure at HR136.08.)"[33] Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 is authority for the proposition that in certain instances a Judge is entitled to take a robust approach to cases involving summary judgment, and to dismiss defences which do not stand up to scrutiny. There, the Court commented at 85-86:" the need for judicial caution has to be balanced, when considering a summary judgment application, with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. In the end it can only be a matter of judgment on the particular facts."[34] But the ultimate issue is as stated by McGechan on Procedure at HR136.06:"The Court must be satisfied there is no defence. In Towers v R & W Hellaby Ltd (1987) 3 NZCLC 100,064 Thorp J said that the critical question under r.136 will generally be whether the Court is satisfied that the plaintiff's case is unanswerable and the Court will not reach that conclusion if it can see an arguable defence."Mortgagee's Duty to obtain best price reasonably obtainable[35] At the outset it needs to be noted that before me, CRL as mortgagee of the yacht accepted that both at common law and under New Zealand statute it has a duty to obtain the best price reasonably obtainable at the time of sale when selling the yacht to realise its security.[36] Turning to the statutory requirements, it is clear that the Property Law Act 2007 applies to all "other property" (excluding land) in or outside New Zealand: s 8. Property is defined in s 4 as "everything that is capable of being owned, whether it is real or personal property, and whether it is tangible or intangible property". Part 3 of the Act, on mortgages, applies "in accordance with section 8 to every mortgage that comes into operation before, on, or after 1 January 2008" (s 75). The Act also applies where a mortgagee has entered into possession before the commencement of the Act on 1 January 2008, except insofar as s 175 provides. [37] Section 176(1) of the Property Law Act 2007 provides for a duty of care on the part of a mortgagee exercising a power of sale as follows:"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." (my emphasis) [38] This repeats – and extends – the duty in the repealed s 103A of the Property Law Act 1952 (which provided for such a duty owed to the mortgagor only), which was itself a "legislative affirmation of the scope of the duty of care in negligence owed by a mortgagee who has decided to sell as recognised since 1974 by New Zealand Courts": Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA) at [47]. [39] It is settled law that the mortgagee's duty of care does not qualify its right to decide, in its own interest, if and when to sell; a mortgagee is entitled as a matter oflaw to make its own commercial decision about whether, and if so, at what time, to sell mortgaged property: China and South Sea Bank Ltd v Tan [1989] 3 All ER 839;Mullen v Rodney District Council HC AK CP31/SD00 22 April 2002 at [42]; andSilven Properties Ltd & Anor v Royal Bank of Scotland Plc & Ors [2003] EWCA Civ 1409 at [13] to [20]. [40] In Mullen v Rodney District Council Heath J observed:"[42] As a matter of law a mortgagee is entitled to make its own commercial decisions about whether, and if so at what time, to sell mortgaged property. Authority for that proposition can be found in the well known judgment of Privy Council, delivered by Lord Templeman, in China & South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536 (PC). [43] Those observations have been reinforced, in the context of s 103A of the Property Law Act 1952, by Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA). Delivering the judgment of the Court of Appeal, McGrath J said (at pp.598-599) — [47] we take the view that s 103A is to be read as a legislative affirmation of the scope of the duty of care in negligence owed by a mortgagee who has decided to sell as recognised since 1974 by New Zealand Courts. [49] The duty of care owed by the mortgagee is concerned with obtaining the best price reasonably obtainable as at the time of sale. As such, it does not qualify the mortgagee's right to decide in its own interest if and when to sell: Countrywide Banking Corporation v Robinson [1991] 1 NZLR (CA) at p 77. The reason is that a duty to sell at a particular time or at all would make the business of lending almost impracticable: see China & South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536 (PC) at 545. [McGrath J's emphasis][44] The Court of Appeal went on to observe that what constitutes reasonable care will, of course, always turn on the facts of the case. A fortiori, the decision how to sell is to be approached in the same way."[41] The decision in Apple Fields was upheld by the Privy Council on appeal ([2004] 1 NZLR 721 ("Apple Fields, PC")). The Board also commented at [24]:"in deciding for s 103A purposes 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."[42] The best price reasonably obtainable at the time of sale normally equates to the current market value of the property: Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 (PC); Harris & Ors v ANZ Banking Croup (NZ) LtdCA165-01 10 June 2002 at [16]. However, in some situations, a lower "forced sale value" may be the best price reasonably obtainable. Thus Doogue J observed inWestpac Banking Corporation v Chisholm HC AK CIV 2006-404-3230 27 April 2007 at [19] that:" failure to achieve the assessed market value of the property on a mortgagee sale does not necessarily give rise to an inference that the mortgagee has breached his/her duty to take reasonable care to obtain the best price reasonably obtainable as at the date of sale."[43] The duty is an equitable one: Downsview Nominees at 315. The Courts will not find a breach of this duty unless the default is plain. Thus Salmon LJ commented inCuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633 at 646, as cited in Leech v National Bank of New Zealand [1996] 3 NZLR 707 at 712:"I accordingly conclude, both on principle and authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty the facts must be looked at broadly, and he will notbe adjudged to be in default unless he is plainly on the wrong side of the line."[44] These authorities have been applied where the alleged breach of duty was in failing to sell the secured property, both in relation to a specific offer and generally, in Contributory Mortgage Nominees Ltd v Harrison HC AK CIV-2004-404-6417 28 November 2005. Here Abbott AJ held at [36] and [37]:"Applying these principles to the present case it seems to me that the plaintiff is not obliged to sell within a particular period of time. If it holds the view, based on reasonable grounds, that a greater sum will be realised by deferring sale it is entitled to do so. It is demonstrated, in my view, that the decision to defer sale was not capricious one, but was based on a genuinely held view, on reasonable grounds, that the only price then available could be improved upon, so as to reduce or eliminate any shortfall. In the face of uncertainty about recovery from the defendants it is improbable that the plaintiff would defer sale, either initially or on a continuing basis, unless it was of the view that that would ultimately improve prospects of realisation (including continuing interest). The only possible fetter, in my view, on the mortgagee's power to decide if and when to sell, might be if the mortgagee was acting in bad faith. The Court might then be able to intervene in its equity jurisdiction. However, there is no basis in this case for holding that the plaintiff has acted in bad faith. "[45] CRL submits that the onus is on Mr Thwaites and the Trustees to show that CRL has breached this duty and that cogent evidence is required in order to discharge the burden: Fisher & Lightfoot's Law of Mortgage (12ed 2006) at 633. Although this may be so in terms of the substantive proceedings, on a summary judgment application such as the present, the plaintiff has the onus to establish that there is no arguable defence. Here, the proper approach is set out by Doogue J inWestpac Banking Corporation v Chisholm at [8]:"If an alleged breach of s 103A was to become a live issue in the proceedings, it could only be if the defendant established some grounds forconcluding that a breach of s 103A was an arguable defence. In other words, while the overall burden of negativing a defence rested with the plaintiff, there was an evidential burden on the defendant, once the plaintiff had verified its statement of claim, to place some material before the Court which established that the defendant had a reasonably arguable defence based on breaches of s 103A of the Property Law Act 1952."[46] Under this head, Mr Thwaites and the Trustees plead that CRL has failed and/or breached its duties to them first in failing to accept the offer made by Mr Short, which they contend would have substantially cleared the debt then owing, and secondly in failing to properly market the yacht for sale. [47] CRL responds that it has acted properly at all times with regard to its obligations during the sale process, and that it continues to act with regard to those obligations. It says that when Mr Short's offer was received in November 2006 it had not yet carried out any advertising or tender process and it was expected that a significantly higher price would be obtainable for the yacht. [48] CRL submits that it did not consider that Mr Short's offer was reasonable in that the price offered was much less than the valuations received. It refers to market information received at the time by Mr Dwayne McGorman of Hanover Group (of which CRL is a subsidiary company), which indicated that the yacht would be likely to be worth approximately US$1.5–2 million. CRL contends that indications received were that the offer was opportunistic and that the purchaser may have been aware that this was essentially a distressed sale. [49] CRL also cites Mr Thwaites' statement in his affidavit dated 16 June 2008 at para [3] that: "Nationwide was to account to Starlight for any excess of the sale price, over the amount of the debt (less the costs associated with the sale). This clause was included because it was expected by all concerned that the vessel, which had been built at a cost of $7 million was worth far more than $1.7 million." (CRL's emphasis)CRL further refers to the comment by Mr Thwaites at para [2] that, at the time the vessel was surrendered on 6 September 2006, the debt owed was $1.7 million. CRL submits that it is therefore difficult to see how Mr Thwaites and the Trustees could allege that CRL had failed to discharge its duty by not selling to Mr Short when, by their own admission, the offer received fell well short of the yacht's value. [50] Lastly CRL refers to a valuation obtained in November 2005 from All Boat Brokerage (at a figure of NZ$3.4 – 4.3 million) and a certificate of value and origin obtained from Starlight in May 2006, declaring the value of the yacht to be NZ$3.1 million. [51] As I have noted, the yacht still remains unsold. Having yet to sell the yacht, CRL submits that it is difficult to see how, at this stage, it could have failed in its duty to obtain the best price reasonably obtainable. It contends that it would have been unwise for it to have accepted the only real offer that has been received where that offer was substantially less than the valuation indications. It says that it continues to market the yacht in an attempt to achieve a sale. [52] Counsel for CRL referred to the detail in the affidavits filed in support of CRL's application as to the significant steps taken by CRL to try to achieve a sale, including consulting international experts. He argued with some persuasion that as the yacht is a super-maxi yacht, it therefore has a very limited market, even internationally. [53] And, as such, CRL submits that Mr Thwaites and the Trustees have failed to advance any evidence to show that CRL has breached its duty to obtain the best price reasonably obtainable and that, having regard to CRL's conduct throughout, this defence to the application for summary judgment must fail. [54] In oral argument, counsel for Mr Thwaites and the Trustees submitted that CRL's own evidence is that the yacht is worth more than the debt owing as at the time that the yacht was repossessed. Therefore, counsel argued that it is not necessary for CRL to now seek summary judgment of a large sum against Mr Thwaites and the Trustees in that it will be able to recover the sum owing when the yacht is sold. Counsel submitted that it would be little comfort to Mr Thwaites,especially, if he were to receive a refund from the surplus of the proceeds of the yacht after he was already bankrupted. [55] CRL's response was that Mr Thwaites and the Trustees have been in default under the guarantee for three years and that CRL's ability to seek judgment for the sum owing under the guarantee is irrespective of its security over the yacht. [56] In my view, it is irrelevant whether or not CRL will be in a position to recover all or some of the debt owing when and if it sells the yacht. The debt has been demanded from and is now owing by Mr Thwaites and the Trustees under the guarantee. CRL is entitled to enforce this debt. [57] Moreover, I am satisfied that Mr Thwaites and the Trustees have failed to meet their evidential burden to raise any arguable grounds for concluding that CRL was in breach of its duty to obtain the best price reasonably obtainable or to properly market the yacht for sale. Clearly, as the yacht is yet to be sold, it cannot be said that the yacht was sold at an under-value. Nor do I think there are any grounds for saying that CRL ought to have accepted Mr Short's offer. The offer fell significantly short of the valuations held at the time and the $1.7 m (approx) debt then outstanding. Any hindsight indication that it might have been better to sell the yacht then must be seen as irrelevant in terms of the mortgagee's duties. Lastly, I am satisfied that there is no arguable case to say that CRL has failed to adequately market the yacht so as to try to obtain a proper sale. Mr Thwaites and the Trustees have not led any evidence as to what CRL should have done that it has failed to do. Nor have they in any way countered the detailed affidavit evidence provided for CRL as to the steps it has taken to both maintain and market the yacht for sale. In my view, the evidence before the Court indicates that the actions of CRL have been appropriate and CRL cannot be said to have been in breach of its duties.Duty to maintain and preserve value[58] CRL accepts that, having taken possession of the yacht, it has a duty at common law and pursuant to its contractual obligations to maintain the yacht and preserve it for the purposes of maintaining its value. In Leech v National Bank of New Zealand [1996] 3 NZLR 707 at 714, a case involving a security interest overlivestock, the Court set out the obligations of a mortgagee in possession in the following way:"to act in good faith for the purposes of protecting its security; to take reasonable care to obtain a proper price at the time it chose to sell; to account for rent or profits which it received or but for its wilful default or neglect it might have received; to keep the stock in good condition and health within the net income which it received or might have received if it had not been for its wilful default or neglect; and not to deliberately cause waste."[59] These are the same obligations as a lender who is a grantee, who has taken possession of a chattel, and there is no distinction between equitable and legal mortgagees in this respect: Leech v National Bank of New Zealand at 711. [60] Whether or not a mortgagee can be liable for waste – compare Downsview Nominees at 315 and Leech v National Bank of New Zealand at 714 (above) withWilliams v Attorney-General [1990] 1 NZLR 646 (CA) at 691 – it is well settled that the mortgagee does have a duty to give the property back uninjured on redemption:Williams v Attorney-General at 691; Fisher & Lightwood's Law of Mortgage at 599. Thus, the mortgagee is obliged to carry out required repairs to preserve the security and may add to the security the reasonable costs of repair and expenses incurred in preserving the property: Fisher & Lightwood's Law of Mortgage at 599-601. [61] Here, CRL also had contractual obligations to maintain the yacht as mortgagee in possession. Clause 8.2(f) of the covenant states that CRL also had a contractual entitlement to maintain, repair and insure the yacht and to recover the costs of doing so from the defendants (see above at [6]). [62] Again, CRL submits that it has complied with this duty – that the yacht has been kept in good working order so as to obtain the best price possible. [63] As I understand the position advanced for Mr Thwaites and the Trustees, essentially they do not submit that CRL failed in this duty. Instead, they challenge the extent of the costs CRL is claiming for maintaining and marketing the yacht. These costs (including berthage) amount to $760,823.85. They contend that all of these costs were incurred overseas; that there is little or no evidence of consultationwith them about any of the costs; and that the costs are totally out of proportion to the debt owing when the yacht was handed over. Moreover, Mr Thwaites and the Trustees submit that the mortgagee has the right to claim for repairs and maintenance costs but not costs to improve the yacht, which is what they say CRL is attempting to claim here. [64] Before me, CRL accepted that the costs it incurs as mortgagee in possession must be reasonable (citing Silven Properties). However, it contends that it has been careful not to overspend on marketing and maintenance so as to avoid unnecessarily increasing the debt owed by the defendants. Counsel for CRL submits that the affidavits filed in support of CRL's application (including the affidavit of Mr Davison noted at para. [19] above) set out in detail the full extent of those expenses and the reasons why CRL needed to incur these expenses. [65] CRL points out that some of the costs sought were incurred prior to repossession by Nationwide. It contends that incurring further costs was necessary to repair the yacht to put it into a saleable condition. It says that the yacht was in a state of disrepair when it was repossessed – for example, the damaged transmission shaft needed to be repaired – and that $47,000 was owing to the Valencia yacht club for unpaid berthage, electricity and water charges. [66] CRL also contends that it was necessary for the yacht to be coded for non-race charters and to have a license to operate in all waters within 60 miles of the United Kingdom. CRL submits that this has been done for two reasons – so that CRL can try to reduce the running costs of the yacht by using it to produce some income and, more importantly, to try to make the yacht more appealing to potential buyers by rendering it suitable for a chartering business. [67] In relation to Mr Thwaites and the Trustees' submission that the costs were incurred overseas, CRL submits that these were necessarily incurred because the market for the yacht is overseas. [68] Lastly, CRL submits that the yacht was voluntarily surrendered to CRL and therefore there was no need to consult on costs. Moreover, CRL again refers to clause 8.2(f) and (g) of the covenant, which gave it the right to manage, insure, maintain and repair the yacht and to recover all expenses so incurred or paid. Itsubmits that its contractual rights to expend these monies and to recover them from Starlight or the guarantors were therefore abundantly clear. [69] In Silven Properties Lightman LJ commented:"16 The mortgagee is entitled to sell the mortgaged property as it is. He is under no obligation to improve it or increase its value. There is no obligation to take any such pre-marketing steps to increase the value of the property as is suggested by the claimants. The claimants submitted that this principle could not stand with the decision of the Privy Council in McHugh v Union Bank of Canada [1913] AC 299. Lord Moulton in that case, at p 312, held that, if a mortgagee does proceed with a sale of property which is unsaleable as it stands, a duty of care may be imposed on him when taking the necessary steps to render the mortgaged property saleable. The mortgage in that case was of horses, which the mortgagee needed to drive to market if he was to sell them. The mortgagee was held to owe to the mortgagor a duty to take proper care of them whilst driving them to market. The duty imposed on the mortgagee was to take care to preserve, not increase, the value of the security. The decision accordingly affords no support for the claimant's case. 17 The mortgagee is free (in his own interest as well as that of the mortgagor) to investigate whether and how he can "unlock" the potential for an increase in value of the property mortgaged (eg by an application for planning permission or the grant of a lease) and indeed (going further) he can proceed with such an application or grant. But he is likewise free at any time to halt his efforts and proceed instead immediately with a sale. By commencing on this path the mortgagee does not in any way preclude himself from calling a halt at will: he does not assume any such obligation of care to the mortgagor in respect of its continuance as the claimants contend. If however the mortgagee is to seek to charge to the mortgagor the costs of the exercise which he has undertaken of obtaining planning permission or a lessee, subject to any applicable terms of themortgage, the mortgagee may only be entitled to do so if he acted reasonably in incurring those costs and fairly balanced the costs of the exercise against the potential benefits taking fully into account the possibility that he might at any moment "pull the plug" on these efforts and the consequences for the mortgagor if he did so. 18 If the mortgagor requires protection in any of these respects, whether by imposing further duties on the mortgagee or limitations on his rights and powers, he must insist upon them when the bargain is made and upon the inclusion of protective provisions in the mortgage. In the absence of such protective provisions, the mortgagee is entitled to rest on the terms of the mortgage and (save where statute otherwise requires) the court must give effect to them. The one method available to the mortgagor to prevent the mortgagee exercising the rights conferred upon him by the mortgage is to redeem the mortgage. If he redeems, there can be no need or justification for recourse by the mortgagee to the power of sale to achieve repayment of the debt due to him secured by the mortgage."(my emphasis) [70] Mr Thwaites and the Trustees have not led any evidence as to what costs incurred may have been unreasonable. They have not challenged in any real way the detailed affidavit evidence before the Court outlining the costs which were incurred over what was a period of over 18 months. In my view, there is nothing to show that the costs incurred were inappropriate. In particular, I note that some costs were incurred or rendered necessary before CRL took possession and others (including berthage) were inherent in Starlight voluntarily surrendering possession to CRL. Other costs – including those associated with "improving" the yacht – were clearly directed at trying to sell the yacht. In light of the specialised and fluctuating market for the type of yacht at issue and the length of time that this yacht has remained unsold, I am of the view that these attempts by CRL to improve the yacht's saleability are reasonable, fairly balanced against the potential benefits and are part of genuine ongoing attempts by CRL to minimise the losses. And, in any event, CRL has clear contractual rights to recover these costs.[71] Again, therefore, I am satisfied that there is no evidence before this Court to give rise to an arguable case that CRL is in breach of its obligations here. The defences advanced by Mr Thwaites and the Trustees do not stand up to scrutiny. Neither the validity nor the enforceability of CRL's guarantee is challenged here. Nor is there any properly justified challenge to the quantum of CRL's claim figures. In saying that, as I see it, a robust and realistic approach to CRL's claim is appropriate in this case – Bilbie Dymock Corporation Ltd v Patel.Result[72] For all these reasons, CRL succeeds in its application for summary judgment and is entitled to the orders it seeks. [73] Summary judgment is now granted to CRL against: (a) The first defendant, Mr Thwaites: (i) In the sum of $3,218,936.05 pursuant to paragraph 39 of the statement of claim; and (ii) For continuing accruing interest pursuant to clause 6 of the Schedule to the loan agreement and clause 3 of the Conditions to the loan agreement on the sum of $3,218,936.05 at the rate of 22% p.a. (calculated at a daily rate of $1,940.18) from 17 April 2008 to the date of repayment in full to the plaintiff CRL; and (iii) For the further costs of and incidental to this proceeding calculated on a solicitor and client basis pursuant to clause 27 of the GSA, clause 21 of the Conditions to the loan agreement and clause 5 of the guarantee such sums to be approved by the Registrar. (b) The second defendants, the Trustees: (i) For an enquiry into the value of the assets of the Thwaites Family Trust as at the date of this judgment; and(ii) For judgment in the lesser sum of: (aa) The amount of $3,218,936.05; or (bb) The sum which is determined to be payable by the second defendant trustees following the enquiry referred to in paragraph [73] (b)(i) above. (c) A further order is made that any costs incurred by CRL in enforcing this judgment are to be payable on a solicitor and client basis pursuant to clause 27 of the GSA, clause 21 of the conditions to the loan agreement and clause 5 of the guarantee. [74] Leave is reserved for either party to approach the Court on 48 hours notice if any further directions may be required with respect to the implementation of this judgment or the orders contained herein.'Associate Judge D.I. Gendall'