CROWN FINANCE LIMITED v CRONIN [2018] NZHC 1289

CROWN FINANCE LIMITED v CRONIN [2018] NZHC 1289 [1 June 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-2725[2018] NZHC 1289BETWEEN CROWN FINANCE LIMITEDPlaintiffAND TIMOTHY MORGAN FITZGERALDCRONINDefendantHearing: 22 May 2018Appearances: K J Webster and C Boswell for the PlaintiffM J Fisher and K J Ng for the DefendantJudgment: 1 June 2018JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 1 June 2018 at 3:30pmpursuant to Rule 11.5 of the High Court Rules.Deputy RegistrarSolicitors:Wilson Harle (K J Webster), Auckland, for the PlaintiffClaymore Partners Ltd, Auckland, for the DefendantCopy for:Michael Fisher, Auckland, for the Defendant[1] Malone No.5 Ltd was a single venture property developer. It carried out adevelopment at 3 Taylors Ave, Bryndwr, Christchurch, by subdividing the propertyinto two sections and building a townhouse on each section. Under a loan agreementof 10 September 2015 Crown Finance Ltd advanced funds to Malone No.5 Ltd tofinance the development. The loan was repayable on 15 June 2016 but was extendedto 18 November 2016. Malone No.5 Ltd did not repay. Crown Finance Ltd madedemand and appointed a receiver under a general security agreement. The receivercompleted the development and sold the townhouses. The purchaser, Dacia PropertiesLtd, a company related to Crown Finance Ltd, paid $882,00 for each property. CrownFinance Ltd says that the short-fall after receiving the proceeds of sale from thereceiver is $762,278.81 as at 1 November 2017. It sues Mr Cronin, the director ofMalone No.5 Ltd, under a guarantee dated 10 September 2015. Crown Finance Ltdapplies for summary judgment. It says that the amount owing under the loan as at thedate of hearing is $835,087.33 after taking into account further payments from thereceiver and updating interest.[2] Mr Cronin opposes, saying that the receiver breached his duties under ss 18and 19 of the Receiverships Act 1993 to obtain the best price reasonably obtainable atthe time of sale, and that Crown Finance Ltd was involved in those breaches, as itobtained the properties for the benefit of a related company at below the best pricereasonably obtainable – $1,160,000 each.[3] Crown Finance Ltd, in response, denies any breach of duty by the receiver andthat it can be liable for any sale at an undervalue by the receiver. It also says that evenif the properties had sold at the prices for which Mr Cronin contends, he would stillface a shortfall.[4] There is no dispute as to the principles on a plaintiff's application for summaryjudgment.1 To give a plaintiff summary judgment the court must be satisfied thatjudgment can be entered now, without the need for further interlocutory steps such asdiscovery and interrogatories or for a full hearing with witnesses giving evidence inperson and being cross-examined.1 See Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].[5] The issues are:[a] Did the receiver comply with his duty under s 19 of the ReceivershipsAct 1993?[b] Can any breach of duty by the receiver be held against Crown FinanceLtd?[c] Is there any minimum amount for which Mr Cronin is liable, even if hehas an arguable defence as to the sales by the receiver?[6] The lending arrangements are set out in three documents signed on10 September 2015:[a] a term loan agreement between Crown Finance Ltd as lender, MaloneNo.5 as borrower, Mr Cronin as guarantor;[b] a deed of guarantee and indemnity between Crown Finance Ltd aslender and Mr Cronin as guarantor; and[c] a general security agreement between Crown Finance Ltd as security-holder and Malone No.5 Ltd as debtor.[7] The purpose of the loan was to re-finance an existing mortgage over theTaylors Avenue property and to meet the costs of the development. The loan amountstated in the loan agreement was $1,421,036, but Malone No.5 Ltd did not draw downall that amount immediately. The interest rate was 10 per cent per annum. The interestrate on default was 20 per cent per annum. Unpaid interest was capitalised. The loanwas repayable on the expiry date, which was defined as nine months from the firstdraw-down date. The first draw-down was on 14 September 2015.[8] From the initial advance, Crown Finance Ltd received $5,000 in payment ofan acceptance fee. It received no other payments from Malone No.5 Ltd. The partiesagreed to extensions of the expiry date to 18 August 2016 and later to 18 November2016. A letter of 26 August 2016 recorded the loan amount (including loan extensionfee) as $1,506,326.[9] The deed of guarantee and indemnity is wide and extensive. It is an "allobligations" guarantee. All common law defences normally available to a surety arenegated. Crown Finance Ltd can look to Mr Cronin whether or not it takes any stepsunder the term loan or its security.[10] Under the general security agreement, Malone No.5 Ltd gave Crown FinanceLtd security over all its property. In the case of land, it agreed to mortgage all itspresent and future interests and rights in any land to Crown Finance Ltd. The remedieson default (including non-payment) allow for appointment of a receiver:11.1 At any time after the occurrence of an Event of Default theSecurityholder may, (whether or not it has exercised the power)appoint in writing any person or persons (whether an officer orofficers of the Security-holder or the Debtor or not) to be Receiver ofthe whole or any part of the Collateral. A receiver shall be the agentof the Debtor, and the Debtor alone shall be responsible for the actsand defaults of the Receiver.The general security agreement gives a receiver wide powers, including to takepossession of collateral, carry on the business of the debtor, borrow funds, appointmanagers and agents, and sell the collateral.[11] Malone No.5 Ltd did not repay the loan when it fell due on 18 November 2018.Crown Finance Ltd made written demand on Mr Cronin for the amount thenoutstanding under the loan, $1,369,847.71. Crown Finance Ltd pleads that demandwas made on Malone No.5 Ltd, but a copy of the demand has not been put in evidence.That is not fatal to Crown's summary judgment application: the loan had fallen dueand Crown was entitled to appoint a receiver even if it had not made formal demandon Malone No 5 Ltd. On 21 November 2016, Crown Finance Ltd appointed asreceiver of Malone No.5 Ltd Mr Stephen Tietjens, an experienced Aucklandinsolvency practitioner with all the powers given a receiver under general securityagreement. The appointment makes it clear that he was an agent of the company andof no other parties. That is consistent with s 6(3) of the Receiverships Act 1993:A receiver appointed by, or under a power conferred by, a deed or agreementis the agent of the grantor unless it is expressly provided otherwise in the deedor agreement or the instrument by or under which the receiver was appointed.[12] Mr Tietjens says that when he was appointed receiver the development atTaylors Avenue was not complete. He found that there had been cost over-runs andtime delays. He decided that the best course was to complete the development andsell the houses to maximise repayment of the money owing to Crown Finance Ltd.Malone No.5 Ltd had no access to funding other than any that might come from CrownFinance Ltd. Crown Finance Ltd agreed to fund the cost of completing and selling thedevelopment. All up, Crown Finance Ltd advanced over $550,000.2 NeitherMr Arbuckle, director of Crown Finance Ltd, nor Mr Tietjens say whether the advancewas to the company or to Mr Tietjens personally. Under s 32(1)(a) of theReceiverships Act 1993, Mr Tietjens would be personally liable for any contractentered into by him as receiver, unless the contract limited or excluded his liability.3As Mr Tietjens is based in Auckland, he appointed a Christchurch project manager.He arranged for the construction contractor to complete the building work.[13] In early 2017 he began planning how to sell the development. He obtainedmarketing proposals from local real estate companies – Harcourts and Ray White –and engaged Harcourts to market the development. They recommended selling bytender. Mr Tietjens accepted the advice and considered it an acceptable method ofsale for a property in receivership as it gives the sale process tension and an end pointbut keeps the amounts of all offers confidential. In May 2017, he obtained a valuationfrom Christchurch registered valuers. One report by the valuers has been put inevidence – for Dwelling Two. The evidence does not say that there was a report forthe other townhouse. The valuers assessed the current market value of the property asat 10 May 2017 as $1,160,00 inclusive of GST and inclusive of chattels. The reportwas subject to an assumption that a separate certificate of title would be issued for theproperty. The registered valuers also gave estimates for a sale on a receivership basis($980,000), and a mortgagee sale basis ($930,000). I am left to infer that any valuationof the other townhouse would show the same values.2 The exact amount is not certain. The receiver's report gives $555,510.35 but my calculation ofCrown's record gave $559,115.35 and Mr Cronin's counsel got another amount.3 See Blanchard and Gedye "Private Receivers of Companies in New Zealand" at 11.54, p 275, forcommentary on receivers' personal liability in contract.[14] Harcourts began marketing the development in June 2017, offering bothproperties for sale by tender over three weeks. Mr Tietjens says that both propertieswere almost complete, with only a few minor things outstanding. He was keen to getthe properties sold as soon as possible, to stop ongoing costs and accruing interestassociated with the development. The titles showed a caveat lodged by a creditor. TheChristchurch City Council had not yet issued a code compliance certificate under theBuilding Act 2004. The real estate agent used the ADLS Particulars and Conditionsof Sale of Real Estate by Tender but added special conditions and deleted most of thevendor's warranties – all directed at minimising any potential liability of the vendor.Mr Tietjens has put in evidence reports he received from Harcourts as to marketing,including reports on open homes.[15] There were two offers, one for each property: a conditional offer of $700,000for 1/3 Taylors Avenue, and a conditional offer of $940,000 for 2/3 Taylors Avenue.He considered that the offer of $700,000 was too low. He invited Crown Finance Ltdto consider the offer of $940,000. Its consent was required for release of its security.The offers would not clear the debts to it. Crown did not consent to sell at that price.[16] In July, Harcourts sent a post-tender market report which indicated thepossibility of other buyers, but no further offers were received.[17] Mr Tietjens received an offer from Dacia Properties Ltd, a related company ofCrown, of $882,000 for each property net of any real estate commission (which wouldhave been in the order of $50,000). Mr Tietjens says that he made a counter offer butDacia Properties Ltd would not move. In the end, he sold the properties to DaciaProperties Ltd for $1,764,000 under an agreement of 3 August 2017. The sales settledon 26 September 2017, when Mr Tietjens paid Crown Finance Ltd $1,500,000 fromthe proceeds. Since then, Crown Finance Ltd has received two further payments fromhim –$1,000 on 7 December 2017 and $13,765.00 on 12 February 2018.The attack on the receiver's sale to Dacia Properties Ltd[18] Mr Cronin attacks the receiver's sale to Dacia Properties Ltd as being at anunder-value. He contends that in selling the Taylors Avenue properties Mr Tietjensbreached his duty to obtain the best price reasonably obtainable as at the time of thesale, as required by s 19 of the Receivership Act 1993:A receiver who exercises a power of sale of property in receivership owes aduty to—(a) the grantor; and(b) persons claiming, through the grantor, interests in the property inreceivership; and(c) unsecured creditors of the grantor; and(d) sureties who may be called upon to fulfil obligations of the grantor—to obtain the best price reasonably obtainable as at the time of sale.Before considering his criticism and Crown's responses, it is helpful to see the legalsetting.[19] A significant feature of this case is that the receiver sold the properties to DaciaProperties Ltd, a related company of Crown Finance Ltd. Both are apparentlymembers of the Crown group of companies. As best I am aware, this aspect isrelatively unexplored in New Zealand law. A convenient way of approaching thematter is to consider the law as to mortgagees exercising powers of sale. The dutiesof mortgagees under s 176 of the Property Law Act 2007 exercising powers of saleunder mortgages, and of receivers selling properties in receivership are the same: theyare required to obtain the best price reasonably obtainable as at the time of sale.Section 176 of the Property Law Act 2007 has generated considerable litigation,usually in cases where mortgagees have sued mortgagors for a short-fall following asale. Asher J summarised the main principles in Public Trust v Ottow:4It can be noted that:(a) A mortgagee has no duty at any time to exercise the powers of sale orpossession. In default of any provision to the contrary in the mortgage,the power of sale is for the benefit of the mortgagee, who can sell at anytime in accordance with the mortgagee's convenience.4 Public Trustee v Ottow (2009) 10 NZCPR 879 (HC) at [17].(b) The mortgagee's duty of care is to take reasonable care to obtain the bestprice reasonably obtainable at the time of sale.(c) It does not matter that the time may be unpropitious and that by waitinga higher price could be obtained.(d) A mortgagee is under no obligation to improve the property or increaseits value.(e) A mortgagee for a price less than the current market value assessed byvaluers does not, of itself, establish a breach of duty, although a largediscrepancy may indicate a failure to take reasonable care.(f) A mortgagee does not have any general duty to maintain properties priorto sale.(g) Following the service of a Property Law Act notice there is no duty on amortgagee to keep a guarantor informed of the sales activities.(h) The mortgagee is not entitled to sell in a hasty way at a knock-down pricesufficient to pay the debt, which because of the speed of sale leads to alower price than could otherwise be obtained.(i) Proper care must be taken to expose the property to the market and toobtain the best price reasonable obtainable.(Citations omitted).[20] He also said:5The following steps indicate that a mortgagee has made reasonable efforts toobtain the best reasonably obtainable price:(a) With the appointment of a reputable real estate agent to market theproperty;(b) Obtaining a valuation report from an experienced valuer as a guide towhat could reasonably be expected for the property;(c) Marketing over a reasonably long period of time;(d) An extensive advertising and promotional campaign;(e) A properly conducted auction;5 At [31].(f) A sale price that, in all the circumstances, can be reconciled with expertopinion as to value.And:6A failure to achieve an assessed valuation price at a mortgagee sale is not initself any indication of a breach of the mortgagee's duty of care to obtain thebest price reasonably obtainable. A failure to achieve a price that a mortgagorbelieves the property should achieve, does not give rise to an inference that amortgagee has breached its duty to take reasonable care. Of course, a saleat a price which is much less than the assessed value, when there is noexplanation for the discrepancy, can indicate a failure to take reasonable care.[21] Those requirements can be applied to a receiver selling real estate which is thesole asset of a debtor company in receivership. Indeed, if the law were to applydifferent standards to mortgagee's sales and to receivers' sales, secured creditors maybe tempted to realise their securities by whichever method was more favourable tothem.7 There is no principled reason for setting different standards.[22] While those are the main requirements, there is the added feature of the sale toa related company. The law as to sales by mortgagees gives a lead-in. While amortgagee exercising a power of sale under a mortgage cannot sell a property to itself,except at a public auction under the conduct of the Registrar of the Court under s 187of the Property Law Act 2007,8 a mortgagee may sell the property to a company inwhich the mortgagee has an interest. But in that case the mortgagee has the legalburden of proving the validity of the purchase by showing that it acted bona fide andtook reasonable precautions to obtain a proper price.9 Greater scrutiny is required,because of the risk of the mortgagee disposing of the property at an under-value butto the advantage of the related company. Whereas most mortgagees would normallywish to maximise the sale price if there is a risk of a shortfall, that assumption maynot apply in the case of a sale to a related party. Covenantors are entitled to increasedprotection against being required to subsidise an advantageous purchase for the relatedentity.6 At [33].7 Of course, a mortgagee sells on its own behalf, whereas a receiver sells as agent of the debtor andindependently of the secured creditor, but the point made here is that the standard of care is thesame.8 Property Law Act 2007, s 196.9 Farrar v Farrars Ltd (1888) 40 Ch 395 (CA); Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR1349 (PC) at 1355; Applefields Ltd v Damesh Holdings Ltd [2004] 1 NZLR 721 (PC) at [25].[23] A sale by a receiver to a related party of the secured creditor is not on all fours.There appear to be no New Zealand cases on point. The learned authors of PrivateReceivers of Companies in New Zealand offer this:10There appears to be no reported decision on the question of whether a receiverwho is the agent of the company can validly sell assets to the appointingsecured creditor. It is not to be supposed that such a transaction is necessarilyvoid for it is theoretically the same as a sale by a mortgagor to a mortgagee,not a sale by the mortgagee (through an agent) to itself. However, it isconducted for the debtor company by an agent whose primary duty is to thepurchasing secured creditor. This conflict of duty will, at the very least, leadto the sale being most carefully scrutinised by the Court if the sale ischallenged, especially if the liability of the company is not entirely satisfiedby offsetting the price against the indebtedness to the security holder. TheCourt will be likely to set the transaction aside if it is not demonstrated by thereceiver and the security holder that there has been due regard shown for theinterests of the company and other persons with interests in its property, sothat there is no unfairness in the transaction.They refer to Australian authorities as giving guidance along these lines.11 Thissuggested approach aligns with that taken in cases of mortgagees selling to relatedcompanies. Just as a sale by the receiver to the secured creditor should be subject tothorough scrutiny, so also should a sale by the receiver to a related company of thesecured creditor. The same concerns as to potential conflict of interest and risk of saleat an undervalue apply. Again those seeking to uphold the sale have the burden ofjustifying it.[24] These considerations bear on whether summary judgment should be granted.Because of the requirement for increased scrutiny it may be safer to require a case togo to an ordinary hearing so that defendants in proceedings such as this have fullopportunity to find out about communications between the receiver and the securedcreditor and the purchaser. An ordinary hearing following discovery and otherinterlocutory steps offers greater prospects of transparency.[25] Many of the steps Mr Tietjens took are consistent with complying with his dutyunder s 19 of the Receiverships Act. Although not required to, he completed10 Peter Blanchard and Michael Gedye Private Receivers of Companies in New Zealand (3rd ed,LexisNexis, Wellington, 2008) at 10.12.11 Re One Tel Networks Holdings Pty Ltd [2001] NSWSC 1065, (2001) 40 ACSR 83; Re ActwanePty Ltd [2002] NSWSC 572, (2002) 42 ACSR 307; and White v Huxtable [2006] FCA 559, (2006)57 ACSR 435.construction of the town houses because that stood to offer a better return for CrownFinance Ltd. Before putting the properties on the market, he obtained a valuation froma registered valuer as to current market value and on a forced sale basis. He appointeda recognised real estate agent to market the properties. The marketing reports by theagent show conventional steps to market the property to the public: 'For Sale' signson the property, running open homes, advertising, and listing the property for sale onappropriate websites. The receiver has given reasons for selling by tender rather thanby auction – the caveat and the lack of code of compliance certificates made a sale byauction undesirable.[26] Now for Mr Cronin's criticism of the sales process. His case is that theproperties could have sold for $1,160,000 each. There was a failure to obtain the bestprice reasonably obtainable because:[a] The market was buoyant and there was a strong demand for marketableproperties in 2017. There should have been little difference whetherthe properties were sold by an owner, mortgagee or receiver.[b] If a tender process does not produce acceptable offers, the vendorshould negotiate with the highest bidder for a higher price whilecontinuing marketing with a view to selling to other potential buyers ata better price. That was not done here. The real estate salesman toldMr Cronin that he could not get instructions from the receiver tonegotiate with the highest bidders.[c] The offer of $940,000 for one property could have been accepted, toset a benchmark for selling the other.[d] The price of $882,000 for each property was less than that offered forthe second unit.[e] The properties should have been sold by auction.[f] The listing agreement with the real estate agent provided thatcommission would not be payable on any sales to Crown or a relatedcompany. Such a sale was anticipated from the start. That suggestedthat questions as to the propriety of the sale to Dacia.[27] For some of these matters, but not all, Mr Cronin is supported byMr McGoldrick, a Christchurch real estate agent with extensive experience selling realestate by auction.[28] In the hearing I raised the relatively short marketing period, three weeks. Thatdid not seem to fit Asher J's suggestion of "Marketing over a reasonably long periodof time" in Public Trust v Ottow. In proceedings by mortgagees suing to recover ashortfall after a sale, I have not seen such a short period. Four weeks tends to be theminimum with longer periods for properties that are harder to sell. Ms Websterproperly objected that the defendant has not taken that point.[29] Crown had answers to some of the objections. A tender was preferable to anauction because of the difficulties of the caveat against the title, the absence of codecompliance certificates and the limited warranties. Only Mr Cronin suggested anauction and he is not an expert in these matters. Mr McGoldrick's evidence did notsay that there should have been an auction. The real estate salesman rejectedMr Cronin's version of the conversation. He had tried to negotiate with the highestbidders. He continued to hold open homes. The sale to Dacia was acceptable becausethere was no commission payable. And although Crown did not say this expressly,the sale to Dacia went ahead only after the market had been tested.[30] Arm's length sales on the open market to third parties at $882,000 each afterreasonable marketing are likely to withstand scrutiny.12 But what makes me cautiousof upholding these sales in a summary judgment application is that the purchaser wasa related company of Crown. Matters that would otherwise pass muster become pointsfor inquiry: the sale at a value below that fixed by the registered valuer, the sales ofeach lot at a price lower than the highest bid for lot 2, Crown's ability to influence the12 For a comparable example, see Southland Building Society v Austin [2012] NZHC 497; andAustin v Southland Building Society [2012] NZCA 337.sale decision by withholding a release of its security and the absence of full disclosureof communications between Crown Finance Ltd, Dacia Properties Ltd and thereceiver. A deeper examination of the sales is required. That is not to say that theymay not be upheld at a later hearing, but at this stage I cannot be sure that they willbe.Can any breach of s 19 be held against Crown?[31] Crown Finance Ltd says that any failure by the receiver to comply with hisduty under s 19 is no defence to its claim under the guarantee against Mr Croninbecause the receiver is not its agent. It did not sell the properties and was not underany duty to obtain the best price reasonably obtainable at the time of sale.[32] The matter is not so straightforward. It is recognised that security-holders maybecome liable for acts of receivers if they become involved in the conduct of thereceivership. In Medforth v Blake Sir Richard Scott V-C said:13A mortgagee who has appointed a receiver has no general right to instruct thereceiver as to how or when to exercise the powers that have been conferred onthe receiver. The mortgagee retains his own powers as mortgagee. He doesnot, for example, lose his power to sell by appointing a receiver with a powerof sale. The receiver, on appointment, exercises his powers as agent for themortgagor. If a mortgagee establishes a relationship with the receiver hehas appointed under which the receiver exercises his powers in accordancewith instructions given by the mortgagee, I can see the force of an argumentthat if the receiver is liable to the mortgagor then so will the mortgagee beliable. If the mortgagee chooses to instruct the receivers to carry on thebusiness in a manner that is a breach of the receiver's duty to the mortgagor,it seems to me quite right that the mortgagee, as well as the receivers, shouldincur liability. This conclusion does not in the least undermine thereceivership system. What it might do is to promote caution on the part ofmortgagees in seeking to direct receivers as to the manner in which they (thereceivers) should exercise their powers. I would regard that as salutary.[33] The circumstances of the sales suggest that Crown Finance Ltd was in aposition to influence the receiver in his decision to sell the Taylors Avenue properties.Mr Arbuckle, Crown's director, says that the receiver discussed the offers he had13 Medforth v Blake [2000] Ch 86 (CA) at 95. See also State Bank of New South Wales v Chia [2000]NSWSC 552, (2000) 50 NSWLR 587 at [886]; Peter Blanchard and Michael Gedye PrivateReceivers of Companies in New Zealand (3rd ed, LexisNexis, Wellington, 2008) at 2.06; andMcCollum v Thompson [2017] NZCA 269, [2017] NZAR 1106 at [45].received at the end of the tender process. Mr Arbuckle considered the offer on unit 1was too low and while the offer for unit 2 was higher it was conditional on a numberof matters, including the purchaser obtaining finance. Crown Finance Ltd wanted bothproperties to be sold. It agreed to the sale to Dacia Properties Ltd.[34] Crown Finance Ltd's consent was required for the sale, so that securities couldbe lifted when the sale proceeds would not cover the entire debt. Admittedly, areceiver can apply to the court under s 17 of the Receiverships Act 1993 to authorisethe sale of a property when a mortgagee has not consented. But that would requiretime and expense. That is a fetter on the receiver's ability to operate independently ofCrown Finance Ltd. Both Mr Arbuckle and the receiver say that they conferred witheach other as to the sale of the property, but their evidence is sparse as to the contentof those discussions. The receiver does say that he tried to negotiate higher price withDacia but without success.[35] This is not the usual case of a receiver selling an asset under an arm's lengthtransaction where the purchaser has no connection with the receiver or the security-holder. In those cases, consultations between a receiver and a security-holder may notexpose the security-holder to being implicated in any breaches of duty by the receiver.The circumstances of the sale to a related company of Crown Finance Ltd invite quitecloser scrutiny. There is enough evidence to show an arguable case that CrownFinance Ltd was involved in the receiver's decision to sell to Dacia Properties Ltd, arelated company. As that transaction requires scrutiny, so does Crown Finance Ltd'sparticipation in it. So far, the court has limited information as to its involvement.There will be a fuller picture after discovery and after the receiver and Mr Arbucklehave given evidence. At this stage, the matter is not clear enough to say that thereceiver made his decision to sell to Dacia independently of any influence by CrownFinance Ltd. The matter needs to be tried in the normal way.The no set-off argument[36] Crown Finance Ltd says that Mr Cronin cannot run these arguments, becausethey raise set-offs and he is barred from running set-off arguments. It relies on cl 6.2of the guarantee:6.2 All amounts payable by the Guarantor under this deed shall be paid:(a) free and clear of any restriction or condition;(b) free and clear of and (except to the extent required by law) withoutany deduction or withholding on account of any tax; and(c) without any deduction or withholding on account of any otheraccount, whether by set-off, counterclaim or otherwise.There are no set-off provisions in the other agreements. Clause 12.1 of the loanagreement says:12.1 All payments to be made to the Lender under this Agreement or theSecurity Documents or any of them shall be made without set-off,counterclaim or deduction (other than as this agreement mayprovide). The general security agreement provides, at cl 2.1:2.1 Each part of the Moneys Secured shall be paid free and clear ofany restriction or condition and (except to the extent required by law)without any deduction or withholding on account of any tax and anyother amount, whether by way of set-off, counterclaim or otherwise.(Emphasis added)[37] These are "pay-now-argue-later" procedural provisions. They do not purportto bar claims by debtors and guarantors that they otherwise have at law, but theyrequire them to bring separate proceedings to make out their claims instead ofwithholding payments due to the security-holder.[38] In Public Trust v Ottow, Asher J considered the effect of a "no-set off" clausein a guarantee when a mortgagee had exercised a power of sale under a mortgage.14He held that the duty under s 176 of the Property Law Act 2007 was mandatory andthat Parliament must have intended that the duty could not be excluded by contract.In finding that, he referred to s 177 which bars a mortgagee from raising a defence thatthe mortgagee was acting as the agent or under a power or attorney from an apparentmortgagor or a former mortgagor, and that the mortgagee is not entitled to be14 He followed Associate Judge Faire's decision in Crown Money Corporation Ltd v Pink-MartinHC Auckland CIV 2008-404-297, 5 September 2008 at [77].compensated or indemnified from the mortgaged property or from the currentmortgagor or any former mortgagor or covenantor. Under s 177(3), it is not possibleto contract out of that section. The counterpart to s 177 of the Property Law Act 2007is s 20 of the Receiverships Act 1993:Notwithstanding any enactment or rule of law or anything contained in thedeed or agreement by or under which a receiver is appointed,—(a) it is not a defence to proceedings against a receiver for a breach of theduty imposed by section 19 that the receiver was acting as thegrantor's agent or under a power of attorney from the grantor:(b) a receiver is not entitled to compensation or indemnity from theproperty in receivership or the grantor in respect of any liabilityincurred by the receiver arising from a breach of the duty imposed bysection 19.[39] I respectfully agree with Asher J's reasoning in Public Trust v Ottow.15 Ass 20 is in substantially the same terms as s 177 of the Property Law Act 2007, the sameapproach applies. Accordingly, the no set-off provisions in the term loan agreement,the general security agreement and the guarantee are ineffective to bar Mr Cronin fromraising breaches of s 19 of the Receiverships Act by way of defence to the claim byCrown Finance Ltd.[40] There is, I suggest, a further reason why the no set-off clauses do not apply.No set-off clauses apply where the defendant wishes to make a money claim(liquidated or otherwise) against the creditor's money claim. But a no set-off clausedoes not bar a debtor from raising affirmative defences that do not involve acountervailing monetary claim. In some cases, the law recognises that a creditor'sclaim may abate because its breaches of contract. The classic examples are deductionsfrom the price for defective workmanship under a contract for services under Mondelv Steel16 and the buyer's remedy for breach of warranty under a sale of goods.17 Thesame approach is open in the case of mortgagees' sales. In practice, mortgagors suedfor shortfalls following mortgagee's sales allege a breach of s 176 of the Property LawAct as an affirmative defence without pleading set-off. They say that their liability forthe shortfall is less than that claimed by the mortgagee because of the failure of the15 Public Trustee v Ottow (2009) 10 NZCPR 879 (HC) at [13]–[14].16 Mondel v Steel (1841) 8 M &W 858.17 Contract and Commercial Law Act 2017, s 195(3)(a).mortgagee to comply with the duty under s 176 to obtain the best price reasonablyobtainable as at the time of the sale. In other words, a mortgagee's failure to complywith his duty under s 176 goes directly to the amount it can recover in a claim againsta mortgagor or covenantor, without the matter being run as a set-off. The practiceseems correct. It applies the same principles that led to the decision in Mondel v Steel.That decision sought to avoid the procedural difficulties of a claim for the price beingrun separately from claims for defective workmanship. In mortgagee shortfall claims,the contest goes to the measure of the shortfall. It is procedurally messy to separatethe mortgagee's shortfall claim from the mortgagor's or guarantor's claim that theshortfall is less because of a breach of s 176.[41] That position is not likely to arise so often with sales by receivers because inthe general run of cases, receivers, acting only as agents of the company, sell assetsindependently of the security-holders. But where the secured creditor has becomeinvolved in the sales process to such an extent as to become liable for breach, it shouldalso be liable with the receiver for breach of duty under s 19. There seems to be noreason why a surety should not be able to raise the breach of duty in a claim by thesecurity-holder as an affirmative defence of abatement.Judgment for a reduced sum?[42] Crown Finance Ltd says that even if the properties had sold for $1.16m each,as Mr Cronin asserts, there is still a shortfall which it is entitled to recover from him.It calculates the shortfall at $342,546.97 and says that there cannot be any dispute asto that amount. I do not agree with its calculations. Without going through them indetail I set out an alternative approach.[43] The debt at 18 November 2016 was $1,369,847.71. Crown is entitled tointerest on that sum at the default rate of 20 per cent per annum. On settlement of thesales on 26 September 2017 the interest came to $234,187.66, giving a total of$1,604,035.37. Crown will not accept the interest calculation, because under the termloan interest is capitalised monthly, but for the present I want to keep matters simple.[44] Crown has charged interest for the advances made to the receiver at the defaultrate. It is arguable for Mr Cronin that those advances were not made under the loanagreement of 10 September 2015. The loan had reached its expiry date. Crown hadcalled up all monies payable under that loan. The loan agreement makes no provisionfor the lender to make further advances after the loan has matured and has becomerepayable in full. Accordingly any advances by Crown Finance Ltd during thereceivership were made under a separate agreement. The evidence is not clear whetherthe advances were to the company or to Mr Tietjens personally. Crown Finance Ltdhas not put in evidence any documents evidencing the advances. As Mr Tietjenswould be personally liable to repay the advances under s 32(1)(a) of the ReceivershipsAct and as Crown made the advances to help him in the receivership, it would not besurprising for Mr Tietjens to borrow the money interest free. There is no suggestionof default by Mr Tietjens or the company in repaying the advances. If Mr Tietjens andthe company in receivership are not liable to pay interest on the advances, Mr Cronin'sliability as guarantor of the company's indebtedness cannot be more extensive.[45] I take the prices of notional sales of the townhouses as $940,000 each. It isnot realistic for Mr Cronin to contend for sales at prices higher than the top bid in thetender. The valuer recognised that there should be a discount from assessed currentmarket value for a forced sale. The caveat, absence of code compliance certificate andlimited warranties make it improbable to take the assessed market value as achievable.[46] I take $559,115.35 as the total of Crown's advances during the receivershipfrom Crown's record of advances in that time. I have used Crown's records ofwithdrawals during the receivership.[47] I take the costs of the receivership as $626,853.52. That comes from the costsshown in the receiver's third report but deducting GST and adding $50,000 for realestate commission on the sale. I assess the GST on the receivership at $271,839.27 as15% of the difference between price and costs.[48] That gives this calculation:Loan at 18 November 2016 1,369,847.71Interest 234,187.66Loan at 26 September 2017 $1,604,035.37ReceiptsSales $1,880,000.00Advances $559,115.35 $2,439,115.35PaymentsCosts of receivership $626,853.52GST $271,839.27Balance available for Crown $1,540,422.56Shortfall at 26 September 2017 $63,612.81[49] Interest runs on the shortfall figure at 20% per annum. The calculation isintended to set a minimum figure for Mr Cronin's liability which can be establishedin this summary judgment. A later hearing may establish a higher figure but I cannotsay now what it should be.Costs[50] Under cl 10.1 of the guarantee Crown is entitled to recover all costs andexpenses on a full indemnity basis for enforcement and attempted enforcement of itsrights under the guarantee. It says that it cannot claim a GST input credit for its legalfees in this proceeding. It has incurred legal fees of $44,761,33. Mr Cronin does notdispute any of the legal invoices in evidence. Instead he proposes that Crown's partialsuccess should be reflected by the court awarding only half the costs now. I do notaccept that suggestion. Crown is entitled to its costs under cl 10.1 regardless of theextent of success and to have judgment for them now.Outcome[51] Mr Cronin has an arguable defence to the claim under the guarantee that thereceiver did not comply with his duty under s 19 of the Receiverships Act 1993 toobtain the best price reasonably obtainable at the time of sale and that Crown isarguably also liable for that breach. It is not a complete defence because even if hesucceeds on it, there is a balance for which he is liable. As Crown Finance Ltd hassucceeded only in part, further case management directions are required.[52] I make these orders:[a] I grant the summary judgment application in part. Crown Finance Ltdhas judgment against Mr Cronin for $63,612.81 plus interest at thedefault rate from 26 September 2017 to the date of judgment;[b] Mr Cronin shall pay costs of $44,761,33 to Crown Finance Ltd;[c] Mr Cronin is to file and serve a statement of defence by 25 June 2018;[d] Crown Finance Ltd is to file and serve any reply by 9 July 2018;[e] By 23 July 2018 the parties are to file and serve affidavits ofdocuments, making standard discovery and complying with theprotocol under Part 2 of Schedule Nine of the High Court Rules 2016;[f] The Registrar is to allocate a case management conference after 1August 2018 to give further directions, including setting a close ofpleadings date and timetabling for hearing;[g] The case has a fixture for three days beginning 4 February 2019 (thatis, 4, 5 and 7 February 2019);[h] Leave is reserved to apply for further directions..Associate Judge R M Bell