CROWN MONEY CORPORATION LTD V A P PINK-MARTIN AND ANOR HC AK CIV 2008-404-000297

CROWN MONEY CORPORATION LTD V A P PINK-MARTIN AND ANOR HC AK CIV 2008-404-000297 18 December 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-000297BETWEEN CROWN MONEY CORPORATION LTD Plaintiff AND ADAM PETER PINK-MARTIN First Defendant AND GERRARD HESTON MARTIN Second Defendant Hearing: 18 December 2008 Appearances: AIC Denton and N C Dabb for Plaintiffs A P Pink-Martin, First Defendant in person Judgment: 18 December 2008ORAL JUDGMENT OF JOHN HANSEN JSolicitors: Wilson Harle, PO Box 4539, Shortland Street, Auckland Copy to: A P Pink-Martin, 395 Lake Road, Takapuna, Auckland[1] There are two applications before the Court. The first is an application for enlargement of time. The second is an application pursuant to rule 61C to review the decision of Faire AJ dated 5 September 2008. The Judge then was dealing with an application to set aside a regularly obtained summary judgment and an application for a stay of execution. [2] The application was brought by the first-named defendant who was then represented by Corban Revell. His counsel withdrew this morning. The matter was adjourned this afternoon and Mr Pink-Martin has represented himself with some verve. [3] The background to the matter is that a summary judgment was entered on 2 May 2008 against the defendants in a sum just in excess of $800,000. The background to that summary judgment application, which was filed on 23 June 2008, arose from a development property acquired by a company known as Beta Properties Limited. That company was corporate trustees of the Beta Property Trust. They acquired property in Birkenhead for development. To further that development they entered into borrowings from Guardian Trust as first mortgagees and the plaintiff as second mortgagees. [4] The factual background to these matters is set out in considerable detail in Faire AJ's judgment of 5 September 2008. It is unnecessary to set it out in such detail in this application. I should first explain that the application for leave occurs because initially, and mistakenly, Faire AJ's judgment was appealed when in fact the proper course was to issue review proceedings. [5] The property was, I think, first acquired in 2004. The loan to the plaintiff fell due for repayment in June of 2007. Beta Properties Limited defaulted. Some payments had been made in August and September but the principal debt remains and up until the mortgagee sale, which I will come to, continued to acquire default interest at the rate of 24% per annum. Opportunities were given to the owners to refinance and to sell. These were unsuccessful but it will be necessary to turn to the opportunities to sell in a moment.[6] The company was placed in liquidation on 31 October 2007. The defendants were pursued as guarantors. Ultimately the plaintiff purchased the first mortgage from New Zealand Guardian Trust Limited at a price calculated ignoring the default interest rate. On 28 March 2008 the properties were sold by the plaintiff by private treaty for $2,250,000 and the sale was settled on that day. The net sale proceeds were $1,970,495.69. After this had been applied to the first and second mortgagees, the balance was sought and judgment entered against the guarantor. [7] A large number of matters were raised before Faire AJ. It seems to me, with respect, many of those were somewhat off the point. The central thrust was, however, that there was a breach by the plaintiff of its obligations under s 176 of the Property Law Act 2007. That section imposes a duty on a mortgagee who exercises a power of sale to obtain the best price reasonably obtainable at the time of sale. That duty is owed to any current or former mortgagors; any mortgagee under a subsequent mortgage; any holder of any other subsequent encumbrance and, importantly for present purposes, any covenantor. It is clear, therefore, that the duty to obtain the best price reasonably obtainable is owed to the defendants. [8] Section 176 effectively repeated the codified duties set out in its predecessor, s 103A. The common law duty and the duty under s 103A are discussed fully in the Privy Council decision of Applefields v Damesh Holdings Ltd [2004] 1 NZLR 721. What that decision makes clear is that there is no absolute prohibition on selling to the mortgagee or to a related party. What importantly it also makes clear is that there must be proof of damage. That is, that the property was sold at an under-value. That requires a consideration in this case of whether or not it has been demonstrated that the property was sold at an under-value. Given that Mr Pink-Martin was seeking to set aside an irregularly obtained summary judgment, the onus on the civil standard of proof of the balance of probabilities was on him to establish that. Somewhat surprisingly in the extensive evidence he filed, there was no valuation report. However, both today and in front of Faire AJ when he was represented by counsel, efforts had been made to demonstrate from the plaintiff's own documentation that the sale has been at an under-value.[9] It is necessary then to consider the background. In December 2007 a contract was entered into to sell a house on property associated to the overall development. The purchase price was $425,000, including GST, later increased to $430,000. The purchases were interest associated with a Mr Lochore who is the managing director of the real estate agency company the first defendant had asked to assist in the sale of the property. Mr Lochore had been engaged in property marketing for 45 years and was apparently owed money by the defendant and Beta at the time of sale and purchase agreement. At the same time, another contract was entered into for the balance of the land in the sum of $3.5 million, plus GST, with a proposed settlement date of May 2009, later amended, I think, to November 2009. Neither the first mortgagee nor the plaintiff was prepared to accept a contract with such a delayed settlement date. That is not surprising given that by the time this occurred, the existing loans were in default and there was a deteriorating market for development property. The first mortgagee made it clear that it would only entertain a delayed settlement if the plaintiff as second mortgagee would meet the arrears of interest. It is not surprising that that proposition was rejected by the plaintiff as second mortgagee. Again, not surprisingly, neither of those offers was found acceptable to the first mortgagee or to the plaintiff. I may add in relation to the offer for the house, it involved all the money going to the first mortgagee and the plaintiff's receiving nothing. [10] The defendant relies on a valuation report from C B Richard Ellis to show that this property was sold at an under-valuation. It is a property report that is of some antiquity, even allowing for the updating letters. The last update gave a value in April of 2007. It gave a value of $4 million. The first mortgagee then obtained a valuation from Sheldons on 23 January 2008. That was supplied to the plaintiff in an open market situation with adequate time for marketing. It gave a value of $3 to $3,500,000 but recommended for a forced sale accepting a price of $2,500,000. There is some suggestion that there should have been an obligation on the plaintiff to obtain its own independent valuation and it should not have relied on the one obtained by the first mortgagee. I imagine if they obtained a separate valuation there would now be a complaint that it was unnecessary double-up on the expenses of sale.[11] Having received that, the first mortgagee, who was effectively the marketing arm for both mortgagees under the Property Law Act notices, took advice, placed the property with two real estate firms, Mr Lochore's firm and Barfoot & Thompson. A decision was made that the property should be marketed by way of tender; advertisements were placed in the NZ Herald, the North Shore Times and the internet. A database of at least 50 developers were made aware the property was for sale. Information packs were provided to parties who expressed an interest in the property. It was not advertised as a mortgagee or forced sale following advice from Mr Lochore, but equally it is apparent that those who received the information pack would have been well aware it was a mortgagee sale. The truth is that that could not be hidden ultimately from potential purchasers. [12] The tender process did not lead to any tenders being received at all, but following that process an offer was received from a company known as Brighouse Limited. It was conditional on due diligence and no deposit accompanied the offer. A request was made through Mr Lochore seeking a higher price and asking that in the interim Brighouse undertake due diligence. This was relayed to Brighouse. The purchase price in that offer was $2,475,000 inclusive of GST, or $2,200,000 plus GST. For whatever reason, that sale did not proceed and the proposed purchaser did not follow up on due diligence. [13] Following this the property was ultimately purchased by a trust associated with Mr Copson. He is a director of the plaintiff. But the reality is he is not a related party; it was a separate party. But more fundamentally is that, despite Mr Pink- Martin's efforts, I have not been satisfied that it has been shown on any basis that the sale was at an under-value. The truth is the market sets value even better than the valuers. It has somehow been suggested that if the CBRE valuations that were ancient, or the more recent valuation had been included in the information pack, higher prices would have been obtained. As a matter of logic and common-sense that strikes me as a somewhat illogical submission given no interest was shown at the price of $2,500,000. [14] There is also an issue around a moratorium imposed by the North Shore City Council, it being suggested that no building consents for this development could beor would have been issued until 2010. Mr Pink-Martin had referred me to e-mails to suggest that his engineers were in contact with North Shore City and they would not be subject to the moratorium. They are dated from April 2007 and, while they show that there were discussions taking place, no where have I been pointed to evidence that shows the moratorium would not apply to this particular development. [15] A criticism was also made of the valuer that was used by the first mortgagee. I have been handed documents suggesting that other valuers would be better placed and more experienced in valuing properties of this sort. Those documents, of course, do not constitute evidence but the point remains that, despite the marketing campaign and despite the approach to 50 developers on a database, no tender was forthcoming. [16] It seems to me in the circumstances such as this it is incumbent upon a party maintaining a property has been sold at under-valuation, particularly against a background of the owner's and guarantor's own attempts to sell the property, against the background of the tender process, and the background of the failed Brighouse offer, to supply the Court with valuation evidence that establishes the sale was at less than a fair obtainable figure. There has been a suggestion, for example, from Mr Pink-Martin that he has spoken to Mr Lochore and said the period when the marketing took place was not the best period for selling development land. Yet equally I think he would accept that the market for development land has inexorably declined over the period we are talking about. It seems to me the reality is that any further delay in selling would have led to a greater shortfall and a higher judgment against him. [17] I am conscious that a great number of other issues were addressed by Faire AJ, but in my view this is the critical and central issue. In terms of Applefields v Damesh Holdings it is incumbent to provide evidence of a sale of under-value. There is, in my view, no such evidence before the Court. The Associate Judge's analysis of the way in which the valuations were obtained, the effect of the earlier valuations and the sale process demonstrate that the price obtained was the best obtainable price within the market.[18] Accordingly it follows that this application for review is bound to fail. I would grant leave to bring it out of time but would dismiss the application for review. [19] In accordance with the terms of the guarantee there will be costs to Crown Money Corporation Limited on a solicitor/client basis, together with disbursements as fixed by the Registrar. If the parties are unable to agree the quantum of such costs, a further memorandum should be filed. I suggest that, seeing that I will not be sitting after tomorrow, that if such memorandum is filed it should be referred to Faire AJ who is familiar with the matter, along with any memorandum relating to costs on the hearing before Faire AJ. John Hansen J