DELMONT v BMW FINANCIAL SERVICES NEW ZEALAND LIMITED [2016] NZHC 762

DELMONT v BMW FINANCIAL SERVICES NEW ZEALAND LIMITED [2016] NZHC 762 [21 April 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-003010[2016] NZHC 762BETWEEN MICHAEL ANDREW DELMONTAppellantAND BMW FINANCIAL SERVICES NEWZEALAND LIMITEDRespondentHearing: 21 April 2016Appearances: G P Denholm for the AppellantD Nilsson and S Ma Ching for the RespondentJudgment: 21 April 2016JUDGMENT OF WOOLFORD JSolicitors: Foy & Halse, Auckland, for AppellantLee Salmon Long, Auckland, for RespondentCounsel: G P Denholm for AppellantIntroduction[1] On 8 January 2008, the appellant, Michael Andrew Delmont, borrowed money from BMW Financial Services New Zealand Limited (BMW Finance) to purchase a 2003/4 BMW 320i IE46 race car in Singapore and import it into New Zealand. BMW Finance took security over the car.[2] Mr Delmont was unable to repay the loan when it was due and BMW Finance agreed to refinance it. On 27 January 2009, Mr Delmont entered into a replacement agreement whereby BMW Finance lent the sum of $152,722.31 to Mr Delmont. It was due for repayment on 28 July 2009.[3] Mr Delmont defaulted on the loan. On 29 September 2009, Mr Delmont returned the car to BMW Finance for the purposes of sale. Mr Delmont made efforts to sell the car himself. He was unsuccessful. BMW Finance then sold the car through Turners Auctions Limited (Turners) on 26 April 2010 for $56,000. After the proceeds of sale, less Turners commission, were applied to Mr Delmont's debt, atotal of $125,244.14 (which included interest) remained outstanding. BMW Finance sought to recover this sum from Mr Delmont through legal proceedings.[4] BMW Finance's claim came before Judge Harrison in the Auckland DistrictCourt on 16 and 17 September 2014. The sole issue was whether BMW Finance sold the car at an under value in breach of its duty to use all reasonable efforts to obtain the best price.[5] In a reserved decision dated 30 September 2014, Judge Harrison held that the sale process was commercially reasonable and gave judgment in favour of BMW Finance in the sum of $125,244.14 plus costs.[6] Mr Delmont now appeals against Judge Harrison's decision. Again, the soleissue is whether BMW Finance sold the car at an under value in breach of its duty to use all reasonable efforts to obtain the best price.11 Credit (Repossession) Act 1997, s 26.Discussion[7] Although there is a single issue in this case there are a number of aspects to it which require separate consideration.Failure to recognise value to collector[8] Counsel for Mr Delmont submits that Mr Delmont did not intend racing the car in New Zealand. He submits that the race car was valuable to a collector and/or an investor, which was the reason why it was not raced. Furthermore, counsel submits that Judge Harrison failed to appreciate the true value of the car as acollector's item, not as a race car because of its racing history, pedigree and componentry.[9] The difficulty for Mr Delmont is that in his affidavit sworn on 14 May 2014,he does not say that he imported the car as a collector's item, nor does he or anyother person who gave evidence on his behalf, ascribe a value to the car as acollector's item. In his affidavit, Mr Delmont says:7. I consider myself to one of the foremost specialists of BMWs and have vast knowledge and experience of many types of BMW racing saloons and have raced them for many years with great success. I have imported several very specialised racing BMW saloons into New Zealand all with impeccable credentials and racing history.8. The BMW Works Factory Motorsport E46 WTCC car, the subject of these proceedings, was bought overseas and imported into New Zealand approximately five years ago, for approximately $150,000 NZD including all associated costs.9. I confirm another BMW Works Factory Motorsport E46 WTCC was bought overseas and imported for Warren Good at the same time. Warren Good paid the same amount of approximately $150,000 NZD including all associated costs.11. I raced the BMW Works Factory Motorsport E46 WTCC 2 litre race car at the Taupo Motorsport Park race track. That despite being severly handicapped at the very back of the grid by many seconds I drove the car to outright victory in six laps overtaking some thirty plus cars in the processincluding much more powerful BMWs with much larger engines12. I certify prior to importing these BMW Works Factory Motorsport E46 WTCC race cars into New Zealand approximately five years ago, therewere no others in New Zealand. Since that time until the present, there have been no other BMW Works Factory Motorsport E46 WTCC race cars imported into New Zealand.13. I consider I am the expert with an intimate knowledge of these cars, their very special specifications, their racing pedigree, their history and their true value.[10] Without any statement of intent by Mr Delmont as to his purpose in importing the car to New Zealand and in the absence of any evidence as to its valueas a collector's item, Judge Harrison was entitled to view the car as a race car.Failure to obtain proper valuation[11] Counsel for Mr Delmont also submits that BMW Finance failed to obtain a valuation from a person of sufficient expertise who could highlight the specialist nature of the car and its racing history. BMW Finance had obtained a valuation from a company director, John MacKinlay. Mr MacKinlay had been in the car sales business for 42 years, including 14 years as head of the sales team at Jerry Clayton BMW in Takapuna. He had significant experience in selling BMW cars, starting at Blackwell BMW in 1991.[12] Mr MacKinlay was also very active in the New Zealand motor racing community in which he had been involved for some 25 years. In that time he had owned and raced eight race cars and handled the sale of more than 20 specialist race cars. He still owned a Formula 5000 race car, in which he competed internationally, including the support class at the Melbourne Grand Prix. He was also a director of Taupo Motorsport Park and had one of his residences at the Hampton Downs Raceway.[13] Mr MacKinlay inspected the car and had extensive discussions with a number of other experienced BMW racers, fabricators, assessors and salespersons, at least two of whom had also personally inspected the car. His evidence was that the car should be valued as a total package in the New Zealand market and not as the sum of its component parts. He also considered that if it were to be raced competitively it would need to do so in an open class and would require the engine to be repowered.As a result of his investigations he believed the car was unlikely to achieve a sale price of more than $60,000.[14] Counsel for Mr Delmont submits that during cross-examination it was apparent Mr MacKinlay had failed to properly inspect the vehicle and mistakenly provided a valuation of the vehicle as a package. Counsel also criticises Mr MacKinlay's opinion that the car needed to be repowered to make it competitive for racing in New Zealand as this completely failed to relate to the true value of the car, its racing history and pedigree, which made it valuable to a collector and/or investor.[15] I am however not persuaded that Mr MacKinlay's approach to valuing the carwas wrong. It seems to me that the history of the car would not have had a significant bearing in the market as it was when the car was sold, which was in the middle of the global financial crisis.[16] In his affidavit sworn on 14 May 2014, Mr Delmont suggests that the value of the car was $152,722.31, because that was the amount of the loan from BMW Finance which was secured over the car. Mr Delmont did not, however, provide any expert evidence as to the value of the car although he did file three affidavits from Anthony Rutherford, Aaron Black and Harry Dodson, which contained some references to the value of the car.[17] Mr Rutherford said that in his opinion he very much doubted whether you could buy the gear box of the car or the differential assembly for $56,000, let alone the P54B20 engine. He said personally, he considered the price obtained for the car was not reflective of its true value, which would have been obtained if the car had been priced on the open world market with a time constraint to ensure it was marketed properly. He said it should have been advertised with all its options and specialised equipment. This needed to be explained and exposed to show its pedigree and its racing history should have been available. He considers the car to be worth at least three times the price that was realised.[18] Mr Black gave no indication as to the market value of the vehicle. His evidence was limited to assertions that his failure to inspect the vehicle prior to auction affected his personal willingness to bid above an unspecified sum.[19] Mr Dodson's primary evidence was that the vehicle would have obtained a much higher selling price, if properly marketed.[20] In cross-examination, Mr Rutherford acknowledged that he had never sold a BMW race car, had no firsthand knowledge of the sale at all, in as much as he had never seen the actual car which was sold nor had he inspected it prior to purchase and, furthermore, he did not conduct any relevant market research at the time of sale.[21] Likewise, Mr Dodson had never seen the car, had conducted no market research at the time of sale and conceded that his assertion that the car would have obtained a much higher selling price if properly marketed was a guess.[22] When the car was formally repossessed by BMW Finance, a Post Possession Notice was sent to Mr Delmont on 2 March 2010, almost two months prior to the sale of the car at auction. It stated that BMW Finance's estimate of the value of the car repossessed was $40,000. The Post Possession Notice clearly advised Mr Delmont that he was entitled at any time after BMW Finance had taken possession of the car to obtain a valuation of the car at his expense. The Notice also advised Mr Delmont that BMW Finance would give him or his valuer access to the car to enable the valuation to be completed. Although Mr Delmont complained to BMW Finance about the estimate, he did not make any attempt to obtain a formal valuation for himself.[23] On the other hand, Mr MacKinlay's valuation was supported by a corporateaccounts manager at Turners, Mohammed Hussain. Before the car was auctioned, Mr Hussain provided BMW Finance with an indication of the likely sale price at auction. Mr Hussain set this at between $40,000 and $60,000. Turners did not have any historic sales data on comparable cars to use as a guide so Mr Hussain browsed a number of New Zealand and international websites to see what similar cars sold for in New Zealand and overseas. He also spoke to a number of dealers to ascertaintheir views of a reasonable sale price. When drawing together this information, Mr Hussain took into consideration the fact that the New Zealand market for non- street legal race cars was quite limited.[24] In the absence of definitive evidence to the contrary, I am of the view that Judge Harrison was entitled to accept the evidence of Mr MacKinlay and Mr Hussain as to the value of the car on a forced sale following repossession.Failure to properly advertise car[25] Counsel for Mr Delmont also submits that BMW Finance failed to utilise materials provided by Mr Delmont to promote and advertise the car and its special features. In particular, counsel submits that Mr Delmont told BMW Finance that the car should be advertised on foreign websites such as "racecarsdirect.com", but BMW Finance did not do so.[26] BMW Finance, however, engaged the largest auction company in New Zealand to sell the car in an auction reserved for high-end and specialist vehicles. Mr Hussain's evidence was that the Turners website was frequently visited by overseas purchasers who regularly participated in auctions remotely.[27] Furthermore, prior to offering the car for sale by auction through Turners, BMW Finance allowed Mr Delmont the opportunity to find a purchaser himself. Mr Delmont acknowledges that he undertook a three-pronged approach commencing in late August or early September 2009. First, he attempted to sell the car using his own connections in the New Zealand BMW racing community. Secondly, he said he would create a specific website dedicated to the sale of the car directed both at New Zealand and overseas markets. Finally, he also advertised the car on relevant international websites.[28] BMW Finance kept a record of all dealings with the car in a transaction history. The following transactions record some aspects of Mr Delmont's attempts tosell the car:1/09/2009 Client was to bring back vehicle today but has a potential buyer on the vehicle. Agreed that we would wait until theend of the week to see how the potential sale is going. Mike has quoted $65000 euro, 130k NZD.8/09/2009 Client had a deal on the go with an overseas crowd, but they only offered 50k euros. Offer not taken by client. Mike has another deal on the go with a guy from Taupo who is looking at the car today or tomorrow. Mike has quoted $165k. Mike to advise in a couple of days with the outcome. If nothing then Mike understands the vehicle is brought back here on Monday next week and a consent to sell form signed.29/09/2009 Client came in and saw Carl and I. He has taken away consent to sell. Client to supply us via email the history of the vehicle and make this available for potential buyers and will also make himself available for buyers to ring him. Says he has m/v on a website in Japan and is also looking to set this up in China in the near future.21/10/2009 Spoke to John Mackinlay who said he may have a couple of people interested in car but nowhere near where we think it is, said they would be in vicinity of around $60k. Said I would keep him in the loop.6/11/2009 Call from Mike Delmont, says he has spoken to Chris Nicholls, who at this stage is offering $70k. Mike is still under the impression that it is worth $150k. Advised Mike that at the end of the day it is only worth what someone is prepared to pay for it. Think Mike is still very attached to the m/v and not being realistic at this stage.2/02/2010 Call from client, says he has a guy in the USA who is showing some interest. Advised client that we now have Turners looking at the m/v.12/02/2010 Call from client, says he has a person from Switzerland showing interest in m/v.4/03/2010 Call from client, very very angry about valuation of m/v and will come in tomorrow to see me. Still cannot produce his own valuation and still will not acknowledge that we have not had any offers on the vehicle. Says he is in discussion with an overseas buyer, but conversation is always the same since the vehicle was brought into us.5/03/2010 Client came in with copies from websiteswww.closeratio.com and www.smotors.ch of similar m/v'sfor sale and quite different values from Turners valuation. Client refuses to accept that as his m/v is in NZ that this is affecting the value.10/03/2010 Spoke to Warren Good who would take the car off our hands for $50,000, told him that unfortunately we had to put it through auction to see what it is worth. If we do not achieve the reserve we can talk to Mr Good contact number Said he understood car had previously been in accident.[29] These entries in the transaction history show that Mr Delmont had more than six months to sell the car himself. He himself had listed the car for sale on overseas websites. There was apparently interest generated from potential New Zealand buyers and potential overseas buyers in USA and Switzerland, but nothing eventuated.[30] I am of the view that Judge Harrison was entitled to take into account the fact that BMW Finance had allowed Mr Delmont approximately six months to sell the car through his three-pronged approach in determining whether the process followed was commercially reasonable. Judge Harrison referred to Mr Delmont listing the car for sale on local and international websites and was able to infer that Mr Delmont would have included all information in such listings that he thought had any bearing on what he considered the true value of the car to be.Failure to provide relevant materials to Turners[31] Counsel for Mr Delmont also submits that BMW Finance failed to provide Turners with all the information provided to it by him.[32] On 9 October 2009, Mr Delmont emailed the credit manager for BMW Finance as follows:Good morning ZellaSorry for delay in sending this info, but have not been too well off and on since ingesting a lot of dirty dust while I was removing equipment.Any way the car is a BMW works Motorsport E46 WTCC. It is a 2004 spec car and was run by Roberto Ravaglias Roal raceteam. The car was raced by Antonio Garcia who drove for Roal Racing.The car has never had a major accident and was completely re-built by Franz Engstlers racing team in Germany. It has a fully reconditioned engine, gearbox and differential and has not raced since this done.The cost of this was some 50,000 Euros.The car is the same as the vehicle that Andy Prialux won the World Touring car title in 04/05.The engines are a 1997cc straight six which produces some 270/275hp and can rev to 10,000rpm.It runs a BMW Motorsport 12A ECU with the integrated 2D Big Dash Data logging system.More on 2D system on www.2d-datarecording.com.The shocks are Sachs top of the line 5 way adjustable.It is has a carbon fibre Recaro seat and on-board automatic fire control system.There are many other details about these amazing racecars, but perhaps this is enough at present Zella.Obviously there are international logbooks etc for the vehicle and I think anyone interested already knows a fair amount about these famous cars.Just let me know what other details you or a prospective buyer might want and I can sort for you.Please let me know if this is enough detail to date.Have a nice weekend.[33] The credit manager for BMW Finance gave evidence and said that she would have provided the information disclosed in the email of 9 October 2009 to Turners as that was her invariable practice. Mr Hussain, on the other hand, could not recall receiving the email, but that may well be understandable given the number of cars sold through Turners and the amount of time which had elapsed since the sale of the car. However, it is common ground that Mr Delmont never provided the complete log book for the car to BMW Finance during the sale process.[34] On 12 March 2010, BMW Finance advised a prospective purchaser as follows:We do not have a computer data package or log books for the vehicle. We have asked Mr Delmont for all relevant information and documents but he is reluctant to part with these or supply copies, but advises he is willing to show them to buyers under his supervision.[35] It does seem, however, that when he first bought the car in January 2008, Mr Delmont supplied BMW Finance with a photocopy of one page of the log book for the car, which merely showed the vehicle type, manufacturer, chassis number, homologation number, city of assembly, the year it was built, the person who built the car and the stamp of the manufacturer. That one page (which is in German) did not provide information as to the relevant specifications of the car at the time it was delivered to BMW Finance, its racing history or other pedigree. I accept that the racing history for the car is however disclosed in other pages in the log book.[36] Counsel for Mr Delmont is critical of the advertisement by Turners, which stated:This BMW 320E 48 race car is coming up for auction this month at our classic and collectables auction on the 24th of April. It's a bit of a mysterybut appears to have been imported and also looks to be a professionally builtcircuit race car. Officially that's all we know. However, it does look verysimilar to this one (pictured) which is an ex-WTCC race car which would make it very desirable indeed. With a price guide $35,000-$55,000 it would be a bargain too.[37] In commenting on the advertisement, Mr Hussain from Turners said that while Turners will consider all information provided to it in respect of an individual car, care must be taken in advertising cars for sale. Turners is conscious of its potential liability under the Fair Trading Act in respect of incorrect statements made in advertisements. As a result, Turners will not include information it has not been able to independently verify. In this particular case, Turners had no record of being provided with a copy of the relevant log book or other official documentation regarding the car.[38] Mr Hussain confirmed that all cars are available for viewing in the auction hall on the day of the auction from 8:00am until 11:45am with auctions commencing at 12 noon. During this time, registered bidders are also able to test drive vehicles and arrange for a pre-purchase inspection. In certain circumstances Turners will also arrange viewings ahead of the auction date for people who are considering participating in auctions remotely. Turners had no record of any person requesting further information about the car prior to auction. However, as noted by Mr Delmont in his email to BMW Finance on 9 October 2009, anyone interested would already know a fair amount about the car as the market was specialised and quite limited.[39] After referring to criticism of the Turners advertisement, Judge Harrison noted that Mr Good, also a BMW race car driver, offered to purchase the car from BMW Finance for $50,000 prior to the auction, which could not be accepted until the outcome of the auction was known. Mr Good had previously owned and raced a very similar car.[40] Judge Harrison was entitled to take all the circumstances into account, in particular, that the only firm offer to purchase the car supported the valuation of Mr MacKinlay and Mr Hussain's assessment. Mr Good's offer confirmed that the purchase price at auction of $56,000 was a reasonable one, notwithstanding the lack of detail in the Turners advertisement.Measure of any loss[41] The final difficulty for Mr Delmont is that, even if BMW Finance breached its duty to ensure that every aspect of the sale, including the manner, time, place and terms were commercially reasonable, Mr Delmont has provided no cogent evidence as to the reasonably achievable market value at the time of the sale. As notedpreviously, Mr Delmont says that the car's value recorded on the loan agreement wasan indication of BMW Finance's belief in the value of the car. However, BMWFinance did not value the car at the time of the original or subsequent agreement. BMW Finance based its decision to lend the money to Mr Delmont on the strength of its previous loan history with him. Mr Delmont had borrowed money from BMW Finance on 16 previous occasions.[42] In particular, there is no evidence that the car had some more value than as a race car. There is therefore no measure of loss available, even if BMW Finance breached its duty to Mr Delmont.Conclusion[43] Having carefully considered all the evidence, I am of the view that JudgeHarrison's decision was correct. The car was not grossly undervalued at the sale price of $56,000, based on the valuation of Mr MacKinlay and the supplementary assessment by Mr Hussain. Although BMW Finance may not have listed the car for sale on international websites with all relevant information, Mr Delmont did so. As a result, some overseas interest was engendered, but no firm bids were received.[44] Although the Turners advertisement did not list all the features of the car, thesale was widely advertised through the Turners' website, including to overseasbuyers. The market for a six year old specialised race car is necessarily limited. It was not lawful to drive it on public roads in New Zealand.[45] In my view, the major factor in determining whether or not BMW Finance had acted in a commercially reasonable manner was the fact that they gave Mr Delmont six months to sell the car using methods which Mr Delmont thought would produce the best result within a reasonable timeframe. It seems from thetransaction history that Mr Delmont refused offers of 50,000 euros and $70,000, both of which were somewhat higher than the sale achieved at auction.[46] The appeal is accordingly dismissed. BMW Finance is also entitled to indemnity costs in terms of the loan agreement with Mr Delmont, dated 27 January 2009..Woolford J